SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 1996
Commission File No. 1-4978
SOLITRON DEVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-1684144
(State or other jurisdiction (IRS Employer Identification Number)
of organization)
3301 Electronics Way, West Palm Beach, Florida 33407
(Address of principal executive offices)
Registrant's telephone number: (407) 848-4311
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, $0.01 par value Electronic Bulletin Board/Over the Counter
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
Documents incorporated by reference: None.
The aggregate market value of the registrant's common stock, par value $.01 per
share, held by non-affiliates of the registrant, based upon the closing market
price as of February 29, 1996, was approximately $587,500.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 29, 1996: 1,880,011 shares of common stock, par
value $.01 per share. Note: Additional shares are issuable by the Company
without further consideration pursuant to the Company's Plan of Reorganization.
Note: Reflects the 1-for-10 reverse stock split effected October 12, 1993.
94,788 additional shares were issued as of April 24, 1996 to unsecured creditors
in accordance with the Plan of Reorganization.
State issuer's revenues for its most recent fiscal year; $6,731,000.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Solitron Devices, Inc., a Delaware corporation (the "Company" or "Solitron"),
designs, develops, manufactures and markets solid-state semiconductor components
and related devices primarily for the military and aerospace markets. The
Company manufactures a large variety of bipolar and metal oxide semiconductor
("MOS") power transistors, power and control hybrids, junction and MOS field
effect transistors, thin film resistors and other related products. Most of the
Company's products are custom made pursuant to contracts with customers whose
end products are sold to the United States Government. Other products, such as
Joint Army Navy ("JAN") transistors, are sold as standard or catalog items.
The Company was incorporated under the laws of the State of New York in 1959,
and reincorporated under the laws of the State of Delaware in August, 1987.
PRODUCTS
Prior to the consummation of the Vector Purchase Agreement, the Company was
organized into two operating divisions: the Semiconductor Division and the
Microwave Division. The Semiconductor Division continues to design, manufacture
and assemble bipolar and MOS power transistors, power and control hybrids,
junction and MOS field effect transistors, thin film resistors and other related
products. Pursuant to the terms of the Vector Purchase Agreement, substantially
all of the assets (other than real estate) comprising the Microwave Division and
certain related liabilities were transferred to Vector which now operates the
Microwave Division as a privately-owned company, under the name of
Solitron/Vector Microwave Products, Inc.
Set forth below by principal product type are the percentage (i) contributions
to the Company's total sales of each of the Company's principal product lines
for the fiscal year ended February 29, 1996 and for the fiscal year ended
February 28, 1995 and (ii) contributions to the Company's total order backlog at
February 29, 1996.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Backlog Backlog
Ended Ended at at
February February February February
Product 29, 1996 28, 1995 29, 1996 28, 1995
- ------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Power Transistor 28% 26% 22% 25%
Hybrids 33% 34% 43% 39%
Field Effect Transistors 22% 24% 13% 16%
Power MOSFETS 17% 16% 22% 20%
--- --- --- ---
100% 100% 100% 100%
</TABLE>
The Company's backlog at February 29, 1996 and shipments for the year ended
February 29, 1996 reflect demand for the Company's products as at such date and
for such period. For more information see discussion on backlog. The variation
in the proportionate share of each product line reflects current demand and
changes emanating from the Congressional appropriations process and timing
associated with awards of defense contracts, as well as shifts in technology and
consolidation of defense prime contractors.
The Company's semiconductor products can be classified into selected active and
passive electronic components. Active components are those which control and
direct the flow of electrical current by means of a control signal such as a
voltage or current. Passive components, on the other hand, include devices which
store or dissipate energy and are generally incapable of power gain (for
example, resistors, capacitors and inductors). The Company's active components
include bipolar transistors, integrated circuits and MOS transistors and the
Company's passive components consist of resistors.
<PAGE>
It is customary to subdivide active components into those of a discrete nature
and those which are non-discrete. Discrete devices contain one single
semiconductor element, as opposed to integrated circuits or hybrid circuits
which contain two or more elements, either active or passive, interconnected to
make up a selected complete electrical circuit. In the case of an integrated
circuit, a number of active and passive elements are incorporated onto a single
silicon chip. Hybrid circuit, on the other hand, is made up of a number of
individual components which are mounted onto a suitable surface material,
interconnected by various means and suitably encapsulated. Hybrid and integrated
circuits can either be analog or digital; presently, the Company manufactures
only analog components. The industry trend appears to be developing from analog
to digital circuitry in certain applications. Although no assurances may be
made, the Company believes that such industry trend will have only a limited
effect on the demand for the Company's custom power hybrids. The Company's
products can be either standard devices such as catalog type items (e.g.,
transistors and voltage regulators) or application-specific devices, also
referred to as custom or semi-custom products. The latter are designed and
manufactured to meet a customer's particular requirements.
Approximately 80% of the semiconductor components produced by the Company are
manufactured pursuant to approved Source Control Drawings from the United States
Government's prime contractors; the remainder are primarily JAN qualified
products. The Company's semiconductor products are used as components of
military, commercial and aerospace electronic equipment, such as ground and
airborne radar systems, power distribution, missiles, missile control systems
and spacecrafts. The Company's products have been used on the space shuttle and
on spacecraft sent to the moon and recently on Galileo which was sent to
Jupiter.
Approximately 80% of the Semiconductor Division's sales have historically been
attributable to contracts with customers whose products are sold to the United
States Government. The remaining 20% of sales are for non-military, scientific
and industrial applications. For the fiscal year ended February 29, 1996,
approximately 80% of the Semiconductor Division's sales have been of custom made
products, and the remaining 20% have been of standard or catalog products.
The following is a general description of the principal product lines
manufactured by the Semiconductor Division.
Power Transistors:
Power transistors are high current and/or high voltage control devices commonly
used for active gain applications in electronic circuits. The Company
manufactures a large variety of power bipolar transistors for applications
requiring currents in the range of 0.1A to 150A or voltages in the range of 30V
to 1000V. The Company employs over 60 types of silicon chips to manufacture over
500 types of power bipolar transistors and is currently expanding this line in
response to market demand due to other companies (i.e., Motorola) leaving the
military market. The Company also manufactures power N-Channel and P-Channel
power MOS transistors and is currently expanding that line. The Company is
qualified to deliver products under MIL-PRF-19500.
Hybrids:
Hybrids are compact electronic circuits that contain a selection of passive and
active components mounted on printed substrates and encapsulated in appropriate
packages. The Company manufactures thick film hybrids which generally contain
discrete semiconductor chips, integrated circuits, chip capacitors and thick
film or thin film resistors. Most of the hybrids are of the high power type, and
are custom manufactured for military and aerospace systems. Some of the
Company's hybrids include high power voltage regulators, power amplifiers, power
drivers, boosters and controllers.
Through February 29, 1996, the Company had expended approximately $1,950,000
toward a program to become certified and qualified under MIL-STD-1772, the
standards promulgated by the Defense Electronic Supply Center ("DESC"). These
standards specify the uniformity and quality of hybrid products purchased for
United States military programs. The purpose of the program is to standardize
the documentation and testing for hybrid microcircuits for use in United States
military and aerospace applications. Attainment of certification and/or
qualification to MIL-STD-1772 requirements is important since it is a
prerequisite for a manufacturer to be selected to supply hybrids for
defense-related purposes. MIL-STD-1772 establishes definite criteria for
manufacturing construction techniques and materials used for hybrid
microcircuits and assures that these types of devices will be manufactured under
conditions which have
<PAGE>
been demonstrated to be capable of continuously producing highly reliable
products. This program requires a manufacturer to demonstrate its products'
performance capabilities. Certification is a prerequisite of qualification. A
manufacturer receives certification once its Product Quality Assurance Program
Plan is reviewed and approved by DESC (Defense Electronics Supply Center). A
manufacturer receives qualification once it has demonstrated that it can build
and test a sample product in conformity with its certified Product Quality
Assurance Program Plan.
In addition, obtaining military certifications and qualifications is desirable
because it enables a manufacturer to satisfy many of the requirements for
registration under the ISO 9000 International Quality Program. The ISO 9000
Program is a series of quality Management and assurance standards developed by a
technical committee of the European Community Commission working under the
International Organization for Standardization. Several European prime
contractors have advised the Company that a prerequisite to future sales by the
Company to such contractors might be the key to the Company's obtaining ISO 9000
registration. However, to date, the Company has not encountered such a
requirement. Based on the fact that 90% of the Company's products are made to
print in accordance with customer specifications and in accordance with
MIL-PRF-19500, MIL-PRF-38534 and MIL-PRF-883, which are stricter requirements
than ISO 9000, it is Management's opinion that the possibility that such a
requirement will bar the Company from performing or competing is highly
unlikely. Additionally, domestic customers including the United States
Department of Defense and certain leading private sector firms (e.g., DuPont, 3M
and AT&T) have also adopted ISO 9000 allowing their suppliers to comply with ISO
9000 as an alternative to military qualification. The Company's plan is to
initiate the necessary Program to obtain ISO 9000 qualification within the next
two years. It is anticipated, based on industry observed experience, that the
process might take up to two years. The Company will seek such certifications as
Management believes that such certification might avail to it additional
business opportunities not currently available to it. MIL-STD-1772 (now
MIL-PRF-38534) certification was achieved by the Company in October 1990 and
renewed in June 1993 and April 1995. In 1995, the Company received written
notification that it has received MIL-STD-1772 qualification. MIL-STD-1772
qualification should continue to improve the Company's business posture by
increasing product marketability. Recently MIL-PRF-38534 replaced MIL-STD-1772.
The Company is also qualified to deliver products under MIL-PRF-19500.
Field Effect Transistors:
Field effect transistors are surface controlled devices where conduction of
electrical current is controlled by the electrical potential applied to a
capacitively coupled control element. The Company manufactures about 30
different types of junction and MOS field effect transistor chips. They are used
to produce over 350 different field effect transistor types. Most of the
Company's field effect transistors conform to standard Joint Electronic Device
Engineering Council designated transistors, commonly referred to as standard 2N
number types. The Company is currently expending its product offering. The
Company is qualified to deliver products under MIL-PRF-19500.
Thin Film Resistive Products:
Thin film resistors are made of thin layers of metallic substances deposited
over the surface of a substrate to form a device that resists the flow of
electrical current. The Company also manufactures microwave coaxial rod
resistors and thin film chip resistors. Rod resistors are made primarily for
incorporation into products sold to Solitron/Vector Microwave Products, Inc. and
other microwave products manufacturers. Chip resistors are made for internal use
and for sale to others.
MANUFACTURING
The Company's engineers design its transistors, diodes, field effect
transistors, resistors, hybrids and integrated circuits, as well as other
customized products, based upon requirements established by customers, with the
cooperation of the product and marketing personnel. The design of non-custom or
catalog products is based on specific industry standards.
<PAGE>
Each new design is first produced on a CAD/CAE computer system. The design
layout is then reduced to the desired microsize, and transferred to silicon
wafers in a series of steps which include photolithography, chemical or plasma
etching, oxidation, diffusion and metallization. The wafers then go through a
fabrication process. When the process is completed, each wafer contains a large
number of silicon chips, each chip being a single transistor device, single
diode or a single integrated circuit. The wafers are tested using a computerized
test system prior to being separated into individual chips. The chips are then
assembled in standard or custom packages, incorporated in hybrids or sold as
chips to other companies. The chips are normally mounted inside a chosen package
using an eutectic die attach technique, and then wire bonded to the package pins
using gold or aluminum wires. Many of the packages are manufactured by the
Company and, in most cases, the Company plates its packages with gold, silver,
copper, nickel or other metals utilizing outside vendors to perform the plating
operation.
In the case of hybrids, the circuit and layout designs are formulated by design
engineers. Ceramic substrates are then printed with gold conductors to form the
interconnect pattern and with thick film resistive inks to form the resistors of
the designed circuit. Semiconductor chips, resistor chips and capacitor chips
are then mounted on the substrates and sequential wire bonding is used to
interconnect the various components to the printed substrate, as well as to
connect the circuit to the external package pins. Most of the hybrid packages
are manufactured by the Company.
In addition to Company performed testing and inspection procedures, certain of
the Company's products are subject to source inspections required by customers
(including the United States Government). Designated inspectors are authorized
to perform a detailed on-premise inspection of each individual device prior to
encapsulation in a casing or before dispatch of the finished unit to ensure that
the quality and performance of the product meets the prescribed specifications.
The raw materials used in the manufacture of the Company's products are
generally readily available from multiple sources.
In addition, obtaining military certifications and qualifications is desirable
because it enables a manufacturer to satisfy many of the requirements for
registration under the ISO 9000 International Quality Program. The ISO 9000
Program is a series of quality Management and assurance standards developed by a
technical committee of the European Community Commission working under the
International Organization for Standardization. Several European prime
contractors have advised the Company that a prerequisite to future sales by the
Company to such contractors might be the key to the Company's obtaining ISO 9000
registration. However, to date, the Company has not encountered such a
requirement. Based on the fact that 90% of the Company's products are made to
print in accordance with customer specifications and in accordance with
MIL-PRF-19500, MIL-PRF-38534 and MIL-STD-883, which are stricter requirements
than ISO 9000, it is Management's opinion that the possibility that such a
requirement will bar the Company from performing or competing is highly
unlikely. Additionally, domestic customers including the United States
Department of Defense and certain leading private sector firms (e.g., DuPont, 3M
and AT&T) have also adopted ISO 9000 allowing their suppliers to comply with ISO
9000 as an alternative to military qualification. The Company's plan is to
initiate the necessary Program to obtain ISO 9000 qualification within the next
two years. It is anticipated, based on industry observed experience, that the
process might take up to two years. The Company will seek such certifications as
Management believes that such certification might avail to it additional
business opportunities not currently available to it.
MIL-STD-1772 (now MIL-PRF-38534) certification, was achieved by the Company in
October 1990 and renewed in June 1993 and April 1995. In 1995, the Company
received written notification that it has received MIL-STD-1772 qualification.
MIL-STD-1772 qualification should continue to improve the Company's business
posture by increasing product marketability. Recently MIL-PRF-38534 replaced
MIL-STD-1772. The Company is also qualified to deliver products under
MIL-PRF-19500.
FINANCIAL INFORMATION ABOUT EXPORT SALES
Specific financial information with respect to the Company's export sales is
provided in Note 12 to the Consolidated Financial Statements.
<PAGE>
MARKETING AND CUSTOMERS
The Company's products are sold throughout the United States and abroad
primarily through a network of manufactures representatives and distributors.
The Company is represented (i) in the United States by 4 representative
organizations which operate out of 10 different locations with 13 sales people
and 2 stocking distributor organizations which operate out of 36 locations with
294 sales people and (ii) in the international market by 7 representative
organizations in 11 countries with 21 sales people. Some of the international
groups serve as distributors as well as sales representatives. The Company also
directly employs several sales, marketing and application engineering personnel
to coordinate operations with the representatives and distributors and to handle
key accounts.
On February 29, 1996, the Company has had approximately 300 active customer
accounts. During the year ended February 29, 1996, Hughes accounted for
approximately 21.2% of net sales. No other company accounted for more than 10%
of net sales during the last fiscal year. During the year ended February 28,
1995, sales to all of Hughes divisions accounted for approximately 15.4% of net
sales and was the only customer responsible for 10% or more of net sales.
Approximately 7 of the Company's customers accounted for approximately 51.3% of
the Company's sales during the fiscal year ended February 29, 1996. It has been
the Company's experience that a large percentage of its sales have been
attributable to a relatively small number of customers in any particular period.
The Company expects this type of customer concentration to continue. The loss of
any major customer without off-setting orders from other sources would have a
material adverse effect on the business of the Company.
During the fiscal year ended February 29, 1996 and since that date, a
substantial portion of the Company's products were sold pursuant to contracts or
subcontracts with or to customers whose end products are sold to the United
States Government. Accordingly, the Company's sales have been and may continue
to be adversely impacted by reduced Congressional appropriations and changes in
national defense policies and priorities. Notwithstanding such reduced
Congressional appropriations and a significant decline in sales in recent years,
the Company has had only a 6% decrease in bookings during the fiscal year ended
February 29, 1996 as compared to the previous year, and during the last four
months the Company's level of bookings has stabilized. All of the Company's
contracts with the United States Government or its prime contractors contain
provisions permitting termination at any time at the convenience of the United
States Government or the prime contractor upon payment to the Company of costs
incurred plus a reasonable profit.
In recognition of the changes in global geopolitical affairs and reduced United
States military spending, the Company is attempting to increase sales of its
products for non-military, scientific and industrial niche markets such as
medical electronics, machine tool controls, specialized telecommunications,
cellular telephone base stations and LEOS (Low Earth Orbit Satellites)
telecommunication networks, and other market segments in which purchasing
decisions are generally based primarily on product quality, long-term
reliability and performance, rather than on product price. The Company is also
attempting to offer additional products to the military markets that are
complementary to those currently sold by the Company to the military markets.
Although margins are typically higher for products with military applications
than for products with non-military, scientific and industrial applications, the
Company hopes to minimize this differential by focusing on these
quality-sensitive niche markets. There can be no assurance, however, that the
Company will be successful in increasing its sales to these market segments,
which increase in sales could be critical to the future success of the Company.
To date, the Company has made only limited inroads in penetrating such markets.
Sales to foreign customers, located mostly in Western Europe and Israel,
accounted for approximately 8% of the Company's net sales during the year ended
February 29, 1996 and 10% during the year ended February 28, 1995. This
reduction is a result of the decline in military spending in Western Europe and
Israel. All sales to foreign customers are conducted utilizing exclusively U.S.
dollars. The Company is considering a variety of actions to attempt to increase
sales in the overseas market, especially in the Far East.
<PAGE>
BACKLOG
The Company's order backlog, which consists of semiconductor and hybrid related
open and pending orders scheduled for delivery primarily within 12 months, was
approximately $4,300,000 at February 29, 1996, compared to $4,000,000 as of
February 29, 1995. The entire backlog consisted of orders for electronic
components. The variation in backlog from fiscal year to fiscal year may be
attributable to a number of non-quantifiable factors, including fluctuations in
defense spending, demand and competition. The Company currently anticipates that
the majority of all of its open order backlog will be filled by February 28,
1997. See "Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Delivery times of new or non-standard products are effected by the availability
of raw material, scheduling factors, manufacturing considerations and customer
delivery requirements. The rate of booking new orders varies significantly from
month to month, mostly as a result of sharp fluctuations and delays in the
government budgeting and appropriation process. The Company has historically
experienced somewhat decreased levels of bookings during the summer months,
primarily as a result of such budgeting and appropriation activities. For these
reasons, and because of the possibility of customer changes in delivery
schedules or cancellations of orders, the Company's backlog as of any particular
date may not be indicative of actual sales for any succeeding period.
PATENTS AND LICENSES
The Company owns approximately 33 patents relating to the design and manufacture
of its products. While the Company considers that, in the aggregate, its patents
are important in the operation of its business, it believes that engineering
standards, manufacturing techniques and product reliability are more important
to the successful manufacture and sale of its products. However, an important
adjunct of the increased competition in the electronics industry has been a
growing emphasis on product and process patents and their exploitation which has
resulted in increased activity intended to stimulate advantageous licensing and
cross-licensing agreements.
COMPETITION
The electronic component industry, in general, is highly competitive and has
been characterized by price erosion, rapid technological changes and foreign
competition. The Company believes, however, that to the extent its business is
targeted at the military and aerospace markets, where there has been virtually
no foreign competition, it is subjected to less competition than manufacturers
of commercial electronic components. Additionally, because of the decline in
military orders, the number of competitors in this market has decreased
somewhat, affording the Company the opportunity to increase its market share. As
the Company attempts to shift its focus to the sale of products having
non-military, non-aerospace applications it may be subject to such price erosion
and foreign competition. None of the Company's direct competitors depend on the
sale of an identical component mix as their principal source of income. The
Company is not in direct competition with any other semiconductor manufacturer
for an identical mixture of products; however, some of the Company's products
are manufactured by one or more of the major manufacturers of semiconductors.
During fiscal year 1996 a few such major competitors, (e.g., Motorola), have
elected to withdraw from the military market altogether. The Company competes
principally on the basis of product quality, turn-around time and price. The
Company believes that competition for sales of products that will ultimately be
sold to the United States Government has intensified and will continue to
intensify as United States defense spending continues to decrease and the
Department of Defense's pushes implementation of its decision in the Summer of
1995 to purchase high-end commercial product in lieu of Mil-Spec components. The
Company believes that its primary competitive advantage is its ability to
produce high quality products as a result of its years of experience, its
sophisticated technologies and its experienced staff. The Company believes that
its ability to produce highly reliable custom hybrids in a short period of time
will give it a strategic advantage in attempting to penetrate commercial markets
and in selling military products complementary with those currently sold, as
doing so would enable the Company to produce products early in design and
development cycles. One of the Company's competitive disadvantages has been its
recent history of delivery delays, due primarily to industry-wide tight supply
of silicon wafers, semiconductors-dies and packages . For the year ended
February 29, 1996, the Company's on-time delivery record was 80% as compared
with 85% for the year ending in February 28, 1995. The Company believes that it
will be able to improve its capability to respond quickly to customer needs and
deliver products on time, and that this will prove to be a competitive advantage
of the Company.
<PAGE>
EMPLOYEES
At February 29, 1996, the Company had 100 employees (as compared to 104 at
February 28, 1995) of whom 68 are engaged in production activities, 6 in sales
and marketing, 6 in executive and administrative capacities and 20 in technical
and support activities.
The Company has never had a work stoppage, and none of its employees are
represented by a labor organization. The Company considers its employee
relations to be satisfactory.
SOURCES AND AVAILABILITY OF RAW MATERIAL
The Company purchases its raw materials from multiple suppliers and has a
minimum of two suppliers for all of its material requirements.
GOVERNMENT APPROVALS
The Company received Department of Defense's DESC (Defense Electronic Supply
Center) approval to supply its product in accordance with Mil-Spec 19500,
Mil-Spec 883 and Mil-Spec 1772. Recently MIL-PRF-38534 replaced MIL-STD-1772 and
MIL-SPEC-19500 was re-issued as MIL-PRF-19500, thus the Company is qualified
under these new military specifications.
RESEARCH AND DEVELOPMENT
During the last three fiscal years, the Company has not spent any funds on
research and development.
EFFECT OF GOVERNMENT REGULATION
As a result of May 1995 change in DOD policy, the Company can now sub-contract
wafer fabrication, die assembly and testing to other approved and qualified
vendors. This change may allow the Company to reduce its manufacturing cost by
transferring labor intensive operations to lower labor cost facilities, most
likely, off-shore. Management is attempting to secure such arrangements.
However, no assurance can be given that these efforts will be successful.
SEASONALITY
The Company's bookings of new orders and sales are largely dependent on
Congressional budgeting and appropriation activities and the cycles associated
therewith. The Company has historically experienced somewhat decreased levels of
bookings during the summer months, primarily as a result of such budgeting and
appropriation activities.
ENVIRONMENTAL COMPLIANCE
During fiscal year ended February 28, 1995, the Company's environmental legal
counsel determined that the Environmental Protection Agency (the "EPA") was
reassessing all prior Comprehensive Environmental Response, Compensation and
Liability Information System site for National Priority Ranking using the newly
adopted ranking formula. Counsel further determined that the Company's
facilities at Riviera Beach and Port Salerno were the subject of such
reassessment. After conducting a series of meetings with the State Department of
Environmental Protection (the "DEP") and with Region IV EPA officials, the DEP
requested that the Riviera Beach site be taken out of the reevaluation process
and, pursuant to both that request and the Company's request, Region IV EPA,
according to the responsible DEP official, took both sites out of the
reevaluation process and deferred informally further action pending the
Company's complying with the requirements of the Consent Final Judgment that it
had entered with the Florida Department of Environmental Protection in
accordance with its Plan of Reorganization.
<PAGE>
The Company's former facility in Jupiter, Florida (which was sold in 1982) has
been the subject of a preliminary assessment by the EPA during calendar year
1995. The EPA requested site access from the present owner. The Company's
environmental legal counsel has no information concerning this facility nor has
the Company received a request for information concerning its activities there.
The Company's legal environmental counsel cannot assess at this time what the
impact of the EPA study of the site would be, if any, on the Company's liability
nor when the EPA would complete is assessment. For a further description of the
Company's environmental issues, refer to "Item 1 - Business - Bankruptcy
Proceedings" and to Note 13 of the accompanying Consolidated Financial
Statements.
During the fiscal year ended February 29, 1996, the Company has spent
approximately $11,000 for compliance with environmental laws (federal, state and
local). As part of this effort, the Company retained the services of an
environmental consultant who assisted in verifying that the Company operates in
compliance with all pertinent environmental laws and regulations.
Following the Effective Date of the Plan of Reorganization and consistent with
its agreement with the State of Florida Department of Environmental Protection,
the Company has performed environmental assessments to confirm that all soil
contamination has been remediated at the Old Riviera Beach Facility and the Port
Salerno Facility in accordance with the terms of the Consent Final Judgment,
entered in October 1993 (the "Consent Final Judgment"). Certain groundwater
remediation remains to be performed at both properties. Pursuant to the
provisions of the Consent Final Judgment, and the Plan of Reorganization, the
remediation would be performed from any proceeds of the sale or lease of the two
properties or from further payments required of the Company as set forth herein.
The properties can be sold and the prospective purchaser can obtain first
purchaser protection from further enforcement provided the sale price of the
property equals or exceeds the lesser of (i) 75% of its then appraised value or
(ii) the estimated cost of its remediation. In connection with facilitating the
remediation of the properties, the Company is obligated to escrow the following
amounts on a monthly basis beginning on the 25-month anniversary of the date of
the Final Judgment: (i) year 1-$5,000 per month; (ii) year 2 - $7,500 per month;
(iii) year 3 - $10,000 per month; and (iv) $10,000 per month thereafter until
remediation is completed. Due to cash flow problems, the Company is negotiating
with DEP to modify the payment schedule. While these negotiations are underway,
the Company is depositing $1,000 per month into the escrow account. As of
February 29, 1996, of the $25,000 due the Company has deposited $5,000 into
these escrow accounts. Certain insurance proceeds that were placed into the
escrow pursuant to the Consent Final Judgment and the Plan of Reorganization
have been utilized to confirm that neither soil at the Old Riviera Beach nor the
Port Salerno facilities require remediation. DEP has acknowledged that no
further soil remediation is required at either site. In the event there are
excess proceeds from the sale of either property above the cost of its
remediation, the excess funds will be utilized to remediate the other property.
Further, the Company during this fiscal year has negotiated an amendment to the
Consent Final Judgment regarding the Riviera Beach site that would require
completion of remediation of the Old Riviera Beach site even if the sale of that
site did not result in sufficient proceeds to complete that remediation. See
"Item 2. - Properties" for a description of these facilities. The Company's
financial statement reflects liabilities of $1,069,000 relating to the foregoing
assessment and remediation obligations. Although the Company's environmental
consultants have advised the Company that they believe that this is the best
estimate of such liability, there can be no assurance that the actual cost of
remediation will not exceed such amount. In the event that the Company defaults
under the Consent Final Judgment, the DEP may assert a natural resource claim
against the Company, the amount of which (if any) would be determined by a court
of competent jurisdiction. See "Environmental Compliance" below for a further
discussion of environmental matters. For a more definitive description of
environmental matters pertaining to the Old Riviera Beach Facility and the Port
Salerno Facility, please refer to the Consent Final Judgment.
The Company's environmental consultants have estimated the costs of remediation
to be approximately $727,000 for the Port Salerno property and $342,000 for the
Old Riviera Beach property. Approximately $1,069,000 has been accrued in the
balance sheet as of February 29, 1996. The Company recorded these liabilities as
$60,000 short-term liabilities and $1,009,000 long-term liabilities.
<PAGE>
Pursuant to the Plan of Reorganization, the Company paid $200,000 to extend the
large main public water line to the neighborhood around its Port Salerno
Facility and to extend smaller individual distribution lines to affected
properties with private wells. In the event that other private wells are
impacted in the future in excess of regulatory levels, the Company may be
obligated to extend small individual distribution lines to serve the affected
properties. However, retesting of private wells by the Martin County Health
Department during fiscal year 1995 did not reveal any additional properties to
be so impacted and the State Department of Environmental Protection has not
required further properties to be provided with public water supply. There is a
potential that such extension will be required in the future, but the State
Department of Environmental Protection has acknowledged that source removal from
soils and pond sediments on the site has been completed. Since the facility has
not been in use since 1988, the Company believes the likelihood of additional
extensions to be minimal and the costs of any such extensions if required in the
future to also be minimal.
BANKRUPTCY PROCEEDINGS
On January 24, 1992 (the "Petition Date"), the Company and its wholly-owned
subsidiary, Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.),
a Delaware corporation, filed voluntary petitions seeking reorganization under
Chapter 11 ("Chapter 11") of the United States Bankruptcy Code, as amended (the
"Bankruptcy Code"), in the United States Bankruptcy Court for the Southern
District of Florida (the "Bankruptcy Court"). These bankruptcy estates were
subsequently consolidated by the Bankruptcy Court. On August 20, 1993, the
Bankruptcy Court entered an Order (the "Order of Confirmation") confirming the
Company's Fourth Amended Plan of Reorganization, as modified by the Company's
First Modification of Fourth Amended Plan of Reorganization (the "Plan of
Reorganization"). The Plan became effective on August 30, 1993 (the "Effective
Date"). On April 24, 1996 a motion was filed with the U.S. Bankruptcy Court to
officially close the case.
Additionally, the following actions or events have taken or will take place
pursuant to the Plan of Reorganization:
(a) On February 28, 1993, pursuant to a Purchase Agreement, dated
October 5, 1992, as amended (the "Vector Purchase Agreement"), the Company
transferred to Vector Trading and Holding Corporation ("Vector") (the successor
in interest to the Company's former primary lender, First Union National Bank
("First Union")) substantially all of the assets, other than real estate,
comprising the Company's Microwave Division and certain related liabilities.
Pursuant to the terms of the Vector Purchase Agreement: (i) Vector subleases
approximately 30% of the Company's facilities in West Palm Beach, Florida, for a
period ending December 31, 2001 at an annual rate that started at approximately
$50,000 during the first year and increases to approximately $150,000 in the
last four years, with aggregate remaining payments of approximately $804,000
(the "Sublease"); (ii) the Company assigned to Vector insurance proceeds of
approximately $5.4 million from National Union Fire Insurance Company stemming
from a 1991 fire in the Company's hybrid department; (iii) the Company and
Vector entered into mutual non-competition agreements for a period of five
years, pursuant to which neither will compete in the United States with respect
to the types of products produced by the other as of the date of the Vector
Purchase Agreement; (iv) the Company entered into a Shared Services and
Equipment Agreement (the "Shared Services Agreement") with Vector, pursuant to
which it is estimated that Vector will pay Solitron approximately $55,000 per
year for eight years in exchange for, among other things, the Company's (a)
allowing Vector to use certain of the Company's equipment, (b) providing to
Vector certain services and (c) Vector will reimburse or pay the Company (in pro
rata quarterly installments through approximately the end of 1998) an aggregate
of approximately $210,000 in personal property taxes paid by the Company on the
assets transferred to Vector. As of February 1996, Vector had paid approximately
$26,000 of these taxes. As of February 29, 1996, Vector has been current with
its financial obligations. The Company is currently engaged in a dispute with
the new landlord who acquired the facility from the RTC regarding its lease
payments and the parties' obligations under the lease. The Company has filed a
motion with the District Court to resolve these disputes. The parties are
negotiating out of court, and there can be no assurance that these negotiations
will be successful
<PAGE>
(b) The Company has or will issue to certain pre-petition creditors that
number of shares of Solitron's common stock, par value $.01 per share (the
"Common Stock"), equal to 65% (approximately 1,424,504 shares) of the issued and
outstanding shares after all issuances contemplated by the Plan of
Reorganization (other than the shares issuable pursuant to the exercise of stock
options granted to Shevach Saraf, the Chairman of the Board, Chief Executive
Officer, President and Treasurer of the Company, as described below). Of this
65%, 40% (approximately 876,618 shares) have been issued to holders of unsecured
claims (pro rata) and 25% (approximately 547,886 shares) have been or will be
issued to Vector. As of April 24, 1996, 771,434 of the 876,618 which are to be
issued have been issued to holders of unsecured claims and 547,886 shares have
been issued to Vector participants and their successors (See Management
Discussion and Analysis). On December 15, 1995, the Company and Argo Partners,
Inc., an unsecured creditor have reached an agreement under which Solitron
Devices, Inc. has acquired Argo Partners' unsecured debt of $694,834 (which was
carried as an obligation of approximately $140,037) for $40,000 as complete
settlement. Prior to the acquisition, Argo Partners received payment of
approximately $3,160 from the Company as part of several distributions to
unsecured creditors. Thus, Solitron Devices, Inc. recognized in December
1995 an extraordinary gain of approximately $96,877 due to the debt being
carried on the books at a discounted amount. Now that the claim of the State of
California as an unsecured creditor has been quantified, all shares issuable to
the State of California as an unsecured creditor were issued to the State of
California in April 1996. The common stock issued to the Vector participants and
holders of unsecured claims must be voted by them in accordance with the
recommendation of the Company's Board of Directors and, in general, the holders
of such Common Stock have agreed pursuant to the Plan of Reorganization to take
no action hostile to the Company such as to commence or assist in a proxy
contest or tender offer. However, no limitation on the transferability of this
Common Stock was imposed pursuant to the terms of the Fourth Amended Disclosure
Statement or the Plan of Reorganization. Solitron's pre-petition stockholders
retained their issued and outstanding shares of Common Stock which, after the
issuance of the remaining shares reserved for issuance under the Plan of
Reorganization (other than those shares issuable upon the exercise by Mr. Saraf
of certain options), represents 20% (approximately 438,310 shares) of the issued
and outstanding Common Stock. Of the remaining 15%, 10% (approximately 219,155
shares) have already been issued to Mr. Saraf, and 5% (approximately 109,577
shares) are reserved for future issuance pursuant to employee stock incentive
plans or programs. Additionally, Mr. Saraf has been issued options to purchase
an additional 8% of the issued and outstanding Common Stock after giving effect
to the foregoing issuances. The Company intends to issue the remainder of the
Common Stock issuable pursuant to the Plan of Reorganization to unsecured
creditors at such time as all of such conditions precedent have been satisfied.
(c) Pursuant to the Plan of Reorganization, beginning in approximately
May 1995, the Company was required to begin making quarterly payments to holders
of unsecured claims until they receive 35% of their claims. However, due to
negotiations between the parties, the unsecured creditors agreed to a one month
deferment of this payment (for more discussion see Management's Discussion and
Analysis). To date, these negotiations have not been completed and while they
are in progress, the Company made five of its proposed distributions to the
unsecured creditors who have accepted the payments. These payments to unsecured
creditors in the aggregate amount of approximately $34,711 covered the period
March 1, 1995 through February 29, 1996 of approximately $245,173 as required by
the Plan of Reorganization. Following the settlement with the State of
California of the amount of its unsecured claim (as described below in (j), and
the Company's acquisition of the unsecured claim of Argo Partners, Inc. (as
described below in (o), it is presently estimated that there are an aggregate of
approximately $7,095,252 unsecured claim and, accordingly, that the Company is
required to pay approximately $3,483,338 (i.e., 35% of $7,095,252) to holders of
allowed unsecured claims in quarterly installments of approximately $62,083. The
Company has proposed to its unsecured creditors that it make quarterly payments
of $9,000. As of February 29, 1996, of $245,173 due the Company paid to the
unsecured creditors $34,711. The Company carries its debt to its unsecured
creditors as $102,000 in short-term debt and $1,302,000 as long-term debt. The
aggregate and monthly payments to unsecured creditors increases and decreases in
proportion to $10,000 per month per $3.5 million in allowed claims, subject to a
maximum quarterly payment of $105,000. These payments and the aggregate amounts
thereof would also increase proportionately in the event of a default by the
Company in its obligations to Ellco Leasing Corporation ("Ellco"), as described
in (e) below.
<PAGE>
(d) In March 1995, the Company entered into negotiations with its
unsecured creditors, the IRS, Palm Beach County, Martin County and DEP in order
to modify the schedule of payments as prescribed by its Plan of Reorganization.
These negotiations continue. There can be no assurance that these negotiations
will be successful.
(e) The Company is required to pay to Ellco $255,000 plus interest at
six percent per annum in monthly payments over a four-year period beginning on
the Effective Date. Approximately $158,000 plus interest of such $255,000 had
been paid as of April 30, 1996. Ellco has been granted a security interest in
certain of the Company's equipment to secure such obligations. Ellco is required
to release its liens on certain of the Company's assets as the above-referenced
payments are made. In the event of any default on any of such payments which
remains uncured after seven days' notice, Ellco would have a claim as an
unsecured creditor in the amount of the deficiency and the Company would make
monthly payments to Ellco until an aggregate of 35% of the allowed claim was
paid to Ellco. Additionally, from the time of default, Ellco would be entitled
to receive a pro rata portion of the Profit Participation (as defined in (g)
below) payable to unsecured creditors. However, no retroactive payments would be
made to Ellco. In the event of such a default, however, Ellco would also receive
a pro rata share of the Common Stock issuable to unsecured creditors.
Approximately 105,000 shares of the Common Stock are held by the Company in
trust for Ellco. If no such default occurs, such Common Stock would be issued
pro rata to the unsecured creditors. The Company is current with Ellco and
expects to remain current.
(f) The Company received releases of substantially all liens on its
assets and properties existing as of the Effective Date. However, in accordance
with the Plan of Reorganization, Ellco, Southeast Bank Leasing Company,
Greyhound Financial Corporation and Met Life Capital Corporation were granted
liens on certain of the Company's equipment and the holders of pre-petition
unsecured claims were granted a lien on all of the Company's equipment to secure
the payments described in (c) above and in (g) below. As of May 31, 1995, the
Company has paid off all its obligations to Southeast Bank Leasing Company,
Greyhound Financial Corporation and MetLife Capital Corporation and the liens
held by those entities have been released.
(g) Beginning on the date the Company's net after tax income exceeds
$500,000, the Company will pay (on an annual basis) each of the holders of
unsecured claims (pro rata) and Vector participants and their successors, 5% of
its net after tax income until the tenth anniversary of the Effective Date, up
to a maximum aggregate of $1,500,000 of such payments to the holders of
unsecured claims (pro rata) and up to a maximum aggregate of $1,500,000 of such
payments to Vector participants and their successors (the "Profit
Participation").
(h) The Company transferred to First Union the real property known as
the New Riviera Beach Facility and granted First Union a non-exclusive perpetual
easement for the use of approximately 125 parking spaces on the adjacent real
property owned by the Company known as the Old Riviera Beach Facility. First
Union has claimed that the Company is obligated to pay approximately $110,000 in
1993 real property taxes with respect to the New Riviera Beach Facility that
accrued prior to such transfer as well as the cost of removing personal property
from and cleaning the New Riviera Beach Facility. The Court has denied First
Union's motion during fiscal year 1995. See "Item 2 - Properties" .
(i) Following the Effective Date and consistent with its agreement with
the State of Florida Department of Environmental Protection (the "DEP"), the
Company has begun to perform environmental assessments and is required to
remediate the Old Riviera Beach Facility and the Port Salerno Facility in
accordance with the terms of the Consent Final Judgment, entered in October,
1993 (the "Consent Final Judgment"). The foregoing stems from the environmental
contamination of these properties. The monies to be utilized to fund these
assessments and remediations will be made available from the proceeds of the
sale or lease of the properties, to the extent that the Company is successful in
its efforts to sell or lease such properties. Pursuant to the Plan of
Reorganization, unless approved by the DEP, neither the Old Riviera Beach
Facility nor the Port Salerno Facility will be sold unless the price for such
property equals or exceeds the lesser of (i) 75% of its then appraised value or
(ii) the estimated cost of its remediation. In connection with facilitating the
remediation of the properties, the Company will also, to the extent the proceeds
from the sale or lease of these properties are not sufficient to pay for the
remediation, be required to escrow the following
<PAGE>
amounts on a monthly basis beginning on the 25-month anniversary of the
Effective Date: (i) year 1 - $5,000 per month; (ii) year 2- $7,500 per month;
(iii) year 3 - $10,000 per month; and (iv) $10,000 per month thereafter until
remediation is completed. The Company is negotiating with DEP to modify this
payment schedule. The Company is making payments of $1,000 per month and hopes
to remain on this payment schedule until the properties are sold. As of February
29, 1996, of the $25,0000 due according to the Plan, the Company deposited
$5,000 in the required escrow accounts. Additionally, $42,000 in proceeds from
an insurance settlement were released from escrow and have been utilized to
investigate the extent to which the soil at the Old Riviera Beach and Port
Salerno facilities requires remediation. Following testing, final determination
has been made that the soil at the Old Riviera Beach and Port Salerno facilities
needs no further remediation. Any excess of such sale and lease proceeds over
the cost of assessment and remediation will be returned to the Company following
completion of the cleanup of both facilities. See "Item 2. - Properties" for a
description of these facilities. The Company's financial statements reflect
liabilities of $1,069,000 relating to the foregoing assessment and remediation
obligations. Although the Company's environmental consultants have advised the
Company that they believe that this is the best estimate of such liabilities,
there can be no assurance that the actual cost of remediation will not exceed
such amount. In the event that the Company defaults under the Consent Final
Judgment, the DEP may assert a natural resource claim against the Company, the
amount of which (if any) would be determined by a court of competent
jurisdiction. See "Environmental Compliance," below, for a further discussion of
environmental matters. For a more definitive description of environmental
matters pertaining to the Old Riviera Beach facility and the Port Salerno
facility, please refer to the Consent Final Judgment.
(j) The Company has paid all of the allowed administrative claims and
allowed wage claims since the Effective Date. The Company is required to pay
allowed tax claims (to the IRS, Palm Beach County, Florida and Martin County,
Florida), estimated at approximately $1,718,000 (which amount is accrued in the
consolidated financial statements-this amount includes interest). The Company
was required to begin making quarterly payments of allowed tax claims to Palm
Beach County according to the following schedule: $37,000 per quarter for two
years beginning in the second quarter of 1994; and approximately $82,000 per
quarter for the twelve quarters thereafter. The Company is negotiating with Palm
Beach County on restructuring the stream of payments. The Company entered into
an agreement to make quarterly payments of allowed tax claims to Martin County
of approximately $4,000 for a period of approximately four years beginning in
approximately October 1994. The Company is negotiating with Martin County on
restructuring the payment schedule. During January 1995, the amount of allowed
tax claims payable to the IRS was determined to be $401,000. At February 29,
1996, such amounts include accrued interest totalling $410,000. The Company was
expected to make quarterly payments of allowed tax claims to the IRS of no more
than approximately $21,000 per quarter beginning in April 1995 and ending in
approximately January 2001. The Company is negotiating with the IRS to
restructure these payments. The State of California Franchise Tax Board claim
has now been quantified by the Court on November 30, 1995 to be $680,179.35 and
it is treated as an unsecured claim. The Company is not making payments to the
IRS, Palm Beach County and Martin County. The Martin County tax claim will be
paid in full with the sale of the Port Salerno property. A large part of the
Palm Beach County Tax claim will be paid with the sale of the Riviera Beach
property. The Company has attempted to renegotiate the payment schedule with the
IRS and is awaiting their reply. The following table indicates the approximate
cumulative status of amounts due under Court Plans as of February 29, 1996:
<TABLE>
<CAPTION>
Due Paid
-------- --------
<S> <C> <C>
Martin County $ 24,000 $ 7,957
Palm Beach County 259,000 154,979
IRS 84,000 --
</TABLE>
(k) There has been an active interest in both the Port Salerno and
Riviera Beach properties from potential purchasers but no current contracts for
sale have been signed.
<PAGE>
(l) Solitron rejected substantially all of its pre-petition executory
contracts (including its outstanding stock option agreements except those with
Shevach Saraf, Solitron's Chairman of the Board, Chief Executive Officer,
President and Treasurer), except for certain contracts with distributors, sales
representatives, lessors of equipment, customers, suppliers and the lessor of
its West Palm Beach, Florida facility, and the Sublease with Vector, the Shared
Services Agreement with Vector and the Employment Agreement with Mr. Saraf.
(m) All of the members of Solitron's Board of Directors, other than
Shevach Saraf, resigned as of January 20, 1996. Replacements are actively being
recruited.
(n) In September 1993, the Bankruptcy Court authorized a 1-for-10
reverse split of the Company's Common Stock, pursuant to which each 10 shares of
Common Stock were automatically converted into one share of Common Stock, with
cash paid in lieu of the issuance of fractional shares. This reverse stock split
became effective at the close of business on October 12, 1993, the record date
for such reverse stock split. This reverse stock split has been retroactively
reflected herein and all references to amounts of shares and share prices have
been retroactively adjusted herein to reflect same.
ITEM 2. PROPERTIES
During fiscal 1993, the Company consolidated all of its manufacturing operations
and its corporate headquarters to an existing facility (approximately 70,000
square feet (of which approximately one-third is being subleased to Vector)) in
West Palm Beach, Florida. The facility has been leased by the Company for a term
ending in 2001. The Company believes that its facilities in West Palm Beach,
Florida will be suitable and adequate to meet its requirements for the
foreseeable future provided that certain repairs are made to such facilities. In
December 1995, Resolution Trust Company sold the facility to Technology Place,
Inc. The Company is presently engaged in a dispute with its new landlord with
respect to each of the respective party's obligations under the existing lease.
The parties are negotiating out of court, and there can be no assurance that
these negotiations will be successful. Pursuant to the Plan of Reorganization,
the Company transferred to First Union its 150,000 square foot facility in
Riviera Beach, Florida that, prior to August 30, 1992, housed the Company's
executive offices and 137,000 square feet of manufacturing space occupied by the
Semiconductor Division (i.e., the New Riviera Beach Facility). Pursuant to the
terms of the Plan of Reorganization, the Company granted First Union a
non-exclusive perpetual easement on approximately 125 parking spaces at the Old
Riviera Beach Facility. First Union has claimed that the Company is required to
pay an aggregate of approximately $110,000 in 1993 real property taxes with
respect to the New Riviera Beach Facility that arose prior to transfer. First
Union filed a motion with the Bankruptcy Court with respect to this issue. Such
motion has been denied during fiscal year 1995.
The Company owns a 78,000 square foot facility (the "Old Riviera Beach
Facility") within the same complex as the New Riviera Beach Facility that was
vacant until November 1987 when the Company began relocating the Microwave
Division from its Port Salerno Facility (i.e., the Old Riviera Beach Facility).
The Company's Old Riviera Beach Facility is currently vacant. The Old Riviera
Beach facility is listed for sale with a real estate broker and is now under
consideration for purchase by one or more parties.
The Company also owns the Port Salerno Facility, which consists of a 42,000
square foot building and 23 acres of undeveloped land located in Port Salerno,
Florida. The Port Salerno Facility is currently vacant and is listed for sale
with a real estate broker and is now under consideration for purchase by one or
more parties.
Pursuant to the Plan of Reorganization, the Company is seeking to lease or sell
the Old Riviera Beach Facility and the Port Salerno Facility and has listed such
properties with real estate brokerage firms. Proceeds of any such sale or lease
will be applied to the cost of the remediation of these properties, and any
remaining proceeds would be retained by the Company all in accordance with the
terms of the Consent Final Judgment. To date, the Company's efforts to sell the
Port Salerno and Riviera Beach facilities have been unsuccessful.
<PAGE>
Once the facilities are sold, the proceeds of the sale will be used as follows:
(1) pay for all outstanding real estate taxes; (2) real estate commission; (3)
legal fees; (4) all other costs associated with the sale, i.e., stamps, title
insurance, etc.; (5) cost of relocating equipment and material currently stored
in the Old Riviera Beach facility. The buyer will assume the Company's
responsibility for the cleanup and will provide the Company with a performance
bond to assure completion of the cleanup or all remaining funds will be
deposited in the Riviera Beach or Port Salerno environmental escrow account.
Should the cost of clean-up exceed the escrowed amount, the Company will be
required to pay any additional funds in accordance with the Consent Final
Judgment (see Consent Final Judgment, as amended, included as an exhibit
hereto).
During fiscal year 1995, the Company's management wrote off the excess value
between current book value of its Riviera Beach facility and the net proceeds it
had expected to get from the sale of the facility (i.e., sale price less
expected real estate commission and legal fees associated with the sale).
Management believed that once these expenses and real estate taxes due were paid
approximately $410,000 to $430,000 would be available for deposit in the Riviera
Beach environmental escrow account for the purpose of remediating the property.
However, management anticipated that there would be residual funds in the
Riviera Beach escrow account which would be available for transfer to the Port
Salerno escrow account and would be available to pay for a portion of the
remediation of the Port Salerno facility. The sale did not occur.
On April 17, 1995, the Company entered into an agreement to sell the Old Riviera
Beach Facility for $850,000 and accordingly, has wrote down this asset by
$1,140,000 to $760,000 which represented the sales price less costs to dispose
of the property. (This contract has since been terminated.) The Port Salerno
property was written down by $665,000 to $985,000, which is Management's
estimate of its net realizable value based upon appraisal information and the
proposed fiscal year 1995 contract for sale of the Riviera Beach Facility. These
writedowns are reflected in the February 28, 1995 statement. Management is
hopeful that both properties can be sold at no cash flow impact to the Company.
See Note 13 for discussion of environmental matters related to the Company's
non-operating plant facilities.
The Company's payment of $200,000 to extend the large main public water line to
the Port Salerno Facility neighborhood and to extend smaller individual
distribution lines to affected properties with private wells was the principal
cost for water service to the area. In the event that other private wells are
impacted in the future in excess of regulatory levels, the Company might be
obligated to extend small, individual distribution lines to serve the affected
properties. However, retesting of private wells by the Martin County Health
Department during fiscal year 1995 did not reveal additional wells to be so
impacted and the State Department of Environmental Protection has not required
further properties to be provided with public water supply. There is the
potential for the required extension in the future but the State Department of
Environmental Protection has acknowledged that source removal from soils and
pond sediments has been completed. As the facility has not been in use since
1988, the Company believes the likelihood of additional extensions to be minimal
and the costs of any such extensions if required in the future to also be
minimal.
ITEM 3. LEGAL PROCEEDINGS
Other than the Bankruptcy Proceedings (as described in "Item 1. - Business") and
the following matters, The Company is not aware of any other significant legal
proceedings to which it is a party.
The Company is now engaged in a dispute with its new landlord with regards to
each party's obligation in connection with the lease. The Company has filed a
motion with the District Court to clarify the lease. Both parties are
negotiating an out of court settlement.
<PAGE>
INTERNAL REVENUE SERVICE TAX CLAIM
The Internal Revenue Service ("IRS") audited the Company's income tax returns
for the years 1980-1989. The Company appealed the IRS' original audit results.
During January 1995, the tax claim was determined to be $401,000 which is
included in the Company's financial statement as an accrual for the entire
amount plus interest. At February 29, 1996, such amounts include accrued
interest totalling $410,000. The IRS' tax claim is subject to payment within six
years from January 1995. The Company is negotiating with the IRS to reschedule
this stream of payments.
STATE OF CALIFORNIA TAX CLAIM
On November 23, 1992, the State of California filed a claim asserting that the
Company owes the State of California approximately $900,000 for income taxes for
years prior to 1982. On November 30, 1995, this claim was settled for
approximately $680,000. As required by the Plan of Reorganization, this claim is
being treated as an unsecured claim. Accordingly, the liability representing 35%
of these claims was adjusted by approximately $220,000. In accordance with the
Plan of Reorganization, approximately 66,854 shares of sock have been issued to
the State of California during April 1996.
ENVIRONMENTAL CLAIM REGARDING PORT SALERNO
The Company received a claim by an estate owning property northwest and across
Cove Road from the Port Salerno property. The estate has asserted that the
mailing address to which the bankruptcy notice was sent was in error. The estate
has been advised that public water has been made available to the property and
that the Company is prepared to settle for the allowance of a generally
unsecured claim in the amount of $10,000.
Environmental counsel is now handling such negotiation.
BUYOUT OF ARGO PARTNERS' CLAIM
On December 15, 1995, the Company and Argo Partners, Inc. an unsecured creditor
have reached an agreement under which Solitron Devices, Inc. has acquired Argo
Partners' unsecured debt of $694,834 (which was carried as an obligation of
approximately $140,037) for $40,000 as complete settlement. Prior to the
acquisition, Argo Partners received payment of approximately $1,297 from the
Company as part of several distributions to unsecured creditors. Thus, Solitron
Devices, Inc. recognized in December 1995 and extraordinary gain of
approximately $98,740 due to the debt being carried on the books at a discounted
amount. For additional information see Note 15 to the Notes to Consolidated
Financial Statements.
RESOLUTION TRUST CORPORATION (COMPANY'S LANDLORD)
On June, 1995, the Company filed a Motion in Federal Court to compel RTC for
specific performance for the repair of the roof and HVAC system and for damages.
Due to the settlement with RTC, the Company recorded as an extraordinary gain of
approximately $264,000 in fiscal year 1996.
The Company settled its dispute with the RTC out of Court on December 15, 1995.
Under the terms of the settlement, the Company and S/V Microwave Products, Inc.
paid the RTC $325,000 in complete settlement of all the then outstanding rent.
The Company has expended approximately $139,000 in legal expenses before
settlement has been reached. As a result of the settlement with the RTC, the
Company netted a reduction in rent of approximately $239,000 ($563,066 was
Solitron's share of back rent less $185,000 it paid in settlement less
approximately $138,845 expended for legal and professional fees). In December
1995 a reclassification was made from operating expenses to other expenses of
approximately $104,000 for the current year expenses pertaining to the RTC
claim; and an extraordinary gain of approximately $264,000 was recorded due to
the settlement. For additional information see Note 15 to the Notes to
Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
Since March, 1995, the Company's Common Stock has been traded on the Electronic
Bulletin Board (over the counter) of the National Association of Security
Dealers. The Company's Common Stock was traded on the New York Stock Exchange
until October 13, 1993, at which time it began trading on the NASDAQ Small Cap
Market.
The Company's common stock was traded on the NASDAQ Small Cap Market until March
1995.
On December 28, 1994, the Company requested voluntary delisting of its stock
from trading on the Pacific Stock Exchange.
The following table sets forth for the periods indicated, high and low bid
information of the Common Stock. In September, 1993, the Bankruptcy Court
authorized a 1-for-10 reverse split of the Company's Common Stock, pursuant to
which each 10 shares of Common Stock were automatically converted into one share
of Common Stock, with cash paid in lieu of the issuance of fractional shares.
This reverse stock split became effective at the close of business on October
12, 1993, the record date for such reverse stock split. This reverse stock split
has been retroactively reflected herein. The prices set forth below reflect
inter-dealer prices, without retail markup, markdown or commission and may no
represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ------- ----- -----
<S> <C> <C> <C> <C>
First $0.625 $0.50 $2.25 $1.88
Second $0.75 $0.50 $2.00 $1.00
Third $0.75 $0.3125 $1.38 $0.94
Fourth $0.50 $0.31 $1.06 $0.69
</TABLE>
During the period beginning on March 1, 1996 and ending on April 30, 1996, the
high and low sales prices of the Common Stock were $0.50 and $0.375,
respectively.
As of February 29, 1996 and February 28, 1995, there were approximately 4,371
and 4,476 holders of record of the Company's Common Stock, respectively. On
February 29, 1996, the last sale price of the Common Stock as reported on the
Electronic Bulletin Board was $0.3125 per share.
During the four years prior to the Effective Date, the Company was restricted by
its loan agreements from declaring dividends, and, accordingly, no dividends
were paid during that period. Although these restrictions no longer exist, the
Company does not contemplate declaring dividends in the foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In January, 1992, as a result of losses and liquidity deficiencies, the Company
and its wholly-owned subsidiary, Solitron Specialty Products, Inc. (f/k/a
Solitron Microwave, Inc.), filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. On August 20, 1993, the Bankruptcy Court entered an
Order of Confirmation confirming the Company's Plan of Reorganization and on
August 30, 1993, the Plan of Reorganization became effective and the Company
emerged from bankruptcy.
The following table is included solely for use in comparative analysis of income
(loss) before extraordinary items to complement management's discussion and
analysis.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended February 29/28
-------------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales ........................................... $ 6,731 $ 6,263
Cost of sales ....................................... 5,558 5,106
------- -------
Gross profit ........................................ 1,173 1,157
Selling, general and administrative expenses ........ 1,159 1,401
------- -------
Operating (loss) income ............................. 14 (244)
Chapter 11 administrative expenses and fresh
start adjustments ................................... (2) (155)
Gain on disposal of assets .......................... 14 0
Environmental expenses, net of
insurance recoveries ............................... 0 (29)
IRS settlement ...................................... 0 202
Interest expense .................................... (121) (103)
Interest expense on unsecured creditors claims ...... (174) (141)
Write down of non-operating facilities and
related expenses ................................... (21) (1,839)
Interest income ..................................... 24 18
Other, net .......................................... (3) 1
------- -------
(Loss) income before extraordinary items ............ (269) $(2,290)
------- -------
Extraordinary item .................................. 419 0
Net (loss) income ................................... $ 150 $(2,290)
======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the last several fiscal years, the Company has generally experienced
losses from operations and severe cash shortages caused by a significant decline
in both sales and open order backlog, decreased margins (which is characteristic
in the industry) on our products, significant non-recurring expenses associated
with the reorganization proceedings, and the Company's inability to obtain
additional working capital through the sale of debt or equity securities or the
sale of non-operating assets.
During the pendency of the Bankruptcy Proceedings, all secured and unsecured
claims against and indebtedness of the Company (including accrued and unpaid
interest) were stayed in accordance with the Bankruptcy Code while the Company
continued its operations as a debtor-in-possession, subject to the control and
supervision of the Bankruptcy Court. Because these stays limit cash outflow, the
Company, during the pendency of the Bankruptcy Proceedings, realized positive
cash flow from ongoing operations. Since the Company emerged from Chapter 11, it
has experienced a positive cash flow from recurring operations; however, overall
cash flow has been negative due primarily to the necessity to make payments of
administrative expenses and unsecured debt payouts arising in connection with
the Bankruptcy Proceedings. The foregoing resulted in a decrease in cash and
cash equivalents since emergence from Chapter 11.
<PAGE>
After giving effect to the Plan of Reorganization, the Company's outstanding
liabilities at August 31, 1993, were reduced from approximately $32,069,000 to
approximately $6,760,000 and the Company's accumulated deficit was eliminated
with a corresponding charge to additional paid in capital.
The Company has incurred a small gain from ongoing operations of approximately
$14,000 for the fiscal year ended February 29, 1996 and has significant
obligations arising from settlements in connection with its bankruptcy
necessitating it to make substantial cash payments which cannot be supported by
the current level of operations.
The Company has projected that it will continue to be able to generate
sufficient funds to support its ongoing operations. However, the Company must be
able to renegotiate its required payments to unsecured creditors, the IRS, the
DEP and certain taxing authorities or raise sufficient cash in order to pay
these obligations as currently due, in order to remain a going concern.
The Company is currently in negotiations with unsecured creditors, the IRS, the
DEP and other taxing authorities in an attempt to arrive at reduced payment
schedules. Further, the Company plans to be able to enter into a factoring
arrangement to improve cash flow should the need arise. In addition, the Company
has a contingency plan to reduce its size and thereby reduce its cost of
operations within certain limitations. However, no assurance can be made that
the Company can reach a suitable agreement with the unsecured creditors, DEP or
taxing authorities or obtain additional sources of capital and/or cash or that
the Company can generate sufficient cash to meet its obligations.
At February 29, 1996 and February 28, 1995 respectively, the Company had cash
and cash equivalents of $364,000 (which includes no restricted cash) and
$867,000 (which included $394,000 restricted cash for rent and administrative
claims in connection with the Bankruptcy Proceedings). The principal cash change
was due to the RTC settlement.
At February 29, 1996, the Company had working capital of $1,451,000 as compared
with a working capital at February 28, 1995 of $1,203,000. The increase was due
primarily to decreases in current liabilities which more than offset the small
decrease in current assets. Current assets increased in accounts receivables,
inventories and prepaid expenses, and decreased in cash (principally as a result
of the settlement of the Company's claim against its former landlord and the
payment in cash settlement in connection therewith for which cash has been
restricted on the Company's balance sheet) and the amounts due from Vector. The
major cash change was due to the RTC settlement.
Pursuant to the Plan of Reorganization, beginning in approximately May 1995, the
Company was required to begin making quarterly payments to holders of unsecured
claims until they receive 35% of their claims. However, due to negotiations
between the parties, the unsecured creditors agreed to a one month deferment of
this payment (for more discussion see Management's Discussion and Analysis). To
date, these negotiations have not been completed and while they are in progress,
the Company made five of its proposed distributions to the unsecured creditors
who have accepted the payments. These payments to unsecured creditors in the
aggregate amount of approximately $34,711 covered the period March 1, 1995
through February 29, 1996 of approximately $245,173 as required by the Plan of
Reorganization. Following the settlement with the State of California of the
amount of its unsecured claim and the Company's acquisition of the unsecured
claim of Argo Partners, Inc., it is presently estimated that there are an
aggregate of approximately $7,095,252 unsecured claim and, accordingly, that the
Company is required to pay approximately $3,483,338 (i.e., 35% of $7,095,252) to
holders of allowed unsecured claims in quarterly installments of approximately
$62,083. The Company has proposed to its unsecured creditors that it make
quarterly payments of $9,000. As of February 29, 1996, of $245,173 due the
Company paid to the unsecured creditors $34,711. The Company carries its debt to
its unsecured creditors as $102,000 in short-term debt and $1,302,000 as
long-term debt. The aggregate and monthly payments to unsecured creditors
increases and decreases in proportion to $10,000 per month per $3.5 million in
allowed claims, subject to a maximum quarterly payment of $105,000. These
payments and the aggregate amounts thereof would also increase proportionately
in the event of a default by the Company in its obligations to Ellco Leasing
Corporation ("Ellco").
<PAGE>
The Company received a claim by an estate owning property northwest and across
Cove Road from the Port Salerno property. The estate has asserted that the
mailing address to which the bankruptcy notice was sent was in error. The estate
has been advised that public water has been made available to the property and
that the Company is prepared to settle for the sum of $10,000, to be paid as
other unsecured creditor claims are being paid. Counsel is now handling such
negotiations.
During fiscal year 1995, the Company's environmental legal counsel determined
that the Environmental Protection Agency the ("EPA") was reassessing all prior
Comprehensive Environmental Response, Compensation and Liability Information
System sites for National Priority Ranking using the newly adopted ranking
formula. The Company's facilities at Riviera Beach and Port Salerno were the
subject of such reassessment. After conducting a series of meetings with the
State Department of Environmental Protection (the "DEP") and with Region IV EPA
officials, the DEP requested that the Riviera Beach site be taken out of the
reassessment priority process and, pursuant to both that request and the
Company's request, Region IV EPA, according to the responsible DEP official,
took both sites out of the reevaluation process and deferred informally further
action pending the Company's complying with the requirements of the Consent
Final Judgment that it had entered with the Florida Department of Environmental
Protection in accordance with its Plan of Reorganization. The Company's former
facility in Jupiter, Florida (which was sold in 1982) has been the subject of a
preliminary assessment by the EPA during calendar year 1995. The EPA has
requested site access from the current owner. The Company's environmental legal
counsel has no information concerning the Jupiter facility nor has the Company
received any request for information. The Company and its environmental legal
counsel cannot assess at this time what the impact of the EPA study will be, if
any, on the Company's liability nor when the EPA will complete its study. For a
further description of the Company's significant environmental problems, refer
to "Item 1 - Business - Bankruptcy Proceedings" and to Note 12 of the
accompanying Consolidated Financial Statements.
Pursuant to the terms of the Plan of Reorganization and Consent Final Judgment,
the Company is required to complete the assessment and remediation of the Port
Salerno Facility and the Old Riviera Beach Facilities. The costs of these
assessments and remediations, estimated at $1,069,000, will be payable from the
proceeds of the sale or lease of these properties. The Company is required to
escrow the following amounts on a monthly basis beginning on the 25-month
anniversary of the Effective Date of the Plan of Reorganization to ensure the
remediation of these properties in the event the properties are not sold or
leased: (i) year 1 - $60,000; (ii) year 2 - $90,000; (iii) year 3 - $120,000;
and (iv) $120,000 per year thereafter until remediation is completed. Any excess
of such sale and lease proceeds and such escrows over the cost of assessment and
remediation shall be returned to the Company. As part of these requirements, the
Company performed soil remediation assessment at both facilities. These tests
indicated that no soil remediation is required at the Port Salerno and Old
Riviera Beach facilities. DEP has concurred that no further soil remediation is
required at either property. For details see the Company's Plan of
Reorganization and Consent Final Judgment with the Department of Environmental
Protection. The Company is renegotiating with DEP the terms of the cash payments
into the aforementioned escrow account and while the negotiations are under way
the Company deposits $1,000 per month. As of February 29, 1996, of the $25,000
due in accordance with the Plan, the Company deposited $5,000 into the escrow
account.
The proceeds of the sale of the New Riviera Beach Facility would be used to: (1)
pay for all outstanding real estate taxes; (2) real estate commissions; (3)
legal fees; (4) all miscellaneous costs associated with the sale (i.e., stamps,
title insurance, etc.) and (5) cost of relocating equipment and material
currently stored in the facility. The Company would like to sell the New Riviera
Beach facility in such a manner that the buyer would will assume the Company's
obligation to perform the cleanup and will provide the Company with a suitable
performance bond to guarantee that the cleanup will be done appropriately or the
remaining funds (approximately $410,000-$430,000) will be deposited in the New
Riviera Beach environmental escrow account. The Company is then required to
perform the clean-up with funds available in the escrow account. Should the cost
of clean-up exceed the escrowed amount, the Company will be required to pay any
additional funds in accordance with the Consent Final Judgment (see Consent
Final Judgment).
<PAGE>
On April 17, 1995, the Company entered into an agreement to sell the Old Riviera
Beach Facility for $850,000 and accordingly, has wrote down this asset by
$1,140,000 to $760,000 which represented the sales price less costs to dispose
of the property. (This contract has since been terminated.) The Port Salerno
property was written down by $665,000 to $985,000, which is Management's
estimate of its net realizable value based upon appraisal information and the
proposed fiscal year 1995 contract for sale of the Riviera Beach Facility. These
writedowns are reflected in the February 28, 1995 statement. Management is
hopeful that both properties can be sold at no cash flow impact to the Company.
See Note 13 for discussion of environmental matters related to the Company's
non-operating plant facilities.
The Company is required to pay an equipment lessor (Ellco) $255,000 plus
interest at six percent per annum in monthly payments over a four-year period
beginning on the Effective Date in satisfaction of an allowed claim amounting to
approximately $1,214,000. These monthly payments escalate from $3,500 to $6,000
during such four-year term. Ellco has been granted a security interest in
certain of the Company's equipment to collateralize such obligations. In the
event of any default by the Company, Ellco would have an unsecured claim
amounting to 35% of the original amount due less payments made to the date of
the default. Additionally, Ellco would be entitled to certain amounts pursuant
to a profit participation payable to unsecured creditors and a pro rata share of
the common stock issuable to unsecured creditors pursuant to the Plan. As of
April 30, 1996, the Company had paid Ellco $158,000 meeting all of its then
current obligations to Ellco.
Pursuant to the Plan of Reorganization, beginning on the date the Company's net
after tax income exceeds $500,000, the Company will be required to pay certain
pre-petition creditors 10% of net after tax income until the tenth anniversary
of the Effective Date, up to a maximum aggregate of $3,000,000 in such payments.
Further, the Company's lease payments (less sublease payments from Vector) for
its facilities in West Palm Beach, Florida will increase each year from
approximately $255,000 during the current fiscal year in accordance with
specified cost of living increases (which shall be no less than 3% nor more than
5% per year).
The Company has satisfied all of the allowed administrative claims and allowed
wage claims under the Plan of Reorganization. The Company is required to pay
allowed tax claims (to the Internal Revenue Service, Palm Beach County, Florida
and Martin County, Florida), estimated at approximately $1,718,000 (which amount
is accrued in the accompanying financial statements including interest). The
Company is required to make quarterly payments of allowed tax claims to Palm
Beach County according to the following schedules: $37,000 per quarter for two
years beginning in the second quarter of 1994; and approximately $82,000 per
quarter for the twelve quarters thereafter. The Company is required to make
quarterly payments of allowed tax claims to Martin County of approximately
$4,000 for a period of approximately four years beginning in approximately
October 1994. The allowed tax claims payable to the IRS was determined in
January 1995 to be $401,000. At February 29, 1996, such amounts include accrued
interest totalling $410,000. The Company is required to make payments of allowed
tax claims to the IRS of no more than approximately $21,000 per quarter
beginning in approximately April 1995 and ending approximately January 2001. The
Company is now negotiating with the IRS, Palm Beach County and Martin County to
modify these payment plans. The following table indicates the approximate
cumulative status of amounts due under Court Plans a of February 29, 1996:
<TABLE>
<CAPTION>
Due Paid
-------- --------
<S> <C> <C>
Martin County ............. $ 24,000 $ 7,957
Palm Beach County ......... 259,000 154,979
IRS ....................... 84,000 --
</TABLE>
Based upon (i) Management's best information as to current national defense
priorities, future defense programs, as well as Management's expectations as to
future defense spending; (ii) the market trends signaling an end to the price
erosion; and (iii) a continual lack of foreign competition in the defense and
aerospace market, the Company believes that its operations will continue to
generate sufficient cash to satisfy its operating needs over the next 12 months.
However, based on these factors and at the current bookings, prices, profit
margins and sales levels, the Company will not generate sufficient cash to
satisfy its operating needs and its obligations to pre-bankruptcy creditors in
accordance with the Plan. Thus, it is in negotiations with all claim holders to
reschedule these payments. In the event the Company is unable to restructure its
obligations to pre-bankruptcy claimants, the Company has a contingency plan to
further
<PAGE>
reduce its size and thereby reduce its cost of operations within certain
limitations. Over the long-term, the Company believes that, if the volume and
prices of product sales continues as presently anticipated, that the Company
will generate sufficient cash from operations to sustain operations. In the
event that bookings in the long-term decline significantly below the level
experienced since emerging from Chapter 11, the Company may be required to
implement further cost-cutting or other downsizing measures to continue its
business operations. Such cost-cutting measures could inhibit future growth
prospects. In addition, the Company is pursuing additional sources of financing.
There is no assurance that financing will be available in amounts or upon terms
satisfactory to the Company. Further, in appropriate situations, the Company may
seek strategic alliances, joint ventures, with others or acquisitions in order
to maximize marketing potential and utilization of existing resources and
provide further opportunities for growth.
BOOKINGS AND BACKLOG
During the fiscal year ended February 29, 1996, the Company's net bookings were
$7,012,000 in new orders as compared with $7,480,000 for the year ended February
28, 1995, a decrease of 6.3%. This very small decrease is despite an approximate
15% cut in the average sales price per unit, which indicates that the Company
would have had to ship 17% more units to achieve the same level of revenues. The
price decline was a direct result of highly competitive declining market
occupied by the same number of competitors competing for a smaller piece of the
federal spending pie. Over the last three months, this trend of declining prices
appeared to nearly stabilize to the extent that no more drastic defense cuts are
on the horizon and, therefore, the prices will stabilize. However, there can be
no assurance that this will indeed be the case. In spite of a 6.3% decrease in
orders and a 7.5% increase in shipments compared to the prior year, orders
received were higher than shipments by approximately $300,000 thus the Company's
backlog increased to $4,300,000 at February 29, 1996 as compared with $4,000,000
as of February 28, 1995, a 7.5% increase. Overall, the Company's position in the
market place as is evidenced with the healthy level of bookings which are coming
in at a steadier pace than in the past, position the Company at a comfortable
base for expansion. However, their can be no assurance that the level of
bookings and/or expansion will materialize.
FUTURE PLANS
Due to the Company's current liquidity problems, the Company plans to (a)
continue improving operating efficiencies; (b) further reduce overhead expenses;
(c) develop off-shore manufacturing capability utilizing strategic partners
and/or sub-contractors. Also, the Company intends to identify lower cost base
assembly partners in the Pacific region, thus enhancing the Company's
competitive position while reducing costs.
The Company also plans to continue its efforts in selling privately labelled
commercial semiconductors and to develop offshore assembly or sub-assembly
whether as under contract or strategic alliance arrangements. If these plans are
successful, the Company intends to aggressively pursue sales of these products
which could require the Company to invest in the building up of inventories of
finished goods. The Company may seek to generate such funding through either
equity or debt financing. The Company has not made any commitments for any such
financing or strategic alliance and there can be no assurance that the Company
will be able to consummate any such arrangements should it seek to do so.
INFLATION
The rate of inflation has not had a material effect on the Company's revenues
and costs and expenses, and it is not anticipated that inflation will have a
material effect on the Company in the near future.
<PAGE>
RESULTS OF OPERATIONS
1996 vs. 1995
Net sales for the fiscal year ended February 29, 1996 increased by 7.5% to
$6,731,000 versus $6,263,000 during the fiscal year ended February 28, 1995.
Such increase was primarily attributable to steady bookings and a strong backlog
and the ability to ship more units with less people. Bookings were higher than
sales by 4.2%, thus backlog increased from $4,000,000 as of February 28, 1995 to
$4,300,000 as of February 29, 1996..
During the year ending February 29, 1996, the Company shipped 3,321,963 units as
compared with 2,639,582 units shipped during the year ending February 28, 1995.
During the year ending February 29, 1996, the Company's gross margins were 17.4%
as compared to 18.5% for the year ending February 28, 1995. Such a decrease was
primarily due to higher material costs and lower average unit sales prices which
was a direct result of fierce competition in a declining market due to a
decrease in defense spending. During the year ending February 29, 1996, selling,
general and administrative expenses as a percentage of sales was 17.2% as
compared with 22.4% for the year ending February 28, 1995. Selling, General and
Administrative expenses decreased 17.3% to $1,159,000 for the fiscal year ended
February 29, 1996 from $1,401,000 for the fiscal year ended February 28, 1995.
Such decrease was due primarily to a decrease in legal fees of approximately
$107,000, due to lower legal fees and a decrease in selling expenses of
approximately $93,000 and in recruiting costs of approximately $65,000.
Total interest expense increased from $244,000 for the fiscal year ended
February 28, 1995 to $295,000 for the fiscal year ended February 29, 1996
primarily due to interest being accrued for pre-bankruptcy property taxes and
imputed interest expense of $174,000 on amounts due to the unsecured creditors.
The Company settled its dispute with the RTC out of Court on December 15, 1995.
Under the terms of the settlement, the Company and S/V Microwave Products, Inc.
paid the RTC $325,000 in complete settlement of all the then outstanding rent.
The Company has expended approximately $139,000 in legal expenses before
settlement has been reached. As a result of the settlement with the RTC, the
Company netted a reduction in rent of approximately $239,000 ($563,066 was
Solitron's share of back rent less $185,000 it paid in settlement less
approximately $138,845 expended for legal and professional fees). In December
1995 a reclassification was made from operating expenses to other expenses of
approximately $104,000 for the current year expenses pertaining to the RTC
claim; and an extraordinary gain of approximately $264,000 was recorded due to
the settlement.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Reports of Independent Certified Public Accountants 25-26
Consolidated Balance Sheet as of
February 29, 1996 27
Consolidated Statements of Operations
for the years ended February 29, 1996 and
February 28, 1995 28
Consolidated Statements of Stockholders'
Equity for the years ended February 29,
1996 and February 28, 1995 29
Consolidated Statements of Cash Flows for the year
ended February 29, 1996 and February 28, 1995 30
Notes to Consolidated Financial Statements 31-45
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
of Solitron Devices, Inc.:
We have audited the accompanying consolidated balance sheet of Solitron Devices,
Inc. and subsidiaries as of February 29, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Solitron Devices, Inc. and Subsidiaries as of February 29, 1996 and the
consolidated results of its operations and its consolidated cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has certain obligations resulting
from its settlement with unsecured creditors and with taxing authorities, the
present terms of which it is unable to meet, which raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Millward & Co. CPAs
Fort Lauderdale, Florida
April 26, 1996
<PAGE>
Independent Certified Public Accountants
To the Board of Directors and Stockholders
of Solitron Devices, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Solitron Devices, Inc. and subsidiaries
for the year ended February 28, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and cash flows of Solitron
Devices, Inc. and subsidiaries for the year ended February 28, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has certain obligations resulting
from its settlement with unsecured creditors and with taxing authorities, the
present terms of which it is unable to meet, which raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
West Palm Beach, Florida BDO Seidman, LLP
June 7, 1995
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 364,000
Accounts receivable, less allowance for doubtful accounts
of $27,000 ................................................ 887,000
Inventories ................................................ 2,079,000
Prepaid expenses and other current assets .................. 103,000
Due from Vector ............................................ 70,000
-----------
Total current assets .................................... 3,503,000
PROPERTY, PLANT AND EQUIPMENT, net ............................... 773,000
NON-OPERATING PLANT FACILITIES ................................... 1,745,000
DUE FROM VECTOR, less current portion ............................ 123,000
OTHER ASSETS ..................................................... 83,000
-----------
$ 6,227,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturates of long-term debt ........................ $ 66,000
Current portion of accrued environmental expenses .......... 60,000
Accounts payable-Post-petition ............................. 580,000
Accounts payable-Pre-petition .............................. 102,000
Accrued expenses ........................................... 1,183,000
Accrued Chapter 11 administrative expense .................. 61,000
-----------
Total current liabilities ........................... 2,052,000
LONG-TERM DEBT, less current maturities .......................... 41,000
OTHER LONG-TERM LIABILITIES, net of current portion .............. 3,501,000
-----------
TOTAL LABILITIES ................................................. 5,594,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares .. --
Common stock, $.01 par value, authorized 10,000,000 shares,
1,880,011, outstanding ................................... 19,000
Additional paid-in capital .................................. 2,619,000
Deficit ..................................................... (2,005,000)
-----------
Total stockholders' equity .......................... 633,000
-----------
$ 6,227,000
===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Year For The Year
Ended Ended
February 29, February 28,
------------- -------------
1996 1995
------ ------
<S> <C> <C>
Net sales ........................................ $ 6,731,000 $ 6,263,000
Cost of sales .................................... 5,558,000 5,106,000
----------- -----------
Gross profit ..................................... 1,173,000 1,157,000
Selling, general and administrative expenses ..... 1,159,000 1,401,000
----------- -----------
Operating income (loss) .......................... 14,000 (244,000)
Other income (expense):
Chapter 11 administrative expenses and Fresh Start
Adjustments ................................... (2,000) (155,000)
Gain on disposal of assets ..................... 14,000 --
Environmental expenses, net of insurance
recoveries .................................... -- (29,000)
Writedown of non-operating facilities
and related expenses .......................... (21,000) (1,839,000)
Interest expense ............................... (121,000) (103,000)
Interest expense on unsecured creditors claim .. (174,000) (141,000)
IRS settlement ................................. -- 202,000
Interest income ................................ 24,000 18,000
Other, net ..................................... (3,000) 1,000
----------- -----------
Other income (expense), net ...................... (283,000) (2,046,000)
----------- -----------
Loss before extraordinary items .................. (269,000) (2,290,000)
Extraordinary item:gain on forgiveness of debt ... 419,000 --
Net income (loss) ........................... $ 150,000 $(2,290,000)
=========== ===========
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Loss before extraordinary item ................... (.13) (1.10)
Extraordinary item ............................... .20 --
----------- -----------
Net income (loss) per common share ............... $ .07 $ (1.10)
=========== ===========
Weighted average number of common shares
outstanding ..................................... 2,082,000 2,082,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Year Ended February 29, 1996 and
February 28, 1995
<TABLE>
<CAPTION>
Common Stock
----------------- Additional Retained
Number of Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, February 28,
1994................... 1,415,000 $14,000 $2,624,000 $135,000 $2,773,000
Issuance of shares of
common stock Pursuant
to the Plan of
Reorganization ......... 465,000 5,000 (5,000) -- --
Net loss ................ -- -- -- (2,290,000) (2,290,000)
---------- ------- ---------- ---------- ----------
Balance, February 28,
1995 .................. 1,880,000 $19,000 $2,619,000 $(2,155,000) $483,000
Net income ............. -- -- -- 150,000 150,000
Balance, February 29,
1996 .................. 1,880,000 $19,000 $2,619,000 $(2,005,000) $633,000
========= ======= ========== =========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year For The Year
Ended Ended
February 29, February 28,
------------ ------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................. $150,000 $(2,290,000)
--------- ------------
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities:
Extraordinary item:forgiveness of debt ........ (419,000)
Depreciation and amortization ................. 234,000 301,000
Gain on disposal of assets .................... (14,000) --
Provision for doubtful accounts ............... (12,000) (62,000)
Provision for write-down of property .......... -- 1,805,000
IRS settlement ................................ -- (202,000)
Decrease (increase) in:
Accounts receivable ........................... (143,000) 236,000
Inventories ................................... (269,000) (50,000)
Prepaid expenses and other current assets .... (53,000) 13,000
Due from Vector ............................... 166,000 (79,000)
Other assets .................................. 7,000 18,000
Increase (decrease) in:
Accounts payable .............................. 212,000 (43,000)
Accounts payable-pre-petition ................. 198,000 141,000
Accrued expenses .............................. (393,000) 560,000
Accrued Chapter 11 expenses ................... (59,000) 65,000
Accrued environmental expenses ................ (6,000) --
Other long-term liabilities ................... 78,000 (309,000)
--------- -----------
Total adjustments ............................ (473,000) 2,394,000
--------- -----------
Net cash provided by (used in) operating
activities .................................... (323,000) 104,000
--------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets .............. 61,000 --
Purchase of debt from Argo Partners ........... (40,000) --
Additions to property, plant and equipment .... (128,000) (43,000)
--------- ------------
Net cash provided by (used in) investing
activities .................................... (107,000) (43,000)
--------- ------------
Cash flows from financing activities:
Payments on capitalized lease obligations ..... (73,000) (91,000)
--------- ------------
Net cash used in financing activities ......... (73,000) (91,000)
--------- ------------
Net increase (decrease) in cash ................ (503,000) (30,000)
Cash and cash equivalents at beginning of
period ........................................ 867,000 897,000
--------- ------------
Cash and cash equivalents at end of period ..... $ 364,000 $ 867,000
--------- ------------
Supplemental cash flow disclosures:
Interest paid ................................. $ 121,000 $ 103,000
--------- ------------
Income taxes paid ............................ $ -- --
--------- ------------
</TABLE>
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant inter-company
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
The Company considers all investments with a maturity of three months or less at
the date of purchase to be cash equivalents for purposes of its statements of
cash flows.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined using
the weighted average method.
Property, Plant & Equipment:
Property, plant and equipment are carried at cost. At August 31, 1993, assets on
hand were adjusted to fair value required by fresh start reporting.
Depreciation, including amortization of capitalized leases, is computed using
the straight-line method over the estimated useful lives of the related assets,
ranging from 2 to 8 years, for owned assets and over the lease term for
capitalized leases.
Non-Operating Plant Facilities:
Facilities which are no longer being utilized for operations are being carried
at estimated realizable values not in excess of cost as non current assets. The
facilities are not being depreciated.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk, consist principally of cash and trade receivables. The Company
places its cash with high credit quality institutions. At times such amounts may
be in excess of the FDIC insurance limits. The Company has not experienced any
losses in such account and believes that it is not exposed to any significant
credit risk on the account. With respect to the trade receivables, most of the
Company's products are custom made pursuant to the contracts whose end products
are sold to the United States Government. The Company performs ongoing credit
evaluations of it's customers' financial condition and maintains allowances for
potential credit losses. Actual losses and allowances have been within
management's expectations.
Revenue:
Revenue is recognized upon shipment; however, the Company may receive payment of
some contracts in advance. When received, these amounts are deferred and are
recognized as revenue in the period in which the related products or services
are delivered.
Income Taxes:
Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced to estimated
amounts to be realized by the use of a valuation allowance.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Earnings Per Share:
The per share amounts are calculated based on the weighted average number of
shares of common stock outstanding during each period. For purposes of
calculating earnings per share, all shares of common stock issuable pursuant to
the terms of the Plan (excluding shares reserved for future issuance under stock
option plans) are considered issued and outstanding (2,082,000 shares for the
year ended February 29, 1996 and February 28, 1995, respectively) and are
included in the calculation of earnings per share for the year ended February
29, 1996 and the year ended February 28, 1995. Options issued to the Company's
President are common stock equivalents. Common stock equivalents have been
included in the calculation except when their effect would be anti-dilutive.
Recent Pronouncements:
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and For Long-Lived Assets to be Disposed Of". SFAS 121
becomes effective for fiscal years beginning after December 15, 1995 and
addresses the accounting for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company believes this pronouncement will not have a significant
impact on the Company's consolidated financial statements.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation". The accounting requirements of SFAS 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The disclosure requirements of SFAS 123 are effective for financial statements
for fiscal years beginning after December 15, 1995, or for an earlier fiscal
year for which this statement is initially adopted for recognizing compensation
costs. The Company believes this pronouncement will not have a significant
impact on the Company's consolidated financial statements.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Going Concern and Petition in Bankruptcy:
Going Concern
The Company's consolidated financial statements are presented on a going concern
basis which contemplates the realization of assets and satisfaction of
liabilities as they become due. Although the Company has projected that it will
be able to generate sufficient funds to support its ongoing operations, it has
significant obligations arising from settlements in connection with its
bankruptcy necessitating it to make substantial cash payments which cannot be
supported by the current level of operations. The Company must be able to
renegotiate its bankruptcy related required payments to unsecured creditors, the
Department of Environmental Protection ("DEP"), the Internal Revenue Service
("IRS") and certain taxing authorities or raise sufficient cash in order to pay
these obligations as currently due, in order to remain a going concern.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(continued)
The Company is currently in negotiations with unsecured creditors, the DEP, the
IRS and other taxing authorities in an attempt to arrive at reduced payment
schedules. Further, the Company plans to be able to enter into a factoring
arrangement to provide additional funding. In addition, the Company has a
contingency plan to reduce its size and thereby reduce its cost of operations
within certain limitations. However, no assurance can be made that the Company
can reach a suitable agreement with the unsecured creditors or taxing
authorities or obtain additional sources of capital and/or cash or that the
Company can generate sufficient cash to meet its obligations over the next year.
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
Petition in Bankruptcy On January 24, 1992, Solitron Devices, Inc. and its
wholly-owned subsidiary, Solitron Specialty Products, Inc. (f/k/a Solitron
Microwave, Inc.) (collectively, the "Company"), filed voluntary petitions in the
United States Bankruptcy Court for the Southern District of Florida seeking to
reorganize under Chapter 11 of the federal Bankruptcy Code. The Company was
authorized to continue in the management and control of its business and
property as debtor-in-possession under the Bankruptcy Code.
On October 5, 1992, the Company entered into a Purchase Agreement (the "Vector
Purchase Agreement") with Vector Trading and Holding Company ("Vector"). The
Vector Purchase Agreement was subsequently amended and approved by the
Bankruptcy Court in February 1993. The Vector Purchase Agreement provided for a
reduction in amounts outstanding under the Company's indebtedness to its primary
lender in exchange for certain assets of the Company's Microwave Division
including accounts receivable, inventories and equipment, and the assumption of
a specified amount of related liabilities as well as the assignment of certain
insurance settlement proceeds and the issuance of shares of the Company's common
stock. In consideration for the fair market value of the net assets transferred
to Vector, the Company's obligation under its indebtedness to its primary lender
was reduced by a like amount. In July 1993, the Company reached a settlement
with its insurance carrier which was approved by the Bankruptcy Court. Following
the approval, insurance proceeds were transferred to Vector, as the Company's
primary lender, who subsequently released the Company's assets from all related
liens.
The Company also entered into a Sublease and a Shared Services and Equipment
Agreement with Vector. These agreements provide (i) for the sublease by Vector
of a portion of the Company's West Palm Beach Facility and (ii) that the Company
be reimbursed for certain services provided to Vector including, but not limited
to, maintenance, computer usage, equipment usage and use of a shared facility.
"Due from Vector" in the accompanying consolidated balance sheet primarily
represents amounts due for property tax reimbursements agreed to by Vector and
rent due under the sublease agreement.
On August 20, 1993 the Company's Plan of Reorganization, as amended and modified
(the "Plan"), was confirmed by the Bankruptcy Court and the Company emerged from
bankruptcy on August 30, 1993 (August 31, 1993 for financial reporting
purposes). The Company filed a motion in bankruptcy court to close the case on
February 24, 1996.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern and Petition in Bankruptcy (continued):
(a) The Company is required to make quarterly payments to holders of
unsecured claims until they receive 35 percent of their pre-petition claims
starting May 31, 1995 following settlements and debt buyback. At February 29,
1996, there are approximately $7,100,000 of allowed unsecured claims, and
accordingly, the Company is currently scheduled to pay approximately $2,500,000
to holders of allowed unsecured claims in quarterly installments of
approximately $62,000. As of February 29, 1996, the present value of this
amount, $1,404,000, is accrued as a pre-petition liability (Note 8) with imputed
interest recognized in the Statement of Operations. Certain claims were
contested by the Company and their resolution changed total allowed claims.
Included in these contested claims was an income tax claim by the State of
California amounting to $900,000 for income taxes prior to 1992 which was
settled November 30, 1995 for approximately $680,000. (See Note 2(g)). To the
extent allowed unsecured claims exceed $8,000,000, the aggregate and monthly
payments to unsecured creditors will be increased proportionately up to a
maximum of $35,000 per month.
(b) The Company was required to pay an equipment lessor (Ellco)
$255,000 plus interest at 6% per annum (Note 6) in monthly payments over a
four-year period beginning on the Effective Date in satisfaction of an allowed
claim amounting to approximately $1,214,000. As of February 29, 1996, the
Company has an outstanding balance of $107,000 plus interest remaining due on
this claim. Ellco has been granted a security interest in certain of the
Company's equipment to collateralize such obligations. In the event of any
default by the Company, Ellco would have an unsecured claim amounting to 35
percent of the original amount due less payments made to the date of the
default. Additionally, Ellco would be entitled to certain amounts pursuant to a
profit participation payable to unsecured creditors and a pro rata share of the
common stock issuable to unsecured creditors pursuant to the Plan.
(c) The Company received releases of substantially all liens on its
assets and properties existing as of August 31, 1993. However, in accordance
with the Plan, certain former creditors have been granted primary liens on
certain of the Company's equipment and the holders of unsecured claims shall be
granted a lien on all of the Company's equipment. As of May 31, 1995, the
Company has paid off all of these equipment leases and the only remaining lease
holder is Ellco.
(d) The Company transferred to a secured lender ("First Union") the
real property known as the New Riviera Beach Facility and granted to the lender
a non-exclusive perpetual easement for the use of approximately 125 parking
spaces on the adjacent real property owned by the Company in satisfaction of the
lender's allowed claim of $3,170,000. The remaining $300,000 balance was treated
as an unsecured claim and included in accounts payable pre-petition at February
29, 1996.
(e) Beginning on the later of (i) the payment of all administrative
claims and all unsecured claims, but not later than 18 months after the
Effective Date and (ii) the date the Company's net after tax income exceeds
$500,000, the Company will pay (on an annual basis) each of (x) the holders of
unsecured claims (pro rata) and (y) Vector, 5% of its net after tax income until
the tenth anniversary of the Effective Date, up to a maximum aggregate of
$1,500,000 of such payments to the holders of unsecured claims (pro rata) and up
to a maximum aggregate of $1,500,000 of such payments to Vector.
(f) The Company is required to remediate its non-operating facilities
located in Port Salerno and Riviera Beach, Florida. The monies to be utilized to
fund the remediation will be made available from the proceeds of the sale or
lease of the properties, to the extent that the Company is successful in its
efforts to sell or lease such properties. Pursuant to the Plan, unless approved
by the "DEP", neither the Riviera Beach Facility nor the Port Salerno Facility
will be sold unless the price for such property equals or exceeds the lesser of
(i) 75% of its appraised value or (ii) the
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern and Petition in Bankruptcy (continued):
estimated cost of its remediation. Further, pursuant to the Plan, a lessee or
purchaser of either of these facilities would not be liable for existing
environmental problems. In connection with facilitating the remediation of the
properties, the Company will also, to the extent the proceeds from the sale or
lease of these properties are not sufficient to pay for the remediation, be
required to escrow the following amounts on a monthly basis beginning on
September 30, 1995: (i) year 1 - $5,000 per month; (ii) year 2 - $7,500 per
month; (iii) year 3 - $10,000 per month; and (iv) $10,000 per month thereafter
until remediation is completed. The Company is negotiating with the DEP to
modify the payment schedule and while negotiations are under way, the Company is
making payments at the rate of $1,000 per month. As of February 29, 1996, the
Company deposited $5,000 into the escrow accounts. (Note 12).
(g) The Company has paid all of the allowed administrative claims and
allowed wage claims since the Effective Date. The Company is required to pay
allowed tax claims to the IRS, Palm Beach County, Florida and Martin County,
Florida), estimated at approximately $1,718,000 (which amount is included in the
accompanying consolidated financial statements (Note 8), including interest).
The Company was required to start making quarterly payments of allowed tax
claims to Palm Beach County according to the following schedule: $37,000 per
quarter for two years beginning in the second quarter of 1994; and approximately
$82,000 per quarter for the twelve quarters thereafter. The Company is
negotiating with Palm Beach County to reschedule these payments. The Company has
entered into an agreement to make quarterly payments of allowed tax claims to
Martin County of approximately $4,000 for a period of approximately four years
beginning in October 1994. The allowed tax claims payable to the IRS was
determined in January 1995 to be $401,000. The difference between this amount
and the $603,000, which was accrued as of February 28, 1994, is included in the
1995 Statement of Operations. The Company was expected to make quarterly
payments of allowed tax claims to the IRS of no more than approximately $21,000
for per quarter beginning in approximately April 1995 and ending in
approximately January 2001. The Company is negotiating with the IRS to
reschedule these payments and has not started making these payments. These tax
claims do not include an unsecured claim (Note 2(a) by the State of California
for approximately $900,000 for income taxes for years prior to 1982. Solitron
disputed the extent of the State of California's claim. An objection to the
State of California's claim has been filed, and was settled November 30, 1995
for approximately $680,000. The Company's carrying value of approximately 35% of
the original claim was adjusted and is included in extraordinary items.
The Plan provides for the distribution of common stock of the Company such that,
post-petition, the Company's common stock will be held as follows:
<TABLE>
<CAPTION>
Party-In-Interest Common Stock
----------------- ------------
<S> <C>
Vector 25%
Unsecured Creditors 40%
Company's President 10%
Pre-Petition Stockholders 20%
Reserved for future issuance under an
employee stock incentive plan 5%1/
----
100%
====
<FN>
__________
1/ To be issued based upon the terms and conditions of the Plan at
the discretion of the Board of Directors.
</FN>
</TABLE>
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern and Petition in Bankruptcy (continued):
On October 4, 1994, the Company and Vector agreed that Vector's 25% stock would
be distributed among the following parties. Among these parties, Inversiones
Globales will not be subject to the voting restrictions, while the balance of
the parties will continue to be subjected to the voting restrictions as long as
they or their affiliates hold Solitron stock.
<TABLE>
<CAPTION>
Shares
------
<S> <C> <C>
Inversiones Globales, S.A. 12.50% 273,943
Services Finance Corporation 3.51% 77,037
Trans-Resources, Inc. 3.51% 77,037
AHI Drilling, Inc. 3.51% 77,037
Cointrol Credit Company 0.93% 20,095
Martin & Associates Management Consultants 1.04% 22,737
------ --------
25.00% 547,886
====== =======
</TABLE>
Effective August 30, 1993 (August 31, 1993 for financial reporting purposes),
the Company adopted "Fresh Start Reporting" in accordance with the Statement of
Position 90-7 entitled "Financial Reporting by Entities in Reorganization Under
The Bankruptcy Code" because holders of the existing voting shares immediately
before filing and confirmation of the Plan received less than 50% of the voting
shares of the emerging entity and its reorganization value immediately before
the date of confirmation is less than the total of all post petition liabilities
and allowed claims. The reorganization value of the Company was based on
appraised values of non-current assets and carrying values of current assets and
approximates the market value of the Company at August 31, 1993 determined by
reference to the quoted market price of the Company's common stock at that date.
Use of this method shows the effects of adjustments on assets and liabilities as
well as the forgiveness of debt on the predecessor company's final consolidated
statement of operations. In addition, the reorganized company's financial
statements at that time reflected no beginning retained earnings or deficit.
Adjustments to reflect the use of this are as follows:
Net adjustment to increase to fair value the
historical amount of fixed assets and
non-operating plant facilities $ 1,304,000
Total debt forgiveness $14,075,000
Prior accumulated deficit eliminated $25,840,000
Accordingly, the Company's consolidated financial statements prior to August 31,
1993 are not comparable to subsequent periods.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern - 1995
The Company's consolidated financial statements are presented on a going concern
basis which contemplates the realization of assets and satisfaction of
liabilities as they become due. The Company has incurred losses from ongoing
operations of $244,000 for the fiscal year ended February 28, 1995 and has
significant obligations arising from settlements in connection with its
bankruptcy necessitating it to make substantial cash payments which cannot be
supported by the current level of operations.
The Company has projected that it will be able to generate sufficient funds to
support its ongoing operations. However, the Company must be able to renegotiate
its bankruptcy related required payments to unsecured creditors, the IRS and
certain taxing authorities or raise sufficient cash in order to pay these
obligations as currently due, in order to remain a going concern.
The Company is currently in negotiations with unsecured creditors, DEP, the IRS
and other tax authorities in an attempt to arrive at reduced payment schedules.
Further, the Company plans to be able to enter into a factoring arrangement to
provide additional funding. In addition, the Company has a contingency plan to
reduce its size and thereby reduce its cost of operations within certain
limitations. However, no assurance can be made that the Company can reach a
suitable agreement with the unsecured creditors or taxing authorities or obtain
additional sources of capital and/or cash or that the Company can generate
sufficient cash to meet its obligations.
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
3. Inventories:
As of February 29, 1996, inventories consist of the following:
Raw Materials 1,063,000
Work-In-Process and Finished Goods 1,016,000
----------
$2,079,000
==========
4. Property, Plant and Equipment:
As of February 29, 1996, property, plant and equipment consists of the
following:
Building Improvements $ 576,000
Machinery and Equipment 862,000
----------
$1,438,000
Less Accumulated Depreciation
and Amortization 665,000
----------
$ 773,000
==========
Non-operating Plant Facilities $1,745,000
==========
Non-operating plant facilities at February 29, 1996 represent the Company's Port
Salerno facility and Riviera Beach microwave plant (the Old Riviera Beach
Facility), both of which are no longer being used in operations.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Depreciation expense was $234,000 and $301,000 for 1996 and 1995, respectively.
5. Accrued Expenses:
As of February 29, 1996, accrued expenses consist of the following:
Payroll and related employee benefits $ 251,000
Property taxes 427,000
IRS tax claim 101,000
Other liabilities 120,000
Customer Advances 110,000
Interest Payable 174,000
------------
$1,183,000
6. Financial Instruments:
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash - Fair value was considered to be the same as the carrying amount.
Receivables - The Company believes that in the aggregate, the carrying value of
the receivables was not materially different from the fair value.
Long-term debt - The carrying amount of floating-rate long-term debt was assumed
to approximate its fair value.
7. Long-Term Debt:
As of February 29, 1996, long-term debt consists of the following:
6% equipment finance agreements
due in monthly installments, with
scheduled maturities through September 1997 $107,000
Less current maturities (66,000)
--------
$ 41,000
--------
Contractual payment requirements on all debt balances are as follows:
<TABLE>
<CAPTION>
Year Ending
February 28/29 Total
-------------- --------
<S> <C>
1997 $ 66,000
1998 41,000
--------
$107,000
========
</TABLE>
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. Other Long-Term Liabilities:
As of February 29, 1996, other Long-term liabilities consists of the following:
Accrued Environmental Expenses $1,069,000
Accounts Payable-Pre-petition 1,404,000
IRS Tax Claim 410,000
County Property Tax Payable 1,308,000
----------
$4,191,000
Less Current Portion (690,000)
----------
$3,501,000
==========
The current portion of the long-term liabilities is in the amount of $690,000
consists of accrued environmental expenses of $60,000, accounts payable
pre-petition of $102,000, IRS tax claim of $101,000 and County property tax
payable of $427,000, the latter two being included in accrued expenses.
Contractual or estimated payment requirements on other long-term liabilities
including amounts representing interest during the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
Year Ending
February 28/29 Total
-------------- ----------
<S> <C>
1997 $ 813,000
1998 857,000
1999 882,000
2000 897,000
2001 375,000
thereafter 1,697,000
----------
5,521,000
Less amount representing interest (1,248,000)
----------
$4,273,000
==========
</TABLE>
Imputed interest expense for fiscal year ended February 29, 1996 and February
28, 1995 amounted to $174,000 and $141,000, respectively relates to accounts
payable pre-petition.
9. Income Taxes:
At February 29, 1996, the Company has net operating loss carryforwards of
approximately $10,500,000 that expires through 2010. Such net operating losses
are available to offset future table income, if any. As the utilization of such
operating losses for tax purposes is not assured, the deferred tax asset has
been fully reserved through the recording of a 100% valuation allowance. Should
a cumulative change in the ownership of more than 50% occur within a three-year
period, there could be an annual limitation on the use of the net operating loss
carryforward.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Deferred tax assets are comprised of the following at February 29, 1996:
Depreciation and property basis adjustments $ 20,000
Loss carryforwards 3,951,000
Environmental Reserve 404,000
Accounts Receivable Reserve 10,000
Inventory tax reserves 4,935,000
----------
Gross deferred tax asset 9,320,000
Deferred tax asset valuation allowance (9,320,000)
----------
Net deferred tax asset --
----------
Net $ --
----------
A reconciliation of the provision for income taxes to the amount calculated
using the statutory federal rate (34%) in 1996 is as follows. There was no
provision for 1995.
Income Tax Provision at
Federal Statutory Rates $ 51,000
State Taxes 5,000
Utilization of Net Operating Loss Carryforward (56,000)
---------
Income Tax Provision $ --
=========
10. Stock Option Plans:
During 1987, the Company adopted the 1987 Stock Option Plan which, as amended,
provided for the grant of incentive stock options, non-qualified stock options,
tandem stock appreciation rights and stock appreciation rights exercisable in
conjunction with stock options to purchase up to an aggregate of 70,000 shares
of the Company's common stock through September 1997.
Pursuant to the Plan of Reorganization, all outstanding options granted under
the 1981 Incentive Stock Option Plan and under the 1987 Stock Option Plan were
terminated as of August 31, 1993, with the following exception:
On October 20, 1992, the Company's current President was issued an option to
purchase 4% of the outstanding shares of the Company's common stock at an
aggregate exercise price of $98,400 (representing market value as of the date of
the grant) pursuant to an Incentive Stock Option Agreement (the "Agreement")
issued under the Company's 1987 Stock Option Plan. Pursuant to the terms of the
Agreement, the number of shares subject to this option will be increased (and
the exercise price per share will be proportionately decreased so that the
aggregate exercise price will remain unchanged) so that the number of shares
issuable in connection with this option will be equal to four percent of all
shares issued and outstanding after giving effect to all issuances contemplated
by the Plan. One quarter of all such options vest and become exercisable on each
of the first four anniversaries of the date of grant. The options expire in
2002.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(continued)
10. Stock Option Plans (continued):
Effective August 20, 1993, the Company's President was issued an option to
purchase an additional four percent of the common stock on a fully-diluted basis
giving effect to all shares issuable pursuant to the Plan for an aggregate
exercise price of $120,300. However, as additional shares are issued in
connection with the Plan, the exercise price shall be reduced proportionately so
that the aggregate exercise price will remain unchanged. One quarter of all such
options vest and become exercisable on each of the first four anniversaries of
the date of grant. The options expire in 2003.
Accordingly, pursuant to the provisions of the above stock option grants, the
Company's President is entitled to purchase 8% of the common stock of the
Company (175,636 shares based on the total amount of common shares issuable
pursuant to the Plan) for an aggregate exercise price of $218,700.
11. Benefit Plans:
Profit Sharing Plan:
The Company has a 401K and Profit Sharing Plan (the "Profit Sharing Plan") in
which substantially all employees may participate after one year of service.
Contributions to the Profit Sharing Plan by participants are voluntary. The
Company may match participant's contributions up to 25% of 4% of each
participant's annual compensation. In addition, the Company may make additional
contributions at its discretion. The Company did not contribute to the Profit
Sharing Plan during the fiscal years ended February 29, 1996 and February 28,
1995.
12. Export Sales and Major Customers:
The Company designs, develops, manufactures and markets solid-state
semiconductor components and related devices primarily for the military and
aerospace markets.
Revenues from domestic and export sales to unaffiliated customers are as follows
(dollars in thousands)*:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
February 29, February 28,
1996 1995
---- ----
<S> <C> <C>
Export sales:
Europe $ 328 $ 329
Canada and Latin America 49 5
Far East and Middle East 187 318
United States 6,167 5,611
----- ------
$6,731 $ 6,263
======= =======
<FN>
*All of the Company's domestic and foreign transactions are done in U.S. dollars.
</FN>
</TABLE>
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Export Sales and Major Customers (continued):
Sales to the Company's top three customers accounted for 35% of the Company's
net sales for the year ended February 29, 1996 as compared with 29% of the
Company's net sales for the year ended February 28, 1995. Sales to unaffiliated
customers aggregating 10% or more of net sales are presented below:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
February 29, February 28,
1996 1995
---- ----
<S> <C> <C>
Hughes 21.2% 15.4%
</TABLE>
13. Commitments and Contingencies:
Employment and Consulting Agreements:
In February 1993, the Company entered into an employment agreement with its
President which provides, among other things, for annual compensation of
$140,000 plus cost of living increases through August 30, 1998.
Environmental Matters:
As a result of audits by the DEP principally conducted as early as 1986, it was
determined that chemical discharges occurred at several of the Company's
locations for which clean up or other actions were required. Management of the
Company believes that clean up and monitoring is still required at three
locations: one licensed treatment facility to which the Company shipped
hazardous waste, the Company's Port Salerno location and the Company's Old
Riviera Beach facility.
In addition to the matters described in the preceding paragraph, testing of
monitoring wells installed by the Company at the Company's Port Salerno location
has revealed that groundwater contamination extends off-site. After notification
to DEP of the off-site contamination, the State Division of Health tested
certain private residential wells and requested the Company supply bottled
drinking water to seven families which use four of the private wells in the
area. The Company complied with this request. Public water supply was thereafter
extended to serve these properties the cost of which was reimbursed to DEP by
the Company in the amount of $200,000. Other private wells nearby may also be
affected, and, in such case the Company will then extend public water supply to
affected homes.
Based upon a tentative settlement with the City of Riviera Beach (the "City"), a
penalty assessed by DEP and remediation costs estimated by environmental
consultants and management, the Company initially accrued $2,331,000 for
environmental costs as of February 28, 1989. On March 9, 1990, the Company
reached a final settlement with the City which provided, among other things, for
the payment to the City of $700,000 plus interest at 8.5%, payable in quarterly
installments through 1995 and the payment of $171,000 in penalties to DEP plus
interest at 8.5% payable annually through 1995. At August 31, 1993, the Company
owed the City and DEP $583,000 and $103,000, respectively, on its obligations
under this agreement.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. Commitments and Contingencies (continued):
The Plan of Reorganization provides a plan for the future remediation of the Old
Riviera Beach location and the Port Salerno location. The Plan of Reorganization
provides for, among other things, the following: (1) the Company reimburse DEP
$200,000 for providing water lines to serve properties affected by the
groundwater contamination from the Port Salerno site. This amount was paid ,
pursuant to the provision of the Plan, as an administrative expense to DEP
during the year ended February 28, 1993; (2) remediate site soils and
groundwater at the Port Salerno location; (3) remediate groundwater
contamination at the Old Riviera Beach property and 4) pay a final judgment of
$103,000 to DEP representing the balance of penalties owed at August 31, 1993 as
a result of the March 9, 1990 agreement. This amount was included in amounts
payable to unsecured creditors and accordingly, is subject to the same payment
terms and conditions as the Company's general unsecured creditors. Additionally,
the Company's $583,000 obligation to the City was classified as an unsecured
claim at August 31, 1993.
Since entry of the Consent Final Judgment, the Company's consultant submitted a
plan for further soils assessment at the Riviera Beach and Port Salerno
facilities, received approval thereof and of its Quality Assurance Plan, and,
after soil testing and filing an assessment report reporting their data,
received DEP approval of the report's conclusion that no further soils
remediation is required at either facility.
The Company's environmental consultants have estimated the costs of remediation
to be approximately $727,000 for the Port Salerno property and $342,000 for the
Old Riviera Beach property. These amounts have been accrued for in the balance
sheet as of February 29, 1996. The accrual balance is approximately $1,069,000.
Pursuant to the Plan, the Company will sell or lease the two properties and
utilize the proceeds to remediate both sites. If funds to clean the sites are
not available within twenty-four months from October, 1993, the Company is
required to make periodic payments as follows: 1) $5,000 per month beginning on
the 25th month; 2) $7,500 per month beginning on the 37th month; and 3) $10,000
per month beginning on the 49th month. This funding will be suspended when total
amounts paid reach 125% of the estimated remediation costs. The Company is
negotiating with DEP to modify this payment schedule. While these negotiations
are under way, the Company is making monthly payments of $1,000 per month into
the escrow account. As of February 29, 1996 the Company deposited $5,000 into
the escrow account.
On April 17, 1995, the Company entered into an agreement to sell the Riviera
Beach Facility. Under the terms of the agreement, the DEP was reviewing this
contract and had until July 2, 1995 to approve it as stipulated by the Consent
Agreement. The DEP granted its approval of the sale on August 16, 1995. The sale
price was $850,000, and after payment of existing taxes, brokerage and
attorneys' fees, certain moving costs and other expenses, the proceeds were to
provide approximately $410,000 to $430,000 for the escrow account to complete
groundwater remediation at the Riviera Beach site. Once the DEP approved the
sale, it was required to request the EPA to remove the site from the EPA
site-screening process for possible National Priority List listing. The Region
IV Administrator of the EPA has verbally assured counsel for the Company that
the EPA will honor such request. The prospective purchaser then has an
additional 30 days to inspect the environmental conditions of the sale. If the
purchaser was satisfied, the contract called for a closing within 30 days
thereafter. By the time the DEP approved the sale, the buyer lost its ability to
continue with the purchase of the facility. There are several new parties
interested in purchasing the Riviera Beach Facility.
The Company received a claim by an estate owning property northwest and across
Cove Road from the Port Salerno property. The estate has asserted that the
mailing address to which the bankruptcy notice was sent was in error. The estate
has been advised that public water has been made available to the property and
that the Company is prepared to settle for the sum of $10,000, to be paid as
other unsecured creditor claims are being paid. Counsel is now handling such
negotiations.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. Commitments and Contingencies (continued):
During fiscal year ended February 28, 1995, the Company's environmental legal
counsel determined that the Environmental Protection Agency (the "EPA") was
reassessing all prior Comprehensive Environmental Response, Compensation and
Liability Information System site for National Priority Ranking using the newly
adopted ranking formula. The Company's facilities at Riviera Beach and Port
Salerno were the subject of such reassessment. After conducting a series of
meetings with the State Department of Environmental Protection (the "DEP") and
with Region IV EPA officials, the DEP requested that the Riviera Beach site be
taken out of the reevaluation process and, pursuant to both that request and the
Company's request, Region IV EPA, according to the responsible DEP official,
took both sites out of the reevaluation process and deferred informally further
action pending the Company's complying with the requirements of the Consent
Final Judgment that it had entered with the Florida Department of Environmental
Protection in accordance with its Plan of Reorganization. The Company's former
facility in Jupiter, Florida (which was sold in 1982) has been the subject of a
preliminary assessment by the EPA during fiscal year 1995. The EPA has requested
site access from the current owner. The Company's environmental legal counsel
has no information concerning the Jupiter facility nor has the Company received
any request for information. The Company and its environmental legal counsel
cannot assess at this time what the impact of the EPA study will be, if any, on
the Company's liability nor when the EPA will complete its study.
The Company has been named as a potentially responsible party at a Nuclear
Disposal Facility located in Kentucky (Maxey Flats). During fiscal year 1995,
the Company, along with other responsible parties has signed a de-minimis
agreement to settle the case. Under the agreement, the Company will be
reimbursed approximately $1,200 which does not materially affect the Company.
Accordingly, as a result of the above, the Company's initial accrual for
environmental claims was reduced by approximately $777,000 as of August 31,
1993, which amount has been included in environmental expenses net of insurance
recoveries in the accompanying statement of operations for the six months ended
August 31, 1993. The Company's current reserve for environmental claims is
approximately $1,069,000 as of February 29, 1996.
Amounts expensed for environmental expenses were $0.00 for the year ended
February 29, 1996 as compared with $29,000 for the year ended February 28, 1995.
However, $5,000 was paid from the accrual to an escrow account for the
Department of Environmental Regulation.
Operating Leases:
The Company has entered into a lease agreement for its production facility. The
lease has a 10 year term expiring in the year 2001. Future minimum lease
payments for all non-cancelable operating leases are as follows:
Year Ending February 28/29 Amount
-------------------------- ------
1997 232,000
1998 236,000
1999 240,000
2000 245,000
Thereafter 460,000
----------
Total $1,413,000
==========
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. Commitments and Contingencies (continued):
Total rent expense was $ 331,000 for the year ended February 29, 1996 as
compared with $276,000 for the year ended February 28, 1995.
In connection with the Vector Purchase Agreement, the Company entered into a
sublease agreement whereby Vector has agreed to reimburse the Company for
one-third of the above noted rental obligations in exchange for Vector's use of
approximately one-third of the facility.
14. Reverse Stock Split:
On September 28, 1993, the Board of Directors of the Company declared a
one-for-ten reverse stock split of the Company's common stock, which became
effective October 12, 1993 and has been given effect to in the accompanying
consolidated financial statements.
15. Extraordinary Item
The extraordinary gain of $419,000 ($.20 per share), results from the Company's
arrangement to renegotiate and restructure it's prior rental commitments with
the RTC in the amount of $264,000 and the renegotiation and settlement of
pre-petition liabilities in the amount of $155,000.
The Company settled its dispute with the RTC out of Court on December 15, 1995.
Under the terms of the settlement, the Company and S/V Microwave Products, Inc.
paid the RTC $325,000 in complete settlement of all the then outstanding rent.
The Company has expended approximately $139,000 in legal expenses before
settlement has been reached. As a result of the settlement with the RTC, the
Company netted a reduction in rent of approximately $239,000 ($563,066 was
Solitron's share of back rent less $185,000 it paid in settlement less
approximately $139,000 expended for legal and professional fees). In December
1995 a reclassification was made from operating expenses to other expenses of
approximately $104,000 for the current year expenses pertaining to the RTC
claim; and an extraordinary gain of approximately $264,000 was recorded due to
the settlement.
On December 15, 1995, the Company and Argo Partners, Inc. an unsecured creditor
have reached an agreement under which Solitron Devices, Inc. has acquired Argo
Partners' unsecured debt of approximately $695,000 (which was carried as an
obligation of approximately $140,037) for $40,000 as complete settlement. Prior
to the acquisition, Argo Partners received payment of approximately $1,297 from
the Company as part of several distributions to unsecured creditors. Thus,
Solitron Devices, Inc. recognized in December 1995 and extraordinary gain of
approximately $98,740 due to the debt being carried on the books at a discounted
amount.
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:
BDO Seidman , LLP (the "Accountants"), the Registrant's independent certified
public accountants, were dismissed by the Registrant on February 12, 1996. The
decision to dismiss the Accountants was made by the Board of Directors of the
Registrant.
The Accountants' report on the Registrant's consolidated balance sheets for the
fiscal year February 28, 1995 and the related consolidated statements of
operations, stockholder equity and of cash flows for the two years then ended,
contained an explanatory paragraph regarding the substantial doubt about the
Registrant's ability to continue as a going concern due to the Registrant's
Chapter 11 filing and operating losses and its lack of liquidity and capital
resources.
During the Registrant's fiscal years ended February 28, 1995 and February 28,
1994 and the interim period preceding this dismissal, there were no
disagreements with the Accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the Accountants, would
have caused the Accountants to make a reference to the subject matter of the
disagreements in connection with its reports.
The Registrant has authorized the Accountants to respond fully to the inquiries
of any successor accountant concerning the subject matter described in the
foregoing paragraph.
On February 12, 1996, the Registrant engaged the firm of Millward and Co. as its
new independent accountant. During the fiscal years ended February 28, 1995 and
February 28, 1994 and through February 12, 1996, the Registrant did not consult
with Millward & Co. on items including, but not limited to, those which were (1)
subject to SAS 50 or (2) concerned the subject matter of a disagreement or
reportable event with the Accountants as described in Regulation S-B Item 304(a)
(2).
Item 7. Financial Statements and Exhibits:
Exhibit A - Letter of BDO Seidman, LLP - attached herewith.
<PAGE>
EXHIBIT A
February 14, 1996
Securities and Exchange Commission 450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been furnished with a copy of the response to Item 4 of the Form 8-K for
the event that occurred on February 12, 1996, to be filed by our former client,
Solitron Devices, Inc. We agree with the statements made in response to that
Item insofar as they relate to our firm.
Very truly yours,
_______________________
/s/ BDO Seidman, LLP
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the name, age and position of the directors and
executive officers of the Company. The table below also sets forth the year in
which each of such directors was first elected to the Board and the year in
which the term of each of such directors expires. All of the then existing
directors of the Company, other than Shevach Saraf, resigned as of the Effective
Date. Pursuant to the Plan of Reorganization, the creditors committee submitted
to the Board of Directors three candidates, from which Anthony Parillo, Jr. was
selected as a member of the Board of Directors. Pursuant to the Company's
Bylaws, the Board of Directors filled two additional vacancies on the Board of
Directors by appointing Peter Chiasson and Sam Robinson. In October 1993, Robert
Adler, who became a director in September 1993, resigned from the Board of
Directors. In April 1994, Sam Robinson resigned from the Board of Directors. On
November 7, 1994 Peter Chiasson resigned from the Board of Directors. In January
1996, Anthony Parillo, Jr. and Robert Perfetto, who both became Directors in
1993, resigned from the Board of Directors. The Company is now actively seeking
to fill these vacancies. Pursuant to the Company's Certificate of Incorporation,
the Board of Directors is divided into three classes, each of which consists of
(as nearly as may be possible) one third of the directors. Directors are elected
for three year terms. Class I, Class II and Class III directors' terms expire in
1996, 1994 and 1995, respectively. Pursuant to the Plan of Reorganization, all
shares of Common Stock issued to Vector original participants and to the holders
of allowed unsecured claims must be voted for all purposes (including the
election of members of the Board of Directors) as directed by the Board of
Directors. Pursuant to the Plan of Reorganization, Vector will own 25% and the
holders of allowed unsecured claims will own an aggregate of 40% of all shares
of Common Stock issuable pursuant to the Plan of Reorganization (other than
shares issuable to Mr. Saraf upon the exercise of options granted prior to the
Effective Date). On October 4, 1994, the Company and Vector agreed that 25% of
Vector's stock would be redistributed between six parties (see Note 2 the
Consolidation Financial Statements). Five original Vector participants continue
to be subject to the voting restrictions as long as they or their affiliates
hold Solitron stock.
<TABLE>
<CAPTION>
Year
First Term As
Became Director
Name Age Position with Solitron Director Expires(3)
- ---- --- ---------------------- -------- ----------
<S> <C> <C> <C> <C>
Shevach Chairman of the Board, 1992 1995
Saraf 54 Chief Executive Officer,
President and Treasurer
Robert Perfetto(1) 67 1993 1996
Anthony
Parillo, Jr.(2) 49 Secretary 1993 1994
<FN>
________________________
(1) Resigned in January 1996.
(2) Resigned in January 1996.
(3) A Director's term expires at the first annual meeting of shareholders
during or after the year indicated.
</FN>
</TABLE>
<PAGE>
Shevach Saraf has been President of the Company since November 1992, Chief
Executive Officer of the Company since December 1992 and Chairman of the Board
since September 1993. Formerly, he was Vice President of Operations and a member
of the Board of Directors of Image Graphics, Inc., a military and commercial
electron beam recorder manufacturer. Previous to Image Graphics, Inc. he was
President of Value Adding Services, a management consulting services firm.
Committees of the Board
The Audit Committee provides assistance to the Board of Directors in fulfilling
its responsibilities relating to corporate accounting and reporting practices
and maintains a direct line of communication among the directors, the Company's
internal accounting staff and the Company's independent accountants. In
addition, the Audit Committee confers with the Company's independent accountants
to review the plan and scope of their proposed audit as well as their findings
and recommendations upon the completion of the audit. The members of the Audit
Committee were Messrs. Parillo and Perfetto until their resignation. During the
year ended February 29, 1996, the Audit Committee met one time.
The Stock Option Committee is responsible for the granting of options under the
Company's employee Stock Option Plan. Messrs. Parillo and Perfetto were members
of the Stock Option Committee until their resignation. During the year ended
February 29, 1996, the Stock Option Committee held no meetings.
Messrs. Perfetto and Parillo served on the Compensation Committee until their
resignation. Mr. Saraf serves on the Nominating Committee. Messrs. Saraf and
Perfetto (until his resignation) served on the Executive Committee. Messrs.
Perfetto, and Parillo served on the Capital Formation/Acquisition Committee
until their resignation. None of these committees met during the year ended
February 29, 1996.
During the year ended February 29, 1996, the Board of Directors met 10 times,
and each director attended at least 75% of the meetings held during the period
he was a director.
As of February 29, 1996, Mr. Saraf was the sole member of the Audit Committee,
Executive Committee, Nominating Committee and all other committees were
dissolved.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and executive officers of the Company and ten percent shareholders of
the Company to file initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company with the
Securities and Exchange Commission. Directors, executive officers and ten
percent shareholders are required to furnish the Company with copies of all
Section 16(a) forms they file. Although the Company has been unable to obtain
written representations with respect to the filing of Section 16(a) reports from
former directors and executive officers, based upon a review of the copies of
Section 16(a) filings furnished to the Company and written representations from
the Company's current executive officers and directors, the Company believes
that during the fiscal year ended February 29, 1996 directors and executive
officers of the Company complied with Section 16(a) filing requirements
applicable to them; except that Messrs. Parillo and Perfetto failed to make the
appropriate filings upon their resignations as members of the Board of
Directors. Neither Vector nor Inversiones Globales, S.A. have made any filings
under Section 16(a). On April 18, 1996 the Board of Trustees of the Policemen
and Firemen Retirement System of the City of Detroit complied with the
requirement of Section 16(a).
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning compensation
paid by the Company, to or on behalf of the Company's Chief Executive Officer
for the fiscal years ended February 29, 1996, February 28, 1995, February 28,
1994:
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Year Other
Ended Annual Restricted All Other
Name and February Compen- Stock Options/ LTIP Compensa-
Principal Position(1) 28/29 Salary($) Bonus($) sation($) Awards($) SARs(#) Payouts($) tion($)
- --------------------- -------- --------- -------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shevach Saraf .................. 1994 141,309 0 17,081(3) 0 17,500(6) 0 36,708(7)
Chairman of the Board, ......... 1995 123,308 0 7,676 0 0 0 0
Chief Executive Officer ........ 1996 132,462 53,680 0 0 0 0 0
President and Treasurer(2)(4)(5)
<FN>
_____________________
(1) Except for the Chief Executive Officer, no executive officer of the Company
received any compensation for acting in such capacity and, therefore, none
are included herein. Reflects one-for-ten reverse stock split effective
October 12, 1993.
(2) Shevach Saraf has been President of the Company since November, 1992, Chief
Executive Officer since December, 1992 and Chairman of the Board since
September, 1993.
(3) Mr. Saraf received this sum from the Company to cover the projected amount
of income tax that he would incur in connection with the shares of Common
Stock granted to him pursuant to the terms of his Employment Agreement,
described below. (See 4.)
(4) On June 12, 1993, Mr. Saraf received 48,803 shares of the Company's Common
Stock pursuant to the terms of his Employment Agreement, described below.
Pursuant to the terms of his Employment Agreement with the Company, Mr.
Saraf has been and will be issued additional shares of Solitron's Common
Stock so that the number of shares issued to him equals 10% of all shares
of Common Stock issued and outstanding after giving effect to all issuances
contemplated by the Plan of Reorganization (other than issuances pursuant
to the exercise of stock options by Mr. Saraf, as described below). After
the issuance of all shares of Common Stock contemplated in the Plan of
Reorganization, Mr. Saraf has received an aggregate of 219,155 shares of
Common Stock pursuant to this provision of his Employment Agreement. The
per share closing price on June 12, 1993, as reported on the New York Stock
Exchange, was $5.00 per share. If dividends are declared with respect to
Common Stock, they will be paid with respect to all such shares.
<PAGE>
(5) On October 20, 1992, Mr. Saraf was issued an option to purchase 95,284
shares of the Company's Common Stock at an exercise price of $5.625 per
share, pursuant to an Incentive Stock Option Agreement issued under the
Company's 1987 Stock Option Plan. As of the date of that Agreement, 95,284
shares represented approximately four percent of the Company's outstanding
Common Stock. Pursuant to the terms of such Agreement, the number of shares
subject to such option will be increased (and the exercise price per share
will be proportionately decreased so that the aggregate exercise price will
remain unchanged) so that the number of shares issuable in connection
therewith will be equal to four percent of all shares issued and
outstanding after giving effect to all issuances contemplated by the Plan
of Reorganization. After the issuance of all shares of Common Stock
contemplated by the Plan of Reorganization, there will be 2,191,545 shares
outstanding and this option will entitle Mr. Saraf to purchase
approximately 109,577 shares. One quarter of all such options vest on each
of the four anniversaries of the date of grant.
(6) Effective August 20, 1993, Mr. Saraf was issued an additional option to
purchase an additional four percent of the Common Stock on a fully-diluted
basis giving effect to all shares issuable pursuant to the Plan of
Reorganization. As of August 20, 1993, four percent of the outstanding
Common Stock was equal to 95,284 shares. After the issuance of all shares
of Common stock contemplated by the Plan of Reorganization, this option
will entitle Mr. Saraf to purchase approximately 95,284 shares. These
options are exercisable at a price of $6.875 per share; provided, however,
that as additional shares are issued in connection with the
above-referenced anti-dilution provisions, the exercise price shall be
reduced proportionately so that the aggregate exercise price will remain
unchanged. One quarter of all such options vest on each of the four
anniversaries of their date of grant.
(7) Includes payments by the Company for Mr. Saraf's car allowance, relocation
costs, COBRA insurance payments, and reimbursement of legal fees incurred
in connection with his Employment Agreement with the Company. Includes
$7,309 of deferred compensation.
</FN>
</TABLE>
Shevach Saraf is a party to an Employment Agreement with the Company, which
provides, among other things, for minimum annual compensation of $140,000, the
grant of incentive stock options to purchase 4% of the shares of the Company's
Common Stock on a fully diluted basis, and the issuance of shares of the
Company's Common Stock representing 10% of the outstanding Common Stock on a
fully-diluted basis. This grant of stock options is in addition to the other
stock options previously granted to Mr. Saraf, in October, 1992. The Employment
Agreement prohibits Mr. Saraf from competing with the Company during his
employment and for one year thereafter. The Employment Agreement expires on
August 30, 1998.
Executive officers of the Company may also participate in the Company's 1987
Stock Option Plan, the Company's Deferred Compensation Plan and the Company's
Employee 401-K and Profit Sharing Plan (the "Profit Sharing Plan"). During the
fiscal year ended February 29, 1996, no amounts were deferred by executive
officers under the Company's Deferred Compensation Plan and the Company did not
match any employee contributions to the Profit Sharing Plan.
<PAGE>
Option/SAR Grants Table
No Stock options were granted during the fiscal year ended February 29, 1996.
Certain stock options granted at a meeting of the Board of Directors held on
March 14, 1994 were issuable upon the condition that the shareholders approved
such issuance prior to March 14, 1995. As a result of a lack of shareholder
approval prior to this date, all such option grants are void. No awards were
made under any long term plan during fiscal year end February 29, 1996. The
following table sets forth certain summary information covering unexercised
options to purchase the Company's Common Stock as of February 29, 1996 held by
the Company's Chief Executive Officer. The Company's Chief Executive Officer did
not exercise any stock options during the fiscal year ended February 29, 1996.
<TABLE>
<CAPTION>
Value of Unexercsed
In-The-Money Shares Number of Unexercised In the Money
Name and Acquired or Value Options Held at Options Held at
Principal Position Exercised(#) Received Fiscal Year End(#) Fiscal Year End($)
- ------------------ ------------ -------- ---------------------- --------------------
Exercisable Unexercisable Exercisable Uexercisable
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shevach Saraf,
Chairman of the Board,
Chief Executive Officer,
President and Treasurer -0- -0- 119,105(1) 71,463(1) -0- -0-
<FN>
_____________
(1) Subject to applicable anti-dilution provisons.
</FN>
</TABLE>
Director Remuneration
Each director who is not employed by the Company receives $750 for each meeting
of the Board he attends and $250 for each committee meeting he attends on a date
on which no meeting of the Board is held. In addition, all out-of-pocket
expenses incurred by a director in attending Board or committee meetings are
reimbursed by the Company. Total fees paid to all directors for attendance at
Board and committee meetings amounted to $14,000 for the fiscal year ended
February 29, 1996.
Compensation Committee Interlocks and Insider Participation
From March until September 1993, the Company's Board of Directors served as its
Compensation Committee, and all members of the Board of Directors participated
in compensation decisions during that period. In September, 1993, Messrs.
Perfetto, Chiasson and Parillo were appointed to the Compensation Committee of
the Board of Directors. Mr. Parillo is a member of the Compensation Committee of
Founders Bank of New Haven, Connecticut. None of such persons are or have been
executive officers of the Company. Shevach Saraf was the only officer or
employee or former officer of the Company who participated in decisions
regarding executive compensation for the Company with respect to the fiscal year
ended February 29, 1996.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 30, 1996 by (i) all directors, (ii) all
officers and directors of the Company as a group and (iii) each person known by
the Company to beneficially own in excess of 5% of the Company's outstanding
common stock. The Company does not know of any beneficial owner of more than 5%
of the outstanding shares of Common Stock other than as shown below. Unless
otherwise indicated below, each shareholder has sole voting and investment power
with respect to the shares beneficially owned. Except as noted below, all shares
were owned directly with sole voting and investment power.
<TABLE>
<CAPTION>
Percentage Of
Number of Shares Outstanding
Name Beneficially Owned(1) Shares (1)
- ---- --------------------- ----------
<S> <C> <C>
Shevach Saraf(2) 220,154 10.0%
3301 Electronics Way
West Palm Beach, FL 33407
All executive officers and 220,154 10.0%
directors as a group (1 person)
Inversiones Globales, S.A.(3) 273,943 12.5%
Board of Trustees of the 296,618 13.5%
Policemen and Firemen Retirement
System of the City of Detroit
<FN>
________________
(1) Reflects one-for-ten reverse stock split effective October 12, 1993. For
purposes of this table, beneficial ownership is computed pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended; the inclusion
of shares beneficially owned should not be construed as an admission that
such shares are beneficially owned for purposes of Section 16 of such Act.
(2) Pursuant to the terms of the Plan of Reorganization, the Company has issued
Mr. Saraf 10% of the issued and outstanding Common Stock.
(3) Pursuant to the terms of the Plan of Reorganization, the Company issued to
Vector participants and successors that number of shares of Common Stock
equal 25% of all shares of Common Stock issued and outstanding after giving
effect to all issuances contemplated by the Plan of Reorganization (other
than shares issuable to Mr. Saraf upon the exercise of options granted to
him on or prior to the Effective Date). Vector participants must vote such
shares as directed by the Board of Directors and, in general, has agreed to
take no action hostile to the Company such as to commence or assist in a
proxy contest or tender offer.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Plan of Reorganization, the Company and Vector, a holder of 25%
of the Company's outstanding Common Stock, entered into a number of transactions
which are described under "Item 1 - Business - Bankruptcy Proceedings."
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT
<TABLE>
<CAPTION>
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
Page
----
<S> <C> <C>
(a)(1) The following financial statements are included in Part II, Item 7.
Reports of Independent Certified Public Accountants 25-26
Financial Statements: 27
Consolidated Balance Sheet - February 29, 1996
Consolidated Statements of Operations - For the year ended February 29, 1996 and 28
February 28, 1995
Consolidated Statements of Stockholders' Equity - For the year ended February 29, 29
1996 and February 28, 1995
Consolidated Statements of Cash Flows - For the years ended February 29, 1996 and 20
February 28, 1995
Notes to Consolidated Financial Statements 31-45
(2) Exhibits:
2.1 Debtors' Fourth Amended Plan of Reorganization of the Company (incorporated by
reference to the Company's Form 8-K, dated September 3, 1993, as amended by the
Company's Form 8-K/A, dated October 12, 1993).
2.2 Debtors' First Modification of Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated September 3, 1993, as
amended by the Company's Form 8-K/A, dated October 12, 1993).
2.3 Order Confirming Debtors' Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated September 3, 1993, as
amended by the Company's Form 8-K/A, dated October 12, 1993).
2.4 Consent Final Judgment of the Company (incorporated by reference to the Company's
Form 8-K, dated September 3, 1993, as amended by the Company's Form 8-K/A, dated
October 12, 1993).
3.1 Certificate of Incorporation of the Company (incorporated by reference to the
Company's Form 10-K for the year ended February 28, 1993).
3.2 By-Laws of the Company (incorporated by reference to the Company's Form 10-K for the
year ended February 28, 1993).
10.1 1987 Incentive Stock Option Plan (incorporated by reference to the
Company's Form 10-K for the year ended February 28, 1994).
<PAGE>
10.2 Purchase Agreement, dated October 5, 1992, by and among Solitron Devices, Inc.,
Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation, along with and as amended by: (i) Amendment Number
One to Purchase Agreement, dated October 28, 1992, by and among Solitron Devices,
Inc., Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation; (ii) Order, dated December 23, 1992, Authorizing
the Sale of Certain of the Debtors' Assets to Vector Trading and Holding
Corporation; (iii) Amendment Number Two to Purchase Agreement. dated February 28,
1993, by and among Solitron Devices, Inc., Solitron Specialty Products, Inc. (f/k/a
Solitron Microwave, Inc.) and Vector Trading and Holding Corporation; and (iv)
Order, dated March 4, 1993, Granting Vector Trading and Holding Corporation's Motion
for Entry of Amended Order Authorizing Sale of Certain of the Debtors' Assets
(incorporated by reference to the Company's Form 10-K for the year ended February
28, 1993).
10.3 Shared Services and Equipment Agreement, dated February 28, 1993, by and among
Solitron Devices, Inc., Solitron Specialty Products, Inc. (f/k/a Solitron Microwave,
Inc.) and Solitron/Vector Microwave Products, Inc. (incorporated by reference to
the Company's Form 10-K for the year ended February 28, 1993).
10.4 Sublease, dated March 1, 1993, by and between Solitron Devices, Inc. and
Solitron/Vector Microwave Products, Inc. (incorporated by reference to the Company's
Form 10-K for the year ended February 28, 1993).
10.5 Commercial Lease Agreement, dated January 1, 1992, between William C. Clark, as
Trustee, and Solitron Devices, Inc. (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993).
10.6 Employment Agreement, dated February 3,1993, between Solitron Devices, Inc. and
Shevach Saraf (incorporated by reference to the Company's Form 10-K for the year
ended February 28, 1993).
21 List of Subsidiaries of the Company.
(b) Reports on Form 8-K - one.
27 Financial Data Schedule
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Solitron Devices, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Solitron Devices, Inc.
___________________________________
By: Shevach Saraf, Chairman of the
Board, Chief Executive Officer,
President, and Treasurer
Date: June 14, 1996
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of Solitron and in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Shevach Saraf Chairman of the Board, June 14, 1996
- ---------------------- Chief Executive Officer,
Shevach Saraf President and Treasurer
Exhibit 10.1
1987 Incentive Stock Option Plan Incorporated by reference to the Company's
Form 10-KSB for the year ended February 28, 1995.
Exhibit 21
SOLITRON DEVICES, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of Voting
Securities Owned State of Active
by Registrant Incorporation Division
-------------------- ------------- --------
<S> <C> <C> <C>
Registrant:
Solitron Devices, Inc. Delaware *
Subsidiaries of Registrant:
Solitron Specialty Products, Inc. 100 Delaware
Array Devices, Inc. 100 California
Solidev International
Sales Corporation 100 New York
Solitron International, Inc. 100 Virgin Islands
Solidev Warenvertriebs GmbH 100 Germany
</TABLE>
All subsidiaries are included in the consolidated financial statements: Solidev,
Ltd. England, and Solidev (H.K.) Ltd., Hong Kong were dissolved. All unnamed
subsidiaries and other affiliates when considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary. As none of them are
active, no separate financial statements are submitted for any subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOLITRON
DEVICES, INC. AND SUBSIDIARIES FORM 10-KSB FOR THE YEAR ENDED FEBRUARY 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 364,000
<SECURITIES> 0
<RECEIVABLES> 914,000
<ALLOWANCES> (27,000)
<INVENTORY> 2,079,000
<CURRENT-ASSETS> 3,503,000
<PP&E> 1,438,000
<DEPRECIATION> (665,000)
<TOTAL-ASSETS> 6,227,000
<CURRENT-LIABILITIES> 2,052,000
<BONDS> 0
0
0
<COMMON> 19,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,227,000
<SALES> 6,731,000
<TOTAL-REVENUES> 6,731,000
<CGS> 5,558,000
<TOTAL-COSTS> 6,717,000
<OTHER-EXPENSES> (26,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 295,000
<INCOME-PRETAX> 150,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 150,000
<DISCONTINUED> 0
<EXTRAORDINARY> 419,000
<CHANGES> 0
<NET-INCOME> 150,000
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
