SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 1-4978
Solitron Devices, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-1684144
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3301 Electronics Way, West Palm Beach, Florida 33407
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(Address of principal executive offices)
(561) 848-4311
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days. Yes X No ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No ______
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,976,799 Note: Additional shares are
issuable by the Company without further consideration pursuant to the Company's
Plan of Reorganization.
<PAGE>
SOLITRON DEVICES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheet -- August 31, 1997
Condensed Consolidated Statements of Operations -- Three Months and Six
Months Ended August 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows Three Months and Six
Months Ended August 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements: Pages 4 - 11
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations: Pages 12 - 16
3
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
AUGUST 31, 1997
---------------
(Unaudited)
Current Assets:
Cash $ 564
Accounts receivable, less allowance
for doubtful accounts of $34 1,108
Inventories 2,121
Prepaid expenses and other current assets 149
Due from S/V Microwave Products, Inc. 36
-------
Total current assets 3,978
Property, plant and equipment, net 605
Non-operating plant facilities 1,745
Due from S/V Microwave Products, Inc. 67
Other assets 82
-------
$ 6,477
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 12
Accounts payable - post-petition 396
Current portion of accounts payable - pre-petition 78
Accrued expenses 2,324
Accrued Chapter 11 administrative expenses 28
Total current liabilities 2,838
Long-term debt, less current maturities 18
Other long-term liabilities 2,782
Stockholders' Equity
Preferred stock, $.01 par value,
authorized 500,000 shares -
Common stock $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 1,977,000 20
Additional paid-in capital 2,618
Deficit (1,799)
839
-------
$ 6,477
=======
The accompanying notes are an integral part
of these condensed financial statements
4
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXPECT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31 AUGUST 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,948 $ 1,690 $ 3,836 $ 3,536
Cost of Sales 1,559 1,398 3,085 2,793
------- ------- ------- -------
Gross Profit 389 408 751 743
Selling, general, and
administrative expenses 289 280 558 544
------- ------- ------- -------
Operating income 100 128 193 199
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Other Income 11 0 26 31
Interest Expense (62) (78) (129) (151)
Other (11) (17) (21) (26)
------- ------- ------- -------
Net other expense (62) (95) (124) (146)
------- ------- ------- -------
Net income $ 38 $ 33 $ 69 $ 53
======= ======= ======= =======
INCOME PER SHARE: $ .02 $ .02 $ .03 $ .03
======= ======= ======= ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,138,000 2,082,000 2,138,000 2,082,000
----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
AUGUST 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 68 $ 52
------- -------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 111 109
Provision for doubtful accounts 7 0
Gain on disposal of assets 0 (8)
(Increase) decrease in account receivable (10) 88
(Increase) decrease in inventories (33) 51
(Increase) in prepaid expenses and
other current assets (42) (18)
Decrease in due from
S/V Microwave Products, Inc. 32 25
Decrease in other assets 0 1
(Decrease) in accounts payable (116) (168)
Increase (decrease) in accrued expenses
and other liabilities 191 503
Decrease in accrued Chapter 11
administrative expenses (10) (22)
(Decrease) in other long-term
liabilities (81) (405)
------- -------
Total adjustments 49 156
Net cash used in operating activities 117 208
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of assets 0 8
Additions to property, plant and equipment (41) (60)
------- -------
Net cash used in investing activities (41) (52)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases and installment loans (49) (41)
------- -------
Net cash used in financing activities (49) (41)
------- -------
NET INCREASE IN CASH 27 115
CASH AT BEGINNING OF PERIOD 537 364
------- -------
CASH AT END OF PERIOD $ 564 $ 479
======= =======
</TABLE>
Supplemental cash flow disclosure: Interest paid during the six months ended
August 31, 1997 and 1996 was approximately $129,000 and $15,000 respectively.
6
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the results for the interim period.
The accompanying unaudited interim condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-QSB. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
The information contained in this Form 10-QSB should be read in conjunction with
the Notes to Consolidated Financial Statements appearing in the Company's Annual
Report on Form 10-KSB for the year ended February 28, 1997.
The results of operations for the six-month period ended August 31, 1997 are not
necessarily indicative of the results to be expected for the year ended February
28, 1998.
As previously noted in documents filed with the SEC, on August 20, 1993, the
United States Bankruptcy Court for the Southern District of Florida (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 July 12, 1996, the Bankruptcy Court officially closed the
case.
Additionally, the following actions or events have taken or will take place
pursuant to the Plan of Reorganization:
(a) Pursuant to the Plan of Reorganization, which began in May 1995, the Company
is required to begin making quarterly payments to holders of unsecured claims
until they receive 35% of their claims. The Company continues to negotiate with
its unsecured creditors to reduce its quarterly payment obligations and has
proposed to those creditors that it make reduced quarterly payments of
approximately $9,000. The Company has made ten reduced payments to its unsecured
creditors, and, as of August 31, 1997, the Company has paid approximately
$83,861 to its unsecured creditors, as opposed to the $682,913 called for under
the Company's Plan of Reorganization. Following discussion with the unsecured
creditors committee, the Company agreed to increase the level of such payments
to approximately $11,000 per quarter starting August 1997. To date, the
Company's unsecured creditors have accepted all such reduced payments, though no
assurances can be made that they will continue to do so in the future or that
the Company's negotiation with its unsecured creditors will be successful.
7
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(b) The Company is now negotiating with the former owner of the Riviera Beach
property on a proposed agreement under which the former owner will undertake the
responsibility for the environmental cleanup in exchange for a security interest
in the building. The predecessor owner and operator (a multi-national Fortune
100 company) is financially able to perform and has advised the Company that it
wishes to take such steps as will prevent EPA from proceeding to place the
property on the National Priority List (NPL) and assuming jurisdiction over the
cleanup. While the aforementioned party expressed interest, there is no
assurance that the parties will reach a satisfactory agreement. The DEP, which
is aware of these negotiations, is requesting that EPA withhold proceeding with
its efforts to list the property on the National Priority List (NPL) in order to
allow for the completion of said negotiation. Furthermore, the Company has
continued to keep the old Riviera Beach property on the market.
(c) As disclosed in documents filed previously with the Securities and Exchange
Commission, the Company is negotiating with various taxing authorities
(including the Internal Revenue Service [IRS], Palm Beach County, Florida, and
Martin County, Florida) to restructure its payment obligations for various back
taxes. While these negotiations are pending, the Company has, in some cases,
been making reduced payments to those taxing authorities. The following table
indicates the approximate cumulative status of amounts due under Court Plans as
of August 31, 1997:
Due Paid
---------- ----------
Martin County $ 56,000 $ 7,957
Palm Beach County 706,000 260,918
IRS 210,000
For the years since bankruptcy, additional taxes have become delinquent with
Martin and Palm Beach Counties in approximately the following amounts
respectively, $36,000 and $200,000.
To date, no objections have been raised to the amounts of the Company's payments
to these taxing authorities, though no assurances can be made that such an
objection will not be raised in the future concerning the Company's obligations
to those taxing authorities or that any of the Company's negotiations to
restructure its payment obligations will be successful.
8
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. FINANCIAL CONDITION:
During the several fiscal years ended February 28, 1996, the Company generally
experienced losses from operations and severe cash shortages caused by a
significant decline in both sales and open order backlog, decreased margins on
products sold (which is characteristic in the Company's industry), significant
non-recurring expenses associated with the Company's bankruptcy 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.
From when the Company emerged from Chapter 11 on August 30, 1993 through the
fiscal year ended February 28, 1996, the Company generally experienced a
positive cash flow from recurring operations; however, overall cash flow was
negative due primarily to the necessity to make payments of administrative
expenses and required payouts arising in connection with the bankruptcy
proceedings. The foregoing resulted in a decrease in cash and cash equivalents
following the Company's emergence from Chapter 11. During the fiscal year ended
February 28, 1997, and in the quarters thereafter, the Company has recorded net
income and net income from operations. However, the Company continues to
experience a trend of increasing labor and materials cost and a trend of
decreasing margins and price per units sold.
During the six months ended August 30, 1997, the Company's book-to-bill ratio
fell to approximately 0.93 reflecting a slowdown in the demand for the Company's
products and a lower average unit sale price. The Company has started to
implement steps intended to reduce its variable manufacturing cost to offset the
impact of lower average sale price. However, should order intake continue to
decline, the Company may be required to implement further cost-cutting or other
downsizing measures to continue its business operations. The Company's liquidity
continues to be adversely effected by significant non-recurring expenses
associated with the Company's bankruptcy 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.
The Company currently believes, based on information available to it, that its
operations will continue to generate sufficient cash to satisfy its operating
needs over the next 12 months. However, based on the Company's current bookings,
prices, profit margins and sales levels, the Company does not believe it will
generate sufficient cash to satisfy its operating needs and its obligations to
pre-bankruptcy creditors in accordance with the Plan of Reorganization. Thus,
the Company continues to negotiate with all such claim holders to reschedule the
Company's payments. In the event the Company is unable to restructure its
obligations to pre-bankruptcy claimants, the Company will be required to further
reduce its size and reduce its cost of operations. However, over the long term,
the Company believes that if the volume and prices of its product sales continue
as presently anticipated, it will, subject to the continued deferral of certain
obligations, generate sufficient cash from operations to sustain its current
operations. In the event that sales decline significantly below the current
level experienced by the Company, the Company may be required to implement
further cost-cutting or other downsizing measures to continue its business
operations.
9
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Although the Company is pursuing additional sources of financing, there can be
no assurance that financing will be available in amounts or upon terms
sufficient to meet the Company's needs. However, in appropriate situations, the
Company may seek strategic alliances, joint ventures with others, or
acquisitions in order to maximize the Company's marketing potential, its
utilization of existing resources, and to provide further opportunities for
growth.
3. ENVIRONMENTAL MATTERS:
Management of the Company believes that environmental cleanup and monitoring may
still be required at two locations: the Company's Port Salerno location and the
Company's old Riviera Beach 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 August 31, 1997. The accrual balance is approximately $1,051,000.
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 any such remediation would not exceed such
amounts.
As disclosed in documents filed previously with the Securities and Exchange
Commission, the Plan of Reorganization obligates the Company to make certain
periodic payments to an escrow account which funds are to be used to remediate
the Company's old Riviera Beach and Port Salerno facilities. Currently, the Plan
of Reorganization calls for the Company to make periodic payments as follows: 1)
$5,000 per month beginning on the 25th month following the Effective Date; 2)
$7,500 per month beginning on the 37th month following the Effective Date; and
3) $10,000 per month beginning on the 49th month following the Effective Date.
This funding is to be suspended when total amounts paid reach 125% of the
estimated remediation costs. The Company is negotiating with DEP to modify the
escrow payment schedule. While these negotiations are under way, the Company is
making reduced monthly payments into the escrow account. As of August 31, 1997
the Company had deposited $23,000 into the escrow account. No objection has been
raised to the Company's reduced payments to date, though no assurance can be
given that such an objection will not be raised in the future.
During late 1996 and early 1997, the Company negotiated with prospective
purchasers of both sites to assume full responsibility for remediation of the
sites and the Company successfully consummated contracts to purchase, subject to
due diligence and closing conditions. In early 1997, EPA requested site access
to both properties for purposes of performing testing to further evaluate the
sites for National Priority List (NPL) testing and expressed its preliminary
view that both sites would qualify under the ranking formula. After a meeting
with DEP and EPA on March 21, 1997, DEP requested that two prospective
purchasers of the properties be afforded an opportunity to complete their due
diligence,
10
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
obtain site data and assume responsibility for site remediation under a state
lead cleanup. EPA agreed to postpone its further processing of the sites for
ninety (90) days and determine whether DEP was in position to accept the
purchasers and their financial assurances that they would perform. DEP is
currently negotiating with the purchaser of the Port Salerno facility to assume
full responsibility to remediate and that the Company will be relieved of all
liability upon the completion thereof. The new Consent Agreements would relieve
the Company of all obligations under the Consent Final Judgement.
The purchaser of Port Salerno has inspection periods that have been extended
awaiting regulatory assurance that it will be permitted to perform a state
supervised cleanup and the Company will not know whether the transaction will
close until it expires in the next several months. Following a meeting on June
16, 1997 between DEP, the Company's President, and the attorney representing
Brownfield Recovery (the Port Salerno buyer), DEP is requesting that EPA refrain
from commencing the listing of the Port Salerno site on the National Priority
List (NPL) until 120 days after EPA decides it will so refrain to allow the
buyer to complete the purchase of the site. It appears that DEP is cooperating
and DEP, on behalf of the Governor, must concur in EPA's resumption of
processing for National Priority List (NPL) listing according to EPA policy.
EPA's favorable decision is expected in the near future.
In the event EPA assumes responsibility to clean up either of these two
properties, the costs of cleanup will likely increase substantially and will
result in a cost recovery claim by EPA against the Company.
However, Solitron has been advised by EPA counsel that it would settle such a
claim under its settlement guidelines taking into account the financial ability
of the Company to pay some or all of the claim. The Company believes there is a
reasonable likelihood that, based on the theory of its bankruptcy plan of
reorganization, the Company would be able to settle based on enhanced value of
the property that was remediated by EPA.
11
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of factors which have affected the
Company's financial position and operating results during the periods included
in the accompanying condensed consolidated financial statements should be read
in conjunction with the Consolidated Financial Statements and the related Notes
to Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-KSB for the year ended February 28, 1997 and the Condensed
Consolidated Financial Statements and the related Notes to Condensed
Consolidated Financial Statements included in Item 1 of this Quarterly Report on
Form 10-QSB.
INTRODUCTION:
This report contains forward-looking statements that
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Except
for historical information contained herein, the matters discussed below are
forward-looking statements made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. Actual results could differ materially
from these forward-looking statements as a result of various factors including,
without limitation, economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products and prices.
RESULTS OF OPERATIONS-THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO THREE
MONTHS ENDED AUGUST 31, 1996:
Net sales for the three months ended August 31, 1997 increased 15.3% to
$1,948,000, as compared to $1,690,000 for the three months ended August 31,
1996. The Company's backlog of open orders decreased 19.2% for the three months
ended August 31, 1997 as compared to an increase of 3.8% for the three months
ended August 31, 1996. Gross margins on the Company's sales decreased to 20.0%
for the three months ended August 31, 1997 in comparison to 24.1% for the three
months ended August 31, 1996. These decreases are due to a trend in sales
shifting to the less profitable product lines and a lower ASP (Average Sales
Price) of product mix sold as well as higher material and labor costs.
For the three months ending August 31, 1997, the Company shipped 467,278 units
as compared with 434,450 units shipped during the same period of the prior year.
However, since the Company manufactures a wide variety of products with an
average sale price ranging from less than one dollar to several hundred dollars,
management does not consider such periodic variations in the Company's volume of
units shipped to be a reliable indicator of the Company's performance.
12
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Selling, general, and administrative expenses increased to $289,000 for the
three months ended August 31, 1997 from $280,000 for the comparable period in
1996. During the three months ending August 31, 1997, selling, general, and
administrative expenses as a percentage of sales was 14.83% as compared with
16.57% for the three months ending August 31, 1996. The decrease was due
primarily to increased sales.
The Company recorded a net other expense of $62,000 for the three months ended
August 31, 1997 versus a net other expense of $95,000 for the three months ended
August 31, 1996. The variance was due primarily to increases in the Company's
other income of $11,000 for the three months ended August 31, 1997 as compared
to three months ended August 31.
Net income for the three months ended August 31, 1997 increased to $38,000
versus $33,000 for the same period in 1996. The major contributing factor to
this increase was volume, which was partially offset by a more costly mix of
shipments and the amount being accrued as interest on delinquent property taxes
decreased approximately $22,000 for a net decrease of $33,000 in other expenses.
RESULTS OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 1997 COMPARED TO SIX MONTHS
ENDED AUGUST 31, 1996
Net sales for the six months ended August 31, 1997 increased by 8.5% to
$3,836,000 as compared to $3,536,000 for the six months ended August 31, 1996.
The Company's backlog of open orders decreased 2.8% for the six months ended
August 31, 1997 as compared to an increase of 6.2% for the six months ended
August 31, 1997. Gross margins on the Company's sales decreased 19.6% for the
six months ended August 31, 1997 from 21.0% for the six months ended August 31,
1996. These decreases are due to unfavorable product line mix of shipments and
specifically due to lower ASP (Average Sales Price) and higher material and
labor costs.
For the six months ended August 31, 1997, the Company shipped 896,051 units as
compared with 823,122 units shipped during the same period of the prior year.
However, since the Company manufactures a wide variety of products with an
average sale price ranging from less than one dollar to several hundred dollars,
management does not consider such periodic variations in the Company's volume of
units shipped to be a reliable indicator of the Company's performance.
Selling general and administrative expenses increased to $558,000 for the six
months ended August 31, 1997 and $544,000 for the comparable period in 1996.
During the six months ended August 31, 1997 selling, general and administrative
expenses as a percentage of sales were 14.56% as compared with 15.38% for the
six months ended August 31, 1996. The decrease was due primarily to higher sales
volume.
The Company recorded a net other expense of $124,000 for the six months ended
August 31, 1997 versus a net other expense of $146,000 for the six months ended
August 31, 1996. The variance was due primarily to decreases in the Company's
interest expenses related to delinquent property taxes.
13
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Net income for the six months ended August 31, 1997 increased to $69,000 versus
$53,000 for the same period of 1996. The major contributing factor to this
increase was increased shipments which was partially offset by higher materials
and labor costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a net income of $ 69,000 and operating income of $ 93,000
for the six months ended August 31, 1997. However, the Company has significant
obligations arising from settlements related to its bankruptcy proceeding which
requires it to make substantial cash payments which cannot be supported by the
Company's current level of operations.
At August 31, 1997 and August 31, 1996 respectively, the Company had cash and
cash equivalents of $564,000 and $479,000. The principal cash change from year
to year was due primarily to profit of $155,000 year to year, which was
partially offset primarily by an increase in working capital.
At August 31, 1997, the Company had working capital of $1,140,000 as compared
with a working capital at August 31, 1996 of $1,107,000. The approximately
$61,000 change for the six months ended August 31, 1997 was due primarily to
profits. The from year to year increase again was due primarily to profits.
Pursuant to the Plan or Reorganization, the Company is required to pay an
aggregate of approximately $2,483,338 to holders of allowed unsecured claims in
quarterly installments of approximately $62,083. The Company had proposed to its
unsecured creditors that it set its payments to quarterly payments of $9,000. As
of August 31, 1997, the Company had paid to the unsecured creditors $83,861of
the $682,913 due. Following discussions between the Company and the unsecured
creditors committee, the Company agreed to make quarterly payments of $11,000
starting August 1997. Of amounts owed to unsecured creditors $78,000 is carried
as short-term debt and $1,292,000 is carried as long-term debt.
14
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 $1,051,000, will be payable from the
proceeds of the sale or lease of these properties. 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 and the DEP has concurred that no
further soil remediation is required at either property. 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 August 31, 1997, the Company had deposited $23,000 of
the $152,500 due in accordance with the Plan into the escrow account.
The Company is now negotiating with the former owner of the Riviera Beach
property on a proposed agreement under which the former owner will undertake the
responsibility for the environmental cleanup in exchange for a security interest
in the building. The predecessor owner and operator (a multi-national Fortune
100 company) is financially able to perform and has advised the Company that it
wishes to take such steps as will prevent EPA from proceeding to place the
property on the National Priority List (NPL) and assuming jurisdiction over the
cleanup. While the aforementioned party expressed interest, there is no
assurance that the parties will reach a satisfactory agreement. The DEP, which
is aware of these negotiations, is requesting that EPA withhold proceeding with
its efforts to list the property on the National Priority List (NPL) provided
the parties, on a timely basis, provide a commitment to carry out a state
supervised cleanup under the existing state consent final judgement.
Furthermore, the Company continued to keep the old Riviera Beach property on the
market.
The Company is required to pay Ellco Leasing Corporation ("Ellco") $255,000 plus
interest at six percent per annum in monthly payments until August 30, 1997 in
satisfaction of an allowed claim amounting to approximately $1,214,000. 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 August 31, 1997, the Company had
paid Ellco $250,000 and was current in amounts due to Ellco. A final payment of
$5,000 was made to Ellco on September 30, 1997.
15
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Pursuant to the Plan of Reorganization, beginning on the date the Company's net
after tax income exceeds $500,000, the Company would be required to pay certain
pre-petition creditors 10% of net after tax income until August 30, 2003 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 would increase each year from approximately $255,000 during the
current fiscal year in accordance with specified cost of living increases of not
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 estimated at approximately $1,760,000 (which amount is
accrued in the accompanying financial statements including interest). For more
information as to the Company's tax obligations and their effect on the
Company's finances and prospects, reference is made to note 1(c) to the
Condensed Consolidated Financial Statements included in Item 1 of this Quarterly
Report on Form 10-QSB.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
None
ITEM 2.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
See Part 1.
ITEM 4.
None.
ITEM 5.
None
ITEM 6.
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer of the Registrant.
SOLITRON DEVICES, INC.
______________________
SHEVACH SARAF
CHAIRMAN,
CHIEF EXECUTIVE OFFICER &
PRESIDENT
Dated: October 8, 1997
18
<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
- --------- ----- ----
- ------------------------
Shevach Saraf Chairman, October 8, 1997
Chief Executive Officer
And President
- ------------------------
Thomas F. Ruth Chief Financial Officer October 8, 1997
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOLITRON
DEVICES, INC. AND SUBSIDIARIES FROM 10-QSB FOR THE SIX MONTHS AUGUST 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 564,000
<SECURITIES> 0
<RECEIVABLES> 1,142,000
<ALLOWANCES> (34,000)
<INVENTORY> 2,121,000
<CURRENT-ASSETS> 3,978,000
<PP&E> 1,600,000
<DEPRECIATION> (995,000)
<TOTAL-ASSETS> 6,477,000
<CURRENT-LIABILITIES> 2,838,000
<BONDS> 0
0
0
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,477,000
<SALES> 3,836,000
<TOTAL-REVENUES> 3,836,000
<CGS> 3,085,000
<TOTAL-COSTS> 3,643,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,000
<INCOME-PRETAX> 69,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
