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 November 30, 1996
[ ] 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.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-1684144
- ------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3301 ELECTRONICS WAY, WEST PALM BEACH, FLORIDA 33407
----------------------------------------------------
(Address of principal executive offices)
(407) 848-4311
--------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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: 1,974,799 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 split effected
October 12, 1993.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements: Pages 4 - 20
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations: Pages 21 - 27
2
<PAGE>
SOLITRON DEVICES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheet -- November 30, 1996
Condensed Consolidated Statements of Operations -- Three Months and
Nine Months Ended November 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows -- Three Months and
Nine Months Ended November 30, 1996 and 1995
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
3
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
NOVEMBER 30, 1996
-----------------
(Unaudited)
Current Assets:
Cash $ 564
Accounts receivable, less allowance
for doubtful accounts of $29 941
Inventories 1,934
Prepaid expenses and other current assets 125
Due from S/V Microwave Products, Inc. 24
------
Total current assets 3,588
Property, plant and equipment, net 688
Non-operating plant facilities 1,745
Due from S/V Microwave Products, Inc. 128
Other assets 79
------
$6,228
======
4
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, 1996
-----------------
(Unaudited)
Current liabilities:
Current maturities of long-term debt $ 76
Accounts payable - post-petition 385
Current portion of accounts payable - pre-petition 108
Accrued expenses 1,821
Accrued Chapter 11 administrative expenses 38
---------
Total current liabilities 2,428
Other long-term liabilities 3,070
---------
Stockholders' Equity
Preferred stock, $.01 par value,
authorized 500,000 shares -
Common stock $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 1,880,000 19
Additional paid-in capital 2,619
Deficit (1,908)
---------
730
---------
$ 6,228
=========
The accompanying notes are an integral part
of these condensed financial statements
5
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1995 1996 1995
------------------ -----------------
NET SALES $1,806 $1,747 $5,342 $5,077
Cost of sales 1,410 1,479 4,203 4,310
------- ------ ------ ------
Gross Profit 396 268 1,139 767
Selling, general and
administrative expenses 272 327 816 957
------ ------ ------ -------
Operating (loss) income 124 (59) 323 (190)
------ ------ ------ -------
OTHER INCOME (EXPENSE):
Other Income 13 8 44 36
Interest expense (80) (40) (231) (95)
Other (13) (6) (39) (11)
------ ------ ------ -------
Net other expense (80) (38) (226) (70)
------ ------ ------ -------
Net (loss) income $ 44 $ (97) 97 (260)
====== ====== ====== =======
INCOME (LOSS) PER SHARE: $ .02 $(.05) .05 (.12)
====== ====== ====== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,082,000 2,082,000 2,082,000 2,082,000
--------- --------- --------- ---------
The accompanying notes are an integral part
of these condensed consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED NOVEMBER 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 97 $(260)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 163 179
Provision for doubtful accounts 2 (3)
Gain on disposal of assets (8) (13)
(Increase) decrease in account receivable (56) (145)
(Increase) decrease in inventories 145 (127)
(Increase) decrease in prepaid expenses and
other current assets (22) (26)
(Increase) decrease in due from S/V Microwave
Products, Inc. 41 (97)
Decrease in other assets 4 (4)
Increase (decrease) in accounts payable (189) 478
Increase (decrease) in accrued expenses
and other liabilities 606 (28)
Decrease in accrued Chapter 11
administrative expenses (23) (48)
Increase (decrease) in other long-term
liabilities (431) 149
----- -----
Total adjustments 232 315
----- -----
Net cash used in operating activities 329 55
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of assets 8 13
Additions to property, plant and equipment (78) (106)
Net cash used in investing activities (70) (93)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (59) (50)
Net cash used in financing activities (59) (50)
NET INCREASE (DECREASE) IN CASH 200 (88)
</TABLE>
7
(Continued)
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
NINE MONTHS ENDED NOVEMBER 30,
------------------------------
1996 1995
--------- --------
CASH AT BEGINNING OF PERIOD 364 867
--------- ---------
CASH AT END OF PERIOD $ 564 $ 779
========= =========
Supplemental cash flow disclosure:
Interest paid during the nine months ended November 30, 1996 and 1995 was
approximately $231,000 and $95,000 respectively.
8
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<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 29, 1996.
The results of operations for the nine month period ended November 30, 1996 are
not necessarily indicative of the results to be expected for the year ended
February 28, 1997.
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) On October 24, 1996 the Company settled its dispute with its new
landlord regarding the Company's lease payments and the parties' obligations
under the lease.
b) Pursuant to the Plan of Reorganization, the Company is to issue to
certain pre-petition creditors of the Company shares of its common stock, par
value $.01 per share (the "Common Stock"). In April 1996, pursuant to the Plan
of Reorganization, the Company issued an aggregate of 66,854 shares of Common
Stock to the State of California following the resolution of its claims against
the Company.
9
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
As of April 24, 1996, 771,434 of the 876,618 shares of Common Stock
which are to be issued pursuant to the Plan of Reorganization, have been so
issued. The Company holds approximately 105,000 shares of Common Stock in trust
for Ellco Leasing Corporation ("Ellco") to be issued to Ellco in the event the
Company should default on its obligations to Ellco.
(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. The Company is
negotiating 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 eight reduced payments to
its unsecured creditors, and, as of November 30, 1996, the Company has paid
approximately $59,218 to its unsecured creditors, as opposed to the $431,422
called for under the Company's Plan of Reorganization. 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.
(d) On September 11, 1996, the Company entered into an agreement to sell
its Riviera Beach facility to C&C Equity Investors Two, Inc. ("C&C"). Under the
terms of the agreement, C&C will assume all of the Company's obligations with
respect to that facility (including, without limitation, closing costs, real
estate taxes, penalties and fines and costs associated with the further
environmental remediation of the facility). The terms of the proposed sale also
call for the Company to be released by the Florida Department of Environmental
Protection (the "DEP") from all liability associated with the Riviera Beach
facility and the full satisfaction of the Company's Consent Final Judgment with
the DEP, the DEP must approve any such sale of the Riviera Beach facility. On
December 13, 1996, Solitron was notified by C&C that it was exercising its right
to terminate the contract.
(e) 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 (the "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 November 30, 1996:
DUE PAID
-------- --------
Martin County $ 36,000 $ 7,957
Palm Beach County 460,000 207,948
IRS 147,000 --
10
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
To date, no objections to 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.
2. ENVIRONMENTAL MATTERS:
Management of the Company believes that environmental clean up 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 November 30, 1996. The accrual balance is approximately $1,060,000.
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
estimate 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 November 30, 1996
the Company had deposited $14,000 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.
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.
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 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 29, 1996 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 which 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.
LIQUIDITY AND CAPITAL RESOURCES
During the last several fiscal years, the Company has 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.
Since the Company emerged from Chapter 11 on August 30, 1993, 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 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.
The Company reported a net income of $97,000 and operating income of $323,000
for the nine months ended November 30, 1996. 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.
12
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
At November 30, 1996, February 29, 1996 and November 30, 1995 respectively, the
Company had cash and cash equivalents of $564,000, $364,000 and $779,000 (which
included $548,000 restricted cash for rent and administrative claims in
connection with the bankruptcy proceedings). The principal cash change from year
to year was due to the Company's settlement with the Resolution Trust Company,
the Company's former landlord. The principal change for the nine months ended
November 30, 1996 was based on improved collections and the implementation of
additional controls on expenditures.
At November 30, 1996, the Company had working capital of $1,160,000 as compared
with a working capital at November 30, 1995 of $1,070,000. The increase was the
result of decreases in cash, inventories and amounts due the Company from Vector
Trading and Holding Corporation offset in part by increases to accounts
receivable and prepaid expenses. The positive cash flow generated by the Company
was used primarily to reduce liabilities. At February 29, 1996, the Company had
working capital of $1,451,000. The approximately $291,000 change for the nine
months ended November 30, 1996 was due primarily to increases in the scheduled
payments to Palm Beach County and the DEP.
It is presently estimated that pursuant to the Plan or Reorganization, the
Company would be required to pay an aggregate of approximately $3,483,338 to
holders of allowed unsecured claims in quarterly installments of approximately
$62,083. The Company has proposed to its unsecured creditors that it reduce its
payments to quarterly payments of $9,000. As of November 30, 1996, the Company
had paid to the unsecured creditors $59,218 of the $431,422 due. Of amounts owed
to unsecured creditors $108,000 is carried as short-term debt and $1,283,000 is
carried as long-term debt.
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.
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 $1,060,000, will be payable from the
proceeds of the sale or lease of these properties. As part of
13
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 November 30, 1996, the Company had deposited $14,000 of
the $75,000 due in accordance with the Plan into the escrow account.
On September 11, 1996, the Company entered into an agreement to sell its Riviera
Beach facility to C&C Equity Investors Two, Inc. For more information as to the
use of the proceeds from the proposed sale, 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. On December 13, 1996 Solitron was notified by
C&C Equity Investors Two, Inc. that it was exercising its right to terminate the
contract.
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 November 30, 1996, the Company
had paid Ellco $196,000 and was current in amounts due to Ellco.
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 believes that it 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(d) to the
Condensed Consolidated Financial Statements included in Item 1 of this Quarterly
Report on Form 10-QSB.
14
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 is in negotiations 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. 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.
15
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS-THREE MONTHS ENDED NOVEMBER 30, 1996:
Net sales for the three months ended November 30, 1996 increased 3.4% to
$1,806,000, as compared to $1,747,000 for the three months ended November 30,
1995. The Company's backlog of open orders increased 18.78% for the three months
ended November 30, 1996 as compared to an increase of .3% for the three months
ended November 30, 1995. Gross margins on the Company's sales increased to 21.9%
for the three months ended November 30, 1996 in comparison to 15.3% for the
three months ended November 30, 1995. These increases are the result of
increased customer demand, a more favorable portfolio of products shipped, the
market's ability to support higher prices and higher production yields.
For the three months ending November 30, 1996, the Company shipped 316,872 units
as compared with 1,112,665 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 decreased to $272,000 for the three
months ended November 30, 1996 from $327,000 for the comparable period in 1995.
During the three months ending November 30, 1996 selling, general and
administrative expenses as a percentage of sales was 15.06%, as compared with
18.72% for the three months ending November 30, 1995. The decrease was due
primarily to decreases in commissions payable.
The Company recorded a net other expense of $80,000 for the three months ended
November 30, 1996 versus a net other expense of $38,000 for the three months
ended November 30, 1995. The variance was due primarily to increases in the
Company's imputed interest and other interest payable which was partially offset
by the recording of other income of $13,000 as compared to other income of
$8,000 for three months ended November 30, 1996 and November 30, 1995,
respectively.
Net income for the three months ended November 30, 1996 increased to $44,000
versus a loss of ($97,000) for the same period in 1995. The major contributing
factors to this turnaround were more favorable pricing and lower materials and
direct labor costs. These favorable results were somewhat offset by a small
variance in the Company's overhead and increases to the Company's imputed
interest.
16
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS-NINE MONTHS ENDED NOVEMBER 30, 1996:
Net sales for the nine months ended November 30, 1996 increased by 5.2% to
$5,342,000 as compared to $5,077,000 for the nine months ended November 30,
1995. The Company's backlog of open orders increased 12.6% for the nine months
ended November 30, 1996 as compared to an increase of 11.3% for the nine months
ended November 30, 1995. Gross margins on the Company's sales increased to 21.3%
for the nine months ended November 30, 1996 from 15.11% for the nine months
ended November 30, 1995. These increases are due to increased customer demand,
slightly higher average prices on units sold, lower direct labor and material
costs and better manufacturing yields.
For the nine months ended November 30, 1996, the Company shipped 1,139,994 units
as compared with 2,575,865 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 decreased to $816,000 for the nine
months ended November 30, 1996 from $957,000 for the comparable period in 1995.
During the nine months ended November 30, 1996 selling, general and
administrative expenses as a percentage of sales was 15.28%, as compared with
18.85% for the nine months ended November 30, 1995. The decrease was due
primarily to decreases in commissions payable , legal and professional fees,
overhead and advertising expenses.
The Company recorded a net other expense of $226,000 for the nine months ended
November 30, 1996 versus a net other expense of $70,000 for the nine months
ended November 30, 1995. The variance was due primarily to increases in the
Company's imputed interest and other interest expenses.
Net income for the nine months ended November 30, 1996 increased to $97,000
versus ($260,000) for the same period of 1995. The major contributing factors to
this turnaround were lower commissions payable, lower material and direct labor
costs and improved product pricing and yields. These favorable results were
somewhat offset by a small variance in the Company's overhead and increases to
the Company's of imputed interest.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
Other than the following matters, the Company is not aware of any other
significant pending legal proceedings to which it is a party.
TECHNOLOGY PLACE, INC.
The Company is engaged in a dispute with Technology Place, Inc., its landlord,
as to each party's obligations under the Company's lease. On January 18, 1996,
the Company filed an action in the Circuit Court of the Fifteenth Judicial
Circuit in and for Palm Beach County, Florida seeking to clarify the lease. On
October 24, 1996, the Company settled its dispute with its new landlord.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Part 1.
18
<PAGE>
SIGNATURE
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.
/s/ SHEVACH SARAF
------------------------------------
Shevach Saraf
CHAIRMAN, CEO & PRESIDENT
Dated: January 6, 1997
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOLITRON
DEVICES, INC. AND SUBSIDIARIES FORM 10-QSB FOR THE QUARTER ENDED NOVEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 564,000
<SECURITIES> 0
<RECEIVABLES> 970,000
<ALLOWANCES> (29,000)
<INVENTORY> 1,934,000
<CURRENT-ASSETS> 3,588,000
<PP&E> 1,573,000
<DEPRECIATION> (885,000)
<TOTAL-ASSETS> 6,228,000
<CURRENT-LIABILITIES> 2,428,000
<BONDS> 0
0
0
<COMMON> 19,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,228,000
<SALES> 5,342,000
<TOTAL-REVENUES> 5,342,000
<CGS> 4,203,000
<TOTAL-COSTS> 5,019,000
<OTHER-EXPENSES> (5,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,000
<INCOME-PRETAX> 97,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 97,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
