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, 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.
(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)
(561) 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: 1,976,799 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 -- November 30, 1997
Condensed Consolidated Statements of Operations -- Three Months
and Nine Months Ended November 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -- Three Months
and Nine Months Ended November 30, 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
November 30, 1997
-----------------
(Unaudited)
Current Assets:
Cash $ 604
Accounts receivable, less allowance
for doubtful accounts of $34 1,128
Inventories 2,310
Prepaid expenses and other current assets 164
Due from S/V Microwave Products, Inc. 20
-------
Total current assets 4,226
Property, plant and equipment, net 570
Non-operating plant facilities 1,745
Due from S/V Microwave Products, Inc. 67
Other assets 82
-------
$ 6,690
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30, 1997
-----------------
(Unaudited)
Current liabilities:
Current maturities of long-term debt $ 7
Accounts payable - post-petition 459
Current portion of accounts payable - pre-petition 57
Accrued expenses 2,486
Accrued Chapter 11 administrative expenses 35
-------
Total current liabilities 3,044
-------
Other long-term liabilities 2,754
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 19
Additional paid-in capital 2,619
Deficit (1,746)
-------
892
-------
$ 6,690
=======
The accompanying notes are an integral part
of these condensed financial statements
4
<PAGE>
<TABLE>
<CAPTION>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXPECT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months ended
November 30, November 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,978 $ 1,806 $ 5,814 $ 5,342
Cost of Sales 1,539 1,410 4,624 4,203
------- ------- ------- -------
Gross Profit 439 396 1,190 1,139
Selling, general, and
administrative expenses 317 272 875 816
------- ------- ------- -------
Operating income 122 124 315 323
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Other Income 8 13 34 44
Interest Expense (62) (80) (191) (231)
Other (14) (13) (35) (39)
------- ------- ------- -------
Net other expense (68) (80) (192) (226)
------- ------- ------- -------
Net income $ 54 $ 44 $ 123 $ 97
======= ======== ========= =======
INCOME PER SHARE: $ .03 $ .02 $ .06 $ .05
======= ======== ======== =======
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)
Nine Months Ended
-----------------
November 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 123 $ 97
------ -------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 166 163
Provision for doubtful accounts 7 2
Gain on disposal of assets 0 (8)
(Increase) decrease in account receivable (30) 56
(Increase) decrease in inventories (221) 145
(Increase) in prepaid expenses and
other current assets (63) (22)
Decrease in due from
S/V Microwave Products, Inc. 48 41
Decrease in other assets 4 4
(Decrease) in accounts payable (54) (189)
Increase in accrued expenses
and other liabilities 328 606
Decrease in accrued Chapter 11
administrative expenses (3) (23)
(Decrease) in other long-term
liabilities (129) (431)
------ -------
Total adjustments 53 232
------ -------
Net cash used in operating activities 176 329
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of assets 0 8
Additions to property, plant and equipment (61) (78)
------ -------
Net cash used in investing activities (61) (70)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases and installment loans (48) (59)
------ -------
Net cash used in financing activities (48) (59)
------ -------
NET INCREASE IN CASH 67 200
CASH AT BEGINNING OF PERIOD 537 364
------ -------
CASH AT END OF PERIOD $ 604 $ 564
====== =======
</TABLE>
Supplemental cash flow disclosure: Interest paid during the nine months ended
November 30, 1997 and 1996 was approximately $191,000 and $231,000 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 nine-month period ended November 30, 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. 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. The Company has made
eleven reduced payments to its unsecured creditors, and, as of November 30,
1997, the Company has paid approximately $94,124 to its unsecured creditors, as
opposed to the $744,996 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.
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. The aforementioned party is now negotiating with DEP in order to
complete an appropriate consent agreement which will govern its cleanup
activities. 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 November 30, 1997:
Due Paid
---------- ----------
Martin County $ 60,000 $ 7,957
Palm Beach County 788,000 278,574
IRS 231,000
For the years since bankruptcy, additional taxes have become delinquent with
Martin and Palm Beach Counties in approximately the following amounts
respectively, $43,000 and $208,000.
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, falling Average Sale
Prices (ASP's), and 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 nine months ended November 30, 1997, the Company's book-to-bill ratio
fell to approximately 0.938 reflecting a slowdown in the demand for the
Company's products and a lower average unit sale price. The Company continued
implementing 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:
Pursuant to its reorganization plan and the state consent final judgement,
environmental cleanup is still 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 $356,000 for the
old Riviera Beach property. These amounts have been accrued for in the balance
sheet as of November 30, 1997. The accrual balance is approximately $1,048,000.
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 November 30, 1997
the Company had deposited $26,000 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.
After further protracted negotiations, On December 23, 1997, EPA and DEP advised
the Company and counsel for the potential Buyer of the Port Salerno facility of
EPA's decision to commence in January 1998 site remedial
investigation/feasibility study. This study will be conducted as an
investigative activity aimed at determining if the site will score sufficiently
to be eligible for listing in the National Priority List, as well as a means to
develop the needed plan of remediation. EPA is proceeding on the assumption that
the site will score sufficiently high under its ranking formula to be placed on
the List.
Following the aforementioned communication of EPA dated December 23, 1997,
counsel for the potential buyer of the Port Salerno facility advised the Company
on December 24, 1997, that the buyer is exercising his right to terminate the
agreement to purchase the facility as the parties were not able to negotiate a
successful deferral agreement with the EPA. Accordingly, the Company has put the
property back on the market.
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 net value
of the property that is being remediated by EPA, or that EPA would accept the
net proceeds of a sale from a prospective purchaser in full settlement of the
environmental liability of the property. The Company is preparing a settlement
proposal based on this approach and will shortly present it to EPA. After the
prospective purchaser of the Riviera Beach site cancelled its contract, the
other potentially responsible party for the site, the predecessor owner and
operator, has advised DEP of its willingness to enter into a Consent Order with
the State and perform the cleanup. The Company is negotiating a price settlement
with this party so a prospective purchaser and the Company will be released of
all liability. The amount to be paid will come from the net proceeds of the
sale.
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 NOVEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED NOVEMBER 30, 1996:
Net sales for the three months ended November 30, 1997 increased 9.5% to
$1,978,000, as compared to $1,806,000 for the three months ended November 30,
1996. The Company's backlog of open orders decreased 9.8% for the three months
ended November 30, 1997 as compared to an increase of 18.7% for the three months
ended November 30, 1996. Gross margins on the Company's sales increased to 22.2%
for the three months ended November 30, 1997 in comparison to 21.9% for the
three months ended November 30, 1996. This small increase was due primarily to
overhead control.
For the three months ending November 30, 1997, the Company shipped 574,223 units
as compared with 316,872 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 $317,000 for the
three months ended November 30 1997 from $272,000 for the comparable period in
1996. During the three months ending November 30, 1997, selling, general, and
administrative expenses as a percentage of sales was 16.02% as compared with
15.06% for the three months ending November 30, 1996. The increase was due
primarily to higher commissions.
The Company recorded a net other expense of $68,000 for the three months ended
November 30, 1997 versus a net other expense of $80,000 for the three months
ended November 30, 1996. The variance was due primarily to a decrease in the
amount of interest expense of $18,000 for the three months ended November 30,
1997, as compared to three months ended November 30, 1996.
Net income for the three months ended November 30, 1997 increased to $54,000
versus $44,000 for the same period in 1996. The major contributing factor to
this increase was the amount being accrued as interest on delinquent property
taxes decreased by approximately $18,000.
RESULTS OF OPERATIONS - NINE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED NOVEMBER 30, 1996
Net sales for the nine months ended November 30, 1997 increased by 8.8% to
$5,814,000 as compared to $5,342,000 for the nine months ended November 30,
1996. The Company's backlog of open orders decreased 7.2% for the nine months
ended November 30, 1997 as compared to an increase of 26.0% for the nine months
ended November 30, 1997. Gross margins on the Company's sales decreased to 20.5%
for the nine months ended November 30, 1997 from 21.3% for the nine months ended
November 30, 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 nine months ended November 30, 1997, the Company shipped 1,470,274 units
as compared with 1,139,994 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 $875,000 for the nine
months ended November 30, 1997 and $816,000 for the comparable period in 1996.
During the nine months ended November 30, 1997 selling, general and
administrative expenses as a percentage of sales were 15.05% as compared with
15.25% for the nine months ended November 30, 1996. The decrease was due
primarily to higher sales volume.
The Company recorded a net other expense of $192,000 for the nine months ended
November 30, 1997 versus a net other expense of $226,000 for the nine months
ended November 30, 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 nine months ended November 30, 1997 increased to $123,000
versus $69,000 for the same period of 1996. The major contributing factor to
this increase was increased shipments, which was partially offset by higher
materials, labor costs, and commissions. Additionally, other expenses were
$34,000 more favorable due to decreased interest being booked on property taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a net income of $ 123,000 and operating income of $ 315,000
for the nine months ended November 30, 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 November 30, 1997 and November 30, 1996 respectively, the Company had cash
and cash equivalents of $604,000 and $564,000. The principal cash change from
year to year was due primarily to profit of $154,000 year to year, which was
mainly used to retire debt.
At November 30, 1997, the Company had working capital of $1,182,000 as compared
with a working capital at November 30, 1996 of $1,160,000. The approximately
$22,000 change for the nine months ended September 30, 1997 was due primarily to
profits and was offset mainly by the retirement of debt.
Pursuant to the Plan or Reorganization, the Company is required to pay an
aggregate of approximately $2,488,151 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.
Following discussions between the Company and the unsecured creditors committee,
the Company agreed to make quarterly payments of $11,000 starting August 1997.
As of November 30, 1997, the Company had paid to the unsecured creditors $94,124
the $744,996 due. Of amounts owed to unsecured creditors $57,000 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 $1,048,000, 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 November 30, 1997, the Company had deposited $26,000 of
the $282,500 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 property. 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. The aforementioned party is now negotiating with DEP in order to
complete an appropriate consent agreement, which will govern the cleanup
activities. While the aforementioned party expressed interest, there is no
assurance that the parties will reach a satisfactory agreement with the
agencies. The Company continues to keep the old Riviera Beach property on the
market and is negotiating for a price settlement with the predecessor owner so
the Company and a prospective purchaser will be released of all liability. The
amount to be paid will come from the net proceeds of the sale.
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, 1997, the Company
had paid Ellco $255,000 and was current in amounts due to Ellco after a final
payment of $5,000 was made to Ellco on September 30, 1997. On November 24, 1997
Ellco provided the Company with a release of its security interest (UCC-3 was
being filed with the Florida Secretary of State). Thus, Ellco no longer will
have any security interest in assets of Solitron Devices, Inc. and will not have
an allowed unsecured claim. As a result of the aforementioned, the balance of
stock held in escrow for Ellco will be issued to the Company's unsecured
creditors in January 1998.
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 $1,780,000 (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: _________________
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,
Chief Executive Officer
And President
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 FORM 10-QSB FOR THE
NINE MONTHS NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 604,000
<SECURITIES> 0
<RECEIVABLES> 1,162,000
<ALLOWANCES> (34,000)
<INVENTORY> 2,310,000
<CURRENT-ASSETS> 4,226,000
<PP&E> 1,620,000
<DEPRECIATION> (1,050,000)
<TOTAL-ASSETS> 6,690,000
<CURRENT-LIABILITIES> 3,044,000
<BONDS> 0
0
0
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,690,000
<SALES> 5,814,000
<TOTAL-REVENUES> 5,814,000
<CGS> 4,624,000
<TOTAL-COSTS> 5,499,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,000
<INCOME-PRETAX> 123,000
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 121,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
