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 May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number_____________
Solitron Devices, Inc.
----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-1684144
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
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: 2,068,821.
1
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SOLITRON DEVICES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets -- May 31, 2000 and February 29, 2000
Consolidated Income Statements -- Three Months Ended May 31, 2000
and 1999
Consolidated Statements of Cash Flows -- Three Months Ended May 31,
2000 and 1999
Notes to 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
Signatures
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements: Pages 4 - 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations: Pages 10 -12
3
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
May 31, 2000 February 29, 2000
------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,643,000 $ 1,184,000
Accounts receivable, less allowance
for doubtful accounts of $5,000 830,000 991,000
Inventories 2,553,000 2,510,000
Prepaid expenses and other current assets 91,000 111,000
Due from S/V Microwave 5,000 2,000
----------- -----------
Total current assets $ 5,122,000 $ 4,798,000
PROPERTY, PLANT AND EQUIPMENT, net 407,000 424,000
NON-OPERATING PLANT FACILITIES, net of cost
to dispose 0 0
OTHER ASSETS 80,000 87,000
----------- -----------
$ 5,609,000 $ 5,309,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, 2000 February 29, 2000
------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 549,000 $ 522,000
Accounts payable - Post petition 104,000 107,000
Accounts payable - Pre-petition, current portion 137,000 150,000
Accrued expenses and other liabilities 1,421,000 1,274,000
Accrued Chapter 11 administrative expense 2,000 2,000
----------- -----------
Total current liabilities $ 2,213,000 $ 2,055,000
Other long-term liabilities net of current portion,
net of cost to dispose of non-operating plant facilities 1,288,000 1,318,000
----------- -----------
TOTAL LIABILITIES $ 3,501,000 $ 3,373,000
=========== ===========
COMMITMENTS & CONTINGENCIES
Stockholders' Equity:
Preferred stock, $.01 par value,
authorized 500,000 shares,
No shares issued and outstanding -0- -0-
Common stock $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 2,068,821 21,000 21,000
Additional paid-in capital 2,617,000 2,617,000
Accumulated deficit (530,000) (702,000)
----------- -----------
Total stockholders' equity 2,108,000 1,936,000
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$ 5,609,000 $ 5,309,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 2,045,000 $ 1,935,000
Cost of sales 1,571,000 1,530,000
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Gross Profit 474,000 405,000
Selling, general and administrative expenses 303,000 282,000
----------- -----------
Operating income 171,000 123,000
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Other Income (Expense):
Other income 24,000 11,000
Interest expense (20,000) (45,000)
Other (3,000) (5,000)
----------- -----------
Net other income (expense) 1,000 (39,000)
----------- -----------
Net income $ 172,000 $ 84,000
=========== ===========
INCOME PER SHARE: Basic $ .08 $ .04
Diluted $ .08 $ .04
WEIGHTED AVERAGE SHARES
OUTSTANDING Basic 2,068,821 2,034,704
Diluted 2,252,268 2,034,704
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 172,000 $ 84,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 49,000 52,000
(Increase)/Decrease in:
Accounts Receivable 161,000 169,000
Inventories (43,000) (168,000)
Prepaid Expenses and other current assets 20,000 (17,000)
Other assets 7,000 --
Due from SV Microwave (3,000) (2,000)
Increase/(Decrease) in:
Accounts Payable (16,000) (240,000)
Accrued Expenses
and other liabilities 147,000 2,000
Accrued Chapter 11
administrative expenses -- (12,000)
Accrued Environmental Expenses 27,000 --
Other Long Term Liabilities (30,000) --
----------- -----------
Total adjustments 319,000 (216,000)
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Net cash provided by (used in)
operating activities 491,000 (132,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (32,000) (39,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases -- (10,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 459,000 (181,000)
CASH AT BEGINNING OF PERIOD $ 1,184,000 $ 784,000
----------- -----------
CASH AT END OF PERIOD $ 1,643,000 $ 603,000
=========== ===========
</TABLE>
Supplemental cash flow disclosure: Interest paid during the three months ended
May 31, 2000 and 1999 was approximately $20,000 and $44,000 respectively.
The accompanying notes are an integral part
of these consolidated financial statements.
7
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
The financial information for Solitron Devices, Inc. and Subsidiaries (the
"Company") 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 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, 2000.
The results of operations for the three-month period ended May 31, 2000 are not
necessarily indicative of the results to be expected for the year ended February
28, 2001.
2. ENVIRONMENTAL REGULATION:
While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state, and local laws
and, therefore, is subject to regulations related to their use, storage,
discharge, and disposal. No assurance can be made that the risk of accidental
release of such materials can be completely eliminated. In the event of a
violation of environmental laws, the Company could be held liable for damages
and the costs of remediation and, along with the rest of the semiconductor
industry, is subject to variable interpretations and governmental priorities
concerning environmental laws and regulations. Environmental statutes have been
interpreted to provide for joint and several liability and strict liability
regardless of actual fault. There can be no assurance that the Company and its
subsidiaries will not be required to incur costs to comply with, or that the
operations, business, or financial condition of the Company will not be
materially adversely affected by current or future environmental laws or
regulations.
The Company has recently received pre-notices of its potential liability for
environmental matters as a de minimus party from two separate actions, which
have been settled by other parties with the United States Environmental
Protection Agency ("USEPA"). These notices refer to two waste disposal sites -
one in California and one in Florida, both designated as Superfund sites. The
Company has not been advised as to its contribution level, if any. If the
Company is deemed liable as a de minimus party, then the Company does not
believe the resolution of these matters will have a material adverse affect on
its financial position.
3. INVENTORIES:
As of May 31, 2000 inventories consist of the following:
Raw Materials $ 1,458,000
Work-In-Process and Finished Goods 1,095,000
------------
$ 2,553,000
============
8
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. GOING CONCERN:
The Company's consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities as they become due. Although the Company has projected that it will
be able to generate sufficient funds to support its ongoing operations, it has
significant obligations arising from settlements in connection with its
bankruptcy necessitating it to make substantial cash payments which cannot be
supported by the current level of operations. The Company must be able to obtain
forbearance or be able to renegotiate its bankruptcy related required payments
to unsecured creditors, the USEPA, the Florida Department of Environmental
Protection ("FDEP"), and certain taxing authorities or raise sufficient cash in
order to pay these obligations as currently due, in order to remain a going
concern.
The Company continues to negotiate with its unsecured creditors, the USEPA, the
FDEP, and taxing authorities in an attempt to arrive at reduced payment
schedules. Additionally, the Company plans to secure other financing facilities
to provide additional funding. In addition, the Company has a contingency plan
to reduce its size and thereby reduce its cost of operations within certain
limitations. However, no assurance can be made that the Company can reach a
suitable agreement with the unsecured creditors or taxing or other regulatory
authorities or obtain additional sources of capital and/or cash or that the
Company can generate sufficient cash to meet its obligations over the next year.
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
9
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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 that affect the Company's
financial position and operating results during the periods included in the
accompanying condensed consolidated financial statements should be read in
connection 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, 2000 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:
Except for historical information contained herein, certain matters discussed
herein are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, technological, competitive, governmental procurement, regulatory,
strategies, available financing, and other factors discussed elsewhere in this
report and in the documents filed by the Company with the SEC. Many of these
factors are beyond the Company's control. Actual results could differ materially
from the forward-looking statements. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
report will, in fact, occur.
During the three-month period ended May 31, 2000, the Company's book-to-bill
ratio dropped to approximately 0.49, reflecting a change in the demand for the
Company's products and a lower average unit sale price. The Company believes
that such change in the intake of orders has been the general experience of most
manufacturers of high reliability power semiconductors and hybrids that
participate in the same market as the Company. The Company continued
implementing steps intended to reduce its variable manufacturing cost to offset
the impact of lower average sale price and lower intake of orders. However,
should the intake of orders continue to decline, then the Company may be
required to implement further cost-cutting or other downsizing measures to
continue its business operations.
RESULTS OF OPERATIONS-THREE MONTHS ENDED MAY 31, 2000 COMPARED TO THREE MONTHS
ENDED MAY 31, 1999:
Sales
Net sales for the three months ended May 31, 2000 increased approximately 6% to
$2,045,000 as compared to $1,935,000 for the three months ended May 31, 1999.
The Company attributes this rise in net sales to increased volume of products
sold.
For the three months ended May 31, 2000, the Company shipped 484,721 units as
compared with 323,713 units shipped during the same period of the prior year.
Since the Company manufactures a wide variety of products with an average sale
price ranging from less than one dollar to several hundred dollars, the Company
believes that such periodic variations in the Company's volume of units shipped
may not be a reliable indicator of the Company's performance.
However, the Company experienced a decrease in the level in the intake of orders
of approximately 46% for the quarter ended May 31, 2000 as compared to the same
period for the previous year principally as a result of a lower demand for its
product due to delays and cuts in defense spending, exacerbated by the switch in
demand from high reliability products made by the Company to commercial
off-the-shelf items which the Company cannot make competitively.
10
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cost of Sales
Cost of Sales for the three months ended May 31, 2000 increased to $1,571,000
from $1,530,000 for the comparable period ended May 31, 1999. However, expressed
as a percentage of sales, Cost of Sales decreased from 79.1% to 76.8% for the
same periods. The Company attributes this decrease to lower manufacturing
overhead costs.
Gross Profit
Gross margins on the Company's sales increased to 23.1% for the three months
ended May 31, 2000 compared to 20.9% for the three months ended May 31, 1999.
The Company believes that this increase resulted from a more favorable product
mix and a reduction in manufacturing overhead costs. Gross profit for the three
months ended May 31, 2000 increased to $474,000 from $405,000 for the three
months ended May 31, 1999. The Company believes that this increase is primarily
due to increased sales volume and a decrease in the cost of goods sold as a
percentage of sales.
Selling, General and Administrative Expenses
Selling, General, and Administrative expenses increased to $303,000 for the
three months ended May 31, 2000 from $282,000 for the comparable period ended
May 31, 1999. This increase is primarily due to higher salaries and legal
expenses. During the three-month period ended May 31, 2000, Selling, General,
and Administrative expenses as a percentage of sales increased to 14.8% as
compared with 14.6% for the three months ended May 31, 1999.
Operating Income
Operating Income for the three months ended May 31, 2000 was $171,000 compared
to $123,000 for the three months ended May 31, 1999. This increase is
principally due to a slightly higher sales volume and to a decrease in the cost
of goods sold as percentage of sales.
Net Other Income
The Company recorded a Net Other Income of $1,000 for the three months ended May
31, 2000 versus a net other expense of $39,000 for the three months ended May
31, 1999. The variance was due to decreases in the Company's Interest Expense as
well as increases in Interest Income for the three month period ended May 31,
2000.
Net Income
Net income for the three-month period ended May 31, 2000 increased to $172,000
from $84,000 for the same period in 1999. The Company attributes this increase
to a slightly higher level of revenue.
11
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity continues to be adversely affected by significant
non-recurring expenses associated with the Company's pre-petition obligations,
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 reported a net income of $172,000 and operating income of $171,000
for the three months ended May 31, 2000. However, the Company has significant
obligations arising from settlements related to its bankruptcy proceeding, which
requires it to make substantial cash payments that cannot be supported by the
Company's current level of operations. As of May 31, 2000, the Company's total
remaining obligations are $3,047,000.
At May 31, 2000, February 29, 2000 and May 31, 1999 respectively, the Company
had cash of $1,643,000, $1,184,000 and $603,000. This increase resulted from a
reduction in Accounts Receivable and of cash flow from operations.
At May 31, 2000, the Company had working capital of $2,909,000 as compared with
a working capital at May 31, 1999 of $1,387,000. At February 29, 2000, the
Company had a working capital of $2,743,000. The approximately $166,000 change
for the three months ended May 31, 2000 was due mainly to an increase in cash.
As of May 31, 2000, the Company had $1,288,000 of long-term debt outstanding as
compared to $1,318,000 outstanding as of February 29, 2000.
12
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Please refer to the Company's 10-KSB filed May 31, 2000.
The Company has recently received pre-notices of its potential liability for
environmental matters as a de minimus party from two separate actions claims,
which have been settled by other parties with the USEPA. These notices refer to
two waste disposal sites - one in California and one in Florida, both designated
as Superfund sites. The Company has not been advised as to its contribution
level, if any. If the Company is deemed liable as a de minimus party, then the
Company does not believe the resolution of these matters will have a material
adverse affect on its financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
See Part 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5. OTHER INFORMATION:
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
2.1 Debtors' Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A,
dated October 12, 1993).
2.2 Debtors' First Modification of Fourth Amended Plan of
Reorganization of the Company (incorporated by reference to
the Company's Form 8-K, dated September 3, 1993, as amended by
the Company's Form 8-K/A, dated October 12, 1993).
2.3 Order Confirming Debtors' Fourth Amended Plan of
Reorganization of the Company (incorporated by reference to
the Company's Form 8-K, dated September 3, 1993, as amended by
the Company's Form 8-K/A, dated October 12, 1993).
2.4 Consent Final Judgment of the Company (incorporated by
reference to the Company's Form 8-K, dated September 3, 1993,
as amended by the Company's Form 8-K/A, dated October 12,
1993).
3.1 Certificate of Incorporation of the Company (incorporated by
reference to the Company's Form 10-K for the year ended
February 28, 1993).
3.2 Bylaws of the Company (incorporated by reference to the
Company's Form 10-K for the year ended February 28, 1993).
27 Financial Data Schedule
13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of Solitron and in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/S/ SHEVACH SARAF
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Shevach Saraf Chairman, July 6, 2000
President, and
Chief Executive Officer
14
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Exhibit Index
Exhibit No. Exhibit Description
----------- -------------------
27 Financial Data Schedule
