SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 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
------------------------------- ------------------------------------
(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 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 I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets - August 31, 2000 and February 29, 2000
Consolidated Income Statements -- Six and Three Months Ended
August 31, 2000 and 1999
Consolidated Statements of Cash Flows -- Six Months Ended
August 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
2
<PAGE>
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 -14
3
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
August 31, 2000 February 29, 2000
--------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $2,193,000 $1,184,000
Accounts receivable, less allowance
for doubtful accounts of $5,000 735,000 991,000
Inventories 2,466,000 2,510,000
Prepaid expenses and other current assets 114,000 111,000
Due from S/V Microwave 1,000 2,000
---------- ----------
Total current assets 5,509,000 4,798,000
PROPERTY, PLANT AND EQUIPMENT, net 376,000 424,000
NON-OPERATING PLANT FACILITIES, net of cost
to dispose 0 0
OTHER ASSETS 63,000 87,000
---------- ----------
$5,948,000 $5,309,000
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, 2000 February 29, 2000
---------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 576,000 $ 522,000
Accounts payable - Post petition 273,000 107,000
Accounts payable - Pre-petition, current portion 124,000 150,000
Accrued expenses and other liabilities 1,380,000 1,274,000
Accrued Chapter 11 administrative expense 2,000 2,000
----------- -----------
Total current liabilities 2,355,000 2,055,000
Other long-term liabilities net of current portion,
net of cost to dispose of non-operating plant facilities 1,259,000 1,318,000
----------- -----------
TOTAL LIABILITIES $ 3,614,000 $ 3,373,000
=========== ===========
COMMITMENTS & CONTINGENCIES
Stockholders' Equity:
Preferred stock, $.01 par value,
authorized 500,000 shares,
No shares issued -0- -0-
Common stock $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 2,068,821 shares 21,000 21,000
Additional paid-in capital 2,617,000 2,617,000
Accumulated deficit (304,000) (702,000)
----------- -----------
Total stockholders' equity 2,334,000 1,936,000
----------- -----------
$ 5,948,000 $ 5,309,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Mos. Ended August 31, Six Mos. Ended August 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 2,082,000 $ 1,893,000 $ 4,127,000 $ 3,828,000
Cost of Sales 1,464,000 1,499,000 3,035,000 3,029,000
----------- ----------- ----------- -----------
Gross Profit 618,000 394,000 1,092,000 799,000
Selling, General & Administrative Expenses 417,000 317,000 720,000 599,000
----------- ----------- ----------- -----------
Operating Income 201,000 77,000 372,000 200,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other Income 47,000 9,000 71,000 20,000
Interest Expense (20,000) (44,000) (40,000) (89,000)
Other, Net (2,000) (10,000) (5,000) (17,000)
----------- ----------- ----------- -----------
Other Income (Expense), Net 25,000 (45,000) 26,000 (86,000)
----------- ----------- ----------- -----------
Net Income $ 226,000 $ 32,000 $ 398,000 $ 114,000
=========== =========== =========== ===========
INCOME PER SHARE: Basic $ 0.11 $ 0.02 $ 0.19 $ 0.06
: Diluted $ 0.10 $ 0.02 $ 0.18 $ 0.06
WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 2,068,821 2,034,704 2,068,821 2,034,704
: Diluted 2,219,357 2,034,704 2,193,745 2,034,704
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended August 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 398,000 $ 114,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 101,000 104,000
(Increase)/Decrease in:
Accounts Receivable 256,000 15,000
Inventories 44,000 (35,000)
Prepaid Expenses & Other Current Assets (3,000) 3,000
Due from SV Microwave 1,000
Other Assets 24,000 --
Increase/(Decrease) in:
Accounts Payable 166,000 (269,000)
Accounts Payable pre-petition (26,000)
Accrued Expenses & Other Liabilities 106,000 (108,000)
Accrued Chapter 11 administrative expenses -- (21,000)
Accrued Environmental Expenses 54,000 --
Other Long Term Liabilities (59,000)
----------- -----------
Total adjustments 664,000 (311,000)
----------- -----------
Net cash provided by (used in)
operating activities 1,062,000 (197,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (53,000) (29,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases -- (12,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,009,000 (238,000)
CASH AT BEGINNING OF PERIOD 1,184,000 784,000
----------- -----------
CASH AT END OF PERIOD $ 2,193,000 $ 546,000
=========== ===========
</TABLE>
Supplemental cash flow disclosure: Interest paid during the six months ended
August 31, 2000 and 1999 was approximately $40,000 and $89,000 respectively.
The accompanying notes are an integral part
of these 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 six-month period ended August 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.
On June 25, 2000, the Company received a letter from a group of companies who
have been identified as potentially responsible parties ("PRPs") in connection
with the contamination of the Petroleum Products Corporation Superfund site in
Pembroke Park, Florida. The Company is alleged to have transported hazardous
waste to the site for disposal at a time prior to the confirmation of its
Reorganization Plan. This letter stated that the Company is considered a PRP by
the Environmental Protection Agency ("EPA") and as such, that the EPA is likely
to contact the Company with de minimis settlement offer in the near future,
which means that the Company's liability amount under such a settlement is
expected to be nominal. As an alternative, the letter contained an offer to join
the group of PRPs named in the letter who have been addressing ground waste
conditions at the site. The letter further stated that if the Company does not
join this group of PRPs or otherwise settle with the EPA, the Company will be
served with a complaint in a pending lawsuit brought by the EPA against more
than 1,000 parties in United States District Court for the Southern District of
Florida in 1994 with respect to alleged contamination of this site. At this
time, the Company has not been served with a complaint and has not received the
EPA's settlement offer. Because this potential claim is based on alleged
occurrences prior to the confirmation of its Reorganization Plan, the Company
believes that any action with respect to these occurrences is barred by its
bankruptcy proceedings. However, the Company cannot assure you that a court will
agree with this position or, if it does, that significant legal costs would not
be incurred in connection with defending such claim.
On August 28, 2000, the Company received a letter from the law firm representing
the Casmalia Resources Site Steering Committee ("CRSSC"), which is a group of
PRPs working with the EPA with respect to waste disposal at a site in Santa
Barbara County, California. The letter stated that the Company has been
designated a "large waste
8
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
generator" at the Casmalia site by the EPA and indicated that the Company had
been named as a defendant in a suit filed by the CRSSC on June 26, 2000 in the
U.S. District Court for the Central District of California. The suit seeks
contribution from the Company and other PRPs who have not settled with the U.S.
Government for costs incurred by the CRSSC. On September 8, 2000, the Company
received a letter from the EPA explaining that because the Company allegedly
sent waste to the Casmalia site, it is considered a "large waste generator" and
may therefore be partially liable for the costs of cleaning up the site.
The Company signed a tolling agreement, whereby it extended the statute of
limitations for filing a claim against the Company with respect to this matter.
The CRSSC has postponed serving a complaint upon the Company in its lawsuit in
exchange for the Company's signing of the tolling agreement and agreeing to
enter into settlement negotiations between the EPA and a group of other large
waste generators. Because this potential claim is based on alleged occurrences
prior to the confirmation of its Reorganization Plan, the Company believes that
any action with respect to these occurrences is barred by its bankruptcy
proceedings. The Company has not waived this defense as a result of signing the
tolling agreement. However, the Company cannot assure you that a court will
agree with this position or, if it does, that significant legal costs would not
be incurred in connection with defending such claim.
3. INVENTORIES:
As of August 31, 2000 inventories consist of the following:
Raw Materials $ 1,352,000
Work-In-Process and Finished Goods 1,114,000
------------
$ 2,466,000
============
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
continued 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. 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, environmental 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE
MONTHS ENDED AUGUST 31, 1999:
Sales
Net sales for the three months ended August 31, 2000 increased approximately 10%
to $2,082,000 as compared to $1,893,000 for the three months ended August 31,
1999. The Company attributes this rise in net sales to increased volume of
products sold while generally meeting the delivery time requirements of its
customers.
For the three months ended August 31, 2000, the Company shipped 360,325 units as
compared with 263,501 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.
The Company experienced an increase in the level in the intake of orders of
approximately 10% for the quarter ended August 31, 2000 as compared to the same
period for the previous year principally as a result of the timing in defense
spending and in spite of the switch in demand from high reliability products
made by the Company to commercial off-the-shelf items which the Company cannot
manufacture and sell competitively.
Cost of Sales
Cost of Sales for the three months ended August 31, 2000 decreased to $1,464,000
from $1,499,000 for the comparable period ended August 31, 1999. Expressed as a
percentage of sales, Cost of Sales decreased from 79.2% to 70.3% for the same
periods. This decrease is attributable to lower labor and manufacturing overhead
costs.
Gross Profit
Gross margins on the Company's sales increased to 29.7% for the three months
ended August 31, 2000 compared to 20.8% for the three months ended August 31,
1999. The Company believes that this increase resulted from a more favorable
product mix and from the reduction in cost of sales. Gross profit for the three
months ended August 31, 2000 increased to $618,000 from $394,000 for the three
months ended August 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.
10
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Selling, General and Administrative Expenses
Selling, General, and Administrative expenses increased to $417,000 for the
three months ended August 31, 2000 from $317,000 for the comparable period ended
August 31, 1999. This increase is primarily due to higher professional fees and
legal expenses. During the three-month period ended August 31, 2000, Selling,
General, and Administrative expenses as a percentage of sales increased to 20.0%
as compared with 16.7% for the three months ended August 31, 1999.
Operating Income
Operating Income for the three months ended August 31, 2000 was $201,000
compared to $77,000 for the three months ended August 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 $25,000 for the three months ended
August 31, 2000 versus a net other expense of $45,000 for the three months ended
August 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
August 31, 2000.
Net Income
Net income for the three-month period ended August 31, 2000 increased to
$226,000 from $32,000 for the same period in 1999. The Company attributes this
increase to a slightly higher level of revenue.
RESULTS OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 2000 COMPARED TO SIX MONTHS
ENDED AUGUST 31, 1999:
During the six-month period ended August 31, 2000, the Company's book-to-bill
ratio dropped to approximately 0.73, reflecting a change in the demand for the
Company's products, a lower average unit sale price and delays in the award of
military programs. 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.
Sales
Net sales for the six months ended August 31, 2000 increased approximately 8% to
$4,127,000 as compared to $3,828,000 for the six months ended August 31, 1999.
The Company attributes this rise in net sales to increased volume of products
sold.
11
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
For the six months ended August 31, 2000, the Company shipped 845,046 units as
compared with 587,214 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.
The Company experienced a decrease in the level in the intake of orders of
approximately 9% for the six months ended August 31, 2000 as compared to the
same period for the previous year principally as a result of the timing 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 manufacture and sell competitively.
Cost of Sales
Cost of Sales for the six months ended August 31, 2000 increased to $3,035,000
from $3,029,000 for the comparable period ended August 31, 1999. Expressed as a
percentage of sales, Cost of Sales decreased from 79.1% to 73.5% for the same
periods. This decrease is attributable to lower labor and manufacturing overhead
costs.
Gross Profit
Gross margins on the Company's sales increased to 26.5% for the six months ended
August 31, 2000 compared to 20.9% for the six months ended August 31, 1999. The
Company believes that this increase resulted from a more favorable product mix
and from the reduction in cost of sales as a percentage. Gross profit for the
six months ended August 31, 2000 increased to $1,092,000 from $799,000 for the
six months ended August 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 $720,000 for the six
months ended August 31, 2000 from $599,000 for the comparable period ended
August 31, 1999. This increase is primarily due to higher professional fees and
legal expenses. During the six month period ended August 31, 2000, Selling,
General, and Administrative expenses as a percentage of sales increased to 17.4%
as compared with 15.6% for the six months ended August 31, 1999.
Operating Income
Operating Income for the six months ended August 31, 2000 was $372,000 compared
to $200,000 for the six months ended August 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 $26,000 for the six months ended
August 31, 2000 versus a net other expense of $86,000 for the six months ended
August 31, 1999. The variance was due to decreases in the Company's Interest
Expense as well as increases in Interest Income for the six month period ended
August 31, 2000.
12
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Net Income
Net income for the six-month period ended August 31, 2000 increased to $398,000
from $114,000 for the same period in 1999. The Company attributes this increase
to a slightly higher level of revenue.
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 $398,000 and operating income of $372,000
for the six months ended August 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 August 31, 2000, the Company's
total remaining obligations are $3,031,000, which consists of $1,562,000 in
environmental obligations, $1,226,000 owed to unsecured creditors and $243,000
in property taxes.
At August 31, 2000, February 29, 2000 and August 31, 1999 respectively, the
Company had cash of $2,193,000, $1,184,000 and $546,000. This increase resulted
from a reduction in Accounts Receivable and from cash flow from operations.
At August 31, 2000, the Company had working capital of $3,154,000 as compared
with a working capital at August 31, 1999 of $1,426,000. At February 29, 2000,
the Company had a working capital of $2,743,000. The approximately $411,000
change for the six months ended August 31, 2000 was due mainly to an increase in
cash.
As of August 31, 2000, the Company had $1,259,000 of long-term debt outstanding
as compared to $1,318,000 outstanding as of February 29, 2000.
STOCK OPTION PLAN
On July 10, 2000 the Board of Directors unanimously approved a non-qualified
Stock Option Plan. Under this plan the options to purchase 32,750 shares of
common stock have been granted to 21 key employees and to two Directors. These
options are exercisable at $0.67 per share and will vest after a period of one
year.
FORWARD-LOOKING STATEMENTS
Information in this Form 10-QSB, including any information incorporated by
reference herein, includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe-harbor created by
such sections. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements.
Statements regarding:
o trends in the industry, including trends concerning consolidation,
charge in government military spending, price erosion and competition;
o the barring of environmental claims due to the Company's bankruptcy
order;
o the Company's ability to respond quickly to customers' needs and to
deliver products in a timely manner;
o the Company's compliance with environmental laws, orders and
investigations and the future costs of such compliance;
13
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SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
o implementation of the Plan of Reorganization and the Company's ability
to make payments required under the plan of Reorganization or otherwise
or to generate sufficient cash from operations or otherwise; and
o other statements contained in this report that address activities,
event or developments that the Company expects, believes or anticipates
will or may occur in the future
and similar statements are forward-looking statements.
These statements are based upon assumptions and analyses made by the Company in
light of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risk and
uncertainties. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results might differ materially
from those suggested or projected in the forward-looking statements. Factors
that may cause actual future events to differ significantly from those predicted
or assumed include, but are not limited to:
o a change in government regulations which hinders the Company's ability
to perform government contracts;
o judicial or other legally enforceable interpretations of the Company's
liability under environmental laws;
o a decision to discontinue or delay the development of any or all of its
products if such decision is later determined to be in the best
interests of the Company;
o inability to capitalize on competitive strengths or a misinterpretation
of those strengths;
o a misinterpretation of the nature of the competition;
o inability to respond quickly to customers' needs and to deliver
products in a timely manner resulting from unforeseen circumstances;
o an increase in the expected cost of environmental compliance based on
factors unknown at this time;
o change in status of reduced payments being accepted by various
creditors of the Company from obligations set forth in the Company's
Plan of Reorganization, or otherwise;
o changes in law or industry regulation; and
o other unforeseen activities, events and developments that may occur in
the future.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On June 25, 2000, the Company received a letter from a group of companies who
have been identified as potentially responsible parties ("PRPs") in connection
with the contamination of the Petroleum Products Corporation Superfund site in
Pembroke Park, Florida. The Company is alleged to have transported hazardous
waste to the site for disposal at a time prior to the confirmation of its
Reorganization Plan. This letter stated that the Company is considered a PRP by
the Environmental Protection Agency ("EPA") and as such, that the EPA is likely
to contact the Company with de minimis settlement offer in the near future,
which means that the Company's liability amount under such a settlement is
expected to be nominal. As an alternative, the letter contained an offer to join
the group of PRPs named in the letter who have been addressing ground waste
conditions at the site. The letter further stated that if the Company does not
join this group of PRPs or otherwise settle with the EPA, the Company will be
served with a complaint in a pending lawsuit brought by the EPA against more
than 1,000 parties in United States District Court for the Southern District of
Florida in 1994 with respect to alleged contamination of this site. At this
time, the Company has not been served with a complaint and has not received the
EPA's settlement offer. Because this potential claim is based on alleged
occurrences prior to the confirmation of its Reorganization Plan, the Company
believes that any action with respect to these occurrences is barred by its
bankruptcy proceedings. However, the Company cannot assure you that a court will
agree with this position or, if it does, that significant legal costs would not
be incurred in connection with defending such claim.
On August 28, 2000, the Company received a letter from the law firm representing
the Casmalia Resources Site Steering Committee ("CRSSC"), which is a group pf
PRPs working with the EPA with respect to waste disposal at a site in Santa
Barbara County, California. The letter stated that the Company has been
designated a "large waste generator" at the Casmalia site by the EPA and
indicated that the Company had been named as a defendant in a suit filed by the
CRSSC on June 26, 2000 in the U.S. District Court for the Central District of
California. The suit seeks contribution from the Company and other PRPs who have
not settled with the U.S. Government for costs incurred by the CRSSC. On
September 8, 2000, the Company received a letter from the EPA explaining that
because the Company allegedly sent waste to the Casmalia site, it is considered
a "large waste generator" and may therefore be partially liable for the costs of
cleaning up the site.
The Company signed a tolling agreement, whereby it extended the statute of
limitations for filing a claim against the Company with respect to this matter.
The CRSSC has postponed serving a complaint upon the Company in its lawsuit in
exchange for the Company's signing of the tolling agreement and agreeing to
enter into settlement negotiations between the EPA and a group of other large
waste generators. Because this potential claim is based on alleged occurrences
prior to the confirmation of its Reorganization Plan, the Company believes that
any action with respect to these occurrences is barred by its bankruptcy
proceedings. The Company has not waived this defense as a result of signing the
tolling agreement. However, the Company cannot assure you that a court will
agree with this position or, if it does, that significant legal costs would not
be incurred in connection with defending such claim.
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.
15
<PAGE>
PART II - OTHER INFORMATION
(Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS
2.1 Debtors' Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated September
3, 1993, as amended by the Company's Form 8-K/A, dated October 12,
1993).
2.2 Debtors' First Modification of Fourth Amended Plan of Reorganization of
the Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated
October 12, 1993).
2.3 Order Confirming Debtors' Fourth Amended Plan of Reorganization of the
Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated
October 12, 1993).
2.4 Consent Final Judgment of the Company (incorporated by reference to the
Company's Form 8-K, dated September 3, 1993, as amended by the
Company's Form 8-K/A, dated October 12, 1993).
3.1 Certificate of Incorporation of the Company (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
3.2 Bylaws of the Company (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993).
10.1 1987 Incentive Stock Option Plan (incorporated by reference to the
Company's Form 10-K for the years ended February 28, 1994 and February
28, 1995)
10.2 Purchase Agreement dated October 5, 1992, by and among Solitron
Devices, Inc., Solitron Specialty Products, Inc. (f/k/a Solitron
Microwave, Inc.) and Vector Trading and Holding Corporation, along with
and as amended by: (i) Amendment Number One to Purchase Agreement dated
October 28, 1992, by and among Solitron devices, Inc., Solitron
Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation; (ii) Order dated December 23, 1992,
Authorizing the Sale of Certain of the Debtors' Assets to Vector
Trading and Holding Corporation; (iii) Amendment Number Two to Purchase
Agreement dated February 28, 1993, by and among Solitron Devices, Inc.,
Solitron Specialty Products, Inc. (f/k/a/ Solitron Microwave, Inc.) and
Vector Trading and Holding Corporation; and (iv) Order dated March 4,
1993, Grating Vector Trading and Holding Corporation's Motion for Entry
of Amended Order Authorizing Sale of Certain of the Debtors' Assets
(incorporated by reference to the Company's Form 10-K for the year
ended February 28, 1993)
10.3 Shared Services and Equipment Agreement, dated February 28, 1993, by
and among Solitron Devices, Inc., Solitron Specialty Products, Inc.
(f/k/a/ Solitron Microwave, Inc.) and S/V Microwave (incorporated by
reference to the Company's Fork 10-K for the year ended February 28,
1993)
10.4 Sublease, dated March 1, 1993, by and between Solitron Devices, Inc.
and S/V Microwave (incorporated by reference to the Company's Form 10-K
for the year ended February 28, 1993)
10.5 Commercial Lease Agreement, dated January 1, 1992, between William C.
Clark, as Trustee, and Solitron Devices, Inc. (incorporated by
reference to the Company's Form 10-K for the year ended February 28,
1993)
16
<PAGE>
PART II - OTHER INFORMATION
(Continued)
10.6 Employment Agreement, dated February 3, 1993, between Solitron Devices,
Inc. and Shevach Saraf (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993)
21 List of Subsidiaries of the Company (incorporated by reference to the
Company's Form 10-K for the year ended February 29, 2000)
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
17
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOLITRON DEVICES, INC.
--------------------------
Date: By: Shevach Saraf
--------------- Chairman, President and
Chief Executive Officer
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
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).
10.1 1987 Incentive Stock Option Plan (incorporated by reference to the
Company's Form 10-K for the years ended February 28, 1994 and February
28, 1995)
10.2 Purchase Agreement dated October 5, 1992, by and among Solitron
Devices, Inc., Solitron Specialty Products, Inc. (f/k/a Solitron
Microwave, Inc.) and Vector Trading and Holding Corporation, along with
and as amended by: (i) Amendment Number One to Purchase Agreement dated
October 28, 1992, by and among Solitron devices, Inc., Solitron
Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation; (ii) Order dated December 23, 1992,
Authorizing the Sale of Certain of the Debtors' Assets to Vector
Trading and Holding Corporation; (iii) Amendment Number Two to Purchase
Agreement dated February 28, 1993, by and among Solitron Devices, Inc.,
Solitron Specialty Products, Inc. (f/k/a/ Solitron Microwave, Inc.) and
Vector Trading and Holding Corporation; and (iv) Order dated March 4,
1993, Grating Vector Trading and Holding Corporation's Motion for Entry
of Amended Order Authorizing Sale of Certain of the Debtors' Assets
(incorporated by reference to the Company's Form 10-K for the year
ended February 28, 1993)
10.3 Shared Services and Equipment Agreement, dated February 28, 1993, by
and among Solitron Devices, Inc., Solitron Specialty Products, Inc.
(f/k/a/ Solitron Microwave, Inc.) and S/V Microwave (incorporated by
reference to the Company's Fork 10-K for the year ended February 28,
1993)
10.4 Sublease, dated March 1, 1993, by and between Solitron Devices, Inc.
and S/V Microwave (incorporated by reference to the Company's Form 10-K
for the year ended February 28, 1993)
10.5 Commercial Lease Agreement, dated January 1, 1992, between William C.
Clark, as Trustee, and Solitron Devices, Inc. (incorporated by
reference to the Company's Form 10-K for the year ended February 28,
1993)
10.6 Employment Agreement, dated February 3, 1993, between Solitron Devices,
Inc. and Shevach Saraf (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993)
<PAGE>
EXHIBIT INDEX
(Continued)
21 List of Subsidiaries of the Company (incorporated by reference to the
Company's Form 10-K for the year ended February 29, 2000)
27 Financial Data Schedule
