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, 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.
<PAGE>
SOLITRON DEVICES, INC.
----------------------
INDEX
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets -- November 30, 2000 and
February 29, 2000
Consolidated Income Statements -- Three and
Nine Months Ended November 30, 2000 and 1999
Consolidated Statements of Cash Flows -- Nine Months Ended
November 30, 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 -15
3
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
November 30, 2000 February 29, 2000
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $2,407,000 $1,184,000
Accounts receivable, less allowance
for doubtful accounts of $5,000 770,000 991,000
Inventories 2,390,000 2,510,000
Prepaid expenses and other current assets 215,000 111,000
Due from S/V Microwave 11,000 2,000
---------- ----------
Total current assets $5,793,000 $4,798,000
PROPERTY, PLANT AND EQUIPMENT, net 329,000 424,000
NON-OPERATING PLANT FACILITIES, net of cost
to dispose 0 0
OTHER ASSETS 65,000 87,000
---------- ----------
$6,187,000 $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>
November 30, 2000 February 29, 2000
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 603,000 $ 522,000
Accounts payable - Post petition 330,000 107,000
Accounts payable - Pre-petition, current portion 112,000 150,000
Accrued expenses and other liabilities 1,419,000 1,274,000
Accrued Chapter 11 administrative expense 2,000 2,000
----------- -----------
Total current liabilities 2,466,000 2,055,000
OTHER LONG-TERM LIABILITIES net of current portion,
net of cost to dispose of non-operating plant facilities 1,230,000 1,318,000
----------- -----------
TOTAL LIABILITIES $ 3,696,000 $ 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 (147,000) (702,000)
----------- -----------
Total stockholders' equity 2,491,000 1,936,000
----------- -----------
$ 6,187,000 $ 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 November 30, Nine Mos. Ended November 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 2,005,000 $ 2,015,000 $ 6,132,000 $ 5,843,000
Cost of Sales 1,547,000 1,530,000 4,582,000 4,559,000
----------- ----------- ----------- -----------
Gross Profit 458,000 485,000 1,550,000 1,284,000
Selling, General & Administrative Expenses 324,000 285,000 1,044,000 884,000
----------- ----------- ----------- -----------
Operating Income 134,000 200,000 506,000 400,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest Income 38,000 9,000 95,000 22,000
Interest Expense (4,000) (4,000) (13,000) (46,000)
Interest Expense on unsecured creditors claim (15,000) (24,000) (46,000) (71,000)
Write-down of non-operating facilities
and related expenses -- (90,000) -- (90,000)
Increase in Environmental Reserve -- (547,000) -- (547,000)
Other, Net 4,000 (35,000) 13,000 (45,000)
----------- ----------- ----------- -----------
Other Income (Expense), Net 23,000 (691,000) 49,000 (777,000)
----------- ----------- ----------- -----------
Income (loss) before Extraordinary Item 157,000 (491,000) 555,000 (377,000)
Extraordinary Item:
Extinguishments of Debt -- 607,000 -- 607,000
----------- ----------- ----------- -----------
Net Income $ 157,000 $ 116,000 $ 555,000 $ 230,000
=========== =========== =========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic
Income (Loss) per share before
Extraordinary Item $ 0.08 $ (0.24) $ 0.27 $ (0.19)
Extraordinary Item $ -- $ 0.30 $ -- $ 0.30
Net Income $ 0.08 $ 0.06 $ 0.27 $ 0.11
Diluted
Income (Loss) per share before
Extraordinary Item $ 0.07 $ (0.24) $ 0.25 $ (0.19)
Extraordinary Item $ -- $ 0.30 $ -- $ 0.30
Net Income $ 0.07 $ 0.06 $ 0.25 $ 0.11
Weighted Average shares outstanding - Basic 2,068,821 2,034,704 2,068,821 2,034,704
Weighted Average shares outstanding - Diluted 2,216,600 2,034,704 2,236,335 2,034,704
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended November 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 555,000 $ 230,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 152,000 157,000
(Increase)/Decrease in:
Accounts Receivable 221,000 242,000
Inventories 120,000 161,000
Prepaid Expenses and Other Current Assets (104,000) 11,000
Due from SV Microwave (9,000) (2,000)
Other Assets 22,000 --
Increase/(Decrease) in:
Accounts Payable 223,000 (406,000)
Accounts Payable pre-petition (38,000)
Accrued Expenses and Other Liabilities 145,000 (980,000)
Accrued Chapter 11 administrative expenses -- (35,000)
Accrued Environmental Expenses 81,000 --
Other Long Term Liabilities (88,000) 850,000
----------- -----------
Total adjustments 725,000 (2,000)
----------- -----------
Net cash provided by (used in)
operating activities 1,280,000 228,000
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (57,000) (41,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases
NET INCREASE (DECREASE) IN CASH 1,223,000 187,000
CASH AT BEGINNING OF PERIOD 1,184,000 784,000
----------- -----------
CASH AT END OF PERIOD $ 2,407,000 $ 971,000
=========== ===========
</TABLE>
Supplemental cash flow disclosure: Interest paid during the nine months ended
November 30, 2000 and 1999 was approximately $59,000 and $117,000 respectively.
The accompanying notes are an integral part
of these financial statements.
7
<PAGE>
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 nine month period ended November 30, 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 November 4, 2000, the Company received a de minimis settlement offer from the
Environmental Protection Agency ("EPA") in connection with the contamination of
the Petroleum Products Corporation Superfund site in Pembroke Park, Florida. (A
de minimis settlement, in general, is a settlement between EPA and those parties
who are responsible for only a comparatively small amount and comparatively low
toxicity of hazardous substances at a Superfund site). 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. The Company is considered a Potentially
Responsible Party ("PRP") by the EPA. Because this 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 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.
8
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
The Company signed a tolling agreement on September 22, 2000, whereby it
extended the statute of limitations for CRSSC and the United States to file a
claim against the Company with respect to this matter. On October 23, 2000, the
CRSSC filed a Notice of Voluntary Dismissal with the United States District
Court for the Central District of California, dismissing Solitron Devices, Inc.
from CRSSC's contribution suit, without prejudice, in exchange for the Company's
signing of the tolling agreement and agreeing to enter into settlement
negotiations with 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 November 30, 2000 inventories consist of the following:
Raw Materials $ 1,271,000
Work-In-Process and Finished Goods 1,119,000
------------
$ 2,390,000
===========
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
<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 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 NOVEMBER 30, 2000 COMPARED TO THREE
MONTHS ENDED NOVEMBER 30, 1999:
During the three month period ended November 30, 2000, the Company's
book-to-bill ratio (the ratio between net orders received and net orders
shipped) dropped to approximately 0.99 from 1.26, reflecting a change in the
demand for the Company's products, a lower average unit sale price and delays in
the award of military contracts. 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, the Company cannot assure you that such efforts
will succeed, and should the intake of orders continue to decline, then the
Company may be required to implement further cost-cutting or other downsizing
measure to continue its business operations.
Sales
-----
Net sales for the three months ended November 30, 2000 decreased approximately
one half of a percent to $2,005,000 as compared to $2,015,000 for the three
months ended November 30, 1999. This change is primarily a result of a small
shift in delivery requirements for the Company's products.
For the three months ended November 30, 2000, the Company shipped 285,027 units
as compared with 206,583 units shipped during the same period of the prior year.
This change is primarily the result of a shift in product mix required by and
shipped to the Company's customers. 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 intake of orders of approximately 21%
for the quarter ended November 30, 2000 as compared to the same period for the
previous year, principally as a result of the timing in defense spending and the
shift in demand within our military customer base from high reliability products
made by the Company to commercial off-the-shelf items which the Company cannot
manufacture and sell competitively. The Company's military customer base
accounted for 91.13% of sales during the three months ended November 30, 2000
and 91.67% of sales during the three months ended November 30, 1999. Therefore,
if this decrease in demand continues without a corresponding increase in orders
from industrial customers, the Company might be materially adversely affected.
In addition, the Company could be forced to further downsize, which might have
detrimental effects on its profitability. Furthermore, the Company cannot assure
you that such downsizing efforts will be successful in offsetting the negative
effects of such a decrease in demand.
10
<PAGE>
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 November 30, 2000 increased to
$1,547,000 from $1,530,000 for the comparable period ended November 30, 1999.
Expressed as a percentage of sales, Cost of Sales increased to 77.2% from 75.9%
for the same periods. This increase is attributable to slightly lower material
and direct labor costs, offset by higher indirect labor and manufacturing
overhead costs.
Gross Profit
------------
Gross margins on the Company's sales decreased to 22.8% for the three months
ended November 30, 2000 compared to 24.0% for the three months ended November
30, 1999. This decrease is the result of customer demand for less profitable
products and the slight increases in indirect labor costs and in manufacturing
overhead costs. Gross profit for the three months ended November 30, 2000
decreased to $458,000 from $485,000 for the three months ended November 30,
1999.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, General, and Administrative expenses increased to $324,000 for the
three months ended November 30, 2000 from $285,000 for the comparable period
ended November 30, 1999. This increase is primarily due to higher professional
fees and legal expenses resulting from compliance with new SEC rules, plus extra
legal expenses associated with the Company's efforts to sell the Port Salerno
facility. During the three-month period ended November 30, 2000, Selling,
General, and Administrative expenses as a percentage of sales increased to 16.2%
as compared with 14.1% for the three months ended November 30, 1999.
Operating Income
----------------
Operating Income for the three months ended November 30, 2000 was $134,000
compared to $200,000 for the three months ended November 30, 1999. This decrease
is principally due to a slightly lower sales volume and to the increases in the
cost of goods sold and in Selling, General and Administrative expenses described
above.
Net Other Income
----------------
The Company recorded a Net Other Income of $23,000 for the three months ended
November 30, 2000 versus a Net Other Expense of $691,000 for the three months
ended November 30, 1999. The variance was due mainly to an increase of $547,000
that the Company recorded during the three month period ended November 30, 1999
in the environmental reserve. This represents the amount of the lien placed on
the Port Salerno property by the EPA. Decreases in the Company's Interest
Expense as well as increases in Interest Income for the three month period ended
November 30, 2000 contributed to the difference in Other Income (Expense).
11
<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 three-month period ended November 30, 2000 increased to
$157,000 from $116,000 for the same period in 1999. The Company attributes this
increase to higher interest income as well as to lower interest expense. Net
Income increased during this period despite the fact that during the third
quarter of 1999 the Company recorded an extraordinary income item of $607,000
which represented extinguishments of debt relating to the Riviera Beach plant
that the Company sold in October of 1999.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED NOVEMBER 30, 2000 COMPARED TO NINE
MONTHS ENDED NOVEMBER 30, 1999:
During the nine month period ended November 30, 2000, the Company's book-to-bill
ratio (the ratio between net orders received and net orders shipped) dropped to
approximately 0.82 from 1.06 for the nine month period ended November 30, 1999,
reflecting a change in the demand for the Company's products, a lower average
unit sale price and delays in the award of military contracts. 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, the Company cannot assure you that such efforts will succeed, and
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 nine months ended November 30, 2000 increased approximately 5%
to $6,132,000 as compared to $5,843,000 for the nine months ended November 30,
1999. The Company attributes this rise in net sales to improvements in
production efficiency which enabled the Company to increase production yields.
For the nine months ended November 30, 2000, the Company shipped 1,130,073 units
as compared with 1,400,577 units shipped during the same period of the prior
year. This change is attributable primarily to a shift in product mix required
by and shipped to the Company's customers. 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 intake of orders of approximately 19%
for the nine months ended November 30, 2000 as compared to the same period for
the previous year, principally as a result of the timing in defense spending and
the shift in demand within our military customer base from high reliability
products made by the Company to commercial off-the-shelf items which the Company
cannot manufacture and sell competitively. The Company's military customer base
accounted for 91.58% of sales during the nine months ended November 30, 2000 and
90.70% of sales during the nine months ended November 30, 1999. Therefore, if
this decrease in demand continues without a corresponding increase in orders
from industrial customers, the Company might be materially adversely affected.
In addition, the Company could be forced to further downsize, which might have a
detrimental effect on its profitability. Furthermore, the Company cannot assure
you that such downsizing efforts would be successful in offsetting the negative
effects of such a decrease in demand.
12
<PAGE>
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 nine months ended November 30, 2000 increased to
$4,582,000 from $4,559,000 for the comparable period ended November 30, 1999.
This increase is attributable to higher labor and manufacturing overhead costs.
Expressed as a percentage of sales, Cost of Sales decreased from 78.0% to 74.7%
for the same periods.
Gross Profit
------------
Gross margins on the Company's sales increased to 25.3% for the nine months
ended November 30, 2000 compared to 22.0% for the nine months ended November 30,
1999. The Company believes that this increase resulted from the ability to ship
product with higher profit margins, in spite of the fact that in the last three
months the product mix was less favorable, and from the reduction in cost of
sales as a percentage of sales. Gross profit for the nine months ended November
30, 2000 increased to $1,550,000 from $1,284,000 for the nine months ended
November 30, 1999. The Company believes that this increase is due to increased
sales volume.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, General, and Administrative expenses increased to $1,044,000 for the
nine months ended November 30, 2000 from $884,000 for the comparable period
ended November 30, 1999. This increase is primarily due to higher professional
fees and legal expenses resulting from compliance with new SEC rules, plus extra
legal expenses associated with the Company's efforts to sell the Port Salerno
facility. During the nine month period November 30, 2000, Selling, General, and
Administrative expenses as a percentage of sales increased to 17.0% as compared
with 15.1% for the nine months ended November 30, 1999.
Operating Income
----------------
Operating Income for the nine months ended November 30, 2000 was $506,000
compared to $400,000 for the nine months ended November 30, 1999. This increase
is principally due to a higher gross profit.
Net Other Income
----------------
The Company recorded a Net Other Income of $49,000 for the nine months ended
November 30, 2000 versus a Net Other Expense of ($777,000) for the nine months
ended November 30, 1999. The variance was due mainly to an increase of $547,000
that the Company recorded during the three month period ended November 30, 1999
in the environmental reserve. This represents the amount of the lien placed on
the Port Salerno property by the EPA.
Decreases in the Company's Interest Expense as well as increases in Interest
Income for the nine month period ended November 30, 2000 contributed to the
difference in Other Income (Expense).
Net Income
----------
Net income for the nine month period ended November 30, 2000 increased to
$555,000 from $230,000 for the same period in 1999. The Company attributes this
increase to a slightly higher level of revenue and to a higher gross profit. Net
Income increased during this period despite the fact that during the third
quarter of 1999 the Company recorded an extraordinary income item of $607,000
which represented extinguishments of debt relating to the Riviera Beach plant
that the Company sold in October of 1999.
13
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Although the Company has projected that it will be able to generate sufficient
funds to supports its ongoing operations, and has reported a net income of
$555,000 and operating income of $506,000 for the nine months ended November 30,
2000, 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. As of November 30, 2000, the Company's total remaining obligations
are $3,015,000, which consists of $1,559,000 in environmental obligations,
$1,214,000 owed to unsecured creditors and $242,000 in property taxes.
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 Company's liquidity also continues to be adversely affected by the Company's
inability to obtain additional working capital through the sale of debt or
equity securities or the sale of non-operating assets.
At November 30, 2000, February 29, 2000 and November 30, 1999 respectively, the
Company had cash of $2,407,000, $1,184,000 and $971,000. This increase resulted
from a reduction in Accounts Receivable and from cash flow from operations.
At November 30, 2000, the Company had working capital of $3,327,000 as compared
with a working capital at November 30, 1999 of $2,536,000. At February 29, 2000,
the Company had a working capital of $2,743,000. The approximately $584,000
increase for the nine months ended November 30, 2000 was due mainly to a higher
cash balance which resulted from an increase of $325,000 in net income from the
same period last year. The Company attributes this increase in Net Income to a
slightly higher level of revenue and to a higher gross profit.
As of November 30, 2000, the Company had $1,230,000 of long-term debt
outstanding as compared to $1,318,000 outstanding as of February 29, 2000.
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,
changes in and timing of government military spending, price erosion
and competition;
o the inability of the Company to satisfy its obligations under its
bankruptcy reorganization order;
o the barring of environmental claims due to the Company's bankruptcy
order;
14
<PAGE>
SOLITRON DEVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
o periodic variations in sales as an indicator of the Company's
performance;
o shifts in demand for the Company's products;
o the ability of the Company to implement effective cost-cutting or
downsizing measures;
o the Company's compliance with environmental laws, orders and
investigations, the future costs of such compliance and the outcome of
environmental litigation;
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.
15
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS:
-----------------
On November 4, 2000, the Company received a de minimis settlement offer from the
Environmental Protection Agency ("EPA") in connection with the contamination of
the Petroleum Products Corporation Superfund site in Pembroke Park, Florida. (A
de minimis settlement, in general, is a settlement between EPA and those parties
whoa re responsible for only a comparatively small amount and comparatively low
toxicity of hazardous substances at a Superfund site.) 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. The Company is considered a PRP by the
EPA. 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 on September 22, 2000, whereby it
extended the statute of limitations for CRSSC and the United States to file a
claim against the Company with respect to this matter. On October 23, 2000, the
CRSSC filed a Notice of Voluntary Dismissal with the United States District
Court for the Central District of California, dismissing Solitron Devices, Inc.
from CRSSC's contribution suit, without prejudice, in exchange for the Company's
signing of the tolling agreement and agreeing to enter into settlement
negotiations with 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:
--------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
None.
ITEM 5. OTHER INFORMATION:
------------------
None.
16
<PAGE>
PART II - OTHER INFORMATION
---------------------------
(Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) EXHIBITS
--------
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: January 5, 2001 /s/ SHEVACH SARAF
-------------------------- --------------------------------
By: Shevach Saraf
Chairman, President and
Chief Executive Officer
18
<PAGE>
EXHIBIT INDEX
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
27 Financial Data Schedule
