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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, 2001
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 001-04978
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
--------------
(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 [_]
Transitional Small Business Disclosure Format
Yes [_] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of February 28, 2001: 2,068,731.
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SOLITRON DEVICES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets - November 30, 2001 and February 28, 2001
Consolidated Statements of Operations -- Nine Months and Three Months
Ended November 30, 2001 and 2000
Consolidated Statements of Cash Flows -- Nine Months Ended November
30, 2001 and 2000
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 and Use of Proceeds
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
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
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
November 30, 2001 February 28, 2001
----------- -----------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 1,690,000 $ 2,190,000
Accounts receivable, less allowance
For doubtful accounts of $1,000 735,000 902,000
Inventories (net of reserve of $31,000) 2,552,000 2,447,000
Prepaid expenses and other current assets 149,000 120,000
Due from S/V Microwave 5,000 5,000
----------- -----------
Total current assets $ 5,131,000 $ 5,664,000
PROPERTY, PLANT AND EQUIPMENT, net 471,000 404,000
NON-OPERATING PLANT FACILITIES, net of cost
to dispose 0 0
OTHER ASSETS 54,000 52,000
----------- -----------
$ 5,656,000 $ 6,120,000
=========== ===========
The accompanying notes are an integral part
of these financial statements.
4
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
November 30, 2001 February 28, 2001
----------- -----------
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 711,000 $ 630,000
Accounts payable - Post petition 541,000 380,000
Accounts payable - Pre-petition, current portion 465,000 507,000
Accrued expenses and other liabilities 1,261,000 1,319,000
Accrued Chapter 11 administrative expense 1,000 1,000
----------- -----------
Total current liabilities 2,979,000 2,837,000
OTHER LONG-TERM LIABILITIES net of current portion,
net of cost to dispose of non-operating plant facilities 622,000 710,000
----------- -----------
TOTAL LIABILITIES $ 3,601,000 $ 3,547,000
=========== ===========
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 2,068,731 21,000 21,000
Additional paid-in capital 2,617,000 2,617,000
Accumulated deficit (583,000) (65,000)
----------- -----------
Total stockholders' equity 2,055,000 2,573,000
----------- -----------
$ 5,656,000 $ 6,120,000
=========== ===========
The accompanying notes are an integral part
of these financial statements.
5
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three Mos. Ended November 30, Nine Mos. Ended November 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net Sales $ 1,366,000 $ 2,005,000 $ 4,738,000 $ 6,132,000
Cost of Sales 1,276,000 1,547,000 4,316,000 4,582,000
----------- ----------- ----------- -----------
Gross Profit 90,000 458,000 422,000 1,550,000
Selling, General & Administrative 287,000 324,000 955,000 1,044,000
----------- ----------- ----------- -----------
Expenses
Operating Income (Loss) (197,000) 134,000 (533,000) 506,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other Income 13,000 38,000 67,000 95,000
Interest Expense (15,000) (19,000) (46,000) (59,000)
Other, Net (2,000) 4,000 (6,000) 13,000
----------- ----------- ----------- -----------
Other Income (Expense), Net (4,000) 23,000 15,000 49,000
----------- ----------- ----------- -----------
Net Income/(Loss) $ (201,000) $ 157,000 $ (518,000) $ 555,000
=========== =========== =========== ===========
INCOME/(LOSS) PER SHARE: Basic $ (0.10) $ 0.08 $ (0.25) $ 0.27
Diluted $ (0.10) $ 0.07 $ (0.25) $ 0.25
WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 2,068,731 2,068,821 2,068,731 2,068,821
Diluted 2,068,731 2,216,600 2,068,731 2,236,335
The accompanying notes are an integral part
of these financial statements.
6
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
Nine Months Ended November 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit/(loss) $ (518,000) $ 555,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 163,000 152,000
(Increase)/Decrease in:
Accounts Receivable 167,000 221,000
Net Inventories (105,000) 120,000
Prepaid Expenses & Other Current Assets (29,000) (104,000)
Due from SV Microwave -- (9,000)
Other Assets (2,000) 22,000
Increase/(Decrease) in:
Accounts Payable 161,000 223,000
Accounts Payable pre-petition (42,000) (38,000)
Accrued Expenses & Other Liabilities (58,000) 145,000
Accrued Chapter 11 administrative expenses- -- --
Accrued Environmental Expenses 81,000 81,000
Other Long Term Liabilities (88,000) (88,000)
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Total adjustments 248,000 725,000
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Net cash provided by (used in)
operating activities (270,000) 1,280,000
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (230,000) (57,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases -- --
----------- -----------
NET INCREASE (DECREASE) IN CASH (500,000) 1,223,000
CASH AT BEGINNING OF PERIOD 2,190,000 1,184,000
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CASH AT END OF PERIOD $ 1,690,000 $ 2,407,000
=========== ===========
Supplemental cash flow disclosure: Interest paid during the nine months ended
November 30, 2001 and 2000 was approximately $46,000 and $59,000 respectively.
The accompanying notes are an integral part
of these financial statements.
7
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. General:
-------
The financial information for Solitron Devices, Inc. and wholly owned
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 fiscal year ended February 28, 2001.
The results of operations for the nine-month period ended November 30, 2001 are
not necessarily indicative of the results to be expected for the fiscal year
ended February 28, 2002.
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 information contained in this Form 10-QSB should be read in conjunction with
the Regulation and Environmental Compliance sections appearing in the Company's
Annual Report on Form 10-KSB for the year ended February 28, 2001.
3. INVENTORIES:
-----------
As of November 30, 2001 inventories consist of the following:
Raw Materials $ 1,494,000
Work-In-Process and Finished Goods 1,089,000
Reserve (31,000)
-----------
$ 2,552,000
8
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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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 that 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
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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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
-------------
Forward-Looking Statements:
---------------------------
Except for historical information contained herein, certain matters discussed
herein, including any information incorporated by reference, are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are 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.
Such forward-looking statements include statements regarding:
o trends in the industry, including trends concerning demand, market dynamics,
consolidation, changes in government military spending, price erosion,
competition and general economic trends;
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;
o the Company's ability to generate sufficient liquidity to continue
operations;
o the Company's ability to restructure operations (if necessary) to reduce
costs or to implement other cost-cutting measures;
o the Company's ability to develop additional sales opportunities;
o the Company's ability to make payments required under its bankruptcy plan or
renegotiate such payments;
o the Company's ability to generate sufficient cash from operations or
otherwise; and
o other statements contained in this report that address activities, events or
developments that the Company expects, believes or anticipates will or may
occur in the future, and similar statements.
These forward-looking 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 changes in or a miscalculation of trends in the industry or the economy;
o judicial or other legally enforceable interpretations of the Company's
liability under environmental laws;
10
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
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 an 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 an inability to develop new sales opportunities for the Company;
o an inability to generate sufficient liquidity to continue operations;
o an inability to successfully restructure operations (if necessary) to reduce
costs sufficiently to continue business operations;
o changes in law or industry regulation; and
o other unforeseen activities, events and developments that may occur in the
future.
Overview:
--------
Solitron Devices, Inc., a Delaware corporation (the "Company" or "Solitron"),
designs, develops, manufactures and markets solid-state semiconductor components
and related devices primarily for the military and aerospace markets. The
Company manufactures a large variety of bipolar and metal oxide semiconductor
power transistors, power and control hybrids, junction and MOS field effect
transistors, thin film resistors and other related products. Most of the
Company's products are custom made pursuant to contracts with customers whose
end products are sold to the United States government. Other products, such as
Joint Army Navy transistors, diodes and Standard Military Drawings voltage
regulators, are sold as standard or catalog items.
The following discussion and analysis of factors which have affected the
Company's financial position and operating results during the periods included
in the accompanying condensed consolidated financial statements should be read
in conjunction with the Consolidated Financial Statements and the related Notes
to Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-KSB for the year ended February 28, 2001 and the Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements
included in Item 1 of this Quarterly Report on Form 10-QSB.
Trends and Uncertainties:
------------------------
During the nine months ended November 30, 2001, the company's book-to-bill ratio
increased to approximately 1.23, reflecting both an increase in the amount of
orders booked and a lower volume of shipments. The change in the book-to-bill
ratio does not indicate an upward trend in the demand for the Company's
products. Generally, the intake of orders over the last eighteen months has been
low as a result of the general slow-down of the economy and of the continued
current level of spending in defense programs in which the Company participates,
which is expected to continue over the next twelve to eighteen months. The
Company continued to implement steps intended to reduce its variable
manufacturing cost to offset the impact of the low volume of orders to be
shipped, including wage cuts of approximately 11% which were effective on
October 1, 2001. However, should order intake continue at the level
11
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
experienced in the last eighteen months, the Company might be required to
implement further cost cutting or other downsizing measures to continue its
business operations.
To offset the decrease in revenues, the Company reduced salaries as of October
1, 2001. The reductions, which ranged from 6% to 12% for the employees and 30%
for the President, yielded a savings of approximately $50,000 for the two months
ended November 30, 2001. These salary cuts are in effect until the Company's
financial performance improves. However, there can be no assurance that
additional cost cutting measures will not be required.
RESULTS OF OPERATIONS - THREE MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO THREE
------------------------------------------------------------------------------
MONTHS ENDED NOVEMBER 30, 2000:
-------------------------------
Sales
-----
Net sales for the three months ended November 30, 2001 decreased approximately
32% to $1,366,000 as compared to $2,005,000 for the three months ended November
30, 2000. The Company attributes this decrease in net sales to decreased
production due to delays in receiving raw material and to a decrease in the
requirements of its customers.
For the three months ended November 30, 2001, the Company shipped 88,010 units
as compared with 285,027 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 5% for the quarter ended November 30, 2001 as compared to the same
period for the previous year principally as a result of a change in the timing
in defense spending.
Cost of Sales
-------------
Cost of Sales for the three months ended November 30, 2001 decreased to
$1,276,000 from $1,547,000 for the comparable period ended November 30, 2000.
Expressed as a percentage of sales, Cost of Sales increased from 77.2% for the
three months ended November 30, 2000 to 93.4% for the three months ended
November 30, 2001. This increase is attributable to higher purchase prices of
raw materials and to an exceptional charge for material scrapped because of
lower production yields.
Gross Profit
------------
Gross margins on the Company's sales decreased to 6.6% for the three months
ended November 30, 2001 compared to 22.8% for the three months ended November
30, 2000. This decrease resulted from the lower volume of shipments, the charge
for scrapped material due to lower production yields and from higher prices in
purchased raw materials. Gross profit for the three months ended November 30,
2001 decreased to $90,000 from $458,000 for the three months ended November 30,
2000. This decrease is primarily due to a decreased sales volume and to an
increase in the cost of goods sold expressed as a percentage of sales.
12
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(CONTINUED)
-----------
Selling, General and Administrative Expenses
--------------------------------------------
Selling, General, and Administrative expenses decreased to $287,000 for the
three months ended November 30, 2001 from $324,000 for the comparable period
ended November 30, 2000. This decrease is primarily due to lower commissions
paid to outside sales representatives, to lower consulting fees, to lower legal
fees and to lower vacation expense. These reductions in operating expenses have
been partially offset by higher salaries due to an increase in the sales force.
During the three-month period ended November 30, 2001, Selling, General, and
Administrative expenses, expressed as a percentage of sales, increased to 21.0%
as compared with 16.2% for the three months ended November 30, 2000. This
increase is due to a lower volume of sales.
Operating Results
-----------------
Operating Results for the three months ended November 30, 2001 showed a loss of
$197,000 compared to income of $134,000 for the three months ended November 30,
2000. This decrease is principally due to a lower sales volume and to an
increase in the cost of goods sold as a percentage of sales.
Net Other Income
----------------
The Company's Net Other Income/(Expense) for the three months ended November 30,
2001 was an expense of $4,000 versus a Net Other Income of $23,000 for the three
months ended November 30, 2000. The variance was mainly due to decreases in the
Company's interest income. The Company's interest income declined as a result of
the drop in the interest rate the Company receives and the drop in the Company's
cash position. The latter resulted from the Company's usage of cash to fund the
Company's operations.
Net Results
-----------
Net results for the three-month period ended November 30, 2001 decreased to a
loss of $201,000 from a profit of $157,000 for the same period in 2000. The
Company attributes this decrease to a lower level of revenue and to higher costs
as discussed herein.
RESULTS OF OPERATIONS NINE MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO NINE
--------------------------------------------------------------------------
MONTHS ENDED NOVEMBER 30, 2000:
-------------------------------
During the nine month period ended November 30, 2001, the Company's book-to-bill
ratio increased to approximately 1.23 from 0.82 for the nine months ended
November 30, 2000, reflecting a change in the demand for the Company's products
and in the timing of orders received from customers involved in military
programs. The Company continued implementing steps intended to reduce its
variable manufacturing cost to offset the impact of lower sales. To offset the
decrease in revenues, the Company reduced salaries as of October 1, 2001. The
reductions, which ranged from 6% to 12% for the employees and 30% for the
President, yielded a savings of approximately $50,000 for the two months ended
November 30, 2001. These salary cuts are in effect until the Company's financial
performance improves. However, there can be no assurance that additional cost
cutting measures will not be required. Should the intake of orders decline, the
Company may be required to implement further cost-cutting or other downsizing
measures to continue its business operations.
13
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(CONTINUED)
-----------
Sales
-----
Net sales for the nine months ended November 30, 2001 decreased approximately
23% to $4,738,000 as compared to $6,132,000 for the nine months ended November
30, 2000. The Company attributes this decrease to a lower level of orders
deliverable during the nine months ended November 30, 2001, as well as to
decreased production due to delays in receiving raw material and to a decrease
in the requirements of its customers.
For the nine months ended November 30, 2001, the Company shipped 271,671 units
as compared with 1,130,073 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 15% for the nine months ended November 30, 2001 as compared to the
same period for the previous year principally as a result of a change in the
timing in defense spending.
Cost of Sales
-------------
Cost of Sales for the nine months ended November 30, 2001 decreased to
$4,316,000 from $4,582,000 for the comparable period ended November 30, 2000.
Expressed as a percentage of sales, Cost of Sales increased from 74.7% for the
nine months ended November 30, 2000 to 91.1% for the nine months ended November
30, 2001. This increase is attributable to higher costs for material, labor and
manufacturing overhead and to an exceptional charge for material scrapped
because of lower production yields.
Gross Profit
------------
Gross margins on the Company's sales decreased to 8.9% for the nine months ended
November 30, 2001 compared to 25.3% for the nine months ended November 30, 2000.
This decrease resulted from the lower volume of shipments, the charge for
scrapped materials due to lower production yields and increases in costs for
material, labor and manufacturing overhead. Gross profit for the nine months
ended November 30, 2001 decreased to $422,000 from $1,550,000 for the nine
months ended November 30, 2000. This decrease is primarily due to increased
costs of sales, expressed as a percentage of sales, and partially due to lower
sales volume.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, General, and Administrative expenses decreased to $955,000 for the nine
months ended November 30, 2001 from $1,044,000 for the comparable period ended
November 30, 2000. This decrease is primarily due to lower legal expenses, lower
vacation expenses, less lower consulting fees and less lower commissions paid to
sales representatives. During the nine month period ended November 30, 2001,
Selling, General, and Administrative expenses, expressed as a percentage of
sales, increased to 20.2% as compared with 17.0% for the nine months ended
November 30, 2000. This increase in percentage is due to lower sales volume and
to higher salaries as a result of additional sales personnel.
Operating Results
-----------------
Operating results for the nine months ended November 30, 2001 showed a loss of
$533,000 compared to income of $506,000 for the nine months ended November 30,
2000. This decrease in operating results is due primarily to increased costs of
sales, expressed as a percentage of sales, and to a lower volume of sales.
14
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(CONTINUED)
-----------
Net Other Income
----------------
The Company recorded a Net Other Income of $15,000 for the nine months ended
November 30, 2001 versus a Net Other Income of $49,000 for the nine months ended
November 30, 2000. The variance was due to a decrease in the Company's interest
income. The Company's interest income declined as a result of the drop in the
interest rate the Company receives and the drop in the Company's cash position.
The latter resulted from the Company's usage of cash to fund the Company's
operations.
Net Results
-----------
Net results for the nine-month period ended November 30, 2001 decreased to a
loss of $518,000 from a profit of $555,000 for the same period in 2000. The
Company attributes this decrease to a lower level of revenue and to higher costs
of sales expressed as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
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 that 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 Company's liquidity continues to be adversely affected by significant
non-recurring expenses associated with the Company's pre-bankruptcy 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's liquidity is also adversely affected by the fact that the Company is
operating at a loss.
The Company reported a net loss of $518,000 and an operating loss of $533,000
for the nine months ended November 30, 2001. Moreover, the Company has
significant obligations arising from settlements related to its bankruptcy
proceeding, that require it to make substantial cash payments that cannot be
supported by the Company's current level of operations. As of November 30, 2001,
the Company's total remaining obligations are $2,894,000, which consists of
$1,547,000 in environmental obligations, $1,077,000 owed to unsecured creditors
and $270,000 in property taxes. The Company is now in default with respect to
such obligations.
15
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(CONTINUED)
-----------
At November 30, 2001, February 28, 2001 and November 30, 2000 respectively, the
Company had cash of $1,690,000, $2,190,000 and $2,407,000. This decrease
resulted from the Company's utilization of cash to fund operating losses. The
Company's sole source of liquidity is its operating cash, as it does not have a
line of credit.
At November 30, 2001, the Company had working capital of $2,152,000 as compared
with a working capital at November 30, 2000 of $3,327,000. At February 28, 2001,
the Company had a working capital of $2,827,000. The approximately $675,000
change for the nine months ended November 30, 2001 was due mainly to decreases
in cash and in receivables.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS:
------------------
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
See "Liquidity and Capital Resources", Part 1, Item 2.
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:
---------------------------------
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
16
SIGNATURES
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 7, 2002 /s/ Shevach Saraf
------------------------------ ------------------------------------
By: Shevach Saraf
Chairman, President and
Chief Executive Officer
Date: January 7, 2002 /s/ Shevach Saraf
------------------------------ ------------------------------------
By: Shevach Saraf
Chief Financial Officer
17