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UNITED STATES SECURITIES AND 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, 2003
[_] 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-1684144
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3301 Electronics Way, West Palm Beach, Florida 33407
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(Address of principal executive offices)
(561) 848-4311
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(Issuer's telephone number)
N/A
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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 such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such 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 January 5, 2004: 2,070,362.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
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SOLITRON DEVICES, INC.
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INDEX
Page No.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet -
November 30, 2003 and February 28, 2003 ........................ 3
Consolidated Statements of Operations -
Three and Nine Months Ended November 30, 2003 and 2002 ......... 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 2003 and 2002 ................... 5
Notes to Consolidated Financial Statements ..................... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................9-13
Item 3. Controls and Procedures ........................................ 13
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings .............................................. 14
Item 2. Changes in Securities and Use of Proceeds ...................... 14
Item 3. Defaults Upon Senior Securities ................................ 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 14
Item 5. Other Information .............................................. 14
Item 6. Exhibits and Reports on Form 8-K ............................... 14
Signatures ................................................................. 15
Exhibit Index .............................................................. 16
Exhibit 31
Exhibit 32
2
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
NOVEMBER 30, FEBRUARY 28,
2003 2003
------------ ------------
(Unaudited) (Audited)
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,884 $ 1,448
Accounts receivable, less allowance for doubtful accounts of $3,000 859 1,052
Inventories 2,766 2,869
Prepaid expenses and other current assets 146 139
------------ ------------
TOTAL CURRENT ASSETS $ 5,655 $ 5,508
PROPERTY, PLANT AND EQUIPMENT, net 585 568
OTHER ASSETS 52 52
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TOTAL ASSETS $ 6,292 $ 6,128
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 936 $ 846
Accounts payable, Post-petition 375 549
Accounts payable, Pre-petition, current portion 759 800
Accrued expenses and other liabilities 1,167 1,119
------------ ------------
TOTAL CURRENT LIABILITIES 3,237 3,314
LONG-TERM LIABILITIES, net of current portion 274 364
------------ ------------
TOTAL LIABILITIES $ 3,511 $ 3,678
============ ============
COMMITMENTS AND CONTINGENCIES -0- -0-
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued -0- -0-
Common stock, $.01 par value, authorized 10,000,000 shares 2,070,821
shares issued and outstanding 21 21
Additional paid-in capital 2,617 2,617
Accumulated earnings/(deficit) 143 (188)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,781 2,450
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,292 $ 6,128
============ ============
The accompanying notes are an integral part of the financial statements.
3
SOLITRON DEVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED NOVEMBER 30, NINE MONTHS ENDED NOVEMBER 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(in thousands, except for per share amounts)
NET SALES $ 1,859 $ 1,821 $ 5,868 $ 5,449
Cost of Sales 1,513 1,495 4,715 4,449
------------ ------------ ------------ ------------
Gross Profit 346 326 1,153 1,000
Selling, general and administrative expenses 278 277 836 826
------------ ------------ ------------ ------------
Operating Income/(Loss) 68 49 317 174
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other Income 6 8 31 39
Interest Expense (5) (13) (16) (39)
Other, net (1) (2) (1) (7)
------------ ------------ ------------ ------------
Other Income/(Expense) Net 0 (7) 14 (7)
------------ ------------ ------------ ------------
Net Income/(Loss) $ 68 $ 42 $ 331 $ 167
============ ============ ============ ============
INCOME/(LOSS) PER SHARE:
Basic $ 0.03 $ 0.02 $ 0.16 $ 0.08
Diluted $ 0.03 $ 0.02 $ 0.15 $ 0.08
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 2,070,362 2,070,378 2,070,362 2,070,378
Diluted 2,204,086 2,204,013 2,204,086 2,204,013
The accompanying notes are an integral part of the financial statements
4
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
NINE MONTHS ENDED NOVEMBER 30,
----------------------------
2003 2002
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(Unaudited) (Unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 331 $ 167
---------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 141 130
(Increase)/Decrease in:
Accounts Receivable 193 94
Inventories 103 5
Prepaid Expenses and other current assets (7) (7)
Due from SV Microwave 0 1
Other Assets 0 (1)
Increase/(Decrease) in:
Accounts Payable (174) 100
Accounts Payable - Pre-petition (41) (35)
Accrued Expenses and other liabilities 48 77
Accrued Environmental Expenses 80 81
Other Long Term Liabilities (80) (77)
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Total adjustments 263 368
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Net cash provided by operating activities 594 535
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CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (158) (252)
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Net cash used in investing activities (158) (252)
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NET INCREASE (DECREASE) IN CASH 436 283
CASH AT BEGINNING OF PERIOD $ 1,448 $ 1,335
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CASH AT END OF PERIOD $ 1,884 $ 1,618
========== ==========
Supplemental cash flow disclosure: Interest paid during the nine months ended
November 30, 2003 and 2002 was approximately $0 and $39,000 respectively.
The accompanying notes are an integral part of the financial statements
5
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. GENERAL:
-------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the results for the interim period.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-QSB. In accordance with such rules
and regulations, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
The information contained in this Form 10-QSB should be read in conjunction with
the Notes to Consolidated Financial Statements appearing in the Company's Annual
Report on Form 10-KSB for the year ended February 28, 2003.
The results of operations for the three month and nine month periods ended
November 30, 2003 are not necessarily indicative of the results to be expected
for the year ended February 29, 2004.
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. The Company and its subsidiaries might be required
to incur costs to comply with current or future environmental laws or
regulations.
The information contained in this Form 10-QSB should be read in conjunction with
the "Business - Environmental Liabilities" section appearing in the Company's
Annual Report on Form 10-KSB for the year ended February 28, 2003.
3. INVENTORIES
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As of November 30, 2003 net inventories consist of the following:
Raw Materials $ 1,497,000
Work-In-Process 1,297,000
Finished Goods 76,000
-----------
Gross Inventory 2,870,000
Reserve (104,000)
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Net Inventory $ 2,766,000
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4. INCOME TAXES
------------
For the nine months ending November 30, 2003, the Company would expect a
liability of approximately $123,000. However, because of a tax benefit resulting
from net operating loss carry forwards amounting to approximately $15,000,000,
the Company will not recognize any current tax liability. The Company does not
expect to use up this tax benefit in the foreseeable future.
6
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
5. CONCENTRATION OF RISK
---------------------
For the nine months ending November 30, 2003, the Company has two customers that
make up approximately 34% of the total outstanding accounts receivables and 52%
of net sales. These customers are in good standing as of November 30, 2003.
Recent Accounting Pronouncements:
---------------------------------
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 144, ("SFAS 144"),
"Accounting for Impairment or Disposal of Long-Lived Assets," which is effective
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal periods. SFAS 144 addresses financial accounting and reporting for
the impairment of certain Long-Lived Assets and for Long-Lived Assets to be
disposed of. SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," and Accounting
Principles Board ("APB") Opinion No. 30; however, SFAS 144 retains the
requirement of APB Opinion No. 30 to report discontinued operations separately
from continuing operations and extends that reporting to a component of an
entity that has either been disposed of (by sale, abandonment or in a
distribution to owners) or is classified as held for sale. The Company has
adopted SFAS 144, and the adoption did not have a material impact on its
financial position and results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for under Emerging Issues Task Force ("EITF") release No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF
No. 94-3"). The scope of SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits that employees who
are involuntarily terminated receive under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 will be effective for exit or disposal
activities that are initiated after December 31, 2002, and early application is
encouraged. The Company adopted SFAS 146 during the second quarter of the last
fiscal year. The provisions of EITF No. 94-3 shall continue to apply for an exit
activity initiated under an exit plan that met the criteria of EITF No. 94-3
prior to the adoption of SFAS 146. SFAS 146 will change, on a prospective basis,
the time when restructuring charges are recorded from a commitment date approach
to when the liability is incurred. SFAS No. 146 has not had a material impact on
its financial position and results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability
be recorded in the guarantor's balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees that an entity has
issued, including a reconciliation of changes in the entity's product warranty
liabilities. The initial recognition and initial measurement provisions of FIN
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. FIN 45 is not
anticipated to have a material impact on the Company's financial position or
results of operations.
In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables" ("EIFT Issue No. 00-21"). EITF Issue
No. 00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company believes that the adoption of this standard will not have a material
impact on its financial statements.
7
SOLITRON DEVICES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure" ("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the fair value method
of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format.
Additionally, SFAS 148 requires disclosure of the pro forma effect in interim
financial statements. The transition and annual disclosure requirements of SFAS
148 are effective for fiscal years ended after December 15, 2002. The interim
disclosure requirements are effective for interim periods beginning after
December 15, 2002. SFAS 148 is not anticipated to have a material impact on the
Company's financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company believes
that the adoption of this standard will not have a material impact on its
financial statements.
8
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
-------------
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 in accordance with 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 fiscal year ended February 28, 2003 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.
Trends and Uncertainties:
-------------------------
During the nine months ended November 30, 2003, the Company's book-to-bill ratio
was approximately 1.03, reflecting an increase in the volume of orders booked
when compared to the nine months ending November 30, 2002.
The intake of orders over the last twelve months has decreased approximately 5%.
Shipments have increased 9% over the last twelve months. As a result of the
current economy and the level of defense spending on the defense programs that
the Company participates in, it is anticipated that the sales and order intake
will decrease over the next twelve months. Should the level of order intake and
shipments fall significantly below current levels, the Company might be required
to implement further cost cutting or other downsizing measures to continue its
business operations.
Results of Operations-Three Months Ended November 30, 2003 Compared to Three
----------------------------------------------------------------------------
Months Ended November 30, 2002:
-------------------------------
Net sales for the three months ended November 30, 2003 increased approximately
1.8% to $1,859,000 as compared to $1,821,000 for the three months ended November
30, 2002. This increase was primarily attributable to a higher level of
shippable orders, as per the delivery schedules requested by the Company's
customers.
Cost of sales for the three months ended November 30, 2003 increased to
$1,513,000 from $1,495,000 for the comparable period in 2002. Expressed as a
percentage of sales, Cost of sales decreased to 81% from 82% for the same
periods. This decrease as a percentage of sales was due mainly to decreases in
material and labor costs that were dictated by the requirements of the shipped
product mix.
Gross profit for the three months ended November 30, 2003 increased to $346,000
from $326,000 for the three months ended November 30, 2002. Accordingly, gross
margins on the Company's sales increased to 19% for the three months ended
November 30, 2003 in comparison to 18% for the three months ended November 30,
2002. This change was due largely to decreased material and labor costs.
9
For the three months ending November 30, 2003, the Company shipped 57,268 units
as compared with 111,857 units shipped during the same period of the prior year.
It should be noted that since the Company manufactures a wide variety of
products with an average sale price ranging from less than one dollar to several
hundred dollars, such periodic variations in the Company's volume of units
shipped should not be regarded as a reliable indicator of the Company's
performance.
The Company's backlog of open orders increased 14% for the three months ended
November 30, 2003 as compared to an increase of 73% for the three months ended
November 30, 2002. Such changes in the backlog are customary and reflect the
changes in the intake of orders and in the delivery dates required by customers.
The Company has experienced a decrease in the level of booking of approximately
40% for the quarter ended November 30, 2003 as compared to the same period for
the previous year. Changes in the level of orders booked depend, to a large
extent, on the timing of issuance of orders from key customers and are not
necessarily indicative of a trend.
Selling, general, and administrative expenses increased slightly to $278,000 for
the three months ended November 30, 2003 from $277,000 for the comparable period
in 2002. During the three months ending November 30, 2003, selling, general, and
administrative expenses as a percentage of sales remained at 15% as compared to
the three months ending November 30, 2002.
Operating Income for the three months ended November 30, 2003 increased to a
profit of $68,000 from a profit of $49,000 for the three months ended November
30, 2002. This increase is due largely to decreased material and labor costs.
The Company recorded a net other expense of $0 for the three months ended
November 30, 2003 versus a $7,000 net other expense amount for the three months
ended November 30, 2002. The variance was due primarily to an increase in the
Company's interest income, which resulted from a larger average invested cash
balance.
Net income for the three months ended November 30, 2003 increased to a profit of
$68,000 from a profit of $42,000 for the same period in 2002. This increase is
due largely to decreased material and labor costs.
Results of Operations-Nine Months Ended November 30, 2003 Compared to Nine
--------------------------------------------------------------------------
Months Ended November 30, 2002:
-------------------------------
Net sales for the nine months ended November 30, 2003 increased approximately 8%
to $5,868,000 as compared to $5,449,000 for the nine months ended November 30,
2002. This increase was primarily attributable to a higher level of shippable
orders, as per the delivery schedules requested by the Company's customers.
Cost of sales for the nine months ended November 30, 2003 increased to
$4,715,000 from $4,449,000 for the comparable period in 2002. Expressed as a
percentage of sales, Cost of sales decreased to 80% from 82% for the same
periods. This change was due mainly to reductions in material and labor costs
that were dictated by the requirements of the shipped product mix.
Gross profit for the nine months ended November 30, 2003 increased to $1,153,000
from $1,000,000 for the nine months ended November 30, 2002. Accordingly, gross
margins on the Company's sales increased to 20% for the nine months ended
November 30, 2003 in comparison to 18% for the nine months ended November 30,
2002. This change was due partly to a higher level of shipments and partly to
reductions in material and labor costs.
For the nine months ending November 30, 2003, the Company shipped 289,121 units
as compared with 435,223 units shipped during the same period of the prior year.
It should be noted that since the Company manufactures a wide variety of
products with an average sale price ranging from less than one dollar to several
hundred dollars, such periodic variations in the Company's volume of units
shipped should not be regarded as a reliable indicator of the Company's
performance.
The Company's backlog of open orders decreased 5% for the nine months ended
November 30, 2003 as compared to an increase of 15% for the nine months ended
November 30, 2002. Such changes in the backlog are customary and reflect the
changes in the intake of orders and in the delivery dates required by customers.
10
The Company has experienced a decrease in the level of booking of approximately
12% for the nine months ended November 30, 2003 as compared to the same period
for the previous year. Changes in the level of orders booked depend, to a large
extent, on the timing of issuance of orders from key customers and are not
necessarily indicative of a trend.
Selling, general, and administrative expenses increased to $836,000 for the nine
months ended November 30, 2003 from $826,000 for the comparable period in 2002.
During the nine months ending November 30, 2003, selling, general, and
administrative expenses as a percentage of sales decreased to 14% as compared
with 15% for the nine months ending November 30, 2002. This decrease as a
percentage of sales is due to lower salaries and to lower legal fees.
Operating Income for the nine months ended November 30, 2003 increased to a
profit of $317,000 from a profit of $174,000 for the nine months ended November
30, 2002. This increase is mainly due to a higher gross profit.
The Company recorded a net other income of $14,000 for the nine months ended
November 30, 2003 versus a net other expense of $7,000 for the nine months ended
November 30, 2002. The variance was due primarily to an increase in the
Company's interest income, which resulted from a larger average invested cash
balance.
Net income for the nine months ended November 30, 2003 increased to a profit of
$331,000 from a profit of $167,000 for the same period in 2002. This increase is
due to a higher sales volume and to reductions in material and labor costs.
Liquidity and Capital Resources
-------------------------------
The Company's sole source of liquidity is cash generated by ongoing operations.
The Company's liquidity is expected to be affected adversely due to the
anticipated level of revenue in the next twelve months. The Company's liquidity
is not expected to improve until the Company's revenue increases above its
breakeven point.
Furthermore, the Company's liquidity continues to be adversely affected by
significant non-recurring expenses associated with the Company's 1993 bankruptcy
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.
Pursuant to such bankruptcy, the Company is required to make quarterly payments
to holders of unsecured claims until such holders receive 35 percent (35%) of
their pre-petition claims. At November 30, 2003, the Company is currently
scheduled to pay approximately $1,791,000 to holders of allowed unsecured claims
in quarterly installments of approximately $62,000. After making the November
30, 2003 payment, the Company has paid approximately $439,000 to its unsecured
creditors. The Company expects to continue making these quarterly payments at
the same rate as it has done recently, but its ability to do so depends largely
upon its ability to generate sufficient cash from operations. For a more
complete discussion of the Company's bankruptcy obligations, see "Business -
Bankruptcy Proceedings" in the Company's Form 10-KSB filed for the period ended
February 28, 2003.
On June 26, 2002, the Company executed an agreement with Port Salerno Industrial
Park, LLC, for the sale of the Solitron Microwave Superfund Site in Port
Salerno, Florida, which consists of a 42,000 square foot building and 23 acres
of undeveloped land. The purchase price for the property was $800,000, and the
closing of the sale was required to take place within 330 days of the execution
of the agreement, provided certain contingencies are met. The Port Salerno
property was sold on March 17, 2003 and the proceeds were distributed in
accordance with the agreement between USEPA and FDEP. After deducting amounts
required to satisfy certain non-environmental liens on the property, such as
those for taxes, and certain of the Company's expenses in connection with the
sale of the property, the net proceeds of the sale were paid to the U.S.
Environmental Protection Agency ("USEPA") and the Florida Department of
Environmental Protection ("FDEP") to release certain liens on the property for
costs incurred by USEPA in connection with the investigation and remediation of
the site. The Consent Final Judgment between the Company and FDEP, dated as of
October 21, 1993, may need to be modified by the parties to allow for the net
proceeds to go to USEPA. FDEP and USEPA have reached an agreement regarding
sharing of the proceeds on the sale of the Port Salerno property. The release of
USEPA's lien does not discharge the Company's alleged liability for clean-up
costs of the site, which are currently still under negotiation with USEPA.
For a more definitive description of environmental matters pertaining to the
Port Salerno property, please refer to "Business--Environmental Liabilities" in
the Company's Annual Report on Form 10-KSB for the year ended February 28, 2003.
11
The Company reported a net income of $331,000 and an operating income of
$317,000 for the nine months ended November 30, 2003. The Company has
significant obligations arising from settlements related to its bankruptcy
proceeding which require it to make substantial cash payments, which cannot be
supported by the Company's current level of operations.
At November 30, 2003, February 28, 2003 and November 30, 2002 respectively, the
Company had cash of $1,884,000, $1,448,000 and $1,618,000. The increase during
the last three months was primarily attributable to higher revenues and to lower
expenses. Reduction in accounts receivable contributed $193,000 to the last nine
months' positive cash flow generated by ongoing operations.
At November 30, 2003, the Company had working capital of $2,428,000 as compared
with a working capital at November 30, 2002 of $2,024,000. At February 28, 2003,
the Company had a working capital of $2,194,000. The approximately $234,000
increase for the nine months ended November 30, 2003 was due mainly to increases
in cash and accounts receivable.
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 could differ significantly from the
results discussed in such forward-looking statements.
Statements regarding:
o sources and availability of liquidity;
o the Company's estimates regarding the decrease of sales and order
intake over the next twelve months;
o the Company's estimates regarding income taxes;
o the Company's expectations regarding the impact of certain recent
accounting pronouncements;
o the Company's expectations regarding the implementation of further
cost cutting or downsizing measures;
o the Company's compliance with environmental laws, orders and
investigations and the future costs of such compliance;
o the Company's ability to make payments required under its Plan of
Reorganization; and
o other statements contained in this report that address activities,
events of developments that the Company expects, believes or
anticipates will or could 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, risks 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 could cause actual future events to differ significantly from those
predicted or assumed include, but are not limited to:
o the loss of certification or qualification of the Company's products
or the inability of the Company to capitalize on such certifications
and/or qualifications;
o unexpected rapid technological change;
o a misinterpretation of the Company's capital needs and sources and
availability of liquidity;
o a change in government regulations which hinders the Company's ability
to perform government contracts;
o a shift in or misinterpretation of industry trends;
o inability to sustain or grow bookings and sales;
o inability to capitalize on competitive strengths or a
misinterpretation of those strengths;
12
o the emergence of improved, patented technology by competitors;
o a misinterpretation of the nature of the competition, the Company's
competitive strengths or its reputation in the industry;
o inability to respond quickly to customers' needs and to deliver
products in a timely manner resulting from unforeseen circumstances;
o inability to generate sufficient cash to sustain operations;
o failure of price or volume recovery;
o failure to successfully implement cost-cutting or downsizing measures,
strategic plans or the insufficiency of such measures and plans;
o changes in military or defense appropriations;
o inability to make or renegotiate payments under the Company's Plan of
Reorganization;
o inability to move into new market segments based on unforeseen
factors;
o unexpected impediments affecting ability to fill backlog;
o inability to be released from environmental liabilities;
o an increase in the expected cost of environmental compliance based on
factors unknown at this time;
o changes in law or industry regulation;
o the results of the informal inquiry being conducted by the Securities
and Exchange Commission;
o unexpected growth or stagnation of the business;
o unforeseen changes that render the Company's headquarters and
manufacturing facilities unsuitable or inadequate to meet the
Company's current needs;
o unforeseen effects of inflation; and
o other unforeseen activities, events and developments that may occur in
the future.
Item 3. CONTROLS AND PROCEDURES
-----------------------
Based on the evaluation of the Company's disclosure controls and procedures as
of November 30, 2003, Shevach Saraf, Chairman, President, Chief Executive
Officer, Treasurer and Chief Financial Officer of the Company, has concluded
that, as of November 30, 2003, the Company's disclosure controls and procedures
are effective in ensuring that information required to be disclosed by the
Company in the reports that it files or submits under the Securities and
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time period specified by the Securities and Exchange
Commission's rules and forms.
There has been no change in our internal control over financial reporting during
the quarter ended November 30, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
13
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 "Management's Discussion and Analysis - Liquidity and Capital
Resources" in this Form 10-QSB and "Business - Bankruptcy Proceedings"
in the Company's Form 10-KSB for the period ended February 28, 2003,
for a discussion of the status of payments pursuant to the Company's
1993 bankruptcy reorganization.
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:
31 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
None.
14
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOLITRON DEVICES, INC.
Date: January 13, 2004 /s/ Shevach Saraf
--------------------------------------
By: Shevach Saraf
Title: Chairman, President,
Chief Executive Officer, Treasurer and
Chief Financial Officer
15
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
31 Certification of the Chief Executive Officer and Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of the Chief Executive Officer and Chief Financial
Officer Pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
16