-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NXNY5oG5+bsJyVNM0peCShtUyVLgMa0FWcHJJN6flE4KIWrNwv2tDP2+MHsnhHEO UgdDoXZXXb5WVk0aYiZjxw== 0000950170-01-000014.txt : 20010122 0000950170-01-000014.hdr.sgml : 20010122 ACCESSION NUMBER: 0000950170-01-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLITRON DEVICES INC CENTRAL INDEX KEY: 0000091668 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 221684144 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-04978 FILM NUMBER: 1503330 BUSINESS ADDRESS: STREET 1: 3301 ELECTRONICS WAY CITY: WEST PALM BEACH STATE: FL ZIP: 33407 BUSINESS PHONE: 4078484311 10QSB 1 0001.txt 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. 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 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, 2000 February 29, 2000 ----------------- ----------------- (Unaudited) (Audited) 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 ========== ==========
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, 2000 February 29, 2000 ----------------- ----------------- (Unaudited) (Audited) 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 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 SOLITRON DEVICES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED INCOME STATEMENTS --------------------------- (Unaudited)
Three Mos. Ended November 30, Nine Mos. Ended November 30, 2000 1999 2000 1999 ---- ---- ---- ---- 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
The accompanying notes are an integral part of these financial statements. 6 SOLITRON DEVICES, INC. AND SUBSIDIARIES --------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (Unaudited)
Nine Months Ended November 30, 2000 1999 ---- ---- 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 =========== ===========
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 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 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 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 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 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 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 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 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 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 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 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 EXHIBIT INDEX EXHIBIT EXHIBIT DESCRIPTION - ------- ------------------- 27 Financial Data Schedule EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOLITRON DEVICES, INC. AND SUBSIDIARIES FORM 10-QSB FOR THE QUARTER ENDED NOVEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 9-MOS FEB-29-2000 MAR-01-2000 NOV-30-2000 2,407,000 0 775,000 (5,000) 2,390,000 5,793,000 2,010,000 (1,681,000) 6,187,000 2,466,000 0 0 0 21,000 0 6,187,000 6,132,000 6,132,000 4,582,000 5,626,000 (108,000) 0 59,000 555,000 0 555,000 0 0 0 555,000 .27 .25
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