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 May 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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
----------------- ----------
(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, including area code)
N/A
-------------------------------------------------------
(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 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 July 11, 2005: 2,076,053
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
1
SOLITRON DEVICES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Page No.
Item 1. Condensed Financial Statements (unaudited):
Consolidated Balance Sheet 3
As of May 31, 2005
Consolidated Statements of Income 4
For the Three Months Ended May 31, 2005 and 2004
Consolidated Statements of Cash Flows 5
For the Three Months Ended May 31, 2005 and 2004
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition and 11-14
Results of Operations
Item 3. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits 16
Signatures 17
2
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands except for share and per share amounts)
May 31, 2005
------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,684
Accounts receivable, less allowance for doubtful accounts of $2 890
Inventories, net 2,416
Prepaid expenses and other current assets 141
------------
TOTAL CURRENT ASSETS 6,131
PROPERTY, PLANT AND EQUIPMENT, net 590
OTHER ASSETS 52
------------
TOTAL ASSETS $ 6,773
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued environmental expenses $ 985
Accounts payable - Post-petition 366
Accounts payable - Pre-petition 1,490
Accrued expenses and other current liabilities 575
------------
TOTAL CURRENT LIABILITIES 3,416
------------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued
-0-
Common stock, $.01 par value, authorized 10,000,000 shares,
2,076,053 shares issued and outstanding, net of 173,287 shares of treasury stock 21
Additional paid-in capital 2,620
Retained Earnings 716
------------
TOTAL STOCKHOLDERS' EQUITY 3,357
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,773
============
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MAY 31,
(Unaudited, in thousands except for share and per share amounts)
2005 2004
Net sales $ 2,103 $ 1,934
Cost of sales 1,614 1,604
------------ ------------
Gross profit 489 330
Selling, general and administrative expenses 271 318
------------ ------------
Operating income 218 12
------------ ------------
Other income (expense)
Other income (expense) 77 (5)
Interest expense (3) (2)
------------ ------------
Net other income (expense) 74 (7)
------------ ------------
Net income $ 292 $ 5
============ ============
INCOME PER SHARE OF COMMON STOCK:
Basic $ 0.14 $ 0.002
------------ ------------
Diluted $ 0.13 $ 0.002
------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 2,076,053 2,076,355
============ ============
Diluted 2,187,561 2,201,840
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 31,
(Unaudited, in thousands)
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 292 $ 5
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 46 42
Changes in operating assets and liabilities:
(Increase) Decrease in: Accounts receivable 91 92
Inventories (19) (25)
Prepaid expenses and other current assets (14) (2)
Increase (Decrease) in:
Accounts payable - Post-petition 11 38
Accounts payable - Pre-petition 682 (11)
Accrued expenses and other current liabilities (769) 11
Accrued environmental expenses -- 19
Other long-term liabilities (13) (19)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 307 150
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (26) (75)
---------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (26) (75)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 281 75
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 2,403 1,883
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 2,684 $ 1,958
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL AND SIGNIFICANT ACCOUNTING POLICIES:
GENERAL:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting primarily 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 condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC") 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 accounting
principles generally accepted in the United States 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 Solitron
Devices, Inc. and Subsidiaries' (the "Company") Annual Report on Form 10-KSB for
the year ended February 28, 2005.
The results of operations for the three-month period ended May 31, 2005 are not
necessarily indicative of the results to be expected for the entire year ending
February 28, 2006.
SIGNIFICANT ACCOUNTING PRINICPLES:
Basis for Consolidation
The condensed consolidated financial statements include the accounts of the
Company and subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.
Earnings Per Common Share
Earnings per common share is presented in accordance with SFAS No. 128 "Earnings
per Share." Basic earnings per common share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share incorporate the incremental shares issuable upon the assumed
exercise of stock options to the extent they are not anti-dilutive using the
treasury stock method. Diluted earnings per common share for the period ended
May 31, 2004 was previously understated due to an incorrect calculation. The
correct amount of diluted earnings per common share for the period then ended is
reflected in the condensed consolidated statements of income.
6
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock-Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure - an amendment of FASB Statement No. 123" ("SFAS No. 148"). This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. This
statement also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The transition guidance and disclosure requires
that companies that continue to account for stock-based employee compensation
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25") include pro forma disclosure of net income and
earnings per share as if the fair value method prescribed by SFAS No. 123 had
been applied in accordance with SFAS No. 148.
The Company complies with SFAS No. 123. As permitted by SFAS No. 123, the
Company continues to follow the measurement provisions of APB No. 25 and does
not recognize compensation expense for its stock-based incentive plan. Had
compensation cost been determined based on the fair value on the grant dates
consistent with the methodology prescribed by SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro-forma amounts
indicated below.
Three months ended May 31,
2005 2004
---------- ----------
Net income, as reported $ 292 $ 5
Less: total stock-based employee
compensation expense, net of tax effects 47 12
---------- ----------
Pro-forma net income/(loss) $ 245 $ (7)
========== ==========
Reported basic earnings per common share $ 0.14 $ 0.002
========== ==========
Pro-forma basic earnings/(loss) per common share $ 0.12 $ (0.003)
========== ==========
Reported diluted earnings per common share $ 0.13 $ 0.002
========== ==========
Pro-forma diluted earnings/(loss) per common share $ 0.11 $ (0.003)
========== ==========
The total fair value of the options granted during the three months ended May
31, 2005 and May 31, 2004 was $33,000 and $215,000, respectively, determined
under fair value based method for all awards.
The weighted average estimated value of employee stock options granted during
the three months ended May 31, 2005 was $0.70 ($0.96 for the three months ended
May 31, 2004). The fair value of options granted in the three months ended May
31, 2005 and 2004 was estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Three months ended May 31,
2005 2004
---- ----
Dividend Yields 0.0% 0.0%
Expected Volatility 109.8% 103.8%
Risk-free Interest Rates 4.1% 4.5%
Expected Life (in years) 10.0 10.0
The pro-forma amounts may not be indicative of future pro-forma income and
earnings per share.
7
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 "Business - Environmental Liabilities" section appearing in the Company's
Annual Report on Form 10-KSB for the year ended February 28, 2005.
3. EARNINGS PER SHARE:
The shares used in the computation of the Company's basic and diluted earnings
per common share were as follows:
For the three months ended
May 31,
2005 2004
---- ----
Weighted average common shares outstanding 2,076,053 2,076,355
Dilutive effect of employee stock options 111,508 125,485
------- -------
Weighted average common shares outstanding, assuming dilution 2,187,561 2,201,840
========= =========
Weighted average common shares outstanding, assuming dilution, include the
incremental shares that would be issued upon the assumed exercise of stock
options. For the three month period ended May 31, 2005, approximately 223,000 of
the Company's stock options were excluded from the calculation of diluted
earnings per share because the exercise prices of the stock options were greater
than or equal to the average price of the common shares, and therefore their
inclusion would have been anti-dilutive (229,000 for the three month period
ended May 31, 2004). These options could be dilutive in the future if the
average share price increases and is greater than the exercise price of these
options.
4. INVENTORIES:
As of May 31, 2005 net inventories consist of the following:
Raw Materials $ 1,367,000
Work-In-Process 1,463,000
Finished Goods 479,000
-------------
Gross Inventories 3,309,000
Reserve (893,000)
-------------
Net Inventories $ 2,416,000
=============
8
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. INCOME TAXES:
At May 31, 2005, the Company has net operating loss carryforwards of
approximately $15,504,000 that expire through 2022. Such net operating losses
are available to offset future taxable income, if any. As the utilization of
such net operating losses for tax purposes is not assured, the deferred tax
asset has been fully reserved through the recording of a 100% valuation
allowance. Should a cumulative change in the ownership of more than 50% occur
within a three-year period, there could be an annual limitation on the use of
the net operating loss carryforward.
A reconciliation of the provision for income taxes to the amount calculated
using the statutory federal rate (34%) for the period ended May 31, 2005 is as
follows:
Income Tax Provision at
U.S. Statutory Rate $ 99,000
State Taxes, Net of Federal Benefit
11,000
Utilization of Net Operating Loss Carryforward (110,000)
---------
Income Tax Provision $ -
=========
The change in the valuation allowance on deferred tax assets is due primarily to
the utilization of the net operating loss for the period ended May 31, 2005.
6. STOCK-BASED COMPENSATION:
On May 16, 2005 the Board of Directors granted ten year stock options to certain
key employees. The options, which will vest on May 15, 2006, were for a total
number of 47,000 shares and the exercise price was fixed at $0.75 per share,
which was the closing price of the Company's common stock on the
Over-The-Counter Bulletin Board at the time of the grant. The options are
exercisable through May 15, 2015.
7. OTHER INCOME:
During the fiscal quarter ended May 31, 2005, the Company settled approximately
$341,000 of debt obligations to unsecured creditors at a discount. The Company
has recognized approximately $69,000 of other income as a result of these
settlements. This $69,000 of other income is a major component of the $77,000 of
other income reflected in the condensed consolidated statements of income for
the quarter ended May 31, 2005.
8. ACCRUED EXPENSES:
As of May 31, 2005 accrued expenses and other liabilities consist of the
following:
Payroll and related employee benefits $ 506,000
Property taxes 15,000
Other liabilities 54,000
---------
$ 575,000
=========
9
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. COMMITMENTS AND CONTINGENCIES:
As described in Item 3 to the Company's Annual Report on Form 10-KSB for the
year ended February 28, 2005, the Company is involved in certain legal
proceedings. Except for a settlement reached with Technology Place, the
Company's landlord, there have been no material developments in these legal
proceedings since the filing of our Form 10-KSB. See Part II, Item 1 on page 16
of this on Form 10-QSB for further discussion of the settlement with the
Company's landlord.
10. EXPORT SALES AND MAJOR CUSTOMERS:
Domestic and export sales to unaffiliated customers are as follows:
Three months ended May 31,
2005 2004
---- ----
Export sales:
Europe $ 159,000 $ 16,000
Canada and Latin America 134,000 63,000
Far East and Middle East 38,000 18,000
United States 1,772,000 1,837,000
---------- ----------
$2,103,000 $1,934,000
========== ==========
Sales to the Company's top two customers accounted for 54% of net sales for the
quarter ended May 31, 2005 as compared to 61% for the quarter ended May 31,
2004. Sales to Raytheon Company accounted for approximately 46% of net sales for
the quarter ended May 31, 2005 and 51% for the quarter ended May 31, 2004.
During the quarter ended May 31, 2005, the US Government represented
approximately 8% of net sales as compared to 10% for the quarter ended May 31,
2004.
11. SUBSEQUENT EVENT:
In June 2005, the Company settled approximately $48,000 of debt obligations to
unsecured creditors at a discount. The Company will recognize the extinguishment
of debt as other income in the second quarter of fiscal year 2006.
In July 2005, the Company settled the lawsuit with Technology Place. See Part
II, Item 1 on page 15 of this report for further discussion of the settlement.
10
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 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, 2005 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.
Critical Accounting Policies:
The discussion and analysis of our financial condition and results of operations
are based upon the condensed consolidated financial statements included
elsewhere in this Form 10-QSB which are prepared in accordance with accounting
principles generally accepted in the United States of America. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management's application of accounting
policies. Our critical accounting policies include inventories, valuation of
plant, equipment and intangible assets, revenue recognition and accounting for
income taxes. A discussion of all of these critical accounting policies can be
found in Note 1 of the Notes to the Consolidated Financial Statements in Item
7 of our Annual Report on Form 10-KSB for the fiscal year ended February 28,
2005.
Trends and Uncertainties:
During the three months ended May 31, 2005, the Company's book-to-bill ratio was
approximately 1.08 as compared to 0.91 for the three months ended May 31, 2004,
reflecting an increase in the volume of orders booked. The Company does not
believe that the quarter-to-quarter change in the book-to-bill ratio indicates a
specific trend in the demand for the Company's products. Generally, the intake
of orders over the last eighteen months has varied greatly as a result of the
fluctuations in the general economy and of variations in defense spending on
programs the Company supports, which is expected to continue over the next
twelve months. The Company continues to identify means intended to reduce its
variable manufacturing costs to offset the potential impact of low volume of
orders to be shipped should a slow down in the intake of orders reoccur.
However, should order intake fall significantly below the level experienced in
the last twelve months, 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 May 31, 2005 Compared to Three Months
Ended May 31, 2004:
Net sales for the three months ended May 31, 2005 increased approximately 9% to
$2,103,000 as compared to $1,934,000 for the three months ended May 31, 2004.
This increase was primarily attributable to a higher level of scheduled orders
that were shipped in accordance with customer requirements.
11
Cost of sales for the three months ended May 31, 2005 increased to $1,614,000
from $1,604,000 for the comparable period in 2004. Expressed as a percentage of
sales, cost of sales decreased to approximately 77% for the three months ended
May 31, 2005 from approximately 83% for the same period in 2004. This change was
due primarily to better product yield resulting from a decrease in the cost of
raw materials which decreased to 25% from 30% as a percentage of sales..
Gross profit for the three months ended May 31, 2005 increased to $489,000 from
$330,000 for the three months ended May 31, 2004. Accordingly, gross margins on
the Company's sales increased to approximately 23% for the three months ended
May 31, 2005 in comparison to approximately 17% for the three months ended May
31, 2004. This change was due in part to a higher level of shipments and in part
to a decrease in the cost of raw materials as discussed in the preceding
paragraph.
For the three months ended May 31, 2005, the Company shipped 180,155 units as
compared with 96,988 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 might
not be a reliable indicator of the Company's performance.
The Company's backlog of open orders increased approximately 4% for the three
months ended May 31, 2005 as compared to a decrease of approximately 3% for the
three months ended May 31, 2004. Changes in the backlog reflect changes in the
intake of orders.
The Company has experienced an increase in the level of bookings of
approximately 29% for the quarter ended May 31, 2005 as compared to the same
period for the previous year principally as a result of a higher demand for its
products in this period. For further discussion, see "Trends and Uncertainties"
on Page 11 of this report.
Selling, general and administrative expenses decreased to $271,000 for the three
months ended May 31, 2005 from $318,000 for the comparable period in 2004.
During the three months ended May 31, 2005, selling, general and administrative
expenses as a percentage of sales decreased to approximately 13% as compared
with approximately 16% for the three months ended May 31, 2004. This decrease
was due primarily to a reduction in legal and professional fees of approximately
$56,000 offset by higher wages. The reduction in legal and professional fees
reflects the resolution of an SEC investigation in the prior fiscal year.
The Company recorded an operating income of $218,000 for the three months ended
May 31, 2005 compared to $12,000 for the three months ended May 31, 2004. This
increase is due primarily to a $169,000 increase in sales and the gross profit
thereon, and a $47,000 decrease in selling, general and administrative expenses.
The Company recorded net other income of approximately $74,000 for the three
months ended May 31, 2005 versus a net other expense of approximately $7,000 for
the three months ended May 31, 2004. The increase was due primarily to
approximately $69,000 of other income resulting from the settlement of debt
obligations to unsecured creditors during the quarter ended May 31, 2005.
Net income for the three months ended May 31, 2005 increased to approximately
$292,000 as compared to $5,000 for the same period in 2004. This increase in net
income is a result of an increase in sales and the gross profit thereon, a
decrease in cost of sales relative to sales due to better product yield, and a
decrease in selling, general and administrative expenses along with $69,000 of
other income resulting from the settlement of debt obligations to unsecured
creditors.
12
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 adversely affected in the short term
due to the anticipated lower level of revenue in the next six to nine months due
to customers' delivery requirements. The Company's liquidity is not expected to
improve until the Company's revenues increase to a level above its breakeven
point.
Furthermore, the Company's liquidity continues to be adversely affected by 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.
For a more complete discussion of the Company's bankruptcy obligations, see
"Business - Bankruptcy Proceedings" in the Company's Annual Report on Form
10-KSB filed for the period ended February 28, 2005.
The Company is required to make quarterly payments to holders of unsecured
claims until they receive 35 percent (35%) of their pre-petition claims. As of
May 31, 2005, the Company has paid approximately $572,000 to its unsecured
creditors. The Company`s remaining obligation is approximately $1,490,000 to
holders of allowed unsecured claims in quarterly installments.
The Company reported a net income of $292,000 and operating income of $218,000
for the three months ended May 31, 2005. 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 May 31, 2005, February 28, 2005 and May 31, 2004, the Company had cash of
approximately $2,684,000, $2,403,000 and $1,958,000 respectively. Collection of
accounts receivable contributed $91,000 to the last three months' positive cash
flow generated by ongoing operations.
At May 31, 2005, the Company had working capital of $2,715,000 as compared with
a working capital at May 31, 2004 of $1,987,000. At February 28, 2005, the
Company had a working capital of $2,416,000. The approximately $299,000 increase
in working capital for the three months ended May 31, 2005 was due mainly to a
$281,000 increase in cash resulting primarily from increased net income.
Off-Balance Sheet Arrangements:
The Company is not involved in any off-balance sheet arrangements.
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 Exchange 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 the Company's belief regarding its change in book-to-bill ratio;
o the Company's expectations regarding fluctuations in the general economy
and variations in defense spending, and the effects of such fluctuations
and variations on the intake of orders;
o sources and availability of liquidity;
o anticipated lower revenue in the next six to nine months;
o the Company's ability to generate sufficient cash flow from operations to
sustain operations;
o the Company's ability to implement effective cost-cutting or downsizing
measures;
o the Company's compliance with environmental laws, orders and
investigations and the future cost of such compliance; and
13
o other statements contained in this report that address activities, events
of 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, 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 may cause actual future events to differ significantly from those predicted
or assumed include, but are not limited to:
o a misinterpretation of the Company's capital needs and sources and
availability of liquidity;
o inability to generate sufficient cash to sustain operations;
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 an increase in the expected cost of environmental compliance based on
factors unknown at this time; 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 May 31, 2005, Shevach Saraf, Chairman, President, Chief Executive Officer,
Treasurer and Chief Financial Officer of the Company, has concluded that 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 were no changes in the Company's internal control over financial reporting
during the quarter ended May 31, 2005 that has materially affected or is
reasonably likely to materially affect the Company's internal control over
financial reporting.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
As previously disclosed in the Company's filings with the SEC, the Company filed
a complaint against its landlord, Technology Place, in 2003 in the Circuit Court
of the 15th Judicial Circuit in Palm Beach County, Florida for breach of
contract and seeking specific performance. In July 2005, the parties reached a
settlement regarding this matter. The terms of the settlement are confidential.
15
ITEM 6. EXHIBITS:
a) Exhibits
31 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOLITRON DEVICES, INC.
Date: July 19, 2005
/s/ Shevach Saraf
By: Shevach Saraf
Title: Chairman, President,
Chief Executive Officer, Treasurer
And Chief Financial Officer
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
31 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
18