SOLITRON DEVICES INC - Quarter Report: 2014 May (Form 10-Q)

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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Delaware		22-1684144
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
3301 Electronics Way, West Palm Beach, Florida		33407
(Address of Principal Executive Offices)		(Zip Code)

 

 

 

 

Large accelerated filer  o		Accelerated filer  o
Non-accelerated filer    ¨		Smaller reporting company  x

 

 

 

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		Page No.
Item 1.	Financial Statements
	Condensed Balance Sheets	1
	May 31, 2014 (unaudited) and February 28, 2014
	Condensed Statements of Income (unaudited)	2
	Three Months Ended May 31, 2014 and 2013
	Condensed Statements of Cash Flows (unaudited)	3
	Three Months Ended May 31, 2014 and 2013
	Notes to Condensed Financial Statements	4-10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-15
Item 4.	Controls and Procedures	16
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 6.	Exhibits	18
Signatures		19

		May 31,				Feb 28,
		2014				2014
		(in thousands, except for shares)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	792			$	625
Treasury bills and certificates of deposit			6,406				6,261
Accounts receivable, less allowance for doubtful accounts of $2			643				785
Inventories, net (Note 5)			4,317				4,316
Prepaid expenses and other current assets			210				155
TOTAL CURRENT ASSETS			12,368				12,142
PROPERTY, PLANT AND EQUIPMENT, net			521				558
OTHER ASSETS			6				7
TOTAL ASSETS		$	12,895			$	12,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable – Post-petition		$	397			$	307
Accounts payable – Pre-petition			-				8
Dividend payable			109				-
Customer deposits			6				94
Accrued expenses and other liabilities (Note 8)			631				605
TOTAL CURRENT LIABILITIES			1,143				1,014
TOTAL LIABILITIES			1,143				1,014
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued			-				-
Common stock, $.01 par value, authorized 10,000,000 shares, 2,185,832 shares issued and outstanding, net of 273,230 shares of treasury stock at May 31, 2014 and 2,177,832 shares issued and outstanding, net of 273,230 shares of treasury stock at Feb 28, 2014			23				23
Additional paid-in capital			2,749				2,743
Accumulated other comprehensive income			13				14
Retained earnings			9,242				9,188
Less treasury stock			(275	)			(275	)
TOTAL STOCKHOLDERS' EQUITY			11,752				11,693
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	12,895			$	12,707

 

		2014				2013
		(in thousands, except for share and per share amounts)
Net sales		$	2,305			$	2,276
Cost of sales			1,814				1,670
Gross profit			491				606
Selling, general and administrative expenses			336				445
Operating income			155				161
Other income (expenses):
Interest income			4				9
Other, net (Note 7)			8				86
Income before provision for income taxes			167				256
Provision for income taxes			4				4
Net income		$	163			$	252
Other comprehensive income:
Unrealized (loss)/gain on investments			(1	)			10
Total comprehensive income		$	162			$	262
Income per share from operating income-Basic		$	0.07			$	0.07
Income per share from operating income-Diluted		$	0.07			$	0.07
Net income per share-Basic		$	0.07			$	0.12
Net income per share-Diluted		$	0.07			$	0.11
Weighted average shares outstanding-Basic			2,178,008				2,177,832
Weighted average shares outstanding-Diluted			2,402,138				2,403,591

 

		2014				2013
		(in thousands)
Net income		$	163			$	252
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			56				58
Decrease (increase) in operating assets:
Accounts receivable			142				316
Inventories, net			(1	)			(118	)
Prepaid expenses and other current assets			(55	)			8
Other assets			1				2
Increase (decrease) in operating liabilities:
Accounts payable – Post-petition			90				(24	)
Accounts payable – Pre-petition			(8	)			(185	)
Customer deposit			(88	)			233
Accrued expenses and other liabilities			25				(160	)
Total adjustments			162				130
NET CASH PROVIDED BY OPERATING ACTIVITIES			325				382
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of treasury bills and certificates of deposit			1,598				662
Purchases of treasury bills and certificates of deposit			(1,743	)			(1,494	)
Purchases of property, plant and equipment			(19	)			(94	)
NET CASH (USED IN) INVESTING ACTIVITIES			(164	)			(926	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash from exercise of employee stock options			6				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			6				-
Net increase/(decrease) in cash and cash equivalents			167				(544	)
Cash and cash equivalents – beginning of the period			625				1,297
Cash and cash equivalents - end of the period		$	792			$	753

 

 

 

 

 

 

 

Total Face Value as of 5/31/14 (In thousands)
Treasury bills			683
Certificates of deposit			5,725
			6,408

		Face value				Fair Value
		(In thousands)				(In thousands)
Maturing within one year		$	6,408			$	6,406

 

Level 1:	Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2:	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3:	Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that results in management’s best estimate of fair value.

 

 

 

Raw material /Work in process:	All material purchased, processed, and/or used in the last two fiscal years is valued at the lower of its acquisition cost or market.  All material not purchased/used in the last two fiscal years is fully reserved.
Finished goods:	All finished goods with firm orders for later delivery are valued (material and overhead) at the lower of cost or market.  All finished goods with no orders are fully reserved.
Direct labor costs:	Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the amount of man-hours required from the different direct labor departments to bring each device to its particular level of completion.

 

 

 

 

 

In November 2013, the Company was served with a Third Party Complaint that was filed in the United States District Court for the Northern District of New York, in which the Company was named as a defendant in a suit brought by the Clarkstown Landfill Joint Defense Group (“JDG”).  In the Third Party Complaint, the JDG contends that the Company is liable for an equitable share of the JDG’s settlement payment to the New York State Department of Environmental Conservation (“NYSDEC”) in connection with response costs incurred by NYSDEC  to remediate the Clarkstown Landfill Site located in the Town of Clarkstown, Rockland County, New York (the “Clarkstown Landfill Site”).   The JDG previously offered to settle its claim against the Company for the sum of $125,000; the offer has now been withdrawn.  The Company contends that the JDG’s claim derives from NYSDEC’s claim against the Company as a result of the Company’s alleged disposal of wastes at the Clarkstown Landfill Site prior to the closing of the Company’s former Tappan facility in the mid-1980’s, a claim that the Company contends was discharged in bankruptcy as a result of the final order of Bankruptcy Court Confirming Debtor’s Fourth Amended Plan of Reorganization, entered on August 19, 1993 order (“1993 Order”).  On January 24, 2014, the Company filed with the Bankruptcy Court an Emergency Motion to Enforce the Bankruptcy Court’s 1993 Order. Following a hearing on April 22, 2014, the Bankruptcy Court entered an Order on May 23, 2014, finding that NYSDEC’s claim against the Company was discharged in the 1993 Order and that the JDG has no legal basis to pursue the JDG’s claim asserted against the Company in the Third Party Complaint.  On June 2, 2014, the JDG filed a Notice of Voluntary Dismissal of its lawsuit against the Company with the U.S. District Court, Southern District of  New York.

 

		For the three months ended May 31,
		2014				2013
Weighted average common shares outstanding			2,178,008				2,177,832
Dilutive effect of employee stock options			224,130				225,759
Weighted average common shares outstanding, assuming dilution			2,402,138				2,403,591

		Gross				Reserve				Net
Raw Materials		$	1,902,000			$	(447,000	)		$	1,455,000
Work-In-Process			3,473,000				(1,292,000	)			2,181,000
Finished Goods			1,363,000				(682,000	)			681,000
Totals		$	6,738,000			$	(2,421,000	)		$	4,317,000

		Gross				Reserve				Net
Raw Materials		$	1,878,000			$	(447,000	)		$	1,431,000
Work-In-Process			3,103,000				(1,292,000	)			1,811,000
Finished Goods			1,782,000				(708,000	)			1,074,000
Totals		$	6,763,000			$	(2,447,000	)		$	4,316,000

 

 

Deferred Tax Asset (Liability):		5/31/14				2/28/14
Current
Allowance for doubtful accounts		$	1,000			$	1,000
Inventory allowance			919,000				930,000
Section 263A capitalized costs			246,000				246,000
Total current deferred tax assets			1,166,000				1,177,000
Valuation allowance			(1,166,000	)			(1,177,000	)
		$	0			$	0
Long-term
Loss carryforwards		$	5,246,000			$	5,309,000
Depreciation			(32,000	)			(46,000	)
Total long-term deferred tax assets			5,214,000				5,263,000
Valuation allowance			(5,214,000	)			(5,263,000	)
		$	0			$	0

		5/31/14				2/28/14
U.S. federal statutory rate			34.0	%			34.0	%
Change in valuation allowance			(34.0	)			(34.0	)
Alternative minimum taxes			1.0				1.0
Effective income tax rate			1.0	%			1.0	%

 

 

		5/31/14				2/28/14
Payroll and related employee benefits		$	562,000			$	539,000
Income taxes			9,000				15,000
Property taxes			18,000				7,000
Other liabilities			42,000				44,000
		$	631,000			$	605,000

Geographic Region		Power Transistors				Hybrids				Field Effect Transistors				Power MOSFETS				Totals
Europe and Australia		$	0			$	329,000			$	4,000			$	0			$	333,000
Canada and Latin America			23,000				0				0				0				23,000
Far East and Middle East			0				0				74,000				0				74,000
United States			406,000				944,000				39,000				486,000				1,875,000
Totals		$	429,000			$	1,273,000			$	117,000			$	486,000			$	2,305,000

Geographic Region		Power Transistors				Hybrids				Field Effect Transistors				Power MOSFETS				Totals
Europe and Australia		$	0			$	160,000			$	0			$	0			$	160,000
Canada and Latin America			51,000				0				0				0				51,000
Far East and Middle East			0				0				5,000				109,000				114,000
United States			276,000				1,114,000				118,000				443,000				1,951,000
Totals		$	327,000			$	1,274,000			$	123,000			$	552,000			$	2,276,000

 

Customer		% of Sales
Raytheon Company			30	%
United States Government			25	%
			55	%

Customer		% of Sales
Raytheon Company			51	%
BAE Systems Australia			7	%
			58	%

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

Vendor		% of Purchases
Egide, USA			27	%
Wuxi Streamtek Ltd			13	%
			40	%

 

Vendor		% of Purchases
Egide, USA			40	%
Stellar Industries			12	%
			52	%

 

 

Fiscal Year Ending February 28/29		Amount
2015			303,000
2016			415,000
2017			355,000
		$	1,073,000

 

 

 

 

 

 

 

 

 

Raw material /Work in process:	All material purchased, processed and/or used in the last two fiscal years is valued at the lower of its acquisition cost or market.  All material not purchased/used in the last two fiscal years is fully reserved.
Finished goods:	All finished goods with firm orders for later delivery are valued (material and overhead) at the lower of cost or market.  All finished goods with no orders are fully reserved.
Direct labor costs:	Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the amount of man hours required from the different direct labor departments to bring each device to its particular level of completion.

Operating income for the three months ended May 31, 2014 decreased to $155,000 as compared to $161,000 for the three months ended May 31, 2013. This decrease is due primarily to higher cost of sales partially offset by lower selling, general, and administrative expenses as described above.
 

 

 

 

 

 

 

 

 

 

 

·	Our complex manufacturing processes may lower yields and reduce our revenues.
·	Our business could be materially and adversely affected if we are unable to obtain qualified supplies of raw materials, parts and finished components on a timely basis and at a cost-effective price.
·	We are dependent on government contracts, which are subject to termination, price renegotiations and regulatory compliance, which can increase the cost of doing business and negatively impact our revenues.
·	Changes in government policy or economic conditions could negatively impact our results.
·	Our inventories may become obsolete and other assets may be subject to risks.
·	Environmental regulations could require us to incur significant costs.
·	Our business is highly competitive, and increased competition could reduce gross profit margins and the value of an investment in our Company.
·	Downturns in the business cycle could reduce the revenues and profitability of our business.
·	Our operating results may decrease due to the decline of profitability in the semiconductor industry.
·	Uncertainty of current economic conditions, domestically and globally, could continue to affect demand for our products and negatively impact our business.
·	Cost reduction efforts may be unsuccessful or insufficient to improve our profitability and may adversely impact productivity.
·	We may not achieve the intended effects of our new business strategy, which could adversely impact our business, financial condition and results of operations.
·	Our inability to introduce new products could result in decreased revenues and loss of market share to competitors; new technologies could also reduce the demand for our products.
·	Loss of, or reduction of business from, substantial clients could hurt our business by reducing our revenues, profitability and cash flow.

 

 

·	A shortage of three-inch silicon wafers could result in lost revenues due to an inability to build our products.
·	The nature of our products exposes us to potentially significant product liability risk.
·	We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could seriously harm our business.
·	Provisions in our charter documents and rights agreement could make it more difficult to acquire our Company and may reduce the market price of our stock.
·	Natural disasters, like hurricanes, or occurrences of other natural disasters whether in the United States or internationally may affect the markets in which our common stock trades, the markets in which we operate and our profitability.
·	Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.
·	We cannot promise that we will have sufficient capital resources to make necessary investments in manufacturing technology and equipment.
·	We may make substantial investments in plant and equipment that may become impaired.
·	While we attempt to monitor the credit worthiness of our customers, we may be at risk due to the adverse financial condition of one or more customers.
·	Our international operations expose us to material risks, including risks under U.S. export laws.
·	Security breaches and other disruptions could compromise the integrity of our information and expose us to liability, which could cause our business and reputation to suffer.
·	The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.
·	Compliance with new regulations regarding the use of "conflict minerals" could limit the supply and increase the cost of certain metals used in manufacturing our products.

 

 

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.**
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase

 

	SOLITRON DEVICES, INC.
Date: July 3, 2014
	/s/ Shevach Saraf
	Shevach Saraf
	Chairman, President,
	Chief Executive Officer,
	Treasurer and Chief Financial Officer
	(Principal Executive and Financial Officer)

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.**
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase
101.LAB*		XBRL Taxonomy Label Linkbase
101.PRE*		XBRL Taxonomy Presentation Linkbase

 

 

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