UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2016
August 31, 2022
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File No. 001-04978
SOLITRON DEVICES, INC.
SOLITRON DEVICES, INC. |
(Exact Name of Registrant as Specified in Its Charter) |
Delaware | 22-1684144 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
901 Sansburys Way, West Palm Beach, Florida | 33411 | |
Address of Principal Executive Offices) | ( |
(561) 848-4311848‑4311
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of December 31, 2016,October 4, 2022, was 1,901,950.2,083,436.
SOLITRON DEVICES, INC.
TABLE OF CONTENTS
Page No. | |||
PART 1 - FINANCIAL INFORMATION | |||
Item | 1. | Financial Statements | 1 |
Condensed Balance Sheets November 30, 2016 (unaudited) and February 29, 2016 | 1 | ||
Condensed Statements of Operations (unaudited) Three and Nine Months Ended November 30, 2016 and 2015 | 2 | ||
Condensed Statements of Cash Flows (unaudited) Nine Months Ended November 30, 2016 and 2015 | 3 | ||
Notes to Condensed Financial Statements | 4-10 | ||
Item | 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11-16 |
Item | 4. | Controls and Procedures | 17 |
PART II – OTHER INFORMATION | |||
Item | 1. | Legal Proceedings | 18 |
Item | 6. | Exhibits | 18 |
Signatures | 19 |
PART 1 - FINANCIAL INFORMATION
2 |
Table of Contents |
PART I – FINANCIAL INFORMATION
SOLITRON DEVICES, INC.
CONDENSED BALANCE SHEETS
AS OF NOVEMBER 30, 2016 AND FEBRUARY 29, 2016ITEM 1. FINANCIAL STATEMENTS
(unaudited) | ||||||||
November 30, | February 29, | |||||||
2016 | 2016 | |||||||
ASSETS | (in thousands, except for share and per share amounts) | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 1,130 | $ | 634 | ||||
Treasury bills and certificates of deposit | 1,993 | 6,740 | ||||||
Accounts receivable, less allowance for doubtful accounts of $2 | 1,384 | 528 | ||||||
Inventories, net (Note 4) | 3,683 | 3,671 | ||||||
Prepaid expenses and other current assets | 164 | 184 | ||||||
TOTAL CURRENT ASSETS | 8,354 | 11,757 | ||||||
PROPERTY, PLANT AND EQUIPMENT, net | 502 | 436 | ||||||
OTHER ASSETS | 8 | 8 | ||||||
TOTAL ASSETS | $ | 8,864 | $ | 12,201 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 494 | $ | 164 | ||||
Customer deposits | 12 | 28 | ||||||
Accrued expenses and other current liabilities (Note 6) | 472 | 497 | ||||||
TOTAL CURRENT LIABILITIES | 978 | 689 | ||||||
TOTAL LIABILITIES | 978 | 689 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, $.01 par value, authorized 500,000 shares, none issued | - | - | ||||||
Common stock, $.01 par value, authorized 10,000,000 shares, 1,901,950 and 2,232,977 shares issued and outstanding, net of 669,284 and 338,257 shares of treasury stock as of November 30, 2016 and February 29, 2016 respectively | 24 | 24 | ||||||
Additional paid-in capital | 1,834 | 2,759 | ||||||
Accumulated other comprehensive income | 1 | 17 | ||||||
Retained earnings | 7,793 | 9,266 | ||||||
Less treasury stock | (1,766 | ) | (554 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 7,886 | 11,512 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 8,864 | $ | 12,201 |
SOLITRON DEVICES, INC. | ||||||||
BALANCE SHEETS | ||||||||
AS OF AUGUST 31, 2022 AND FEBRUARY 28, 2022 | ||||||||
(in thousands, except for share and per share amounts) | ||||||||
|
| August 31, 2022 |
|
| February 28, 2022 |
| ||
|
| (unaudited) |
|
|
| |||
ASSETS |
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 806 |
|
| $ | 4,088 |
|
Short-term investments |
|
| 2,495 |
|
|
| - |
|
Marketable securities |
|
| 1,079 |
|
|
| 684 |
|
Accounts receivable |
|
| 1,336 |
|
|
| 1,591 |
|
Inventories, net |
|
| 2,244 |
|
|
| 2,260 |
|
Prepaid expenses and other current assets |
|
| 451 |
|
|
| 196 |
|
TOTAL CURRENT ASSETS |
|
| 8,411 |
|
|
| 8,819 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 4,928 |
|
|
| 4,926 |
|
Construction in progress |
|
| 2,085 |
|
|
| 609 |
|
Other assets |
|
| 14 |
|
|
| 4 |
|
TOTAL ASSETS |
| $ | 15,438 |
|
| $ | 14,358 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 190 |
|
| $ | 135 |
|
Customer deposits |
|
| 64 |
|
|
| 24 |
|
Finance lease liability |
|
| 8 |
|
|
| 9 |
|
Mortgage loan, current portion |
|
| 105 |
|
|
| 103 |
|
Accrued expenses and other current liabilities |
|
| 842 |
|
|
| 888 |
|
TOTAL CURRENT LIABILITIES |
|
| 1,209 |
|
|
| 1,159 |
|
|
|
|
|
|
|
|
|
|
Mortgage loan, net of current portion |
|
| 2,702 |
|
|
| 2,755 |
|
Finance lease liability, net of current portion |
|
| - |
|
|
| 3 |
|
TOTAL LIABILITIES |
|
| 3,911 |
|
|
| 3,917 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, authorized 500,000 shares, none issued |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized 10,000,000 shares, 2,083,436 shares outstanding, net of 487,827 treasury shares at August 31, 2022 and 2,083,436 shares outstanding, net of 487,827 treasury shares at February 28, 2022, respectively |
|
| 21 |
|
|
| 21 |
|
Additional paid-in capital |
|
| 1,834 |
|
|
| 1,834 |
|
Retained Earnings |
|
| 11,084 |
|
|
| 9,998 |
|
Less treasury stock |
|
| (1,412 | ) |
|
| (1,412 | ) |
TOTAL STOCKHOLDERS’ EQUITY |
|
| 11,527 |
|
|
| 10,441 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 15,438 |
|
| $ | 14,358 |
|
The accompanying notes are an integral part of the unaudited condensed financial statements.
SOLITRON DEVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2016 AND NOVEMBER 30, 2015
(Unaudited, in thousands except for share and per share amounts)
Three months | Nine Months | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net Sales | $ | 2,145 | $ | 1,919 | $ | 5,833 | $ | 6,514 | ||||||||
Cost of Sales | 1,671 | 1,549 | 4,847 | 5,076 | ||||||||||||
Gross Profit | 474 | 370 | 986 | 1,438 | ||||||||||||
Selling, General and Administrative Expenses | 323 | 351 | 2,508 | 1,573 | ||||||||||||
Operating Income/(Loss) | 151 | 19 | (1,522 | ) | (135 | ) | ||||||||||
Other income | ||||||||||||||||
Other income | 3 | - | 3 | - | ||||||||||||
Interest Income | 9 | 6 | 29 | 18 | ||||||||||||
Total other income | 12 | 6 | 32 | 18 | ||||||||||||
Income/(Loss) before provision for income taxes | 163 | 25 | (1,490 | ) | (117 | ) | ||||||||||
Provision for income taxes | - | (5 | ) | - | (5 | ) | ||||||||||
Net Income/(Loss) | $ | 163 | $ | 20 | $ | (1,490 | ) | $ | (122 | ) | ||||||
Other comprehensive income: | ||||||||||||||||
Unrealized (loss)/gain on investments | 1 | - | 1 | - | ||||||||||||
Total comprehensive (loss)/income | $ | 164 | $ | 20 | $ | (1,489 | ) | $ | (122 | ) | ||||||
Income/(Loss) Per Share from operating income-Basic | $ | .08 | $ | .01 | $ | (.73 | ) | $ | (.06 | ) | ||||||
Income/Loss) Per Share from operating income-Diluted | $ | .08 | $ | .01 | $ | (.73 | ) | $ | (.06 | ) | ||||||
Net Income/(Loss) Per Share-Basic | $ | .09 | $ | .01 | $ | (.72 | ) | $ | (.05 | ) | ||||||
Net Income/(Loss) Per Share-Diluted | $ | .09 | $ | .01 | $ | (.72 | ) | $ | (.05 | ) | ||||||
Weighted average shares outstanding-Basic | 1,901,950 | 2,290,779 | 2,075,288 | 2,249,759 | ||||||||||||
Weighted average shares outstanding-Diluted | 1,901,950 | 2,451,791 | 2,075,288 | 2,249,759 |
SOLITRON DEVICES, INC. | ||||||||||||||||
STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021 | ||||||||||||||||
(Unaudited, in thousands except for share and per share amounts) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| For The Three Months ended |
|
| For The Three Months ended |
|
| For The Six Months ended |
|
| For The Six Months ended |
| ||||
|
| August 31, 2022 |
|
| August 31, 2021 |
|
| August 31, 2022 |
|
| August 31, 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 2,187 |
|
| $ | 4,230 |
|
| $ | 4,323 |
|
| $ | 7,840 |
|
Cost of sales |
|
| 1,486 |
|
|
| 2,010 |
|
|
| 2,805 |
|
|
| 3,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 701 |
|
|
| 2,220 |
|
|
| 1,518 |
|
|
| 3,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 499 |
|
|
| 659 |
|
|
| 1,075 |
|
|
| 1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 202 |
|
|
| 1,561 |
|
|
| 443 |
|
|
| 2,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| - |
|
Interest expense |
|
| (27 | ) |
|
| (26 | ) |
|
| (55 | ) |
|
| (46 | ) |
Dividend income |
|
| 2 |
|
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
Realized gain (loss) on investments |
|
| 24 |
|
|
| (1 | ) |
|
| 32 |
|
|
| 26 |
|
Unrealized gain (loss) on investments |
|
| 106 |
|
|
| 21 |
|
|
| 55 |
|
|
| 1 |
|
PPP loan forgiveness |
|
| - |
|
|
| 812 |
|
|
| - |
|
|
| 812 |
|
Scrap income |
|
| 6 |
|
|
| 82 |
|
|
| 604 |
|
|
| 172 |
|
Total other income |
|
| 113 |
|
|
| 889 |
|
|
| 643 |
|
|
| 966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 315 |
|
| $ | 2,450 |
|
| $ | 1,086 |
|
| $ | 3,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic and diluted |
| $ | 0.15 |
|
| $ | 1.18 |
|
| $ | 0.52 |
|
| $ | 1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted |
|
| 2,083,436 |
|
|
| 2,083,462 |
|
|
| 2,083,436 |
|
|
| 2,083,462 |
|
The accompanying notes are an integral part of the unaudited condensed financial statements.
SOLITRON DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 2016 AND NOVEMBER 30, 2015
(Unaudited)
2016 | 2015 | |||||||
(in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (1,490 | ) | $ | (122 | ) | ||
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 145 | 162 | ||||||
Decrease (increase) in operating assets: | ||||||||
Accounts receivable | (856 | ) | 516 | |||||
Inventories, net | (12 | ) | 404 | |||||
Prepaid expenses and other current assets | 20 | (10 | ) | |||||
Other assets | - | - | ||||||
Increase (decrease) in operating liabilities: | ||||||||
Accounts payable | 330 | (235 | ) | |||||
Customer deposits | (16 | ) | (5 | ) | ||||
Accrued expenses and other liabilities | (25 | ) | (228 | ) | ||||
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES | (1,904 | ) | 482 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Sales of Treasury Bills and Certificates of Deposit | 4,748 | 5,478 | ||||||
Purchases of Treasury Bills and Certificates of Deposit | - | (4,992 | ) | |||||
Purchases of property, plant and equipment | (211 | ) | (150 | ) | ||||
NET CASH PROVIDED BY INVESTING ACTIVITIES | 4,537 | 336 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Cash from exercise of employee stock options | - | 11 | ||||||
Repurchase of Common Stock and Options | (2,137 | ) | (279 | ) | ||||
Payment of Dividends | - | (575 | ) | |||||
NET CASH USED IN FINANCING ACTIVITIES | (2,137 | ) | (843 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 496 | (25 | ) | |||||
Cash and cash equivalents – beginning of the period | 634 | 820 | ||||||
Cash and cash equivalents - end of the period | $ | 1,130 | $ | 795 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for income taxes | $ | 0 | $ | 9 |
SOLITRON DEVICES, INC. | ||||||||||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021 | ||||||||||||||||||||||||||||
(Unaudited, in thousands, except for number of shares) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Common Stock |
|
| Additional |
|
| Treasury |
|
|
|
|
| |||||||||||||||
|
| Number |
|
| Treasury |
|
|
|
| Paid-in |
|
| Stock |
|
| Retained |
|
|
| |||||||||
|
| of Shares |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Amount |
|
| Earnings |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, February 28, 2021 |
|
| 2,571,263 |
|
|
| (487,801 | ) |
| $ | 21 |
|
| $ | 1,834 |
|
| $ | (1,412 | ) |
| $ | 6,490 |
|
| $ | 6,933 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,027 |
|
|
| 1,027 |
|
Balance, May 31, 2021 |
|
| 2,571,263 |
|
|
| (487,801 | ) |
|
| 21 |
|
|
| 1,834 |
|
|
| (1,412 | ) |
|
| 7,517 |
|
|
| 7,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,450 |
|
|
| 2,450 |
|
Balance, August 31, 2021 |
|
| 2,571,263 |
|
|
| (487,801 | ) |
| $ | 21 |
|
| $ | 1,834 |
|
| $ | (1,412 | ) |
| $ | 9,967 |
|
| $ | 10,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2022 |
|
| 2,571,263 |
|
|
| (487,827 | ) |
| $ | 21 |
|
| $ | 1,834 |
|
| $ | (1,412 | ) |
| $ | 9,998 |
|
| $ | 10,441 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 771 |
|
|
| 771 |
|
Balance, May 31, 2022 |
|
| 2,571,263 |
|
|
| (487,827 | ) |
|
| 21 |
|
|
| 1,834 |
|
|
| (1,412 | ) |
|
| 10,769 |
|
|
| 11,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 315 |
|
|
| 315 |
|
Balance, August 31, 2022 |
|
| 2,571,263 |
|
|
| (487,827 | ) |
| $ | 21 |
|
| $ | 1,834 |
|
| $ | (1,412 | ) |
| $ | 11,084 |
|
| $ | 11,527 |
|
The accompanying notes are an integral part of the unaudited condensed financial statements.statements
Table of Contents |
SOLITRON DEVICES, INC. | ||||||||
STATEMENTS OF CASH FLOWS | ||||||||
FOR THE SIX MONTHS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021 | ||||||||
(unaudited, in thousands) | ||||||||
|
| For The Six Months ended |
|
| For The Six Months ended |
| ||
|
| August 31, 2022 |
|
| August 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Net income |
| $ | 1,086 |
|
| $ | 3,477 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 138 |
|
|
| 124 |
|
Operating lease expense |
|
| - |
|
|
| 202 |
|
Net realized and unrealized (gains) on investments |
|
| (87 | ) |
|
| (27 | ) |
PPP loan forgiveness |
|
| - |
|
|
| (812 | ) |
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 255 |
|
|
| (779 | ) |
Inventories |
|
| 16 |
|
|
| 216 |
|
Prepaid expenses and other current assets |
|
| (255 | ) |
|
| 33 |
|
Other assets |
|
| (10 | ) |
|
| (48 | ) |
Payments on operating lease liabilities |
|
| - |
|
|
| (224 | ) |
Payments on capital lease liabilities |
|
| (4 | ) |
|
| (5 | ) |
Accounts payable |
|
| 55 |
|
|
| 158 |
|
Customer deposits |
|
| 40 |
|
|
| (25 | ) |
Accrued expenses, other current and non-current liabilities |
|
| (46 | ) |
|
| 300 |
|
Net cash provided by operating activities |
|
| 1,188 |
|
|
| 2,590 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Proceeds from sale of marketable securities |
|
| 803 |
|
|
| 117 |
|
Purchases of marketable securities |
|
| (1,111 | ) |
|
| (171 | ) |
Purchases of short-term investments |
|
| (2,495 | ) |
|
| - |
|
Expenditures on construction in progress |
|
| (1,476 | ) |
|
| - |
|
Purchases of property, plant and equipment |
|
| (140 | ) |
|
| (4,746 | ) |
Net cash used in investing activities |
|
| (4,419 | ) |
|
| (4,800 | ) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from mortgage loan |
|
| - |
|
|
| 2,940 |
|
Principal payments on mortgage loan |
|
| (51 | ) |
|
| (33 | ) |
Net cash provided by (used in) financing activities |
|
| (51 | ) |
|
| 2,907 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| (3,282 | ) |
|
| 697 |
|
Cash and cash equivalents - beginning of the year |
|
| 4,088 |
|
|
| 3,785 |
|
Cash and cash equivalents - end of period |
| $ | 806 |
|
| $ | 4,482 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow data |
|
|
|
|
|
|
|
|
Income taxes paid |
| $ | - |
|
| $ | - |
|
Interest expense paid |
| $ | 55 |
|
| $ | 38 |
|
The accompanying notes are an integral part of the unaudited financial statements
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND OPERATIONS
Nature of Operations and Activities
Solitron Devices, Inc., a Delaware corporation (the “Company”(“Solitron,” the “Company,” “we,” “us,” or “Solitron”“our”), designs, develops, manufactures, and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company was incorporated under the laws of the State of New York in 1959 and reincorporated under the laws of the State of Delaware in August 1987.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
The unaudited condensed financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. The results of operations for the ninethree and six months ended November 30, 2016August 31, 2022 are not necessarily indicative of the results to be expected for the year endingended February 28, 2017.2023.
The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended February 29, 2016.28, 2022.
Use of estimates
The financial statements are prepared in accordance with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company could have reasonably used different accounting estimates. This applies in particular to inventory and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The ultimate impact from COVID-19 on the Company’s operations and financial results during fiscal 2023 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, and the speed with which the economy recovers. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during fiscal 2023 and beyond. The Company believes COVID-19 had a negative impact on the Company’s bookings in fiscal 2022, which will negatively impact fiscal 2023 net sales.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money market accounts.
Short-term Investments
Short-term investments consist of certificates of deposit and U.S. Treasury securities. The U.S. Treasury securities are classified as held to maturity, mature in less than twelvemonths, and are reported at amortized cost which approximates fair value of $2,495,000 as of August 31, 2022.
Investment in Treasury Bills and Certificates of DepositMarketable Securities
Investment in treasury billsMarketable Securities includes investments in common stocks and certificates of deposit include treasury bills with maturities of one year or less, and is stated at market value.
All of the Company’s investments are classified as available-for-sale. As they are available for current operations, they are classified as current on the balance sheets.bonds. Investments in available-for-sale securities are reported at fair value with changes in unrecognized gains or losses netincluded in other income on the income statement.
7 |
Table of Contents |
The following table summarizes investments in marketable securities at:
August 31, 2022 |
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
Marketable Securities: |
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
| ||||
Common Stocks |
| $ | 1,007,000 |
|
| $ | 123,000 |
|
| $ | (51,000 | ) |
| $ | 1,079,000 |
|
February 28, 2022 |
|
|
|
| Gross |
|
| Gross |
|
|
|
| ||||
Marketable Securities: |
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
| ||||
Common Stocks |
| $ | 668,000 |
|
| $ | 42,000 |
|
| $ | (26,000 | ) |
| $ | 684,000 |
|
At August 31, 2022 and August 31, 2021, the deferred tax as a component of accumulated other comprehensive incomeliability related to unrecognized gains and is included as a separate component of stockholders’ equity. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when the declines are determined to be other-than-temporary.losses on marketable securities was $0.
As of November 30, 2016, the Company’s available for sale non-equity investments were comprised of certificates of deposits.
As of November 30, 2016, contractual maturities of the Company’s available-for-sale non-equity investments were as follows:
Face Value | Fair Value | |||||||
(In thousands) | (In thousands) | |||||||
Maturing within one year | $ | 1,992 | $ | 1,993 |
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or liability) used to measure fair value. This hierarchy prioritizes the inputs into the following three levels:
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
SOLITRON DEVICES, INC.Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
NOTES TO CONDENSED FINANCIAL STATEMENTSLevel 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
August 31, 2022 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Common Stocks |
| $ | 1,079,000 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,079,000 |
|
Limited Partnerships |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Total |
| $ | 1,079,000 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,079,000 |
|
The Company’s brokered Treasury bills and certificates of deposits are subject to level 1 fair value measurement.
February 28, 2022 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Common Stocks |
| $ | 603,000 |
|
| $ | 69,000 |
|
| $ | - |
|
| $ | 672,000 |
|
Limited Partnerships |
| $ | 12,000 |
|
| $ | - |
|
| $ | - |
|
| $ | 12,000 |
|
Total |
| $ | 615,000 |
|
| $ | 69,000 |
|
| $ | - |
|
| $ | 684,000 |
|
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued expenses and other liabilities approximate their fair value due to the relatively short period to maturity for these instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.
Accounts Receivable
Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business. The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account. The allowance amount was $2,000$0 as of November 30, 2016August 31, 2022 and February 29, 2016.28, 2022.
Shipping and Handling
Shipping and handling costs billed to customers are recorded in net sales. Shipping costs incurred by the Company are recorded in cost of sales.
Inventories
Inventories are stated at the lower of cost or market.and net realizable value. Cost is determined using the “first-in, first-out” (FIFO) method. The Company buys raw material only to fill customer orders. Excess raw material is created only when a vendor imposes a minimum quantity buy in excess of actual requirements. Such excess material will usually be utilized to meet the requirements of the customer’s subsequent orders. If excess material is not utilized after two fiscal years it is fully reserved. Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities. Through February 28, 2022, the Company maintained a three-inch wafer fab which procured raw wafers and produced finished wafers based on management’s estimates of projected future demand. Finished wafers are considered work-in-process since they are usable for many years, and in some circumstances can be used on more than one finished product depending on customer parameters.
8 |
Table of Contents |
The Company does not classify a portion of inventories as non-current since we cannot reasonably estimate based on the length of our operating cycle which items will or will not be used within twelve months.
The Company’s inventory valuation policy is as follows:
Raw material /Work in process: | All material |
Finished goods: | All finished goods with firm orders for later delivery are valued (material and overhead) at the lower of cost or |
Direct labor costs: | Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the |
Revenue RecognitionProperty, Plant, Equipment, and Leasehold Improvements
Revenue
Property, plant, and equipment is recognizedrecorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not extend their expected life are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the lives of the related assets:
Building | 39 years | |
Leasehold | Improvements 10 years | |
Machinery | and Equipment 5 years |
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and account receivables. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on the accounts. As of August 31, 2022, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $462,000 at August 31, 2022, as compared to $3,448,000 at February 28, 2022. With respect to the account receivables, most of the Company’s products are custom made pursuant to contracts with customers whose end-products are sold to the United States Government. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains allowances for potential credit losses. Actual losses and allowances have historically been within management’s expectations.
Net Income (Loss) Per Common Share
Net income (loss) per common share is presented in accordance with SEC Staff Accounting Bulletin No. 104,Revenue Recognition. This pronouncement requires that four basic criteria be met before revenue can be recognized: 1)ASC Topic 260-10 “Earnings per Share.” Basic earnings per common share are 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. The Company had no common stock equivalents outstanding during fiscal 2022 and 2023; therefore, there is evidenceno effect from dilution on earnings per share.
9 |
Table of Contents |
Revenue Recognition
The Company records revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,”which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers.
The core principle of the guidance in ASC Topic 606 is that an arrangement exists; 2)entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, the Company applied the following steps:
1. Identify the contract(s) with a customer.
The Company designs, develops, manufactures and markets solid-state semiconductor components and related devices. The Company’s products are used as components primarily in the military and aerospace markets.
The Company’s revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
2. Identify the performance obligations in the contract.
The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.
3. Determine the transaction price.
The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the Company satisfies a performance obligation.
This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company’s accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred; 3)occurred, which is generally upon shipment.
In addition, the feeCompany may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, performance obligations are determined, and we recognize revenue at the point in time in which each performance obligation is fixed or determinable; and 4) collectability is reasonably assured. fully satisfied.
We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. We have contractual arrangements whereby we provide distributors with protection against price reductions initiated by us after product is sold by us to the distributor and prior to resale by the distributor. In addition, we have a termination clause in one of our distributor agreements that would allow for a full credit for all inventory upon determination60 days’ notice of terminating the agreement.
10 |
Table of Contents |
We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that all criteria for revenue recognition have been met. The criteria are usually metwill be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our customers during the period, inventory levels at the timedistributors, current and projected market conditions, and historical experience under the programs. Our estimates require the exercise of product shipment. Shipping terms are generally FCA (Free Carrier) shipping point.significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTSRelated Party Transactions
The Company currently purchases and has purchased in the past die and wafers, as specified by the Company's customers, from ES Components. Dwight Aubrey, a director of the Company, is a minority owner and an immediate family member of the majority owner of ES Components. For the six months ended August 31, 2022, the Company purchased $89,860 of die and $0 of used equipment from ES Components. For the six months ended August 31, 2021, the Company purchased $65,400 of die and $0 of used equipment from ES Components. The Company has included the expenses related to die in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the six months ended August 31, 2022 and August 31, 2021, sales were $0.
Stock based compensation
The Company records stock-based compensation in accordance with the provisions of ASC Topic 718, "Compensation-Stock Compensation," which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC Topic 718, the Company recognizes an expense for the fair value of outstanding stock options and grants as they vest, whether held by employees or others. No vesting of stock options or grants occurred during the three and six months ended August 31, 2022 or August 31, 2021.
Financial Statement Estimates
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and the differences could be material. Such estimates include variable consideration related to revenue recognition, stock-based compensation, depreciable life of property and equipment, accounts receivable allowance, deferred tax valuation allowance, and allowance for inventory obsolescence.
Recent Accounting Pronouncements
No recent accounting pronouncements affecting the Company were issued by the Financial Accounting Standards Board or other standards-setting bodies.
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 manufacturing 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. In addition, the Company, 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 shares used inCompany does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the computation of the Company’s basic and diluted earnings per common share were as follows:accompanying financial statements.
For the three months ended November 30, | For the nine months ended November 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Weighted average common shares outstanding | 1,901,950 | 2,290,779 | 2,075,288 | 2,249,759 | ||||||||||||
Dilutive effect of employee stock options | 0 | 161,012 | 0 | 0 | ||||||||||||
Weighted average common shares outstanding, assuming dilution | 1,901,950 | 2,451,791 | 2,075,288 | 2,249,759 |
3. REVENUE RECOGNITION
Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued upon the assumed exercise of stock options.
As of November 30, 2016,August 31, 2022, and August 31, 2021, sales returns and allowances accrual activity is shown below:
|
| August 31, 2022 |
|
| August 31, 2021 |
| ||
Beginning Balance |
| $ | 471,000 |
|
| $ | 354,000 |
|
Accrued Allowances |
|
| - |
|
|
| 92,000 |
|
Credits Issued |
|
| - |
|
|
| - |
|
Ending Balance |
| $ | 471,000 |
|
| $ | 446,000 |
|
As noted in Note 2 above, one of our distributor agreements has a termination clause that would allow for a full credit for all inventory upon 60 days’ notice of terminating the agreement. As of August 31, 2022, and February 28, 2022, the inventory balance at that distributor was believed to be $1,997,000 and $2,178,000, respectively. Based upon sales levels to and by the distributor during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs, we believe it is highly unlikely that the distributor would exercise termination. Should termination occur, we believe the products could be sold to other distributors or held in inventory for future sale.
The Company warrants that its products, when delivered, will be free from defects in material workmanship under normal use and service. The obligations are limited to replacing, repairing, or reimbursing for, at the option of the Company, any products that are returned within one year after the date of shipment. The Company does not reserve for potential warranty costs based on historical experience and the nature of its cost tracking system.
11 |
Table of Contents |
4. INVENTORIES
As of August 31, 2022, inventories consisted of the following:
Gross | Reserve | Net | ||||||||||
Raw Materials | $ | 2,051,000 | $ | (687,000 | ) | $ | 1,364,000 | |||||
Work-In-Process | 3,945,000 | (1,742,000 | ) | 2,203,000 | ||||||||
Finished Goods | 939,000 | (823,000 | ) | 116,000 | ||||||||
Totals | $ | 6,935,000 | $ | (3,252,000 | ) | $ | 3,683,000 |
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
| Gross |
|
| Reserve |
|
| Net |
| |||
Raw Materials |
| $ | 1,320,000 |
|
| $ | (485,000 | ) |
| $ | 835,000 |
|
Work-In-Process |
|
| 4,901,000 |
|
|
| (3,613,000 | ) |
|
| 1,288,000 |
|
Finished Goods |
|
| 593,000 |
|
|
| (472,000 | ) |
|
| 121,000 |
|
Totals |
| $ | 6,814,000 |
|
| $ | (4,570,000 | ) |
| $ | 2,244,000 |
|
As of February 29, 2016,28, 2022, inventories consisted of the following:
Gross | Reserve | Net | ||||||||||
Raw Materials | $ | 1,854,000 | $ | (489,000 | ) | $ | 1,365,000 | |||||
Work-In-Process | 3,915,000 | (1,775,000 | ) | 2,140,000 | ||||||||
Finished Goods | 980,000 | (814,500 | ) | 165,500 | ||||||||
Totals | $ | 6,749,000 | $ | (3,078,500 | ) | $ | 3,670,500 |
|
| Gross |
|
| Reserve |
|
| Net |
| |||
Raw Materials |
| $ | 1,504,000 |
|
| $ | (813,000 | ) |
| $ | 691,000 |
|
Work-In-Process |
|
| 5,410,000 |
|
|
| (3,906,000 | ) |
|
| 1,504,000 |
|
Finished Goods |
|
| 723,000 |
|
|
| (658,000 | ) |
|
| 65,000 |
|
Totals |
| $ | 7,637,000 |
|
| $ | (5,377,000 | ) |
| $ | 2,260,000 |
|
At November 30, 2016, the Company has net operating loss carryforwards of approximately $10,016,000Wafer bank inventory (completed wafers that expire through February 2028. Such net operating losses are available to offset future taxable income, if any.be consumed in the Company’s products), net of reserves, totaled $823,000 as of August 31, 2022 and $965,000 as of February 28, 2022. As of August 31, 2022, 100% of the utilizationwafer bank inventory consisted of such net operating losses for tax purposeswafers manufactured between calendar year 2018 and 2022. We do not expect all of our wafer inventory to be consumed within twelve months; however, since it is not assured,possible to know which wafers will or will not be used, we classify all our inventory as current. We did not relocate 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 carryforwards.wafer fab to our new facility.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Net operating losses after 1996 are subject to a twenty-year loss carryforward. Of the Company’s $10,016,000 of net operating loss carryforwards as of November 30, 2016, approximately $1,254,000 expire in 2021, $1,248,000 expire in 2022, and $7,514,000 expire in 2028.
As of November 30, 2016August 31, 2022, and February 29, 2016,28, 2022, accrued expenses and other current liabilities consisted of the following:
November 30, 2016 | February 29, 2016 | |||||||
Payroll and related employee benefits | $ | 372,000 | $ | 447,000 | ||||
Property taxes | 43,000 | 10,000 | ||||||
Other liabilities | 57,000 | 40,000 | ||||||
Totals | $ | 472,000 | $ | 497,000 |
|
| August 31, 2022 |
|
| February 28, 2022 |
| ||
Payroll and related employee benefits |
| $ | 294,000 |
|
| $ | 375,000 |
|
Legal fees |
|
| 3,000 |
|
|
| 8,000 |
|
Property, sales, and franchise taxes |
|
| 74,000 |
|
|
| 18,000 |
|
Return allowance |
|
| 471,000 |
|
|
| 471,000 |
|
Other liabilities |
|
| - |
|
|
| 16,000 |
|
Totals |
| $ | 842,000 |
|
| $ | 888,000 |
|
Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2016 are as follows:6. DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS
Power | Field Effect | Power | ||||||||||||||||||
Geographic Region | Transistors | Hybrids | Transistors | MOSFETS | Totals | |||||||||||||||
Europe and Australia | $ | 2,000 | $ | 0 | $ | 3,000 | $ | 24,000 | $ | 29,000 | ||||||||||
Canada and Latin America | 4,000 | 0 | 0 | 0 | 4,000 | |||||||||||||||
Far East and Middle East | 0 | 0 | 11,000 | 0 | 11,000 | |||||||||||||||
United States | 350,000 | 1,358,000 | 82,000 | 311,000 | 2,101,000 | |||||||||||||||
Totals | $ | 356,000 | $ | 1,358,000 | $ | 96,000 | $ | 335,000 | $ | 2,145,000 |
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2015 are as follows:
Power | Field Effect | Power | ||||||||||||||||||
Geographic Region | Transistors | Hybrids | Transistors | MOSFETS | Totals | |||||||||||||||
Europe and Australia | $ | 0 | $ | 0 | $ | 3,000 | $ | 0 | $ | 3,000 | ||||||||||
Canada and Latin America | 9,000 | 0 | 1,000 | 40,000 | 50,000 | |||||||||||||||
Far East and Middle East | 15,000 | 5,000 | 7,000 | 99,000 | 126,000 | |||||||||||||||
United States | 259,000 | 698,000 | 138,000 | 645,000 | 1,740,000 | |||||||||||||||
Totals | $ | 283,000 | $ | 703,000 | $ | 149,000 | $ | 784,000 | $ | 1,919,000 |
Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2016 are as follows:
Power | Field Effect | Power | ||||||||||||||||||
Geographic Region | Transistors | Hybrids | Transistors | MOSFETS | Totals | |||||||||||||||
Europe and Australia | $ | 13,000 | $ | 0 | $ | 8,000 | $ | 24,000 | $ | 45,000 | ||||||||||
Canada and Latin America | 13,000 | 0 | 0 | 0 | 13,000 | |||||||||||||||
Far East and Middle East | 83,000 | 0 | 16,000 | 83,000 | 182,000 | |||||||||||||||
United States | 799,000 | 3,941,000 | 251,000 | 602,000 | 5,593,000 | |||||||||||||||
Totals | $ | 908,000 | 3,941,000 | $ | 275,000 | $ | 709,000 | $ | 5,833,000 |
Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2015 are as follows:
Power | Field Effect | Power | ||||||||||||||||||
Geographic Region | Transistors | Hybrids | Transistors | MOSFETS | Totals | |||||||||||||||
Europe and Australia | $ | 0 | $ | 0 | $ | 12,000 | $ | 0 | $ | 12,000 | ||||||||||
Canada and Latin America | 18,000 | 0 | 25,000 | 40,000 | 83,000 | |||||||||||||||
Far East and Middle East | 19,000 | 5,000 | 36,000 | 245,000 | 305,000 | |||||||||||||||
United States | 965,000 | 3,023,000 | 422,000 | 1,704,000 | 6,114,000 | |||||||||||||||
Totals | $ | 1,002,000 | $ | 3,028,000 | $ | 495,000 | $ | 1,989,000 | $ | 6,514,000 |
Revenues from domestic and export sales are attributed to a global geographic region according to the location of the customer’s primary manufacturing or operating facilities. Revenues from domestic and export sales to unaffiliated customers for the three months ended August 31, 2022 and August 31, 2021, respectively, are as follows:
Geographic Region |
| August 31, 2022 |
|
| August 31, 2021 |
| ||
Europe and Australia |
| $ | 224,000 |
|
| $ | - |
|
Canada and Latin America |
|
| 2,000 |
|
|
| 5,000 |
|
Far East and Middle East |
|
| - |
|
|
| - |
|
United States |
|
| 1,961,000 |
|
|
| 4,225,000 |
|
Totals |
| $ | 2,187,000 |
|
| $ | 4,230,000 |
|
Revenues from domestic and export sales to unaffiliated customers for the six months ended August 31, 2022 and August 31, 2021, respectively are as follows:
Geographic Region |
| August 31, 2022 |
|
| August 31, 2021 |
| ||
Europe and Australia |
| $ | 459,000 |
|
| $ | - |
|
Canada and Latin America |
|
| 19,000 |
|
|
| 20,000 |
|
Far East and Middle East |
|
| - |
|
|
| - |
|
United States |
|
| 3,845,000 |
|
|
| 7,820,000 |
|
Totals |
| $ | 4,323,000 |
|
| $ | 7,840,000 |
|
12 |
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For the three months ended August 31, 2022 and August 31, 2021, approximately 81% and 89%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the United States government. The remaining 19% and 11%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.
For the quartersix months ended November 30, 2016,August 31, 2022 and August 31, 2021, approximately 80% and 87%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the Company’s top two customers consistedUnited States government. The remaining 20% and 13%, respectively of the following:sales are for nonmilitary, scientific and industrial applications, or to distributors where we do not have end user information.
Customers who contributed ten percent or more of revenues for the three months ended August 31, 2022 and August 31, 2021, respectively are as follows:
Customer |
| August 31, 2022 |
|
| Customer |
| August 31, 2021 |
| ||
1. Raytheon |
|
| 34 | % |
| 1. Raytheon |
|
| 50 | % |
2. Nasco Aerospace |
|
| 12 | % |
| 2. L3Harris |
|
| 24 | % |
3. Intracom Defense Electronics |
|
| 10 | % |
|
|
|
|
|
|
4. L3Harris |
|
| 10 | % |
|
|
|
|
|
|
Totals |
|
| 66 | % |
| Totals |
|
| 74 | % |
ForCustomers who contributed ten percent or more of revenues for the quartersix months ended November 30, 2015, sales to the Company’s top two customers consisted of the following:August 31, 2022 and August 31, 2021, respectively are as follows:
Customer |
| August 31, 2022 |
|
| Customer |
| August 31, 2021 |
| ||
1. Raytheon |
|
| 41 | % |
| 1. Raytheon |
|
| 51 | % |
2. Intracom Defense Electronics |
|
| 11 | % |
| 2. L3Harris |
|
| 15 | % |
|
|
|
|
|
| 3. Avnet / USI Electronics |
|
| 12 | % |
Totals |
|
| 52 | % |
| Totals |
|
| 78 | % |
As of August 31, 2022, and February 28, 2022, our top four customers accounted for 67% and 77% of accounts receivable, respectively.
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS7. MAJOR SUPPLIERS
For the ninethree months ended November 30, 2016, sales to the Company’s top two customers consistedAugust 31, 2022, ES Components accounted for 19% of the following:purchases of production materials, Platronics Seals accounted for 18% of purchases of production materials, Stellar Industries accounted for 14% of purchases of production materials, and Wuxi Streamtek accounted for 13% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials.
For the ninethree months ended November 30, 2015, sales to the Company’s top two customers consistedAugust 31, 2021, Wuxi Streamtek accounted for 26% of the following:production materials, Platronics Seals accounted for 16% of purchases of production materials and Egide USA accounted for 10% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials.
For the quartersix months ended November 30, 2016,August 31, 2022, Stellar Industries accounted for 16% of purchases from the Company’s top two vendors consisted of the following:production materials, Wuxi Streamtek accounted for 15% of purchases of production materials, Platronics Seals accounted for 14% of purchases of production materials, and ES Components accounted for 13% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials.
For the quartersix months ended November 30, 2015,August 31, 2021, Wuxi Streamtek accounted for 18% of purchases from the Company’s top two vendors consisted of the following:production materials and Platronics Seals accounted for 17% of purchases of production materials. Stellar Industries accounted for 14% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials.
For8. COMMITMENTS AND CONTINGENCIES
Finance lease:
During fiscal 2021 the nine monthsCompany entered into a 36-month finance lease for $27,000 of computer equipment. The Company does not consider the lease to be material to the Company’s financial statements. As of August 31, 2022, and February 28, 2022, the carrying value of the asset was $8,000 and $12,000, respectively, and was included in Property, plant and equipment on the balance sheet.
Operating lease:
On October 1, 2014, the Company extended its current lease with its landlord, CF EB REO II LLC, for the occupancy and use of its 47,000 square foot facility located at 3301 Electronics Way, West Palm Beach, Florida 33407 (the “Lease”). The property subsequently was sold to La Boheme Properties, Inc., a Florida corporation, which is the current landlord as the Lease was assigned to them. The term of the Lease ended November 30, 2016, purchaseson December 31, 2021. The base rent provided in the Lease is $31,555 per month, excluding sales tax. The Company had the option to extend the term of the Lease for an additional five years beginning on January 1, 2022 and ending on December 31, 2026. The Company did not exercise its option. The Company entered into a month-to-month rental agreement for a substantially smaller portion of the facility that ended in September 2022.
Contingencies:
We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of August 31, 2022, we had no known material current, pending, or threatened litigation.
9. NOTES PAYABLE
On July 21, 2020, the Company received loan proceeds of $807,415 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company was made through Bank of America, N.A., a national banking association. The PPP Loan was scheduled to mature on July 21, 2025 and bore interest at a rate of 1% per annum. Payments of principal and interest on the PPP Loan were initially deferred until January 1, 2021 and based on applying for forgiveness the deferral was extended through October 31, 2021. The PPP Loan could have been prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the Company’s top two vendors consistedPPP Loan may only be used for payroll costs, costs to continue group health care benefits, mortgage payments, rent, utilities, and interest payments on certain other debt obligations. The Company used the entire PPP Loan amount for qualifying expenses. Under the terms of the following:PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. On June 12, 2021 the SBA notified Bank of America that the Company’s application for complete forgiveness of its PPP loan was approved.
On April 16, 2021, the Company closed on the acquisition of a facility and real estate located in West Palm Beach, Florida for a purchase price of $4,200,000 pursuant to the Commercial Contract entered into on March 1, 2021. In connection with the acquisition, the Company obtained mortgage financing from Bank of America, N.A. (the “Bank”) in the amount of $2,940,000 (the “Loan”) to fund that portion of the total purchase price, and entered into the Master Credit Agreement, a Note, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing and Financial Covenant Agreement (the “FCA”). The Loan accrues interest at a fixed rate of 3.8% per year and matures on April 15, 2031. Beginning on May 15, 2021 the Company began making monthly installment payments of $17,593 consisting of principal and interest. The payment and performance of the Loan is secured by a security interest in the property acquired. The Master Credit Agreement contains certain representations and warranties, undertakings and events of default customary for these types of agreements. Additionally, under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 of unrestricted, unencumbered liquid assets.
ForOn June 29, 2022 the nine months ended November 30, 2015, purchasesCompany received notification from the Company’s top two vendors consistedBank that the Bank had elected to suspend certain financial and reporting requirements set forth in the FCA. Specifically, the Bank elected on a going forward basis to suspend measurement of any of the following:following financial covenants to the extent they are included in Section 2.1, ‘Financial Covenants’ of the FCA: Tangible Net Worth; Debt Service Coverage Ratio; Fixed Charge Coverage Ratio; Asset Coverage Ratio; Funded Debt to EBITDA; and/or Liquidity. In addition, the Bank elected to suspend the requirements in the FCA, if any, for the submission of financial statements and information by the Borrower on a periodic basis as specified in Section 2.4, ‘Financial Information’ of the FCA. The Bank reserves the right in its sole discretion to require the Company to resume delivery of financial statements and other information and to evidence compliance with the financial covenant requirements as currently provided in the FCA.
10. STOCKHOLDERS’ EQUITY
Repurchase Program
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Future minimum lease payments for the Company’s manufacturing facility are as follows:
Fiscal Year Ending February 28/29 | Amount | |||
2017 | $ | 107,000 | ||
2018 | 440,000 | |||
2019 | 454,000 | |||
2020 | 467,000 | |||
2021 | 481,000 | |||
Thereafter | 411,000 | |||
$ | 2,360,000 |
The Board of Directors of the Company did not declare a cash dividend during the three and nine months ended November 30, 2016. In July 2015, the Company paid a dividend of $0.25 per share to all stockholders of record at the close of business on June 29, 2015. The aggregate dividend payment was approximately $575,000.
On May 29, 2015, the Board of Directors of the Companyhas authorized a stock repurchase program under which the Company may repurchase up to $500,000 of the Company’s common stock through February 29, 2016. On July 28, 2015, the Company announced that the Board of Directors had expanded the stock repurchase program to cover repurchases of up to $1,000,000$1.0 million of its outstanding common stock from time to time through February 29, 2016. On November 20, 2015,stock. Purchases under the Company purchased for $279,616 a total of 65,027 shares of the Company’s common stock pursuant to the repurchase program. On January 15, 2016, the Board of Directors of the Company amended the repurchase program under which the Company may repurchase up to $1,000,000 of its outstanding common stock without an expiration date to the repurchase program. Under the repurchase program, repurchases may be made by the Company from time to time onthrough the open market or in privately negotiated transactions dependingas determined by the Company’s management, and in accordance with the requirements of the Securities and Exchange Commission. The timing and actual number of shares repurchased will depend on market conditions, stockvariety of factors including price, corporate and regulatory requirements and other factors. conditions.
The Company did not repurchase any outstanding common stockshares under the stock repurchase program induring the three and ninesix months ended November 30, 2016. See Note 12 for shares and options repurchased from the former Chief Executive Officer that were not pursuant to the stock repurchase program.
On July 22, 2016, Shevach Saraf retired as Chairman, Chief Executive Officer, President, Chief Financial Officer, Treasurer and a member of the Board of Directors of the Company. The Separation Payment and Additional Consideration (as defined below) pursuant to the Separation Agreement entitled to Mr. Saraf included the following payments and benefits related to the repurchase of shares.August 31, 2022 or August 31, 2021.
Item 2. Management’s Discussion and Analysis of FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (“MOS”) power transistors, power and control hybrids, junction and power 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 unaudited condensed financial statements should be read in conjunction with the Financial Statements and the related Notes to 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-K for the year ended February 29, 201628, 2022 and the Unaudited Condensed Financial Statements and the related Notes to Unaudited Condensed Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
SignificantCritical Accounting Policies:Estimates:
The discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q which are prepared in accordance with accounting principles generally accepted in the United States.GAAP. 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 criticalSee Note 2 in the financial statements for the Company’s significant accounting policies. Of the Company’s accounting policies, include cashthe following are considered to be critical – Revenue Recognition and cash equivalents, investment in Treasury bills and Certificates of Deposit, revenue recognition, earnings per common share, shipping and handling, and inventories.Inventories. A discussion of these critical accounting policies are included in Note 12 of the “Notes To Financial Statements” in Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 29, 2016.28, 2022.
Trends and Uncertainties:
DuringSee Note2, “Summary of Significant Accounting Policies”, to the three months ended November 30, 2016, the Company’s book-to-bill ratio was approximately 1.08 as comparedaccompanying Notes to approximately 0.34 for the three months ended November 30, 2015, reflecting an increaseFinancial Statements included in the volume of orders booked. In recent years, the Company has experienced seasonality in its bookings, with the fiscal fourth quarter experiencing the highest level of bookings. The Company expects bookings in the fourth quarter of fiscal 2017 to exceed bookings in the fourth quarter of fiscal 2016, which were $4.4 million.this Quarterly Report on Form 10-Q.
During the quarter, the Company was advised by one of its key customers that it was in the process of seeking out additional or alternative sources for some of the Company’s products with that customer. The Company is addressing the concerns of the customer, and subsequent to quarter end received a purchase order for the impacted products for fiscal year 2018, but it is uncertain if the Company will be successful in addressing the customer’s concerns over the long term.
Since the management change on July 22, 2016, the Company has been seeking out additional revenue sources, which may involve new products and/or products the Company has not manufactured in recent years. During the quarter, the Company received purchase orders in excess of $1.7 million from a new customer for products the company has not manufactured in recent years. The Company may incur difficulty manufacturing those products, which could result in decreased margins. Most of the products require testing over an extended duration which could result in a temporary increase in work in process and finished goods inventory until the testing is completed prior to shipment. The Company is restructuring operations to support processes for these and other potential new products.
Results of Operations-Three Months Ended November 30, 2016August 31, 2022 Compared to Three Months Ended November 30, 2015August 31, 2021:
Net Sales.Net sales for the three months ended November 30, 2016 increased 12%August 31, 2022 decreased 48% to $2,145,000$2,187,000 as compared to $1,919,000$4,230,000 for the three months ended November 30, 2015. This increaseAugust 31, 2021. The decrease in net sales was primarily attributablelargely due to an increasethe decision to accelerate production and shipments in the valuefirst half of orders that were shipped in accordance with customer requirements.fiscal 2022 due to the planned facility relocation.
Net bookings for the three months ended August 31, 2022 increased 49% to $1,607,000 versus $1,076,000 during the three months ended August 31, 2021. Backlog as of August 31, 2022 increased 10% to $4,755,000 as compared to a backlog of $4,325,000 as of August 31, 2021.
Cost of Sales.Cost of sales for the three months ended November 30, 2016 increasedAugust 31, 2022 decreased to $1,671,000$1,486,000 from $1,549,000$2,010,000 for the three months ended November 30, 2015,August 31, 2021, due to higherdecreased raw materials and labor costs associated with increaseddecreased net sales, and an increase in inventory reserves, partially offset by lower labor costs.decreased rent expense. Expressed as a percentage of net sales, cost of sales decreasedincreased to 78%68% for the three months ended November 30, 2016August 31, 2022 from 81%48% for the three months ended November 30, 2015.August 31, 2021.
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Gross Profit. Gross profit for the three months ended November 30, 2016 increasedAugust 31, 2022 decreased to $474,000$701,000 from $370,000$2,220,000 for the three months ended November 30, 2015,August 31, 2021, due primarily to higherlower net sales. Accordingly, gross margins on the Company’sexpressed as a percentage of net sales increaseddecreased to 22%32% for the three months ended November 30, 2016 in comparisonAugust 31, 2022 as compared to 19%52% for the three months ended November 30, 2015.August 31, 2021.
For the three months ended November 30, 2016, the CompanyAugust 31, 2022, we shipped 15,37517,385 units as compared to 23,82327,094 units shipped during the same period of the prior year. It should be noted that since the Company manufactureswe manufacture a wide variety of products with an average sales price ranging from less than one dollara few dollars to several hundred dollars, such periodic variations in the Company’sour volume of units shipped should not be regarded as a reliable indicator of the Company’sour performance.
For the three months ended November 30, 2016, the Company’s backlog of open orders increased 40% to $4,650,000 as compared to the backlog of $3,324,000 as of November 30, 2015. Changes in backlog reflect changes in the intake of orders and in the delivery requirements of customers.
The Company experienced an increase of 255% to $2,310,000 in the level of bookings during the three months ended November 30, 2016 as compared to $651,000 for the same period in the prior year. The increase in bookings for the three months ended November 30, 2016 is principally a result of an increase in the placement of orders by key customers, resulting in an increase in the monetary value of, and timing differences in, the placement of contracts by the Department of Defense and its prime contractors.
Selling, General & Administrative Expenses.Selling, general, and administrative expenses decreased to $323,000$499,000 for the three months ended November 30, 2016August 31, 2022 from $351,000$659,000 for the same period in the prior year. The decrease reflectswas due to a credit related to the reversaldecrease in bonus accrual of an over accrual from the prior quarter for $80,000$100,000, a decrease in professional fees of $32,000 and a decrease in legal fees of $76,000 in the prior year, partially offset by an increase in selling wages, commissions, and travel expenses of $58,000 related to the Director of Sales position being vacant in the prior year period, and $39,000 in annual meeting expenses that were expensed in the November quarter versus the August quarter in the prior year due to the annual meeting occurring later in the calendar year.$30,000. During the three months ended November 30, 2016,August 31, 2022, selling, general and administrative expenses as a percentage of net sales decreasedincreased to 15%23% as compared to 18%16% for the three months ended November 30, 2015.August 31, 2021.
Operating Income. Operating income for the three months ended November 30, 2016 increased 695%August 31, 2022 decreased to $151,000$202,000 as compared to operating income of $19,000$1,561,000 for the three months ended November 30, 2015.August 31, 2021. This increasedecrease is due primarily to higherdecreased net sales as described above.
Other Income.Interest income increased to $2,000 for the three months ended November 30, 2016 increased to $9,000 as compared to $6,000 for the three months ended November 30, 2015. The interest income is primarily driven by the rate of return on funds invested in certificates of deposit and treasury bills.
Other income for the three months ended November 30, 2016 increased to $3,000August 31, 2022 as compared to $0 for the three months ended November 30, 2015.August 31, 2021. Interest expense increased to ($27,000) for the three months ended August 31, 2022 as compared to $(26,000) for the three months ended August 31, 2021. Dividend income increased to $2,000 for the three months ended August 31, 2022 as compared to $1,000 for the three months ended August 31, 2021. Realized gains (losses) on investments for the three months ended August 31, 2022 increased to $24,000 as compared to a loss of ($1,000) for the three months ended August 31, 2021. Unrealized gains (losses) on investments for the three months ended August 31, 2022 were a gain of $106,000 as compared to a gain of $21,000 for the three months ended August 31, 2021. Gain on PPP loan forgiveness was $0 for the three months ended August 31, 2022 as compared to $812,000 for the three months ended August 31, 2021. Income from the sale of scrap was $6,000 for the three months ended August 31, 2022 as compared to $82,000 for the three months ended August 31, 2021.
Net Income. Net income for the three months ended November 30, 2016 increased 715%August 31, 2022 decreased to $163,000$315,000 as compared to net income of $20,000$2,450,000 for the three months ended November 30, 2015.August 31, 2021. This increasedecrease is due primarily to an increase indecreased net sales as described above.above and decreased income from PPP loan forgiveness and the sale of scrap.
Results of Operations-NineOperations-Six Months Ended November 30, 2016August 31, 2022 Compared to NineSix Months Ended November 30, 2015August 31, 2021:
Net Sales.Net sales for the ninesix months ended November 30, 2016August 31, 2022 decreased 10%45% to $5,833,000$4,323,000 as compared to $6,514,000$7,840,000 for the ninesix months ended November 30, 2015. ThisAugust 31, 2021. The decrease in net sales was primarily attributablelargely due to the decision to accelerate production and shipments in the six months ended August 31, 2021 due to the planned facility relocation.
Net bookings for the six months ended August 31, 2022 increased 48% to $4,614,000 versus $3,109,000 during the six months ended August 31, 2021. Backlog as of August 31, 2022 increased 10% to $4,755,000 as compared to a decrease in the numberbacklog of units sold and the corresponding value$4,325,000 as of the orders that were shipped in accordance with customer requirements during the nine months ended November 30, 2016.August 31, 2021.
Cost of Sales.Cost of sales for the ninesix months ended November 30, 2016August 31, 2022 decreased to $4,847,000$2,805,000 from $5,076,000$3,956,000 for the ninesix months ended November 30, 2015, mostlyAugust 31, 2021, due to decreased raw materials and labor costs due to the reduction inassociated with decreased net sales, and a shift in the mix of products manufactured.decreased rent expense. Expressed as a percentage of net sales, cost of sales increased to 83%65% for the ninesix months ended November 30, 2016August 31, 2022 from 78%50% for the ninesix months ended November 30, 2015.August 31, 2021.
Gross Profit. Gross profit for the ninesix months ended November 30, 2016August 31, 2022 decreased to $986,000$1,518,000 from $1,438,000$3,884,000 for the ninesix months ended November 30, 2015,August 31, 2021, due primarily to the reduction inlower net sales. Accordingly, gross margins on the Company’sexpressed as a percentage of net sales decreased to 17%35% for the ninesix months ended November 30, 2016 in comparisonAugust 31, 2022 as compared to 22%50% for the ninesix months ended November 30, 2015.August 31, 2021.
For the ninesix months ended November 30, 2016, the CompanyAugust 31, 2022, we shipped 52,31732,882 units as compared to 64,25053,465 units shipped during the same period of the prior year. It should be noted that since the Company manufactureswe manufacture a wide variety of products with an average sales price ranging from less than one dollara few dollars to several hundred dollars, such periodic variations in the Company’sour volume of units shipped should not be regarded as a reliable indicator of the Company’sour performance.
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The Company has experienced an increase of 76% to $4,651,000 in the level of bookings during the nine months ended November 30, 2016 when compared to $2,648,000 during the nine months ended November 30, 2015. The increase occurred principally as a result of increases in the placement of orders by key customers, resulting in an increase in the monetary value of, and timing differences in, the placement of contracts by the Department of Defense and its prime contractors.
Selling, General & Administrative Expenses.Selling, general, and administrative expenses increaseddecreased to $2,508,000$1,075,000 for the ninesix months ended November 30, 2016August 31, 2022 from $1,573,000$1,373,000 for the same period in the prior year. The increase in costsdecrease was primarily due to costs associated with the separation agreement the Company entered into with its former CEOa decrease in bonus accrual of $200,000 and certain proxy reimbursementa decrease in selling expenses as reported in the Company’s 8-K filing on July 27, 2016. Costs related to the separation agreement included $627,000 of payments associated with the retirement of the former Chief Executive Officer, $22,000 of associated payroll taxes, $100,000 of legal fees, and $170,000 of proxy settlement costs.$72,000. During the ninesix months ended November 30, 2016,August 31, 2022, selling, general and administrative expenses as a percentage of net sales increased to 43%25% as compared to 24%18% for the ninesix months ended November 30, 2015.August 31, 2021.
Operating Income. Operating income for the ninesix months ended November 30, 2016August 31, 2022 decreased 1,027% to an operating loss of $1,522,000$443,000 as compared to an operating lossincome of $135,000$2,511,000 for the ninesix months ended November 30, 2015.August 31, 2021. This decrease is due primarily to higher selling, general and administrative expenses and the lowerdecreased net sales as described above.
The Company recorded total otherOther Income. Interest income of $32,000increased to $2,000 for the ninesix months ended November 30, 2016August 31, 2022 as compared to total other income of $18,000$0 for the ninesix months ended November 30, 2015. Included in other incomeAugust 31, 2021. Interest expense increased to ($55,000) for the ninesix months ended November 30, 2016 was $29,000 of interest income on investment in treasury bills and certificates of deposit, and $3,000 of other income. Included in total other incomeAugust 31, 2022 as compared to $(46,000) for the ninesix months ended November 30, 2015August 31, 2021. Dividend income increased to $5,000 for the six months ended August 31, 2022 as compared to $1,000 for the six months ended August 31, 2021. Realized gains on investments for the six months ended August 31, 2022 increased to $32,000 as compared to $26,000 for the six months ended August 31, 2021. Unrealized gains on investments for the six months ended August 31, 2022 were $55,000 as compared to $1,000 for the six months ended August 31, 2021. PPP loan forgiveness was $18,000$0 in the six months ended August 31, 2022 as compared to $812,000 for the six months ended August 31, 2021. Income from the sale of interest income on investmentscrap was $604,000 for the six months ended August 31, 2022 as compared to $172,000 in treasury bills and certificates of deposit, and $0 of other income.the six months ended August 31, 2021.
Net Income. Net income for the ninesix months ended November 30, 2016August 31, 2022 decreased to a$1,086,000 as compared to net lossincome of $1,490,000 from a net loss of $122,000$3,477,000 for the same period in 2015.six months ended August 31, 2021. This decrease is due primarily to lowerdecreased net sales volume and an increase in selling, general and administrative expenses as described above.above and income from PPP loan forgiveness, partially offset by increased income from the sale of scrap.
Liquidity and Capital Resources:
Operating Activities:
Net cash used in operating activities was $1,904,000 for the nine months ended November 30, 2016 primarily reflecting a net loss of $1,490,000 and an increase in accounts receivable of $856,000 offset by increases in accounts payable of $330,000 and depreciation and amortization of $145,000.
Net cash provided by operating activities was $482,000$1,188,000 for the ninesix months ended November 30, 2015August 31, 2022 primarily reflecting a net lossincome of $122,000 and a decrease$1,086,000, an increase in accounts receivable of $516,000$255,000, and inventory of $404,000 and by depreciation and amortization of $162,000$138,000, partially offset by a decreasean increase in account payable of $235,000 and by accruedprepaid expenses and other liabilitiescurrent assets of $228,000.$255,000.
Investing Activities:
Net cash provided by operating activities was $2,590,000 for the six months ended August 31, 2021 primarily reflecting net income of $3,477,000, an increase in accrued expenses and other current and non-current liabilities of $300,000, depreciation and amortization of $124,000, partially offset by increases in accounts receivable of $779,000 and PPP loan forgiveness of $812,000.
Investing Activities:
Net cash used in investing activities was $4,537,000($4,419,000) for the ninesix months ended November 30, 2016August 31, 2022 principally reflecting $4,748,000 in sales of treasury bills and certificates of deposit, $0$2,495,000 in purchases of treasury billsshort-term investments, $1,476,000 of expenditures on construction in progress and certificates$1,111,000 in purchases of deposit, and $211,000marketable securities, partially offset by $803,000 in proceeds from the sale of marketable securities.
Net cash used in investing activities was ($4,800,000) for the six months ended August 31, 2021 principally reflecting $4,746,000 in purchases of property, plant and equipment.
Net cash provided by investing activities was $336,000 for the nine months ended November 30, 2015 principally reflecting $5,478,000 in sales of treasury billsequipment and certificates of deposit, $4,992,000$171,000 in purchases of treasury bills and certificatesmarketable securities, partially offset by $117,000 in proceeds from the sale of deposit, and $150,000 in purchases of property, plant and equipment.marketable securities.
Financing Activities:
Net cash used in financing activities was $2,137,000 for the nine months ended November 30, 2016 reflecting payments for the repurchase of common stock and options associated with the retirement of the former Chief Executive Officer.
Net cash used in financing activities was $843,000($51,000) for the ninesix months ended November 30, 2015 primarilyAugust 31, 2022 reflecting a $575,000 dividend paid to stockholders and $279,000 paid to a stockholder$51,000 in connection with a privately negotiated stock repurchaseprincipal payments on the mortgage loan.
Net cash provided in financing activities was $2,907,000 for the six months ended August 31, 2021 principally reflecting $2,940,000 in proceeds from our mortgage loan, partially offset by $11,000 from stock option exercises by$33,000 in principal payments on the Company’s employees.mortgage loan.
Subject to the following discussion, the Company expects itsWe expect our sole sources of liquidity over the next twelve months to come frombe cash generated from operations cash on hand and cash invested in money market funds, Treasury bills and certificates of deposit. The Company anticipatescash equivalents, if necessary. We anticipate that itsour capital expenditures required to sustain operations will be approximately $250,000$200,000 during the next twelve months and will be funded from operations and/or available cash.
Based upon management’s best information as to current national defense priorities, future defense programs, the shift to Commercial Off-The-Shelf (COTS) by the defense industry, and the continued competition in the defense and aerospace market, the Company believes that it will have sufficient cash on hand andour cash from operations and cash and cash equivalents, if necessary, will be sufficient to satisfy its operating needs over the next twelve months.fund these needs.
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Over
At August 31, 2022, February 28, 2022, and August 31, 2021, we had cash and cash equivalents of approximately $806,000, $4,088,000, and $4,482,000, respectively. The decrease for the long-term, basedthree months ended August 31, 2022, was due to purchases of short-term investments, expenditures on these factorsconstruction in progress, and atpurchases of marketable securities, partially offset by proceeds from the current levelsale of bookings, costs of raw materials and services, profit margins and sales levels, the Company believes that it will generate sufficient cashmarketable securities, income from operations to satisfy its operating needs over the next twelve months. In the event that bookings in the long-term decline significantly below the level experienced during the previous two fiscal years, the Company may be required to implement further cost-cutting or other downsizing measures to continue its business operations. Such cost-cutting measures could inhibit future growth prospects. In appropriate situations, the Company may seek strategic alliances, joint ventures with others or acquisitions in order to maximize marketing potential and utilization of existing resources and provide further opportunities for growth.scrap income.
At November 30, 2016August 31, 2022, February 28, 2022, and February 29, 2016, the CompanyAugust 31, 2021, we had cash on handinvestments in short-term investments of approximately $1,130,000$2,495,000, $0, and $634,000,$0, respectively. The cash increase for the nine months ended November 30, 2016 was primarily due to the sale of treasury bills and certificates of deposit.
At November 30, 2016August 31, 2022, February 28, 2022, and February 29, 2016, the CompanyAugust 31, 2021, we had investments in treasury bills and certificates of depositmarketable securities of approximately $1,993,000$1,079,000, $684,000, and $6,740,000,$334,000, respectively.
At November 30, 2016, the CompanyAugust 31, 2022, February 28, 2022, and August 31, 2021, we had working capital of $7,376,000 as compared with a working capital at February 29, 2016 of $11,068,000.$7,202,000, $7,660,000, and $8,096,000, respectively. The working capital decrease for the ninesix months ended November 30, 2016August 31, 2022 was due primarily due to cash used on construction in operations and financing activities.progress at the new facility.
Based on various factors, including the Company’s desire to fully utilize its current net operating loss carryforwards, the Company may seek out acquisitions, additional product lines, and/or invest a portion of its cash into common stocks or higher yielding debt instruments. The Company will continue to consider additional share repurchases under the Company's stock repurchase program.program subject to market conditions, corporate liquidity requirements and priorities and other factors as may be considered in the Company’s sole discretion.
Cash Dividend:
The Board of Directors of the Company did not declare a cash dividend during the three and nine months ended November 30, 2016. In July 2015, the Company paid a dividend of $0.25 per share to all stockholders of record at the close of business on June 29, 2015. The aggregate dividend payment was approximately $575,000.FORWARD-LOOKING STATEMENTS
Stock Repurchase Program:
On May 29, 2015, the Company announced that its Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $500,000 of its outstanding common stock from time to time through February 29, 2016. On July 28, 2015, the Company announced that the Board of Directors had expanded the stock repurchase program to cover repurchases of up to $1,000,000 of its outstanding common stock from time to time through February 29, 2016. On November 20, 2015, the Company purchased for $279,616 a total of 65,027 shares of the Company’s common stock pursuant to the repurchase program. On January 15, 2016, the Board of Directors of the Company amended the repurchase program under which the Company may repurchase up to $1,000,000 of its outstanding common stock without an expiration date to the repurchase program. Under the repurchase program, repurchases may be made by the Company from time to time on the open market or in privately negotiated transactions depending on markets conditions, stock price, corporate and regulatory requirements, and other factors.
The Company did not repurchase any shares under the stock repurchase program during the nine months ended November 30, 2016. See Note 12 of the Form 10-Q for the quarter ended August 31, 2016 for shares and options repurchased from the former Chief Executive Officer that were not pursuant to the stock repurchase program.
Off-Balance Sheet Arrangements:
The Company has not engaged in any off-balance sheet arrangements.
Forward Looking Statements:
Some of the statements in this Quarterly Report on Form 10-Q are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995.“forward-looking statements”. These forward-looking statements include statements regarding our business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended February 29, 2016,28, 2022, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.
Some of the factors that may impact our business, financial condition, results of operations, strategies or prospects include:
· | Loss of, or reduction of business from, substantial clients could hurt our business by reducing our revenues, profitability and cash flow. | |
· |
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. | ||
· | 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. | |
· | Our operating results may decrease due to the decline of profitability in the semiconductor industry. | |
· | We may not achieve the intended effects of our 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. | |
· | 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. | |
· | Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete. | |
· | We cannot guarantee 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. |
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· | Compliance with regulations regarding the use of "conflict minerals" could limit the supply and increase the cost of certain metals used in manufacturing our products. | |
· | 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. | ||
· |
Changes in Defense related programs and | ||
· | The COVID-19 pandemic may have a material adverse effect on our business, cash flows and results of operations. |
· | Security breaches and other disruptions could compromise the integrity of our information and expose us to liability, which would cause our business and reputation to suffer. | |
· | Our | |
· | Provisions in our charter documents could make it more difficult to acquire our Company and may reduce the market price of our stock. |
· | The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future. | |
· | We cannot guarantee that we will declare future cash dividend payments, nor repurchase any shares of our common stock pursuant to our stock repurchase program. | |
· | Uncertainty of current economic conditions, domestically and globally, could continue to affect demand for our products and negatively impact our business. | |
· | ||
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. | ||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Our Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e), and 15d-15(e) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of November 30, 2016August 31, 2022 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 29, 201628, 2022 under “Management’s Report on Internal Control over Financial Reporting”. However, giving full consideration to the material weakness and the remediation plan, the Company’s management has concluded that the Company’s financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition and results of operations as of and for the three and six months ended November 30, 2016.August 31, 2022.
Changes in Internal Control over Financial Reporting.
Other than the changes referenced in the Company’s Annual Report on Form 10-K for the year ended February 29, 201628, 2022 under “Management’s Report on Internal Control over Financial Reporting”, there were no changes in the Company’s internal control over financial reporting during the third quarter ended November 30, 2016August 31, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II– OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2016,August 31, 2022, we had no known material current, pending, or threatened litigation.
ITEM 1A. RISK FACTORS
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended February 28, 2022, which could materially affect our business, financial condition or future results.
ITEM 6. EXHIBITS
Exhibits
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF* | ||
XBRL Taxonomy Label Linkbase | ||
101.LAB* | XBRL Taxonomy Presentation Linkbase | |
101.PRE* | +Management contracts or compensatory plans, contracts or arrangements. | |
104 | Cover Page Ineractive Data File - the cover page XBRL tags are embedded within the inline XBRL document. | |
* Filed herewith. | ||
** Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOLITRON DEVICES, INC. | ||
EXHIBIT INDEX
/s/ Tim Eriksen | ||||
Tim Eriksen | ||||
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