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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2002
Commission File No. 1-4978
SOLITRON DEVICES, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 22-1684144
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
3301 Electronics Way, West Palm Beach, Florida 33407
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(Address of Principal Executive Offices)
Issuer's telephone number: (561) 848-4311
Securities registered under 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None N/A
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $6,399,000.
The aggregate market value of the registrant's common stock, par value $.01 per
share, held by non-affiliates of the registrant, based upon the closing market
price as of May 29, 2002, was approximately $352,040.
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 28, 2002: 2,070,821 shares of common stock, par value $.01
per share.
Transitional Small Business Disclosure Format: Yes No X
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Documents incorporated by reference: None
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PART I
ITEM 1. BUSINESS
--------
GENERAL
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 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 ("JAN")
transistors, diodes and Standard Military Drawings ("SMD") voltage regulators,
are sold as standard or catalog items.
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.
PRODUCTS
--------
The Company designs, manufactures and assembles bipolar and MOS power
transistors, power and control hybrids, junction and Power MOSFETs, field effect
transistors and other related products.
Set forth below by principal product type are the percentage (i) contributions
to the Company's total sales of each of the Company's principal product lines
for the fiscal year ended February 28, 2002 and for the fiscal year ended
February 28, 2001 and (ii) contributions to the Company's total order backlog at
February 28, 2002 and 2001 .
FISCAL YEAR FISCAL YEAR BACKLOG BACKLOG
ENDED ENDED AT AT
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
PRODUCT 28, 2002 28, 2001 28, 2002 28, 2001
------- -------- -------- -------- --------
Power Transistor 19% 15% 16% 11%
Hybrids 55% 53% 58% 65%
Field Effect Transistors 6% 11% 3% 5%
Power MOSFETS 20% 21% 23% 19%
-------- -------- -------- --------
100% 100% 100% 100%
The Company's backlog at February 28, 2002 and revenue for the year ended
February 28, 2002 reflect demand for the Company's products at such date and for
such period. For more information, see "Backlog". The variation in the
proportionate share of each product line for each period reflects changes in
demand, changes emanating from the Congressional appropriations process and
timing associated with awards of defense contracts, as well as shifts in
technology and consolidation of defense prime contractors.
The Company's semiconductor products can be classified as active electronic
components. Active electronic components are those that control and direct the
flow of electrical current by means of a control signal such as a voltage or
current. The Company's active electronic components include bipolar transistors,
integrated circuits and MOS transistors.
It is customary to subdivide active electronic components into those of a
discrete nature and those, which are non-discrete. Discrete devices contain one
single semiconductor element; non-discrete devices consist of integrated
circuits or hybrid circuits, which contain two or more elements, either active
or passive, interconnected to make up a selected complete electrical circuit. In
the case of an integrated circuit, a number of active and passive elements are
incorporated onto a single silicon chip. A hybrid circuit, on the other hand, is
made up of a number of individual components that are mounted onto a suitable
surface material, interconnected by various means, and suitably
2
encapsulated. Hybrid and integrated circuits can either be analog or digital;
presently, the Company manufactures only analog components. The Company's
products are either standard devices, such as catalog type items (e.g.,
transistors and voltage regulators), or application-specific devices, also
referred to as custom or semi-custom products. The latter are designed and
manufactured to meet a customer's particular requirements. For the fiscal year
ended February 28, 2002 approximately 90% of the Company's sales have been of
custom products, and the remaining 10% have been of standard or catalog
products.
Approximately 90% of the semiconductor components produced by the Company are
manufactured pursuant to approved Source Control Drawings (SCD) from the United
States government's prime contractors; the remainder are primarily JAN (Joint
Army/Navy) qualified products approved for use by the military.. The Company's
semiconductor products are used as components of military, commercial and
aerospace electronic equipment, such as ground and airborne radar systems, power
distribution systems, missiles, missile control systems and spacecraft. The
Company's products have been used on the space shuttle and on spacecraft sent to
the moon, to Jupiter (on Galileo) and, most recently, to Mars (on Global
Surveyor and Mars Sojourner). Approximately 90% to 95% of the Company's sales
have historically been attributable to contracts with customers whose products
are sold to the United States government. The remaining 5% of sales are for
non-military, scientific and industrial applications.
Custom products are typically sold to defense or aerospace companies such as
Raytheon, Lockheed Martin and Honeywell, while standard products are sold to the
same customer base and to the general electronic industry and incorporate such
items as power supplies and other electronic control products. The Company has
standard and custom products available in all of its major product lines.
The following is a general description of the principal product lines
manufactured by the Company.
Power Transistors:
-----------------
Power transistors are high current and/or high voltage control devices commonly
used for active gain applications in electronic circuits. The Company
manufactures a large variety of power bipolar transistors for applications
requiring currents in the range of 0.1A to 150A or voltages in the range of 30V
to 1000V. The Company employs over 60 types of silicon chips to manufacture over
500 types of power bipolar transistors and is currently expanding this line in
response to increased market demand resulting from other companies' (e.g.,
Motorola) departure from the military market. The Company also manufactures
power diodes under the same military specification. Additionally, it
manufactures power N-Channel and P-Channel Power MOSFET transistors and is
continuously expanding that line. The Company is qualified to deliver these
products under MIL-PRF-19500. Some of these parts made by the company are custom
or standard.
The Company has been certified and qualified since 1968 under MIL-PRF-19500 (and
its predecessor) standards promulgated by the Defense Supply Center Columbus
("DSCC"). These standards specify the uniformity and quality of bipolar
transistors and diodes purchased for United States military programs. The
purpose of the program is to standardize the documentation and testing for
bipolar semiconductors for use in United States military and aerospace
applications. Attainment of certification and/or qualification to MIL-PRF-19500
requirements is important since it is a prerequisite for a manufacturer to be
selected to supply bipolar semiconductors for defense-related purposes.
MIL-PRF-19500 establishes definite criteria for manufacturing construction
techniques and materials used for bipolar semiconductors and assures that these
types of devices will be manufactured under conditions that have been
demonstrated to be capable of continuously producing highly reliable products.
This program requires a manufacturer to demonstrate its products' performance
capabilities. A manufacturer receives certification once its Product Quality
Assurance Program Plan is reviewed and approved by DSCC. A manufacturer receives
qualification once it has demonstrated that it can build and test sample product
in conformity with its certified Product Quality Assurance Program Plan.
Continuing to maintain MIL-PRF-19500 qualification is expected to improve the
Company's business posture by increasing product marketability.
3
Hybrids:
-------
Hybrids are compact electronic circuits that contain a selection of passive and
active components mounted on printed substrates and encapsulated in appropriate
packages. The Company manufactures thick film hybrids, which generally contain
discrete semiconductor chips, integrated circuits, chip capacitors and thick
film or thin film resistors. Most of the hybrids are of the high-power type and
are custom manufactured for military and aerospace systems. Some of the
Company's hybrids include high power voltage regulators, power amplifiers, power
drivers, boosters and controllers. Hybrids manufactured by the Company are
custom or standard.
The Company has been certified (since 1990) and qualified (since 1995) under
MIL-PRF-38534 (and its predecessor) standards promulgated by the DSCC. These
standards specify the uniformity and quality of hybrid products purchased for
United States military programs. The purpose of the program is to standardize
the documentation and testing for hybrid microcircuits for use in United States
military and aerospace applications. Attainment of certification and/or
qualification to MIL-PRF-38534 requirements is important since it is a
prerequisite for a manufacturer to be selected to supply hybrids for
defense-related purposes. MIL-PRF-38534 establishes definite criteria for
manufacturing construction techniques and materials used for hybrid
microcircuits and assure that these types of devices will be manufactured under
conditions that have been demonstrated to be capable of continuously producing
highly reliable products. This program requires a manufacturer to demonstrate
its products' performance capabilities. Certification is a prerequisite of
qualification. A manufacturer receives certification once its Product Quality
Assurance Program Plan is reviewed and approved by DSCC. A manufacturer receives
qualification once it has demonstrated that it can build and test a sample
product in conformity with its certified Product Quality Assurance Program Plan.
Maintaining MIL-PRF-38534 qualification is expected to improve the Company's
business posture by increasing product marketability.
Voltage Regulators:
-------------------
The Company also qualified a line of voltage regulators in accordance with Class
M of MIL-PRF-38535, which allows it to sell these products in accordance with
SMD specifications published by DSCC. The Company also makes standard and custom
voltage regulators.
Field Effect Transistors:
------------------------
Field effect transistors are surface-controlled devices where conduction of
electrical current is controlled by the electrical potential applied to a
capacitively coupled control element. The Company manufactures about 30
different types of junction and MOS field effect transistor chips. They are used
to produce over 350 different field effect transistor types. Most of the
Company's field effect transistors conform to standard Joint Electronic Device
Engineering Council designated transistors, commonly referred to as standard 2N
number types. The Company is currently expanding its product offering. The
Company is qualified to deliver these products under MIL-PRF-19500. These
devices can be custom or standard.
MANUFACTURING
-------------
The Company's engineers design its transistors, diodes, field effect
transistors, hybrids and integrated circuits, as well as other customized
products, based upon requirements established by customers, with the cooperation
of the product and marketing personnel. The design of non-custom or catalog
products is based on specific industry standards.
Each new design is first produced on a CAD/CAE computer system. The design
layout is then reduced to the desired micro size and transferred to silicon
wafers in a series of steps that include photolithography, chemical or plasma
etching, oxidation, diffusion and metallization. The wafers then go through a
fabrication process. When the process is completed, each wafer contains a large
number of silicon chips, each chip being a single transistor device or a single
diode. The wafers are tested using a computerized test system prior to being
separated into individual chips. The chips are then assembled in standard or
custom packages, incorporated in hybrids or sold as chips to other companies.
The chips are normally mounted inside a chosen package using eutectic, soft
solder or epoxy die attach techniques, and then wire bonded to the package pins
using gold or aluminum wires. Many of the packages are manufactured by the
Company and, in most cases, the Company plates its packages with gold, nickel or
other metals utilizing outside vendors to perform the plating operation.
4
In the case of hybrids, design engineers formulate the circuit and layout
designs. Ceramic substrates are then printed with thick film gold conductors to
form the interconnect pattern and with thick film resistive inks to form the
resistors of the designed circuit. Semiconductor chips, resistor chips,
capacitor chips and inductors are then mounted on the substrates and sequential
wire bonding is used to interconnect the various components to the printed
substrate, as well as to connect the circuit to the external package pins. The
Company manufactures some of the hybrid packages it uses and purchases some from
suppliers.
In addition to Company-performed testing and inspection procedures, certain of
the Company's products are subject to source inspections required by customers
(including the United States government). In such cases, designated inspectors
are authorized to perform a detailed on-premise inspection of each individual
device prior to encapsulation in a casing or before dispatch of the finished
unit to ensure that the quality and performance of the product meets the
prescribed specifications.
The raw materials used in the manufacture of the Company's products are
generally readily available from multiple sources. Key suppliers of raw
materials are companies such as International Rectifiers, Fairchild, IXYS,
Kyocera, Alberox, Platronics, Olin Aegis, EMCA-Remex, to name a few.
ISO 9001
--------
In March 2000, Underwriters Laboratories awarded the Company ISO 9001
qualification. The ISO 9001 Program is a series of quality management and
assurance standards developed by a technical committee of the European Community
Commission working under the International Organization for Standardization.
During the Fiscal Year ended February 28, 2002 the Company underwent two
additional surveillance audits that resulted in recertification. Management
believes that such qualification will continue to open the Company to additional
business opportunities that were not available prior to such qualification.
FINANCIAL INFORMATION ABOUT EXPORT SALES AND MAJOR CUSTOMERS
------------------------------------------------------------
Specific financial information with respect to the Company's export sales is
provided in Note 10 to the Consolidated Financial Statements contained in Item 7
of this Annual Report.
MARKETING AND CUSTOMERS
-----------------------
The Company's products are sold throughout the United States and abroad
primarily through a network of manufacturers' representatives and distributors.
The Company is represented (i) in the United States by three representative
organizations that operate out of 7 different locations with 7 salespeople and 2
stocking distributor organizations that operate out of 42 locations with 314
salespeople and (ii) in the international market by 2 representative
organizations in 2 countries with 9 sales people. Some of the international
groups serve as distributors as well as sales representatives. The Company also
directly employs several sales, marketing, and application engineering personnel
to coordinate operations with the representatives and distributors and to handle
key accounts.
During the fiscal year ended February 28, 2002, the Company sold products to
approximately 208 customers. Of these 208 customers, 79 had not purchased
products from the Company during the previous fiscal year. During the fiscal
year ended February 28, 2002, Raytheon accounted for approximately 39% of net
sales, as compared to the 35% it accounted for during the fiscal year ended
February 28, 2001. The U.S. government, representing 11% of total sales, as
compared to approximately 13% for the fiscal year ended February 28, 2001, was
the only other customer that accounted for more than 10% of net sales during the
last fiscal year. Twelve of the Company's customers accounted for approximately
79% of the Company's sales during the fiscal year ended February 28, 2002. It
has been the Company's experience that a large percentage of its sales have been
attributable to a relatively small number of customers in any particular period.
As a result of the mergers and acquisitions in general, and among large defense
contractors in particular, the number of large customers will continue to
decline in number, but this does not necessarily mean that the Company will
experience a decline in sales. The Company expects customer concentration to
continue. The loss of any major customer without offsetting orders from other
sources would have a material adverse effect on the business' financial
condition and results of operations of the Company.
5
During the fiscal year ended February 28, 2002 and since that date, a
substantial portion of the Company's products were sold pursuant to contracts or
subcontracts with or to customers whose end products are sold to the United
States government. Accordingly, the Company's sales may be adversely impacted by
Congressional appropriations and changes in national defense policies and
priorities. As a result of such Congressional appropriations and significant
changes in military spending in recent years, the Company had an 8% increase in
net bookings during the fiscal year ended February 28, 2002 as compared to the
previous year. All of the Company's contracts with the United States government
or its prime contractors contain provisions permitting termination at any time
at the convenience of the United States government or the prime contractor upon
payment to the Company of costs incurred plus a reasonable profit.
In recognition of the changes in global geopolitical affairs and changed United
States military spending, the Company is attempting to increase sales of its
products for non-military, scientific and industrial niche markets, such as
medical electronics, machine tool controls, specialized telecommunications,
cellular telephone base stations and LEOS (Low Earth Orbit Satellites)
telecommunication networks and other market segments in which purchasing
decisions are generally based primarily on product quality, long-term
reliability and performance, rather than on product price.
Although average sales prices are typically higher for products with military
applications than for products with non-military, scientific and industrial
applications, the Company hopes to minimize this differential by focusing on
these quality-sensitive niche markets where price sensitivity is very low. There
can be no assurance; however, that the Company will be successful in increasing
its sales to these market segments, which increase in sales could be critical to
the future success of the Company. To date, the Company has made only limited
inroads in penetrating such markets.
In addition to these newer sales efforts, the Company is also attempting to
offer additional products to the military markets that are complementary to
those currently sold by the Company to the military markets, but as of yet has
not made significant inroads in this endeavor.
Sales to foreign customers, located mostly in Canada, Western Europe and Israel,
accounted for approximately 7% of the Company's net sales for the fiscal year
ended February 28, 2002 as compared to 10% for the year ended February 28, 2001.
All sales to foreign customers are conducted utilizing exclusively U.S. dollars.
BACKLOG
-------
The Company's order backlog, which consists of semiconductor and hybrid related
open orders, more than 90% of which are scheduled for delivery within 12 months,
was approximately $4,266,000 at February 28, 2002, as compared to $3,821,000 as
of February 28, 2001. The entire backlog consisted of orders for electronic
components. The Company currently anticipates that the majority of its open
order backlog will be filled by February 28, 2003. In the event that bookings in
the long-term decline significantly below the level experienced since emerging
from Chapter 11, 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Bookings and Backlog."
The Company's backlog as of any particular date may not be representative of
actual sales for any succeeding period because lead times for the release of
purchase orders depend upon the scheduling practices of individual customers.
The delivery times of new or non-standard products can be affected by scheduling
factors and other manufacturing considerations, variances in the rate of booking
new orders from month to month and the possibility of customer changes in
delivery schedules or cancellations of orders. Also, delivery times of new or
non-standard products are affected by the availability of raw material,
scheduling factors, manufacturing considerations and customer delivery
requirements.
The rate of booking new orders varies significantly from month to month, mostly
as a result of sharp fluctuations in the government budgeting and appropriation
process. The Company has historically experienced somewhat decreased levels of
bookings during the summer months, primarily as a result of such budgeting and
appropriation activities. For these reasons, and because of the possibility of
customer changes in delivery schedules or cancellations of orders, the Company's
backlog as of any particular date may not be indicative of actual sales for any
succeeding period. See
6
"Management's Discussions and Analysis of Financial Conditions - Result of
Operations" for a discussion of the decrease in bookings for the year ended
February 28, 2002 as compared to the previous year.
PATENTS AND LICENSES
--------------------
The Company owned approximately 33 patents (most of which have now expired or
have been allowed to lapse) relating to the design and manufacture of its
products. The terminations of these patents have not had a material adverse
effect on the Company. The Company believes that engineering standards,
manufacturing techniques and product reliability are more important to the
successful manufacture and sale of its products than the old patents that it
had.
COMPETITION
-----------
The electronic component industry, in general, is highly competitive and has
been characterized by price erosion, rapid technological changes and foreign
competition. However, in the market segments in which the Company operates,
while highly competitive and subject to the same price erosion, technological
change is slow and minimal. The Company believes that it is well regarded by its
customers in the segments of the market in which competition is dependent less
on price and more on product reliability and performance. Management believes,
however, that to the extent the Company's business is targeted at the military
and aerospace markets, where there has been virtually no foreign competition, it
is subjected to less competition than manufacturers of commercial electronic
components. Additionally, the decline in military orders and the shift in the
requirement of the Defense Department whereby the use of standard industrial
components is encouraged over the use of high reliability components that the
Company manufactures, prompting the number of competitors to decline, afford the
Company the opportunity to increase its market share. As the Company attempts to
shift its focus to the sale of products having non-military, non-aerospace
applications it will be subject to greater price erosion and foreign
competition. Presently the Company is attempting to identify a niche market for
high-end industrial custom power modules and custom motor controllers where the
Company's capabilities can offer a technological advantage to customers in the
motor driver industry. However, there is no guarantee that the Company will be
successful in this effort.
The Company has numerous competitors across all of its product lines. The
Company is not in direct competition with any other semiconductor manufacturer
for an identical mixture of products; however, one or more of the major
manufacturers of semiconductors manufactures some of the Company's products. A
few such major competitors (e.g., Motorola, Intersil, Fairchild, among others)
have elected to withdraw from the military market altogether. However, there is
no assurance that the Company's business will increase as a result of such
withdrawals. Other competitors in the military market include International
Rectifier (the Omnirel Division), Microsemi (the NES Division) and Sensitron.
The Company competes principally on the basis of product quality, turn-around
time and price. The Company believes that competition for sales of products that
will ultimately be sold to the United States government has intensified and will
continue to intensify as United States defense spending continues to decrease
and the Department of Defense pushes for implementation of its 1995 decision to
purchase high-end, standard off-the-shelf commercial products in lieu of
products made in accordance with more stringent military specifications.
The Company believes that its primary competitive advantage is its ability to
produce high quality products as a result of its years of experience, its
sophisticated technologies and its experienced staff. The Company believes that
its ability to produce highly reliable custom hybrids in a short period of time
will give it a strategic advantage in attempting to penetrate high-end
commercial markets and in selling military products complementary with those
currently sold, as doing so would enable the Company to produce products early
in design and development cycles. The Company believes that it will be able to
improve its capability to respond quickly to customer needs and deliver products
on time.
EMPLOYEES
---------
At February 28, 2002, the Company had 88 employees (as compared to 90 at
February 28, 2001), 59 of whom are engaged in production activities, 6 in sales
and marketing, 6 in executive and administrative capacities and 17 in technical
and support activities. Of the 88 employees 83 were full time employees and 5
were part time.
The Company has never had a work stoppage, and none of its employees are
represented by a labor organization. The Company considers its employee
relations to be satisfactory.
7
SOURCES AND AVAILABILITY OF RAW MATERIAL
----------------------------------------
The Company purchases its raw materials from multiple suppliers and has a
minimum of two suppliers for all of its material requirements. A few of the key
suppliers of raw materials and finished packages purchased by the Company are:
Alberox, Coining, Kilburn/Isotronics, IXYS, Platronics, Kyocera, Purecoat
International, Stellar Industries, and others. Because of a diminishing number
of sources of component packages the Company has been obliged to pay higher
prices which consequently has increased costs of goods sold.
EFFECT OF GOVERNMENT REGULATION
-------------------------------
The Company received DSCC approval to supply its products in accordance with
MIL-PRF-19500, Class H of MIL-PRF-38534, and some products in accordance with
Class M of MIL-PRF-38535. All are required to supply to the U.S. Government or
its prime contractors. Continuing to maintain these qualifications is expected
to improve the Company's business posture by maintaining product marketability.
RESEARCH AND DEVELOPMENT
------------------------
During recent years, the Company has not spent any significant funds on research
and development. This may have an adverse effect on future operations. The cost
of designing custom products is borne in full by the customer, either as a
direct charge or is amortized in the unit price charged to the customer.
ENVIRONMENTAL REGULATION
------------------------
While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor 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 and, along with the rest of the semiconductor industry, is
subject to variable interpretations and governmental priorities concerning
environmental laws and regulations. Environmental statutes have been interpreted
to provide for joint and several liability and strict liability regardless of
actual fault. There can be no assurance that the Company and its subsidiaries
will not be required to incur costs to comply with, or that the operations,
business or financial condition of the Company will not be materially adversely
affected by current or future environmental laws or regulations.
ENVIRONMENTAL LIABILITIES
-------------------------
The Company is currently engaged in negotiations with the United States
Environmental Protection Agency ("USEPA") to resolve the Company's alleged
liability to USEPA at the following sites: Solitron Microwave Superfund Site,
Port Salerno, Florida; Petroleum Products Corporation Superfund Site, Pembroke
Park, Florida; Casmalia Disposal Superfund Site, Santa Barbara County,
California; and Solitron Devices Site, Riviera Beach, Florida. USEPA contends
that the Company is liable for a share of past and future costs incurred by
USEPA in connection with the investigation and remediation of the four (4)
sites. At a meeting with USEPA on March 23, 2001, USEPA contended that the
Company's alleged share of liability at the four (4) sites totals approximately
$8 million, which USEPA broke down on a site by site basis as follows: Solitron
Microwave, Port Salerno-$3.8 million; Petroleum Products - $150,000; Casmalia
Disposal - $2.7 million; and Solitron Devices, Riviera Beach - $1 million.
In addition to the claims asserted by USEPA against the Company at the Petroleum
Products Corporation and Casmalia Disposal Superfund Sites, claims have been
asserted against the Company by groups of alleged responsible parties formed at
each of these two sites for all past and future cleanup expenses incurred or to
be incurred by the respective groups. During the negotiations with USEPA to
resolve the Company's alleged liability at all four (4) sites, the Company was
advised by USEPA that a settlement with USEPA would most likely resolve the
claims of the groups of alleged responsible parties formed at the Petroleum
Products Corporation and Casmalia Disposal Superfund Sites.
8
Preliminary communications with attorneys representing the respective groups
support USEPA's representations in this regard.
The Company contends that the claims of USEPA and the private parties referenced
above were discharged in bankruptcy pursuant to the Bankruptcy Court's Order
Confirming Solitron's Fourth Amended Plan of Reorganization, entered in August
1993. Nevertheless, the Company is negotiating with USEPA to settle its
outstanding liability at all four (4) sites based on an ability to pay ("ATP")
determination. Under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"), the United States may enter into ATP
settlements with individuals and businesses for recovery of response costs and
performance of cleanup work in appropriate cases. The ATP settlement process is
reserved for potentially responsible parties ("PRPs") who demonstrate to USEPA's
satisfaction that payment of the amount sought by the government is likely to
put an entity out of business or otherwise jeopardize its viability by creating
an undue financial hardship. An undue financial hardship occurs if, in the
opinion of USEPA, satisfaction of the environmental claim will deprive a PRP of
ordinary and necessary assets or cause a PRP to be unable to pay for ordinary
and necessary business expenses and/or ordinary and necessary living expenses.
The ATP settlement process provides for a reduction in the proposed settlement
to an amount, in the USEPA's estimation, that is not likely to create an undue
financial hardship.
In connection with the foregoing settlement negotiations, the Riviera Beach
property was sold on October 12, 1999 by the Company. Under the terms of the
sale, the USEPA received the net proceeds of $419,000. USEPA also received
approximately $19,000 from the Riviera Beach environmental escrowed monies to
defray its cleanup costs. Additionally, the Company has offered and USEPA has
agreed to accept the net proceeds of the sale resulting from the sale of the
Solitron Microwave Port Salerno site. Sale of the Port Salerno site is currently
the subject of negotiations between the Company and a prospective purchaser. In
addition, USEPA has advised the Company that the Company will be required to
contribute additional funds to effect the settlement. The Company was advised in
March 2000 that USEPA had determined initially that USEPA's model evaluating the
Company's ability to pay determined that the Company could contribute an
additional $80,000 plus a percentage of profits to effect the settlement. On May
20, 2002, the Company submitted it's ATP settlement offer to USEPA, the
substantial provisions of which included payment of the sum of $65,000.00 over
two years, and payment to USEPA of 5% of Solitron's net after tax income over
the first $500,000.00, if any, for years 3-7 following the effective date of the
settlement. USEPA is currently considering the Company's offer. Once the Company
and USEPA have reached agreement on the ATP negotiations, it is anticipated that
USEPA will recommend to the PRP groups at the Petroleum Products Corporation and
Casmalia Disposal Superfund Sites that the respective groups release the Company
from further liability at either site upon the Company's compliance with the ATP
settlement terms and conditions.
BANKRUPTCY PROCEEDINGS
----------------------
On January 24, 1992 (the "Petition Date"), the Company and its wholly-owned
subsidiary, Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.),
a Delaware corporation, filed voluntary petitions seeking reorganization under
Chapter 11 ("Chapter 11") of the United States Bankruptcy Code, as amended (the
"Bankruptcy Code"), in the United States Bankruptcy Court for the Southern
District of Florida (the "Bankruptcy Court"). On August 20, 1993, the Bankruptcy
Court entered an Order (the "Order of Confirmation") confirming the Company's
Fourth Amended Plan of Reorganization, as modified by the Company's First
Modification of Fourth Amended Plan of Reorganization (the "Plan of
Reorganization" or "Plan"). The Plan became effective on August 30, 1993 (the
"Effective Date"). On July 12, 1996, the Bankruptcy Court officially closed the
case.
Pursuant to the Plan of Reorganization, beginning in approximately May 1995, the
Company was required to begin making quarterly payments to holders of unsecured
claims until they receive 35% of their claims. However, due to negotiations
between the parties, the unsecured creditors agreed to a deferment of this
payment (for more information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). At the time, it was estimated
that there was an aggregate of approximately $7,100,000 in unsecured claims and,
accordingly, that the Company was required to pay approximately $2,292,000 to
holders of allowed unsecured claims in quarterly installments of approximately
$62,083. During the fiscal year ended February 28, 2002, the Company reached
agreement with one unsecured creditor under which a small amount was paid as
settlement of slightly more than $2,000 of recorded debts to unsecured
creditors. An extraordinary income of approximately $2,000 from extinguishments
of debt was consequently recorded.
9
Beginning on the date the Company's net after tax income exceeds $500,000, the
Company is obligated to pay (on an annual basis) each of the holders of
unsecured claims (pro rata) and Vector Trading and Holding Corporation
("Vector"), a successor to certain assets and liabilities of the Company, and
Vector's participants and successors, 5% of its net after tax income in excess
of $500,000 until the tenth anniversary of the Effective Date, up to a maximum
aggregate of $1,500,000 to the holders of unsecured claims (pro rata) and up to
a maximum aggregate of $1,500,000 to Vector participants and their successors
(the "Profit Participation"). As the Company earned $637,000 in the fiscal year
ended February 28, 2001, net after the accrual of $15,000 for the Profit
Participation, it distributed, during the fiscal year ended February 28, 2002
approximately $7,500 to its unsecured creditors and approximately $7,500 to
Vector and its successors in interest as contemplated by the Plan. As there is
no income for the fiscal year ended February 28, 2002, there will be no
distribution related to such fiscal year.
Pursuant to the Plan, the monies to be utilized to fund environmental
assessments and remediations are to be made available from the proceeds of the
sale or lease of the Port Salerno property, to the extent that the Company is
successful in its efforts to sell or lease such property and the Riviera Beach
property (as discussed in "Environmental Liabilities"). The Plan also required
that to the extent the proceeds from the sale or lease of these properties are
not sufficient to pay for the remediation, the Company will escrow monthly
amounts. As of February 28, 2002, the Company has deposited $78,000 in the
required escrow accounts, including $19,000 that has been paid out in connection
with the Riviera Beach Property. The Riviera Beach property was sold on October
12, 1999 by the Company. Under the terms of the sale, the USEPA received the net
proceeds of $419,000. USEPA also received approximately $19,000 from the Riviera
Beach environmental escrowed monies to defray its cleanup costs. The Company's
financial statements reflect liabilities of $1,544,000 relating to the foregoing
assessment and remediation obligations. This best estimate of cleanup costs by
the Company's environmental consultants is based on the assumption that the Plan
and Consent Final Judgment will be implemented. with respect to environmental
liabilities. Given USEPA's assertion of jurisdiction over the properties, the
Company cannot give any assurance that actual remediation costs will not exceed
the estimate based on compliance with the Plan. Because of the uncertainties of
how USEPA will proceed with cleanup of the properties and resolution of the
Company's ability to pay application, total costs to the Company cannot be
estimated now. For a more definitive description of environmental matters
pertaining to the Riviera Beach and Port Salerno Properties, please refer to
"Environmental Liabilities".
The Company has not been making agreed payments under the Plan and otherwise to
Martin County with respect to tax claims. It is anticipated that the Martin
County tax claim will be paid in full with the sale of the Port Salerno
Property. To date, the Martin County Tax Collector has not expressed objection
to this proposal. The following table indicates the approximate cumulative
status of amounts due under the Plan of Reorganization as of February 28, 2002:
Due to Date Paid
----------- ---------
Martin County $ 116,000 $ 7,957
ITEM 2. PROPERTIES
-----------
The Company's manufacturing operations and its corporate headquarters are
located in one leased facility in West Palm Beach, Florida. The Company
originally had leased the facility for a term ending December 31, 2001 and
subleased approximately 25,000 square feet to S/V Microwave Products, Inc., a
private company which bought substantially all the assets and certain
liabilities of Solitron's microwave division in 1993. In 2001, the Company
renegotiated a new lease to exclude the area previously subleased to S/V
Microwave; and, accordingly with the terms of the new lease, had walls
constructed and utilities divided so that the space previously occupied by S/V
Microwave would be completely separate from the space occupied by the Company.
The new lease is for a term of ten years ending December 31, 2011 and does not
include an option to renew the lease under current terms. The Company believes
that its facilities in West Palm Beach, Florida will be suitable and adequate to
meet its requirements for the foreseeable future.
The Company also owns the Port Salerno Property, which consists of a 42,000
square foot building and 23 acres of undeveloped land located in Port Salerno,
Florida. On July 27, 1992, the USEPA listed this property on the National
Priority List (NPL) for cleanup using monies from its Superfund and is
contending that the Company is liable for its
10
response costs. The Company has a pending ability to pay application before
USEPA. The detail of the Company and USEPA's positions is set forth in Item 1,
"Business - Environmental Liabilities".
ITEM 3. LEGAL PROCEEDINGS
-----------------
John Stayduhar v. Vector Trading & Holding Corp. v Solitron Devices, Inc.,
et.al., Case No. CL 93-06850-AO, 15th Judicial Circuit Court in and for Palm
Beach County Florida. Plaintiff Stayduhar, the former CEO of Solitron, filed
this action against Vector in 1993. Stayduhar obtained judgments of some
$600,000 against Vector in 1997, but has never collected on the judgments.
Stayduhar then filed supplemental proceedings against third party defendants
Solitron, Solitron/Vector Microwave Products, Inc. ("SVMP"), Inversiones
Globales, HCG Technologies, Inc. ("HCGT"), and Howard White ("White"), the
principal of Vector. (White, who has never been served, is not participating in
the suit.) Stayduhar is not seeking any monetary relief against Solitron; he
asked the Court to enjoin Solitron (and the other defendants) from conveying any
Solitron stock that formerly belonged to Vector or its affiliates. The case
settled in 2000 during a mediation in which Solitron did not participate. Last
year, Stayduhar obtained judgments against various parties (including
Inversiones Globales) and served discovery requests in aid of execution and
writs of garnishment on Solitron. Pursuant to the settlement and judgments,
Stayduhar has obtained stock in the Company from SVMP, HCGT and Inversiones
Globales. In addition, pursuant to the writs, the Company paid $3,797 to
Stayduhar representing monies that were due to Inversiones Globales pursuant to
the profit participation agreement approved by the bankruptcy court in August
1993 in Solitron's Plan of Reorganization.
The Company received a claim by an estate owning property northwest and across
Cove Road from the Port Salerno Property. The estate has asserted that the
mailing address to which the bankruptcy notice was sent was in error. The estate
has been advised that public water has been made available to the property and
that the Company is prepared to settle for the allowance of a general unsecured
claim in the amount of $10,000. This offer was rejected. The claim is unresolved
and has been dormant since 1993.
See also Item 1, "Business - Environmental Liabilities".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
-------------------------------------------------------------
HOLDER MATTERS
--------------
Since March 1995, the Company's Common Stock has been traded on NASDAQ's
Electronic Bulletin Board (over the counter). The Company's Common Stock was
traded on the New York Stock Exchange until October 13, 1993, at which time it
began trading on the NASDAQ Small Cap Market where it was traded until March
1995.
The following table sets forth for the periods indicated, high and low bid
information of the Common Stock as reported by NASDAQ's Over the Counter
Electronic Bulletin Board ("OTCBB"). The prices set forth below reflect
inter-dealer prices, without retail markup, markdown, or commission and may not
represent actual transactions.
FISCAL YEAR ENDED FISCAL YEAR ENDED
FEBRUARY 28, 2002
----------------------- -----------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter $0.5100 $0.3600 $2.7500 $0.8125
Second Quarter $0.4800 $0.4000 $1.0000 $0.6200
Third Quarter $0.4500 $0.2700 $0.7813 $0.4000
Fourth Quarter $0.3300 $0.2000 $0.5000 $0.2800
As of February 28, 2002 and February 28, 2001, there were approximately 3,420
and 3,680 holders of record of the Company's Common Stock, respectively. On
February 28, 2002, the last sale price of the Common Stock as reported on the
Electronic Bulletin Board was $0.20 per share.
The Company has not paid any dividends since emerging from bankruptcy and the
Company does not contemplate declaring dividends in the foreseeable future.
Pursuant to the Company's ability to pay settlement proposal with the USEPA, the
Company agreed not to pay dividends on any shares of capital stock until the
settlement amount for environmental liabilities is agreed upon and paid in full.
The Company has not issued any shares of its Common Stock during the last three
years.
Certificates representing 279,783 "old shares" of Common Stock, which were
subject to an approximate 10 to 1 reverse split (which was authorized by the
Bankruptcy Court on September 1993), have not been exchanged by the stockholders
as of February 28, 2002. Subsequent to such stock split, these certificates now
represent 28,420 shares of Common Stock, which are included in the 2,070,821
shares outstanding as of February 28, 2002 indicated in the beginning of this
filing. These "old shares" have not been included in the number of shares
outstanding as set forth in the Company's filings with the commission since the
date of such stock split through its Annual Report on Form 10-KSB for the period
ended February 28, 2001.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
INTRODUCTION
------------
In January 1992, as a result of losses and liquidity deficiencies, the Company
and its wholly owned subsidiary, Solitron Specialty Products, Inc. (f/k/a
Solitron Microwave, Inc.) filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. On August 20, 1993, the Bankruptcy Court entered an
Order of Confirmation confirming the Company's Plan of Reorganization and on
August 30, 1993, the Plan of Reorganization became effective, and the Company
emerged from bankruptcy. On July 12, 1996, the Bankruptcy Court officially
closed the case.
12
The following table is included solely for use in comparative analysis of income
(loss) before extraordinary items to complement Management's Discussion and
Analysis:
(Dollars in Thousands)
Year Ended February
28, 2002 28, 2001
-------- --------
Net Sales $ 6,399 $ 7,970
Cost of sales 5,612 5,947
Gross profit 787 2,043
Selling, general and administrative expenses 1,214 1,539
Operating income (loss) (427) 504
Interest expense (19) (17)
Interest expense on unsecured creditors claims (44) (62)
Interest income 75 154
Increase in Environmental Reserve -- (12)
Other, net (8) (15)
Income (loss) before Extraordinary Item (423) 556
Extraordinary Item 6 81
Net income (loss) $ (417) $ 637
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Subject to the following discussion, the Company expects its sole source of
liquidity over the next twelve months to come from cash from operations.
During the first few fiscal years after its emergence from bankruptcy
proceedings, the Company generally experienced losses from operations and severe
cash shortages caused by a significant decline in both sales and open order
backlog, decreased margins (which is characteristic in the industry) on the
Company's products, significant expenses associated with the reorganization
proceedings, and the Company's inability to obtain additional working capital
through the sale of debt or equity securities or the sale of non-operating
assets. However, for the years ended February 28, 2002 and February 28, 2001,
the Company recorded a net loss of $417,000 and a net income of $637,000
respectively.
During the pendency of the bankruptcy proceedings, all secured and unsecured
claims against and indebtedness of the Company (including accrued and unpaid
interest) were stayed in accordance with the Bankruptcy Code while the Company
continued its operations as a debtor-in-possession, subject to the control and
supervision of the Bankruptcy Court. Because these stays limit cash outflow, the
Company, during the pendency of the Bankruptcy Proceedings, realized positive
cash flow from ongoing operations. Since the Company emerged from Chapter 11, it
has experienced a positive cash flow from recurring operations; however, until
the fiscal year ended February 28, 1997, overall cash flow was negative due
primarily to the necessity to make payments of administrative expenses and
unsecured debt payouts arising in connection with the bankruptcy proceedings.
The Company has incurred an operating loss of approximately $427,000 for the
fiscal year ended February 28, 2002 and has significant obligations arising from
settlements in connection with its bankruptcy that require the Company to make
substantial cash payments that cannot be supported by the current level of
operations.
Based upon (i) management's best information as to current national defense
priorities, future defense programs, as well as management's expectations as to
future defense spending, (ii) the market trends signaling a continued slowdown
and soft level of booking and a continued price erosion, and (iii) a continual
lack of foreign competition in the defense and aerospace market, the Company
believes that it will have sufficient cash on hand to satisfy its operating
needs over the next 12 months. However, due to the lower level of current
backlog and new order intake (due to the slowdown of the general economy), the
Company will operate at a loss for the next two to three quarters. Thus, based
on these factors and at the current bookings, prices, profit margins and sales
levels, the Company will not generate sufficient cash to satisfy its operating
needs and its obligations to pre-bankruptcy creditors in accordance with the
Plan.
13
Thus, it is in continuous negotiations with all claim holders to reschedule
these payments. In the event the Company is unable to restructure its
obligations to pre-bankruptcy claimants or the slowdown in the intake of new
orders continue, the Company has a contingency plan to further reduce its size
and thereby reduce its cost of operations within certain limitations. Over the
long-term, the Company believes that if the volume and prices of product sales
recover as presently anticipated, the Company will generate sufficient cash from
operations to sustain operations. In the event that bookings in the long-term
continue to decline significantly below the level experienced since emerging
from Chapter 11, 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. The Company
cannot assure you, however, that it will be able to generate sufficient
liquidity to meet its operating needs now or in the future.
Subject to the long term recovery of order intake and the ability to ship
products in a timely manner, the Company projects that it will continue to be
able to generate sufficient funds to support its ongoing operations only if it
is able to renegotiate its required payments to unsecured creditors, the USEPA,
the FDEP and the Martin County tax authorities or raise sufficient cash in order
to pay these obligations as currently due; otherwise it will not be able to
remain a going concern.
The Company is continuing to negotiate with the unsecured creditors, the USEPA,
the FDEP, and Martin County tax authorities in an attempt to arrive at reduced
payment schedules. To date, these parties have not expressed objection to the
reduced level of payments. In addition, the Company has a contingency plan to
reduce its size and thereby reduce its cost of operations within certain
limitations. However, no assurance can be made that the Company can reach a
suitable agreement with the unsecured creditors, USEPA, FDEP or Martin County
tax authorities or obtain additional sources of capital and/or cash or that the
Company can generate sufficient cash to meet its obligations.
At February 28, 2002 and February 28, 2001 respectively, the Company had cash
and cash equivalents of $1,335,000 and $2,190,000. The principal cash change was
due to the loss from operations.
At February 28, 2002, the Company had working capital of $2,057,000 as compared
with a working capital at February 28, 2001 of $2,827,000. The principal change
was due to a decrease in cash.
See "Environmental Liabilities", "Bankruptcy Proceedings" and "Properties" in
Part I, Items 1 and 2, for more information.
BOOKINGS AND BACKLOG
--------------------
During the fiscal year ended February 28, 2002, the Company's net bookings were
$6,842,000 in new orders as compared with $6,347,000 for the year ended February
28, 2001, reflecting an increase of approximately 8%. The Company's backlog
increased to $4,266,000 at February 28, 2002 as compared with $3,821,000 as of
February 28, 2001, reflecting a 12% increase. In the event that bookings in the
long-term decline significantly below the level experienced since emerging from
Chapter 11, the Company may be required to implement further cost-cutting or
other downsizing measure to continue its business operations. Such cost-cutting
measures could inhibit future growth prospects. Furthermore, the Company cannot
assure you that such measures would be sufficient to enable the Company to
continue its business operations.
See Part I, Item 1, "Business - Marketing and Customers".
FUTURE PLANS
------------
To lessen the Company's current liquidity problems, the Company plans to (a)
continue improving operating efficiencies; (b) further reduce overhead expenses;
(c) develop off-shore manufacturing capability utilizing strategic partners
and/or sub-contractors; (d) develop alternative lower cost packaging
technologies; (e) develop products utilizing its current manufacturing
technologies geared toward market segments it is currently unable to serve.
Also, the Company intends to identify lower cost base assembly partners in the
Asia-Pacific region in an effort to enhance the Company's competitive position
while reducing costs.
14
The Company also plans to continue its efforts in selling privately labeled
commercial semiconductors and power modules and to develop offshore assembly or
sub-assembly whether as contract or strategic alliance arrangements. If these
plans are successful, the Company intends to aggressively pursue sales of these
products which could require the Company to invest in the building up of
inventories of finished goods and invest in capital (automatic assembly and
test) equipment. The source of capital funding will be defined subsequent to
such strategic partnership being formed. Such financing could come from
equipment leasing.
Despite its intentions, the Company cannot assure you that these plans will be
successful in easing liquidity problems, reducing costs or improving sales.
INFLATION
---------
The rate of inflation has not had a material effect on the Company's revenues
and costs and expenses, and it is not anticipated that inflation will have a
material effect on the Company in the near future.
SEASONALITY
-----------
The Company's bookings of new orders and sales are largely dependent on
congressional budgeting and appropriation activities and the cycles associated
therewith. The Company has historically experienced somewhat decreased levels of
bookings during the summer months, primarily as a result of such budgeting and
appropriation activities.
RESULTS OF OPERATIONS
---------------------
2002 vs. 2001
-------------
Net sales for the fiscal year ended February 28, 2002 decreased by 20% to
$6,399,000 versus $7,990,000 during the fiscal year ended February 28, 2001,
reflecting a lower demand for the Company's products due to cuts in defense
spending and slower economic activity.
Bookings were higher than sales by approximately 7%; thus, the backlog increased
from $3,821,000 as of February 28, 2001 to $4,266,000 as of February 28, 2002.
The Company has experienced an increase in the level of bookings of 8% for the
year ended February 28, 2002 as compared to the previous year.
During the year ending February 28, 2002, the Company shipped 360,416 units as
compared with 1,403,817 units shipped during the year ending February 28, 2001.
It should be noted that since the Company manufactures a wide variety of
products with an average sale price ranging from less than one dollar to several
hundred dollars, such periodic variations in the Company's volume of units
shipped might not be a reliable indicator of the Company's performance.
Cost of Sales for the fiscal year ended February 28, 2002 decreased to
$5,612,000 from $5,947,000 during the fiscal year ended February 28, 2001. The
major reason for this decrease was a decline of 20% in sales that resulted in a
$172,000 reduction in material costs. A $23,000 reduction in direct labor costs
and a $121,000 reduction in indirect labor costs also contributed to the
decrease in cost of sales. Expressed as a percentage of sales, cost of sales
increased from 74% for the fiscal year ended February 28, 2001 to 88% for the
fiscal year ended February 28, 2002.
During the year ending February 28, 2002 the Company's gross profits were
$787,000 (12% margin) as compared to $2,043,000 (26% margin) for the year ending
February 28, 2001. The decrease was due principally to a 20% reduction in the
volume of sales.
During the year ending February 28, 2002, Selling, General and Administrative
based expenses, as a percentage of sales, were 19% as compared with 19% for the
year ending February 28, 2001. Selling, General and Administrative expenses
decreased 21% to $1,214,000 for the fiscal year ended February 28, 2002 from
$1,539,000 for the fiscal year ended February 28, 2001. This decrease was due
mainly to lower sales commissions, lower legal fees, and lower sales consulting
expenses.
15
Operating Income for the fiscal year ended February 28, 2002 decreased to a loss
of $427,000 from a profit of $504,000 during the fiscal year ended February 28,
2001. This decrease was primarily attributable to a lower volume of sales and to
the change in product mix.
Total interest expense decreased from $79,000 for the fiscal year ended February
28, 2001 to $63,000 for the fiscal year ended February 28, 2002 due to lower
imputed interest on debt to unsecured creditors, offset by a slight increase in
interest calculated on delinquent property taxes.
Interest Expense on unsecured creditor claims for the fiscal year ended February
28, 2002 decreased to $44,000 from $62,000 during the fiscal year ended February
28, 2001. Interest Expense on delinquent property taxes increased $2,000 due to
the increase of the delinquent tax base by one year of taxes relating to the
Port Salerno property.
Interest Income for the fiscal year ended February 28, 2002 decreased to $75,000
from $154,000 during the fiscal year ended February 28, 2001. This decrease was
attributable to a lower cash position as well as to lower interest rates
received from the bank.
Other Net for the fiscal year ended February 28, 2002 included an expense of
$8,000, of which approximately $7,000 was for expenses relating to the
non-operating facility in Port Salerno. For the fiscal year ended February 28,
2001, Other Net included an expense of $23,000, of which approximately $8,000
related to the non-operating facility at Port Salerno and $15,000 represented
the 5% of fiscal year 2001 income in excess of $500,000 that was distributed to
unsecured creditors and to Vector participants during the fiscal year ended
February 28, 2002.
During the fiscal year ended February 28, 2001, an increase of $547,000 in the
environmental reserve was recorded to cover a lien placed by the USEPA on the
Port Salerno Property. During the fiscal year ended February 28, 2002 the
Company made no increase in the environmental reserve.
Extraordinary Items: During the year ended February 28, 2001, the Company
bought, at a discount, certain debt obligations with various unsecured
creditors, resulting in an extraordinary gain of $81,000 ($.04 per share).
During the year ended February 29, 2000, the Company settled certain debt
obligations with various taxing authorities at a discount, resulting in an
extraordinary gain of $655,000 ($.32 per share). There were no income tax
effects as a result of these events.
During the year ended February 28, 2002, the Company had extraordinary gains
which totaled approximately $6,000. Included in extraordinary gains was the
settlement of debt obligation to an unsecured creditor which the Company bought
at a discount, resulting in an extraordinary gain of $2,000 ($0.00 per share),
and the extinguishment of debt to a vendor for approximately $4,000 ($0.00 per
share).
Net Income for the fiscal year ended February 28, 2002 decreased to a Net Loss
of $417,000 from a Net Income of $637,000 during the fiscal year ended February
28, 2001. This increase is attributable to a lower level of Gross Profit,
slightly lower level of imputed interest and higher level of interest income
offset by higher Selling, General and Administrative expenses.
FORWARD-LOOKING STATEMENTS
--------------------------
Information in this Form 10-KSB, including any information incorporated by
reference herein, includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, and is subject to the safe-harbor created by
such sections. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements.
Statements regarding:
o the effects of certification or qualification of the Company's products;
o the speed of technological change and its effects on the Company's
business;
o trends in the industry, including trends concerning consolidation, changes
in government military spending, price erosion and competition;
16
o sources and availability of liquidity;
o anticipated recovery of volume and price of product sales;
o strategic plans to improve the Company's performance;
o the Company's ability to fill its backlog;
o the Company's ability to sustain or grow bookings and sales;
o the Company's competitive strengths, industry reputation and the nature of
its competition;
o the relative importance of patented technology;
o the Company's ability to move into new markets or to develop new products;
o the Company's ability to respond quickly to customers' needs and to deliver
products in a timely manner;
o the Company's ability to implement effectively cost-cutting or downsizing
measures;
o the Company's compliance with environmental laws, orders and investigations
and the future cost of such compliance;
o expectations regarding military and defense spending;
o implementation of the Plan of Reorganization and the Company's ability to
make payments required under the Plan of Reorganization or otherwise or to
generate sufficient cash from operations or otherwise;
o expectations of being released from certain environmental liabilities and
the Company's ability to satisfy such liabilities;
o amounts that the Company may receive (or not receive) upon the sale of
certain properties and the expected application of such funds;
o the suitability and adequacy of the Company's headquarters facilities;
o the effects of inflation;
o Section 16(a) compliance; and
o other statements contained in this report that address activities, events
of developments that the Company expects, believes or anticipates will or
may occur in the future, and similar statements are forward-looking
statements.
These statements are based upon assumptions and analyses made by the Company in
light of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risks and
uncertainties. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results might differ materially
from those suggested or projected in the forward-looking statements. Factors
that may cause actual future events to differ significantly from those predicted
or assumed include, but are not limited to:
o the loss of certification or qualification of the Company's products or the
inability of the Company to capitalize on such certifications and/or
qualifications;
o unexpected rapid technological change;
o a misinterpretation of the Company's capital needs and sources and
availability of liquidity;
o a change in government regulations which hinders the Company's ability to
perform government contracts;
o a shift in or misinterpretation of industry trends;
o unforeseen factors which impair or delay the development of any or all of
its products if such decision is later determined to be in the best
interests of the Company;
o inability to sustain or grow bookings and sales;
o inability to capitalize on competitive strengths or a misinterpretation of
those strengths;
o the emergence of improved, patented technology by competitors;
o a misinterpretation of the nature of the competition, the Company's
competitive strengths or its reputation in the industry;
o inability to respond quickly to customers' needs and to deliver products in
a timely manner resulting from unforeseen circumstances;
o inability to generate sufficient cash to sustain operations;
o failure of price or volume recovery;
o failure to successfully implement cost-cutting or downsizing measures,
strategic plans or the insufficiency of such measures and plans;
o changes in military or defense appropriations;
o inability to make or renegotiate payments under the Plan;
17
o inability to move into new market segments based on unforeseen factors;
o unexpected impediments affecting ability to fill backlog;
o inability to be released from environmental liabilities;
o an increase in the expected cost of environmental compliance based on
factors unknown at this time;
o changes in law or industry regulation;
o inability to sell certain properties or to obtain expected prices for such
properties;
o unexpected growth or stagnation of the business;
o unforeseen changes that render the Company's headquarters facilities
unsuitable or inadequate to meet the Company's current needs;
o unforeseen effects of inflation;
o misrepresentations of Company directors, officers and 10 percent
stockholders concerning their compliance with Section 16(a) of the
Securities Act of 1934; and
o other unforeseen activities, events and developments that may occur in the
future.
RISK FACTORS
------------
The following important business risks and factors, and those business risks and
factors described elsewhere in this report or our other Securities and Exchange
Commission filings, could cause our actual results to differ materially from
those stated in our forward-looking statements, and which could affect the value
of an investment in the Company. All references to "we", "us", "our" and the
like refer to the Company.
WE MAY NOT HAVE SUFFICIENT RESOURCES TO CONTINUE AS A GOING CONCERN.
Our consolidated financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities as
they become due. Although we have projected that we will be able to generate
sufficient funds to support our ongoing operations, we have significant
obligations arising from settlements in connection with our bankruptcy
necessitating that we make substantial cash payments, which cannot be supported
by the current level of operations. We must be able to obtain forbearance or be
able to renegotiate our bankruptcy related required payments to unsecured
creditors, the U.S. Environmental Protection Agency, the Florida Department of
Environmental Protection and certain taxing authorities or raise sufficient cash
in order to pay these obligations as currently due, in order to remain a going
concern. We continue to negotiate with our unsecured creditors, the USEPA, the
FDEP, and taxing authorities in an attempt to arrive at reduced payment
schedules. We also have a contingency plan to reduce our size and thereby reduce
our cost of operations within certain limitations. However, no assurance can be
made that we can reach a suitable agreement with the unsecured creditors or
taxing authorities or obtain additional sources of capital and/or cash or that
we can generate sufficient cash to meet our obligations over the next year. See
"Business - Bankruptcy Proceedings" and "--Environmental Liabilities".
OUR COMPLEX MANUFACTURING PROCESSES MAY LOWER YIELDS AND REDUCE OUR REVENUES.
Our manufacturing processes are highly complex, require advanced and costly
equipment and are continuously being modified in an effort to improve yields and
product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. Our manufacturing efficiency will be an
important factor in our future profitability, and we cannot assure you that we
will be able to maintain our manufacturing efficiency or increase manufacturing
efficiency to the same extent as our competitors.
In addition, as is common in the semiconductor industry, we have from time to
time experienced difficulty in effecting transitions to new manufacturing
processes. As a consequence, we have suffered delays in product deliveries or
reduced yields. We may experience manufacturing problems in achieving acceptable
yields or experience product delivery delays in the future as a result of, among
other things, capacity constraints, construction delays, upgrading or expanding
existing facilities or changing our process technologies, any of which could
result in a loss of future revenues. Our operating results could also be
adversely affected by the increase in fixed costs and operating expenses related
to increases in production capability if revenues do not increase
proportionately.
18
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.
All of our contacts with prime U.S. government contractors contain customary
provisions permitting termination at any time at the convenience of the U.S.
government or the prime contractors upon payment to us for costs incurred plus a
reasonable profit. Certain contracts are also subject to price renegotiations in
accordance with U.S. government sole source procurement provisions. None of our
contracts has been terminated for cause or for the convenience of the U.S.
government or prime contractors, or had the prices so renegotiated.
Nevertheless, we cannot assure you that the foregoing government contracting
risks will not materially and adversely affect our business, prospects,
financial condition or results of operations. Furthermore, we cannot assure you
that we would be able to procure new government contracts to offset any revenue
losses incurred due to early termination or price renegotiation.
Our government business is also subject to specific procurement regulations,
which increase our performance and compliance costs. These costs might increase
in the future, reducing our margins. Failure to comply with procurement
regulations could lead to suspension or debarment, for cause, from government
subcontracting for a period of time. Among the causes for debarment are
violations of various statutes, including those related to procurement
integrity, export control, government security regulations, employment
practices, protection of the environment, and accuracy of records. The
termination of a government contract or relationship as a result of any of these
violations would have a negative impact on our reputation and operations, and
could negatively impact our ability to obtain future government contracts.
CHANGES IN GOVERNMENT POLICY OR ECONOMIC CONDITIONS COULD NEGATIVELY IMPACT OUR
RESULTS.
A large portion of the Company's sales are to military and aerospace markets
which are subject to the business risk of changes in governmental appropriations
and changes in national defense policies and priorities. Any such changes could
result in reduced demand for the Company's products, which could have a material
and adverse effect on the Company's business, prospects, financial condition and
results of operations.
Our results may also be affected by changes in trade, monetary and fiscal
policies, laws and regulations, or other activities of U.S. and non-U.S.
governments, agencies and similar organizations. Furthermore, our business,
prospects, financial condition and results of operations may be adversely
affected by the shift in the requirement of the U.S. Department of Defense
policy toward the use of standard industrial components over the use of high
reliability components that we manufacture. Our results may also be affected by
social and economic conditions which impact our sales, including in markets
subject to ongoing political hostilities, such as regions of the Middle East.
ENVIRONMENTAL REGULATIONS COULD REQUIRE US TO INCUR SIGNIFICANT COSTS.
In the conduct of our manufacturing operations, we have handled and do handle
materials that are considered hazardous, toxic or volatile under federal, state
and local laws and, therefore, are 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, we could be held liable for damages and
the cost of remediation and, along with the rest of the semiconductor industry,
we are 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 we will not be
required to incur costs to comply with, or that our operations, business or
financial condition will not be materially affected by, current or future
environmental laws or regulations. See "Business - Environmental Liabilities".
OUR BUSINESS IS HIGHLY COMPETITIVE, AND INCREASED COMPETITION COULD REDUCE GROSS
PROFIT MARGINS AND THE VALUE OF AN INVESTMENT IN OUR COMPANY.
The semiconductor industry, and the semiconductor product markets specifically,
are highly competitive. Competition is based on price, product performance,
quality, reliability and customer service. The gross profit margins realizable
in our markets can differ across regions, depending on the economic strength of
end-product markets in those regions. Even in strong markets, price pressures
may emerge as competitors attempt to gain more share by lowering prices.
19
Competition in the various markets in which we participate comes from companies
of various sizes, many of which are larger and have greater financial and other
resources than we have and thus can better withstand adverse economic or market
conditions. In addition, companies not currently in direct competition with us
may introduce competing products in the future.
DOWNTURNS IN THE BUSINESS CYCLE COULD REDUCE THE REVENUES AND PROFITABILITY OF
OUR BUSINESS.
The semiconductor industry is highly cyclical. Semiconductor industry-wide sales
declined significantly in 2001. Our markets may experience other, possibly more
severe and prolonged, downturns in the future. We may also experience
significant changes in our operating profit margins as a result of variations in
sales, changes in product mix, price competition for orders and costs associated
with the introduction of new products.
OUR OPERATING RESULTS MAY DECREASE DUE TO THE DECLINE OF AVERAGE SELLING PRICES
IN THE SEMICONDUCTOR INDUSTRY.
Intense competition and a general slowdown in the semiconductor industry
worldwide have resulted in decreases in the average selling prices of many of
our products. We expect that average selling prices for our products will
continue to decline in the future. A decline in average selling prices for our
products, if not offset by reductions in the costs of providing these products,
would decrease our gross profits and could have a material adverse effect on our
business, financial condition and results of operations.
THE ECONOMIC RECESSION MAY CONTINUE TO HAVE NEGATIVE EFFECTS ON OUR BUSINESS.
Our business has been negatively impacted by the economic recession that began
the latter part of 2000. The success of ongoing changes in fiscal monetary and
regulatory policies worldwide will continue to influence the severity and the
length of this recession. If these actions are not successful in spurring
overall economic recovery, our business will continue to be negatively impacted
as our customers buy fewer products from us.
UNCERTAINTY OF CURRENT ECONOMIC CONDITIONS, DOMESTICALLY AND GLOBALLY, COULD
CONTINUE TO AFFECT DEMAND FOR OUR PRODUCTS AND NEGATIVELY IMPACT OUR BUSINESS.
Current conditions in the domestic and global economies are extremely uncertain.
As a result, it is difficult to estimate the level of growth for the economic as
a whole. It is even more difficult to estimate growth in various parts of the
economy, including the markets in which we participate. Because all components
of our budgeting and forecasting are dependent upon estimates of growth in the
markets we serve and demand for our products, the prevailing economic
uncertainties render estimates of future income and expenditures even more
difficult than usual to make. The future direction of the overall domestic and
global economies will have a significant impact on our overall performance.
The terrorist attacks in 2001 created many economic and political uncertainties
that have severely impacted the global economy. We experienced a further decline
in demand for our products after the attacks. The long-term effects of the
attacks on our business and the global economy remain unknown. In addition, the
potential for future terrorist attacks is creating worldwide uncertainties and
makes it very difficult to estimate how quickly the economy will recover and our
business will improve.
COST REDUCTION EFFORTS MAY BE UNSUCCESSFUL OR INSUFFICIENT TO IMPROVE OUR
PROFITABILITY.
During 2001, we implemented certain cost-cutting measures and we have a plan to
implement further cost-saving measures if necessary. The impact of these
cost-reduction efforts on our profitability may be influenced by:
o Our ability to successfully complete these ongoing efforts;
o the possibility that these efforts may not generate the level of cost
savings we expect or enable us to effectively compete and return to
profitability; and
o The risk that we may not be able to retain key employees.
20
Since these cost-reduction efforts involve all aspects of our business, they
could adversely impact productivity to an extent we did not anticipate. Even if
we successfully complete these efforts and generate the anticipated cost
savings, there may be other factors that adversely impact our profitability.
WE MAY NOT ACHIEVE THE INTENDED EFFECTS OF OUR NEW BUSINESS STRATEGY, WHICH
COULD ADVERSELY IMPACT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
In recognition of the changes in global geopolitical affairs and in United
States military spending, we are attempting to increase sales of our products
for non-military, scientific and industrial niche markets, such as medical
electronics, machine tool controls, specialized telecommunications, cellular
telephone base stations and LEOS (Low Earth Orbit Satellites) telecommunications
networks and other market segments in which purchasing decisions are generally
based primarily on product quality, long-term reliability and performance,
rather than on product price. We are also attempting to offer additional
products to the military markets that are complementary to those we currently
sell to the military markets. We cannot assure you that these efforts will be
successful and, if they are, that they will have the intended effects of
increasing profitability. Furthermore, as we attempt to shift our focus to the
sale of products having non-military, non-aerospace applications, we will be
subject to greater price erosion and foreign competition.
OUR ABILITY 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.
Rapidly changing technology and industry standards, along with frequent new
product introductions, characterize the semiconductor industry. Our success in
these markets depends on our ability design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner or that products or technologies developed
by others will not render our products or technologies obsolete or
noncompetitive. A fundamental shift in technology in our product markets could
have a material adverse effect on us. In light of the fact that many of our
competitors have substantially greater revenues than us and that we have not
spent any funds on research and development in recent years, we may not be able
to accomplish the foregoing, which might have a material adverse effect on the
Company, our business, prospects, financial condition or results of operations.
LOSS OF, OR REDUCTION OF BUSINESS FROM, SUBSTANTIAL CLIENTS COULD HURT OUR
BUSINESS BY REDUCING OUR REVENUES, PROFITABILITY AND CASH FLOW.
During the fiscal year ended February 28, 2002, twelve customers accounted for
approximately 79% of our revenues. A loss of these customers, or reduced
business from such customers, could have a significant adverse impact on our
business and results of operations in future periods. Furthermore, due to
industry consolidation, the loss of any one customer may have a greater impact
than we anticipate. We cannot guarantee that we will be able to retain long-term
relationships or secure renewals of short-term relationships with our more
substantial customers in the future.
INADEQUATE AVAILABILITY OF SUPPLIES COULD NEGATIVELY IMPACT OUR ABILITY TO
TIMELY PROVIDE PRODUCTS TO CUSTOMERS AND COULD RESULT IN SIGNIFICANTLY INCREASED
PRICES.
Our ability to meet customer demands depends, in part, on our ability to obtain
timely and adequate delivery of raw materials, parts and finished components
from our suppliers. Although we work closely with our suppliers to avoid
shortages, there can be no assurances that we will not encounter these problems
in the future. From time to time, suppliers may extend lead times, limit
supplies or increase prices due to capacity constraints or other factors. A
reduction or interruption in supplies or a significant increase in the price of
one or more supplies could have a material adverse effect on our business.
THE NATURE OF OUR PRODUCTS EXPOSES US TO POTENTIALLY SIGNIFICANT PRODUCT
LIABILITY RISK.
Our business exposes us to potential product liability risks that are inherent
in the manufacturing and marketing of high-reliability electronic components for
critical applications. No assurance cam be made that our product liability
insurance coverage is adequate or that present coverage will continue to be
available at acceptable costs, or that a
21
product liability claim would not materially and adversely affect our business,
prospects, financial conditions or results of operations.
WE DEPEND ON THE RECRUITMENT AND RETENTION OF QUALIFIED PERSONNEL, AND OUR
FAILURE TO ATTRACT AND RETAIN SUCH PERSONNEL COULD SERIOUSLY HARM OUR BUSINESS.
Due to the specialized nature of our business, our future performance is highly
dependent on the continued services of our key engineering personnel and
executive officers. Our prospects depend on our ability to attract and retain
qualified engineering, manufacturing, marketing, sales and management personnel
for our operations. Competition for personnel is intense, and we may not be
successful in attracting or retaining qualified personnel. Our failure to
compete for these personnel could seriously harm our business, prospects,
results of operations and financial condition.
PROVISIONS IN OUR CHARTER DOCUMENTS AND RIGHTS AGREEMENT COULD MAKE IT MORE
DIFFICULT TO ACQUIRE OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR STOCK.
Our Certificate of Incorporation and Bylaws contain certain provisions, and we
have adopted a stockholder rights plan (as more fully described in our current
report on Form 8-K filed on June 20, 2001), each of which could delay or prevent
a change in control of our company or the removal of management, and which could
also deter potential acquirers from making an offer to our stockholders and
limit any opportunity to realize premiums over prevailing market prices of our
common stock.
22
ITEM 7. FINANCIAL STATEMENTS
--------------------
Index to Consolidated Financial Statements
Page
----
Independent Auditor's Report ................................... 24
Consolidated Balance Sheet as of February 28, 2002 ............. 25
Consolidated Statements of Operations for the years
ended February 28, 2002 and 2001 .............................. 26
Consolidated Statements of Stockholders' Equity for
the years ended February 28, 2002 and 2001 ..................... 27
Consolidated Statements of Cash Flows for the years
ended February 28, 2002 and 2001 .............................. 28
Notes to Consolidated Financial Statements ..................... 29-40
23
Independent Auditor's Report
----------------------------
To the Board of Directors and Stockholders of Solitron Devices, Inc.:
We have audited the accompanying consolidated balance sheet of Solitron Devices,
Inc. and Subsidiaries as of February 28, 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Solitron Devices,
Inc. and Subsidiaries as of February 28, 2002 and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has certain obligations resulting
from its settlement with unsecured creditors and with taxing authorities, the
present terms of which the Company is unable to meet, which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Goldstein Golub Kessler LLP
New York, New York
May 30, 2002
24
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 2002
ASSETS
CURRENT ASSETS:
Cash $ 1,335,000
Accounts receivable, less allowance for doubtful accounts of $2,000 965,000
Inventories 2,692,000
Prepaid expenses and other current assets 135,000
Due from S/V Microwave 1,000
-----------
Total current assets $ 5,128,000
-----------
PROPERTY, PLANT AND EQUIPMENT, net 477,000
NON-OPERATING PLANT FACILITIES, net of cost to dispose -0-
OTHER ASSETS 52,000
-----------
TOTAL ASSETS $ 5,657,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of accrued environmental expenses $ 738,000
Accounts payable-Post-petition 410,000
Accounts payable-Pre-petition, current portion 651,000
Accrued expenses and other liabilities 1,271,000
Accrued Chapter 11 administrative expense 1,000
-----------
Total current liabilities $ 3,071,000
-----------
OTHER LONG-TERM LIABILITIES, net of current portion,
net of cost to dispose of non-operating facilities 430,000
-----------
TOTAL LIABILITIES $ 3,501,000
-----------
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, 2,070,821 shares issued and outstanding 21,000
Additional paid-in capital 2,617,000
Accumulated deficit (482,000)
-----------
Total stockholders' equity 2,156,000
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 5,657,000
===========
The accompanying notes and independent auditor's report should
be read in conjunction with the financial statements.
25
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
2002 2001
------------ ------------
Net sales $ 6,399,000 $ 7,990,000
Cost of sales 5,612,000 5,947,000
------------ ------------
Gross profit 787,000 2,043,000
Selling, general and administrative expenses 1,214,000 1,539,000
------------ ------------
Operating income (loss) (427,000) 504,000
Other income (expense):
Interest expense (19,000) (17,000)
Interest expense on unsecured creditors claim (44,000) (62,000)
Interest income 75,000 154,000
Other, net (8,000) (23,000)
------------ ------------
Other income (expense), net 4,000 52,000
------------ ------------
Income (loss) before Extraordinary Item (423,000) 556,000
Extraordinary Item:
Extinguishment of Debt 6,000 81,000
------------ ------------
Net income (loss) $ (417,000) $ 637,000
============ ============
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Basic
Income (loss) per share before Extraordinary Item (0.20) 0.27
Extraordinary Item 0 0.04
Net Income (loss) per share (0.20) 0.31
Diluted
Income (loss) per share before Extraordinary Item (0.20) 0.24
Extraordinary Item 0 0.04
Net Income (loss) per share (0.20) 0.28
Weighted Average shares outstanding-Basic 2,069,776 2,068,731
============ ============
Weighted Average shares outstanding-Diluted 2,069,776 2,277,198
============ ============
The accompanying notes and independent auditor's report should
be read in conjunction with the financial statements.
26
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended February 28, 2002 and 2001
COMMON STOCK RETAINED
---------------------------- ADDITIONAL EARNINGS
NUMBER OF PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
----------- ----------- ----------- ----------- -----------
Balance, March 1, 2000 2,068,821 $ 21,000 $ 2,617,000 ($ 702,000) $ 1,936,000
Issuance of New share Equivalent
of Non-converted Old Shares (90)
Net Income/(Loss) -- -- -- 637,000 637,000
----------- ----------- ----------- ----------- -----------
Balance, March 1, 2001 2,068,731 $ 21,000 $ 2,617,000 ($ 65,000) $ 2,573,000
Issuance of New share Equivalent
of Non-converted Old Shares 2,090 -- --
Net Income/(Loss) -- -- -- (417,000) (417,000)
----------- ----------- ----------- ----------- -----------
Balance, February 28, 2002 2,070,821 $ 21,000 $ 2,617,000 ($ 482,000) $ 2,156,000
=========== =========== =========== =========== ===========
The accompanying notes and independent auditor's report should
be read in conjunction with the financial statements.
27
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income (loss) ($ 417,000) $ 637,000
------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided by/used in operating activities:
Depreciation and amortization 214,000 182,000
Allowance for doubtful accounts -- 1,000
Changes in operating assets and liabilities
Decrease (increase) in:
Accounts receivable (63,000) 88,000
Inventories (245,000) 63,000
Prepaid expenses and other current assets (15,000) (9,000)
Due from S/V Microwave 4,000 (2,000)
Other assets -- 35,000
Increase (decrease) in:
Accounts payable 30,000 265,000
Accounts payable-pre-petition 144,000 (60,000)
Accrued expenses and Other Liabilities (48,000) 60,000
Accrued Chapter 11 expenses -- (1,000)
Accrued environmental expenses 108,000 108,000
Other long-term liabilities (280,000) (199,000)
------------ ------------
Total adjustments (151,000) 531,000
------------ ------------
Net cash provided by/used in operating Activities ($ 568,000) $ 1,168,000
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (287,000) (162,000)
------------ ------------
Net increase/(decrease) in cash (855,000) 1,006,000
Cash at beginning of year 2,190,000 1,184,000
------------ ------------
Cash at end of year $ 1,335,000 $ 2,190,000
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid $ 63,000 $ 79,000
------------ ------------
The accompanying notes and independent auditor's report should
be read in conjunction with the financial statements.
28
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation:
---------------------------
The consolidated financial statements include the accounts of Solitron Devices,
Inc. and its wholly owned Subsidiaries (collectively the "Company"). All
significant inter-company balances and transactions have been eliminated in
consolidation.
Principal Business Activity:
---------------------------
The Company designs, develops, manufactures and markets solid-state
semiconductor components and related devices primarily for the military and
aerospace markets.
Inventories:
-----------
Inventories are stated at the lower of cost or market. Cost is determined using
the weighted average method.
Property, Plant and Equipment
-----------------------------
Property, plant, and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed as
incurred. Depreciation is provided on a straight-line basis over the estimated
useful lives of the related assets.
Non-Operating Plant Facility:
----------------------------
The facility that is no longer being utilized for operations is being carried at
its estimated fair market value as a non-current asset. For reporting purposes,
it is netted against the cost necessary to dispose of the facility. The facility
is not being depreciated.
Concentrations of Credit Risk
-----------------------------
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and trade receivables. The Company
places its cash with high credit quality institutions. At times such amounts may
be in excess of the FDIC insurance limits. The Company has not experienced any
losses in such account and believes that it is not exposed to any significant
credit risk on the account. With respect to the trade receivables, most of the
Company's products are custom made pursuant to the contracts 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 been within
Management's expectations.
Revenue Recognition:
-------------------
Revenue is recognized upon shipment; however, the Company may receive payment of
some contracts in advance. When received, these amounts are deferred and are
recognized as revenue in the period in which the related products are shipped.
Income Taxes:
------------
Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
29
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
1. Summary of Significant Accounting Policies (continued)
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced to estimated
amounts to be realized by the use of a valuation allowance.
Computation of Net Income (Loss) per Share
------------------------------------------
Basic earnings (loss) per common share are computed using the weighted average
number of shares outstanding. Diluted earnings per common share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to purchase
common stock. Incremental shares of 208,467 were used in the calculation of
diluted earnings per common share in 2001. In the fiscal year ended February 28,
2002 diluted earnings per common share were not computed because the effect of
the incremental shares would be anti-dilutive. The incremental shares were
computed based on stock options outstanding, using the treasury stock method.
Stock Based Compensation:
-------------------------
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" in
1997. SFAS 123 provides the adoption of a fair value method of accounting for
stock-based compensation plans. The Company can elect continuation of accounting
under Accounting Principles Board ("APB") Opinion No. 25 Accounting For Stock
Issued to Employees, and related interpretations with supplemental disclosures
for Stock Based Compensation issued to employees. The Company has chosen to
account for all stock based arrangements to employees under APB 25 and make the
related disclosures under SFAS 123.
New Accounting Pronouncements
-----------------------------
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying consolidated financial statements.
Use of Estimates:
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles 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 those estimates.
2. Going Concern and Petition in Bankruptcy:
The Company's consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities as they become due. Although the Company has projected that it will
be able to generate sufficient funds to support its ongoing operations, it has
significant obligations arising from settlements in connection with its
bankruptcy necessitating it to make substantial cash payments, which cannot be
supported, by the current level of operations. The Company must be able to
obtain forbearance or be able to renegotiate its bankruptcy related required
payments to unsecured creditors, the United States Environmental Protection
Agency ("USEPA"), the Florida Department of Environmental Protection ("FDEP"),
and certain taxing authorities or raise sufficient cash in order to pay these
obligations as currently due, in order to remain a going concern.
30
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern and Petition in Bankruptcy (continued):
The Company continues to negotiate with its unsecured creditors, the USEPA, the
FDEP, and taxing authorities in an attempt to arrive at reduced payment
schedules. The Company has a contingency plan to reduce its size and thereby
reduce its cost of operations within certain limitations. However, no assurance
can be made that the Company can reach a suitable agreement with the unsecured
creditors or taxing authorities or obtain additional sources of capital and/or
cash or that the Company can generate sufficient cash to meet its obligations
over the next year.
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
Petition in Bankruptcy
----------------------
On January 24, 1992, the Company filed voluntary petitions in the United States
Bankruptcy Court for the Southern District of Florida seeking to reorganize
under Chapter 11 of the federal Bankruptcy code. The Company was authorized to
continue in the management and control of its business and property as
debtor-in-possession under the Bankruptcy Code.
On August 20, 1993 the Company's Plan of Reorganization, as amended and modified
(the "Plan"), was confirmed by the Bankruptcy Court and the Company emerged from
bankruptcy on August 30, 1993. On July 12, 1996 the Bankruptcy Court officially
closed the case.
(a) The Company is required to make quarterly payments to holders of
unsecured claims until they receive 35 percent of their pre-petition claims. At
February 28, 2002 the Company is currently scheduled to pay approximately
$1,987,000 to holders of allowed unsecured claims in quarterly installments of
approximately $62,000. As of February 28, 2002, the present value of this
amount, $1,071,000, is accrued as a pre-petition liability with imputed interest
recognized in the Statement of Operations.
(b) Beginning on the later of (i) the payment of all administrative claims
and all unsecured claims, but not later than 18 months after the Effective Date
(August 30, 1993) and (ii) the date the Company's net after tax income exceeds
$500,000, the Company will pay (on an annual basis) each of (x) the holders of
unsecured claims (pro rata) and (y) Vector, 5% of its net after tax income in
excess of $500,000 until the tenth anniversary of the Effective Date, up to a
maximum aggregate of $1,500,000 of such payments to the holders of unsecured
claims (pro rata) and up to a maximum aggregate of $1,500,000 of such payments
to Vector. As the Company earned $637,000 in the fiscal year ended February 28,
2001, net after the accrual of $15,000, it distributed approximately $7,500 to
its unsecured creditors as well as approximately $7,500 to Vector and its
successors in interest.
(c) Under the Plan, the Company is required to remediate its non-operating
facility located in Port Salerno and its former facility located in Riviera
Beach, Florida. The Plan contemplated that monies to fund the remediation will
be made available from the proceeds of the sale or lease of the properties, to
the extent that the Company is successful in its efforts to sell or lease such
properties. The Riviera Beach Property was sold on October 12, 1999 by the
Company. Under the terms of the sale, the USEPA received the net proceeds of
$419,000. USEPA also received approximately $19,000 from the Riviera Beach
environmental escrowed monies to defray its cleanup costs. Pursuant to the Plan,
unless otherwise approved by the (FDEP), the Port Salerno Facility can not be
sold unless the price for such property equals or exceeds the lesser of (i) 75%
of its appraised value or (ii) the estimated cost of its remediation. Further,
pursuant to the Plan, a purchaser of this facility would not be liable for
existing environmental
31
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Going Concern and Petition in Bankruptcy (continued):
problems under certain conditions. In connection with facilitating the
remediation of the property, the Company will also, to the extent the proceeds
from the sale or lease of these properties are not sufficient to pay for the
remediation, be required to escrow the following amounts on a monthly basis
beginning on September 30, 1995: (i) year 1 - $5,000 per month; (ii) year 2 -
$7,500 per month; (iii) year 3 - $10,000 per month; and (iv) $10,000 per month
thereafter until remediation is completed. The Company has notified FDEP of its
inability to pay pursuant to this schedule and is making payments at the rate of
$1,000 per month. As of February 28, 2002, the Company has deposited $78,000
into the escrow accounts.
(d) The Company has paid all of the allowed administrative claims and
allowed wage claims since August 1993. The Company is still required to pay
allowed tax claims to Martin County, Florida, estimated at approximately
$260,000, including approximately $66,000 of interest.
The allowed tax claims payable to the IRS have been completely settled by the
Company on March 30, 1999, when it completed making payments of its 1987 tax
obligations and interest. These tax claims do not include an unsecured claim of
$680,000 owed to the State of California for income taxes for years prior to
1982.
The Plan provided for the distribution of common stock of the Company such that,
post-petition, the Company's common stock would be held as follows:
PARTY-IN-INTEREST COMMON STOCK
------------------ ------------
Vector 25%
Unsecured Creditors 40%
Company's President 10%
Pre-Petition Stockholders 20%
Reserved for future issuance under an
employee stock incentive plan to be issued based
upon the terms and conditions of the plan at the
discretion of the Board of Directors 5%
------------
100%
On October 4, 1994, the Company and Vector agreed that Vector's 25% stock would
be distributed among various parties. Vector participants were: Vector principal
(Howard White) who received 273,943 shares (subsequently sold to Inversiones
Globales); AHI Drillings, Inc. who received 77,037 shares; Cointrol Credit Co.
II who received 20,095 shares; Service Finance who received 77,037 shares; Trans
Resources who received 77,037 shares; and Martin Associates who received 22,848
shares. The 273,943 shares owned by Inversiones Globales are not subject to the
voting restrictions, while the balance of the parties will continue to be
subjected to the voting restrictions as long as they or their affiliates hold
the Company's stock. Based solely on the Company's knowledge (and not from any
filings which may have to be made with the SEC), and as the result of an out of
court agreement made subsequent to a lawsuit filed against Vector by John
Stayduhar, a previous Chairman/CEO of the Company, shares held by Inversiones
Globales (174,000), by AHI Drillings, Inc. (77,037), by Service Finance
(77,037), by Trans Resources (77,037), and by Martin Associates (22,737) were
transferred to Mr. Stayduhar. This would give Mr. Stayduhar approximately 20.66%
of the shares of the Company.
32
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3. Inventories:
As of February 28, 2002, inventories consist of the following:
Raw Materials $1,388,000
Work-In-Process and Finished Goods 1,304,000
----------
$2,692,000
==========
4. Property, Plant and Equipment:
As of February 28, 2002, property, plant, and equipment consist of the
following:
ESTIMATED
USEFUL LIFE
-----------
Leasehold Improvements $ 626,000 The remaining term
of the lease
Machinery and Equipment 1,758,000 5 years
----------
$2,384,000
Less Accumulated Depreciation
And Amortization 1,907,000
----------
$ 477,000
==========
Non-operating Plant Facilities $ 895,000
Less: cost to dispose of non-operating
Plant Facilities ($895,000)
----------
-0-
==========
Non-operating plant facilities at February 28, 2002 represent the Company's Port
Salerno facility, which is no longer being used in operations.
Depreciation and amortization expense was $214,000 and $182,000 for 2002 and
2001, respectively.
5. Accrued Expenses:
As of February 28, 2002 accrued expenses and other liabilities consist of the
following:
Payroll and related employee benefits $ 246,000
Property taxes 216,000
Other liabilities 42,000
Interest Payable 767,000
----------
$1,271,000
==========
33
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Other Long-Term Liabilities:
As of February 28, 2002, other long-term liabilities consist of the following
pre-petition items:
Accrued Environmental Expenses $ 806,000
Accounts Payable-Pre-petition 421,000
Deferred Rent 9,000
County Property Tax Payable 70,000
----------
$1,306,000
Less: non-current portion of cost to
dispose of non-operating Facilities ($876,000)
----------
$ 430,000
==========
Contractual or estimated payment requirements on other long-term liabilities
excluding amounts representing interest during the next five years and
thereafter are as follows. It is reasonably possible that the estimates could
change in the near term:
YEAR ENDING
FEBRUARY 28 TOTAL
----------- ----------
2003 $ 344,000
2004 356,000
2005 50,000
2006 9,000
2007
Thereafter 547,000
----------
Subtotal 1,306,000
Less: value netted against assets (876,000)
----------
Net Long Term Liabilities $ 430,000
==========
Imputed interest expense for fiscal years ended February 28, 2002 and 2001
amounted to $44,000 and $62,000 relating to accounts payable - pre-petition.
7. Income Taxes:
At February 28, 2002, the Company has net operating loss carryforwards of
approximately $15,651,000 that expire through 2022. Such net operating losses
are available to offset future taxable income, if any. As the utilization of
such operating losses for tax purposes is not assured, the deferred tax asset
has been fully reserved through the recording of a 100% valuation allowance.
Should a cumulative change in the ownership of more than 50% occur within a
three-year period, there could be an annual limitation on the use of the net
operating loss carryforward.
Deferred tax assets are comprised of the following at February 28, 2002:
Loss carry forwards $5,947,000
Accounts Receivable Reserve 2,000
Inventory Reserves 3,242,000
----------
Gross deferred tax asset 9,191,000
Deferred tax asset valuation allowance (9,191,000)
----------
Net deferred tax $ --
==========
34
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Income taxes (continued):
A reconciliation of the provision for income taxes to the amount calculated
using the statutory federal rate (34%) for fiscal year end February 28, 2001 and
2002 is as follows:
2002 2001
---------- ----------
Income Tax Provision at
Federal Statutory Rates $ (142,000) $ 204,000
State Taxes (16,000) 38,000
Utilization of Net Operating
Loss Carry forward (242,000)
---------- ----------
Increase in Valuation Allowance 158,000 --
---------- ----------
Income Tax Provision $ -- $ --
========== ==========
8. Stock Options:
Pursuant to agreements dated October 20, 1992 and August 20, 1993, the Company's
President was granted options, which entitle him to purchase 8.5% of the common
stock of the Company (175,636 shares at February 28, 1999, subject to adjustment
as defined in the Agreement) for an aggregate exercise price of $21,955. These
options are set to expire during 2002, 2003, 2004 and 2005 in equal amounts. The
options are fully vested.
On July 17, 2000 the Board of Directors granted Stock options to certain key
employees. The options, which become vested on July 18, 2001, were for a total
number of 32,750 shares and the exercise price was fixed at $0.670 per share,
which was the price on the OTCBB at the time of the grant. The options are
exercisable through July 17, 2010. In December 2000 another grant equal to 10%
of the outstanding shares (206,873) was made to Mr. Saraf at the exercisable
price of $0.400 per share. Fifty percent (50%) of the total number of shares is
immediately exercisable and the other 50% vests in five equal installments over
the following five years.
The Company complies with SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION." As permitted by SFAS No. 123, the Company continues to follow the
measurement provisions of Accounting Principles Board Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and does not recognize compensation
expense for its stock based incentive plan. Had compensation cost been
determined based on the fair value on the grant dates consistent with the
methodology prescribed by SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro-forma amounts indicated below.
FOR THE YEAR ENDED FOR THE YEAR ENDED
FEBRUARY 28, 2002 FEBRUARY 28, 2001
---------- ----------
Net Results:
As reported $ (417,000) $ 637,000
Pro-forma (437,000) 617,000
Earnings per share:
As reported - basic (0.20) .31
- Diluted (0.20) .28
Pro-forma - basic (0.21) .30
- Diluted (0.21) .27
The pro-forma amounts may not be indicative of future pro-forma income and
earnings per share.
35
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. Stock Options (continued):
The fair value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions applied to grants in 2001:
2001
------
Dividend Yields 0.0%
Expected Volatility 635.4%
Risk-free Interest Rates 6.0%
Expected Life (in years) 10.0
Because the determination of the fair value of all options is based on the
assumptions described in the preceding paragraph and, because additional option
grants are expected to be made each year, the above pro-forma disclosures are
not representative of pro-forma effects on reported net income or loss for
future years.
Below is a summary of the Company's Stock Option Plan.
AVERAGE
SHARES PRICE
---------- ----------
Outstanding February 29, 2000 213,636 0.245
---------- ----------
Granted 239,623 0.437
Expired or Canceled (2,000) 0.636
---------- ----------
Outstanding 451,259 0.345
---------- ----------
Granted -- --
Expired or Canceled (6,750) 0.657
---------- ----------
Outstanding February 28, 2002 444,509 $ 0.340
========== ==========
There were no options granted during the year ended February 28, 2002. The
weighted average fair value of options granted during the year ended February
28, 2001 was $0.43.
The following table summarizes information about stock options outstanding and
exercisable at February 28, 2002:
OPTIONS OUTSTANDING
----------------------------------------- EXERCISABLE OPTIONS
WEIGHTED AVERAGE ------------------------
NUMBER OF ------------------------ WEIGHTED
OUTSTANDING REMAINING NUMBER AVERAGE
RANGE OF SHARES AT CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES 2/28/02 LIFE PRICE 2/28/02 PRICE
----------------- ------- ------- ------- ------- -------
$ 0.125 $ 0.125 175,636 3 years $ 0.125 175,636 $ 0.125
$ 0.156 $ 0.156 8,000 5 years $ 0.156 8,000 $ 0.156
$ 0.400 $ 0.400 206,873 9 years $ 0.400 124,124 $ 0.400
$ 0.625 $ 0.625 21,000 7 years $ 0.625 21,000 $ 0.625
$ 0.670 $ 0.670 27,500 8 years $ 0.670 27,500 $ 0.670
$ 2.500 $ 2.500 5,500 3 years $ 2.500 5,500 $ 2.500
------- -------
444,509 361,760
======= =======
36
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
9. Employee Benefit Plans:
The Company has a 401K and Profit Sharing Plan (the "Profit Sharing Plan") in
which substantially all employees may participate after one year of service.
Contributions to the Profit Sharing Plan by participants are voluntary. The
Company may match participant's contributions up to 25% of 4% of each
participant's annual compensation. In addition, the Company may make additional
contributions at its discretion. The Company did not contribute to the Profit
Sharing Plan during the fiscal years ended February 28, 2002 and 2001.
10. Export Sales and Major Customers:
Revenues from domestic and export sales to unaffiliated customers are as
follows:
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
2002 2001
---------- ----------
Export sales:
Europe $ 201,000 $ 505,000
Canada and Latin America 171,000 112,000
Far East and Middle East 105,000 149,000
United States 5,922,000 7,224,000
---------- ----------
$6,399,000 $7,990,000
========== ==========
Sales to the Company's top three customers accounted for 56% of net sales for
the year ended February 28, 2002 as compared with 62% of the Company's net sales
for the year ended February 28, 2001.
Sales to Raytheon Company accounted for 39% for the year ended February 28, 2002
and 35% for the year ended February 28, 2001. Sales to Lockheed Martin accounted
for 6% for the year ended February 28, 2002 and 14% for the year ended February
28, 2001.
During the fiscal year ended February 28, 2002, the US Government was the only
other customer who accounted for 10% or more of net sales with a total that
represented 11% as compared to just under 13% for the fiscal year ended February
28, 2001.
11. Extraordinary Item:
During the year ended February 28, 2001, the Company bought, at a discount,
certain debt obligations with various unsecured creditors, resulting in an
extraordinary gain of $81,000 ($.04 per share). During the year ended February
28, 2002, the Company had extraordinary gains, which totaled approximately
$6,000. Included in extraordinary gains was the settlement of a debt obligation
to an unsecured creditor which the Company bought at a discount, resulting in an
extraordinary gain of $2,000 ($0.00 per share), and the extinguishment of debt
to a vendor for approximately $4,000 ($0.00 per share). There were no income tax
effects as a result of these events.
37
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Commitments and Contingencies:
Employment Agreement:
--------------------
In December 2000, the Company entered into a five year employment agreement with
its President. This agreement provides, among other things, for annual
compensation of $240,000 and a bonus pursuant to a formula. The agreement
stipulates that the President shall be entitled to a bonus equal to fifteen
percent (15%) of pre-tax income in excess of Two Hundred Fifty Thousand Dollars
($250,000). For purposes of the agreement, "pre -tax income" shall mean net
income before taxes, excluding (i) all extraordinary gains or losses, (ii) gains
resulting from debt forgiven associated with the buyout of unsecured creditors,
and (iii) any bonuses paid to employees. The bonus payable hereunder shall be
paid within ninety (90) days after the end of the fiscal year. The employer's
regularly retained independent auditor, shall make the determination of "pre-tax
income" after consultation with the Board of Directors Compensation Committee,
which determination shall be final and conclusive on the parties hereto. The
President of the Company voluntarily took a 30 % reduction in compensation at
the time that salary reductions, ranging from 6% to 12%, went into effect for
all of the employees of the Company.
The President's employment agreement stipulates, in Article 2.2, "Option to
Extend", that the contract is automatically extended for one year periods unless
a notice is given by either party one year prior to the yearly anniversary.
Upon execution of the agreement, the President received a grant of options to
purchase ten percent (10%) of the outstanding shares of the Company's common
stock, par value $.01 calculated on a fully diluted basis, at an exercise price
per share equal to the closing asking price of the Company's common stock on the
NASDAQ Over-the-Counter Bulletin Board (the "OTCBB") on the date of the grant
($0.40). Fifty percent (50%) of the Initial Stock Options granted are vested
immediately upon grant. The remaining fifty percent (50%) of the Initial Stock
Options will vest in equal amounts on each of the first five anniversaries of
the date of grant.
These stock options are in addition to, and not in lieu of or in substitution
for, the Stock Options (the "1992 Stock Options") granted to employee pursuant
to the Incentive Stock Option Plan Agreement under Solitron Devices, Inc. 1987
Stock Option Plan dated October 20, 1992 between the Company and the employee.
In July 2001, the Board of Directors approved a bonus payment to the President
of $56,430 for the year ended February 28, 2001. This bonus was paid out in cash
in July 2001, and charged to expense in February 2001. No bonus was accrued for
the year ending February 28, 2002.
Environmental Compliance:
-------------------------
The Company is currently engaged in negotiations with the United States
Environmental Protection Agency ("USEPA") to resolve the Company's alleged
liability to USEPA at the following sites: Solitron Microwave Superfund Site,
Port Salerno, Florida; Petroleum Products Corporation Superfund Site, Pembroke
Park, Florida; Casmalia Disposal Superfund Site, Santa Barbara County,
California; and Solitron Devices Site, Riviera Beach, Florida. USEPA contends
that the Company is liable for a share of past and future costs incurred by
USEPA in connection with the investigation and remediation of the four (4)
sites. At a meeting with USEPA on March 23, 2001, USEPA contended that the
Company's alleged share of liability at the four (4) sites totals approximately
$8 million, which USEPA broke down on a site by site basis as follows: Solitron
Microwave, Port Salerno-$3.8 million; Petroleum Products - $150,000; Casmalia
Disposal - $2.7 million; and Solitron Devices, Riviera Beach - $1 million.
In addition to the claims asserted by USEPA against the Company at the Petroleum
Products Corporation and Casmalia Disposal Superfund Sites, claims have been
asserted against the Company by groups of alleged responsible parties formed at
each of these two sites for all past and future cleanup expenses incurred or to
be incurred by the respective groups. During the negotiations with USEPA to
resolve the Company's alleged liability at all four (4) sites, the Company was
advised by USEPA that a settlement with USEPA would most likely resolve the
claims of the groups of
38
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Commitments and Contingencies (continued)
alleged responsible parties formed at the Petroleum Products Corporation and
Casmalia Disposal Superfund Sites. Preliminary communications with attorneys
representing the respective groups support USEPA's representations in this
regard.
The Company contends that the claims of USEPA and the private parties referenced
above were discharged in bankruptcy pursuant to the Bankruptcy Court's Order
Confirming Solitron's Fourth Amended Plan of Re-Organization, entered in August
1993. Nevertheless, the Company is negotiating with USEPA to settle its
outstanding liability at all four (4) sites based on an ability to pay ("ATP")
determination. Under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"), the United States may enter into ATP
settlements with individuals and businesses for recovery of response costs and
performance of cleanup work in appropriate cases. The ATP settlement process is
reserved for potentially responsible parties ("PRPs") who demonstrate to USEPA's
satisfaction that payment of the amount sought by the government is likely to
put an entity out of business or otherwise jeopardize its viability by creating
an undue financial hardship. An undue financial hardship occurs if, in the
opinion of USEPA, satisfaction of the environmental claim will deprive a PRP of
ordinary and necessary assets or cause a PRP to be unable to pay for ordinary
and necessary business expenses and/or ordinary and necessary living expenses.
The ATP settlement process provides for a reduction in the proposed settlement
to an amount that, in the USEPA's estimation, is not likely to create an undue
financial hardship.
In connection with the foregoing settlement negotiations, the Riviera Beach
Property was sold on October 12, 1999 by the Company. Under the terms of the
sale, the USEPA received the net proceeds of $419,000. USEPA also received
approximately $19,000 from the Riviera Beach environmental escrowed monies to
defray its cleanup costs. Additionally, the Company has offered and USEPA has
agreed to accept the net proceeds of the sale resulting from the sale of the
Solitron Microwave Port Salerno Site. Sale of the Port Salerno Site is currently
the subject of negotiations between the Company and a prospective purchaser. In
addition, USEPA has advised the Company that the Company will be required to
contribute additional funds to effect the settlement. The Company was advised in
March 2000 that USEPA had determined initially that USEPA's model evaluating the
Company's ability to pay determined that the Company could contribute an
additional $80,000 plus a percentage of profits to effect the settlement. On May
20, 2002, the Company submitted it's ATP settlement offer to USEPA, the
substantial provisions of which included payment of the sum of $65,000.00 over
two years, and payment to USEPA of 5% of Solitron's net after tax income over
the first $500,000.00, if any, for years 3-7 following the effective date of the
settlement. USEPA is currently considering the Company's offer. Once the Company
and USEPA have reached agreement on the ATP negotiations, it is anticipated that
USEPA will recommend to the PRP groups at the Petroleum Products Corporation and
Casmalia Disposal Superfund Sites that the respective groups release the Company
from further liability at either site upon the Company's compliance with the ATP
settlement terms and conditions.
39
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Commitments and Contingencies (continued)
Operating Leases:
----------------
The Company has entered into a new lease agreement for its production facility.
The lease has a 10-year term which expires in the year 2011 and has no option to
renew under current terms. The lease is subject to escalations based on
operating expenses. Future minimum lease payments for all non-cancelable
operating leases are as follows:
FISCAL YEAR ENDING FEBRUARY 28/29 AMOUNT
--------------------------------- ---------
2003 379,000
2004 390,000
2005 402,000
2006 414,000
2007 427,000
Thereafter 2,248,000
---------
Total 4,260,000
=========
Total rent expense was $353,000 for the year ended February 28, 2002 as compared
with $317,000 for the year ended February 28, 2001. These figures include rental
of storage space, which is made on a month-to-month basis.
In connection with the Vector Purchase Agreement, the Company entered into a
sublease agreement whereby S/V Microwave had agreed to reimburse the Company for
one-third of the above noted rental obligations in exchange for S/V Microwave's
use of approximately one-third of the facility. From January 1997 through
December 2001, S/V Microwave made these payments directly to the landlord. S/V
Microwave terminated the sublease at its original termination date of December
31, 2001 and has left the premises. The Company renegotiated a new lease to
exclude the area previously utilized by S/V Microwave. The Company, accordingly
with the terms of the new lease, had walls constructed and utilities divided so
that the space previously occupied by S/V Microwave would be completely separate
from the space occupied by The Company. The new lease is for a term of ten years
ending December 31, 2011 and does not contain a renewal option.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
40
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
-------------------------------------------------------------------
SECTION 16(a) OF THE EXCHANGE ACT
---------------------------------
The table below sets forth the name, age, and position of the directors and
executive officers of the Company. The table below also sets forth the year in
which each of such directors was first elected to the Board and the year in
which the term of each of such directors expires. Pursuant to the Company's
Certificate of Incorporation, the Board of Directors is divided into three
classes, each of which consists of (as nearly as may be possible) one third of
the directors. Directors are elected for three-year terms. Pursuant to the Plan
of Reorganization, all shares of Common Stock issued to Vector and its
participants and to the holders of allowed unsecured claims must be voted for
all purposes (including the election of members of the Board of Directors) as
directed by the Board of Directors. Pursuant to the Plan of Reorganization,
Vector originally owned 25% and the holders of allowed unsecured claims own an
aggregate of 40% of all shares of Common Stock issuable pursuant to the Plan of
Reorganization (other than shares issuable to Mr. Saraf upon the exercise of
options granted prior to the Effective Date). On October 4, 1994, the Company
and Vector agreed that 25% of Vector stock would be redistributed between six
parties (see Note 2 the Consolidation Financial Statements). Five original
Vector participants continue to be subject to the voting restrictions as long as
they or their affiliates hold Solitron stock.
YEAR
FIRST TERM AS
BECAME DIRECTOR
NAME AGE POSITION WITH SOLITRON DIRECTOR EXPIRES(1)
---- --- ---------------------- -------- ----------
Shevach Saraf 59 Chairman of the Board, 1992 Expired
Chief Executive Officer,
President and Treasurer
Mr. Jacob Davis 65 Director 1996 Expired
Mr. Joseph Schlig 74 Director 1996 Expired
(1) The term of each Director has expired. Each Director shall continue in
office until his successor is elected at the next annual meeting of
stockholders.
Mr. Shevach Saraf has been President of the Company since November 1992, Chief
Executive Officer of the Company since December 1992 and Chairman of the Board
since September 1993. He has 41 years experience in operations and engineering
management with electronics and electromechanical manufacturing companies.
Before joining Solitron in 1992, Mr. Saraf was Vice President of Operations and
a member of the Board of Directors of Image Graphics, Inc., a military and
commercial electron beam recorder manufacturer based in Shelton, CT. As head of
the Company's engineering, manufacturing materials and field service operations,
he turned around the firm's chronic cost and schedule overruns to on-schedule
and better-than-budget performance. Earlier, he was President of Value Adding
Services, a management consulting firm in Cheshire, CT. The Company provided
consulting and turnaround services to electronics and electromechanical
manufacturing companies with particular emphasis on operations. From 1982-1987,
Mr. Saraf was Vice President of operations for Harmer Simmons Power Supplies,
Inc., a power supplies manufacturer in Seymour, CT. He founded and directed all
aspects of the Company's startup and growth, achieving $12 million in annual
sales and a staff of 180 employees. Mr. Saraf also held executive positions with
Photofabrication Technology, Inc. and Measurements Group of Vishay
Intertechnology, Inc.
Born and raised in Tel Aviv, Israel, he served in the Israeli Air Force from
1960-1971 as an electronics technical officer. He received his master's in
business administration from Rensselaer Polytechnic Institute, Troy, NY, and his
master's in management from Rensselaer at Hartford (formerly known as Hartford
[CT] Graduate Center). He also received associate degrees from the Israeli
Institute of Productivity, the Teachers & Instructors Institute, and the Israeli
Air Force Technical Academy.
41
Mr. Jacob (Jay) A. Davis was elected a Director of the Company on August 26,
1996. He is Vice President of Business Planning and Finance for AET, Inc, a
developing, Melbourne, Florida based software company. In 1994 and 1995, he was
Visiting Professor in Engineering Management at Florida Institute of Technology.
He is presently Vice-Chairman of the Brevard SCORE Chapter and devotes
significant time to counseling with local businesses. He is an active member of
the International Executive Service Corps (IESC) serving in South Russia during
May and June of 1996.
Prior to joining AET, Mr. Davis was with Harris Semiconductor for 26 years.
During the last 12 years with Harris Semiconductor, he was Vice
President-General Manager of the Military and Aerospace Division, the Custom
Integrated Circuits Division and the Harris Microwave Division. Dr. Davis has
served in a variety of other capacities at Harris Semiconductor including Vice
President of Engineering, Director of Manufacturing, Director of Special
Services, and Device Research Engineer.
Mr. Davis received a doctor of philosophy from Purdue University in 1969 and a
bachelors of science in electrical engineering from North Carolina State
University. He is a Member of the IEEE and the Electrochemical Society, and has
served on a variety of advisory boards for several Universities. He holds four
patents and has given a number of overview papers and invited presentations at
several conferences.
Mr. Joseph Schlig was elected a Director of the Company on August 26, 1996. He
is Managing Director of Fairhaven Associates, a professional consulting firm
supporting small and medium size businesses in strategic planning; financial,
marketing and operations management and organizational development. From 1995 to
1997, Mr. Schlig also served as Chief Financial Officer of Industrial
Technologies, Inc. For the prior five years, Mr. Schlig was a business
consultant to private companies and to the State of Connecticut Department of
Economic Development. Mr. Schlig has many years of business experience including
Director of Marketing, Latin America for ITT and Director of International
Operations for Revlon. Mr. Schlig has also operated several small/medium size
companies in both the public and private sectors. He also serves as a director
of the Trumbull Technology Foundation, the Bridgeport Economic Development
Corporation, and the MIT Enterprise Forum of Connecticut. Mr. Schlig has an
engineering degree from the Stevens Institute of Technology and an MBA from the
Harvard Business School where he was a Baker Scholar. Mr. Schlig is a member of
the Audit and Compensation Committees.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and executive officers of the Company and ten percent stockholders of
the Company to file initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company with the
Securities and Exchange Commission. Directors, executive officers, and ten-
percent stockholders are required to furnish the Company with copies of all
Section 16(a) forms they file. Based upon a review of the copies of Section
16(a) filings furnished to the Company and written representations from the
Company's current executive officers, directors and ten percent stockholders,
the Company believes that during the fiscal year ended February 28, 2002,
directors, executive officers and ten percent stockholders of the Company
complied with Section 16(a) filing requirements applicable to them.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Summary Compensation Table
--------------------------
The following table provides certain summary information concerning compensation
paid by the Company, to or on behalf of the Company's Chief Executive Officer
for the fiscal years ended February 28, 2002, 2001 and February 29, 2000.
ANNUAL COMPENSATION
----------------------------------------------
YEAR OTHER
ENDED ANNUAL
NAME AND FEBRUARY COMPEN-
PRINCIPAL POSITION 28/29 SALARY ($) BONUS ($) SATION($)
------------------ ------ ---------- --------- ---------
Shevach Saraf 2000 166,727 40,000 19,303
Chairman of the Board., 2001 184,459 58,327 111,439
Chief Executive Officer, 2002 188,030 56,430 53,441
President and Treasurer
42
In December 2000, the Company entered into a five-year employment agreement with
its President and CEO. This agreement provides, among other things, for annual
compensation of $240,000 and a bonus pursuant to a formula. The agreement
stipulates that the President shall be entitled to a bonus equal to fifteen
percent (15%) of pre-tax income in excess of Two Hundred Fifty Thousand Dollars
($250,000). For purposes of the agreement, "pre -tax income" shall mean net
income before taxes, excluding (i) all extraordinary gains or losses, (ii) gains
resulting from debt forgiven associated with the buyout of unsecured creditors,
and (iii) any bonuses paid to employees. The bonus payable hereunder shall be
within ninety (90) days after the end of the fiscal year. The determination of
"pre-tax income" shall be made by the employer's regularly retained independent
auditor, after consultation with the Board of Directors Compensation Committee,
which determination shall be final and conclusive on the parties hereto.
The President's employment agreement stipulates that the contract is
automatically extended for one year periods unless a notice is given by either
party one year prior to the yearly anniversary.
Upon execution of the agreement, the President received a grant to purchase ten
percent (10%) of the outstanding shares of the Company's common stock, par value
$.01 calculated on a fully diluted basis, at an exercise price per share equal
to the closing asking price of the Company's common stock on the NASDAQ
Over-the-Counter Bulletin Board (the "OTCBB") on the date of the grant ($0.40).
Fifty percent (50%) of the initial stock options granted are vested immediately
upon grant. The remaining fifty percent (50%) of the initial stock options will
vest in equal amounts on each of the first five anniversaries of the date of
grant.
These stock options are in addition to, and not in lieu of or in substitution
for, the Stock Options (the "1992 Stock Options") granted to employee pursuant
to the Incentive Stock Option Plan Agreement under Solitron Devices, Inc. 1987
Stock Option Plan dated October 20, 1992 between the Company and the employee.
The President of the Company voluntarily took a 30% reduction in compensation at
the time that salary reductions, ranging from 6% to 12%, went into effect for
all of the employees of the Company.
In July 2001, the Board of Directors approved a bonus payment to the President
of $56,430 for the year ended . This bonus was paid out in cash in July 2001,
and charged to expense in February 2001. In the fiscal year 2002, no bonus has
been accrued.
Executive officers of the Company may also participate in the Company's 1987
Stock Option Plan, the Company's Deferred Compensation Plan and the Company's
Employee 401-K and Profit Sharing Plan (the "Profit Sharing Plan"). During the
fiscal year ended , no amounts were deferred by executive officers under the
Company's Deferred Compensation Plan and the Company did not match any employee
contributions to the Profit Sharing Plan.
Aggregated Option Exercises and Fiscal Year-End Option Values
-------------------------------------------------------------
The following table sets forth certain summary information covering unexercised
options to purchase the Company's Common Stock as of February 28, 2002 held by
the Company's Chief Executive Officer. The Company's Chief Executive Officer did
not exercise any stock options during the fiscal year ended February 28, 2002.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS HELD AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
NAME AND --------------------------- ---------------------------
PRINCIPAL POSITION EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ----------- ------------- ----------- -------------
Shevach Saraf,
Chairman of the Board,
Chief Executive Officer,
President & Treasurer 299,760 82,749 $59,952 $16,550
Director Remuneration
---------------------
Each director who is not employed by the Company receives $1,000 for each
meeting of the Board he attends and $250 for each committee meeting he attends
on a date on which no meeting of the Board is held. In addition, all
out-of-pocket expenses incurred by a director in attending Board or committee
meetings are reimbursed by the Company.
43
Total fees paid to all directors for attendance at Board and committee meetings
amounted to $8,000 for the fiscal year ended February 28, 2002.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 28, 2002 by (i) all directors, (ii) the
Chief Executive Officer, (iii) all officers and directors of the Company as a
group, and (iv) each person known by the Company to beneficially own in excess
of 5% of the Company's outstanding Common Stock.
The Company does not know of any other beneficial owner of more than 5% of the
outstanding shares of Common Stock other than as shown below. Unless otherwise
indicated below, each stockholder has sole voting and investment power with
respect to the shares beneficially owned. Except as noted below, all shares were
owned directly with sole voting and investment power.
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED (1) OUTSTANDING SHARES (1)
---------------- ---------------------- ----------------------
Shevach Saraf
3301 Electronics Way 602,351 (2) 29.11%
West Palm Beach, FL 33407
Dr. Jacob Davis
370 Franklyn Avenue 13,000 (2) *
Indialantic, FL 32903
Joseph Schlig
129 Mayfield Drive 13,000 (2) *
Trumbull, CT 06611
All Executive Officers and
Directors as a Group (3 persons) 628,351 (2) 30.37%
John Stayduhar Revocable Trust 427,848 20.66%
c/o Boyes & Farina
1001 Forum Place, Suite 900
West Palm Beach, FL 33401
Bruce Paul 231,500 11.18%
Hampton Road
Purchase, NY 10577
* Less than 2%
(1) For purposes of this table, beneficial ownership is computed pursuant
to rule 13d-3 under the Securities Exchange Act of 1934, as amended;
the inclusion of shares beneficially owned should not be construed as
an admission that such shares are beneficially owned for purposes of
Section 16 of such Act.
(2) Includes shares that may be acquired upon exercise of options that are
exercisable within sixty (60) days in the following amounts: Mr. Saraf
- 382,197 shares; Mr. Schlig - 13,000 shares; Mr. Davis - 13,000
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None
44
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS
2.1 Debtors' Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated September 3,
1993, as amended by the Company's Form 8-K/A, dated October 12, 1993).
2.2 Debtors' First Modification of Fourth Amended Plan of Reorganization of
the Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated October
12, 1993).
2.3 Order Confirming Debtors' Fourth Amended Plan of Reorganization of the
Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated October
12, 1993).
2.4 Consent Final Judgment of the Company (incorporated by reference to the
Company's Form 8-K, dated September 3, 1993, as amended by the Company's
Form 8-K/A, dated October 12, 1993).
3.1 Certificate of Incorporation of the Company (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
3.2 Bylaws of the Company (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993).
4.1 Rights Agreement dated as of May 31, 2001, between Solitron Devices,
Inc. and Continental Stock Transfer & Trust Company, as Rights Agent
(incorporated by reference to the Company's current report on Form 8-K
filed on June 20, 2001).
10.1 1987 Incentive Stock Option Plan (incorporated by reference to the
Company's Form 10-K for the years ended February 28, 1994 and February
28, 1995).
10.2 Purchase Agreement, dated October 5, 1992, by and among Solitron
Devices, Inc. Solitron Specialty Products, Inc. (f/k/a Solitron
Microwave, Inc.) and Vector Trading and Holding Corporation, along with
and as amended by: (i) Amendment Number One to Purchase Agreement, dated
October 28, 1992, by and among Solitron Devices, Inc., Solitron
Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation; (ii) Order, dated December 23, 1992,
Authorizing the Sale of Certain of the Debtors' Assets to Vector Trading
and Holding Corporation; (iii) Amendment Number Two to Purchase
Agreement. dated February 28, 1993, by and among Solitron Devices, Inc.,
Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and
Vector Trading and Holding Corporation; and (iv) Order, dated March 4,
1993, Granting Vector Trading and Holding Corporation's Motion for Entry
of Amended Order Authorizing Sale of Certain of the Debtors' Assets
(incorporated by reference to the Company's Form 10-K for the year ended
February 28, 1993).
10.3 Shared Services and Equipment Agreement, dated February 28, 1993, by and
among Solitron Devices, Inc., Solitron Specialty Products, Inc. (f/k/a
Solitron Microwave, Inc.) and S/V Microwave (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
10.4 Commercial Lease Agreement, dated January 1, 1992, between William C.
Clark, as Trustee, and Solitron Devices, Inc. (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
10.5* Reduction in Space and Rent Agreement dated November 1, 2001 between
Solitron Devices, Inc. and Technology Place, Inc.
45
10.6 Employment Agreement, dated December 1, 2000, between Solitron Devices,
Inc. and Shevach Saraf (incorporated by reference to the Company's Form
10-K for the year ended February 28, 2001)
21* List of Subsidiaries of the Company.
(B) REPORTS ON FORM 8-K
None
* Filed herewith
46
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
SOLITRON DEVICES, INC.
/s/ Shevach Saraf
-------------------------------
By: Shevach Saraf
Title: Chairman of the Board,
President and Chief Executive Officer
Date: June 13, 2002
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Shevach Saraf Chairman of the Board, June 13, 2002
----------------------- President, Chief
Shevach Saraf Executive Officer and
Treasurer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
/s/ Jacob Davis Director June 13, 2002
-----------------------
Jacob Davis
/s/ Joseph Schlig Director June 13, 2002
-----------------------
Joseph Schlig
47
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
2.1 Debtors' Fourth Amended Plan of Reorganization of the Company
(incorporated by reference to the Company's Form 8-K, dated September 3,
1993, as amended by the Company's Form 8-K/A, dated October 12, 1993).
2.2 Debtors' First Modification of Fourth Amended Plan of Reorganization of
the Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated October
12, 1993).
2.3 Order Confirming Debtors' Fourth Amended Plan of Reorganization of the
Company (incorporated by reference to the Company's Form 8-K, dated
September 3, 1993, as amended by the Company's Form 8-K/A, dated October
12, 1993).
2.4 Consent Final Judgment of the Company (incorporated by reference to the
Company's Form 8-K, dated September 3, 1993, as amended by the Company's
Form 8-K/A, dated October 12, 1993).
3.1 Certificate of Incorporation of the Company (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
3.2 Bylaws of the Company (incorporated by reference to the Company's Form
10-K for the year ended February 28, 1993).
4.1 Rights Agreement dated as of May 31, 2001, between Solitron Devices,
Inc. and Continental Stock Transfer & Trust Company, as Rights Agent
(incorporated by reference to the Company's current report on Form 8-K
filed on June 20, 2001).
10.1 1987 Incentive Stock Option Plan (incorporated by reference to the
Company's Form 10-K for the years ended February 28, 1994 and February
28, 1995).
10.2 Purchase Agreement, dated October 5, 1992, by and among Solitron
Devices, Inc. Solitron Specialty Products, Inc. (f/k/a Solitron
Microwave, Inc.) and Vector Trading and Holding Corporation, along with
and as amended by: (i) Amendment Number One to Purchase Agreement, dated
October 28, 1992, by and among Solitron Devices, Inc., Solitron
Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and Vector
Trading and Holding Corporation; (ii) Order, dated December 23, 1992,
Authorizing the Sale of Certain of the Debtors' Assets to Vector Trading
and Holding Corporation; (iii) Amendment Number Two to Purchase
Agreement. dated February 28, 1993, by and among Solitron Devices, Inc.,
Solitron Specialty Products, Inc. (f/k/a Solitron Microwave, Inc.) and
Vector Trading and Holding Corporation; and (iv) Order, dated March 4,
1993, Granting Vector Trading and Holding Corporation's Motion for Entry
of Amended Order Authorizing Sale of Certain of the Debtors' Assets
(incorporated by reference to the Company's Form 10-K for the year ended
February 28, 1993).
10.3 Shared Services and Equipment Agreement, dated February 28, 1993, by and
among Solitron Devices, Inc., Solitron Specialty Products, Inc. (f/k/a
Solitron Microwave, Inc.) and S/V Microwave (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
10.4 Commercial Lease Agreement, dated January 1, 1992, between William C.
Clark, as Trustee, and Solitron Devices, Inc. (incorporated by reference
to the Company's Form 10-K for the year ended February 28, 1993).
48
10.5* Reduction in Space and Rent Agreement dated November 1, 2001 between
Solitron Devices, Inc., and Technology Place, Inc.
10.6 Employment Agreement, dated December 1, 2000, between Solitron Devices,
Inc. and Shevach Saraf (incorporated by reference to the Company's Form
10-K for the year ended February 28, 2001)
21* List of Subsidiaries of the Company
* Filed herewith
49