UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 001-04978
Solitron Devices, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-1684144
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3301 Electronics Way, West Palm Beach, Florida 33407
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(Address of principal executive offices)
(561) 848-4311
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(Issuer's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ______
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 14, 2004: 2,080,492.
Transitional Small Business Disclosure Format (check one):
Yes No X
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1
SOLITRON DEVICES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
Page No.
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Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets 3
August 31, 2004 and February 29, 2004
Consolidated Statements of Operations 4
Three and Six Months Ended August 31, 2004 and 2003
Consolidated Statements of Cash Flows 5
Six Months Ended August 31, 2004 and 2003
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-12
Results of Operations
Item 3. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 31, February 29,
2004 2004
------- -------
(Unaudited) (Audited)
(in thousands, except for share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,073 $ 1,883
Accounts receivable 846 988
Inventories 2,495 2,416
Prepaid expenses and other current assets 97 164
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TOTAL CURRENT ASSETS 5,511 5,451
PROPERTY, PLANT AND EQUIPMENT, net 568 562
OTHER ASSETS 68 52
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TOTAL ASSETS $ 6,147 $ 6,065
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of accrued environmental expenses $ 985 $ 966
Accounts payable - Post petition 375 409
Accounts payable-Pre-petition, current portion 829 851
Accrued expenses and other liabilities 1,177 1,189
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TOTAL CURRENT LIABILITIES 3,366 3,415
LONG TERM LIABILITIES, net of current portion 13 33
------- -------
TOTAL LIABILITIES 3,379 3,448
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued -0- -0-
Common stock, $.01 par value, authorized 10,000,000 shares,
2,061,073 shares issued and outstanding 21 21
Additional paid-in capital 2,620 2,620
Retained earnings/(Accumulated deficit) 127 (24)
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TOTAL STOCKHOLDERS' EQUITY 2,768 2,617
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,147 $ 6,065
======= =======
The accompanying notes are an integral part of the financial statements
3
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended August 31, Six Months Ended August 31,
2004 2003 2004 2003
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(in thousands, except for share amounts and per share amounts)
NET SALES $ 1,953 $ 2,009 $ 3,887 $ 4,009
Cost of Sales 1,516 1,646 3,120 3,201
----------- ----------- ----------- -----------
Gross Profit 437 363 767 808
Selling, general and administrative expenses 294 310 612 558
----------- ----------- ----------- -----------
Operating Income 143 53 155 250
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other Income & (Expense), Net 5 113 -0- 134
Interest Expense (1) (6) (3) (11)
----------- ----------- ----------- -----------
Other Income (Expense), Net 4 107 (3) 123
----------- ----------- ----------- -----------
Net Income $ 147 $ 160 $ 152 $ 373
=========== =========== =========== ===========
INCOME PER SHARE: Basic $ 0.07 $ 0.08 $ 0.07 $ 0.18
----------- ----------- ----------- -----------
: Diluted $ 0.07 $ 0.08 $ 0.07 $ 0.18
----------- ----------- ----------- -----------
WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 2,061,073 2,070,821 2,061,073 2,070,821
=========== =========== =========== ===========
: Diluted 2,061,073 2,070,821 2,061,073 2,070,821
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
4
SOLITRON DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31,
2004 2003
------- -------
(Unaudited) (Unaudited)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 152 $ 373
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 91 95
Cancellation of debt -0- (109)
Changes in operating assets and liabilities:
(Increase) Decrease in: Accounts receivable 143 99
Inventories (80) 37
Prepaid expenses and other current assets 67 28
Other assets (16) -0-
Increase (Decrease) in:
Accounts payable (34) (100)
Accounts payable - Pre-Petition (22) (27)
Accrued expenses and other liabilities 62 (14)
Accrued environmental expenses 19 60
Other long term liabilities (19) (60)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 287 458
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (97) (115)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (97) (115)
------- -------
NET INCREASE IN CASH 190 343
CASH AT BEGINNING OF PERIOD 1,883 1,448
------- -------
CASH AT END OF PERIOD $ 2,073 $ 1,791
======= =======
The accompanying notes are an integral part of the financial statements
5
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the results for the interim period.
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-QSB. Pursuant to such rules and regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted.
The information contained in this Form 10-QSB should be read in conjunction with
the Notes to Consolidated Financial Statements appearing in the Company's Annual
Report on Form 10-KSB for the year ended February 29, 2004.
2. ENVIRONMENTAL REGULATION:
While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state, and local laws
and, therefore, is subject to regulations related to their use, storage,
discharge, and disposal. No assurance can be made that the risk of accidental
release of such materials can be completely eliminated. In the event of a
violation of environmental laws, the Company could be held liable for damages
and the costs of remediation and, along with the rest of the semiconductor
industry, is subject to variable interpretations and governmental priorities
concerning environmental laws and regulations. Environmental statutes have been
interpreted to provide for joint and several liability and strict liability
regardless of actual fault. There can be no assurance that the Company and its
subsidiaries will not be required to incur costs to comply with, or that the
operations, business, or financial condition of the Company will not be
materially adversely affected by, current or future environmental laws or
regulations.
The information contained in this Form 10-QSB should be read in conjunction with
the "Business - Environmental Liabilities" section appearing in the Company's
Annual Report on Form 10-KSB for the year ended February 29, 2004.
3. INVENTORIES:
As of August 31, 2004 net inventories consist of the following:
Raw Materials $ 1,438,592
Work-In-Process 1,433,419
Finished Goods 212,254
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Gross Inventory 3,084,265
Reserve (588,976)
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Net Inventory $ 2,495,289
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6
SOLITRON DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVENTORIES (continued):
The raw materials inventory balance reflects purchases and material usage during
the period. Cycle counts are performed in the raw materials stockrooms weekly
and monthly cycle count adjustments are recorded. Work-in-process inventory is
counted and adjusted semiannually. The finished goods inventory balance reflects
shipments from and transfers to the finished goods stockrooms during the period.
The inventory reserve balance is adjusted semiannually for work-in-process and
annually for finished goods and raw materials in conjunction with physical
inventory counts.
As a result of the semiannual work-in-process inventory, the Company recorded an
adjustment of approximately $190,000 to the work-in-process inventory account
and an adjustment of approximately $54,000 to the inventory reserve account.
4. RECENT 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. Also, Management believes that
accounting standards adopted during fiscal year 2004 are not applicable to the
Company.
5. INCOME TAXES:
At February 29, 2004, the Company had net operating loss carryforwards of
approximately $15,487,000 that expire through 2022. Such net operating losses
are available to offset future taxable income, if any. As of August 31, 2004,
the Company has net income of approximately $152,000 which will be offset by the
net operating loss carryforwards resulting in no income tax liability for the
fiscal year.
6. SUBSEQUENT EVENTS:
As a result of Hurricanes Frances and Jeanne, the company was forced to stop
operations for fifteen calendar days and operated at a reduced production output
capacity for five additional business days. Additionally, the Company suffered
damage to certain of its manufacturing equipment. While the Company cannot at
this time fully assess the financial impact of Hurricanes Frances and Jeanne and
the resulting shutdowns, the Company estimates that it has suffered a loss of
approximately $500,000 to $550,000 of net sales. The Company estimates that the
damage to certain of its manufacturing equipment is approximately $20,000 to
$30,000. It is uncertain what amount, if any, of insurance proceeds will be
available to offset these losses.
As previously disclosed in the Company's filings with the Securities and
Exchange Commission (the "SEC"), the Southeast Regional Office of the SEC
conducted a formal investigation concerning the Company. The SEC investigation
focused on the propriety of the Company's past accounting. The Company produced
documents to the SEC, and the SEC took sworn testimony from several individuals.
On October 4, 2004, the SEC advised the Company that it had terminated its
investigation and that no enforcement action has been recommended.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of operations
Overview:
Solitron Devices, Inc., a Delaware corporation (the "Company" or "Solitron"),
designs, develops, manufactures and markets solid-state semiconductor components
and related devices primarily for the military and aerospace markets. The
Company manufactures a large variety of bipolar and metal oxide semiconductor
power transistors, power and control hybrids, junction and MOS field effect
transistors and other related products. Most of the Company's products are
custom made pursuant to contracts with customers whose end products are sold to
the United States government. Other products, such as Joint Army Navy
transistors, diodes and Standard Military Drawings voltage regulators, are sold
as standard or catalog items.
The following discussion and analysis of factors which have affected the
Company's financial position and operating results during the periods included
in the accompanying condensed consolidated financial statements should be read
in conjunction with the Consolidated Financial Statements and the related Notes
to Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-KSB for the year ended February 29, 2004 and the Condensed
Consolidated Financial Statements and the related Notes to Condensed
Consolidated Financial Statements included in Item 1 of this Quarterly Report on
Form 10-QSB.
Critical Accounting Policies:
Our financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management's application of accounting
policies. Our critical accounting policies include inventories, valuation of
plant, equipment and intangible assets, revenue recognition and accounting for
income taxes. A discussion of all of these critical accounting policies can be
found in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of our Annual Report on Form 10-KSB for the
fiscal year ended February 29, 2004.
Subsequent Events:
As a result of Hurricanes Frances and Jeanne, the company was forced to stop
operations for fifteen calendar days and operated at a reduced production output
capacity for five additional business days. Additionally, the Company suffered
damage to certain of its manufacturing equipment. While the Company cannot at
this time fully assess the financial impact of Hurricanes Frances and Jeanne and
the resulting shutdowns, the Company estimates that it has suffered a loss of
approximately $500,000 to $550,000 of net sales. The Company estimates that the
damage to certain of its manufacturing equipment is approximately $20,000 to
$30,000. It is uncertain what amount, if any, of insurance proceeds will be
available to offset these losses.
Trends and Uncertainties:
During the twelve months ended August 31, 2004, the Company's book-to-bill ratio
was approximately as follows: three months 0.58; six months 0.75; nine months
0.93; twelve months 1.04. The Company believes that the decrease in the
book-to-bill ratio may indicate a specific trend in the demand for the Company's
products as a result of delays in contracts awarded by the Department of Defense
for programs that the Company participates in. Also, a major contributing factor
is the fact that a major supplier of semiconductor die increased prices 10 to 15
times since the beginning of calendar year 2004. This price increase requires
prime contractors to renegotiate their contracts with their customers,
contributing to additional delays and possible reduction in quantity of products
to be placed on order with the Company. Generally, the intake of orders over the
last 2 years has varied greatly as a result of the fluctuations in the general
economy and of variations in defense spending on programs the Company supports,
which is expected to continue over the next twelve months. The Company continues
to identify means intended to reduce its variable manufacturing costs to offset
the potential impact of low volume of orders to be shipped should a slow down in
the intake of orders continue. However, should order intake fall significantly
below the level experienced in the last twelve months, the Company might be
required to implement further cost cutting or other downsizing measures to
continue its business operations.
8
Results of Operations-Three Months Ended August 31, 2004 Compared to Three
Months Ended August 31, 2003:
Net sales for the three months ended August 31, 2004 decreased approximately 3%
to $1,953,000 as compared to $2,009,000 for the three months ended August 31,
2003. This decrease was primarily attributable to a lower level of orders that
were shipped in accordance with customers' requirements.
As a result of the semiannual work-in-process inventory, the Company recorded an
adjustment of approximately $190,000 to the work-in-process inventory account
and an adjustment of approximately $54,000 to the inventory reserve account.
Cost of sales for the three months ended August 31, 2004 decreased to $1,516,000
from $1,646,000 for the comparable period in 2003. Expressed as a percentage of
sales, cost of sales decreased to 78% from 82% for the same periods. This change
was due mainly to a decrease in material costs (25% vs. 30%).
Gross profit for the three months ended August 31, 2004 increased to $437,000
from $363,000 for the three months ended August 31, 2003. Accordingly, gross
margins on the Company's sales increased to 22% for the three months ended
August 31, 2004 in comparison to 18% for the three months ended August 31, 2003.
This change was due mainly to a decrease in material costs.
For the three months ended August 31, 2004, the Company shipped 59,705 units as
compared with 76,026 units shipped during the same period of the prior year. It
should be noted that since the Company manufactures a wide variety of products
with an average sale price ranging from less than one dollar to several hundred
dollars, such periodic variations in the Company's volume of units shipped
should not be regarded as a reliable indicator of the Company's performance.
The Company's backlog of open orders decreased 14% for the three months ended
August 31, 2004, equaling the decrease of 14% for the three months ended August
31, 2003. Changes in the backlog reflect changes in the intake of orders.
The Company has experienced a decrease in the level of bookings of approximately
10% for the quarter ended August 31, 2004 as compared to the same period for the
previous year principally as a result of a lower demand for its products in this
period. The decrease is also attributed to increases in material costs mentioned
in the Trends and Uncertainties Section.
Selling, general, and administrative expenses decreased to approximately
$294,000 for the three months ended August 31, 2004 from $310,000 for the
comparable period in 2003. During the three months ended August 31, 2004,
selling, general, and administrative expenses as a percentage of sales remained
at 15% as compared with 15% for the three months ended August 31, 2003. Included
in selling, general and administrative expenses for the three month period was
an increase in legal fees of approximately $22,000 as compared with the same
period in 2003. Of this increase in legal fees, $13,000 is a result of the
ongoing formal investigation by the SEC and $9,000 is a result of our dispute
with our landlord.
Operating Income for the three months ended August 31, 2004 increased to
approximately $143,000 from $53,000 for the three months ended August 31, 2003.
This increase is due mainly to a higher gross profit.
9
The Company recorded a net other income of $4,000 for the three months ended
August 31, 2004 versus a net other income of $107,000 for the three months ended
August 31, 2003. This decrease was due primarily to other income resulting from
the settlement of a debt obligation to an unsecured creditor which was recorded
in the quarter ended August 31, 2003.
Net income for the three months ended August 31, 2004 decreased to a profit of
$147,000 from a profit of $160,000 for the same period in 2003. This decrease
was due primarily to other income resulting from the settlement of a debt
obligation to an unsecured creditor which was recorded in the quarter ended
August 31, 2003.
Results of Operations-Six Months Ended August 31, 2004 Compared to Six Months
Ended August 31, 2003:
Net sales for the six months ended August 31, 2004 decreased approximately 3% to
$3,887,000 as compared to $4,009,000 for the six months ended August 31, 2003.
This decrease was primarily attributable to a lower level of orders that were
shipped in accordance with customer requirements.
As a result of the semiannual work-in-process inventory, the Company recorded an
adjustment of approximately $190,000 to the work-in-process inventory account
and an adjustment of approximately $54,000 to the inventory reserve account.
Cost of Sales for the six months ended August 31, 2004 decreased to $3,120,000
from $3,201,000 for the comparable period in 2003. Expressed as a percentage of
sales, cost of sales remained at approximately 80% for both periods.
Gross profit for the six months ended August 31, 2004 decreased to $767,000 from
$808,000 for the six months ended August 31, 2003. Expressed as a percentage of
sales, gross profit remained at approximately 20% for the two periods.
For the six months ended August 31, 2004 the Company shipped 156,693 units as
compared with 228,689 units shipped during the same period of the prior year. It
should be noted that since the Company manufactures a wide variety of products
with an average sales price ranging from less than one dollar to several hundred
dollars, such periodic variations in the Company's volume of units shipped might
not be a reliable indicator of the Company's performance.
The Company's backlog of open orders decreased approximately 16% for the six
months ended August 31, 2004 as compared to a decrease of approximately 9% for
the six months ended August 31, 2003. Changes in the backlog reflect the changes
in the intake of orders and in the delivery dates required by customers.
The Company has experienced a decrease in the level of bookings of approximately
18% for the six months ended August 31, 2004 as compared to the same period for
the previous year principally as a result of a lower demand for its product in
this period. The level of bookings was also affected by the delay in awarding
new contracts as a result of raw material cost increases mentioned in the Trends
and Uncertainties Section.
Selling, general, and administrative expenses increased to $612,000 for the six
months ended August 31, 2004 from $558,000 for the comparable period in 2003.
During the six months ended August 31, 2004, selling, general, and
administrative expenses as a percentage of sales increased to approximately 15%
of net sales as compared with approximately 14% of net sales for the six months
ended August 31, 2003. This increase is due in part to an approximately $68,000
increase in legal fees, $41,000 of which is a result of our dispute with our
landlord and $27,000 as a result of the ongoing formal investigation by the SEC.
The increase is also due in part to an approximately $17,000 increase in
accounting fees, $7,000 of which is a result of the ongoing formal investigation
by the SEC and $10,000 resulting from an increase in our fiscal year 2004 audit
fee.
Operating Income for the six months ended August 31, 2004 decreased to $155,000
from $250,000 for the six months ended August 31, 2003. This decrease is due
primarily to a decrease in sales and an increase in selling, general and
administrative expenses.
10
The Company recorded a net other expense of $3,000 for the six months ended
August 31, 2004 versus a net other income of $123,000 for the six months ended
August 31, 2003. The variance was due primarily to other income resulting from
the settlement of a debt obligation to an unsecured creditor which was recorded
in the quarter ended August 31, 2003.
Net income for the six months ended August 31, 2004 decreased to $152,000 from
$373,000 for the same period in 2003. This decrease is mainly due to increased
selling general and administrative expenses and other income resulting from the
settlement of a debt obligation to an unsecured creditor which was recorded in
the quarter ended August 31, 2003.
Liquidity and Capital Resources:
The Company's sole source of liquidity is cash generated by ongoing operations.
The Company's liquidity is expected to be adversely affected in the short term
due to the anticipated lower level of revenue in the next six to nine months.
The Company's liquidity is not expected to improve until the Company's revenues
increase to a level above its breakeven point.
Furthermore, the Company's liquidity continues to be adversely affected by
significant non-recurring expenses associated with the Company's 1993 bankruptcy
petition obligations and the Company's inability to obtain additional working
capital through the sale of debt or equity securities. For a more complete
discussion of the Company's bankruptcy obligations, see "Business - Bankruptcy
Proceedings" in the Company's Form 10-KSB filed for the period ended February
29, 2004.
The Company is required to make quarterly payments to holders of unsecured
claims until they receive 35 percent (35%) of their pre-petition claims. As of
August 31, 2004, the Company has paid approximately $473,000 to its unsecured
creditors. The Company's remaining obligation is approximately $1,852,000 to
holders of allowed unsecured claims in quarterly installments.
The Company reported a net income of $152,000 and an operating income of
$155,000 for the six months ended August 31, 2004. The Company has significant
obligations arising from settlements related to its bankruptcy proceeding which
require it to make substantial cash payments, which cannot be supported by the
Company's current level of operations.
At August 31, 2004, February 29, 2004 and August 31, 2003 respectively, the
Company had cash of $2,073,000, $1,883,000 and $1,791,000. The increase during
the last six months against February 29, 2004 was primarily attributable to a
positive net income from operations bolstered by non-cash charges
(depreciation). A reduction in accounts receivable contributed $143,000 to the
last six months' positive cash flow generated by ongoing operations.
At August 31, 2004, the Company had working capital of $2,145,000 as compared
with a working capital at August 31, 2003 of $2,487,000. At February 29, 2004,
the Company had a working capital of $2,036,000. The approximately $109,000
increase for the six months ended August 31, 2004 was due mainly to a change in
accounts receivable.
Off-Balance Sheet Arrangements:
The Company is not involved in any off-balance sheet arrangements.
Forward-Looking Statements:
Information in this Form 10-QSB, including any information incorporated by
reference herein, includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities 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.
11
Statements regarding:
o sources and availability of liquidity;
o the Company's expectations regarding its liquidity;
o the Company's beliefs regarding the change in book-to-bill ratio
o the Company's expectations regarding fluctuations in the general economy
and variations in defense spending and the effects of such fluctuations
and variations on the intake of orders;
o the Company's estimates regarding the financial impact of Hurricanes
Frances and Jeanne;
o the Company's ability to generate sufficient cash flow from operations to
sustain operations;
o the Company's ability to implement effective cost-cutting or downsizing
measures;
o the Company's compliance with environmental laws, orders and
investigations and the future cost of such compliance;
o implementation of the Plan of Reorganization and the Company's ability to
make payments required under the Plan of Reorganization;
o the Company's belief regarding the applicability of accounting standards
adopted during fiscal year 2004; and
o other statements contained in this report that address activities, events
or developments that the Company expects, believes or anticipates will or
may occur in the future, and similar statements are forward-looking
statements.
These statements are based upon assumptions and analyses made by the Company in
light of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, 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 any increased financial impact to the Company as a result of Hurricanes
Frances and Jeanne;
o the Company's inability to receive an adequate amount, or any amount, of
insurance proceeds to cover the Company's losses resulting from Hurricanes
Frances and Jeanne;
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 any impairment or delay the development of any or all of its products;
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 of
Reorganization;
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; and
o unexpected growth or stagnation of the business;
12
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures as
of August 31, 2004, Shevach Saraf, Chairman, President, Chief Executive Officer,
Treasurer and Chief Financial Officer of the Company, has concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period specified by
the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal control over
financial reporting that has materially affected or is reasonably likely to
materially affect the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's former controller filed a claim with the Occupational Safety &
Health Administration (OSHA) pursuant to OSHA's authority to enforce the
whistleblower provision of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act") claiming that he was fired for engaging in protected activity under this
Act. Following an investigation of the matter by a duly authorized investigator,
OSHA issued its Findings and Preliminary Order (the "Findings"). In the
Findings, OSHA found that it was not reasonable to believe that the Company
violated the whistleblower provision of the Sarbanes-Oxley Act. Additionally,
OSHA determined that since none of the alleged adverse actions were linked to a
reprisal for voicing concerns protected under the Sarbanes-Oxley Act, the case
was to be dismissed. However, the former controller's legal counsel notified the
Company insurer's counsel of his intention to refile his claim in federal court.
On August 27, 2004, the Company's insurance carrier and its former controller
agreed to an out-of-court settlement, the terms of which are confidential. The
settlement is subject to the execution of a final mutual release by the parties,
which has not been executed as of the date of this report. The costs of the
settlement are covered by the Company's insurance carrier under its employment
practices coverage.
As previously disclosed in the Company's filings with the SEC, the Southeast
Regional Office of the SEC conducted a formal investigation concerning the
Company. The SEC investigation focused on the propriety of the Company's past
accounting. The Company produced documents to the SEC, and the SEC took sworn
testimony from several individuals. On October 4, 2004, the SEC advised the
Company that it terminated its investigation and that no enforcement has been
recommended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.7 Non-Qualified Stock Option Agreement, dated as of May 17, 2004, between
the Company and Mr. Shevach Saraf.
10.8 Non-Qualified Stock Option Agreement, dated as of May 17, 2004, between
the Company and Mr. Shevach Saraf.
(b) Reports on Form 8-K
None
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the small business
issuer caused this report to be signed on its behalf by the undersigned, therein
duly authorized.
SOLITRON DEVICES, INC.
Date: October 14, 2004 /s/ Shevach Saraf
---------------------------------
By: Shevach Saraf
Title: Chairman, President,
Chief Executive Officer and
Chief Financial Officer
14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.7 Non-Qualified Stock Option Agreement, dated as of May 17, 2004,
between the Company and Mr. Shevach Saraf.
10.8 Non-Qualified Stock Option Agreement, dated as of May 17, 2004,
between the Company and Mr. Shevach Saraf.
31 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15