UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q/A
Amendment
No. 1
(Mark
one)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended August 31, 2009
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______ to _______
Commission
File No. 1-4978
SOLITRON DEVICES,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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22-1684144
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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3301 Electronics Way, West Palm Beach,
Florida
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33407
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(561)
848-4311
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one)
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares of the registrant’s common stock, $0.01 par value, outstanding
as of September 30, 2009 was 2,263,775.
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-Q/A is being filed solely to correct typographical
errors regarding backlog of open orders contained within Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Solitron Devices, Inc.’s Quarterly Report on Form 10-Q for the
quarterly period ended August 31, 2009 filed with the Securities and Exchange
Commission on October 9, 2009. All other information in the
Form 10-Q, including the financial statements, is unchanged from the original
filing.
SOLITRON
DEVICES, INC.
TABLE OF
CONTENTS
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Page No.
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PART 1 - FINANCIAL
INFORMATION
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Item
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2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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4
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PART II – OTHER INFORMATION
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Item
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6.
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Exhibits
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9
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Signatures
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10
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Item
2.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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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
(“MOS”) power transistors, power and control hybrids, junction and power MOS
field effect transistors and other related products. Most of the
Company’s products are custom made pursuant to contracts with customers whose
end products are sold to the U.S. 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 financial statements should be read in conjunction with
the Financial Statements and the related Notes to Financial Statements and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in the Company’s Annual Report on Form 10-K for the year
ended February 28, 2009 and the Condensed Financial Statements and the related
Notes to Condensed Financial Statements included in Item 1 of this Quarterly
Report on Form 10-Q.
Recent
Developments:
On
September 22, 2009, the Company received AS9100 Rev B certification as well as
re-certification for the ISO 9001:2000 quality management standard
certification. Companies in the aerospace industry are increasingly
selecting suppliers on the basis of AS9100 certification. Achieving certified
status means that the Company may now obtain new business that may have been out
of reach in the past and expects to maintain ongoing relationships with its
existing aerospace customers long into the future.
Significant Accounting
Policies:
The
discussion and analysis of our financial condition and results of operations are
based upon the condensed financial statements included elsewhere in this
Quarterly Report on Form 10-Q which are prepared in accordance with accounting
principles generally accepted in the United States. 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, revenue recognition and accounting for income taxes. A discussion of
all of these critical accounting policies can be found in Note 1 of the “Notes
To Financial Statements” in Item 8 of our Annual Report on Form 10-K for
the fiscal year ended February 28, 2009.
Trends and
Uncertainties:
During
the three months ended August 31, 2009, the Company’s book-to-bill ratio was
approximately 1.05 as compared to approximately 1.44 for the three months ended
August 31, 2008, reflecting a decrease in the volume of orders
booked. Generally, the intake of orders over the last twenty four
months has varied greatly as a result of the fluctuations in the general
economy, variations in defense spending on programs the Company supports, and
the timing of contract awards by the Department of Defense and subsequently by
its prime contractors, which is expected to continue over the next twelve to
twenty four 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. However, should order intake continue to fall
drastically below the level experienced in the last twenty four months, the
Company might be required to implement further cost cutting or other downsizing
measures to continue its business operations.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using
the “first-in, first-out” (FIFO) method. The Company buys raw
material only to fill customer orders. Excess raw material is created
only when a vendor imposes a minimum buy in excess of actual
requirements. Such excess material will usually be utilized to meet
the requirements of the customer’s subsequent orders. If excess
material is not utilized after two fiscal years it is fully
reserved. Any inventory item once designated as reserved is carried
at zero value in all subsequent valuation activities.
The
Company’s inventory valuation policy is as follows:
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Raw
material /Work in process:
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All
material purchased, processed and/or used in the last two fiscal years is
valued at the lower of its acquisition cost or market. All
material not purchased/used in the last two fiscal years is fully reserved
for.
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Finished
goods:
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All
finished goods with firm orders for later delivery are valued (material
and overhead) at the lower of cost or market. All finished
goods with no orders are fully reserved.
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Direct
labor costs:
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Direct
labor costs are allocated to finished goods and work in process inventory
based on engineering estimates of the amount of man hours required from
the different direct labor departments to bring each device to its
particular level of completion.
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Results of Operations-Three
months Ended August 31, 2009 Compared to Three months Ended August 31,
2008:
Net sales
for the three months ended August 31, 2009 decreased 6% to $1,938,000 as
compared to $2,071,000 for the three months ended August 31,
2008. This decrease was primarily attributable to a lower level of
orders that were shipped in accordance with customer requirements.
Cost of
sales for the three months ended August 31, 2009 decreased to $1,316,000 from
$1,649,000 for the comparable period in 2008. Expressed as a
percentage of sales, cost of sale decreased to 68% from 80% for the same period
in 2008. This change was due primarily to a decrease in net sales
combined with a decrease in raw material costs.
Gross
profit for the three months ended August 31, 2009 increased to $622,000 from
$422,000 for the three months ended August 31, 2008. Gross margins on
the Company’s sales increased to 32% for the three months ended August 31, 2009
in comparison to 20% for the three months ended August 31, 2008. This
change was due mainly to a decrease in net sales combined with a decrease in raw
material costs.
For the
three months ended August 31, 2009, the Company shipped 32,221 units as compared
to 58,532 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
should not be regarded as a reliable indicator of the Company’s
performance.
The
Company’s backlog of open orders increased 2% to $5,327,000 for the three months
ended August 31, 2009 as compared to an increase of 19% for the same period in
the prior fiscal year. Changes in backlog reflect changes in the intake of
orders and in the delivery requirements of customers.
The
Company has experienced a decrease of 31% to $2,040,000 in the level of bookings
during the three months ended August 31, 2009 when compared with the three
months ended August 31, 2008. The decline in bookings for the current quarter is
principally a result of a decline in defense spending, resulting in a decrease
in the monetary value of, and timing differences in the placement of contracts
by the Department of Defense and its prime contractors.
Selling,
general, and administrative expenses decreased to $241,000 for the three
months ended August 31, 2009 from $233,000 for the comparable period in
2008. During the three months ended August 31, 2009, selling,
general, and administrative expenses as a percentage of net sales rose to 12% as
compared with 11% for the three months ended August 31, 2008. The
percentage increase was due primarily to increases in professional and legal
fees.
Operating
income for the three months ended August 31, 2009 increased to $381,000 as
compared to $189,000 for the three months ended August 31, 2008. This increase
is due primarily to lower raw material costs.
The
Company recorded net other income of $19,000 for the three months ended August
31, 2009 as compared to $25,000 for the three months ended August 31,
2008. Included in net other income was interest income on investment
in treasury bills net of changes in market value of $3,000 for the three months
ended August 31, 2009 plus $16,000 of income tax benefit. For the three months
ended August 31, 2008, the Company recorded $25,000 of interest income on
investment in treasury bills net of changes in market value. The
decrease in interest income is due primarily to lower rates of return on
invested funds.
Net
income for the three months August 31, 2009 increased to $400,000 as
compared to $214,000 for the same period in 2008. This increase is
due lower raw material costs.
Results of Operations-Six
Months Ended August 31, 2009 Compared to Six Months Ended August 31,
2008:
Net sales
for the six months ended August 31, 2009 decreased 11% to $3,758,000 as
compared to $4,240,000 for the six months ended August 31, 2008. This
decrease was primarily attributable to a lower level of orders that were shipped
in accordance with customer requirements.
Cost of
sales for the six months ended August 31, 2009 decreased to $2,865,000 from
$3,272,000 for the comparable period in 2008. Expressed as a
percentage of sales, cost of sales decreased to 76% from 77% for the same period
in 2008. This change was due primarily to a decrease in net sales
combined with a decrease in raw material costs.
Gross
profit for the six months ended August 31, 2009 decreased to $893,000 from
$968,000 for the six months ended August 31, 2008. Gross margins on the
Company’s sales increased to 24% from 23% for the same period in
2008. The change in dollar amount was primarily due to a decrease in
net sales combined with a decrease in raw material costs.
For the
six months ended August 31, 2009, the Company shipped 80,680 units as compared
to 188,109 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
should not be regarded as a reliable indicator of the Company’s
performance.
The
Company’s backlog of open orders decreased 15% to $5,327,000 for the six months
ended August 31, 2009 as compared to a decrease of 1% for the same period in the
prior fiscal year. Changes in backlog resulted from changes in the intake of
orders and in the delivery dates required by customers.
The
Company has experienced a decrease of 34% in the level of bookings during the
six months ended August 31, 2009 when compared with the six months ended August
31, 2008. The decrease over the current six month period occurred principally as
a result of a shift in defense spending priorities, resulting in a decrease in
the monetary value of, and timing differences in the placement of contracts by
the Department of Defense and its prime contractors.
Selling,
general, and administrative expenses decreased to $512,000 for the six months
ended August 31, 2009 from $517,000 for the comparable period in
2008. During the six months ended August 31, 2009, selling, general,
and administrative expenses as a percentage of net sales increased to
14% as compared to 12% for the six months ended August 31,
2008. For the six months ended August 31, 2009, the Company has
experienced higher professional and legal fees offset by lower selling, general
and administrative labor costs.
Operating
income for the six months ended August 31, 2009 decreased to $381,000 from
$451,000 for the six months ended August 31, 2008. This decrease is due
primarily to a decrease in net sales.
The
Company recorded net other income of $20,000 for the six months ended August 31,
2009 as compared to net other income of $35,000 for the six months ended August
31, 2008. Included in net other income was interest income of $11,000
for the six months ended August 31, 2009 as compared to $35,000 for the six
months ended August 31, 2008. The decrease in interest income is due
primarily to lower interest rates on treasury bills. Also included in net other
income for the six months ended August 31, 2009 was $16,000 of income tax
benefit offset by $7,000 of expense from receivables adjustments.
Net
income for the six months ended August 31, 2009 decreased to $401,000 from
$486,000 for the same period in 2008. This decrease was due primarily
to a lower net sales volume.
Liquidity and Capital
Resources:
Subject
to the following discussion, the Company expects its sole source of liquidity
over the next twelve months to be cash from operations. However, due
to the level of current backlog and level of new order intake, the Company might
operate at a loss during the balance of the current fiscal year. The
Company anticipates that its capital expenditures required to sustain operations
will be approximately $200,000 during the balance of the current fiscal year and
will be funded from 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 decline in the level
of bookings, and an increase in the cost of raw materials and operations that
will result in the potential erosion of profit levels and
continued price pressures due to more intense competition, and (iii) the
continued competition in the defense and aerospace market, the Company believes
that it will have sufficient cash on hand to satisfy its operating needs during
the current fiscal year. However, due to the level of current backlog
and new order intake (due to the status of the general economy and the shift to
Commercial Off–The-Shelf (COTS) by the defense industry), the Company might
operate at a loss during the balance of the current fiscal
year. Thus, based on these factors and at the current
level of bookings, costs of raw materials and services, profit margins and sales
levels, the Company may not generate sufficient cash to satisfy its operating
needs and its obligations to pre-bankruptcy creditors in accordance with the
Company’s plan of reorganization. Thus, the Company 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
creditors 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 remain as
presently anticipated, the Company will generate sufficient cash from operations
to sustain operations and pay pre-bankruptcy creditor obligations at the current
reduced level of payments. In the event that bookings in the
long-term continue to decline significantly below the level experienced during
the previous fiscal year, the Company may be required to implement 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 reported net income of $401,000 and operating income of $381,000 for the
six months ended August 31, 2009.
At August
31, 2009, February 28, 2009 and August 31, 2008, the Company had cash of
approximately $129,000, $440,000 and $76,000, respectively. Decreases
in accounts payable and in accrued expenses accounted for $272,000 of
the reduction in cash over the six month period ended August 31,
2009.
At August
31, 2009, February 28, 2009 and August 31, 2008, the Company had investments in
treasury bills of approximately $5,325,000, $5,113,000 and $4,979,000,
respectively.
At August
31, 2009, the Company had working capital of $7,381,000 as compared with a
working capital at August 31, 2008 of $6,511,000. At February 28,
2009, the Company had a working capital of $6,972,000. The $393,000
increase for the six months ended August 31, 2009 was due mainly to a $294,000
decrease in current liabilities.
Off-Balance Sheet
Arrangements:
The
Company has not engaged in any off-balance sheet arrangements.
FORWARD-LOOKING
STATEMENTS
Some of
the statements in this Quarterly Report on Form 10-Q are "forward-looking
statements," as that term is defined in the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include statements regarding our
business, financial condition, results of operations, strategies or
prospects. You can identify forward-looking statements by the fact that these
statements do not relate strictly to historical or current matters. Rather,
forward-looking statements relate to anticipated or expected events, activities,
trends or results. Because forward-looking statements relate to matters that
have not yet occurred, these statements are inherently subject to risks and
uncertainties. Many factors could cause our actual activities or results to
differ materially from the activities and results anticipated in forward-looking
statements. These factors include those described under the caption "Risk
Factors" in our Annual Report on Form 10-K for the year ended February 28, 2009,
including those identified below. We do not undertake any obligation to update
forward-looking statements.
Some of
the factors that may impact our business, financial condition, results of
operations, strategies or prospects include:
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Our
complex manufacturing processes may lower yields and reduce our
revenues.
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Our
business could be materially and adversely affected if we are unable to
obtain qualified supplies of raw materials, parts and finished components
on a timely basis and at a cost-effective
price.
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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.
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Changes
in government policy or economic conditions could negatively impact our
results.
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Our
inventories may become obsolete and other assets may be subject to
risks.
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Environmental
regulations could require us to incur significant
costs.
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Our
business is highly competitive, and increased competition could reduce
gross profit margins and the value of an investment in our
Company.
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Downturns
in the business cycle could reduce the revenues and profitability of our
business.
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Our
operating results may decrease due to the decline of profitability in the
semiconductor industry.
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Uncertainty
of current economic conditions, domestically and globally, could continue
to affect demand for our products and negatively impact our
business.
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Cost
reduction efforts may be unsuccessful or insufficient to improve our
profitability and may adversely impact
productivity.
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We
may not achieve the intended effects of our new business strategy, which
could adversely impact our business, financial condition and results of
operations.
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Our
inability to introduce new products could result in decreased revenues and
loss of market share to competitors; new technologies could also reduce
the demand for our products.
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Loss
of, or reduction of business from, substantial clients could hurt our
business by reducing our revenues, profitability and cash
flow.
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A
shortage of three-inch silicon wafers could result in lost revenues due to
an inability to build our products.
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The
nature of our products exposes us to potentially significant product
liability risk.
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We
depend on the recruitment and retention of qualified personnel, and our
failure to attract and retain such personnel could seriously harm our
business.
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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.
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Natural
disasters, like hurricanes, or occurrences of other natural disasters
whether in the United States or internationally may affect the markets in
which our common stock trades, the markets in which we operate and our
profitability.
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Natural
disasters, like hurricanes, or occurrences of other natural disasters
whether in the United States or internationally may affect the
availability of raw materials which may adversely affect our
profitability.
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Failure
to protect our proprietary technologies or maintain the right to use
certain technologies may negatively affect our ability to
compete.
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The
price of our common stock has fluctuated widely in the past and may
fluctuate widely in the future.
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PART II– OTHER
INFORMATION
Exhibits
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31
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
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32
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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SOLITRON
DEVICES, INC.
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Date:
October 16, 2009
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/s/ Shevach Saraf
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Shevach
Saraf
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Chairman,
President,
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Chief
Executive Officer,
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Treasurer
and
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Chief
Financial Officer
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EXHIBIT
INDEX
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EXHIBIT NUMBER
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DESCRIPTION
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31
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
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32
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
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