PINX:SODI Quarterly Report 10-Q Filing - 8/31/2012

Effective Date 8/31/2012

PINX:SODI (): Fair Value Estimate
Premium
PINX:SODI (): Consider Buying
Premium
PINX:SODI (): Consider Selling
Premium
PINX:SODI (): Fair Value Uncertainty
Premium
PINX:SODI (): Economic Moat
Premium
PINX:SODI (): Stewardship
Premium
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
(Mark one)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended August 31, 2012

or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______

Commission File No.  1-4978
 
SOLITRON DEVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
22-1684144
(State or Other Jurisdiction of   
(I.R.S. Employer
Incorporation or Organization)  
Identification No.)
 
3301 Electronics Way, West Palm Beach, Florida
33407
(Address of Principal Executive Offices)
(Zip Code)
 
(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  x    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)
 
 
Large accelerated filer  ¨
  Accelerated filer  ¨  
         
 
Non-accelerated filer    ¨
  Smaller reporting company  x  
 
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 October 1, 2012 was 2,177,832.
 
 
 

 
 
SOLITRON DEVICES, INC.

TABLE OF CONTENTS
 
PART 1 - FINANCIAL INFORMATION
 
     
Page No.
Item
1.
Financial Statements
 
       
   
Condensed Balance Sheets August 31, 2012 (unaudited) and February 29, 2012
3
       
   
Condensed Statements of Income (unaudited) Three and Six Months Ended August 31, 2012 and 2011
4
       
   
Condensed Statements of Cash Flows (unaudited) Six Months Ended August 31, 2012 and 2011
5
       
   
Notes to Condensed Financial Statements
6-11
       
Item
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12-16
       
Item
4.
Controls and Procedures
17
       
PART II – OTHER INFORMATION
 
   
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
17
       
Item 5.
Other Information
18
       
Item
6.
Exhibits
18
       
Signatures
 
19
 
 
 

 
 
PART I – FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

SOLITRON DEVICES, INC.
BALANCE SHEETS
AS OF AUGUST 31, 2012 AND FEBRUARY 29, 2012 (unaudited)
 
      Aug 31,       Feb 29,  
      2012       2012  
ASSETS
   
(in thousands, except for shares)
 
      CURRENT ASSETS
               
         Cash and cash equivalents
  $ 920     $ 985  
         Treasury bills and certificates of deposit
    6,269       6,614  
         Accounts receivable, less allowance for doubtful accounts of $2 and $95
    864       770  
         Inventories, net  (Note 5)
    3,461       2,982  
         Prepaid expenses
    166       142  
            TOTAL CURRENT ASSETS
    11,680       11,493  
                 
      PROPERTY, PLANT AND EQUIPMENT, net
    597       671  
                 
      OTHER ASSETS
    22       49  
            TOTAL ASSETS
  $ 12,299     $ 12,213  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
      CURRENT LIABILITIES
               
         Accounts payable
  $ 384     $ 279  
         Prepetition liabilities
    988       1,002  
         Customer deposits
    67       25  
         Accrued expenses  (Note 8)
    437       552  
            TOTAL CURRENT LIABILITIES
    1,876       1,858  
                 
      LONG-TERM LIABILITIES, net of current portion
    118       128  
            TOTAL LIABILITIES
    1,994       1,986  
                 
       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,
               
            2,177,832 shares issued and outstanding, net of 173,287 shares of treasury stock as of August 31, 2012.
            2,267,775 shares issued and outstanding, net of 273,230 shares of treasury stock as of February 29, 2012
    23       23  
         Additional paid-in capital
    2,743       2,736  
         Retained earnings
    7,814       7,468  
         Less treasury stock (Note 11)
    (275       -  
            TOTAL STOCKHOLDERS' EQUITY
    10,305       10,227  
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 12,299     $ 12,213  
                 
The accompanying notes are an integral part of the financial statements.
 
 
3

 
 
SOLITRON DEVICES, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2012 AND AUGUST 31, 2011
                        (Unaudited, in thousands except for share and per share amounts)

   
Three months
   
Six Months
 
   
2012
   
2011
   
2012
   
2011
 
                         
NET SALES
  $ 1,965     $ 2,128     $ 4,033     $ 4,300  
Cost of Sales
    1,541       1,461       3,144       3,110  
                                 
Gross Profit
    424       667       889       1,190  
                                 
Selling, General and Administrative Expenses
    261       229       576       504  
                                 
Operating Income
    163       438       313       686  
                                 
Other income (Note 7)
                               
    Other income
    12       -       12       -  
    Interest Income
    12       4       27       11  
    Total other income
    24       4       39       11  
                                 
Income before provision for income taxes
    187       442       352       697  
                                 
     Provision for income taxes
    (2 )     (3 )     (6 )     (7 )
Net Income
  $ 185     $ 439     $ 346     $ 690  
                                 
Net Income Per Share      : Basic
  $ .08     $ .19     $ .15     $ .30  
                                            : Diluted
  $ .08     $ .18     $ .14     $ .28  
                                 
Weighted Average
                               
 Shares Outstanding       : Basic
    2,249,931       2,267,775       2,259,469       2,267,347  
                                           : Diluted
    2,461,104       2,490,139       2,472,495       2,489,017  
 
The accompanying notes are an integral part of the financial statements.
 
4

 

SOLITRON DEVICES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED AUGUST 31, 2012 AND AUGUST 31, 2011
(Unaudited)
 
   
2012
   
2011
 
   
(in thousands)
 
             
   Net income
  $ 346     $ 690  
      Adjustments to reconcile net income to net cash
               
         provided by operating activities:
               
         Depreciation and amortization
    143       116  
      Decrease (increase) in operating assets and liabilities:
               
         Accounts receivable
    (94 )     141  
         Inventories, net
    (479 )     (146 )
         Prepaid expenses
    (24 )     (30 )
         Other assets
    27       1  
      Increase (decrease) in:
               
         Accounts payable
    105       77  
         Prepetition liabilities
    (14 )     (14 )
         Customer deposit
    42       33  
         Accrued expenses
    (115 )     (272 )
         Long-term liabilities
    (10 )     (10 )
     Total adjustments
    (412 )     (104 )
            NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES
    (73 )     586  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
   Sales of Treasury Bills and Certificates of Deposit
    2,928       2,633  
   Purchases of Treasury Bills and Certificates of Deposit
    (2,583 )     (2,933 )
   Purchases of property, plant and equipment
    (69 )     (48 )
            NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
    276       (348 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
   Purchase of treasury stock
    (275 )     -  
   Cash from exercise of employee stock options
    7       1  
            NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES
    (268 )     1  
                 
                 
Net (decrease)/increase in cash and cash equivalents
    (65 )     239  
                 
Cash and cash equivalents - beginning of the period
    985       539  
                 
Cash and cash equivalents - end of the period
  $ 920     $ 778  

The accompanying notes are an integral part of the financial statements.
 
 
5

 
 
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Activities
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 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.

Basis of Presentation
The financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money market accounts.

Investment in Treasury Bills and Certificates of Deposit
Investment in Treasury Bills/CDs includes treasury bills with maturities of one year or less, and Certificates of Deposit with maturities from one to three years, and is stated at market value.

Accounts Receivable
Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business.  The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account.  The allowance amount was $2,000 as of August 31, 2012 and $95,000 as of February 29, 2012.

Shipping and Handling
Shipping and handling costs billed to customers are recorded in net sales.  Shipping costs incurred by the Company are recorded in cost of sales.

Inventories
Inventories are stated at the lower of cost or market.  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:
 
 
Raw material /Work in process:
All material purchased, processed, and/or used in the last two fiscal years is valued at the lower of its acquisition cost or market.  All material not purchased/used in the last two fiscal years is fully reserved for.
   
Finished goods:
All finished goods with firm orders for later delivery are valued (material and overhead) at the lower or cost or market.  All finished goods with no orders are fully reserved.
   
Direct labor costs:
Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the amount of man-hours required from the different direct labor departments to bring each device to its particular level of completion.
 
 
6

 

SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
Financial Statement  Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates, and the differences could be material.  Such estimates include depreciable life, valuation allowance, and allowance for inventory obsolescence.

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 manufacturing operations.  The Company, in the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state and local laws and, therefore, is subject to regulations related to their use, storage, discharge and disposal.  No assurance can be made that the risk of accidental release of such materials can be completely eliminated.  In the event of a violation of environmental laws, the Company could be held liable for damages and the costs of remediation. In addition, the Company, along with the rest of the semiconductor industry, is subject to variable interpretations and governmental priorities concerning environmental laws and regulations.  Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault.  There can be no assurance that the Company 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.

3.           ENVIRONMENTAL LIABILITIES:

The Company entered into an Ability to Pay Multi-Site Settlement Agreement with the United States Environmental Protection Agency (“USEPA”), effective February 24, 2006 (“Settlement Agreement”), which resolved the Company’s alleged liability to USEPA for four sites in Florida (including the Solitron Microwave Superfund Site, Port Salerno, Florida (“Port Salerno Site”) and the Solitron Devices Site, Riviera Beach, Florida (the “Riviera Beach Site”) discussed further below and one site in California.  Pursuant to the Settlement Agreement, the Company paid the sum of $74,000 to USEPA on February 27, 2006.  In addition, the Company is required to pay to USEPA the sum of $10,000 or 5% of Solitron’s net after-tax income over the first $500,000, if any, whichever is greater, for each year from fiscal years 2009-2013.  As of June 12, 2012, the Company paid $12,812 in full satisfaction of its obligations for fiscal year 2012.  The Company has accrued $10,000 for its remaining minimum obligations under the Settlement Agreement (for fiscal year 2013) which is reflected in “Accrued expenses and other current liabilities” on the Company’s Balance Sheets at August 31, 2012.

On October 21, 1993, a Consent Final Judgment was entered into between the Company and the Florida Department of Environmental Protection (“FDEP”) in the Circuit Court of the Nineteenth Judicial Circuit of Florida in and for Martin County, Florida, in Case No. 91-1232 CA (the “Consent Final Judgment”).  The Consent Final Judgment required the Company to remediate the Port Salerno and Riviera Beach Sites, make monthly payments to escrow accounts for each Site until the sale of the Sites to fund the remediation work, take all reasonable steps to sell the two Sites and, upon the sale of the Sites, apply the net proceeds from the sales to fund the remediation work.  Both Sites have been sold pursuant to purchase agreements approved by FDEP.

Prior to the sale of the Port Salerno and Riviera Beach Sites, USEPA took over from FDEP as the lead regulatory agency for the remediation of the Sites.   At the closing of the sale of each site, the net proceeds of sale were distributed to USEPA and/or FDEP or other parties, as directed by the agencies.  In addition, upon the sale of the Riviera Beach Site, the Riviera Beach Escrow Account was transferred to USEPA, as directed by the agencies.  The current balance in the Port Salerno Escrow Account is approximately $58,000.  USEPA completed remedy construction at the Port Salerno Site in 2004 and is performing annual groundwater sampling.  A 5-Year review performed by USEPA in 2009 concluded that remedial actions taken at the property remain protective.  Work at the Riviera Beach Site is being performed by Honeywell, Inc. (“Honeywell”), pursuant to an Administrative Order of Consent entered into between Honeywell and USEPA.  Design and construction of the remedy is reported by USEPA to be complete and the treatment system has been in operation since March 2009.  The Company has been notified by FDEP that the performance of remediation work by USEPA at the Port Salerno Site and by Honeywell at the Riviera Beach Site will be construed by FDEP as discharging the Company’s remediation obligations under the Consent Final Judgment.
 
 
7

 
 
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
In 2006, FDEP notified the Company that FDEP has unreimbursed expenses associated with the Port Salerno and Riviera Beach Sites of $214,800 and initially directed the Company to resume payments under the Consent Final Judgment to ensure that there are adequate funds to cover FDEP’s unreimbursed expenses and the Company’s residual liability under the Consent Final Judgment. Later, FDEP advised the Company that FDEP would prepare a justification for the asserted unreimbursed expenses, following receipt of which the Company is required to transfer $58,000 from the Port Salerno Escrow Account to FDEP as partial payment for FDEP’s unreimbursed expenses. FDEP further stated that FDEP would work with the Company to establish a reduced payment schedule for the Company to resume payments under the Consent Final Judgment based on the Company’s financial ability to pay. To date, FDEP has not further pursued the Company for cost reimbursement under the Consent Final Judgment.

On August 7, 2002, the Company received a Request for Information from the State of New York Department of Environmental Conservation (“NYDEC”), seeking information on whether the Company had disposed of certain wastes at the Clarkstown Landfill Site located in the Town of Clarkstown, Rockland County, New York (The Clarkstown Landfill Site”).  By letter dated August 29, 2002, the Company responded to the Request for Information and advised NYDEC that the Company’s former Tappan, New York facility had closed in the mid-1980’s, prior to the initiation of the Company’s bankruptcy proceedings.  The Company contends that, to the extent that NYDEC has a claim against the Company as a result of the Company’s alleged disposal of wastes at the Clarkstown Landfill Site prior to the closing of the Company’s former Tappan facility in the mid-1980’s, the claim was discharged in bankruptcy as a result of the Bankruptcy Court’s August 1993 Order.  By letter dated March 17, 2010, the Clarkstown Landfill Joint Defense Group (“JDG”) offered to pursue a settlement of NYDEC’s claim against the Company in return for the Company’s agreement to pay the sum of $125,000, representing the Company’s alleged share of JDG’s overall settlement with NYDEC.  The Company rejected the settlement offer on March 29, 2010, based on its continuing contention that any claim of NYDEC against the Company was discharged in bankruptcy as a result of the Bankruptcy Court’s August 1993 Order. The JDG/NYDEC Consent Decree, settling NYDEC’s claims against individual members of  JDG, was entered by the Court on March 21, 2011. To date, neither NYDEC nor JDG have pursued any claim against the Company with respect to the Clarkstown Landfill Site.

4.           EARNINGS PER SHARE:

The shares used in the computation of the Company’s basic and diluted earnings per common share were as follows:

   
For the three months
ended August 31,
   
For the six months
ended August 31,
 
   
2012
   
2011
   
2012
   
2011
 
Weighted average common shares outstanding
    2,249,931       2,267,775       2,259,469       2,267,347  
Dilutive effect of employee stock options
    211,173       222,364       213,026       221,670  
Weighted average common shares outstanding, assuming dilution
    2,461,104       2,490,139       2,472,495       2,489,017  


Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued upon the assumed exercise of stock options.  For the three month periods ended August 31, 2012 and August 31, 2011, 13,500 shares underlying  the Company's stock options were excluded from the calculation of diluted earning per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.
 
 
8

 
 
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS

5.           INVENTORIES:

As of August 31, 2012, inventories consist of the following:

   
Gross
   
Reserve
   
Net
 
Raw Materials
  $ 1,974,000     $ (450,000 )   $ 1,524,000  
Work-In-Process
    3,075,000       (1,142,000 )     1,933,000  
Finished Goods
    543,000       (539,000 )     4,000  
     Totals
  $ 5,592,000     $ (2,131,000 )   $ 3,461,000  
 
                       

As of February 29, 2012, inventories consist of the following:

   
Gross
   
Reserve
   
Net
 
Raw Materials
  $ 1,525,000     $ (407,000 )   $ 1,118,000  
Work-In-Process
    2,883,000       (1,065,000 )     1,818,000  
Finished Goods
    625,000       (579,000 )     46,000  
     Totals
  $ 5,033,000     $ (2,051,000 )   $ 2,982,000  
 
6.           INCOME TAXES:

At August 31, 2012, the Company has net operating loss carryforwards of approximately $14,267,000 that expire through 2023.  Such net operating losses are available to offset future taxable income, if any.  As the utilization of such net operating losses for tax purposes is not assured, the deferred tax asset has been mostly 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.

Total net deferred taxes were comprised of the following as of August 31 and February 29, 2012:
 
Deferred tax assets:
 
8/31/12
   
2/29/12
 
Loss carryforwards
  $ 5,421,000     $ 5,572,000  
Allowance for doubtful accounts
    1,000       35,000  
Inventory allowance
    856,000       690,000  
Depreciation
    68,000       68,000  
Section 263A capitalized costs
    494,000       494,000  
Total deferred tax assets
    6,840,000       6,859,000  
Valuation allowance
    (6,840,000 )     (6,859,000 )
                 
Total net deferred taxes
  $ 0     $ 0  

The change in the valuation allowance on deferred tax assets is due principally to the utilization of the net operating loss for the quarter ended August 31, 2012 and for the year ended February 29, 2012.

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate for the quarter ended August 31, 2012 and for the year ended February 29, 2012 is as follows:

   
8/31/12
   
2/29/12
 
U.S. federal statutory rate
    34.0 %     34.0 %
Change in valuation allowance
    (34.0 )     (34.0 )
Alternative minimum taxes
    2.5       2.2  
Effective income tax rate
     2.5 %      2.2 %

 
9

 
 
SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
On June 11, 2012, the Company made an estimated tax payment of $4,000 toward its fiscal year 2013 federal income tax obligation.
 
7.           OTHER INCOME:

The $24,000 of other income reflected in the condensed statements of income for the quarter ended August 31, 2012 consists of $12,000 of interest income on investment in treasury bills net of changes in market value plus $12,000 of income from receivables adjustments.  The $4,000 of other income reflected in the condensed statements of income for the quarter ended August 31, 2011 consists entirely of interest income on investment in treasury bills net of changes in market value.

8.           ACCRUED EXPENSES:

As of August 31, 2012 and February 29, 2012, accrued expenses and other liabilities consisted of the following:

   
8/31/12
   
2/29/12
 
Payroll and related employee benefits
  $ 367,000     $ 510,000  
Income taxes
    23,000       17,000  
Property taxes
    29,000       7,000  
Environmental liabilities
    10,000       13,000  
Other liabilities
    8,000       5,000  
    $ 437,000     $ 552,000  
 
9.           EXPORT SALES AND MAJOR CUSTOMERS:

Revenues from domestic and export sales to unaffiliated customers for the three months ended August 31, 2012 are as follows:

   
Power
         
Field Effect
   
Power
       
Geographic Region
 
Transistors
   
Hybrids
   
Transistors
   
MOSFETS
   
Totals
 
Europe and Australia
  $ 0     $ 0     $ 11,000     $ 0     $ 11,000  
Canada and Latin America
    7,000       0       7,000       0       14,000  
Far East and Middle East
    0       0       3,000       63,000       66,000  
United States
    407,000       856,000       134,000       477,000       1,874,000  
Totals
  $ 414,000       856,000     $ 155,000     $ 540,000     $ 1,965,000  

Revenues from domestic and export sales to unaffiliated customers for the three months ended August 31, 2011 are as follows:

   
Power
         
Field Effect
   
Power
       
Geographic Region
 
Transistors
   
Hybrids
   
Transistors
   
MOSFETS
   
Totals
 
Europe and Australia
  $ 0     $ 1,000     $ 3,000     $ 0     $ 4,000  
Canada and Latin America
    13,000       0       0       0       13,000  
Far East and Middle East
    0       0       6,000       59,000       65,000  
United States
    300,000       1,100,000       196,000       450,000       2,046,000  
Totals
  $ 313,000       1,101,000     $ 205,000     $ 509,000     $ 2,128,000  

Revenues from domestic and export sales are attributed to global geographic region according to the location of the customer’s primary manufacturing or operating facilities.
 
 
10

 

SOLITRON DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
For the quarter ended August 31, 2012, sales to the Company’s top two customers consisted of the following:

Customer
 
% of Sales
 
Raytheon Company
    34 %
United States Government
    21 %
      55 %
 
For the quarter ended August 31, 2011, sales to the Company’s top two customers consisted of the following:

Customer
 
% of Sales
 
Raytheon Company
    37 %
United States Government
    10 %
      47 %
 
10.            MAJOR SUPPLIERS:

For the quarter ended August 31, 2012, purchases from the Company’s top two vendors consisted of the following:

Vendor
 
% of Purchases
 
WUXI Streamtek Ltd.
    19 %
Aotco Metal Finishing
    13 %
      32 %


For the quarter ended August 31, 2011, purchases from the Company’s top two vendors consisted of the following:

Vendor
 
% of Purchases
 
WUXI Streamtek Ltd.
    10 %
Platronics Seals
    8 %
      18 %

11.         PURCHASE OF TREASURY STOCK:

On August 28, 2012, the Company repurchased 99,943 shares of  its common stock from a stockholder in a privately negotiated transaction at a price of   $2.75 per share.  The Company has not adopted a stock repurchase  program or plan.
 
12.         EXERCISE OF STOCK OPTIONS:

During the three months ended August 31, 2012, a Director of the Company exercised 8,000 common stock options with an exercise price of $.75 each. The options were granted on May 16, 2005, vested on May 16, 2006, and were due to expire on May 16, 2015.
 
 
11

 
 
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 (“MOS”) power transistors, power and control hybrids, junction and power MOS field effect transistors and other related products.  Most of the Company’s products are custom made pursuant to contracts with customers whose end products are sold to the United States government.  Other products, such as Joint Army/Navy transistors, diodes and Standard Military Drawings voltage regulators, are sold as standard or catalog items.
 
The following discussion and analysis of factors which have affected the Company's financial position and operating results during the periods included in the accompanying condensed financial statements should be read in conjunction with the Financial Statements and the related Notes to Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended February 29, 2012 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.
 
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 cash and cash equivalents, investment in Treasury bills and certificates of deposit, accounts receivable, shipping and handling, and inventories. 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 29, 2012.
 
Trends and Uncertainties:
 
During the three months ended August 31, 2012, the Company’s book-to-bill ratio was approximately 1.44 as compared to approximately .94 for the three months ended August 31, 2011, reflecting an increase in the volume of orders booked.  The Company does not believe that, in most years, the year-to-year change in the book-to-bill ratio indicates a specific trend in the demand for the Company’s products.  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 fall drastically in the coming periods, the Company might be required to implement further cost cutting or other downsizing measures to continue profitable 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:

Raw material /Work in process:
All material purchased, processed and/or used in the last two fiscal years is valued at the lower of its acquisition cost or market.  All material not purchased/used in the last two fiscal years is fully reserved for.

Finished goods:
All finished goods with firm orders for later delivery are valued (material and overhead) at the lower of cost or market.  All finished goods with no orders are fully reserved.

Direct labor costs:
Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the amount of man hours required from the different direct labor departments to bring each device to its particular level of completion.
 
 
12

 

Results of Operations-Three Months Ended August 31, 2012 Compared to Three Months Ended August 31, 2011:

Net sales for the three months ended August 31, 2012 decreased 8% to $1,965,000 as compared to $2,128,000 for the three months ended August 31, 2011.  This decrease was primarily attributable to a lower level of orders that were shipped in accordance with customer requirements and unanticipated delays in receipt of key raw material components.
 
Cost of sales for the three months ended August 31, 2012 increased to $1,541,000 from $1,461,000 for the comparable period in 2011, primarily due to higher raw material cost.  Expressed as a percentage of sales, cost of sales increased to 78% from 69% for the same period in 2011.  This increase in percentage was due primarily to higher raw material cost and a lower amount of net sales as described herein.

Gross profit for the three months ended August 31, 2012 decreased to $424,000 from $667,000 for the three months ended August 31, 2011, primarily due to a decrease in net sales and higher raw material cost due to increases in precious metal prices.  Accordingly, gross margins on the Company’s sales decreased to 22% for the three months ended August 31, 2012 in comparison to 31% for the three months ended August 31, 2011.

For the three months ended August 31, 2012, the Company shipped 75,556 units as compared to 65,608 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.

For the three months ended August 31, 2012, the Company’s backlog of open orders increased 11% to $8,841,000 as compared to the same period of the prior year. For the three months ended August 31, 2011, the Company’s backlog of open orders decreased 2% to $5,971,000 as compared to same period in 2010.  Changes in backlog reflect changes in the intake of orders and in the delivery requirements of customers.

The Company has experienced an increase of 42% to $2,830,000 in the level of bookings during the quarter ended August 31, 2012 as compared to the same period in the prior year. For the three months ended August 31, 2011, the Company experienced a 6% decrease to 2,000,000 in the level of bookings as compared to the same period in the prior year. The increase in bookings for the three months ended August 31, 2012 is principally a result of an increase in the placement of orders by key customers, resulting in an increase in the monetary value of, and timing differences in, the placement of contracts by the Department of Defense and its prime contractors.

Selling, general, and administrative expenses increased to $261,000 for the three months ended August 31, 2012 from $229,000 for the same period  in the prior year. The increase reflects higher legal and professional fees.  During the three months ended August 31, 2012, selling, general, and administrative expenses as a percentage of net sales increased to 13% as compared with 11% for the three months ended August 31, 2011.

Operating income for the three months ended August 31, 2012 decreased to $163,000 as compared to $438,000 for the three months ended August 31, 2011. This decrease is due primarily to lower net sales, higher cost of materials and higher cost of selling, general and administrative expenses.
 
The Company recorded other income of  $24,000 for the three months ended August 31, 2012 as compared to $4,000 for the three months ended August 31, 2011. Other income for the three months ended August 31, 2012 includes $12,000 of interest income on investment in treasury bills and certificates of deposit net of changes in market value and $12,000 of income from receivables adjustments. Other income from the three months ended August 31, 2011 includes $4,000 of interest income on investment in treasury bills net of changes in market value.  The increase in interest income is due primarily to an increase in interest rates on invested funds.
 
Net income for the three months August 31, 2012 decreased to $185,000 as compared to $439,000 for the same period in 2011.  This decrease is due primarily to lower net sales and other expense factors outlined above.
 
 
13

 
 
Results of Operations-Six Months Ended August 31, 2012 Compared to Six Months Ended August 31, 2011:

Net sales for the six months ended August 31, 2012 decreased 6% to $4,033,000 as compared to $4,300,000 for the six months ended August 31, 2011.  This decrease was primarily attributable to a lower level of orders that were shipped in accordance with customer requirements and unanticipated delays in receipt of key raw material components.

Cost of sales for the six months ended August 31, 2012 increased to $3,144,000 from $3,110,000 for the comparable period in 2011.  Expressed as a percentage of sales, cost of sales increased to 78% as compared to 72% for the same period in 2011. This increase in percentage was due primarily to higher raw material cost and a lower amount of net sales as described herein.
 
Gross profit for the six months ended August 31, 2012 decreased to $889,000 from $1,190,000 for the six months ended August 31, 2011, primarily due to higher raw material cost as outlined above. Gross margins on the Company’s sales decreased to 22% as compared to 28% for the same period in 2011.
 
For the six months ended August 31, 2012, the Company shipped 112,732 units as compared to 88,220 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.
 
For the six months ended August 31, 2012, the Company’s backlog of open orders increased 48% to $8,841,000 as compared to the same period of the prior year. For the six  months ended August 31, 2011, the Company’s backlog of open orders decreased 8% to $5,971,000 as compared to same period in 2010. Changes in backlog resulted from changes in the intake of orders and in the delivery dates required by customers.

The Company has experienced an increase of 83% to $6,883,000 in the level of bookings during the six months ended August 31, 2012 when compared with the six months ended August 31, 2011. The increase occurred principally a result of an increase in the placement of orders by key customers, resulting in an increase in the monetary value of, and timing differences in, the placement of contracts by the Department of Defense and its prime contractors.

Selling, general, and administrative expenses increased to $576,000 for the six months ended August 31, 2012 from $504,000 for the comparable period in 2011, primarily due to higher legal and professional fees.  During the six months ended August 31, 2012, 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, 2011.

Operating income for the six months ended August 31, 2011 decreased to $313,000 from $686,000 for the six months ended August 31, 2011. This decrease is due primarily to lower net sales and higher cost of materials as outlined above.
 
The Company recorded other income of $39,000 for the six months ended August 31, 2011 as compared to other income of $11,000 for the six months ended August 31, 2011.  Included in other income for the six months ended August 31, 2011 was $27,000 of interest income on investment in treasury bills and certificates of deposit net of changes in market value and $12,000 of income from receivables adjustments. Included in other income for the six months ended August 31, 2011, was $11,000 of interest income investment in treasury bills net of changes in market value.
 
Net income for the six months ended August 31, 2012 decreased to $346,000 from $690,000 for the same period in 2011.  This decrease is due primarily to lower net sales and higher cost of materials as outlined above.
 
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.  The Company anticipates that its capital expenditures required to sustain operations will be approximately $200,000 during 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 declining level of bookings, but with 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 next twelve months and at the current level of payments to its pre-bankruptcy creditors.  However, due to the level of current backlog and projected 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 be required to take cost cutting and productivity enhancing activity to assure its continued profitability.
 
 
14

 
 
Over the long-term, based on these factors and at the current level of bookings, costs of raw materials and services, profit margins and sales levels, the Company believes that it will generate sufficient cash from operations to satisfy its operating needs and the level of payments to pre-bankruptcy creditors it has maintained over the last eighteen years.  In the event that bookings in the long-term decline significantly below the level experienced during the previous two fiscal years, the Company may be required to implement further cost-cutting or other downsizing measures to continue its business operations.  Such cost-cutting measures could inhibit future growth prospects. In appropriate situations, the Company may seek strategic alliances or joint ventures with others or acquisitions in order to maximize marketing potential and utilization of existing resources to provide further opportunities for growth.

At August 31, 2012, February 29, 2012 and August 31, 2011, the Company had cash of approximately $920,000, $985,000 and $778,000, respectively.  The cash decrease for the six months ended August 31, 2012 was primarily due to an increase in raw material inventory.

At August 31, 2012, February 29, 2012 and August 31, 2011, the Company had investments in treasury bills and certificates of deposit of approximately $6,269,000, $6,614,000 and $6,634,000, respectively.

At August 31, 2012, the Company had working capital of $9,804,000 as compared with a working capital at August 31, 2011 of $9,599,000.  At February 29, 2012, the Company had a working capital of $9,635,000.  The $169,000 increase for the six months ended August 31, 2012 was due mainly to the $346,000 net income for the period.

During the quarter ended August 31, 2012, the Company repurchased 99,943 shares of its common stock from a stockholder in a privately  negotiated  transaction at a price of $2.75 per share, or an aggregate price of  $274,843.  While the Company  has not adopted a stock  repurchase  program  or  plan, the Company may in the future  repurchase additional shares of  its common stock  if the Company’s Board of  Directors determines  it  is in the best  interest of  the Company based on market and business conditions, applicable legal requirements and other factors.

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 29, 2012, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.
 
Some of the factors that may impact our business, financial condition, results of operations, strategies or prospects include:
 
Our complex manufacturing processes may lower yields and reduce our revenues.
Our business could be materially and adversely affected if we are unable to obtain qualified supplies of raw materials, parts and finished components on a timely basis and at a cost-effective price.
We are dependent on government contracts, which are subject to termination, price renegotiations and regulatory compliance, which can increase the cost of doing business and negatively impact our revenues.
Changes in government policy or economic conditions could negatively impact our results.
Our inventories may become obsolete and other assets may be subject to risks.
Environmental regulations could require us to incur significant costs.
Our business is highly competitive, and increased competition could reduce gross profit margins and the value of an investment in our Company.
Downturns in the business cycle could reduce the revenues and profitability of our business.
 
 
15

 
 
Our operating results may decrease due to the decline in profitability in the semiconductor industry.
Uncertainty of current economic conditions, domestically and globally, could continue to affect demand for our products and negatively impact our business.
Cost reduction efforts may be unsuccessful or insufficient to improve our profitability and may adversely impact productivity.
We may not achieve the intended effects of our new business strategy, which could adversely impact our business, financial condition and results of operations.
Our inability to introduce new products could result in decreased revenues and loss of market share to competitors; new technologies could also reduce the demand for our products.
Loss of, or reduction of business from, substantial clients could hurt our business by reducing our revenues, profitability and cash flow.
A shortage of three-inch silicon wafers could result in lost revenues due to an inability to build our products.
The nature of our products exposes us to potentially significant product liability risk.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could seriously harm our business.
Provisions in our charter documents and rights agreement could make it more difficult to acquire our Company and may reduce the market price of our stock.
Natural disasters, like hurricanes, or occurrences of other natural disasters whether in the United States or internationally may affect the markets in which our common stock trades, the markets in which we operate and our profitability. They may also affect the availability of raw materials which may adversely affect our profitability.
Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.
The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.
 
 
16

 
 
ITEM 4.   CONTROLS AND PROCEDURES
 
Our Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e), and 15d-15(e)) as of the end of the period covered by this Quarterly Report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
 
Changes in Internal Control over Financial Reporting

Based on an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, there has been no change in our internal control over financial reporting during our last fiscal quarter identified in connection with that evaluation, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II– OTHER INFORMATION

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

The following table presents information related to repurchases of our common stock made during the three months ended August 31, 2012:

Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
As Part of
Publicly
Announced Plans
Or Programs (1)
Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
Or Programs
         
 
June 1, 2012 –
June 30, 2012
 
­­­­­­­­
______
 
______
 
______
 
______
 
July 1, 2012 –
July 31, 2012
 
 
______
 
______
 
______
 
______
 
August 1, 2012 –
August 31, 2012
 
 
99,943
 
$2.75
 
______
 
______
         

(1)     On August 28, 2012, the Company  repurchased  99,943 shares of  its common stock from a stockholder in a privately negotiated transaction at a price of   $2.75 per share.  The Company has not adopted a stock repurchase  program or plan.

 
17

 
 
ITEM 5.           OTHER INFORMATION:
 
On October 15, 2012, the Board of Directors of the Company approved a resolution to hold annual meetings of the Company’s shareholders approximately six weeks following the filing of the Company’s Annual Report on Form 10-K each year.

ITEM 6.           EXHIBITS:

Exhibits
 
31
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS***
 
XBRL Instance Document
101.SCH***   XBRL Taxonomy Extension Schema
101.CAL***   XBRL Taxonomy Extension Calculation Linkbase
101.DEF***   XBRL Taxonomy Extension Definition Linkbase
101.LAB***   XBRL Taxonomy Label Linkbase
101.PRE***   XBRL Taxonomy Presentation Linkbase
 
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
 
 
18

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
SOLITRON DEVICES, INC.
 
       
Date: October 15, 2012
 
/s/ Shevach Saraf
 
   
Shevach Saraf
 
   
Chairman, President,
Chief Executive Officer,
Treasurer and
Chief Financial Officer
(Principal Executive and
 Financial Officer)
 

 
19

 
 
EXHIBIT INDEX
 
EXHIBIT NUMBER   DESCRIPTION
     
31
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS***
 
XBRL Instance Document
101.SCH***   XBRL Taxonomy Extension Schema
101.CAL***   XBRL Taxonomy Extension Calculation Linkbase
101.DEF***   XBRL Taxonomy Extension Definition Linkbase
101.LAB***   XBRL Taxonomy Label Linkbase
101.PRE***   XBRL Taxonomy Presentation Linkbase
 
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
 
20 

PINX:SODI Quarterly Report 10-Q Filling

PINX:SODI Stock - Get Quarterly Report SEC Filing of PINX:SODI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
PINX:SODI Quarterly Report 10-Q Filing - 8/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:SODI Quarterly Report 10-Q Filing - 5/31/2012  |  Next: PINX:SOFT Annual Report 10-K Filing - 5/31/2012