SODI 10-Q
Solitron Devices Inc (SODI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from _____ to _____
Commission File No.
(Exact Name of Registrant as Specified in Its Charter) |
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(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
| (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of January 17, 2024 was
SOLITRON DEVICES, INC.
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
| 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SOLITRON DEVICES, INC. | ||||||||
CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||
AS OF NOVEMBER 30, 2023 AND FEBRUARY 28, 2023 | ||||||||
(in thousands, except for share and per share amounts) | ||||||||
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| November 30, 2023 |
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| February 28, 2023 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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Short-term investments, held-to-maturity |
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Marketable securities |
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Accounts receivable |
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Inventories, net |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Property, plant and equipment, net |
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Right of use asset |
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Intangible asset |
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Other assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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Customer deposits |
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Accrued contingent consideration, current |
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Finance lease liability, current |
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Mortgage loan, current portion |
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Accrued expenses and other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Accrued contingent consideration, non-current |
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Deferred tax liability |
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Mortgage loan, net of current portion |
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TOTAL LIABILITIES |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, $ |
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Common stock, $ |
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at November 30, 2023 and at February 28, 2023 |
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Additional paid-in capital |
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Retained Earnings |
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Less treasury stock |
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TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ |
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| $ |
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The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
| 3 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||||||||||
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2023 AND NOVEMBER 30, 2022 | ||||||||||||||||
(Unaudited, in thousands except for share and per share amounts) | ||||||||||||||||
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| For The Three Months ended |
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| For The Three Months ended |
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| For The Nine Months ended |
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| For The Nine Months ended |
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| November 30, 2023 |
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| November 30, 2022 |
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| November 30, 2023 |
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| November 30, 2022 |
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Net sales |
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Cost of sales |
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Gross profit (loss) |
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Selling, general and administrative expenses |
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Operating income (loss) |
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Other income (loss) |
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Interest income |
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Interest expense |
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Dividend income |
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Realized gain (loss) on investments |
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Unrealized gain (loss) on investments |
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Other income |
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Scrap income |
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Total other income (loss) |
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Net income (loss) |
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Net income (loss) per common share - basic and diluted |
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Weighted average shares outstanding - basic and diluted |
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The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
| 4 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||||||||||||||||||||||
STATEMENTS OF CHANGES IN CONSOLIDATED CONDENSED STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2023 AND NOVEMBER 30, 2022 | ||||||||||||||||||||||||||||
(Unaudited, in thousands, except for number of shares) | ||||||||||||||||||||||||||||
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| Common Stock |
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| Additional |
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| Treasury |
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| Paid-in |
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| Retained |
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| of Shares |
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| Shares |
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| Amount |
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| Capital |
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| Amount |
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| Earnings |
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| Total |
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Balance, February 28, 2022 |
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| $ |
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| $ |
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Net income |
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| - |
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Balance, May 31, 2022 |
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Net income |
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Balance, August 31, 2022 |
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Net loss |
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Balance, November 30, 2022 |
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Balance, February 28, 2023 |
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Net loss |
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Balance, May 31, 2023 |
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Net income |
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Balance, August 31, 2023 |
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Net income |
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Balance, November 30, 2023 |
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The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
| 5 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2023 AND NOVEMBER 30, 2022 | ||||||||
(unaudited, in thousands) | ||||||||
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| Nine Months |
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| Nine Months |
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| November 30, 2023 |
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| November 30, 2022 |
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Net income |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of right of use asset |
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Net realized and unrealized (gains) losses on investments |
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Accrued interest income on short-term investments |
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Accrued interest expense on contingent consideration |
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Accrued interest expense on finance lease |
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Changes in Operating Assets and Liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets, non-current |
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Accounts payable |
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Customer deposits |
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Accrued expenses, other current and non-current liabilities |
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Net cash provided by operating activities |
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Investing activities |
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Proceeds from sale of marketable securities |
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Purchases of marketable securities |
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Purchases of short-term investments |
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Maturities of short-term investments |
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Cash paid for acquisition, net of cash acquired |
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Expenditures on construction in progress |
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Purchases of property and equipment |
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Net cash used in investing activities |
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Financing activities |
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Payments on finance lease liabilities |
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Principal payments on mortgage loan |
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Net cash used in financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents - beginning of the year |
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Cash and cash equivalents - end of period |
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Non-cash transactions |
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Reclassification of construction in progress to plant property and equipment |
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Financing right of use asset assumed through lease liability |
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Supplemental disclosures of cash flow data |
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Income taxes paid |
| $ |
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| $ |
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Interest expense paid |
| $ |
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| $ |
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The accompanying notes are an integral part of the unaudited consolidated condensed financial statements.
| 6 |
| Table of Contents |
SOLITRON DEVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND OPERATIONS
Solitron Devices, Inc., a Delaware corporation (“Solitron,” the “Company,” “we,” “us,” or “our”), designs, develops, manufactures, and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company was incorporated under the laws of the State of New York in 1959 and reincorporated under the laws of the State of Delaware in August 1987.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.
The unaudited financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. The results of operations for the three and nine months ended November 30, 2023 are not necessarily indicative of the results to be expected for the year ended February 29, 2024.
The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended February 28, 2023.
Use of estimates
The consolidated financial statements are prepared in accordance with GAAP. Preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company could have reasonably used different accounting estimates. This applies in particular to inventory and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The Company believes COVID-19 had a negative impact on the Company’s bookings and net sales in fiscal 2023. The Company believes COVID-19 had a negative impact to net sales in the first quarter of fiscal 2024 due to bookings being negatively affected in fiscal 2023.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money market accounts. The Company considers any short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents.
| 7 |
| Table of Contents |
Short-term Investments, Held-to-Maturity Investments
Short-term investments consisted of certificates of deposit and U.S. Treasury securities. The U.S. Treasury securities are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value of $
Investment in Marketable Securities
Investment in Marketable Securities includes investments in common stocks and bonds. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the consolidated condensed statements of operations.
The following table summarizes investments in marketable securities at:
November 30, 2023 |
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| Gross |
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Marketable Securities: |
| Cost |
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| Unrealized Gains |
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| Unrealized Losses |
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| Fair Value |
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Common Stocks |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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February 28, 2023 |
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| Gross |
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| Gross |
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Marketable Securities: |
| Cost |
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| Unrealized Gains |
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| Unrealized Losses |
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| Fair Value |
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Common Stocks |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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At November 30, 2023 and February 28, 2023, the deferred tax liability related to unrealized gains and losses on short-term investments was approximately $
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or liability) used to measure fair value. This hierarchy prioritizes the inputs into the following three levels:
Level 1: |
| Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. |
Level 2: |
| Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
Level 3: |
| Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
The table below shows the Company’s marketable securities as of November 30, 2023 and February 28, 2023:
November30, 2023 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Common Stocks |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
February 28, 2023 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Common Stocks |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued expenses and other liabilities approximate their fair value due to the relatively short period to maturity for these instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.
Accounts Receivable
Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business. The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account. Any expected losses related to trade receivables as of November 30, 2023 and February 28, 2023 were determined to be immaterial. The accounts receivable balance as of November 30, 2023, February 28, 2023, and February 28, 2022 was $
| 8 |
| Table of Contents |
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 and net realizable value. Cost is determined using the “first-in, first-out” (FIFO) method. The Company buys raw material only to fill customer orders. Excess raw material is created only when a vendor imposes a minimum quantity buy in excess of actual requirements. Such excess material will usually be utilized to meet the requirements of the customer’s subsequent orders. If excess material is not utilized after two fiscal years, it is fully reserved. Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities.
The Company does not classify a portion of inventories as non-current since we cannot reasonably estimate based on the length of our operating cycle which items will or will not be used within twelve months.
The Company’s inventory valuation policy is as follows:
Raw material /Work in process: |
| All material acquired or processed in the last two fiscal years is valued at the lower of its acquisition cost or net realizable value, except for wafers which function under a three- year policy. All material not used after two fiscal years is fully reserved for except wafers which were reserved for after three years. All raw wafers were fully reserved for when the wafer fab was decommissioned. Finished wafers produced in our former wafer fab are stored in the wafer bank and are considered work-in-process. Raw material in excess of five years’ usage that cannot be restocked, and slow-moving work in process are reserved for. |
|
|
|
Finished goods: |
| All finished goods with firm orders for later delivery are valued at the lower of cost or net realizable value. 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 number of man-hours required from the different direct labor departments to bring each device to its particular level of completion. |
Property, Plant, Equipment, and Leasehold Improvements
Property, plant, and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not extend their expected life are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the lives of the related assets:
Building | |
Building Improvements | |
Leasehold Improvements | Shorter of |
Machinery and Equipment |
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and account receivables. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on the accounts. As of November 30, 2023, all non-interest bearing checking accounts were FDIC insured to a limit of $
| 9 |
| Table of Contents |
Net Income (Loss) Per Common Share
Net income (loss) per common share is presented in accordance with ASC 260-10 “Earnings per Share.” Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options to the extent they are not anti-dilutive using the treasury stock method. The Company had no common stock equivalents outstanding during the three and nine months ended November 30, 2023 and November 30, 2022; therefore, there is no effect from dilution on earnings per share.
Revenue Recognition
The Company records revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. Revenue is recognized at a point in time, generally upon shipment of products to customers.
The core principle of the guidance in ASC Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, the Company applied the following steps:
1. Identify the contract(s) with a customer.
The Company designs, develops, manufactures and markets solid-state semiconductor components and related devices. The Company’s products are used as components primarily in the military, aerospace and medical markets.
The Company’s revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
2. Identify the performance obligations in the contract.
The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.
3. Determine the transaction price.
The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the Company satisfies a performance obligation.
This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company’s accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred, which is generally upon shipment.
In addition, the Company may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, performance obligations are determined, and we recognize revenue at the point in time in which each performance obligation is fully satisfied.
We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. We have contractual arrangements whereby we provide distributors with protection against price reductions initiated by us after product is sold by us to the distributor and prior to resale by the distributor. In addition, we have a termination clause in one of our distributor agreements that would allow for a full credit for all inventory upon 60 days’ notice of terminating the agreement.
| 10 |
| Table of Contents |
We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our customers during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. Our estimates require the exercise of significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.
Related Party Transactions
The Company currently purchases and has purchased in the past die and wafers, as specified by the Company's customers, from ES Components. Dwight Aubrey, a director of the Company, is a minority owner of ES Components, and an immediate family member of Mr. Aubrey is the majority owner of ES Components. For the three and nine months ended November 30, 2023, the Company purchased $
Stock Based Compensation
The Company records stock-based compensation in accordance with the provisions of ASC Topic 718, "Compensation-Stock Compensation," which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC Topic 718, the Company recognizes an expense for the fair value of outstanding stock options and grants as they vest, whether held by employees or others. No vesting of stock options or grants occurred during the three and nine months ended November 30, 2023 or November 30, 2022.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the consolidated financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. The Company adopted the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2024. The Company estimates its expected credit losses based on the expected losses on its receivables based on a variety of data, including current economic conditions in the Company’s industry and the credit status of the Company’s customers. The adoption of this guidance did not have a material impact on our consolidated financial statements.
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.
3. REVENUE RECOGNITION
As of November 30, 2023, and February 28, 2023, sales returns and allowances accrual activity is shown below:
|
| November 30, 2023 |
|
| February 28, 2023 |
| ||
Beginning Balance |
| $ |
|
| $ |
| ||
Accrued Allowances |
|
|
|
|
|
| ||
Credits Issued |
|
|
|
|
|
| ||
Ending Balance |
| $ |
|
| $ |
| ||
As noted in Note 2 above, one of our distributor agreements has a termination clause that would allow for a full credit for all inventory upon 60 days’ notice of terminating the agreement. As of November 30, 2023, and February 28, 2023, the inventory balance at that distributor was believed to be $
| 11 |
| Table of Contents |
The Company warrants that its products, when delivered, will be free from defects in material workmanship under normal use and service. The obligations are limited to replacing, repairing, or reimbursing for, at the option of the Company, any products that are returned within one year after the date of shipment. The Company does not reserve for potential warranty costs based on historical experience and the nature of its cost tracking system.
4. INVENTORIES
As of November 30, 2023, inventories consisted of the following:
|
| Gross |
|
| Reserve |
|
| Net |
| |||
Raw Materials |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Work-In-Process |
|
|
|
|
| ( | ) |
|
|
| ||
Finished Goods |
|
|
|
|
| ( | ) |
|
|
| ||
Totals |
| $ |
|
| $ | ( | ) |
| $ |
| ||
As of February 28, 2023, inventories consist of the following:
|
| Gross |
|
| Reserve |
|
| Net |
| |||
Raw Materials |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Work-In-Process |
|
|
|
|
| ( | ) |
|
|
| ||
Finished Goods |
|
|
|
|
| ( | ) |
|
|
| ||
Totals |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Wafer bank inventory (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled approximately $
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of November 30, 2023, and February 28, 2023, accrued expenses and other current liabilities consisted of the following:
|
| November 30, 2023 |
|
| February 28, 2023 |
| ||
Payroll and related employee benefits |
| $ |
|
| $ |
| ||
Legal fees |
|
|
|
|
|
| ||
Property, sales, income and franchise taxes |
|
|
|
|
|
| ||
Return allowance |
|
|
|
|
|
| ||
Other liabilities |
|
|
|
|
|
| ||
Totals |
| $ |
|
| $ |
| ||
6. DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS
Revenues from domestic and export sales are attributed to a global geographic region according to the location of the customer’s primary manufacturing or operating facilities. Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2023 and November 30, 2022, respectively, are as follows:
| 12 |
| Table of Contents |
Geographic Region |
| November 30, 2023 |
|
| November 30, 2022 |
| ||
Europe and Australia |
| $ |
|
| $ |
| ||
Canada and Latin America |
|
|
|
|
|
| ||
Far East and Middle East |
|
|
|
|
|
| ||
United States |
|
|
|
|
|
| ||
Totals |
| $ |
|
| $ |
| ||
Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2023 and November 30, 2022, respectively are as follows:
Geographic Region |
| November 30, 2023 |
|
| November 30, 2022 |
| ||
Europe and Australia |
| $ |
|
| $ |
| ||
Canada and Latin America |
|
|
|
|
|
| ||
Far East and Middle East |
|
|
|
|
|
| ||
United States |
|
|
|
|
|
| ||
Totals |
| $ |
|
| $ |
| ||
For the three months ended November 30, 2023 and November 30, 2022, approximately
For the nine months ended November 30, 2023 and November 30, 2022, approximately
Customers who contributed ten percent or more of revenues for the three months ended November 30, 2023 and November 30, 2022, respectively are as follows:
Customer |
| November 30, 2023 |
|
| Customer |
| November 30, 2022 |
| ||
1. ConMed |
|
| % |
| 1. RTX (Raytheon) |
|
| % | ||
2. RTX (Raytheon) |
|
| % |
| 2. Avnet/USI Electronics |
|
| % | ||
3. L3Harris |
|
| % |
| 3. All Tech Electronics |
|
| % | ||
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
| % |
| Totals |
|
| % | ||
Customers who contributed ten percent or more of revenues for the nine months ended November 30, 2023 and November 30, 2022, respectively are as follows:
Customer |
| November 30, 2023 |
|
| Customer |
| November 30, 2022 |
| ||
1. RTX (Raytheon) |
|
| % |
| 1. Raytheon |
|
| % | ||
2. L3Harris |
|
| % |
|
|
|
|
|
| |
3. ConMed |
|
| % |
|
|
|
|
|
| |
Totals |
|
| % |
| Totals |
|
| % | ||
7. MAJOR SUPPLIERS
Suppliers who accounted for 10% or more of purchases of production materials for the three months ended November 30, 2023 and November 30, 2022, respectively are as follows:
Supplier |
| November 30, 2023 |
|
| Supplier |
| November 30, 2022 |
| ||
1. Ametek Engineered Materials |
|
| % |
| 1. Platronics Seals |
|
| % | ||
2. Stellar |
|
| % |
| 2. Stellar |
|
| % | ||
|
|
|
|
|
| 3. Wuxi Streamtek |
|
| % | |
|
|
|
|
|
| 4. Electrovac Hacht & Huber |
|
| % | |
Totals |
|
| % |
| Totals |
|
| % | ||
| 13 |
| Table of Contents |
Suppliers who accounted for 10% or more of the cost of production materials for the nine months ended November 30, 2023 and November 30, 2022, respectively are as follows:
Supplier |
| November 30, 2023 |
|
| Supplier |
| November 30, 2022 |
| ||
1. Stellar |
|
| % |
| 1. Stellar |
|
| % | ||
2. Wuxi Streamtek |
|
| % |
| 3. Platronics Seals |
|
| % | ||
3. Ametek Engineered Materials |
|
| % |
| 3. Wuxi Streamtek |
|
| % | ||
4. Platronics Seals |
|
| % |
| 4. ES Components |
|
| % | ||
Totals |
|
| % |
| Totals |
|
| % | ||
8. ACQUISITION OF MICRO ENGINEERING, INC.
Effective September 1, 2023 (the “Closing Date”) the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among the Company, Micro Engineering, Inc., a Florida corporation (“MEI”) and the shareholders of MEI (collectively, the “MEI Shareholders”), pursuant to which the Company agreed to purchase all the outstanding capital stock of MEI for a purchase price of $
In addition, under the Purchase Agreement the Company agreed to the following potential earn-out payments as additional consideration for the Acquisition: for each of (1) the period beginning on the Closing Date and ending on December 31, 2023, (2) the calendar year ending on December 31, 2024, (3) the calendar year ending December 31, 2025, and (3) the period beginning on January 1, 2026 and ending on the third anniversary of the Closing Date, the Company agreed to pay the MEI Shareholders 7.5% of the gross revenue actually received and collected by the Company during the applicable period from MEI’s existing customers as of the Closing and related to sales by the Company of Company products that were in existence as of the Closing. The estimated fair value of the contingent consideration as of November 30, 2023 was $
During the fiscal third quarter ended November 30, 2023, the Company incurred $
The Company accounted for the acquisition as a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations. At the date of the acquisition and of this Quarterly Report on Form 10-Q, management has not yet finalized its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Deferred taxes are being reviewed and analyzed to determine their realizability and are subject to change. Intangible assets recorded represent customer relationship assets which we estimate to have a three year life and the value may change based on the final valuation report. Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets. The following table summarizes the provisional fair value of the assets acquired and liabilities assumed on the date of acquisition, and is as follows:
| 14 |
| Table of Contents |
|
| Pro forma |
| |
|
| Consolidated |
| |
|
| (unaudited) |
| |
Assets Acquired |
|
|
| |
Cash and cash equivalents |
| $ |
| |
Accounts receivable |
|
|
| |
Inventories, net |
|
|
| |
Prepaid expenses and other current assets |
|
|
| |
Property, plant and equipment, net |
|
|
| |
Other assets |
|
|
| |
Total assets acquired |
| $ |
| |
|
|
|
|
|
Liabilities Assumed |
|
|
|
|
Accounts payable |
| $ |
| |
Accrued expenses and other current liabilities |
|
|
| |
Deferred tax liability |
|
|
| |
Total liabilities assumed |
|
|
| |
|
|
|
|
|
Intangibles |
|
|
| |
|
|
|
|
|
Total purchase price |
| $ |
| |
Consideration Transferred |
|
|
| |
Cash |
| $ |
| |
Working capital adjustment |
|
|
| |
Contingent consideration |
|
|
| |
Total consideration |
| $ |
| |
Pro Forma Condensed Combined Financial Information (Unaudited) (In thousands)
The following presents the Company’s unaudited pro forma financial information for the three and nine months ended November 30, 2023 and 2022, respectively, giving effect to the acquisition of MEI as if it had occurred at March 1, 2022. Included in the pro forma information is: adjustments to recognize transaction-related costs related to the acquisition of MEI and fair value adjustment to inventory as if acquired during the quarter ended February 28, 2022.
|
| For the |
|
| For the |
|
| For the |
| |||
|
| three months ended |
|
| nine months ended |
|
| nine months ended |
| |||
|
| November 30, 2022 |
|
| November 30, 2023 |
|
| November 30, 2022 |
| |||
Revenue |
|
|
|
|
|
|
|
|
| |||
Net Income |
|
|
|
|
|
|
|
|
| |||
Diluted net income per share |
| $ |
|
| $ |
|
| $ |
| |||
The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had the transaction actually occurred on the dates presented or to project the combined company’s results of operations or financial position for any future period. The consolidated condensed statements of operations for the three months ended November 30, 2023 includes net sales of $
9. COMMITMENTS AND CONTINGENCIES
Finance leases:
During fiscal 2021 the Company entered into a
| 15 |
| Table of Contents |
In connection with the Acquisition of MEI, the Company also entered into a Lease Agreement pursuant to which it agreed to lease the facility occupied by MEI, consisting of approximately 10,926 square feet of useable office and production space in Orange County, Florida for $
Under ASC 842-10-25-2 there are five criteria to determine if a lease is a finance lease, one of those criteria is if a purchase option is reasonably certain to be exercised. Currently, the purchase option is likely to be exercised thus we have treated the lease as a finance lease and included the purchase price of $
|
| November 30, 2023 |
| |
Fiscal Year Ending February 29 |
| Amount |
| |
2024 |
| $ |
| |
Total Future Undiscounted Cash Flows |
|
|
| |
Less Imputed Interest to be recognized in lease expense |
|
|
| |
Finance Lease Liabilities, as reported |
| $ |
| |
Balance Sheet Classification |
| November 30, 2023 |
| |
Assets |
|
|
| |
Finance lease right-of-use assets, September 1, 2023 |
| $ |
| |
Amortization for the three months ended November 30, 2023 |
|
| ) | |
Total finance lease right-of-use asset, November 30, 2023 |
| $ |
| |
Liabilities |
|
|
|
|
Current |
|
|
|
|
Finance lease liability, short-term |
| $ |
| |
Non-current |
|
|
|
|
Finance lease liability, long-term |
|
|
| |
Total lease liabilities |
| $ |
| |
Contingencies:
We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2023, we had no known material current, pending, or threatened litigation.
10. NOTES PAYABLE
On April 16, 2021, the Company closed on the acquisition of a facility and real estate located in West Palm Beach, Florida for a purchase price of $
On June 29, 2022, the Company received notification from the Bank that it had elected to suspend certain financial and reporting requirements set forth in the FCA. Specifically, the Bank elected on a going forward basis to suspend measurement of any of the following financial covenants to the extent they are included in Section 2.1, ‘Financial Covenants’ of the FCA: Tangible Net Worth; Debt Service Coverage Ratio; Fixed Charge Coverage Ratio; Asset Coverage Ratio; Funded Debt to EBITDA; and/or Liquidity. In addition, the Bank elected to suspend the requirements in the FCA, if any, for the submission of financial statements and information by the Company on a periodic basis as specified in Section 2.4, ‘Financial Information’ of the FCA. The Bank reserves the right in its sole discretion to require the Company to resume delivery of financial statements and other information and to evidence compliance with the financial covenant requirements as currently provided in the FCA.
11. STOCKHOLDERS’ EQUITY
Repurchase Program
The Board of Directors has authorized a stock repurchase program of up to $
The Company did not repurchase any shares under the stock repurchase program during the nine months ended November 30, 2023 or November 30, 2022.
| 16 |
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Solitron Devices, Inc., a Delaware corporation (the “Company” or “Solitron”), designs, develops, manufactures and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company manufactures a large variety of bipolar and metal oxide semiconductor (“MOS”) power transistors, power and control hybrids, junction and power MOS field effect transistors and other related products. Most of the Company’s products are custom made pursuant to contracts with customers whose end products are sold to the United States government. Other products, such as Joint Army/Navy transistors, diodes and Standard Military Drawings voltage regulators, are sold as standard or catalog items.
As disclosed under Note 8 to Unaudited Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, effective September 1, 2023 the Company completed the Acquisition of MEI. As a result of the Acquisition, MEI, which is engaged in the production and sale of electronic components primarily for the medical industry in the State of Florida, became a wholly-owned subsidiary of the Company.
The following discussion and analysis of factors which have affected the Company's financial position and operating results during the periods included in the accompanying unaudited condensed financial statements should be read in conjunction with the Audited 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, 2023 and the Unaudited Consolidated Financial Statements and the related Notes to Unaudited Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates:
The discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q which are prepared in accordance with GAAP. Preparing consolidated 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. See Note 2 in the consolidated financial statements for the Company’s significant accounting policies. Of the Company’s accounting policies, the following are considered to be critical – Revenue Recognition and Inventories. A discussion of these critical accounting policies is included in Note 2 of the “Notes To Financial Statements” in Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2023.
See Note 2, “Summary of Significant Accounting Policies”, to the accompanying notes to the consolidated financial statements included in this Quarterly Report on 10-Q.
Results of Operations-Three Months Ended November 30, 2023 Compared to Three Months Ended November 30, 2022:
Net Sales. Net sales for the three months ended November 30, 2023 increased 608% to $4,136,000 as compared to $584,000 for the three months ended November 30, 2022. The increase in net sales was largely due to the acquisition of MEI and production being curtailed due to the company relocating to its new facility during the three months ended November 30, 2022 along with associated startup delays.
| 17 |
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Net bookings for the three months ended November 30, 2023 increased 115% to $4,842,000 versus $2,257,000 during the three months ended November 30, 2022. Backlog as of November 30, 2023 increased 102% to $12,986,000 as compared to a backlog of $6,430,000 as of November 30, 2022.
Cost of Sales. Cost of sales for the three months ended November 30, 2023 increased to $3,059,000 from $905,000 for the three months ended November 30, 2022, due to increased raw materials and labor costs associated with increased net sales. Included in cost of sales is $494,000 non-cash impact due to MEI’s inventory having been valued at fair value at the time of the acquisition. Expressed as a percentage of net sales, cost of sales decreased to 74% for the three months ended November 30, 2023 from 155% for the three months ended November 30, 2022.
Gross Profit (Loss). Gross profit (loss) for the three months ended November 30, 2023 increased to $1,077,000 from ($321,000) for the three months ended November 30, 2022, due primarily to increased net sales. Accordingly, gross margins expressed as a percentage of net sales increased to 26% for the three months ended November 30, 2023 as compared to (55%) for the three months ended November 30, 2022.
For the three months ended November 30, 2023, we shipped 20,733 units as compared to 6,130 units shipped during the same period of the prior year. It should be noted that since we manufacture a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in our volume of units shipped should not be regarded as a reliable indicator of our performance.
Selling, General & Administrative Expenses. Selling, general, and administrative expenses increased to $859,000 for the three months ended November 30, 2023 from $460,000 for the same period in the prior year. The increase was due to acquisition related expenses, primarily professional fees and legal expenses, of $200,000 and $96,000 of expenses at MEI, as compared to zero in the prior year period. During the three months ended November 30, 2023, selling, general and administrative expenses as a percentage of net sales increased to 21% as compared to 79% for the three months ended November 30, 2022.
Operating Income (Loss). Operating income (loss) for the three months ended November 30, 2023 increased to $218,000 as compared to operating income (loss) of ($781,000) for the three months ended November 30, 2022. This increase is due primarily to increased net sales as described above, partially offset by $494,000 of non-cash cost of goods sold impact due to the MEI acquisition fair value inventory adjustment and $200,000 of acquisition related expenses.
Other Income (Loss). Interest income decreased to $12,000 for the three months ended November 30, 2023 as compared to $18,000 for the three months ended November 30, 2022. Interest expense increased to ($55,000) for the three months ended November 30, 2023 as compared to ($27,000) for the three months ended November 30, 2022 due to non-cash interest on the accrued contingent consideration. Dividend income was $0 for the three months ended November 30, 2023 as compared to $1,000 for the three months ended November 30, 2022. Realized gains (losses) on investments for the three months ended November 30, 2023 decreased to $0 as compared to a loss of ($13,000) for the three months ended November 30, 2022. Unrealized gains (losses) on investments for the three months ended November 30, 2023 were a loss of ($108,000) as compared to a gain of $270,000 for the three months ended November 30, 2022. Other income was $19,000 for the three months ended November 30, 2023 versus $0 for the three months ended November 30, 2022. Income from the sale of scrap was $0 for the three months ended November 30, 2023 as compared to $40,000 for the three months ended November 30, 2022.
Net Income (Loss). Net income (loss) for the three months ended November 30, 2023 increased to $86,000 as compared to net income (loss) of ($492,000) for the three months ended November 30, 2022. This increase is due primarily to increased net sales as described above partially offset by sale of certain MEI related inventory at fair value and acquisition related expenses.
Results of Operations-Nine Months Ended November 30, 2023 Compared to Nine Months Ended November 30, 2022:
Net Sales. Net sales for the nine months ended November 30, 2023 increased 78% to $8,753,000 as compared to $4,907,000 for the nine months ended November 30, 2022. The increase in net sales was largely due to normal production levels after moving to the new facility in the prior year period and the acquisition of MEI.
Net bookings for the nine months ended November 30, 2023 increased 54% to $10,611,000 versus $6,871,000 during the nine months ended November 30, 2022. Backlog as of November 30, 2023 increased 102% to $12,986,000 as compared to a backlog of $6,430,000 as of November 30, 2022.
Cost of Sales. Cost of sales for the nine months ended November 30, 2023 increased to $6,172,000 from $3,710,000 for the nine months ended November 30, 2022, due to increased raw materials and labor costs associated with increased net sales. Expressed as a percentage of net sales, cost of sales decreased to 71% for the nine months ended November 30, 2023 from 76% for the nine months ended November 30, 2022.
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Gross Profit. Gross profit for the nine months ended November 30, 2023 increased to $2,581,000 from $1,197,000 for the nine months ended November 30, 2022, due primarily to increased net sales. Accordingly, gross margins expressed as a percentage of net sales increased to 29% for the nine months ended November 30, 2023 as compared to 24% for the nine months ended November 30, 2022.
For the nine months ended November 30, 2023, we shipped 55,878 units as compared to 39,012 units shipped during the same period of the prior year. It should be noted that since we manufacture a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in our volume of units shipped should not be regarded as a reliable indicator of our performance.
Selling, General & Administrative Expenses. Selling, general, and administrative expenses increased to $2,015,000 for the nine months ended November 30, 2023 from $1,535,000 for the same period in the prior year. The increase was primarily due to acquisition related expenses, primarily legal and professional fees, of approximately $200,000, and $96,000 of expenses at MEI. During the nine months ended November 30, 2023, selling, general and administrative expenses as a percentage of net sales decreased to 23% as compared to 31% for the nine months ended November 30, 2022.
Operating Income/Loss. Operating income (loss) for the nine months ended November 30, 2023 increased to $566,000 as compared to operating loss of ($338,000) for the nine months ended November 30, 2022. This increase is due primarily to increased net sales as described above.
Other Income. Interest income increased to $32,000 for the nine months ended November 30, 2023 as compared to $20,000 for the nine months ended November 30, 2022. Interest expense increased to ($108,000) for the nine months ended November 30, 2023 as compared to $(82,000) for the nine months ended November 30, 2022. Dividend income increased to $19,000 for the nine months ended November 30, 2023 as compared to $6,000 for the nine months ended November 30, 2022. Realized gains on investments for the nine months ended November 30, 2023 increased to $332,000 as compared to $19,000 for the nine months ended November 30, 2022. Unrealized gains (loss) on investments for the nine months ended November 30, 2023 were ($745,000) as compared to $325,000 for the nine months ended November 30, 2022. Other income was $19,000 in the nine months ended November 30, 2023 as compared to $0 for the nine months ended November 30, 2022. Income from the sale of scrap was $0 for the nine months ended November 30, 2023 as compared to $644,000 in the nine months ended November 30, 2022.
Net Income. Net income for the nine months ended November 30, 2023 decreased to $115,000 as compared to net income of $594,000 for the nine months ended November 30, 2022. This decrease is due primarily to decreased other income as described above, partially offset by increased net sales and operating income due to increased net sales.
Liquidity and Capital Resources:
Operating Activities:
Net cash provided by operating activities was $1,357,000 for the nine months ended November 30, 2023 primarily reflecting net income of $115,000, a decrease in inventories of $693,000, an increase in accounts payable of $481,000, net realized and unrealized losses on investments of $413,000, and depreciation and amortization of $393,000, partially offset by an increase in accounts receivable of ($1,171,000).
Net cash provided by operating activities was $1,605,000 for the nine months ended November 30, 2022 primarily reflecting net income of $594,000, a decrease in accounts receivable of $1,356,000, and depreciation and amortization of $233,000, partially offset by net realized and unrealized gains on investments of $344,000 and an increase in inventories of $224,000.
Investing Activities:
Net cash used in investing activities was ($815,000) for the nine months ended November 30, 2023 principally reflecting ($2,465,000) in cash paid for an acquisition, net of cash acquired, ($162,000) in purchases of property, plant and equipment, and ($70,000) in purchases of marketable securities, partially offset by $1,000,000 in maturities of short-term investments, $882,000 in proceeds from the sale of marketable securities.
Net cash used in investing activities was ($4,999,000) for the nine months ended November 30, 2022 principally reflecting ($2,494,000) in purchases of short-term investments, ($1,814,000) in expenditures on construction in progress, ($1,241,000) in purchases of marketable securities, and ($332,000) in purchases of property, plant and equipment, partially offset by $882,000 in proceeds from the sale of marketable securities.
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Financing Activities:
Net cash used in financing activities was ($80,000) for the nine months ended November 30, 2023 reflecting $80,000 in principal payments on the mortgage loan.
Net cash used in financing activities was ($77,000) for the nine months ended November 30, 2022 reflecting $77,000 in principal payments on the mortgage loan.
We expect our sole sources of liquidity over the next twelve months to be cash from operations, cash and cash equivalents, and marketable securities, if necessary. We anticipate that our capital expenditures required to sustain operations will be approximately $250,000 during the next twelve months and that our cash from operations, cash and cash equivalents, and short-term investments, if necessary, will be sufficient to fund these needs.
At November 30, 2023, February 28, 2023, and November 30, 2022, we had cash and cash equivalents of approximately $1,909,000, $1,447,000, and $617,000, respectively. The increase for the nine months ended November 30, 2023, was primarily due to cash from operations.
At November 30, 2023, February 28, 2023, and November 30, 2022, we had investments in short-term investments of approximately $0, $986,000, and $2,512,000, respectively.
At November 30, 2023, February 28, 2023, and November 30, 2022, we had investments in marketable securities of approximately $670,000, $1,895,000, and $1,387,000, respectively.
At November 30, 2023, February 28, 2023, and November 30, 2022, we had working capital of $5,417,000, $6,541,000, and $6,247,000, respectively. The decrease for the nine months ended November 30, 2023 was due primarily to the addition of finance lease liability as a current liability due to our expected exercise of the purchase option.
Based on various factors, including the Company’s desire to fully utilize its current net operating loss carryforwards, the Company may seek out acquisitions, additional product lines, and/or invest a portion of its cash into common stocks or higher yielding debt instruments.
The Company will also continue to consider additional share repurchases under the Company's stock repurchase program subject to market conditions, corporate liquidity requirements and priorities and other factors as may be considered in the Company’s sole discretion.
FORWARD-LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking statements”. These forward-looking statements include statements regarding our business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended February 28, 2023, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.
Some of the factors that may impact our business, financial condition, results of operations, strategies or prospects include:
| · | Loss of, or reduction of business from, substantial clients could hurt our business by reducing our revenues, profitability and cash flow. |
| · | Our complex manufacturing processes may lower yields and reduce our revenues. |
| · | The acquisition of MEI may not yield the results or benefits desired or anticipated. |
| · | 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 or technology to which our business relates could negatively impact our results. |
| · | 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. |
| · | Our business is highly competitive and increased competition could reduce gross profit margins and the value of an investment in our Company. |
| · | Changes in Defense related programs and priorities could reduce the revenues and profitability of our business. |
| · | Our operating results may decrease due to the decline of 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. |
| · | We may not achieve the intended effects of our business strategy, which could adversely impact our business, financial condition and results of operations. |
| · | Our inability to introduce new products could result in decreased revenues and loss of market share to competitors; new technologies could also reduce the demand for our products. |
| · | The nature of our products exposes us to potentially significant product liability risk. |
| · | We depend on the recruitment and retention of qualified personnel and our failure to attract and retain such personnel could seriously harm our business. |
| · | Provisions in our charter documents 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. |
| · | Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete. |
| · | We cannot guarantee that we will have sufficient capital resources to make necessary investments in manufacturing technology and equipment. |
| · | We may make substantial investments in property, plant and equipment that may become impaired. |
| · | While we attempt to monitor the credit worthiness of our customers, we may be at risk due to the adverse financial condition of one or more customers. |
| · | Our international operations expose us to material risks, including risks under U.S. export laws. |
| · | Security breaches and other disruptions could compromise the integrity of our information and expose us to liability, which would cause our business and reputation to suffer. |
| · | The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future. |
| · | We cannot guarantee that we will declare future cash dividend payments, nor repurchase any shares of our common stock pursuant to our stock repurchase program. |
| · | Compliance with regulations regarding the use of "conflict minerals" could limit the supply and increase the cost of certain metals used in manufacturing our products. |
| · | Our failure to remediate the material weakness in our internal control over financial reporting or our identification of any other material weaknesses in the future may adversely affect the accuracy and timing of our financial reporting. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Our Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e), and 15d-15(e) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of November 30, 2023 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 28, 2023 under “Management’s Report on Internal Control over Financial Reporting”. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. However, giving full consideration to the material weakness and the remediation plan, the Company’s management has concluded that the Company’s consolidated financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition and results of operations as of and for the three and nine months ended November 30, 2023.
Changes in Internal Control over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting during the quarter ended November 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II– OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2023, we had no known material current, pending, or threatened litigation.
ITEM 1A. RISK FACTORS
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended February 28, 2023, which could materially affect our business, financial condition or future results.
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ITEM 6. EXHIBITS
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| Incorporated by Reference |
| Filed or Furnished Herewith | ||||
Exhibit # |
| Exhibit Description |
| Form |
| Date |
| Number |
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3.1 |
| Certificate of Incorporation |
| 10-K | 2/28/1993 | - |
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| ||
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| 8-K | 7/27/2016 | 3.1 |
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| ||||
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| 8-K |
| 9/5/2023 |
| 10.1 |
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| ||
|
| 8-K |
| 9/5/2023 |
| 10.2 |
|
| ||
| Certification of Chief Executive Officer and Chief Financial Officer (302) |
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| Filed | ||
| Certification of Chief Executive Officer and Chief Financial Officer (906) |
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| Furnished | |
101.INS |
| Inline XBRL Instance Document. |
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| Filed |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
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| Filed |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| Filed |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| Filed |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document.. |
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|
| Filed |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| Filed |
104 |
| Cover Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101). |
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* Certain schedules and other attachments have been omitted. The Company undertakes to furnish the omitted schedules and attachments to the Securities and Exchange Commission upon request.
Copies of this report (including the consolidated financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Solitron Devices, Inc, 901 Sansburys Way, West Palm Beach, FL 33411.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SOLITRON DEVICES, INC. | ||
| Date: January 19, 2024 | /s/ Tim Eriksen | |
| Tim Eriksen Chief Executive Officer, and Interim Chief Financial Officer |
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