Solitron Devices Inc 10-Q for FY2022 Q3
Solitron Devices Inc (SODI)
About this 10-Q
Solitron Devices Inc filed this 10-Q on January 14, 2022, covering the quarter ended November 30, 2021 (FY2022 Q3).
Headline figures
Quarter ended November 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.47M
- up 6.7% from $2.31M a year earlier
- Net income
- $490K
- compared with a net loss of $27K a year earlier
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 |
| (I.R.S. Employer |
Incorporation or Organization) |
| Identification No.) |
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(Address of Principal Executive Offices) |
| (Zip Code) |
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(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 | ||
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| Emerging growth company | ☐ |
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 10, 2021, was
SOLITRON DEVICES, INC.
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOLITRON DEVICES, INC. | ||||||||
BALANCE SHEETS | ||||||||
AS OF NOVEMBER 30, 2021 AND FEBRUARY 28, 2021 | ||||||||
(in thousands, except for share and per share amounts) | ||||||||
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| November 30, 2021 |
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| February 28, 2021 |
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| Unaudited |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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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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Operating lease - right-of-use 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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Operating lease liability |
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Finance lease liability |
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Notes payable (PPP loan) |
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Mortgage loan |
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Accrued expenses and other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Notes payable (PPP loan), net of current |
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Mortgage loan, net of current |
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Finance lease liability, net of current |
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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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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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The accompanying notes are an integral part of the unaudited financial statements.
| 3 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||||||||||
STATEMENTS OF OPERATIONS | ||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2021 AND NOVEMBER 30, 2020 | ||||||||||||||||
(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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| November 30, 2021 |
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| November 30, 2020 |
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| November 30, 2021 |
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| November 30, 2020 |
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Net sales |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Operating income |
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Other income (loss) |
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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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Gain on PPP loan forgiveness |
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| 812 |
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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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| $ |
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Weighted average common shares outstanding |
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The accompanying notes are an integral part of the unaudited financial statements.
| 4 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2021 AND NOVEMBER 30, 2020 | ||||||||||||||||||||||||||||
(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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| Treasury |
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| Paid-in |
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| Stock |
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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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| Earnings |
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| Total |
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Balance, February 29, 2020 |
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| $ |
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Net income |
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Balance, May 31, 2020 |
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Purchase of Common Stock |
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| - |
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| (2,493 | ) |
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Net income |
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Balance, August 31, 2020 |
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Stock based compensation |
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Net (loss) |
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Balance, November 30, 2020 |
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Balance, February 28, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Net income |
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Balance, May 31, 2021 |
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Net income |
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Balance, August 31, 2021 |
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| 2,571,263 |
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Transfer Agent Adjustment of Common Stock |
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Net income |
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Balance, November 30, 2021 |
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The accompanying notes are an integral part of the unaudited financial statements
| 5 |
| Table of Contents |
SOLITRON DEVICES, INC. | ||||||||
STATEMENTS OF CASH FLOWS | ||||||||
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2021 AND NOVEMBER 30, 2020 | ||||||||
(Unaudited, in thousands) | ||||||||
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| November 30, 2021 |
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| November 30, 2020 |
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Net income |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
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Operating lease expense |
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Net realized and unrealized (gains) on investments |
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Stock based compensation |
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PPP loan forgiveness |
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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 |
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Payments on operating lease liabilities |
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Payments on capital lease liabilities |
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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 property and equipment |
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Net cash (used in) investing activities |
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Financing activities |
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Proceeds from mortgage loan |
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Principal payments on mortgage loan |
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Purchase of treasury stock |
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Net cash provided by 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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Capitalization of ROU asset and liability |
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Supplemental disclosures of cash flow data |
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Income taxes paid |
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Interest expense paid |
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The accompanying notes are an integral part of the unaudited financial statements.
| 6 |
| Table of Contents |
SOLITRON DEVICES, INC.
NOTES TO 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 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 financial statements.
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, 2021 are not necessarily indicative of the results to be expected for the year ending February 28, 2022.
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, 2021.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and money market accounts.
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 income statement.
The following table summarizes available-for-sale investments (in 000’s):
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November 30, 2021 Marketable Securities: |
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| Unrealized Gains |
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| Fair Value |
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Common Stocks |
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February 28, 2021 Marketable Securities: |
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| Fair Value |
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Common Stocks |
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| (22 | ) |
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One marketable security was marked at cost at the end of the quarter ended November 30, 2021, which matched the most recent trade in the security. Total value of the security was $
At November 30, 2021 and February 28, 2021, the deferred tax liability related to unrecognized gains and losses on short-term investments was $0.
| 7 |
| Table of Contents |
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 Company’s securities are subject to Level 1 fair value measurement.
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.
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 $
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 maintains a three inch wafer fab which procures raw wafers and produces finished wafers based on management’s estimates of projected future demand. Finished wafers are considered work-in-process since they are usable for many years, and in some circumstances can be used on more than one finished product depending on customer parameters.
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 are reserved for after three years. Finished wafers produced in our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs. |
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 are reserved for after three years. Finished wafers produced in our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs. |
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 are reserved for after three years. Finished wafers produced in our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs.
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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 | |
Leasehold Improvements | |
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, 2021, all non-interest bearing checking accounts were FDIC insured to a limit of $
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 stock options outstanding during fiscal 2020 and 2021; therefore, there is no effect from dilution on earnings per share.
Revenue Recognition
On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), 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. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.
Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model.
The core principle of the guidance in 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 and aerospace 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.
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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 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.
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. Mr. Aubrey, a director of the Company is a minority owner, and an immediate family member of the majority owner of ES Components. For the nine months ended November 30, 2021, 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 month periods ended November 30, 2021 or November 30, 2020.
Financial Statement Estimates
The preparation of condensed financial statements in conformity with GAAP 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.
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Recent Accounting Pronouncements
No recent accounting pronouncements affecting the Company were issued by the Financial Accounting Standards Board or other standards-setting bodies.
3. REVENUE RECOGNITION
As of November 30, 2021 and November 30, 2020, sales returns and allowances accrual activity is shown below:
|
| November 30, 2021 |
|
| November 30, 2020 |
| ||
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, 2021 and February 28, 2021, the inventory balance at that distributor was approximately $
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, 2021 and February 28, 2021, inventories, net of reserves, consist of the following:
|
| November 30, 2021 |
|
| February 28, 2021 |
| ||
Raw Materials |
|
|
|
|
|
| ||
Work-In-Process |
|
|
|
|
|
| ||
Finished Goods |
|
|
|
|
|
| ||
Total |
| $ | 2,517,000 |
|
| $ | 2,721,000 |
|
Wafer related inventory, which includes raw wafers, work-in-process wafers, and wafer bank (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled $
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
As of November 30, 2021 and February 28, 2021, accrued expenses and other current liabilities consist of the following:
|
| November 30, 2021 |
|
| February 28, 2021 |
| ||
Payroll and related employee benefits |
| $ |
|
| $ |
| ||
Legal fees |
|
|
|
|
|
| ||
Property, Sales, and Franchise taxes |
|
|
|
|
|
| ||
Return Allowance |
|
|
|
|
|
| ||
Bonus Accrual |
|
|
|
|
|
| ||
Accrued Interest on PPP loan |
|
|
|
|
|
| ||
Totals |
| $ | 1,023,000 |
|
| $ | 740,000 |
|
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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, 2021 and November 30, 2020, respectively are as follows:
Geographic Region |
| November 30, 2021 |
|
| November 30, 2020 |
| ||
Europe and Australia |
|
|
|
|
|
| ||
Canada and Latin America |
|
|
|
|
|
| ||
Far East and Middle East |
|
|
|
|
|
| ||
United States |
|
|
|
|
|
| ||
Totals |
| $ | 2,468,000 |
|
| $ | 2,312,000 |
|
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 nine months ended November 30, 2021 and November 30, 2020, respectively are as follows:
Geographic Region |
| November 30, 2021 |
|
| November 30, 2020 |
| ||
Europe and Australia |
|
|
|
|
|
| ||
Canada and Latin America |
|
|
|
|
|
| ||
Far East and Middle East |
|
|
|
|
|
| ||
United States |
|
|
|
|
|
| ||
Totals |
| $ | 10,308,000 |
|
| $ | 7,913,000 |
|
For the three months ended November 30, 2021 and November 30, 2020, approximately
For the nine months ended November 30, 2021 and November 30, 2020, approximately
Revenues from customers who accounted for 10% or more of the Company’s net sales for the three months ended November 30, 2021 and November 30, 2020, respectively, are as follows:
Customer |
| November 30, 2021 |
|
| Customer |
| November 30, 2020 |
| ||
1. Raytheon |
|
| % |
| 1. Raytheon |
|
| % | ||
2. L3Harris |
|
| % |
|
|
|
| - |
| |
3. Avnet / USI Electronics |
|
| % |
|
|
|
| - |
| |
Totals |
|
| % |
| Totals |
|
| % | ||
Revenues from customers who accounted for 10% or more of the Company’s net sales for the nine months ended November 30, 2021 and November 30, 2020, respectively, are as follows:
Customer |
| November 30, 2021 |
|
| Customer |
| November 30, 2020 |
| ||
1. Raytheon |
|
| % |
| 1. Raytheon |
|
| % | ||
2. L3Harris |
|
| % |
| 2. Avnet / USI Electronics |
|
| % | ||
3. Avnet / USI Electronics |
|
| % |
|
|
|
| - |
| |
Totals |
|
| % |
| Totals |
|
| % | ||
As of November 30, 2021, our top three customers accounted for 81% of accounts receivable.
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7. MAJOR SUPPLIERS
For the three months ended November 30, 2021, Platronics Seals accounted for
For the nine months ended November 30, 2021, Platronics Seals accounted for
8. COMMITMENTS AND CONTINGENCIES
Finance lease:
During fiscal 2021, the Company entered into a 36-month finance lease for $27,000 of computer equipment. The Company does not consider the lease to be material to the Company’s financial statements. As of November 30, 2021, and February 28, 2021, the carrying value of the asset was $
Operating lease:
On October 1, 2014, the Company extended its current lease with its landlord, CF EB REO II LLC, for the occupancy and use of its 47,000 square foot facility located at 3301 Electronics Way, West Palm Beach, Florida 33407 (the “Lease”). The property subsequently was sold to La Boheme Properties, Inc., a Florida corporation, which is the current landlord as the Lease was assigned to them. The term of the Lease was scheduled to end on December 31, 2021. The base rent provided in the Lease is $
On November 5, 2021, the Company entered into the Second Amendment to the Lease, which extended the Lease portion over a portion of the leased premises until February 28, 2022 and extended the Lease term over a portion through March 31, 2022. On November 19, 2021, the Company entered into a replacement of the Second Amendment, which extended the Lease over the whole facility by one month and the aforementioned extensions by one month, respectively. The Company does not consider the Lease extension to be material to the Company’s financial statements and has not adjusted the balance sheet classification.
The balance sheet classification of operating lease assets and liabilities as of November 30, 2021 are as follows:
Balance Sheet Classification |
| November 30, 2021 |
| |
Assets |
|
|
| |
Operating lease right-of-use assets, March 1, 2021 |
| $ | 340,000 |
|
Amortization for the nine months ended November 30, 2021 |
|
| (305,000 | ) |
Total operating lease right-of-use asset, November 30, 2021 |
| $ | 35,000 |
|
Liabilities |
|
|
|
|
Current |
|
|
|
|
Operating lease liability, short-term |
| $ |
| |
Non-current |
|
|
|
|
Operating lease liability, long-term |
|
|
| |
Total lease liabilities |
| $ | 39,000 |
|
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Future minimum operating lease payments, excluding Florida sales tax, as of November 30, 2021 under non-cancelable operating leases are as follows:
Fiscal Year Ending February 28 |
| Amount |
| |
2022 |
|
|
| |
Total Future Undiscounted Cash Flows |
| $ |
| |
Less Imputed Interest to be recognized in lease expense |
|
|
| |
Operating Lease Liabilities, as reported |
| $ |
| |
The balance sheet classification of lease assets and liabilities as of February 28, 2021 was as follows:
Balance Sheet Classification |
| February 28, 2021 |
| |
Assets |
|
|
| |
Operating lease right-of-use assets, March 1, 2020 |
| $ |
| |
Amortization for the fiscal year ended February 28, 2021 |
|
| (383,000 | ) |
Total operating lease right-of-use asset, February 28, 2021 |
| $ | 340,000 |
|
Liabilities |
|
|
|
|
Current |
|
|
|
|
Operating lease liability, short-term |
| $ | 377,000 |
|
Non-current |
|
|
|
|
Operating lease liability, long-term |
|
|
| |
Total lease liabilities |
| $ |
| |
Future minimum operating lease payments, excluding Florida sales tax, as of February 28, 2021 under non-cancelable operating leases was as follows:
Fiscal Year Ending February 28 |
| Amount |
| |
2022 |
|
|
| |
Total Future Undiscounted Cash Flows |
| $ |
| |
Less Imputed Interest to be recognized in lease expense |
|
|
| |
Operating Lease Liabilities, as reported |
| $ |
| |
9. NOTES PAYABLE
On July 21, 2020, the Company received loan proceeds of $
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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 $
The Company has begun making the necessary improvements to the property acquired in order to completely relocate its manufacturing operations and corporate headquarters in the spring of 2022.
10. EQUITY
Repurchase Program
The Board of Directors has authorized a stock repurchase program of up to $1.0 million of its outstanding common stock. Purchases under the program may be made through the open market or privately negotiated transactions as determined by the Company’s management, and in accordance with the requirements of the Securities and Exchange Commission. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other conditions.
The Company did not repurchase any shares under the stock repurchase program during the three and nine months ended November 30, 2021. The Company did not repurchase any shares under the stock repurchase program during the three months ended November 30, 2020, and repurchased
Stock Compensation
On November 13, 2020, the Company granted Mr. Eriksen and Mr. Matson the option to receive half of their bonuses in shares instead of cash, which both elected. Mr. Eriksen received
No shares were granted during the three and nine months ended November 30, 2021. The Company was notified of a ten share adjustment to outstanding shares during the three months ended November 30, 2021.
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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.
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 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, 2021 and the Unaudited Financial Statements and the related Notes to Unaudited 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 unaudited 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 marketable securities, revenue recognition, earnings per common share, shipping and handling, and inventories. A discussion of these critical accounting policies are 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, 2021.
Results of Operations-Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020:
Net sales for the three months ended November 30, 2021 increased 7% to $2,468,000 as compared to $2,312,000 for the three months ended November 30, 2020.
Net bookings for the three months ended November 30, 2021 increased 4% to $1,340,000 versus $1,285,000 during the three months ended November 30, 2020. Backlog as of November 30, 2021 decreased 27% to $3,197,000 as compared to a backlog of $4,401,000 as of November 30, 2020.
Cost of sales for the three months ended November 30, 2021 decreased to $1,672,000 from $1,799,000 for the three months ended November 30, 2020, due to decreased material and direct labor costs. Expressed as a percentage of net sales, cost of sales decreased to 68% for the three months ended November 30, 2021 from 78% for the three months ended November 30, 2020.
Gross profit for the three months ended November 30, 2021 increased to $796,000 from $513,000 for the three months ended November 30, 2020, due primarily to increased net sales and decreased materials and direct labor costs. Accordingly, gross margins increased to 32% for the three months ended November 30, 2021 as compared to 22% for the three months ended November 30, 2020.
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For the three months ended November 30, 2021, we shipped 36,047 units as compared to 10,259 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, and administrative expenses decreased to $497,000 for the three months ended November 30, 2021 from $575,000 for the same period in the prior year. The decrease was primarily due to decreased bonus expense and professional fees. During the three months ended November 30, 2021, selling, general and administrative expenses as a percentage of net sales decreased to 20% as compared to 25% for the three months ended November 30, 2020.
Operating income for the three months ended November 30, 2021 increased to $299,000 as compared to an operating loss of ($62,000) for the three months ended November 30, 2020. This increase is due primarily to increased net sales and decreased cost of sales and selling, general and administrative expense.
Interest expense was ($28,000) for the three months ended November 30, 2021 as compared to $0 for the three months ended November 30, 2020. Interest and dividend income for the three months ended November 30, 2021 was $1,000 as compared to $0 for the three months ended November 30, 2020. Realized gains on investments for the three months ended November 30, 2021 increased to $41,000 as compared to $9,000 for the three months ended November 30, 2020. Unrealized loss on investments for the three months ended November 30, 2021 was ($8,000) as compared to unrealized gain on investments of $26,000 for the three months ended November 30, 2020. Other income, consisting of primarily scrap income, for the three months ended November 30, 2021 was $185,000 as compared to $0 for the three months ended November 30, 2020.
Net income for the three months ended November 30, 2021 increased to $490,000 as compared to a net loss of ($27,000) for the three months ended November 30, 2020. This increase is due primarily to increased net sales and other income, and decreased cost of sales and selling, general and administrative expenses as described above.
Results of Operations-Nine Months Ended November 30, 2021 Compared to Nine Months Ended November 30, 2020:
Net sales for the nine months ended November 30, 2021 increased 30% to $10,308,000 as compared to $7,913,000 for the nine months ended November 30, 2020.
Net bookings for the nine months ended November 30, 2021 increased 6% to $4,713,000 versus $4,428,000 during the nine months ended November 30, 2020. Backlog as of November 30, 2021 decreased 27% to $3,197,000 as compared to a backlog of $4,401,000 as of November 30, 2020.
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Cost of sales for the nine months ended November 30, 2021 increased to $5,628,000 from $5,419,000 for the nine months ended November 30, 2020, due to increased raw materials and factory overhead partially offset by decreased labor costs. Expressed as a percentage of net sales, cost of sales decreased to 55% for the nine months ended November 30, 2021 from 68% for the nine months ended November 30, 2020.
Gross profit for the nine months ended November 30, 2021 increased to $4,680,000 from $2,494,000 for the nine months ended November 30, 2020, due primarily to increased net sales and improved productivity. Accordingly, gross margins increased to 45% for the nine months ended November 30, 2021 as compared to 32% for the nine months ended November 30, 2020.
For the nine months ended November 30, 2021, we shipped 89,512 units as compared to 58,770 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, and administrative expenses increased to $1,870,000 for the nine months ended November 30, 2021 from $1,587,000 for the same period in the prior year. The increase was primarily due to increased legal and professional fees, commissions on higher net sales, and increased bonus expense. During the nine months ended November 30, 2021, selling, general and administrative expenses as a percentage of net sales decreased to 18% as compared to 20% for the nine months ended November 30, 2020.
Operating income for the nine months ended November 30, 2021 increased to $2,810,000 as compared to operating income of $907,000 for the nine months ended November 30, 2020. This increase is due primarily to increased net sales.
Interest expense was ($74,000) for the nine months ended November 30, 2021 as compared to $0 for the nine months ended November 30, 2020. Interest and dividend income for the nine months ended November 30, 2021 decreased to $2,000 as compared to $7,000 for the nine months ended November 30, 2020. Realized gains on investments for the nine months ended November 30, 2021 increased to $67,000 as compared to $35,000 for the nine months ended November 30, 2020. Unrealized loss on investments for the nine months ended November 30, 2021 was ($7,000) as compared to unrealized gain on investments of $28,000 for the nine months ended November 30, 2020. Gain on PPP loan forgiveness for the nine months ended November 30, 2021 was $812,000 as compared to $0 for the nine months ended November 30, 2020. Other income, consisting of primarily scrap income, for the nine months ended November 30, 2021 was $357,000 as compared to $0 for the nine months ended November 30, 2020.
Net income for the nine months ended November 30, 2021 increased to $3,967,000 as compared to $977,000 for the nine months ended November 30, 2020. This increase is due primarily to increased sales and other income as described above.
Liquidity and Capital Resources:
Operating Activities:
Net cash provided by operating activities was $3,450,000 for the nine months ended November 30, 2021 primarily reflecting net income of $3,967,000, an increase in accrued expenses and other current and non-current liabilities of $283,000, a decrease in inventories of $204,000 and depreciation and amortization of $193,000, partially offset by PPP loan forgiveness of $812,000, an increase in other assets of $184,000, an increase in accounts receivable of $139,000 and prepaid and other expenses of $63,000.
Net cash provided by operating activities was $1,427,000 for the nine months ended November 30, 2020 primarily reflecting net income of $977,000, an increase in accrued expenses of $297,000, a decrease in accounts receivable of $213,000, and depreciation of $179,000, partially offset by increases in inventories of $183,000 and prepaid and other expenses of $72,000.
Investing Activities:
Net cash used in investing activities was ($4,871,000) for the nine months ended November 30, 2021 principally reflecting $4,749,000 in purchases of plant property and equipment and $270,000 in proceeds from the sale of securities, offset by $392,000 in purchases of securities.
Net cash used in investing activities was ($107,000) for the nine months ended November 30, 2020 principally reflecting $340,000 in proceeds from the sale of securities, offset by $379,000 in purchases of securities and $68,000 in purchases of property, plant and equipment.
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Financing Activities:
Net cash provided by financing activities was $2,883,000 for the nine months ended November 30, 2021 principally reflecting $2,940,000 in proceeds from our mortgage loan, partially offset by $57,000 in principal payments on the mortgage loan.
Net cash provided by financing activities was $801,000 for the nine months ended November 30, 2020 principally reflecting proceeds of the SBA Paycheck Protection Program loan.
We expect our sole source of liquidity over the next twelve months to be cash from operations and cash and cash equivalents, if necessary. We anticipate that our capital expenditures required to sustain operations and complete the renovations to our new facility will be approximately $1,500,000 during the next twelve months and will be funded from operations and cash and cash equivalents, if necessary. We anticipate that once we have completed our relocation to our new facility and headquarters we will realize annual, aggregate cost savings of approximately $1.0 million, consisting of the elimination of the $40,000 monthly rent, reduced costs for gases and utilities due to the smaller footprint of the new facility and headquarters, the Company’s decision to not relocate and operate the Company’s wafer fab at the new facility and headquarters, payroll savings and insurance cost savings.
At November 30, 2021, February 28, 2021, and November 30, 2020, we had cash and cash equivalents of approximately $5,247,000, $3,785,000, and $3,453,000, respectively. The increase for the nine months ended November 30, 2021 was primarily due to income from operations and scrap income.
At November 30, 2021, February 28, 2021, and November 30, 2020, we had investments in securities of approximately $435,000, $248,000, and $267,000, respectively.
At November 30, 2021, February 28, 2021, and November 30, 2020, we had working capital of $8,593,000, $7,049,000, and $6,589,000, respectively. The increase for the nine months ended November 30, 2021 was due primarily to income from operations and scrap income.
Based on various factors, including the Company’s desire to fully utilize its current net operating loss carryforwards, the Company may explore certain transactions or actions, including acquisitions, additional product lines, and/or investing a portion of its cash into common stocks or higher yielding debt instruments. The Company will continue to consider additional share repurchases under the Company's stock repurchase program in light of market conditions and the Company's liquidity needs and capital commitments.
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”. 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, 2021, 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. |
| · | 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. |
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| · | Our business is highly competitive and increased competition could reduce gross profit margins and the value of an investment in our Company. |
| · | Changes in Defense related programs and priorities could reduce the revenues and profitability of our business. |
| · | Our ability to complete facility upgrades and relocate to a new facility within the contemplated timeframe and budget. |
| · | 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 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. |
| · | The COVID-19 pandemic may have a material adverse effect on our business, cash flows and results of operations. |
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, 2021 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 28, 2021 under “Management’s Report on Internal Control over Financial Reporting”. However, giving full consideration to the material weakness and the remediation plan, the Company’s management has concluded that the Company’s 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, 2021.
Changes in Internal Control over Financial Reporting.
Other than the changes referenced in the Company’s Annual Report on Form 10-K for the year ended February 28, 2021 under “Management’s Report on Internal Control over Financial Reporting”, there were no changes in the Company’s internal control over financial reporting during the quarter ended November 30, 2021 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, 2021, 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, 2021, which could materially affect our business, financial condition or future results.
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ITEM 6. EXHIBITS
Exhibits |
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101.INS* |
| XBRL Instance Document |
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101.SCH* |
| XBRL Taxonomy Extension Schema |
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101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase |
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101.LAB* |
| XBRL Taxonomy Label Linkbase |
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101.PRE* |
| XBRL Taxonomy Presentation Linkbase |
* Filed herewith
** Furnished herewith
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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 14, 2022 | /s/ Tim Eriksen | ||
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| Tim Eriksen | |
Chief Executive Officer, | |||
| and Interim Chief Financial Officer | |||
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EXHIBIT INDEX
EXHIBIT NUMBER |
| DESCRIPTION |
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101.INS* |
| XBRL Instance Document |
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101.SCH* |
| XBRL Taxonomy Extension Schema |
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101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase |
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101.LAB* |
| XBRL Taxonomy Label Linkbase |
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101.PRE* |
| XBRL Taxonomy Presentation Linkbase |
* Filed herewith
** Furnished herewith
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