UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2022

             or

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-04978

(561) 848‑4311

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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)

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 ☐ No ☒

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of July 31, 2022, was 2,083,436.

SOLITRON DEVICES, INC.

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

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

The accompanying notes are an integral part of the unaudited financial statements

SOLITRON DEVICES, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

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, 2022 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.

Critical Accounting Estimates:

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 GAAP. 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. See Note 2 in the 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 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, 2022.

See Note 2, “Summary of Significant Accounting Policies”, to the accompanying notes to the financial statements included in this Quarterly Report on 10-Q.

Results of Operations-Three Months Ended May 31, 2022 Compared to Three Months Ended May 31, 2021:

Net Sales. Net sales for the three months ended May 31, 2022 decreased 41% to $2,136,000 as compared to $3,610,000 for the three months ended May 31, 2021. The decrease in net sales was largely due to the decision to accelerate production and shipments in the first half of fiscal 2022 due to the planned facility relocation.

Net bookings for the three months ended May 31, 2022 increased 48% to $3,007,000 versus $2,033,000 during the three months ended May 31, 2021.  Backlog as of May 31, 2022 decreased 29% to $5,335,000 as compared to a backlog of $7,482,000 as of May 31, 2021.

Cost of Sales. Cost of sales for the three months ended May 31, 2022 decreased to $1,319,000 from $1,946,000 for the three months ended May 31, 2021, due to decreased raw materials and labor costs associated with decreased net sales, and decreased rent expense.  Expressed as a percentage of net sales, cost of sales increased to 62% for the three months ended May 31, 2022 from 54% for the three months ended May 31, 2021.

Gross Profit. Gross profit for the three months ended May 31, 2022 decreased to $817,000 from $1,664,000 for the three months ended May 31, 2021, due primarily to lower net sales. Accordingly, gross margins expressed as a percentage of net sales decreased to 38% for the three months ended May 31, 2022 as compared to 46% for the three months ended May 31, 2021.

For the three months ended May 31, 2022, we shipped 15,497 units as compared to 26,371 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 decreased to $576,000 for the three months ended May 31, 2022 from $714,000 for the same period in the prior year. The decrease was due to a decrease in bonus accrual of $100,000 and a decrease in selling expenses of $42,000, partially offset by increased professional fees of $22,000.  During the three months ended May 31, 2022, selling, general and administrative expenses as a percentage of net sales increased to 27% as compared to 20% for the three months ended May 31, 2021.

Operating Income. Operating income for the three months ended May 31, 2022 decreased to $241,000 as compared to operating income of $950,000 for the three months ended May 31, 2021. This decrease is due primarily to decreased net sales as described above.

Other Income. Interest expense increased to ($28,000) for the three months ended May 31, 2022 as compared to $(20,000) for the three months ended May 31, 2021. Dividend income increased to $3,000 for the three months ended May 31, 2022 as compared to $0 for the three months ended May 31, 2021.  Realized gains on investments for the three months ended May 31, 2022 decreased to $8,000 as compared to $27,000 for the three months ended May 31, 2021. Unrealized gains (losses) on investments for the three months ended May 31, 2022 were a loss of ($51,000) as compared to a loss of ($20,000) for the three months ended May 31, 2021. Other income for the sale of scrap was $598,000 for the three months ended May 31, 2022 as compared to $90,000 in the three months ended May 31, 2021.

Net Income. Net income for the three months ended May 31, 2022 decreased to $771,000 as compared to net income of $1,027,000 for the three months ended May 31, 2021. This decrease is due primarily to decreased net sales as described above, partially offset by increased other income from the sale of scrap.

Liquidity and Capital Resources:

Operating Activities:

Net cash provided by operating activities was $1,622,000 for the three months ended May 31, 2022 primarily reflecting net income of $771,000, an increase in accounts payable of $445,000, a decrease in accounts receivable of $463,000 and depreciation of $70,000 partially offset by an increase in prepaid expenses and other current assets of $110,000.

Net cash provided by operating activities was $900,000 for the three months ended May 31, 2021 primarily reflecting net income of $1,027,000, an increase in accounts payable of $362,000, an increase in customer deposits of $216,000 and an increase in accrued expenses of $207,000, decrease in inventories of $94,000, and depreciation of $59,000 partially offset by an increase in accounts receivable of $1,026,000.

Investing Activities:

Net cash used in investing activities was ($1,400,000) for the three months ended May 31, 2022 principally reflecting $131,000 in proceeds from the sale of marketable securities offset by $1,080,000 of expenditures on construction in progress $311,000 in purchases of marketable securities, and 140,000 in purchase of property and equipment.

Net cash used in investing activities was ($4,598,000) for the three months ended May 31, 2021 principally reflecting $88,000 in proceeds from the sale of marketable securities offset by $4,583,000 in purchases of property, plant and equipment and $103,000 in purchases of marketable securities.

Financing Activities:

Net cash used in financing activities was ($26,000) for the three months ended May 31, 2022 reflecting ($26,000) in principal payments on the mortgage loan.  

Net cash provided by financing activities was $2,932,000 for the three months ended May 31, 2021 principally reflecting $2,940,000 in proceeds from our mortgage loan, partially offset by $8,000 in principal payments on the mortgage loan.  

We expect our sole sources of liquidity over the next twelve months to be cash from operations 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 $600,000 during the next twelve months and that our cash from operations and cash and cash equivalents, if necessary, will be sufficient to fund these needs.

At May 31, 2022, February 28, 2022, and May 31, 2021, we had cash and cash equivalents of approximately $4,284,000, $4,088,000, and $3,019,000, respectively.  The increase for the three months ended May 31, 2022, was due to income from operations and other income from the sale of scrap.  

At May 31, 2022, February 28, 2022, and May 31, 2021, we had investments in marketable securities of approximately $821,000, $684,000, and $270,000, respectively.

At May 31, 2022, February 28, 2022, and May 31, 2021, we had working capital of $7,252,000, $7,660,000, and $6,435,000, respectively. The decrease for the three months ended May 31, 2022 was due primarily to cash used on construction in progress at the new facility.

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 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.

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, 2022, 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:

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 May 31, 2022 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 28, 2022 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 months ended May 31, 2022.

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, 2022 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 May 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 May 31, 2022, 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, 2022, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS

Exhibits

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.