SOLITRON DEVICES INC

Previous wording

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.

Current wording

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 consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the related Notes to Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended February 29, 2024 and the Unaudited Condensed Consolidated Financial Statements and the related Notes to Unaudited Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

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.

Current wording

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 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 29, 2024.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

Net Sales. Net sales for the three months ended May 31, 2024, increased 95% to $3,967,000 as compared to $2,038,000 for the three months ended May 31, 2023. The increase in net sales was largely due to the acquisition of MEI and the release of $108,000 of sales return and allowances.

Previous wording

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.

Current wording

Net bookings for the three months ended May 31, 2024, decreased 42% to $2,041,000 versus $3,538,000 during the three months ended May 31, 2023 due to the variable timing on the receipt of orders. Backlog as of May 31, 2024, increased 3% to $9,413,000 as compared to a backlog of $9,133,000 as of May 31, 2023.

Previous wording

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.

Current wording

Cost of Sales. Cost of sales for the three months ended May 31, 2024, increased to $2,292,000 from $1,431,000 for the three months ended May 31, 2023, due to increased raw materials and labor costs related to increased net sales. Expressed as a percentage of net sales, cost of sales decreased to 58% for the three months ended May 31, 2024, from 70% for the three months ended May 31, 2023.

Previous wording

*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.

Current wording

*Gross Profit.*Gross profit for the three months ended May 31, 2024, increased to $1,675,000 from $607,000 for the three months ended May 31, 2023, due to increased net sales exceeding increased costs noted above. Accordingly, gross margins expressed as a percentage of net sales increased to 42% for the three months ended May 31, 2024, as compared to 30% for the three months ended May 31, 2023.

Previous wording

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.

Current wording

For the three months ended May 31, 2024, we shipped 22,777 units as compared to 16,011 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.

Previous wording

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.

Current wording

Selling, General & Administrative Expenses. Selling, general, and administrative expenses increased to $883,000 for the three months ended May 31, 2024 from $542,000 for the same period in the prior year. The increase was primarily due to increased selling costs of $62,000 related to increased revenue, $52,000 of intangible amortization, increased wages and professional fees, and the addition of SG&A costs at MEI. During the three months ended May 31, 2024, selling, general and administrative expenses as a percentage of net sales was 22% as compared to 27% for the three months ended May 31, 2023.

Previous wording

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.

Current wording

Other Income (Loss). Interest income decreased to $5,000 for the three months ended May 31, 2024, as compared to $14,000 for the three months ended May 31, 2023. Interest expense increased to ($50,000) for the three months ended May 31, 2024, as compared to $(27,000) for the three months ended May 31, 2023. Dividend income increased to $16,000 for the three months ended May 31, 2024, as compared to $1,000 for the three months ended May 31, 2023. Realized gains on investments for the three months ended May 31, 2024, decreased to $11,000 as compared to $122,000 for the three months ended May 31, 2023. Unrealized gains (losses) on investments for the three months ended May 31, 2024 were $27,000 due to market price changes in the company’s common stock investments as compared to a loss of ($346,000) for the three months ended May 31, 2023.

Previous wording

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).

Current wording

Net cash provided by operating activities was $714,000 for the three months ended May 31, 2024 primarily reflecting net income of $589,000, an increase in accounts payable of $397,000, a decrease in accounts receivable of $335,000, a decrease in net deferred taxes of $146,000, and depreciation of $135,000, partially offset by a decrease in customer deposits of $475,000 and an increase in inventories of $360,000.

Previous wording

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.

Current wording

Net cash used in operating activities was ($5,000) for the three months ended May 31, 2023 primarily reflecting net loss of $171,000, an increase in accounts receivable of $407,000 and an increase in prepaid expenses and other assets of $117,000 partially offset by net realized and unrealized losses of $224,000, decrease in inventories of $140,000, increase in accounts payable of $125,000 and depreciation of $123,000.

Previous wording

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.

Current wording

Net cash provided by investing activities was $182,000 for the three months ended May 31, 2023 principally reflecting $237,000 in proceeds from the sale of marketable securities offset by $43,000 of purchases of marketable securities and $12,000 in purchases of property and equipment.

Previous wording

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.

Current wording

Net cash used in financing activities was ($29,000) for the three months ended May 31, 2023 reflecting ($27,000) in principal payments on the mortgage loan.

Previous wording

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.

Current wording

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 will be approximately $250,000 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 for the next twelve months. Available cash and cash equivalents as of July 31, 2024 was approximately $2.7 million.

Previous wording

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.

Current wording

At May 31, 2024 and February 29, 2024, we had cash and cash equivalents of approximately $2,404,000 and $2,217,000, respectively. The increase for the three months ended May 31, 2024, was primarily due to cash from operating activities.

Previous wording

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.

Current wording

At May 31, 2024 and February 29, 2024, we had investments in securities of approximately $967,000 and $904,000, respectively.

Previous wording

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.

Current wording

At May 31, 2024 and February 29, 2024, we had working capital of $8,353,000 and $6,227,000, respectively. The increase for the three months ended May 31, 2024 was due primarily to termination of the finance lease liability due to purchasing the property and cash provided in financing activities.

Previous wording

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.

Current wording

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 and potential strategic transactions. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended February 29, 2024, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.