SODI- Solitron Devices

[portfolio14]

What I thought back in July.

 

I'm out of it.

 

My original thesis was: it's an average but profitable annuity-like business + a pile of cash + NOL

 

SODI has never lost money since emerged from bankruptcy until now. Apply Occam's razor, there is a high chance it has something to do with the CEO leaving. So, the original premise is broken. It may still be cheap, but my margin of safety is gone.

 

This gives me a very pedestrian annualised return after holding it for 4 years.  :(

[PLynchJr]

Latest 10Q filed today.

 

https://www.sec.gov/Archives/edgar/data/91668/000121390017000376/0001213900-17-000376-index.htm

[wachtwoord]

Latest 10Q filed today.

 

https://www.sec.gov/Archives/edgar/data/91668/000121390017000376/0001213900-17-000376-index.htm

 

Yes I was waiting for this on Monday and then discovered it was Martin Luther King day :P

 

Anyway, great earnings. Profitable again! I'm holding (bought more in December) and am curious to see what the new management can deliver in the coming quarters.

 

Great work Tim!

[oddballstocks]

Latest 10Q filed today.

 

https://www.sec.gov/Archives/edgar/data/91668/000121390017000376/0001213900-17-000376-index.htm

 

Yes I was waiting for this on Monday and then discovered it was Martin Luther King day :P

 

Anyway, great earnings. Profitable again! I'm holding (bought more in December) and am curious to see what the new management can deliver in the coming quarters.

 

Great work Tim!

 

Agreed, things are going in a positive direction.  Looks like the fall in profitability was because of the former-CEO, not in spite of him.  Solitron was able to retain a key customer, bring on a new customer and they're expanding their products.

 

It's interesting that former employees are coming back as well.  They believed in the products, but not in management.  This isn't surprising.  I remember taking a phone call from Saraf where he berated me for having the audacity to suggest the company buy back shares or pay a dividend, or ask why CFO's continued to quit.  I realized it was him, the guy was toxic.

[Dalal.Holdings]

Removal of the legal/shareholder dispute costs from former management should hopefully lead to reversion of prior profits and cash flows. Was a good quarter on the income statement side of things, cash flows negative due to increase in accounts receivable, so that will be something to watch.

 

Overall, with the new activist CEO and potential "defense spending" upside, looks like a pretty good opportunity here.

[ragnarisapirate]

This is one heck of a story! This company always had potential, and I am super excited for what Tim has done, and will continue to do with it!!

[chrispy]

Any thoughts on the ~10% drop yesterday?  I cant find any recently released information.

 

On the sidelines looking for a good entry point.  The company and Mr. Eriksen's position is very interesting.

[Tim Eriksen]

Solitron filed an 8-K today providing an update on the inventory charge.

 

https://www.sec.gov/Archives/edgar/data/91668/000121390017007828/f8k071417_solitrondevices.htm

 

[Dalal.Holdings]

Let's hope for a swift turnaround and righting of the ship from here -- filing of the 10-K, re-listing to OTCQB, and sustainable positive cash flows.

[stahleyp]

It looks like there were shares traded at $3.05 today. Back up to $4.10 now. crazy.

[Dustin T]

Opened a small position as it hit $3.05 again.

[watsa_is_a_randian_hero]

anyone see the inventory charge announcement?  Sounds like Tim is placing blame on prior management for incorrect accounting. 

 

My question to Tim would be - ok - so is there a clawback on the buyout of prior management?  Or are we all just screwed?  I would say if there was no clawback in the greenmail that was paid to prior management, that sounds like a big mistake.

 

"an inability of management to affirm proper inventory calculations for the past two fiscal years, including an apparent failure to perform an E&O assessment or incorporate a wafer yield loss adjustment"

[Spekulatius]

anyone see the inventory charge announcement?  Sounds like Tim is placing blame on prior management for incorrect accounting. 

 

My question to Tim would be - ok - so is there a clawback on the buyout of prior management?  Or are we all just screwed?  I would say if there was no clawback in the greenmail that was paid to prior management, that sounds like a big mistake.

 

"an inability of management to affirm proper inventory calculations for the past two fiscal years, including an apparent failure to perform an E&O assessment or incorporate a wafer yield loss adjustment"

 

So it took them 10 month to find out that prior management didn’t account for inventory correctly? Good luck blaming them or trying to claw back anything.

[Tim Eriksen]

anyone see the inventory charge announcement?  Sounds like Tim is placing blame on prior management for incorrect accounting. 

 

My question to Tim would be - ok - so is there a clawback on the buyout of prior management?  Or are we all just screwed?  I would say if there was no clawback in the greenmail that was paid to prior management, that sounds like a big mistake.

 

"an inability of management to affirm proper inventory calculations for the past two fiscal years, including an apparent failure to perform an E&O assessment or incorporate a wafer yield loss adjustment"

 

Section 4 answers your first question

https://www.sec.gov/Archives/edgar/data/91668/000121390016015290/f8k072216ex10i_solitrondev.htm

 

I don't think greenmail is accurate.  We paid a significant discount to the market.

 

[Tim Eriksen]

A press release was issued today after market close.

 

https://globenewswire.com/news-release/2017/09/29/1135074/0/en/Solitron-Devices-Inc-Announces-Preliminary-Second-Quarter-and-First-Quarter-Results.html

 

Tim

[wachtwoord]

A press release was issued today after market close.

 

https://globenewswire.com/news-release/2017/09/29/1135074/0/en/Solitron-Devices-Inc-Announces-Preliminary-Second-Quarter-and-First-Quarter-Results.html

 

Tim

 

Thanks for keeping us up to date here and continuing to be responsive to questions.

[Tim Eriksen]

A press release was issued today after the market's close

 

https://globenewswire.com/news-release/2018/04/12/1469599/0/en/Solitron-Devices-Inc-Announces-Preliminary-Unaudited-Fourth-Quarter-Sales-and-Bookings.html

 

Tim

[Spekulatius]

A press release was issued today after the market's close

 

https://globenewswire.com/news-release/2018/04/12/1469599/0/en/Solitron-Devices-Inc-Announces-Preliminary-Unaudited-Fourth-Quarter-Sales-and-Bookings.html

 

Tim

 

Bookings are falling off a cliff. Solitrons products look like offerings from the nineties, which is probably one of the biggest issues with this company.

[writser]

Saraf probably feels great about selling his shares at $3.91 in 2016. Share price is falling off a cliff.

[valueyoda]

Absolutely, the balance sheet margin of safety was gone with the buyout of Saraf, so then it became a bet on the underlying business, and we never felt comfortable enough that the company in its current form would or could produce sustainable profits. I don't envy Tim, who has been dealt a tough hand despite his good efforts, in this situation.

[Tim Eriksen]

Saraf probably feels great about selling his shares at $3.91 in 2016. Share price is falling off a cliff.

 

Boards face two choices in this situation.  Negotiate a severance only package or a severance plus stock repurchase.  I felt he would stick to his guns on the severance but probably didn't want to own the stock if he wasn't in control.  Thus a combination deal would be the better approach.   

 

Another way to look at the repurchase price is if you assume he would have fully collected his three years severance pay plus accrued vacation and COBRA benefits had he pursued it legally, that would have been $1.41 million.  So the issue was should the Company do a comprehensive package and gain some savings regardless of whether either side viewed it as reducing the severance or the repurchase price.  If you assume he could fully collect severance the buying back of his stock and options was an additional $1.43 million.  If so the effective repurchase price was $2.53 per share for the 331,027 shares of stock and approx. 290,000 options less their respective exercise prices.       

[bookie71]

I've been watching this thread for quite a while and have to ask, Is this the same Solitron Devices that broke a lot of folks in the 60's?

 

[Hielko]

I think buying Saraf's shares made a lot of sense at the time, even though in hindsight it now doesn't look so great. At the time the thesis was obviously that Solitron was undervalued, and buying back a large block of shares at market price should have been a good deal. I think the real problem is simply that Solitron isn't as good as a business that people thought it would be with Saraf removed.

[Spekulatius]

I think buying Saraf's shares made a lot of sense at the time, even though in hindsight it now doesn't look so great. At the time the thesis was obviously that Solitron was undervalued, and buying back a large block of shares at market price should have been a good deal. I think the real problem is simply that Solitron isn't as good as a business that people thought it would be with Saraf removed.

 

Agreed. Their products look very stale to me. Right now, if you are in the defense business and it isn’t humming, you are doing something wrong. My guess is that their products were in some long tale projects.platforms that are running out and never were replaced.

[Tim Eriksen]

I think buying Saraf's shares made a lot of sense at the time, even though in hindsight it now doesn't look so great. At the time the thesis was obviously that Solitron was undervalued, and buying back a large block of shares at market price should have been a good deal. I think the real problem is simply that Solitron isn't as good as a business that people thought it would be with Saraf removed.

 

Agreed. Their products look very stale to me. Right now, if you are in the defense business and it isn’t humming, you are doing something wrong. My guess is that their products were in some long tale projects.platforms that are running out and never were replaced.

 

Much of sales are legacy products, although we have invested in some development projects.  Unlike most industries where prices fall on legacy products, Solitron's have tended to rise.  It is not so much a case of end of life for programs other than Sea Sparrow which ended in 2015, as prior management pissing off customers to the point they went elsewhere.  Changing our reputation and regaining that business takes a long time.  In some cases it takes failure by the other company in either quality or delivery time.  Others it just takes becoming an approved bidder and winning the annual contract.