Wednesday, October 17, 2012

Solitron Is Moving In The Right Direction.

On Monday, shareholders of Solitron Devices (SODI) were generally happy to read through the just released 10Q. Despite the company not being quite as profitable as in other times, the backlog had grown quite nicely- indicating future earnings. Even with the prospect of the dreaded "fiscal cliff," I personally remain confident in my margin of safety due to the company's excellent operations and pristine balance sheet. The real meat and bones of the report however, were the following 2 items.

(1)     On August 28, 2012, the Company  repurchased  99,943 shares of  its common stock from a stockholder in a privately negotiated transaction at a price of   $2.75 per share.  The Company has not adopted a stock repurchase  program or plan._______________________________________________________________
ITEM 5.            OTHER INFORMATION: On October 15, 2012, the Board of Directors of the Company approved a resolution to hold annual meetings of the Company’s shareholders approximately six weeks following the filing of the Company’s Annual Report on Form 10-K each year.
As was first in his letter to the board of Solitron by Nate at Oddball Stocks, the need for improved governance through an annual meeting has been of the utmost importance. Additionally, Nate had addressed how a reasonable repurchase of the company's stock would be a great investment of capital. This really got the ball rolling as far as communications with the company went. Later, Valueprax and I became interested in the matter- Valueprax communicated first by letter and later by phone and email. I called for a share repurchase on this blog and in emails to the company. I also suggested in an email to Saraf that they announce a meeting in their next 10Q- after all, it just made sense for them to do.

As Nate noted in his most recent post on the matter, it wasn't just bloggers that had an effect on this. There were many others contacting the company in separate efforts as none of us had a huge desire to trigger the company's poison pill, make SEC filings, or endanger the company's valuable net operating losses. I know of a lot of shareholders (some owning a a full spectrum of shares) who emailed and called the company to express their desire for a repurchase of stock, dividend(s), and an annual meeting. A big player who carries a big stick (and deserves a big thank you for communicating with the company) is Tony Chiarenza who recently wrote a letter to TSRI. His communication was undoubtably quite valuable. 

To Tony and everyone else who communicated with the company, thank you!

To me, this goes to show just how much the internet has been a game changer. I for one was able to find that there appear to be no restrictions on the repurchase of common stock by getting a correspondence between the Florida EPA and Solitron from the EPA; it just took a few minutes to email the department, and a matter of hours for them to respond! After this, forwarded a copy of the agreement to Mr. Saraf and basically said "Hey, I know that it is a widely held belief that the company can't repurchase stock due to this agreement... But as I read it, I don't see any restrictions. What am I missing?" Holding true to his previous shareholder relations, he said that it would be discussed at the next board meeting.

Interestingly, on the note of the agreement I am not totally convinced that there is even a restriction on dividends; though, I will admit, I have a pending Freedom Of Information Act request in for the Federal Agreement at this time- the devil is in the details, and it may be in that agreement or simply an unwritten understanding between the 2 settling parties. Regardless, here is what I got from the Florida EPA and I will be posting the agreement from the Federal EPA when the FOIA request is finally fulfilled.

Solitron Proposal

I have been and remain 100% convinced that small shareholders now have a much more level playing field with the bigger players, given all the tools at their disposal to find virtually whatever they want. Using these, there are now a whole lot more ways to make compelling cases for value creation to the managements of the companies that the small shareholders are the owners of. In the recent experience with Solitron, simple research made it clear to me that we were right in our requests, since the courts in Delaware regard the holding of annual meetings to be a basic functions of corporate governance and is addressed in Title 8, Chapter 1, Subchapter 7, Section 211 of the Delaware statutes. For example, in various cases, it has been made clear that a shareholder’s right to compel a meeting is “virtually absolute" and the courts have held that “The statute does not distinguish between large and small stockholders, nor between those in accord with and those in opposition to existing management.” Furthermore, it was easy to find that the “... court jealously protects the right of a stockholder to seek an order compelling an annual stockholder meeting...

As Nate pointed out in his most recent post, without the internet, there is little chance that any of these positive developments would of happened. Without the internet, I would have never had the good fortune of knowing and talking Nate, Valueprax, Tony, and a ton of the other concerned shareholders of Solitron. Hell, without the internet I wouldn't know the vast majority of the people that I email with and bounce ideas off of. There are too many to name and they range in location from Eastern Europe to Texans, to Taiwan!  As Saj Karsan has pointed out, Twitter is a great way to meet other investors as well- John Wald is a perfect example of a blogger that I found because he followed me on, and is active in the Twitterverse. The guy has a good blog too! Mind you- anyone who does a post on (let alone knows about) KEWL and flys planes is cool in my book! You can even find out about cases where proxy access is used by a small shareholder named Daniel Rudewicz.

Nate called this "Social-Activism," I call it "Blogtivism" (which is a term that I stole from a commenter or emailer a while back), and Wexboy sarcastically calls it "Socialized Capitalism." Regardless of what it is, I hope to see the effort to enrich all the shareholders of the companies that we all hold and love really take off. If there would be one thing that I would love to see Ben Graham be wrong about, it would be in regard to his statement "that the typical American stockholder is the most docile and apathetic animal in captivity."

If you don't have a blog, consider starting one. If you don't have Twitter, consider getting it. If you are a concerned shareholder in a company you own, consider communicating ideas to them about ways to enhance the value of the company or to do the right and legal thing... Like have an annual meeting. Alone, you may not have much of a voice. But when a lot of people engage in a respectful and reasonable discussion with management, productive changes can happen.

Certainly, the story is far from over with Solitron and there is more work to be done. However, the company is in a better spot than it was (and the volume and share price seem to have noticed a little bit). 

As for me? I call this a good start and look forward to seeing what happens in the future.

Disclosure/Disclaimer: I and accounts that I manage are long shares of SODI and have no position in regard to any of the other companies mentioned. I reserve the right to change my/our position(s) at any time. This is nothing more than my opinion. You should always do a ton of your own research before even contemplating anything that I say, do, write, or so much as think about.