Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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 August 31, 2023

☐	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

SOLITRON DEVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		22-1684144
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

901 Sansburys Way, West Palm Beach, Florida		33411
(Address of Principal Executive Offices)		(Zip Code)

(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)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
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 ☐ No ☒

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of October 11, 2023, was2,083,436.

SOLITRON DEVICES, INC.

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

		Page No.
Item 1.	Financial Statements	3

	Balance Sheets August 31, 2023 (unaudited) and February 28, 2023	3

	Statements of Operations (unaudited) Three and Six Months Ended August 31, 2023 and 2022	4

	Statements of Changes in Stockholders’ Equity (unaudited) Three and Six Months Ended August 31, 2023 and 2022	5

	Statements of Cash Flows (unaudited) Six Months Ended August 31, 2023 and 2022	6

	Notes to Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4.	Controls and Procedures	19


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	20

Item 1A	Risk Factors	20

Item 6.	Exhibits	20

Signatures		21

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLITRON DEVICES, INC.
BALANCE SHEETS
AS OF AUGUST 31, 2023 AND FEBRUARY 28, 2023
(in thousands, except for share and per share amounts)
	August 31, 2023			February 28, 2023
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,098		$	1,447
Restricted cash		3,000			-
Short-term investments, held-to-maturity		-			986
Marketable securities		751			1,895
Accounts receivable		952			784
Inventories, net		2,076			2,415
Prepaid expenses and other current assets		285			203
TOTAL CURRENT ASSETS		8,162			7,730

Property, plant and equipment, net		7,218			7,360
Other assets		14			14
TOTAL ASSETS	$	15,394		$	15,104

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	373		$	141
Customer deposits		77			31
Mortgage loan, current portion		109			107
Accrued expenses and other current liabilities		946			910
TOTAL CURRENT LIABILITIES		1,505			1,189

Mortgage loan, net of current portion		2,593			2,648
TOTAL LIABILITIES		4,098			3,837

STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued		-			-
Common stock, $.01 par value, authorized 10,000,000 shares, 2,083,436 shares outstanding, net of 487,827 treasury shares at August 31, 2023 and at February 28, 2023		21			21
Additional paid-in capital		1,834			1,834
Retained Earnings		10,853			10,824
Less treasury stock		(1,412	)		(1,412	)
TOTAL STOCKHOLDERS’ EQUITY		11,296			11,267
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,394		$	15,104

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

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SOLITRON DEVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2023 AND AUGUST 31, 2022
(Unaudited, in thousands except for share and per share amounts)

	For The Three Months ended			For The Three Months ended			For The Six Months ended			For The Six Months ended
	August 31, 2023			August 31, 2022			August 31, 2023			August 31, 2022

Net sales	$	2,579		$	2,187		$	4,617		$	4,323
Cost of sales		1,682			1,486			3,113			2,805

Gross profit		897			701			1,504			1,518

Selling, general and administrative expenses		614			499			1,156			1,075

Operating income		283			202			348			443

Other income (loss)
Interest income		6			2			20			2
Interest expense		(26	)		(27	)		(53	)		(55	)
Dividend income		18			2			19			5
Realized gain on investments		210			24			332			32
Unrealized gain (loss) on investments		(291	)		106			(637	)		55
Scrap income		-			6			-			604
Total other income (loss)		(83	)		113			(319	)		643

Net income	$	200		$	315		$	29		$	1,086

Net income per common share - basic and diluted	$	0.10		$	0.15		$	0.01		$	0.52

Weighted average shares outstanding - basic and diluted		2,083,436			2,083,436			2,083,436			2,083,436

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

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SOLITRON DEVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2023 AND AUGUST 31, 2022
(Unaudited, in thousands, except for number of shares)

	Common Stock							Additional		Treasury
	Number		Treasury					Paid-in		Stock			Retained
	of Shares		Shares			Amount		Capital		Amount			Earnings			Total

Balance, February 28, 2022		2,571,263		(487,827	)	$	21	$	1,834	$	(1,412	)	$	9,998		$	10,441
Net income		-		-			-		-		-			771			771
Balance, May 31, 2022		2,571,263		(487,827	)		21		1,834		(1,412	)		10,769			11,212

Net income		-		-			-		-		-			315			315
Balance, August 31, 2022		2,571,263		(487,827	)	$	21	$	1,834	$	(1,412	)	$	11,084		$	11,527

Balance, February 28, 2023		2,571,263		(487,827	)	$	21	$	1,834	$	(1,412	)	$	10,824		$	11,267
Net income (loss)		-		-			-		-		-			(171	)		(171	)
Balance, May 31, 2023		2,571,263		(487,827	)		21		1,834		(1,412	)		10,653			11,096

Net income		-		-			-		-		-			200			200
Balance, August 31, 2023		2,571,263		(487,827	)	$	21	$	1,834	$	(1,412	)	$	10,853		$	11,296

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

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SOLITRON DEVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 2023 AND AUGUST 31, 2022
(unaudited, in thousands)
	Six Months			Six months
	ended			ended
	August 31, 2023			August 31, 2022

Net income	$	29		$	1,086
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		244			138
Net realized and unrealized losses on investments		305			(87	)
Accrued interest income on short-term investments		(16	)		-
Changes in Operating Assets and Liabilities:
Accounts receivable		(168	)		255
Inventories		339			16
Prepaid expenses and other current assets		(82	)		(255	)
Payments on capital lease liabilities		(3	)		(10	)
Accounts payable		232			55
Customer deposits		46			40
Accrued expenses, other current and non-current liabilities		41			(50	)
Net cash provided by operating activities		967			1,188

Investing activities
Proceeds from sale of marketable securities		882			803
Purchases of marketable securities		(43	)		(1,111	)
Purchases of short-term investments		-			(2,495	)
Maturities of short-term investments		1,000			-
Expenditures on construction in progress		-			(1,476	)
Purchases of property and equipment		(102	)		(140	)
Net cash provided by (used in) investing activities		1,737			(4,419	)

Financing activities
Principal payments on mortgage loan		(53	)		(51	)
Net cash used in financing activities		(53	)		(51	)

Net increase in cash, cash equivalents and restricted cash		2,651			(3,282	)
Cash, cash equivalents and restricted cash - beginning of the year		1,447			4,088
Cash, cash equivalents and restricted cash - end of period	$	4,098		$	806

Supplemental disclosures of cash flow data
Income taxes paid	$	-		$	-
Interest expense paid	$	53		$	55

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

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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 generally accepted accounting principles (“GAAP”) in the United States 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 six months ended August 31, 2023 are not necessarily indicative of the results to be expected for the year ended February 29, 2024.

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, 2023.

Use of estimates

The financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company could have reasonably used different accounting estimates. This applies in particular to inventory and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The Company believes COVID-19 had a negative impact on the Company’s bookings and net sales in fiscal 2023. The Company believes COVID-19 had a negative impact to net sales in the first quarter of fiscal 2024 due to bookings being negatively affected in fiscal 2023.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market accounts. The Company considers any short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents. Restricted cash as of August 31, 2023 consisted of $3.0 million in an escrow account to be used for the acquisition of Micro Engineering, Inc., which closed on September 1, 2023.

Short-term Investments, Held-to-Maturity Investments

Short-term investments consist of certificates of deposit and U.S. Treasury securities. The U.S. Treasury securities are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value of $0 as of August 31, 2023 due to maturity, and $986,000 as of February 28, 2023.

Investment in Marketable Securities

Investment in Securities includes investments in equity securities. Investments in securities are reported at fair value with changes in unrealized gains or losses included in other income on the statements of operations.

The following table summarizes the Company’s marketable securities:

August 31, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses		Fair Value
Common Stocks	$	485,000	$	266,000	$	-	$	751,000

February 28, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks	$	992,000	$	930,000	$	(27,000	)	$	1,895,000

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At August 31, 2023 and February 28, 2023, the deferred tax liability related to unrealized gains and losses on short-term investments was approximately $56,000 and $229,000, respectively.

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 table below shows the Company’s marketable securities as of August 31, 2023 and February 28, 2023:

August 31, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	751,000			$	-			$	-			$	751,000

February 28, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	1,895,000			$	-			$	-			$	1,895,000

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. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

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 $0 as of August 31, 2023 and February 28, 2023.

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 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.

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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 were reserved for after three years. All raw wafers were fully reserved for when the wafer fab was decommissioned. Finished wafers produced in our former 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.

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	39 years
Building Improvements	15 years
Leasehold Improvements	10 years
Machinery and Equipment	5 years

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 August 31, 2023, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $3,350,000 at August 31, 2023, as compared to $129,000 at February 28, 2023. With respect to the account receivables, most of the Company’s products are custom made pursuant to contracts with customers whose end-products are sold to the United States Government. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains allowances for potential credit losses. Actual losses and allowances have historically been within management’s expectations.

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 common stock equivalents outstanding during the three and six months ended August 31, 2023 and August 31, 2022; therefore, there is no effect from dilution on earnings per share.

Revenue Recognition

The Company records revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,” 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. Revenue is recognized at a point in time, generally upon shipment of products to customers.

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.

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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.

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 generally occurs upon shipment. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company’s 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 six months ended August 31, 2023, the Company purchased approximately $33,000 of die and $0 of used equipment from ES Components. For the six months ended August 31, 2022, the Company purchased approximately $90,000 of die and $0 of used equipment from ES Components. The Company has included the expenses related to die in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the six months ended August 31, 2023 and August 31, 2022, sales were $0.

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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 six months ended August 31, 2023 or August 31, 2022.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the consolidated financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. The Company adopted the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2024. The Company estimates its expected credit losses based on the expected losses on its receivables based on a variety of data, including current economic conditions in the Company’s industry and the credit status of the Company’s customers. The adoption of this guidance did not have a material impact on our financial statements.

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

3. REVENUE RECOGNITION

As of August 31, 2023, and February 28, 2023, sales returns and allowances accrual activity is shown below:

	August 31, 2023		February 28, 2023
Beginning Balance	$	471,000	$	471,000
Accrued Allowances		-		-
Credits Issued		-		-
Ending Balance	$	471,000	$	471,000

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 August 31, 2023, and February 28, 2023, the inventory balance at that distributor was believed to be $1,643,000 and $1,784,000, respectively. Based upon sales levels to and by the distributor during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs, we believe it is highly unlikely that the distributor would exercise termination. Should termination occur, we believe the products could be sold to other distributors or held in inventory for future sale.

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 August 31, 2023, inventories consist of the following:

	Gross		Reserve			Net
Raw Materials	$	1,278,000	$	(446,000	)	$	832,000
Work-In-Process		4,926,000		(3,885,000	)		1,041,000
Finished Goods		678,000		(475,000	)		203,000
Totals	$	6,882,000	$	(4,806,000	)	$	2,076,000

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As of February 28, 2023, inventories consist of the following:

	Gross		Reserve			Net
Raw Materials	$	1,329,000	$	(460,000	)	$	869,000
Work-In-Process		5,215,000		(3,800,000	)		1,415,000
Finished Goods		597,000		(466,000	)		131,000
Totals	$	7,141,000	$	(4,726,000	)	$	2,415,000

Wafer bank inventory (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled approximately $400,000 as of August 31, 2023 and $589,000 as of February 28, 2023. As of August 31, 2023, 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2018 and 2022. We do not expect all of our wafer inventory to be consumed within twelve months; however, since it is not possible to know which wafers will or will not be used, we classify all our inventory as current.

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of August 31, 2023, and February 28, 2023, accrued expenses and other current liabilities consist of the following:

	August 31, 2023		February 28, 2023
Payroll and related employee benefits	$	369,000	$	363,000
Legal fees		4,000		3,000
Property, sales, and franchise taxes		52,000		20,000
Return allowance		471,000		471,000
Other liabilities		50,000		50,000
Totals	$	946,000	$	907,000

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 and six months ended August 31, 2023 and August 31, 2022, respectively are as follows:

	three months		three months		six months		six months
Geographic Region	August 31, 2023		August 31, 2022		August 31, 2023		August 31, 2022
Europe and Australia	$	-	$	224,000	$	3,000	$	459,000
Canada and Latin America		1,000		2,000		1,000		19,000
Far East and Middle East		-		-		-		-
United States		2,578,000		1,961,000		4,613,000		3,845,000
Totals	$	2,579,000	$	2,187,000	$	4,617,000	$	4,323,000

For the three months ended August 31, 2023 and August 31, 2022, approximately 95% and 81%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the United States government. The remaining 5% and 19%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

For the six months ended August 31, 2023 and August 31, 2022, approximately 90% and 80%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the United States government. The remaining 10% and 20%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

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Customers who contributed ten percent or more of revenues for the three months ended August 31, 2023 and August 31, 2022, respectively are as follows:

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		34	%
2. L3Harris		11	%	2. Nasco Aerospace		12	%
3. US Government		10	%	3. Intracom Defense Electronics		10	%
				4. L3Harris		10	%
Totals		71	%	Totals		66	%

Customers who contributed ten percent or more of revenues for the six months ended August 31, 2023 and August 31, 2022, respectively are as follows:

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		41	%
2. L3Harris		15	%	2. Intracom Defense Electronics		11	%
Totals		65	%	Totals		52	%

7. MAJOR SUPPLIERS

For the three months ended August 31, 2023, Wuxi Streamtek accounted for 27% of purchases of production materials, Littlefuse 19%, Platronics Seals 17%, and Kyocera International 13%, respectively. No other supplier accounted for 10% or more of purchases of production materials.

For the three months ended August 31, 2022, ES Components accounted for 19% of purchases of production materials, Platronics Seals 18%, Stellar Industries 14%, and Wuxi Streamtek 13%, respectively. No other supplier accounted for 10% or more of purchases of production materials.

For the six months ended August 31, 2023, Wuxi Streamtek accounted for 35% of purchases of production materials, Platronics Seals 23%, and Stellar Industries 13%, respectively. No other supplier accounted for 10% or more of purchases of production materials.

For the six months ended August 31, 2022, Stellar Industries accounted for 16% of purchases of production materials, Wuxi Streamtek 15%, Platronics Seals 14%, and ES Components 13%, respectively. No other supplier accounted for 10% or more of purchases of production materials.

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 August 31, 2023, and February 28, 2023, the carrying value of the asset was $0 and $3,000, respectively, and was included in Property, plant and equipment on the balance sheets.

Contingencies:

We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of August 31, 2023, we had no known material current, pending, or threatened litigation.

9. NOTES PAYABLE

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 $4,200,000 pursuant to the Commercial Contract entered into on March 1, 2021. In connection with the acquisition, the Company obtained mortgage financing from Bank of America, N.A. (the “Bank”) in the amount of $2,940,000 to fund that portion of the total purchase price, and entered into the Master Credit Agreement, a Note, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing and Financial Covenant Agreement (the “FCA”). The loan accrues interest at a fixed rate of 3.8% per year and matures on April 15, 2031. Beginning on May 15, 2021 the Company began making monthly installments of $17,593 consisting of principal and interest. The payment and performance of the loan is secured by a security interest in the property acquired. The Master Credit Agreement contains certain representations and warranties, undertakings and events of default customary for these types of agreements. Additionally, under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 of unrestricted, unencumbered liquid assets.

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On June 29, 2022, the Company received notification from the Bank that it had elected to suspend certain financial and reporting requirements set forth in the FCA. Specifically, the Bank elected on a going forward basis to suspend measurement of any of the following financial covenants to the extent they are included in Section 2.1, ‘Financial Covenants’ of the FCA: Tangible Net Worth; Debt Service Coverage Ratio; Fixed Charge Coverage Ratio; Asset Coverage Ratio; Funded Debt to EBITDA; and/or Liquidity. In addition, the Bank elected to suspend the requirements in the FCA, if any, for the submission of financial statements and information by the Company on a periodic basis as specified in Section 2.4, ‘Financial Information’ of the FCA. The Bank reserves the right in its sole discretion to require the Company to resume delivery of financial statements and other information and to evidence compliance with the financial covenant requirements as currently provided in the FCA.

10. STOCKHOLDERS’ 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 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 six months ended August 31, 2023 or August 31, 2022.

11. SUBSEQUENT EVENTS

Effective September 1, 2023 (the “Closing Date”) the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among the Company, Micro Engineering, Inc., a Florida corporation (“MEI”) and the shareholders of MEI (collectively, the “MEI Shareholders”), pursuant to which the Company agreed to purchase all the outstanding capital stock of MEI for a purchase price of $3,000,000, subject to adjustment, in addition to the potential earn-out payments, as described in more detail in the paragraph that follows (the “Acquisition”). As a result of the Acquisition, MEI, which is engaged in the production and sale of electronic components primarily for the medical industry in the State of Florida, became a wholly-owned subsidiary of the Company.

In connection with the Acquisition, on the Closing Date the Company paid a Closing cash payment to the MEI Shareholders in the total amount of $2,686,135, resulting from (1) an increase to the purchase price of $16,384 based on MEI’s estimated working capital at Closing exceeding the target working capital of $3,250,000, (2) the payment by the Company (on behalf of MEI) of $30,249 for the MEI Shareholders transaction expenses related to the Acquisition, and (3) the deposit of $300,000 of the purchase price into an escrow account to be available to cover the MEI Shareholders’ Payment Obligations (as defined and further detailed below). Following the Closing, the purchase price will be increased or decreased based on the difference between MEI’s working capital as reflected on its unaudited balance sheet dated as of the Closing Date when compared to the estimated working capital at Closing. This post-Closing adjustment, if any, may take up to six months after the Closing Date to be determined.

In addition, under the Purchase Agreement the Company agreed to the following potential earn-out payments as additional consideration for the Acquisition: for each of (1) the period beginning on the Closing Date and ending on December 31, 2023, (2) the calendar year ending on December 31, 2024, (3) the calendar year ending December 31, 2025, and (3) the period beginning on January 1, 2026 and ending on the third anniversary of the Closing Date, the Company agreed to pay the MEI Shareholders 7.5% of the gross revenue actually received and collected by the Company during the applicable period from MEI’s existing customers as of the Closing and related to sales by the Company of Company products that were in existence as of the Closing.

In connection with the Acquisition, the Company also entered into a Lease Agreement pursuant to which it agreed to lease the facility occupied by MEI, consisting of approximately 10,926 square feet of useable office and production space in Orange County, Florida for $10,650 per month. The Lease Agreement has an initial term of three years, with two five-year renewal options. The Lease Agreement also provides the Company with an option to purchase the leased property for $1,750,000 at any time before the six month anniversary of the Lease Agreement. If the Company does not exercise this purchase option prior to its expiration, the monthly rent will increase to $15,000 per month, such increased rent will also be applied retroactively to the initial six months of the lease term.

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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.

As disclosed under Note 11 to Unaudited Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, effective September 1, 2023 the Company completed the Acquisition of MEI. As a result of the Acquisition, MEI, which is engaged in the production and sale of electronic components primarily for the medical industry in the State of Florida, became a wholly-owned subsidiary of the Company.

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 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 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.

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 August 31, 2023 Compared to Three Months Ended August 31, 2022:

Net Sales. Net sales for the three months ended August 31, 2023 increased 18% to $2,579,000 as compared to $2,187,000 for the three months ended August 31, 2022. The increase in net sales was largely due to customer delivery schedules.

Net bookings for the three months ended August 31, 2023 increased 39% to $2,231,000 versus $1,607,000 during the three months ended August 31, 2022. Backlog as of August 31, 2023 increased 85% to $8,785,000 as compared to a backlog of $4,755,000 as of August 31, 2022.

Cost of Sales. Cost of sales for the three months ended August 31, 2023 increased to $1,682,000 from $1,486,000 for the three months ended August 31, 2022, due to increased raw materials, direct labor and depreciation, partially offset by decreased indirect labor costs. Expressed as a percentage of net sales, cost of sales decreased to 65% for the three months ended August 31, 2023 from 68% for the three months ended August 31, 2022.

Gross Profit. Gross profit for the three months ended August 31, 2023 increased to $897,000 from $701,000 for the three months ended August 31, 2022, due to increased net sales partially offset by increased costs noted above. Accordingly, gross margins expressed as a percentage of net sales increased to 35% for the three months ended August 31, 2023 as compared to 32% for the three months ended August 31, 2022.

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For the three months ended August 31, 2023, we shipped 19,134 units as compared to 17,385 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 increased to $614,000 for the three months ended August 31, 2023 from $499,000 for the same period in the prior year. The increase was primarily due to an increase in professional fees of $55,000 due to the timing of payments for the fiscal 2023 audit, increased overhead allocation of $22,000, and increased legal fees of $18,000. During the three months ended August 31, 2023, selling, general and administrative expenses as a percentage of net sales was 24% as compared to 23% for the three months ended August 31, 2022.

Operating Income. Operating income for the three months ended August 31, 2023 increased to $283,000 as compared to operating income of $202,000 for the three months ended August 31, 2022. This increase is due primarily to increased net sales partially offset by increased cost of sales and selling, general and administrative expenses described above.

Other Income (Loss). Interest income increased to $6,000 for the three months ended August 31, 2023 as compared to $2,000 for the three months ended August 31, 2022. Interest expense decreased to ($26,000) for the three months ended August 31, 2023 as compared to $(27,000) for the three months ended August 31, 2022. Dividend income increased to $18,000 for the three months ended August 31, 2023 as compared to $2,000 for the three months ended August 31, 2022. Realized gains on investments for the three months ended August 31, 2023 increased to $210,000 as compared to $24,000 for the three months ended August 31, 2022. Unrealized losses on investments for the three months ended August 31, 2023 were a loss of ($291,000) due to market price declines during the fiscal quarter in the common stock of two banks as compared to a gain of $106,000 for the three months ended August 31, 2022. Other income for the sale of scrap was $0 for the three months ended August 31, 2023 as compared to $6,000 in the three months ended August 31, 2022.

Net Income. Net income for the three months ended August 31, 2023 decreased to $200,000 as compared to net income of $315,000 for the three months ended August 31, 2022. This decrease is primarily due to unrealized losses on investments, partially offset by increased operating income and realized gains on investments.

Results of Operations-Six Months Ended August 31, 2023 Compared to Six Months Ended August 31, 2022:

Net Sales. Net sales for the six months ended August 31, 2023 increased 7% to $4,617,000 as compared to $4,323,000 for the six months ended August 31, 2022. The increase in net sales was largely due to increased bookings.

Net bookings for the six months ended August 31, 2023 increased 25% to $5,769,000 versus $4,614,000 during the six months ended August 31, 2022. Backlog as of August 31, 2023 increased 85% to $8,785,000 as compared to a backlog of $4,755,000 as of August 31, 2022.

Cost of Sales. Cost of sales for the six months ended August 31, 2023 increased to $3,113,000 from $2,805,000 for the six months ended August 31, 2022, due to increased raw materials and direct labor costs associated with increased net sales. Expressed as a percentage of net sales, cost of sales increased to 67% for the six months ended August 31, 2023 from 65% for the six months ended August 31, 2022.

Gross Profit. Gross profit for the six months ended August 31, 2023 decreased to $1,504,000 from $1,518,000 for the six months ended August 31, 2022, due primarily to increased cost of sales. Accordingly, gross margins expressed as a percentage of net sales decreased to 33% for the six months ended August 31, 2023 as compared to 35% for the six months ended August 31, 2022.

For the six months ended August 31, 2023, we shipped 35,145 units as compared to 32,882 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 increased to $1,156,000 for the six months ended August 31, 2023 from $1,075,000 for the same period in the prior year. The increase was primarily due to increased overhead allocation of $48,000, increased professional fees of $17,000, and increased commissions of $15,000. During the six months ended August 31, 2023 and August 31, 2022, selling, general and administrative expenses as a percentage of net sales was 25%.

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Operating Income. Operating income for the six months ended August 31, 2023 decreased to $348,000 as compared to operating income of $443,000 for the six months ended August 31, 2022. This decrease is due primarily to increased cost of sales and selling, general and administrative expenses as described above.

Other Income (Loss). Interest income increased to $20,000 for the six months ended August 31, 2023 as compared to $2,000 for the six months ended August 31, 2022. Interest expense decreased to ($53,000) for the six months ended August 31, 2023 as compared to $(55,000) for the six months ended August 31, 2022. Dividend income increased to $19,000 for the six months ended August 31, 2023 as compared to $5,000 for the six months ended August 31, 2022. Realized gains on investments for the six months ended August 31, 2023 increased to $332,000 as compared to $32,000 for the six months ended August 31, 2022. Unrealized (losses) on investments for the six months ended August 31, 2023 were ($637,000) as compared to gains of $55,000 for the six months ended August 31, 2022. Income for the sale of scrap was $0 for the six months ended August 31, 2023 as compared to $604,000 in the six months ended August 31, 2022.

Net Income. Net income for the six months ended August 31, 2023 decreased to $29,000 as compared to net income of $1,086,000 for the six months ended August 31, 2022. This decrease is due primarily to decreased scrap income and unrealized losses on investments.

Liquidity and Capital Resources:

Operating Activities:

Net cash provided by operating activities was $967,000 for the six months ended August 31, 2023 primarily reflecting net income of $29,000, net realized and unrealized losses of $305,000, a decrease in inventories of $339,000, and depreciation of $244,000 partially offset by an increase in accounts receivable of $168,000 and an increase in prepaid expenses and other assets of $82,000.

Net cash provided by operating activities was $1,188,000 for the six months ended August 31, 2022 primarily reflecting net income of $1,086,000, an increase in accounts receivable of $255,000, and depreciation and amortization of $138,000, partially offset by an increase in prepaid expenses and other current assets of $255,000.

Investing Activities:

Net cash provided by in investing activities was $1,737,000 for the six months ended August 31, 2023 principally reflecting $1,000,000 in maturities of short-term investments and $882,000 in proceeds from the sale of marketable securities offset by $43,000 of purchases of marketable securities and $102,000 in purchases of property and equipment.

Net cash used in investing activities was ($4,419,000) for the six months ended August 31, 2022 principally reflecting $2,495,000 in purchases of short-term investments, $1,476,000 of expenditures on construction in progress and $1,111,000 in purchases of marketable securities, partially offset by $803,000 in proceeds from the sale of marketable securities.

Financing Activities:

Net cash used in financing activities was ($53,000) for the six months ended August 31, 2023 reflecting ($53,000) in principal payments on the mortgage loan.

Net cash used in financing activities was ($51,000) for the six months ended August 31, 2022 reflecting ($51,000) 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 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.

At August 31, 2023, February 28, 2023, and August 31, 2022, we had cash and cash equivalents of approximately $4,098,000, $1,447,000, and $806,000, respectively. The increase for the six months ended August 31, 2023, was primarily due to cash from investing activities and cash from operations.

At August 31, 2023, February 28, 2023, and August 31, 2022, we had short-term investments of approximately $0, $986,000, and $0, respectively.

At August 31, 2023, February 28, 2023, and August 31, 2022, we had investments in securities of approximately $751,000, $1,895,000, and $1,079,000, respectively.

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At August 31, 2023, February 28, 2023, and August 31, 2022, we had working capital of $6,657,000, $6,541,000, and $7,202,000, respectively. The increase for the six months ended August 31, 2023 was due primarily to cash provided by investing activities and cash from operations.

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.

As disclosed above, on September 1, 2023, the Company closed its acquisition of MEI. An initial payment of approximately $3.0 million was made upon closing. Additional earnout payments of approximately $450,000 annually are expected to be payable over each of the next three years.

The Company will also 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 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 28, 2023, 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.
	·	The acquisition of MEI may not yield the results or benefits desired or anticipated.
	·	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 or technology to which our business relates 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.
	·	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 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.

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	·	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.

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 August 31, 2023 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 28, 2023 under “Management’s Report on Internal Control over Financial Reporting”. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. 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 six months ended August 31, 2023.

Changes in Internal Control over Financial Reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended August 31, 2023 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

Not applicable.

ITEM 1. LEGAL PROCEEDINGS

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, 2023, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS

		Incorporated by Reference			Filed or Furnished Herewith
Exhibit #	Exhibit Description	Form	Date	Number
3.1	Certificate of Incorporation	10-K	2/28/1993	-
3.2	Amended and Restated By-laws of Solitron Devices, Inc.	8-K	7/27/2016	3.1
10.1	Stock Purchase Agreement*	8-K	9/5/2023	10.1
10.2	Lease Agreement*	8-K	9/5/2023	10.2
31.1	Certification of Chief Executive Officer and Chief Financial Officer (302)				Filed
32.1	Certification of Chief Executive Officer and Chief Financial Officer (906)				Furnished
101.INS	Inline XBRL Instance Document.				Filed
101.SCH	Inline XBRL Taxonomy Extension Schema Document.				Filed
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.				Filed
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.				Filed
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document..				Filed
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.				Filed
104	Cover Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101).

* Certain schedules and other attachments have been omitted. The Company undertakes to furnish the omitted schedules and attachments to the Securities and Exchange Commission upon request.

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Solitron Devices, Inc, 901 Sansburys Way, West Palm Beach, FL 33411.

Table of Contents

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: October 12, 2023		/s/ Tim Eriksen
		Tim Eriksen
		Chief Executive Officer,
		and Chief Financial Officer

nullnull

Cover - shares	6 Months Ended
Cover - shares	Aug. 31, 2023	Oct. 11, 2023
Cover [Abstract]
Entity Registrant Name	SOLITRON DEVICES, INC.
Entity Central Index Key	0000091668
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--02-28
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Aug. 31, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2024
Entity Common Stock Shares Outstanding		2,083,436
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-04978
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	22-1684144
Entity Address Address Line 1	901 Sansburys Way
Entity Address City Or Town	West Palm Beach
Entity Address State Or Province	FL
Entity Address Postal Zip Code	33411
City Area Code	561
Local Phone Number	848‑4311
Entity Interactive Data Current	Yes

BALANCE SHEETS - USD ($) $ in Thousands	Aug. 31, 2023	Feb. 28, 2023
BALANCE SHEETS
Cash and cash equivalents	$ 1,098	$ 1,447
Restricted cash	3,000	0
Short-term investments, held-to-maturity	0	986
Marketable securities	751	1,895
Accounts receivable	952	784
Inventories, net	2,076	2,415
Prepaid expenses and other current assets	285	203
TOTAL CURRENT ASSETS	8,162	7,730
Property, plant and equipment, net	7,218	7,360
Other assets	14	14
TOTAL ASSETS	15,394	15,104
CURRENT LIABILITIES
Accounts payable	373	141
Customer deposits	77	31
Mortgage loan, current portion	109	107
Accrued expenses and other current liabilities	946	910
TOTAL CURRENT LIABILITIES	1,505	1,189
Mortgage loan, net of current portion	2,593	2,648
TOTAL LIABILITIES	4,098	3,837
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued	0	0
Common stock, $.01 par value, authorized 10,000,000 shares, 2,083,436 shares outstanding, net of 487,827 treasury shares at August 31, 2023 and at February 28, 2023	21	21
Additional paid-in capital	1,834	1,834
Retained Earnings	10,853	10,824
Less treasury stock	(1,412)	(1,412)
TOTAL STOCKHOLDERS' EQUITY	11,296	11,267
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 15,394	$ 15,104

BALANCE SHEETS (Parenthetical) - $ / shares	Aug. 31, 2023	Feb. 28, 2023
BALANCE SHEETS
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares outstanding	2,083,436	2,083,436
Treasury stock, shares	487,827	487,827

STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 31, 2023	Aug. 31, 2022	Aug. 31, 2023	Aug. 31, 2022
STATEMENTS OF OPERATIONS (Unaudited)
Net sales	$ 2,579	$ 2,187	$ 4,617	$ 4,323
Cost of sales	1,682	1,486	3,113	2,805
Gross profit	897	701	1,504	1,518
Selling, general and administrative expenses	614	499	1,156	1,075
Operating income	283	202	348	443
Other income (loss)
Interest income	6	2	20	2
Interest expense	(26)	(27)	(53)	(55)
Dividend income	18	2	19	5
Realized gain on investments	210	24	332	32
Unrealized gain (loss) on investments	(291)	106	(637)	55
Scrap income	0	6	0	604
Total other income (loss)	(83)	113	(319)	643
Net income	$ 200	$ 315	$ 29	$ 1,086
Net income per common share - basic and diluted	$ 0.10	$ 0.15	$ 0.01	$ 0.52
Weighted average shares outstanding - basic and diluted	2,083,436	2,083,436	2,083,436	2,083,436

STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)	Treasury Stock
Balance, shares at Feb. 28, 2022		2,571,263			487,827
Balance, amount at Feb. 28, 2022	$ 10,441	$ 21	$ 1,834	$ 9,998	$ (1,412)
Net income	771	$ 0	0	771	$ 0
Balance, shares at May. 31, 2022		2,571,263			487,827
Balance, amount at May. 31, 2022	11,212	$ 21	1,834	10,769	$ (1,412)
Balance, shares at Feb. 28, 2022		2,571,263			487,827
Balance, amount at Feb. 28, 2022	10,441	$ 21	1,834	9,998	$ (1,412)
Net income	1,086
Balance, shares at Aug. 31, 2022		2,571,263			487,827
Balance, amount at Aug. 31, 2022	11,527	$ 21	1,834	11,084	$ (1,412)
Balance, shares at May. 31, 2022		2,571,263			487,827
Balance, amount at May. 31, 2022	11,212	$ 21	1,834	10,769	$ (1,412)
Net income	315	$ 0	0	315	$ 0
Balance, shares at Aug. 31, 2022		2,571,263			487,827
Balance, amount at Aug. 31, 2022	11,527	$ 21	1,834	11,084	$ (1,412)
Balance, shares at Feb. 28, 2023		2,571,263			487,827
Balance, amount at Feb. 28, 2023	11,267	$ 21	1,834	10,824	$ (1,412)
Net income	(171)	$ 0	0	(171)	$ 0
Balance, shares at May. 31, 2023		2,571,263			487,827
Balance, amount at May. 31, 2023	11,096	$ 21	1,834	10,653	$ (1,412)
Balance, shares at Feb. 28, 2023		2,571,263			487,827
Balance, amount at Feb. 28, 2023	11,267	$ 21	1,834	10,824	$ (1,412)
Net income	29
Balance, shares at Aug. 31, 2023		2,571,263			487,827
Balance, amount at Aug. 31, 2023	11,296	$ 21	1,834	10,853	$ (1,412)
Balance, shares at May. 31, 2023		2,571,263			487,827
Balance, amount at May. 31, 2023	11,096	$ 21	1,834	10,653	$ (1,412)
Net income	200	$ 0	0	200	$ 0
Balance, shares at Aug. 31, 2023		2,571,263			487,827
Balance, amount at Aug. 31, 2023	$ 11,296	$ 21	$ 1,834	$ 10,853	$ (1,412)

STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Aug. 31, 2023	Aug. 31, 2022
STATEMENTS OF CASH FLOWS (Unaudited)
Net income	$ 29	$ 1,086
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	244	138
Net realized and unrealized losses on investments	305	(87)
Accrued interest income on short-term investments	(16)	0
Changes in Operating Assets and Liabilities:
Accounts receivable	(168)	255
Inventories	339	16
Prepaid expenses and other current assets	(82)	(255)
Payments on capital lease liabilities	(3)	(10)
Accounts payable	232	55
Customer deposits	46	40
Accrued expenses, other current and non-current liabilities	41	(50)
Net cash provided by operating activities	967	1,188
Investing activities
Proceeds from sale of marketable securities	882	803
Purchases of marketable securities	(43)	(1,111)
Purchases of short-term investments	0	(2,495)
Maturities of short-term investments	1,000	0
Expenditures on construction in progress	0	(1,476)
Purchases of property and equipment	(102)	(140)
Net cash provided by (used in) investing activities	1,737	(4,419)
Financing activities
Principal payments on mortgage loan	(53)	(51)
Net cash used in financing activities	(53)	(51)
Net increase in cash, cash equivalents and restricted cash	2,651	(3,282)
Cash, cash equivalents and restricted cash - beginning of the year	1,447	4,088
Cash, cash equivalents and restricted cash - end of period	4,098	806
Supplemental disclosures of cash flow data
Income taxes paid	0	0
Interest expense paid	$ 53	$ 55

THE COMPANY AND OPERATIONS

6 Months Ended

Aug. 31, 2023

THE COMPANY AND OPERATIONS

THE COMPANY AND OPERATIONS

1. THE COMPANY AND OPERATIONS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Aug. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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, 2023.

Use of estimates

Cash and Cash Equivalents

Short-term Investments, Held-to-Maturity Investments

Investment in Marketable Securities

The following table summarizes the Company’s marketable securities:

August 31, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses		Fair Value
Common Stocks	$	485,000	$	266,000	$	-	$	751,000

February 28, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks	$	992,000	$	930,000	$	(27,000	)	$	1,895,000

At August 31, 2023 and February 28, 2023, the deferred tax liability related to unrealized gains and losses on short-term investments was approximately $56,000 and $229,000, respectively.

Fair Value of Financial Instruments

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 table below shows the Company’s marketable securities as of August 31, 2023 and February 28, 2023:

August 31, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	751,000			$	-			$	-			$	751,000

February 28, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	1,895,000			$	-			$	-			$	1,895,000

Accounts Receivable

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

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 were reserved for after three years. All raw wafers were fully reserved for when the wafer fab was decommissioned. Finished wafers produced in our former 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.

Property, Plant, Equipment, and Leasehold Improvements

Building	39 years
Building Improvements	15 years
Leasehold Improvements	10 years
Machinery and Equipment	5 years

Concentrations of Credit Risk

Net Income (Loss) Per Common Share

Revenue Recognition

To achieve that core principle, the Company applied the following steps:

1. Identify the contract(s) with a customer.

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.

4. Allocate the transaction price to the performance obligations in the contract.

5. Recognize revenue when (or as) the Company satisfies a performance obligation.

Related Party Transactions

Stock based Compensation

Recent Accounting Pronouncements

REVENUE RECOGNITION

6 Months Ended

Aug. 31, 2023

REVENUE RECOGNITION

REVENUE RECOGNITION

3. REVENUE RECOGNITION

As of August 31, 2023, and February 28, 2023, sales returns and allowances accrual activity is shown below:

	August 31, 2023		February 28, 2023
Beginning Balance	$	471,000	$	471,000
Accrued Allowances		-		-
Credits Issued		-		-
Ending Balance	$	471,000	$	471,000

INVENTORIES

6 Months Ended

Aug. 31, 2023

INVENTORIES

INVENTORIES

4. INVENTORIES

As of August 31, 2023, inventories consist of the following:

	Gross		Reserve			Net
Raw Materials	$	1,278,000	$	(446,000	)	$	832,000
Work-In-Process		4,926,000		(3,885,000	)		1,041,000
Finished Goods		678,000		(475,000	)		203,000
Totals	$	6,882,000	$	(4,806,000	)	$	2,076,000

As of February 28, 2023, inventories consist of the following:

	Gross		Reserve			Net
Raw Materials	$	1,329,000	$	(460,000	)	$	869,000
Work-In-Process		5,215,000		(3,800,000	)		1,415,000
Finished Goods		597,000		(466,000	)		131,000
Totals	$	7,141,000	$	(4,726,000	)	$	2,415,000

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

6 Months Ended

Aug. 31, 2023

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of August 31, 2023, and February 28, 2023, accrued expenses and other current liabilities consist of the following:

	August 31, 2023		February 28, 2023
Payroll and related employee benefits	$	369,000	$	363,000
Legal fees		4,000		3,000
Property, sales, and franchise taxes		52,000		20,000
Return allowance		471,000		471,000
Other liabilities		50,000		50,000
Totals	$	946,000	$	907,000

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS

6 Months Ended

Aug. 31, 2023

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS

6. DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS

	three months		three months		six months		six months
Geographic Region	August 31, 2023		August 31, 2022		August 31, 2023		August 31, 2022
Europe and Australia	$	-	$	224,000	$	3,000	$	459,000
Canada and Latin America		1,000		2,000		1,000		19,000
Far East and Middle East		-		-		-		-
United States		2,578,000		1,961,000		4,613,000		3,845,000
Totals	$	2,579,000	$	2,187,000	$	4,617,000	$	4,323,000

Customers who contributed ten percent or more of revenues for the three months ended August 31, 2023 and August 31, 2022, respectively are as follows:

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		34	%
2. L3Harris		11	%	2. Nasco Aerospace		12	%
3. US Government		10	%	3. Intracom Defense Electronics		10	%
				4. L3Harris		10	%
Totals		71	%	Totals		66	%

Customers who contributed ten percent or more of revenues for the six months ended August 31, 2023 and August 31, 2022, respectively are as follows:

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		41	%
2. L3Harris		15	%	2. Intracom Defense Electronics		11	%
Totals		65	%	Totals		52	%

MAJOR SUPPLIERS

6 Months Ended

Aug. 31, 2023

MAJOR SUPPLIERS

MAJOR SUPPLIERS

7. MAJOR SUPPLIERS

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Aug. 31, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

8. COMMITMENTS AND CONTINGENCIES

Finance lease:

Contingencies:

NOTES PAYABLE

6 Months Ended

Aug. 31, 2023

NOTES PAYABLE

NOTES PAYABLE

9. NOTES PAYABLE

STOCKHOLDERS EQUITY

6 Months Ended

Aug. 31, 2023

STOCKHOLDERS EQUITY

STOCKHOLDERS' EQUITY

10. STOCKHOLDERS’ EQUITY

Repurchase Program

The Company did not repurchase any shares under the stock repurchase program during the three and six months ended August 31, 2023 or August 31, 2022.

SUBSEQUENT EVENTS

6 Months Ended

Aug. 31, 2023

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

11. SUBSEQUENT EVENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Aug. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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, 2023.

Use of estimates

Cash and Cash Equivalents

Short-term Investments, Held-to-Maturity Investments

Investment in Marketable Securities

The following table summarizes the Company’s marketable securities:

August 31, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses		Fair Value
Common Stocks	$	485,000	$	266,000	$	-	$	751,000

February 28, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks	$	992,000	$	930,000	$	(27,000	)	$	1,895,000

At August 31, 2023 and February 28, 2023, the deferred tax liability related to unrealized gains and losses on short-term investments was approximately $56,000 and $229,000, respectively.

Fair Value of Financial Instruments

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 table below shows the Company’s marketable securities as of August 31, 2023 and February 28, 2023:

August 31, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	751,000			$	-			$	-			$	751,000

February 28, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	1,895,000			$	-			$	-			$	1,895,000

Accounts Receivable

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

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 were reserved for after three years. All raw wafers were fully reserved for when the wafer fab was decommissioned. Finished wafers produced in our former 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.

Property, Plant, Equipment, and Leasehold Improvements

Building	39 years
Building Improvements	15 years
Leasehold Improvements	10 years
Machinery and Equipment	5 years

Concentrations of Credit Risk

Net Income (Loss) Per Common Share

Revenue Recognition

To achieve that core principle, the Company applied the following steps:

1. Identify the contract(s) with a customer.

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.

4. Allocate the transaction price to the performance obligations in the contract.

5. Recognize revenue when (or as) the Company satisfies a performance obligation.

Related Party Transactions

Stock Based Compensation

Recent Accounting Pronouncements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Aug. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Available-for-sale investments

August 31, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses		Fair Value
Common Stocks	$	485,000	$	266,000	$	-	$	751,000

February 28, 2023			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks	$	992,000	$	930,000	$	(27,000	)	$	1,895,000

Result in management's best estimate of fair value

August 31, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	751,000			$	-			$	-			$	751,000

February 28, 2023		Level 1				Level 2				Level 3				Total
Common Stocks		$	1,895,000			$	-			$	-			$	1,895,000

Property, Plant, Equipment, and Leasehold Improvements

Building	39 years
Building Improvements	15 years
Leasehold Improvements	10 years
Machinery and Equipment	5 years

REVENUE RECOGNITION (Tables)

6 Months Ended

Aug. 31, 2023

REVENUE RECOGNITION

Sales returns and allowances accrual activity

	August 31, 2023		February 28, 2023
Beginning Balance	$	471,000	$	471,000
Accrued Allowances		-		-
Credits Issued		-		-
Ending Balance	$	471,000	$	471,000

INVENTORIES (Tables)

6 Months Ended

Aug. 31, 2023

INVENTORIES

Inventories

	Gross		Reserve			Net
Raw Materials	$	1,278,000	$	(446,000	)	$	832,000
Work-In-Process		4,926,000		(3,885,000	)		1,041,000
Finished Goods		678,000		(475,000	)		203,000
Totals	$	6,882,000	$	(4,806,000	)	$	2,076,000

	Gross		Reserve			Net
Raw Materials	$	1,329,000	$	(460,000	)	$	869,000
Work-In-Process		5,215,000		(3,800,000	)		1,415,000
Finished Goods		597,000		(466,000	)		131,000
Totals	$	7,141,000	$	(4,726,000	)	$	2,415,000

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

6 Months Ended

Aug. 31, 2023

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities

	August 31, 2023		February 28, 2023
Payroll and related employee benefits	$	369,000	$	363,000
Legal fees		4,000		3,000
Property, sales, and franchise taxes		52,000		20,000
Return allowance		471,000		471,000
Other liabilities		50,000		50,000
Totals	$	946,000	$	907,000

DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Tables)

6 Months Ended

Aug. 31, 2023

DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Tables)

Revenues from domestic and export sales to unaffiliated customers

	three months		three months		six months		six months
Geographic Region	August 31, 2023		August 31, 2022		August 31, 2023		August 31, 2022
Europe and Australia	$	-	$	224,000	$	3,000	$	459,000
Canada and Latin America		1,000		2,000		1,000		19,000
Far East and Middle East		-		-		-		-
United States		2,578,000		1,961,000		4,613,000		3,845,000
Totals	$	2,579,000	$	2,187,000	$	4,617,000	$	4,323,000

Revenues by customers

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		34	%
2. L3Harris		11	%	2. Nasco Aerospace		12	%
3. US Government		10	%	3. Intracom Defense Electronics		10	%
				4. L3Harris		10	%
Totals		71	%	Totals		66	%

Customer	August 31, 2023			Customer	August 31, 2022
1. Raytheon		50	%	1. Raytheon		41	%
2. L3Harris		15	%	2. Intracom Defense Electronics		11	%
Totals		65	%	Totals		52	%

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	6 Months Ended
	Aug. 31, 2023	Feb. 28, 2023
Marketable Securities
Cost	$ 485,000	$ 992,000
Gross unrealized gains	266,000	930,000
Gross unrealized losses	0	(27,000)
Fair value	$ 751,000	$ 1,895,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - Common Stocks [Member] - USD ($)	Aug. 31, 2023	Feb. 28, 2023
Marketable Securities	$ 751,000	$ 1,895,000
Level 1 [Member]
Marketable Securities	751,000	1,895,000
Level 2 [Member]
Marketable Securities	0	0
Level 3 [Member]
Marketable Securities	$ 0	$ 0

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)	6 Months Ended
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)	Aug. 31, 2023
Building Improvements
Estimated useful lives	15 years
Leasehold Improvements
Estimated useful lives	10 years
Machinery and Equipment
Estimated useful lives	5 years
Building Member
Estimated useful lives	39 years

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	6 Months Ended		12 Months Ended
	Aug. 31, 2023	Aug. 31, 2022	Feb. 28, 2023
Restricted cash	$ 3,000,000.0
FDIC insured limit	250,000
Deferred tax liability related to unrecognized gains and losses	56,000		$ 229,000
Short term investment	0		986,000
Accounts receivable	0		0
Deposits in excess of FDIC insured limits	3,350,000		$ 129,000
ES Components
Related party purchases	33,000	$ 90,000
Used equipment from related party	0	0
Related party sales	$ 0	$ 0

REVENUE RECOGNITION (Details) - USD ($)	Aug. 31, 2023	Feb. 28, 2022
REVENUE RECOGNITION
Beginning Balance	$ 471,000	$ 471,000
Accrued Allowances	0	0
Credits Issued	0	0
Ending Balance	$ 471,000	$ 471,000

REVENUE RECOGNITION (Details Narrative) - USD ($)	Aug. 31, 2023	Feb. 28, 2023	May 31, 2022
Inventory	$ 6,882,000	$ 7,141,000
Distributor
Inventory	$ 1,643,000		$ 1,784,000

INVENTORIES (Details) - USD ($)	Aug. 31, 2023	Feb. 28, 2023
Inventory, Gross, Total	$ 6,882,000	$ 7,141,000
Inventory, Reserve	(4,806,000)	(4,726,000)
Inventory, Net	2,076,000	2,415,000
Inventories, Raw Material Member
Inventory, Gross, Total	1,278,000	1,329,000
Inventory, Reserve	(446,000)	(460,000)
Inventory, Net	832,000	869,000
Inventories, Work In Process Member
Inventory, Gross, Total	4,926,000	5,215,000
Inventory, Reserve	(3,885,000)	(3,800,000)
Inventory, Net	1,041,000	1,415,000
Inventories, Finished Goods Member
Inventory, Gross, Total	678,000	597,000
Inventory, Reserve	(475,000)	(466,000)
Inventory, Net	$ 203,000	$ 131,000

INVENTORIES (Details Narratives) - USD ($)	6 Months Ended
INVENTORIES (Details Narratives) - USD ($)	Aug. 31, 2023	Feb. 28, 2023
INVENTORIES
Wafer Inventory, Reserve	$ 400,000	$ 589,000
Inventory consisted	100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2018 and 2022

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($)	Aug. 31, 2023	Feb. 28, 2023
Accrued expenses and other liabilities
Payroll and related employee benefits	$ 369,000	$ 363,000
Legal fees	4,000	3,000
Property, sales and franchise taxes	52,000	20,000
Return Allowance	471,000	471,000
Other Liabilities	50,000	50,000
Total	$ 946,000	$ 907,000

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details) - USD ($)	3 Months Ended		6 Months Ended
	Aug. 31, 2023	Aug. 31, 2022	Aug. 31, 2023	Aug. 31, 2022
Revenues	$ 2,579,000	$ 2,187,000	$ 4,617,000	$ 4,323,000
Europe and Australia
Revenues	0	224,000	3,000	459,000
Canada and Latin America
Revenues	1,000	2,000	1,000	19,000
Far East and Middle East
Revenues	0	0	0	0
United States [Member]
Revenues	$ 2,578,000	$ 1,961,000	$ 4,613,000	$ 3,845,000

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details 1)	3 Months Ended		6 Months Ended
	Aug. 31, 2023	Aug. 31, 2022	Aug. 31, 2023	Aug. 31, 2022
Sales from major customers	71.00%	66.00%	65.00%	52.00%
Raytheon
Sales from major customers	50.00%	34.00%	50.00%	41.00%
L3Harris
Sales from major customers	11.00%	10.00%	15.00%
US Government
Sales from major customers	10.00%
Nasco Aerospace
Sales from major customers		12.00%
Intracom Defense Electronics
Sales from major customers		10.00%		11.00%

DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details Narrativel)	3 Months Ended		6 Months Ended
	Aug. 31, 2023	Aug. 31, 2022	Aug. 31, 2023	Aug. 31, 2022
Sales from major customers	71.00%	66.00%	65.00%	52.00%
United States Government \| Net Sales
Sales from major customers	5.00%	19.00%	10.00%	20.00%
United States [Member]
Sales from major customers	95.00%	81.00%	90.00%	80.00%

MAJOR SUPPLIERS (Details)	3 Months Ended		6 Months Ended
MAJOR SUPPLIERS (Details)	Aug. 31, 2023	Aug. 31, 2022	Aug. 31, 2023	Aug. 31, 2022
Other Supplier
Purchases from major suppliers	10.00%	10.00%	10.00%	10.00%
Littlefuse
Purchases from major suppliers	19.00%
Kyocera International
Purchases from major suppliers	13.00%
Platronics Seals
Purchases from major suppliers	17.00%	18.00%	23.00%	14.00%
Stellar Industries
Purchases from major suppliers		14.00%	13.00%	16.00%
Wuxi Streamtek
Purchases from major suppliers	27.00%	13.00%	35.00%	15.00%
ES Component
Purchases from major suppliers		19.00%		13.00%

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)	6 Months Ended
	Aug. 31, 2023	Feb. 28, 2022
Asset	$ 0	$ 3,000
Computer Equipment [Member]
Finance lease		$ 27,000
Lease term	36 years

NOTES PAYABLE (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
NOTES PAYABLE (Details Narrative) - USD ($)	Apr. 16, 2021	Aug. 31, 2023
Business Acquisition \| Commercial Contract
Purchace price	$ 4,200,000
Description	In connection with the acquisition, the Company obtained mortgage financing from Bank of America, N.A. (the “Bank”) in the amount of $2,940,000 to fund that portion of the total purchase price, and entered into the Master Credit Agreement, a Note, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing and Financial Covenant Agreement (the “FCA”)
Interest rate	3.80%
Maturity	April 15, 2031
Monthly installment	$ 17,593
Financial Covenant Agreement
Agreement description		under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 of unrestricted, unencumbered liquid assets

STOCKHOLDERS EQUITY (Details Narrative) $ in Millions	Aug. 31, 2023 USD ($)
Director [Member] \| Stock Repurchase Program
Outstanding common stock	$ 1.0

SUBSEQUENT EVENTS (Details Narrative) - Micro Engineering, Inc - Subsequent Event [Member] - USD ($)	Sep. 02, 2023	Sep. 01, 2023
Leased property		$ 1,750,000
Monthly rent increase	$ 15,000
Purchase price	3,000,000
Payment to shareholders	2,686,135
Increase Purchase price	16,384
Working capital	3,250,000
Transaction expenses	30,249
Deposit in escrow account	$ 300,000
Acquisition description	(1) the period beginning on the Closing Date and ending on December 31, 2023, (2) the calendar year ending on December 31, 2024, (3) the calendar year ending December 31, 2025, and (3) the period beginning on January 1, 2026 and ending on the third anniversary of the Closing Date, the Company agreed to pay the MEI Shareholders 7.5% of the gross revenue actually received
Office space	10,926 square feet
Monthely rent	$ 10,650

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