SOLITRON DEVICES INC

SOLITRON DEVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS DESCRIPTION

Nature of Operations and Activities

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 was incorporated under the laws of the State of New York in1959 and reincorporated under the laws of the State of Delaware in* August 1987.In September 2023,Solitron acquired Micro Engineering Inc. (“MEI”). Since1980,* MEI has specialized in solving design layout and manufacturing challenges for electronic components. MEI specializes in low to mid volume projects that require engineering, quality systems and efficient manufacturing.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and wholly owned subsidiary, Micro Engineering Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these consolidated 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.

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 ofthree months or less as cash and cash equivalents.

Investment in Marketable Securities

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

The following table summarizes the Company's marketable securities:

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As of* February 28, 2025*,1 security accounted for $628,000 of the $919,000 balance in marketable securities, and $376,000 of the $402,000 in unrealized gains. As of* February**29,* 2024,two securities accounted for $846,000 of the $904,000 balance in marketable securities, and $371,000 of the $375,000 in unrealized gains.

At* February 28, 2025and February**29,* 2024, the deferred tax liability related to unrecognized gains and losses on marketable securities was$94,000 and$82,000, respectively (see Note9).

Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic820, “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. ASC820 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 followingthree levels:

Level1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level2: Inputs other than quoted prices included within Level1 that are observable for the asset or liability, either directly or indirectly.

Level3: Inputs that are generally unobservable. These inputs* may*be used with internally developed methodologies that results in management’s best estimate of fair value.

The table below shows the Company’s marketable securities and contingent consideration as of* February 28, 2025and February**29,* 2024.

The table below shows the Company's fair value rollforward of the contingent consideration recorded as a liability for the MEI acquisition completed during the fiscal year ended* February**29,* 2024. Additional information regarding the contingent consideration accrual is available under Note3 Acquisition of Micro Engineering, Inc.

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 and Allowance for Credit Losses

Accounts receivable are stated at amounts management expects to collect from outstanding balances and donot bear interest. The Company regularly monitors and assesses its risk ofnot collecting amounts owed by customers. At each balance sheet date, the Company recognizes an expected allowance for credit losses. In addition, at each reporting date, this estimate is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis where similar risk characteristics exist. If applicable, accounts receivable are evaluated individually when they donot share similar risk characteristics which could exist in circumstances where amounts are considered at risk or uncollectible. The accounts receivable balance as of* February 28, 2025*,* February**29,* 2024, and* February 28, 2023* was $2,129,000, $2,826,000 and $784,000, respectively.

The allowance estimate is derived from a review of the Company’s historical losses based on the aging of receivables. This estimate is adjusted for management’s assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company’s portfolio segment has remained consistent since the Company’s inception. The allowance for credit losses was $0 as of both* February 28, 2025and February**29,* 2024.

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The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there isno possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in income (or an offset to credit loss expense) in the year of recovery, in accordance with the Company’s accounting policy election. The total amount of write-offs for the years ended* February 28, 2025and February**29,* 2024 was $0 for both years.

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 isnot utilized aftertwo fiscal years, it is fully reserved. Any inventory item once designated as reserved is carried atzero value in all subsequent valuation activities.

The Company doesnot 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 willnot be used withintwelve months.

The Company’s inventory valuation policy is as follows:

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 donot 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:

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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* maybe in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company hasnot* experienced any losses in such accounts and believes that it isnot exposed to any significant credit risk on the accounts. As of* February 28, 2025*, and* February29,* 2024, all non-interest bearing checking accounts were FDIC insured to a limit of*$250,000.* Deposits in excess of FDIC insured limits were approximately $775,000 at* February 28, 2025* and $1,007,000 at* February29,* 2024. 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.

Revenue Recognition

The Company records revenue in accordance with ASC606, Revenues from Contracts with Customers (Topic606) 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 Topic606 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.

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 accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each order upon shipment and recognizes revenues at the fixed price for each distinct product sold when transfer of control has occurred, which is generally upon shipment.

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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 and 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 inone of our distributor agreements that would allow for a full credit for all inventory upon60 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 considerationnot 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 Mr. Aubrey is the majority owner of ES Components. For the fiscal year ended* February 28, 2025*, the Company purchased $106,000 of die and $0 of used equipment from ES Components. For the fiscal year ended* February29,* 2024, the Company purchased $79,000 of die and $0 of used equipment from ES Components. The Company has included these expenses in cost of goods sold in the accompanying consolidated statements of operations. The Company occasionally makes sales to ES Components. For both the fiscal years ended* February 28, 2025*, and* February29,* 2024, sales were $0.

Income Taxes

Income taxes are accounted for under the asset and liability method of ASC740-10, “Income Taxes”. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC740-10, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of a valuation allowance.

The Company accounts for the uncertainty in income taxes in accordance with ASC740-10 and evaluates its tax positions utilizing atwo-step process. Thefirst step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination based on the technical merits of the position. Thesecond step is to measure the benefit to be recorded from tax positions that meet the more-likely-than-not recognition threshold by determining the largest amount of tax benefit that is greater than50 percent likely of being realized upon ultimate settlement and recognizing that amount in the financial statements.

Refer to Note9 for additional information on income taxes.

Net Income Per Common Share

Net income/loss per common share is presented in accordance with ASC260-10 “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 arenot anti-dilutive using the treasury stock method. The Company hadno potentially dilutive securities outstanding during the fiscal years ended* February 28, 2025*, and* February**29,* 2024, therefore there isno effect from dilution on earnings per share.

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Impairment of long-lived assets

Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review. In accordance with ASC Subtopic360-10, “Property, Plant and Equipment – Overall,” impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value. No impairment losses were incurred during the fiscal years ended* February 28, 2025*, or* February**29,* 2024.

Stock-based Compensation

The Company records stock-based compensation in accordance with the provisions of ASC Topic718, “Compensation-Stock Compensation,” which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC Topic718, the Company recognizes an expense for the fair value of outstanding stock options and grants as they vest, whether held by employees or others. There areno stock options outstanding, andno options were granted or vested during the fiscal years ended* February 28, 2025*, and* February**29,* 2024 under the Company’s2019 Stock Incentive Plan.

Leases

The Company capitalizes all leased assets pursuant to ASU2016-02, “Leases (Topic842),” which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than12 months and classified as either financing or operating leases. The Company excludes short-term leases having initial terms of12 months or less from Topic842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

Segment Reporting

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC280, Segment Reporting, the Company has concluded it operates asone business segment. We currently produceone line of products and manage our business accordingly. Additionally, our CODM (President and Chief Operating Officer, Mark Matson) uses reports on bookings, backlogs and orders along with consolidated financial information to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors. The CODM bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operated asone operating and reportable segment.

Recent Accounting Pronouncements

In* November 2024,the FASB issued ASUNo.* 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses, that requires entities to disclose additional information in the notes to the financial statements about prescribed categories underlying any relevant income statement expense caption. The new standard is effective for annual reporting periods beginning after* December 15, 2026 (fiscal year2028* for the Company) and interim periods within annual reporting periods beginning after* December 15, 2027.*

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures, which expands disclosures in a public business entity’s income tax rate reconciliation table and other disclosures regarding cash taxes paid both in the U.S. and to foreign taxing jurisdictions. This ASU is effective for annual periods beginning after* December 15, 2024 (fiscal year2026* for the Company), but early adoption is permitted.

In* November 2023,the FASB issued ASUNo.* 2023-07, Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The update requires public entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The Company adopted this standard for fiscal year2025.

The Company doesnot believe that any recently issued effective pronouncements, or pronouncements issued butnot yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

3. ACQUISITION OF MICRO ENGINEERING, INC.

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 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, 2026and ending on thethird* 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. The Company paid $88,000 as a earn-out payment for the period ending on* December 31, 2023during the year ended February 28, 2025*. The estimated fair value of the contingent consideration as of* February 28, 2025* and* February**29,* 2024 was $1,233,000 and $1,216,000, respectively.

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During the fiscal year ended* February**29,* 2024, the Company incurred approximately $300,000 of transaction-related expenses for the acquisition of MEI, which have been expensed in the consolidated statement of operations.

The Company accounted for the acquisition as a business combination under Accounting Standards Codification (“ASC”)805, Business Combinations. The following table summarizes the fair value of the assets acquired and liabilities assumed on the date of acquisition, and is as follows (in000’s):

The fair value of the identifiable assets acquired and liabilities assumed of $6,270,000 exceeded the fair value of the purchase price of the business of $4,034,000. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measurements were appropriate. Accordingly, the acquisition has been accounted for as a bargain purchase and as a result, the Company recognized a gain of $2,236,000 associated with the acquisition for the fiscal year ended* February**29,* 2024.

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Pro Forma Condensed Combined Financial Information (Unaudited) (In thousands)

The following presents the Company’s unaudited pro forma financial information for the fiscal year ended* February29,* 2024, giving effect to the acquisition of MEI as if it had occurred at* March1, 2023.*

The pro forma financial information is for informational purposes only and doesnot purport to present what the Company’s results would actually have been had the transaction actually occurred on the dates presented or to project the combined company’s results of operations or financial position for any future period.

4. INTANGIBLE ASSETS

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The following table sets forth the components of the identifiable intangible assets acquired and their estimated useful lives as of* February 28, 2025*. Intangible assets recorded represent customer relationship assets which we estimate to have asixteen-year life and trademark assets which we estimate to have aten-year life

Intangible amortization expense was $210,000 and $105,000 for the years ended* February 28, 2025* and* February**29,* 2024, respectively.

5. REVENUE RECOGNITION

As of* February 28, 2025*, and* February**29,* 2024, sales returns and allowances accrual activity is shown below:

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As noted in Note2 above,one of our distributor agreements has a termination clause that would allow for a full credit for all inventory upon60 days’ notice of terminating the agreement. As of* February 28, 2025*, and* February**29,* 2024, the inventory balance at that distributor was $1,199,000 and $1,454,000, respectively. Based upon sales levels to and by the distributor during the period, inventory levels at the distributor, current and projected market conditions, and historical experience under the program, we believe it is highly unlikely that the distributor would exercise termination. Should it occur, we believe the products could be sold to other distributors or held in inventory for future sale. The Company reduced the sales returns allowance by $161,000 based on the decrease in inventory balances at the distributor during the fiscal year ended* February 28, 2025*.

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 withinone year after the date of shipment. The Company doesnot reserve for potential warranty costs based on historical experience and the nature of its cost tracking system.

6. INVENTORIES

As of* February 28, 2025*, inventories consist of the following:

As of* February**29,* 2024, inventories consist of the following:

Wafer bank inventory (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled $108,000 as of* February 28, 2025* and $332,000 as of* February29,* 2024. As of* February 28, 2025*, and* February29,* 2024,100% of the wafer bank inventory consisted of wafers manufactured between calendar year2018 and2022. We donot expect all of our wafer inventory to be consumed withintwelve months; however, since it isnot possible to know which wafers will or willnot be used, we classify all our inventory as current.

7. PROPERTY, PLANT, AND EQUIPMENT

As of* February 28, 2025*, and* February**29,* 2024, property, plant, and equipment consist of the following:

Depreciation and amortization expense was $559,000 and $611,000 for the fiscal years ended* February 28, 2025*, and* February**29,* 2024, respectively, and is included in cost of sales in the accompanying consolidated statements of operations.

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8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of* February 28, 2025*, and* February**29,* 2024, accrued expenses and other current liabilities consist of the following:

9. INCOME TAXES

Updated draft - Pending finalization of the tax provision

The Company incurred a deferred tax benefit due to the release of the valuation allowance for the tax year ended* February**29,* 2024. The release was based on the Company expecting to be profitable such that all its historical net operating losses would be used up before any expiration.

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate for fiscal year ended* February 28, 2025*, and* February**29,* 2024, is as follows:

Total net deferred taxes are comprised of the following at* February 28, 2025and February**29,* 2024:

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A valuation allowance is recorded to reduce the deferred tax asset if, based on the weight of the evidence, it is more likely thannot that some portion or all of the deferred tax asset willnot be realized. After consideration of all the evidence, both positive and negative, management has determined thatno valuation allowance is necessary since the deferred tax asset is more likely thannot to be realized for the years ended* February 28, 2025*, and* February**29,* 2024.

On* March 27, 2020,the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Certain provisions of the CARES Act could impact the2019* income tax provision computations of the Company and will be reflected in the period of enactment (tax year2020). The CARES Act, among other things, contains modifications on the limitation of business interest expense under Section163(j), allow for NOL carryovers and carrybacks to offset100% of taxable income for taxable years before2021, and includes a technical correction to the TCJA with respect to Qualified Improvement Property ("QIP") where such property has a15- year recovery period for purposes of the general depreciation system of Section168(a). The Company has evaluated the impact of the CARES Act, and it believes thatnone of the modifications or tax law changes will result in any material benefit.

As of* February 28, 2025*, the Company estimates it has approximately $6.7 million of Federal and $4.1 million of state net operating loss (“NOL”) carryforwards as compared to $8.7 million of Federal and $5.7 million of state net operating loss carryforwards as of* February**29,* 2024. The remaining balance of federal NOL carryforwards will begin to expire in2029. Such net operating losses are available to offset future taxable income, if any. In management’s opinion, as of* February 28, 2025*, the utilization of such net operating losses for tax purposes is more likely thannot, therefore the deferred tax asset hasno valuation allowance as of* February 28, 2025*.

Under Sections382 and383 of the Internal Revenue Code of1986, as amended, (the Code), substantial changes in the Company’s ownership* maylimit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income. A formal Section382* study hasnot been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation. Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future.

The Federal net operating loss carryforwards will expire as follows:

10. STOCK OPTIONS

There areno stock options outstanding, andno options have been granted during the fiscal years ended* February 28, 2025*, and* February**29,* 2024 under the Company’s2019 Stock Incentive Plan.

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11. EMPLOYEE BENEFIT PLANS

The Company has a401k and Profit Sharing Plan (the “Profit Sharing Plan”) in which substantially all employees* mayparticipate afterthree* months of service. Contributions to the Profit Sharing Plan by participants are voluntary. The Profit Sharing Plan allows for matching and discretionary employer contributions. In addition, the Company* maymake additional contributions at its discretion. The Company didnot contribute to Solitron’s Profit Sharing Plan during the fiscal years ended February 28, 2025and February29,* 2024. The Company contributed $55,000 and $31,000 to MEI’s Profit Sharing Plan during the fiscal years ended* February 28, 2025* and* February29,* 2024, respectively.

12. DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS

Revenues from domestic and export sales to unaffiliated customers for the fiscal years ended* February 28, 2025*, and* February**29,* 2024, are as follows:

Revenues from domestic and export sales are attributed to global geographic regions according to the location of the customer’s primary manufacturing or operating facilities.

For the fiscal years ended* February 28, 2025*, and* February**29,* 2024, approximately 52% and 72%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 48% and 28%, respectively of sales, are for non-military, scientific and industrial applications, or to distributors where we donot have end user information.

For the year ended* February 28, 2025*, sales to sales to Conmed Linvatec accounted for approximately 38% of net sales and sales to RTX accounted for approximately 31% of net sales.No other customer accounted for more than10% of net sales.

For the year ended* February**29,* 2024, sales to RTX accounted for approximately 46% of net sales, sales to Conmed Linvatec accounted for 20% of net sales, and sales toL3Harris Technologies accounted for 17% of net sales.No other customer accounted for more than10% of net sales.

13. MAJOR SUPPLIERS

For the year ended* February 28, 2025*, the Company usedtwo suppliers who in total provided 51% of the production materials utilized. Individually, these suppliers accounted for 39% and 12% of the Company's production materials.No other suppliers accounted for10% or more of purchases of production materials.

For the year ended* February**29,* 2024, the Company used three suppliers who in total provided 51% of the production materials utilized. Individually, these suppliers accounted for 20%,19% and 12% of the Company's production materials.No other suppliers accounted for10% or more of purchases of production materials

14. COMMITMENTS AND CONTINGENCIES

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Finance leases:

In connection with the Acquisition of MEI, 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 had an initial term ofthree years, withtwo five-year renewal options. The Lease Agreement also provided the Company with an option to purchase the leased property for $1,750,000 at any time before thesix-month anniversary of the Lease Agreement. The Company exercised its option and completed the purchase on* May 21, 2024.Accordingly, the right of use asset and lease liability were removed and the Company recorded the previously leased facility as property, plant and equipment for the fiscal year ended February 28, 2025*.

Under ASC842-10-25-2 there arefive criteria to determine if a lease is a finance lease,one of those criteria is if a purchase option is reasonably certain to be exercised. Since the purchase option was was likely to be exercised, we treated the lease as finance lease for the fiscal year ended* February**29,* 2024, and included the purchase price of $1,750,000 as a current liability. The Company used an imputed interest rate of 8%.

Contingencies:

We* mayfrom time to time become a party to various legal proceedings arising in the ordinary course of business. As of February 28, 2025*, we hadno known material current, pending, or threatened litigation.

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15. 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 least1.15:1.0,* calculated at the end of each fiscal year, using the results of thetwelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum ofno less than $1,000,000 of unrestricted, unencumbered liquid assets.

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 Section2.1,* ‘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 Borrower on a periodic basis as specified in Section2.4, ‘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.

On* May 21, 2024,Micro Engineering, Inc., a wholly owned subsidiary of Solitron, purchased the property and facilities occupied by the Company, located at401* Roger Williams Road, Apopka, Florida (the “Micro Property”), for a purchase price of $1,750,000. Micro Engineering, Inc. previously occupied the Micro Property under a commercial lease agreement dated* September 1, 2023,which provided the Company with an option to purchase the Micro Property for $1,750,000 at any time before thesix* month anniversary of the lease agreement. In addition, on* May 21, 2024,*the Company entered into a Loan Agreement with Bank of America, N.A. (“the Bank”) with respect to the Company’s acquisition of the Micro Property. The Loan Agreement is (1) evidenced by a Promissory Note issued by the Company in favor of the Bank in the principal amount of $1,400,000 and (2) secured by the Micro Property and certain related assets and rights pursuant to a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing between the Bank and Micro Engineering. The Micro Property is subject to the Mortgage, Assignment of Rents, Security Agreement and Fixture Filing. Furthermore, Micro Engineering guaranteed the Company’s obligations under the Promissory Note pursuant to a Continuing and Unconditional Guaranty.

Pursuant to the loan documentation, the Bank has advanced $1,400,000 to the Company for the purchase of the Micro Property. The Company agreed to pay installments of principal and interest in the amount of $10,444 on thefirst day of each month, commencing on* July 1, 2024,and continuing on the same day of each calendar month thereafter, through May 1, 2034.The Company agreed to pay all remaining outstanding principal, together with all then accrued and unpaid interest, on May 31, 2034.The outstanding principal amount of the loan maybe prepaid at any time with accrued interest and the interest payment that would have accrued through the term of the loan with respect to the prepayment amount. The loan is scheduled to mature on May 31, 2034.*Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to 6.39% per annum.

Principal payments on the mortgage note payables is as follows for the fiscal years ended* February 28, 2025and February**29,* 2024:

16. STOCKHOLDERS’ EQUITY

Repurchase Program

The Board of Directors has authorized a stock repurchase program of up to $2.0 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.

During the fiscal years ended* February 28, 2025* and* February**29,* 2024, the Company didnot repurchase shares of common stock.

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17. SUBSEQUENT EVENTS

As part of the Company's commitment to maximize its return on cashnot utilized for operational purposes, the Board of Directors has approved a new investment opportunity. On* April 7, 2025Solitron entered into a Subscription Agreement with CBE LLC ("CBE"), an investment firm, to purchase a total of 1,650,000 units of CBE valued at $1,650,000. This transaction is part of CBE's $26 million cash investment in CrossingBridge Advisors, LLC ("CrossingBridge") in return for a 25% membership interest in CrossingBridge. The closing of the transaction will occur intwo* steps, with thefirst closing constituting 75% of the total funding and asecond closing of the remaining 25% funding. Solitron completed thefirst step of the funding for $1,237,500 on* April**7th* and will fund the remaining $412,500 once thesecond closing date is provided.

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