SOLITRON DEVICES INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

Basis of Presentation

The unaudited condensed consolidated 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 Form10-Q and Article8 of Regulation S-X. Accordingly, they donot 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 thethree andnine months ended* November 30, 2025* arenot necessarily indicative of the results to be expected for the year ending* February 28, 2026*.

The information included in this Form10-Q should be read in conjunction with the Company’s Annual Report on Form10-K for the year ended* February 28, 2025*.

Use of Estimates

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

Investments in Marketable Securities

Investments in 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 condensed consolidated statements of operations.

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The following table summarizes the Company’s marketable securities:

At* November 30, 2025*, the deferred tax asset related to unrecognized gains and losses on short-term investments was approximately ($12,000), compared to a deferred tax liability of approximately $94,000 as of* February 28, 2025*.

Investment in Non-Current Securities (Long-Term Investment)

Investment in Non-Current Securities consist of investments in equity securities, which are without a readily determinable fair value, and are expected to be held for longer thanone year. As there isno readily determinable fair value, the Company has elected to use the measurement alternative methodology. Using this approach, investments in non-current equity securities are initially valued at cost. Fair value adjustments are made based on observable price changes for identical or similar investments of the same issuer as of the date the observable transaction took place (measurement date). Qualitative assessments are completed each reporting period to determine if the fair value of the investment is less than the carrying value, and an adjustment to the carrying value will be recorded if the investment is impaired. Changes in fair value or impairments (unrecognized gains or losses) are included in other income on the condensed consolidated statements of operations. As ofthree andnine months ended* November 30, 2025,* the Company received $54,000 and $96,000 in interest income from the investment, respectively.

The following table summarizes the Company’s non-current securities, which consists of membership interest in an investment fund:

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:

The table below shows the Company’s marketable securities, long-term investment and contingent consideration as of* November 30, 2025* and* February 28, 2025*:

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. 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 of* August 31, 2023,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 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 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* November 30, 2025*, and* February 28, 2025*, was $3,187,000 and $2,129,000, 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* November 30, 2025*, and* February 28, 2025*.

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 thenine months ended* November 30, 2025*, and* November 30, 2024* was $0.

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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:

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* November 30, 2025*, all non-interest bearing checking accounts were FDIC insured to a limit of*$250,000.* Deposits in excess of FDIC insured limits were approximately $807,000 at* November 30, 2025*, as compared to $775,000 at* February 28, 2025*. 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.

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Net Income (Loss) 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 had 5,000 andno common stock equivalents outstanding during thethree andnine months ended* November 30, 2025* and* November 30, 2024*, respectively.

Revenue Recognition

The Company records revenue in accordance with ASC Topic606, “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 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’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 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.

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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 thethree andnine months ended* November 30, 2025*, the Company purchased $52,000 and $110,000 of die, respectively and $0 of used equipment from ES Components. For thethree andnine months ended* November 30, 2024*, the Company purchased $0 and $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 condensed consolidated statements of operations. The Company occasionally makes sales to ES Components. For thethree andnine months ended* November 30, 2025* and* November 30, 2024*, sales were $0.

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. See Note10. Stockholders' Equity for the stock options and grants which were awarded and vested during thethree andnine months ended* November 30, 2025*.No vesting of stock options or grants occurred during thethree andnine months ended* November 30, 2024*.

Sales returns and allowances accrual activity is shown below for thethree andnine months ended* November 30, 2025*, and* November 30, 2024*, respectively:

As mentioned 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* November 30, 2025*, and* February 28, 2025*, the inventory balance at that distributor was believed to be $1,029,000 and $1,199,000, 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 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.

As of* November 30, 2025*, inventories consist of the following:

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As of* February 28, 2025*, 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 $73,000 as of* November 30, 2025* and $108,000 as of* February 28, 2025*. As of* November 30, 2025*,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.

As of* November 30, 2025*, and* February 28, 2025*, accrued expenses and other current liabilities consist of the following:

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 thethree months ended* November 30, 2025*, and* November 30, 2024*, respectively are as follows:

For thethree months ended* November 30, 2025* and* November 30, 2024*, approximately 52% and 55%, 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 45%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we donot have end user information.

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 thenine months ended* November 30, 2025*, and* November 30, 2024*, respectively are as follows:

For thenine months ended* November 30, 2025* and* November 30, 2024*, approximately 48% and 55%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 52% and 45%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we donot have end user information.

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Customers who contributedten percent or more of revenues for thethree months ended* November 30, 2025*, and* November 30, 2024*, respectively are as follows:

Customers who contributedten percent or more of revenues for thenine months ended* November 30, 2025*, and* November 30, 2024*, respectively are as follows:

For thethree months ended* November 30, 2025*, the Company utilizedtwo suppliers who in total provided 37% of the production materials. Individually, these suppliers accounted for 27% and 10% of the Company's production materials.No other supplier accounted for10% or more of purchases of production materials. For thenine months ended* November 30, 2025*, the Company utilizedtwo suppliers who in total provided 34% of the production materials. Individually, these suppliers accounted for 22% and 12% of the Company's production materials.No other supplier accounted for10% or more of purchases of production materials.

For thethree months ended* November 30, 2024*, the Company utilizedthree suppliers who in total provided 46% of the production materials. Individually, these suppliers accounted for 22%,13% and 11% of the Company's production materials.No other supplier accounted for10% or more of purchases of production materials. For thenine months ended* November 30, 2024*, the Company utilizedtwo suppliers who in total provided 56% of the production materials. Individually, these suppliers accounted for 42% and 14% of the Company's production materials.No other supplier accounted for10% or more of purchases of production materials.

Finance lease:

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. See Note9* for the mortgage terms related to this purchase.

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Contingencies:

We* mayfrom time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2025*, we hadno known material current, pending, or threatened litigation.

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. As of November 30, 2025*, the principal balance due on the note was $2,451,000.

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.

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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. As of November 30, 2025*, the principal balance due on the note was $1,352,000.

As of* November 30, 2025* and* February 28, 2025* principal payments on the notes payable are as follows:

Repurchase Program

On* October 14, 2024,the Board of Directors authorized an increase in the Company's stock repurchase program of up to $2,000,000 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 repurchased 3,850 shares under the stock repurchase program, at an average price of $16.19 per share for a total expense of approximately $63,000, during thenine months ended* November 30, 2025*. The company didnot repurchase any shares under the stock repurchase program during thethree andnine months ended* November 30, 2024*.

Stock Options and Grants

On* August 13, 2025,the Board approved stock grants totaling 14,000 shares, which vested immediately. The CEO, COO and CFO and each non-employee director received 2,000 shares: COO and President Mark Matson, CEO Tim Eriksen, CFO Carolyn Campbell, Board Chairman David Pointer, and Directors John Chiste, Dwight Aubrey, and Charles Gillman. The fair value of the stock grant was approximately $225,000 based on then closing price of $16.10 per share on the grant date. On August 13, 2025,the Board also approved an updated employment agreement for Mark Matson as COO and President. Under the terms of this agreement, Mr. Matson has the right to purchase up to 50,000 shares of Company common stock at a share price of $14.50 for a period of90* days after agreement date and the right to buy up to 5,000 shares within30 days after the end of each fiscal quarter based on the weighted average share price during the quarter. For thethree andnine months ended* November 30, 2025*, the Company recorded a fair value expense of approximately$13,000 for the 5,000 shares of common stock available for thethird quarter and approximately $105,000 for the 50,000 shares of common stock available to Mr. Matson per his updated agreement, respectively. Mr. Matson purchased the 50,000 shares during the fiscal2026 third quarter and the 5,000 shares subsequent to quarter end.

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