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, 2026*,one security accounted for $2,000 of the $2,000 balance in marketable securities, and ($79,000) of the ($79,000) in unrealized losses. As of* February 28, 2025*,one security accounted for $628,000 of the $919,000 balance in marketable securities, and $376,000 of the $402,000 in unrealized gains.

At* February 28, 2026and February 28, 2025*, the deferred tax liability related to unrecognized gains and losses on marketable securities was($19,000) and$94,000, respectively (see Note9).

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 consolidated statements of operations. For the fiscal year ended* February 28, 2026*, the Company received $154,000 in interest income based on the timing of the long-term investment purchase, as compared to $0 for the fiscal year ended* February 28, 2025*.

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:

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, 2026and2025*.

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 years ended* February 28, 2026and2025*. 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

The Company maintains an allowance for expected credit losses on accounts receivable in accordance with ASC326, Financial Instruments - Credit Losses. The Company’s accounts receivable are short-term in nature and arise from contracts with prime contractor customers supporting U.S. federal government agencies and government programs. The Company’s portfolio segment has remained consistent since the Company’s inception. The Company evaluates expected credit losses on a pooled basis due to similar risk characteristics among its customers. In developing its estimate of expected credit losses, the Company considers historical loss experience, current conditions, and relevant qualitative factors.

Effective in the current year, the Company elected to apply the practical expedient under ASU2025‑05, which allows the Company to assume that current conditions as of the balance sheet date will persist over the remaining life of its current accounts receivable. Accordingly, the Company didnot incorporate forward-looking macroeconomic forecasts into its estimate of expected credit losses. Given the Company’s customer base, along with a history of minimal credit losses and strong collection experience, the estimated expected credit loss was determined to be immaterial to the financial statements. As of* February 28, 2026and2025*, the Company's allowance for credit losses was $0. The Company hasnot experienced significant write-offs historically and doesnot expect future credit losses to be material.

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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, 2026and2025* 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, 2026*, and* February 28, 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 $981,000 at* February 28, 2026* and $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. As of the fiscal year ended* February 28, 2026,account receivables balances consisted of the following: ConMed Linvatec 26%,L3 Harris Technologies 26%, RTX Corporation 16% and Intracom Defense Electronics 12%.No other customer accounted for10%* or more of accounts receivable. As of the fiscal year ended* February 28, 2025,account receivables balances consisted of the following: ConMed Linvatec 61% and RTX Corporation 10%.No other customer accounted for10%* or more of accounts receivable.

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, 2026*, the Company purchased $164,000 of die and $0 of used equipment from 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. 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, 2026*, and* February 28, 2025*, 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, or stock purchase rights, 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, 2026and2025*, respectively.

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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, 2026*, or* February 28, 2025*.

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. Stock Options for the stock options and grants which were awarded and vested during the fiscal year ended* February 28, 2026* under the Company’s2019 Stock Incentive Plan. There wereno stock options and grants awarded and vested during the fiscal year ended* February 28, 2025* 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* July 2025,the FASB issued ASU2025‑05,* which amends ASC326 to simplify the estimation of expected credit losses for current accounts receivable and contract assets arising from revenue transactions. The standard introduces a practical expedient allowing entities to assume that current economic conditions remain unchanged over the remaining life of such assets. The Company adopted this standard as of* March 1, 2025.Upon adoption, the Company elected the practical expedient for all qualifying receivables within the scope of the guidance. Accordingly, the Company’s estimate of expected credit losses for these assets is based on historical loss experience and current conditions and doesnot* include forward-looking forecast adjustments. The adoption of this guidance didnot have a material impact on the Company’s financial position, results of operations, or cash flows.

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, 2024and was adopted by the Company for the fiscal year ended February 28, 2026*.

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 (4) 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 $408,000 as a earn-out payment for the period ending on* December 31, 2024and $487,000 for the period ending on December 31, 2025,respectively. Both payments were made in the fiscal year ended February 28, 2026*, based on the timing of the payments. The estimated fair value of the contingent consideration as of* February 28, 2026* and* February 28, 2025* was $771,000 and $1,233,000, respectively.

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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, 2026and2025*. 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 for both the years ended* February 28, 2026* and* February 28, 2025*, respectively.

5. REVENUE RECOGNITION

As of* February 28, 2026*, and* February 28, 2025*, sales returns and allowances accrual activity is shown below and included in the accrued expense and other current liabilities section of the balance sheet:

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As discussed 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, 2026*, and* February 28, 2025*, the inventory balance at that distributor was $1,014,000 and $1,199,000, 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 $45,000 based on the decrease in inventory balances at the distributor during the fiscal year ended* February 28, 2026*.

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, 2026*, inventories consist of the following:

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 $61,000 as of* February 28, 2026* and $108,000 as of* February 28, 2025*. As of* February 28, 2026*, and* February 28, 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.

7. PROPERTY, PLANT, AND EQUIPMENT

As of* February 28, 2026*, and* February 28, 2025*, property, plant, and equipment consist of the following:

Depreciation and amortization expense was $579,000 and $559,000 for the fiscal years ended* February 28, 2026*, and* February 28, 2025*, 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, 2026*, and* February 28, 2025*, accrued expenses and other current liabilities consist of the following:

9. INCOME TAXES

On* July 4, 2025,*H.R.1 (the “Tax Reform Act of2025”) was enacted in the U.S. The Tax Reform Act of2025 includes significant provisions, such as the permanent extension of certain expiring provisions of the limited to, reinstatement of permanent expensing of domestic research and development costs, higher EBITDA cap on the deduction for interest expense and100% bonus depreciation. The provisions in the Tax Reform Act of2025 have multiple effective dates, with certain provisions effective in2025 and others implemented through future years. The Tax Reform Act of2025 didnot materially impact the Company’s effective tax rate for the year. The Company continues to evaluate the future impact of these tax law changes on its financial statements.

In accordance with ASU2023-09, the following table summarizes differences between income tax expense (benefit) at the statutory federal income tax rate and as presented on the statements of operations for fiscal years ended* February 28, 2026*, and* February 28, 2025*, as follows:

The income tax expense attributable to income from continuing operations before income taxes was $289,000 and $178,000 for the fiscal years ended* February 28, 2026* and* February 28, 2025*, respectively.

Total net deferred taxes are comprised of the following at* February 28, 2026and February 28, 2025*:

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As of* February 28, 2026*, the Company estimates it has approximately $4.5 million of Federal and $2.5 million of state net operating loss (“NOL”) carryforwards as compared to $6.7 million of Federal and $4.1 million of state net operating loss carryforwards as of* February 28, 2025*. 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, 2026*, 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, 2026*.

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 AND GRANTS

There wereno outstanding options for the fiscal years beginning* March 1, 2026and2025.*

On* August 13, 2025,the Board approved stock grants totaling 14,000 shares, which vested immediately under the Company’s2019* Stock Incentive Plan. 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.

Under the terms of the updated employment agreement with Mr. Matson effective as of* August 13, 2025,Mr. Matson was given the right to purchase up to 50,000 shares of Company common stock for $14.50 per share within90* days after the effective date of the new employment agreement. In addition, during the initial term of the updated employment agreement, which has athree-year term through* August 2028,Mr. Matson has the ability to purchase 5,000 shares within30* days after the end of each quarter, as long as he fulfills the service requirement to work through the last day of each quarter, based on the weighted average share price during the quarter. These shares are issued from treasury shares and arenot through the Company's2019 Stock Incentive Plan.

Mr. Matson elected to purchase the 50,000 shares available based on signing the new employment agreement, for which the expense was recorded in the Company’ssecond quarter. In addition, Mr. Matson purchased 5,000 shares for thethird quarter at a weighted average share price of $18.01 and 5,000 shares for thefourth quarter at a weighted average share price of $21.22. The Company recorded a fair value expense of approximately $105,000, $13,000 and $18,000 for thesecond quarter,third quarter andfourth quarter, respectively. Stock compensation was $361,000 in total for the fiscal year ending* February 28, 2026*and is recorded under selling, general and administrative expenses.

No shares were awarded under the Company's2019 Stock Incentive Plan for the fiscal year ended* February 28, 2025*. There wereno forfeited or expired awards during the fiscal years ended* February 28, 2026and2025*. There areno stock options outstanding for the fiscal years ended* February 28, 2026and2025* 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, 2026and February 28, 2025*. The Company contributed $49,000 and $55,000 to MEI’s Profit Sharing Plan during the fiscal years ended* February 28, 2026* and* February 28, 2025*, respectively.

12. DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS

Revenues from domestic and export sales to unaffiliated customers for the fiscal years ended* February 28, 2026*, and* February 28, 2025*, 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, 2026*, and* February 28, 2025*, approximately 54% and 52%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 46% and 48%, 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, 2026*, sales to ConMed Linvatec accounted for approximately 33% of net sales and sales to RTX accounted for approximately 27% of net sales.No other customer accounted for more than10% of net sales.

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

13. MAJOR SUPPLIERS

For the year ended* February 28, 2026*, the Company usedtwo suppliers who in total provided 41% of the production materials utilized. Individually, these suppliers accounted for 30% and 11% of the Company's production materials.No other suppliers accounted for10% or more of purchases of production materials.

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

14. COMMITMENTS AND CONTINGENCIES

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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 February 28, 2026*, 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 least 1.15:1.0, 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, 2026and2025*:

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.

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 the fiscal year ended* February 28, 2026*. The company didnot repurchase any shares under the stock repurchase program during the fiscal year ended* February 28, 2025*.

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17. SUBSEQUENT EVENTS

On* February 20, 2026,the U.S. Supreme Court issued a decision inLearning Resources, Inc. v. Trump*, holding that the International Emergency Economic Powers Act (“IEEPA”) doesnot authorize the imposition of certain tariffs. As a result, tariffs assessed pursuant to IEEPA since early2025 were determined to have been unlawfully collected. Following the Supreme Court’s decision, the U.S. Court of International Trade (“CIT”) issued orders directing U.S. Customs and Border Protection (“CBP”) to cease collection of the IEEPA tariffs and to take steps toward refunding certain tariffs previously paid by importers. The CIT’s orders are subject to further proceedings, potential appeals, and the implementation of administrative refund procedures by CBP.

As of the date these financial statements were available to be issued, the Company hadnot received any tariff refunds andno amounts related to potential refunds have been recorded in the accompanying financial statements. The Company is evaluating available information and monitoring developments related to the ongoing litigation and CBP’s refund process. Due to the uncertainty regarding eligibility, timing, and the final resolution of tariff refund related administrative matters, the Company is unable to reasonably estimate the likelihood, amount or timing of any potential refunds.

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