Quarterly Report for Quarter Ending November 30, 2024 (Form 10-Q)

sodi20241130_10q.htm

PART I -FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLITRON DEVICES, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

AS OF November 30, 2024 AND February 29, 2024

(in thousands, except for share and per share amounts)

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

SOLITRON DEVICES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

FOR THE three and nine months ended November 30, 2024 AND November 30, 2023

(in thousands except for share and per share amounts)

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

SOLITRON DEVICES, INC.

STATEMENTS OF CHANGES IN CONDENSED CONSOLIDATED STOCKHOLDERS' EQUITY

FOR THE three and nine months ended November 30, 2024 AND November 30, 2023

(Unaudited, in thousands, except for number of shares)

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

SOLITRON DEVICES, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE nine months ended November 30, 2024 AND November 30, 2023

(unaudited, in thousands)

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

SOLITRON DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	THE COMPANY AND OPERATIONS

Solitron Devices, Inc., a Delaware corporation (the "Company" or "Solitron"), designs, develops, manufactures, and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company was incorporated under the laws of the State of New York in 1959 and reincorporated under the laws of the State of Delaware in August 1987. In September 2023, Solitron acquired Micro Engineering Inc. ("MEI"). Since 1980, 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 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 Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The unaudited financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods. The results of operations for the three and nine months ended November 30, 2024 are not necessarily indicative of the results to be expected for the year ending February 28, 2025.

The information included in this Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended February 29, 2024.

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 of three months or less as cash and cash equivalents.

Investment in Marketable Securities

Investment 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.

The following table summarizes the Company's marketable securities:

November 30, 2024						Gross			Gross
						Unrealized			Unrealized
Marketable Securities:		Cost			Gains			Losses			Fair Value
Common Stocks		$	574,000			$	454,000			$	(5,000	)		$	1,023,000

February 29, 2024						Gross			Gross
						Unrealized			Unrealized
Marketable Securities:		Cost			Gains			Losses			Fair Value
Common Stocks		$	581,000			$	375,000			$	(52,000	)		$	904,000

At November 30, 2024 and February 29, 2024, the deferred tax liability related to unrecognized gains and losses on short-term investments was approximately $119,000 and $86,000, respectively.

Fair Value of Financial Instruments

Accounting Standards Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures", defines "fair value" as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or liability) used to measure fair value. This hierarchy prioritizes the inputs into the following three levels:

Level 1:

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

Level 2:

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3:

Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.

The table below shows the Company's marketable securities as of November 30, 2024 and February 29, 2024:

November 30, 2024		Level 1			Level 2			Level 3			Total
Common Stocks		$	1,023,000			$	-			$	-			$	1,023,000

February 29, 2024		Level 1			Level 2			Level 3			Total
Common Stocks		$	904,000			$	-			$	-			$	904,000

The carrying amounts of the Company's short-term financial instruments, including accounts receivable, accounts payable, accrued expenses and other liabilities approximate their fair value due to the relatively short period to maturity for these instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.

Accounts Receivable

Accounts receivable are stated at amounts management expects to collect from outstanding balances and do not bear interest. The Company regularly monitors and assesses its risk of not 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 do not 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, 2024, and February 29, 2024, was $1,793,000 and $2,826,000, 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, 2024, and February 29, 2024.

The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no 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 nine months ended November 30, 2024, and November 30, 2023 was $0.

Shipping and Handling

Shipping and handling costs billed to customers are recorded in net sales. Shipping costs incurred by the Company are recorded in cost of sales.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "first-in, first-out" (FIFO) method. The Company buys raw material only to fill customer orders. Excess raw material is created only when a vendor imposes a minimum quantity buy in excess of actual requirements. Such excess material will usually be utilized to meet the requirements of the customer's subsequent orders. If excess material is not utilized after two fiscal years it is fully reserved. Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities.

The Company does not classify a portion of inventories as non-current since we cannot reasonably estimate based on the length of our operating cycle which items will or will not be used within twelve months.

The Company's inventory valuation policy is as follows:

Raw material /Work in process:	All material acquired or processed in the last two fiscal years is valued at the lower of its acquisition cost or net realizable value, except for wafers which function under a three- year policy. All material not used after two fiscal years is fully reserved for except wafers which were reserved for after three years. All raw wafers were fully reserved for when the wafer fab was decommissioned. Finished wafers produced in our former wafer fab are stored in the wafer bank and are considered work-in-process. Raw material in excess of five years' usage that cannot be restocked, and slow-moving work in process are reserved for.
Finished goods:	All finished goods with firm orders for later delivery are valued at the lower of cost or net realizable value. All finished goods with no orders are fully reserved.
Direct labor costs:	Direct labor costs are allocated to finished goods and work in process inventory based on engineering estimates of the number of man-hours required from the different direct labor departments to bring each device to its particular level of completion.

Property, Plant, Equipment, and Leasehold Improvements

Property, plant, and equipment is recorded at cost. Major renewals and improvements are capitalized, while maintenance and repairs that do not extend their expected life are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the lives of the related assets:

Building (years)			39
Building Improvements (years)			15
Leasehold Improvements		Shorter of 10 years or life of lease
Machinery and Equipment (years)			5

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and account receivables. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limits. The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on the accounts. As of November 30, 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 $677,000 at November 30, 2024, as compared to $1,007,000 at February 29, 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.

Net Income (Loss) Per Common Share

Net income (loss) per common share is presented in accordance with ASC 260-10 "Earnings per Share." Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options to the extent they are not anti-dilutive using the treasury stock method. The Company had nocommon stock equivalents outstanding during the three and nine months ended November 30, 2024 and November 30, 2023; therefore, there is no effect from dilution on earnings per share.

Revenue Recognition

The Company records revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. Revenue is recognized at a point in time, generally upon shipment of products to customers.

The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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

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

The Company designs, develops, manufactures and markets solid-state semiconductor components and related devices. The Company's products are used as components primarily in the military and aerospace markets.

The Company's revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

2. Identify the performance obligations in the contract.

The majority of the Company's purchase orders or contracts with customers contain a single performance obligation, the shipment of products.

3. Determine the transaction price.

The transaction price reflects the Company's expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.

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

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

This performance obligation is satisfied when control of the product is transferred to the customer, which generally occurs upon shipment. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company's accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred, which is generally upon shipment.

In addition, the Company may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, performance obligations are determined, and we recognize revenue at the point in time in which each performance obligation is fully satisfied.

We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. We have contractual arrangements whereby we provide distributors with protection against price reductions initiated by us after product is sold by us to the distributor and prior to resale by the distributor. In addition, we have a termination clause in one of our distributor agreements that would allow for a full credit for all inventory upon 60 days' notice of terminating the agreement.

We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our customers during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. Our estimates require the exercise of significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.

Related Party Transactions

The Company currently purchases and has purchased in the past die and wafers, as specified by the Company's customers, from ES Components. Mr. Aubrey, a director of the Company is a minority owner, and an immediate family member of the majority owner of ES Components. For the three and nine months ended November 30, 2024, the Company purchased $0 and $90,000 of die, respectively and $0 of used equipment from ES Components. For the three and nine months ended November 30, 2023, the Company purchased $24,000 and $57,000 of die, respectively 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 the three and nine months ended November 30, 2024 and November 30, 2023, sales were $0.

Stock based Compensation

The Company records stock-based compensation in accordance with the provisions of ASC Topic 718, "Compensation-Stock Compensation," which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC Topic 718, the Company recognizes an expense for the fair value of outstanding stock options and grants as they vest, whether held by employees or others. Novesting of stock options or grants occurred during the three and nine months ended November 30, 2024 or November 30, 2023.

3.	REVENUE RECOGNITION

Sales returns and allowances accrual activity is shown below for the three and nine months ended November 30, 2024, and November 30, 2023, respectively:

		Fiscal quarters ended			Nine fiscal months ended
		November 30, 2024			November 30, 2023			November 30, 2024			November 30, 2023
Beginning Balance		$	363,000			$	471,000			$	471,000			$	471,000
Accrued Allowances			(33,000	)			-				(141,000	)			-
Credits Issued			-				-				-				-
Ending Balance		$	330,000			$	471,000			$	330,000			$	471,000

As mentioned in Note 2 above, one of our distributor agreements has a termination clause that would allow for a full credit for all inventory upon 60 days' notice of terminating the agreement. As of November 30, 2024, and February 29, 2024, the inventory balance at that distributor was believed to be $1,281,000 and $1,454,000, respectively. Based upon sales levels to and by the distributor during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs, we believe it is highly unlikely that the distributor would exercise termination. Should termination occur, we believe the products could be sold to other distributors or held in inventory for future sale.

The Company warrants that its products, when delivered, will be free from defects in material workmanship under normal use and service. The obligations are limited to replacing, repairing, or reimbursing for, at the option of the Company, any products that are returned within one year after the date of shipment. The Company does not reserve for potential warranty costs based on historical experience and the nature of its cost tracking system.

4.	INVENTORIES

As of November 30, 2024, inventories consist of the following:

		Gross			Reserve			Net
Raw Materials		$	2,589,000			$	(482,000	)		$	2,107,000
Work-In-Process			5,160,000				(3,883,000	)			1,277,000
Finished Goods			1,098,000				(484,000	)			614,000
Totals		$	8,847,000			$	(4,849,000	)		$	3,998,000

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

		Gross			Reserve			Net
Raw Materials		$	2,492,000			$	(441,000	)		$	2,051,000
Work-In-Process			5,274,000				(3,894,000	)			1,380,000
Finished Goods			1,150,000				(449,000	)			701,000
Totals		$	8,916,000			$	(4,784,000	)		$	4,132,000

Wafer bank inventory (completed wafers that are available to be consumed in the Company's products), net of reserves, totaled $246,000 as of November 30, 2024 and $332,000 as of February 29, 2024. As of November 30, 2024, 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2018 and 2022. We do not expect all of our wafer inventory to be consumed within twelve months; however, since it is not possible to know which wafers will or will not be used, we classify all our inventory as current.

5.	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of November 30, 2024, and February 29, 2024, accrued expenses and other current liabilities consist of the following:

		November 30, 2024			February 29, 2024
Payroll and related employee benefits		$	415,000			$	449,000
Legal fees			27,000				21,000
Property, sales, and franchise taxes			73,000				25,000
Return allowance			330,000				471,000
Other liabilities			-				114,000
Totals		$	845,000			$	1,080,000

6.	DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS

Revenues from domestic and export sales are attributed to a global geographic region according to the location of the customer's primary manufacturing or operating facilities. Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2024, and November 30, 2023, respectively are as follows:

Geographic Region		November 30, 2024			November 30, 2023
Europe and Australia		$	13,000			$	1,000
Canada and Latin America			-				1,000
Far East and Middle East			-				-
United States			3,356,000				4,134,000
Totals		$	3,369,000			$	4,136,000

For the three months ended November 30, 2024 and November 30, 2023, approximately 55% and 64%, respectively, of the Company's sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 45% and 36%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2024, and November 30, 2023, respectively are as follows:

Geographic Region		November 30, 2024			November 30, 2023
Europe and Australia		$	46,000			$	4,000
Canada and Latin America			-				2,000
Far East and Middle East			-				-
United States			10,871,000				8,747,000
Totals		$	10,917,000			$	8,753,000

For the nine months ended November 30, 2024 and November 30, 2023, approximately 55% and 78%, respectively, of the Company's sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 45% and 22%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

Customers who contributed ten percent or more of revenues for the three months ended November 30, 2024, and November 30, 2023, respectively are as follows:

Customer		November 30, 2024				Customer		November 30, 2023
1. RTX (Raytheon)			41	%			1. ConMed Linvatec			29	%
2. ConMed Linvatec			31	%			2. RTX (Raytheon)			28	%
							3. L3Harris			19	%
Totals			72	%			Totals			76	%

Customers who contributed ten percent or more of revenues for the nine months ended November 30, 2024 and November 30, 2023, respectively are as follows:

Customer		November 30, 2024				Customer		November 30, 2023
1. ConMed Linvatec			35	%			1. RTX (Raytheon)			39	%
2. RTX (Raytheon)			31	%			2. L3Harris			17	%
							3. ConMed Linvatec			14	%
Totals			66	%			Totals			70	%

7.	MAJOR SUPPLIERS

For the three months ended November 30, 2024, the Company utilized threesuppliers 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 for 10% or more of purchases of production materials.

For the nine months ended November 30, 2024, the Company utilized twosuppliers 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 for 10% or more of purchases of production materials.

For the three months ended November 30, 2023, the Company utilized twosuppliers who in total provided 43% of the production materials. Individually, these suppliers accounted for 23% and 22% of the Company's production materials. No other supplier accounted for 10% or more of purchases of production materials.

For the nine months ended November 30, 2023, the Company utilized foursuppliers who in total provided 60% of the production materials. Individually, these suppliers accounted for 20%, 17%, 13% and 10% of the Company's production materials. No other supplier accounted for 10% or more of purchases of production materials.

8.	COMMITMENTS AND CONTINGENCIES

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 of threeyears, with two 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 the six-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 note 9 for the mortgage terms related to this purchase.

Under ASC 842-10-25-2 there are five 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 likely to be exercised, we treated the lease as a finance lease and included the purchase price of $1,750,000 as a current liability. The Company used an imputed interest rate of 8%.

		February 29, 2024
Fiscal Year Ending February 29		Amount
2024			1,750,000
Total Future Undiscounted Cash Flows		$	1,750,000
Less Imputed Interest to be recognized in lease expense			-
Finance Lease Liabilities, as reported		$	1,750,000

Balance Sheet Classification		February 29, 2024
Assets
Finance lease right-of-use assets, September 1, 2023		$	1,744,000
Amortization for the six months ended February 29, 2024			(29,000	)
Total finance lease right-of-use asset, February 29, 2024		$	1,715,000
Liabilities
Current
Finance lease liability, short-term		$	1,750,000
Non-current
Finance lease liability, long-term			-
Total lease liabilities		$	1,750,000

Contingencies:

We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2024, we had no known material current, pending, or threatened litigation.

9.	NOTES PAYABLE

On April 16, 2021, the Company closed on the acquisition of a facility and real estate located in West Palm Beach, Florida for a purchase price of $4,200,000 pursuant to the Commercial Contract entered into on March 1, 2021. In connection with the acquisition, the Company obtained mortgage financing from Bank of America, N.A. (the "Bank") in the amount of $2,940,000 to fund that portion of the total purchase price, and entered into the Master Credit Agreement, a Note, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing and Financial Covenant Agreement (the "FCA"). The loan accrues interest at a fixed rate of 3.8% per year and matures on April 15, 2031. Beginning on May 15, 2021, the Company began making monthly installments of $17,593 consisting of principal and interest. The payment and performance of the loan is secured by a security interest in the property acquired. The Master Credit Agreement contains certain representations and warranties, undertakings and events of default customary for these types of agreements. Additionally, under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 of unrestricted, unencumbered liquid assets.

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

On May 21, 2024, Micro Engineering, Inc., a wholly owned subsidiary of Solitron purchased the property and facilities occupied by the Company, located at 401 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 the six-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 the first 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 may be 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, 2024, principal payments on the notes payable are as follows for the fiscal years ended February 28/29:

		Total
		Principal
		Payments
2025		$	38,000
2026			152,000
2027			159,000
2028			167,000
2029			174,000
thereafter			3,264,000
Total principal payments		$	3,954,000

10.	STOCKHOLDERS'EQUITY

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 did notrepurchase any shares under the stock repurchase program during the three or nine months ended November 30, 2024 or November 30, 2023.

11.	SUBSEQUENT EVENTS

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Solitron Devices, Inc., a Delaware corporation (the "Company" or "Solitron"), designs, develops, manufactures and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company manufactures a large variety of bipolar and metal oxide semiconductor ("MOS") power transistors, power and control hybrids, junction and power MOS field effect transistors and other related products. Most of the Company's products are custom made pursuant to contracts with customers whose end products are sold to the United States government. Other products, such as Joint Army/Navy transistors, diodes and Standard Military Drawings voltage regulators, are sold as standard or catalog items.

The following discussion and analysis of factors which have affected the Company's financial position and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the related Notes to Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended February 29, 2024 and the Unaudited Condensed Consolidated Financial Statements and the related Notes to Unaudited Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Estimates:

The discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q which are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. See Note 2 in the financial statements for the Company's significant accounting policies. Of the Company's accounting policies, the following are considered to be critical - Revenue Recognition and Inventories. A discussion of these critical accounting policies are included in Note 2 of the "Notes To Financial Statements" in Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 29, 2024.

See Note 2, "Summary of Significant Accounting Policies", to the accompanying notes to the financial statements included in this Quarterly Report on 10-Q.

Results of Operations-Three Months Ended November 30, 2024, Compared to Three Months Ended November 30, 2023:

Net Sales. Net sales for the three months ended November 30, 2024, decreased 19% to $3,369,000 as compared to $4,136,000 for the three months ended November 30, 2023. The decrease in net sales was largely due a lower backlog at the beginning of the third quarter, along with a delay of an expected order.

Net bookings for the three months ended November 30, 2024, increased 66% to $8,049,000 versus $4,842,000 during the three months ended November 30, 2023 due to the variable timing on the receipt of orders. Backlog as of November 30, 2024, decreased 5% to $12,277,000 as compared to a backlog of $12,986,000 as of November 30, 2023.

Cost of Sales. Cost of sales for the three months ended November 30, 2024, decreased to $2,368,000 from $3,059,000 for the three months ended November 30, 2023, in conjunction with the lower net sales during the quarter. Expressed as a percentage of net sales, cost of sales decreased to 70% for the three months ended November 30, 2024, from 74% for the three months ended November 30, 2023.

Gross Profit. Gross profit for the three months ended November 30, 2024, decreased slightly to $1,001,000 from $1,077,000 for the three months ended November 30, 2023. However, gross margins expressed as a percentage of net sales increased to 30% for the three months ended November 30, 2024, as compared to 26% for the three months ended November 30, 2023.

For the three months ended November 30, 2024, we shipped 13,675 units as compared to 20,733 units shipped during the same period of the prior year. It should be noted that since we manufacture a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in our volume of units shipped should not be regarded as a reliable indicator of our performance.

Selling, General & Administrative Expenses. Selling, general, and administrative expenses decreased to $675,000 for the three months ended November 30, 2024 from $859,000 for the same period in the prior year. The decrease was primarily due to legal fees incurred in the prior year related to the acquisition of MEI.During the three months ended November 30, 2024, selling, general and administrative expenses as a percentage of net sales was 20% as compared to 21% for the three months ended November 30, 2023.

Operating Income. Operating income for the three months ended November 30, 2024, increased to $326,000 as compared to operating income of $218,000 for the three months ended November 30, 2023. This increase is due primarily to the reduction of selling, general and administrative expenses as noted above.

Other Income (Loss). Interest income decreased to $0 for the three months ended November 30, 2024, as compared to $12,000 for the three months ended November 30, 2023. Interest expense increased to ($67,000) for the three months ended November 30, 2024, as compared to ($55,000) for the three months ended November 30, 2023. Dividend income increased to $12,000 for the three months ended November 30, 2024, as compared to $0 for the three months ended November 30, 2023. Realized gains on investments for the three months ended November 30, 2024, increased to $13,000 as compared to $0 for the three months ended November 30, 2023. Unrealized gains (losses) on investments for the three months ended November 30, 2024, were $78,000 due to market price changes in the company's common stock investments as compared to a loss of ($108,000) for the three months ended November 30, 2023.

Income Taxes. Income taxes for the three months ended November 30, 2024, increased to $96,000 as compared to $0 for the three months ended November 30, 2023. This increase is due to the company being profitable in the quarter and to no longer maintaining a valuation allowance on its deferred tax assets.

Net Income (Loss). Net income (loss) for the three months ended November 30, 2024, increased to $266,000 as compared to net income of $86,000 for the three months ended November 30, 2023. This increase is due primarily to the acquisition of MEI.

Results of Operations-Nine Months Ended November 30, 2024, Compared to Nine Months Ended November 30, 2023:

Net Sales. Net sales for the nine months ended November 30, 2024, increased 25% to $10,917,000 as compared to $8,753,000 for the nine months ended November 30, 2023. The increase in net sales was largely due to the acquisition of MEI during the third quarter of fiscal year 2024.

Net bookings for the nine months ended November 30, 2024, increased 12% to $11,842,000 versus $10,611,000 during the nine months ended November 30, 2023. Backlog as of November 30, 2024, decreased 5% to $12,277,000 as compared to a backlog of $12,986,000 as of November 30, 2023.

Cost of Sales. Cost of sales for the nine months ended November 30, 2024, increased to $7,503,000 from $6,172,000 for the nine months ended November 30, 2023. However, expressed as a percentage of net sales, cost of sales decreased to 69% for the nine months ended November 30, 2024, from 71% for the nine months ended November 30, 2023.

Gross Profit. Gross profit for the nine months ended November 30, 2024, increased to $3,414,000 from $2,581,000 for the nine months ended November 30, 2023, due primarily to increased sales. Gross margins expressed as a percentage of net sales increased to 31% for the nine months ended November 30, 2024, as compared to 29% for the nine months ended November 30, 2023.

For the nine months ended November 30, 2024, we shipped 52,572 units as compared to 55,878 units shipped during the same period of the prior year. It should be noted that since we manufacture a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in our volume of units shipped should not be regarded as a reliable indicator of our performance.

Selling, General & Administrative Expenses. Selling, general, and administrative expenses increased to $2,246,000 for the nine months ended November 30, 2024, from $2,015,000 for the same period in the prior year. The increase was primarily due to SG&A costs at MEI along with intangible amortization of $157,000 due to the acquisition of MEI. During the nine months ended November 30, 2024, and November 30, 2023, selling, general and administrative expenses as a percentage of net sales was 21% and 23%, respectively.

Operating Income. Operating income for the nine months ended November 30, 2024, increased to $1,168,000 as compared to operating income of $566,000 for the nine months ended November 30, 2023. This increase is due primarily to increased sales from the third quarter acquisition of MEI as noted above.

Other Income (Loss). Interest income decreased to $6,000 for the nine months ended November 30, 2024, as compared to $32,000 for the nine months ended November 30, 2023. Interest expense increased to ($194,000) for the nine months ended November 30, 2024, as compared to ($108,000) for the nine months ended November 30, 2023. Dividend income increased to $34,000 for the nine months ended November 30, 2024, as compared to $19,000 for the nine months ended November 30, 2023. Realized gains on investments for the nine months ended November 30, 2024 decreased to $46,000 as compared to $332,000 for the nine months ended November 30, 2023. Unrealized gains (loss) on investments for the nine months ended November 30, 2024, were $126,000 as compared to a (loss) of ($745,000) for the nine months ended November 30, 2023.

Income Taxes. Income taxes for the nine months ended November 30, 2024, increased to $314,000 as compared to $0 for the nine months ended November 30, 2023. This increase is due to the company being profitable in the nine-month period and to no longer maintaining a valuation allowance on its deferred tax assets.

Net Income. Net income for the nine months ended November 30, 2024, increased to $872,000 as compared to net income of $115,000 for the nine months ended November 30, 2023. This increase is due primarily to increased sales as a result of the MEI acquisition during fiscal year 2024.

Liquidity and Capital Resources:

Operating Activities:

Net cash provided by operating activities was $2,060,000 for the nine months ended November 30, 2024, primarily reflecting net income of $872,000, a decrease in accounts receivable of $1,033,000, depreciation of $420,000, a change in net deferred taxes of $248,000, and amortization of intangibles of $157,000 partially offset by decreased customer deposits of $475,000 and a decrease in accrued expenses of $236,000.

Net cash provided by operating activities was $1,360,000 for the nine months ended November 30, 2023, primarily reflecting net income of $115,000, a decrease in inventories of $693,000, an increase in accounts payable of $481,000, net realized and unrealized losses on investments of $413,000, and depreciation and amortization of $393,000, partially offset by an increase in accounts receivable of $1,171,000.

Investing Activities:

Net cash used in investing activities was ($1,821,000) for the nine months ended November 30, 2024, principally reflecting $1,788,000 in purchases of property and equipment, $592,000 in purchases of marketable securities, and $88,000 of cash paid for acquisition, contingent consideration, partially offset by proceeds from the sale of marketable securities of $647,000.

Net cash used in investing activities was ($815,000) for the nine months ended November 30, 2023, principally reflecting $1,000,000 in maturities of short-term investments and $882,000 in proceeds from the sale of marketable securities offset by $43,000 of purchases of marketable securities and $102,000 in purchases of property and equipment.

Financing Activities:

Net cash provided by financing activities was $1,271,000 for the nine months ended November 30, 2024, reflecting $1,400,000 in proceeds from mortgage loan offset by $94,000 in principal payments on the mortgage loan and $35,000 in payments on finance lease liabilities.

Net cash used in financing activities was ($83,000) for the nine months ended November 30, 2023, reflecting $80,000 in principal payments on the mortgage loan and $3,000 in payments on finance lease liabilities.

We expect our sole sources of liquidity over the next twelve months to be cash from operations and cash and cash equivalents, if necessary. We anticipate that our capital expenditures required to sustain operations will be approximately $250,000during the next twelve months and that our cash from operations and cash and cash equivalents, if necessary, will be sufficient to fund these needs for the next twelve months. Available cash and cash equivalents as of December 31, 2024 was approximately $3.6 million.

At November 30, 2024 and February 29, 2024, we had cash and cash equivalents of approximately $3,727,000 and $2,217,000, respectively. The increase for the nine months ended November 30, 2024, was primarily due to cash from operating activities.

At November 30, 2024 and February 29, 2024, we had investments in securities of approximately $1,023,000 and $904,000, respectively.

At November 30, 2024 and February 29, 2024, we had working capital of $8,882,000 and $6,227,000, respectively. The increase for the nine months ended November 30, 2024 was due primarily to termination of the finance lease liability due to purchasing the property and cash provided in operating activities.

Based on various factors, including the Company's desire to fully utilize its current net operating loss carryforwards, the Company may seek out acquisitions, additional product lines, and/or invest a portion of its cash into common stocks or higher yielding debt instruments.

The Company will also continue to consider additional share repurchases under the Company's stock repurchase program subject to market conditions, corporate liquidity requirements and priorities and other factors as may be considered in the Company's sole discretion.

Off-Balance Sheet Arrangements:

The Company has not engaged in any off-balance sheet arrangements.

FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q are "forward-looking statements". These forward-looking statements include statements regarding our business, financial condition, results of operations, strategies or prospects and potential strategic transactions. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended February 29, 2024, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.

Some of the factors that may impact our business, financial condition, results of operations, strategies or prospects include:

●

Loss of, or reduction of business from, substantial clients could hurt our business by reducing our revenues, profitability and cash flow.

●

Our complex manufacturing processes may lower yields and reduce our revenues.

●

The acquisition of MEI may not yield the results or benefits desired or anticipated.

●

Our business could be materially and adversely affected if we are unable to obtain qualified supplies of raw materials, parts and finished components on a timely basis and at a cost-effective price.

●

We are dependent on government contracts, which are subject to termination, price renegotiations and regulatory compliance, which can increase the cost of doing business and negatively impact our revenues.

●

Changes in government policy or economic conditions or technology or reduction in government spending to which our business relates could negatively impact our results.

●

Our inventories may become obsolete and other assets may be subject to risks.

●

Environmental regulations could require us to incur significant costs.

●

Our business is highly competitive and increased competition could reduce gross profit margins and the value of an investment in our Company.

●

Changes in Defense related programs and priorities could reduce the revenues and profitability of our business.

●

Our operating results may decrease due to the decline of profitability in the semiconductor industry.

●

Uncertainty of current economic conditions, domestically and globally, including the risk of a recession in the U.S. or elsewhere, could adversely affect demand for our products and negatively impact our business.

●

We may not achieve the intended effects of our business strategy, which could adversely impact our business, financial condition and results of operations.

●

Our inability to introduce new products could result in decreased revenues and loss of market share to competitors; new technologies could also reduce the demand for our products.

●

The nature of our products exposes us to potentially significant product liability risk.

●

We depend on the recruitment and retention of qualified personnel and our failure to attract and retain such personnel could seriously harm our business.

●

Provisions in our charter documents could make it more difficult to acquire our Company and may reduce the market price of our stock.

●

Natural disasters, like hurricanes, or occurrences of other natural disasters whether in the United States or internationally may affect the markets in which our common stock trades, the markets in which we operate and our profitability.

●

Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.

●

We cannot guarantee that we will have sufficient capital resources to make necessary investments in manufacturing technology and equipment.

●

We may make substantial investments in property, plant and equipment that may become impaired.

●

While we attempt to monitor the credit worthiness of our customers, we may be at risk due to the adverse financial condition of one or more customers.

●

Our international operations expose us to material risks, including risks under U.S. export laws.

●

Security breaches and other disruptions could compromise the integrity of our information and expose us to liability, which would cause our business and reputation to suffer.

●

The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.

●

We cannot guarantee that we will declare future cash dividend payments, nor repurchase any shares of our common stock pursuant to our stock repurchase program.

●

Compliance with regulations regarding the use of "conflict minerals" could limit the supply and increase the cost of certain metals used in manufacturing our products.

●

Our failure to remediate the material weakness in our internal control over financial reporting or our identification of any other material weaknesses in the future may adversely affect the accuracy and timing of our financial reporting.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable as we are currently considered a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Our Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e), and 15d-15(e) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of November 30, 2024 due to the material weakness described in the Company's Annual Report on Form 10-K for the year ended February 29, 2024 under "Management's Report on Internal Control over Financial Reporting". Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. However, giving full consideration to the material weakness and the remediation plan, the Company's management has concluded that the Company's financial statements included in this Quarterly Report fairly present, in all material respects, the Company's financial condition and results of operations as of and for the three and nine months ended November 30, 2024.

Changes in Internal Control over Financial Reporting.

There were no changes in the Company's internal control over financial reporting during the quarter ended November 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2024, we had no known material current, pending, or threatened litigation.

ITEM 1A. RISK FACTORS

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended February 29, 2024, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS

						Filed or
				Incorporated by		Furnished
				Reference		Herewith
Exhibit #		Exhibit Description		Form		Date		Number
3.1		Certificate of Incorporation		10-K		2/28/1993		-
3.2		Amended and Restated By-laws of Solitron Devices, Inc.		8-K		7/27/2016		3.1
10.1		Loan Agreement dated May 21, 2024, between Bank of America, N.A. and Solitron Devices, Inc.		8-K		5/24/2024		10.1
10.2		Promissory Note dated May 21, 2024, issued by Solitron Devices, Inc. in favor of Bank of America, N.A.		8-K		5/24/2024		10.2
10.3		Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated May 21, 2024, by Micro Engineering, Inc.		8-K		5/24/2024		10.3
10.4		Continuing and Unconditional Guaranty by Micro Engineering, Inc. dated May 21, 2024.		8-K		5/24/2024		10.4
31.1		Certification of Chief Executive Officer and Chief Financial Officer (302)								Filed
32.1		Certification of Chief Executive Officer and Chief Financial Officer (906)								Furnished
101.INS		Inline XBRL Instance Document.								Filed
101.SCH		Inline XBRL Taxonomy Extension Schema Document.								Filed
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.								Filed
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.								Filed
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.								Filed
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.								Filed
104		Cover Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOLITRON DEVICES, INC.
Date: January 14, 2025
	/s/ Tim Eriksen
	Tim Eriksen
	Chief Executive Officer
Date: January 14, 2025
	/s/ Carolyn Campbell
	Carolyn Campbell
	Chief Financial Officer