Annual Report for Fiscal Year Ending 02-28, 2026 (Form 10-K)

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

You should read the following discussion in conjunction with the "Financial Statements and Supplementary Data" section of this Annual Report on Form 10-K. You also should review and consider the risks relating to the Company's business, operations, financial performance, and cash flows presented earlier under "Risk Factors."

INTRODUCTION

The Company 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 MOS power transistors, power and control hybrids, junction and power MOFSETs, 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 JAN transistors, diodes and SMD voltage regulators, are sold as standard or catalog items.

The following table is included solely for use in comparative analysis to complement Management's Discussion and Analysis of Financial Condition and Results of Operations:

The following table sets forth our statements of operations for the fiscal year periods indicated (in 000's):

		February 28, 2026				February 28, 2025
Net Sales		$	16,970			$	14,049
Cost of Sales			11,851				10,057
Gross Profit			5,119				3,992
Selling, General and Administrative Expenses			3,501				2,994
Operating Income (Loss)			1,618				998
Total Other Income (Loss)			(522	)			(5	)
Net Income Before Taxes			1,096				993
Income Tax Benefit (Expense)			(289	)			(178	)
Net Income		$	807			$	815

The following table sets forth our statements of operations as a percentage of total revenue for the periods indicated:

		February 28, 2026				February 28, 2025
Net Sales			100	%			100	%
Cost of Sales			70	%			72	%
Gross Profit			30	%			28	%
Selling, General and Administrative Expenses			21	%			21	%
Operating Income (Loss)			10	%			7	%
Total Other Income (Loss)			(3	)%			(0	)%
Net Income Before Taxes			6	%			7	%
Income Tax Benefit (Expense)			(2	)%			(1	)%
Net Income			5	%			6	%

TRENDS AND UNCERTAINTIES

During the fiscal year ended February 28, 2026, the Company's book-to-bill ratio was approximately 1.54 to 1 as compared to approximately 1.48 to 1 for the fiscal year ended February 28, 2025, reflecting an increase in the volume of orders booked. Historically, the Company has experienced seasonality in its bookings, with the fiscal fourth quarter experiencing the highest level of bookings. Going forward we expect more variability in bookings.

The Company has been seeking out additional revenue sources, which may involve new products and/or products the Company has not manufactured in recent years, or before. The Company may incur difficulty manufacturing those products, which could result in decreased margins.

Results of Operations

Comparison of Fiscal Year Ended February 28, 2026 vs. Fiscal Year Ended February 28, 2025

Revenue. Net sales for the fiscal year ended February 28, 2026, increased by approximately 21% to $16,970,000 versus $14,049,000 for the fiscal year ended February 28, 2025. The increase in net sales was largely due to increased backlog in fiscal year 2026 as compared to fiscal year 2025 and the associated delivery dates of those orders

Net bookings for the fiscal year ended February 28, 2026, were approximately 54% more than net sales. Backlog increased by approximately 51% to $27,281,000 as of February 28, 2026, from $18,108,000 as of February 28, 2025. The increase was due to anticipated increased order activity by our customers. The backlog includes a previously noted significant AMRAAM program order, which the Company received during the year.

During the fiscal year ended February 28, 2026, the Company shipped 83,967 units as compared with 73,319 units shipped during the fiscal year ended February 28, 2025. It should be noted that since the Company manufactures a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in the Company's volume of units shipped might not be a reliable indicator of the Company's performance.

Cost of Sales. Cost of sales for the fiscal year ended February 28, 2026, increased to $11,851,000 from $10,057,000 for the fiscal year ended February 28, 2025. However, expressed as a percentage of sales, cost of sales decreased to 70% for the fiscal year ended February 28, 2026, as compared to 72% for the fiscal year ended February 28, 2025.

Gross Profit. Gross profit for the fiscal year ended February 28, 2026, increased to $5,119,000 from $3,992,000 for the fiscal year ended February 28, 2025, due primarily to increased net sales. Expressed as a percentage of sales, actual gross profit for the fiscal year ended February 28, 2026, increased to 30% as compared to 28% for the fiscal year ended February 28, 2025.

Selling, General & Administrative Expenses. During the fiscal year ended February 28, 2026, selling, general and administrative expenses increased 17% to $3,501,000 for the fiscal year ended February 28, 2026, from $2,994,000 for the fiscal year ended February 28, 2025. Expressed as a percentage of sales, selling, general and administrative expenses for the fiscal year ended February 28, 2026, remained constant at approximately 21%, which was the same for the year ended February 28, 2025. The Company experienced higher administration expenses during the 2026 fiscal year due to stock awarded to senior management and directors of $361,000, higher corporate salaries and with increased sales expenses related to greater net sales during the period.

Operating Income. Operating income for the fiscal year ended February 28, 2026, was $1,618,000 as compared to an operating income of $998,000 for the fiscal year ended February 28, 2025. The increase in operating income was mainly attributable to the increase in net sales.

Total Other Income. Interest income and dividend income were $163,000 and $97,000, respectively for the fiscal year ended February 28, 2026, compared to $6,000 and $70,000, respectively for the fiscal year ended February 28, 2025. The increase in interest income was a result of the Company's long-term investment, which was acquired in the 2026 fiscal year. Interest expense was ($263,000) for the fiscal year ended February 28, 2026, compared to ($272,000) for the fiscal year ended February 28, 2025. Realized gains (losses) on investments for the fiscal year ended February 28, 2026, was $285,000 compared to $127,000 for the fiscal year ended February 28, 2025. The change in unrealized gains (loss) on investments for the fiscal year ended February 28, 2026, was a loss of ($465,000) compared to a gain of $64,000 for the fiscal year ended February 28, 2025. Other income (expense) was $7,000 in the fiscal year ended February 28, 2026, as compared to $0 in the fiscal year ended February 28, 2025. Contingent consideration expense was $346,000 for the fiscal year ended February 28, 2026, compared to $0 for the fiscal year ended February 28, 2025. This adjustment to the contingent consideration was due to the increase in MEI's backlog for the fiscal year ended February 28, 2026.

Income Taxes. Income taxes for the fiscal year ended February 28, 2026, were ($289,000) as compared to ($178,000) for the fiscal year ended February 28, 2025. The increase in tax expense was due to higher operating income during the year.

Net Income. Net income for the fiscal year ended February 28, 2026, was $807,000 as compared to net income of $815,000 for the fiscal year ended February 28, 2025. The decrease in net income was mainly attributable to the adjustment to the contingent consideration for the MEI acquisition, as noted above.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities:

Net cash provided by operating activities was $1,350,000 for the year ended February 28, 2026, primarily reflecting net income of $807,000, depreciation and amortization of $579,000 and $210,000, respectively, stock based compensation of $361,000, deferred income tax benefit of $290,000, a decrease in other assets non-current of $232,000, an increase in contingent consideration of $346,000, an increase in accrued expenses of $221,000 offset by an increase in accounts receivable of $1,238,000 and an increase in inventory of $692,000.

Net cash provided by operating activities was $2,398,000 for the year ended February 28, 2025, primarily reflecting net income of $815,000, a decrease in inventory of $692,000, a decrease in accounts receivable of $697,000 and depreciation of $559,000 offset by a decrease in customer deposits of $421,000.

Investing Activities:

Net cash used in investing activities was ($2,135,000) for the year ended February 28, 2026, primarily reflecting $1,650,000 for the purchase of a long-term investment, $895,000 of cash paid for earn out payment, contingent consideration, $327,000 in purchases of property and equipment and $682,000 in purchases of marketable securities, partially offset by $1,419,000 from proceeds from the sale of marketable securities.

Net cash used in investing activities was ($1,750,000) for the year ended February 28, 2025, primarily reflecting $1,838,000 in purchases of property and equipment, and $651,000 in purchases of marketable securities, partially offset by $827,000 from proceeds from the sale of marketable securities.

Financing Activities:

Net cash provided by financing activities was $600,000 for the year ended February 28, 2026, primarily reflecting $815,000 in proceeds from issuance of stock, partially offset by $152,000 in principal payments on mortgage loans.

Net cash provided by financing activities was $1,234,000 for the year ended February 28, 2025, primarily reflecting $1,400,000 in proceeds from the MEI mortgage loan, partially offset by $131,000 in principal payments on mortgage loans

We expect our sole source 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 during the next twelve months to sustain operations will be approximately $0.3 million and will be funded from operations and cash and cash equivalents, if necessary.

At February 28, 2026 and February 28, 2025, the Company had cash and cash equivalents of approximately $3,914,000 and $4,099,000, respectively. The cash decrease for the year ended February 28, 2026, was primarily due to cash used in investing activities to purchase the long-term investment offset by proceeds from the sale of marketable securities.

At February 28, 2026 and February 28, 2025, the Company had investments in securities of approximately $2,000 and $919,000, respectively.

At February 28, 2026, the Company had working capital of $9,025,000 as compared with working capital at February 28, 2025 of $8,594,000. The increase for the year ended February 28, 2026, was due primarily to increased revenue during the 2026 fiscal year.

The Company had approximately $5,600,000 in cash and equivalents on hand as of April 30, 2026. Management estimates this amount will be sufficient to fund the Company's operations and working capital requirements for the next twelve months.

Stock Repurchase Program:

The Company currently has a repurchase program under which the Company may repurchase up to $2,000,000 of its outstanding common stock without an expiration date to the repurchase program. Under the current repurchase program, repurchases may be made by the Company from time to time in the open market or through privately negotiated transactions depending on market conditions, stock price, corporate and regulatory requirements, and other factors. The Company repurchased 3,850 shares of common stock at an average price of $16.19 per share for a total expense of approximately $63,000 during fiscal 2026 and did not repurchase any shares during the fiscal year ended February 28, 2025.

CRITICAL ACCOUNTING POLICIES

See Note 2 in the financial statements for a complete overview of the Company's significant accounting policies, which are summarized below. Of the Company's accounting policies, the following are considered to be critical - Revenue Recognition, Income Taxes, and Inventories.

Revenue Recognition - The Company records revenue in accordance with ASC 606, Revenues from Contracts with Customers (Topic 606) 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.

Income Taxes - Income taxes are accounted for under the asset and liability method of ASC 740-10, "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.

Inventories - Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "first-in, first-out" (FIFO) method. If excess material is not utilized after two fiscal years, it is fully reserved, except for wafers which function under a three- year policy. 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.

Off-Balance Sheet Arrangements

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

BOOKINGS AND BACKLOG

During the fiscal year ended February 28, 2026, the Company's net bookings were $26,144,000 in new orders as compared with $20,759,000 for the year ended February 28, 2025, reflecting an increase in bookings of approximately 26%. The Company's backlog increased to $27,281,000 at February 28, 2026 as compared with $18,108,000 as of February 28, 2025, reflecting an increase of approximately 51% in backlog.

In the event that bookings in the long-term decline significantly below the level experienced in the last fiscal year, the Company may be required to implement cost-cutting or other downsizing measures to continue its business operations. Such cost-cutting measures could inhibit future growth prospects. For the fiscal years ended February 28, 2026, and February 28, 2025, the entire backlog consisted of orders for electronic components.

See Part I, Item 1, "Business - Marketing and Customers" and "Backlog."

FUTURE PLANS

The Company plans to continue its efforts in selling commercial semiconductors and power modules and to develop appropriate strategic alliance arrangements. If these plans are successful, the Company intends to aggressively pursue sales of these products which could require the Company to invest in the building up of inventories of finished goods and invest in capital equipment (assembly and test) to replace older generation equipment and to support new product manufacturing. Any financing necessary to fund these initiatives could come from equipment leasing, among other financing alternatives. Despite its intentions, the Company cannot assure you that any of the above-described plans will be successful in increasing liquidity, reducing costs or improving sales.

Based on various factors, including the Company's desire to fully utilize its current net operating loss carryforwards, the Company may explore certain transactions or actions, including acquisitions, additional product lines, and/or investing a portion of its cash into common stocks or higher yielding debt instruments. The Company will continue to consider additional share repurchases under the Company's stock repurchase program in light of market conditions and the Company's liquidity needs and capital commitments.

TARIFFS

The Company relies on various foreign suppliers for raw materials used in the manufacture and production of our products. Increased tariffs implemented during 2025 had a significant impact on the cost of the materials the Company purchased and therefore our expenses and revenues. Based on the uncertainty of tariffs in the future, the Company expects it will continue to experience higher material costs going forward.

INFLATION

The rate of inflation has not had a material effect on the Company's revenues and costs and expenses, and it is not anticipated that inflation will have a material effect on the Company in the near future. However, to the extent the Federal Reserve's interest rate increases or other factors cause a recession, such an event could adversely affect us.

SEASONALITY

The Company's bookings of new orders and sales are largely dependent on congressional budgeting and appropriation activities and the cycles associated therewith. The Company has historically experienced a decreased level of bookings during the summer months as a result of a slowdown in the level of budgeting and appropriation activities.

FORWARD-LOOKING STATEMENTS

Some of the statements in this Annual Report on Form 10-K are "forward-looking statements". These forward-looking statements include statements regarding our business, financial condition, results of operations, strategies or prospects. 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 this Annual Report on Form 10-K, 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, significant customers could hurt our business by reducing our revenues, profitability and cash flow.
	●	Our complex manufacturing processes may lower yields and reduce our revenues.
	●	Our business could be materially and adversely affected if we are unable to obtain qualified supplies of raw materials, parts and finished components on a timely basis and at a cost-effective price.
	●	We are dependent on government contracts, which are subject to termination, price renegotiations and regulatory compliance, which can increase the cost of doing business and negatively impact our revenues.
	●	Changes in government policy or economic conditions or technology to which our business relates could negatively impact our results.
	●	Our business is highly competitive and increased competition could reduce gross profit margins and the value of an investment in our Company.
	●	Changes in Defense related programs and priorities could reduce the revenues and profitability of our business.
	●	Our operating results may decrease due to the decline of profitability in the semiconductor industry.
	●	Uncertainty of current economic conditions, domestically and globally, could continue to affect demand for our products and negatively impact our business.
	●	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.
	●	Provisions in our charter documents could make it more difficult to acquire our Company and may reduce the market price of our stock.
	●	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.
	●	While we attempt to monitor the creditworthiness 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 both U.S. import and 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.
	●	Our failure to fully remediate and test the controls put in place related to 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.