10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

       OF 1934

For the quarterly period ended November 30, 2020

 

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

      ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-04978

SOLITRON DEVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	22-1684144
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

3301 Electronics Way, West Palm Beach, Florida	33407
(Address of Principal Executive Offices)	(Zip Code)

(561) 848-4311

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐    No  ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐    No  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

 [ ] Yes [X] No

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of March 17, 2021, was 2,083,462.

SOLITRON DEVICES, INC.

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

			Page No.
Item	1.	Financial Statements
		Balance Sheets November 30, 2020 (unaudited) and February 29, 2020	2
		Statements of Operations (unaudited) Three and Nine Months Ended November 30, 2020 and 2019	3
		Statements of Stockholders’ Equity (unaudited) Three and Nine Months Ended November 30, 2020 and 2019	4
		Statements of Cash Flows (unaudited) Nine Months Ended November 30, 2020 and 2019	5
		Notes to Financial Statements (unaudited)	6
Item	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item	3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item	4.	Controls and Procedures	18
PART II – OTHER INFORMATION
Item	1.	Legal Proceedings	19
Item	1A	Risk Factors	19
Item	6.	Exhibits	19
Signatures			20

1

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOLITRON DEVICES, INC.

BALANCE SHEETS

AS OF NOVEMBER 30, 2020 AND FEBRUARY 29, 2020

(In thousands except for share and per share amounts)

	November 30, 2020	February 29, 2020
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$3,453	$1,332
Securities	267	164
Accounts receivable	1,166	1,379
Inventories, net	3,053	2,870
Prepaid expenses and other current assets	190	118
TOTAL CURRENT ASSETS	8,129	5,863
Property, plant and equipment, net	317	405
Operating lease - right-of-use asset	438	723
Other assets	45	45
TOTAL ASSETS	$8,929	$7,036
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$318	$269
Customer deposits	31	53
Operating lease liability	447	417
Accrued expenses and other current liabilities	744	437
TOTAL CURRENT LIABILITIES	1,540	1,176
Notes payable (PPP loan)	807	-
Operating lease liability	39	377
Capital lease liability	14	-
TOTAL LIABILITIES	2,400	1,553
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued	-	-
Common stock, $.01 par value, authorized 10,000,000 shares,
2,083,462 shares outstanding, net of 487,801 treasury shares
at November 30, 2020; 2,062,949 shares outstanding, net of
508,314 treasury shares at February 29, 2020, respectively	21	21
Additional paid-in capital	1,834	1,834
Retained earnings	6,086	5,109
Less treasury stock	(1,412)	(1,481)
TOTAL STOCKHOLDERS’ EQUITY	6,529	5,483
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$8,929	$7,036

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

2

SOLITRON DEVICES, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2020 AND NOVEMBER 30, 2019

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

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	November 30, 2020	November 30, 2019	November 30, 2020	November 30, 2020
Net sales	$2,312	$2,263	$7,913	$7,240
Cost of sales	1,799	1,802	5,419	6,126
Gross profit	513	461	2,494	1,114
Selling, general and administrative expenses	575	422	1,587	1,645
Operating income (loss)	(62)	39	907	(531)
Other income (loss)
Interest income	-	1	-	2
Dividend income	-	-	7	1
Realized gain (loss) on investments	9	(2)	35	(22)
Unrealized gain (loss) on investments	26	-	28	19
Total other income (loss)	35	(1)	70	-
Net income (loss)	$(27)	$38	$977	$(531)
Net income (loss) per common share - basic and diluted	$(0.01)	$0.02	$0.47	$(0.27)
Weighted average common shares outstanding - basic and diluted	2,064,754	2,062,952	2,062,713	1,992,702

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

3

SOLITRON DEVICES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2020 AND NOVEMBER 30, 2019

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

	Common Stock			Additional	Treasury Stock
	Number	Treasury		Paid-in		Retained
	of Shares	Shares	Amount	Capital	Amount	Earnings	Total
Balance, February 28, 2019	2,571,263	(669,304)	$19	$1,834	$(1,761)	$5,806	$5,898
Adjustment for Adoption of ASC 842	-	-	-	-	-	(91)	(91)
Net loss	-	-	-	-	-	(249)	(249)
Balance, May 31, 2019	2,571,263	(669,304)	$19	$1,834	$(1,761)	$5,466	$5,558
Stock based Compensation	-	161,000	2		280		282
Net loss	-	-	-	-	-	(320)	( 320)
Balance, August 31, 2019	2,571,263	(508,304)	$21	$1,834	$(1,481)	$5,146	$5,520
Repurchase of Shares	-	(10)	-		-	-	-
Net income	-	-	-	-	-	38	38
Balance, November 30, 2019	2,571,263	(508,314)	$21	$1,834	$(1,481)	$5,184	$5,558
Balance, February 29, 2020	2,571,263	(508,314)	$21	$1,834	$(1,481)	$5,109	$5,483
Net income	-	-	-	-	-	369	369
Balance, May 31, 2020	2,571,263	(508,314)	$21	$1,834	$(1,481)	$5,478	$5,852
Purchase of Common Stock	-	(2,493)	-	-	(6)		(6)
Net income	-	-	-	-	-	635	635
Balance, August 31, 2020	2,571,263	(510,807)	$21	$1,834	$(1,487)	$6,113	$6,481
Stock based Compensation	-	23,006	-	-	75		75
Net (loss)	-	-	-	-	-	(27)	(27)
Balance, November 30, 2020	2,571,263	(487,801)	$21	$1,834	$(1,412)	$6,086	$6,529

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

4

SOLITRON DEVICES, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED NOVEMBER 30, 2020 AND NOVEMBER 30, 2019

(Unaudited, in thousands)

 

	For the nine months ended	For the nine months ended
	November 30, 2020	November 30, 2019
Net income (loss)	$977	$(531)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization	179	163
Operating lease expense	285	266
Net realized and unrealized losses (gains) on investments	(63)	3
Stock based compensation	75	282
Changes in operating assets and liabilities:
Accounts receivable	213	13
Inventories	(183)	1,161
Prepaid expenses and other current assets	(72)	(25)
Other assets	-	1
Payments on operating lease liabilities	(308)	(279)
Accounts payable	49	(304)
Customer deposits	(22)	33
Accrued expenses, other current and non-current liabilities	297	20
Net cash provided by operating activities	1,427	803
Investing activities
Proceeds from sale of securities	340	57
Purchases of securities	(379)	(51)
Purchases of property and equipment	(68)	(83)
Net cash (used in) investing activities	(107)	(77)
Financing activities
Proceeds from SBA Paycheck Protection Program loan	807	-
Purchase of treasury stock	(6)	-
Net cash provided by financing activities	801	-
Net increase (decrease) in cash and cash equivalents	2,121	726
Cash and cash equivalents - beginning of the year	1,332	394
Cash and cash equivalents - end of period	$3,453	$1,120
Non-cash transactions
Capitalization of ROU asset and liability	26	1,081
Adjustment for Adoption of ASC 842	-	(91)

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

5

SOLITRON DEVICES, INC.

NOTES TO FINANCIAL STATEMENTS

UNAUDITED

1.        

THE COMPANY AND OPERATIONS

Solitron Devices, Inc., a Delaware corporation (“Solitron,” the “Company,” “we,” “us,” or “our”), 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.

2.        

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) 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, 2020 are not necessarily indicative of the results to be expected for the year ended February 28, 2021.

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, 2020.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market accounts.

Investment in Securities

Investment in securities includes investments in common stocks and bonds. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the income statement.

The following table summarizes available-for-sale investments (in $000’s):

November 30, 2020		Gross	Gross
Marketable Securities:	Cost	Unrealized Gains	Unrealized Losses	Fair Value
Common Stocks	232	45	(10)	267

February 29, 2020		Gross	Gross
Marketable Securities:	Cost	Unrealized Gains	Unrealized Losses	Fair Value
Common Stocks	155	16	(7)	164

At November 30, 2020 and February 29, 2020, the deferred tax liability related to unrecognized gains and losses on short-term investments was $0.

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:

6

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 Company’s securities are subject to level 1 fair value measurement.

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.

Accounts Receivable

Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business. The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account. The allowance amount was $0 as of November 30, 2020 and February 29, 2020.

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 maintains a three inch wafer fab which procures raw wafers and produces finished wafers based on management’s estimates of projected future demand. Finished wafers are considered work-in-process since they are usable for many years, and in some circumstances can be used on more than one finished product depending on customer parameters.

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 are reserved for after three years. Finished wafers produced m our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs.

Property, Plant, Equipment, and Leasehold Improvements

Property, plant, and equipment is recorded at cost. Major renewals and improvements are capitalized, whilemaintenance 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:

     Leasehold Improvements        10 years

     Machinery and Equipment      5 years

7

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, 2020, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $2,518,000 at November 30, 2020. 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 no stock options outstanding during fiscal 2020 and 2021; therefore, there is no effect from dilution on earnings per share.

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue 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. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

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.

8

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 occurs upon shipment or delivery. 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.

Effective January 1, 2018, we adopted Topic 606. Since all open contracts at that time were based on a point-in-time recognition model for revenue, there was no impact to retained earnings or revenue. The future impact of Topic 606 is dependent on the mix and nature of specific customer contracts.

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 Mr. Aubrey is the majority owner of ES Components. For the nine months ended November 30, 2020, the Company purchased $66,045 of die from ES Components. For the nine months ended November 30, 2019, the Company purchased $33,568 of die from ES Components. The Company has included these expenses in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the nine months ended November 30, 2020 and November 30, 2019, 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. No vesting of stock options or grants occurred during the three and nine month periods ended November 30, 2020 or November 30, 2019.

Financial Statement Estimates

The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and the differences could be material. Such estimates include depreciable life, valuation allowance, and allowance for inventory obsolescence.

9

Recent Accounting Pronouncements

No recent accounting pronouncements affecting the Company were issued by the Financial Accounting Standards Board or other standards-setting bodies.

3.            

REVENUE RECOGNITION

As of November 30, 2020, and November 30, 2019, sales returns and allowances accrual activity is shown below:

	November 30, 2020	November 30, 2019
Beginning Balance	$325,000	$86,000
Accrued Allowances	-	33,000
Credits Issued	-	-
Ending Balance	$325,000	$119,000

As noted 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, 2020, and February 29, 2020, the inventory balance at that distributor was believed to be $1,693,000 and $1,387,000, 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, 2020, and February 29, 2020, inventories, net of reserves, consist of the following:

	November 30, 2020	February 29, 2020
Raw Materials	$859,000	$766,000
Work-In-Process	2,087,000	2,058,000
Finished Goods	107,000	46,000
Totals	$3,053,000	$2,870,000

Wafer related inventory, which includes raw wafers, work-in-process wafers, and wafer bank (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled $1,262,000 as of November 30, 2020 and $1,239,000 as of February 29, 2020. Wafer production was temporarily curtailed during fiscal 2020 due to implementation of an improvement plan, which was completed in the first quarter of fiscal 2021. As of November 30, 2020, 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2016 and 2021. 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, 2020, and February 29, 2020, accrued expenses and other current liabilities consist of the following:

	November 30, 2020	February 29, 2020
Payroll and related employee benefits	$330,000	$303,000
Return Allowance	325,000	126,000
Bonus accrual	77,000	-
Other current liabilities	12,000	8,000
Totals	$744,000	$437,000

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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, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020	November 30, 2019
Europe and Australia	-	-
Canada and Latin America	-	10,000
Far East and Middle East	-	-
United States	2,312,000	2,253,000
Totals	$2,312,000	$2,263,000

Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020	November 30, 2019
Europe and Australia	-	-
Canada and Latin America	13,000	14,000
Far East and Middle East	9,000	-
United States	7,891,000	7,226,000
Totals	$7,913,000	$7,240,000

For the three months ended November 30, 2020 and November 30, 2019, approximately 72% and 66%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 28% and 34%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

For the nine months ended November 30, 2020 and November 30, 2019, approximately 69% and 73%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 31% and 27%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

Revenues from the Company’s top two customers for the three months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020	November 30, 2019
Raytheon	38%	47%
Avnet / USI Electronics	8%	21%
Totals	46%	68%

Revenues from the Company’s top two customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020	November 30, 2019
Raytheon	51%	53%
Avnet / USI Electronics	15%	16%
Totals	66%	69%

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7.            

MAJOR SUPPLIERS

For the three months ended November 30, 2020, CPS Technologies accounted for 21% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials. For the three months ended November 30, 2019, Stellar Industries accounted for 20% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials.

For the nine months ended November 30, 2020, Egide USA, accounted for 19% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials. For the nine months ended November 30, 2019, Egide USA, accounted for 18% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials.

8. COMMITMENTS AND CONTINGENCIES

The balance sheet classification of operating lease assets and liabilities as of November 30, 2020 was as follows:

Balance Sheet Classification	November 30, 2020
Assets
Operating lease right-of-use assets, March 1, 2020	$723,000
Amortization for the nine months ended November 30, 2020	(285,000)
Total operating lease right-of-use asset, November 30, 2020	$438,000
Liabilities
Current
Operating lease liability, short-term	$447,000
Non-current
Operating lease liability, long-term	39,000
Total lease liabilities	$486,000

Future minimum lease payments as of November 30, 2020 for the Company’s manufacturing facility are as follows:

Fiscal Year Ending February 28/29	Amount
2021	115,000
2022	388,000
Total Future Undiscounted Cash Flows	$503,000
Less Imputed Interest to be recognized in lease expense	17,000
Operating Lease Liabilities, as reported	$486,000

The balance sheet classification of lease assets and liabilities as of February 29, 2020 was as follows:

Balance Sheet Classification	February 29, 2020
Assets
Operating lease right-of-use assets, March 1, 2019	$1,081,000
Amortization for the fiscal year ended February 29, 2020	(358,000)
Total operating lease right-of-use asset, February 29, 2020	$723,000
Liabilities
Current
Operating lease liability, short-term	$417,000
Non-current
Operating lease liability, long-term	377,000
Total lease liabilities	$794,000

12

Future minimum lease payments as of February 29, 2020 for the Company’s manufacturing facility was as follows:

Fiscal Year Ending February 28/29	Amount
2021	454,000
2022	388,000
Total Future Undiscounted Cash Flows	$842,000
Less Imputed Interest to be recognized in lease expense	48,000
Operating Lease Liabilities, as reported	$794,000

9. NOTES PAYABLE

On July 22, 2020, the Company received loan proceeds of $807,415 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company is being made through Bank of America, N.A., a national banking association. The PPP Loan matures on July 21, 2025 and bears interest at a rate of 1% per annum. Payments of principal and interest on the loan will be deferred through October 31, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on certain other debt obligations. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

10. EQUITY

Repurchase Program

The Board of Directors has authorized a stock repurchase program of up to $1.0 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 a variety of factors including price, corporate and regulatory requirements and other conditions.

The Company did not repurchase any shares under the stock repurchase program during the three months ending November 30, 2020, and repurchased 2,493 shares during the nine months ended November 30, 2020, at a total cost of $5,734, or $2.30 per share.

Stock Compensation

On November 13, 2020, the Company granted Mr. Eriksen and Mr. Matson the option to receive half of their bonuses in shares instead of cash, which both elected. Mr. Eriksen received 7,669 shares, with a fair market value of $25,000, or $3.26 per share, and Mr. Matson received 15,337 shares, with a fair market value of $50,000, or $3.26 per share. Shares were issued under the 2019 Stock Incentive Plan.

On June 28, 2019 the Board approved restricted stock grants totaling 161,000 shares: 120,000 shares to COO and President Mark Matson, 15,000 shares to CEO Tim Eriksen, 8,000 shares to Board Chairman David Pointer, and 6,000 shares each to Directors John Chiste, Dwight Aubrey, and Charles Gillman. Fair value was approximately $282,000 based on then current price of $1.75 per share.

11. SUBSEQUENT EVENTS

On March 1, 2021, the Company entered into a Commercial Contract with 901 Sansbury LLC to purchase a facility and real estate property in West Palm Beach, Florida for a purchase price of $4,200,000. Subject to due diligence, the Company expects to close the transaction on April 15, 2021, unless extended. Assuming the Company closes the contract, it expects to begin making the necessary improvements to the property in order to completely relocate its manufacturing operation and corporate headquarters later in the 2021 calendar year.

13

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 financial statements should be read in conjunction with the 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, 2020 and the Unaudited Financial Statements and the related Notes to Unaudited Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.

Significant Accounting Policies:

The discussion and analysis of our financial condition and results of operations are based upon the unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q which are prepared in accordance with accounting principles generally accepted in the United States. 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. Our critical accounting policies include cash and cash equivalents, investment in securities, revenue recognition, earnings per common share, shipping and handling, 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, 2020.

Results of Operations-Three Months Ended November 30, 2020 Compared to Three Months Ended November 30, 2019:

Net sales for the three months ended November 30, 2020 increased 2% to $2,312,000 as compared to $2,263,000 for the three months ended November 30, 2019.

Net bookings for the three months ended November 30, 2020 decreased 63% to $1,285,000 versus $3,506,000 during the three months ended November 30, 2019. Backlog as of November 30, 2020 decreased 45% to $4,401,000 as compared to a backlog of $8,061,000 as of November 30, 2019.

Cost of sales for the three months ended November 30, 2020 decreased to $1,799,000 from $1,802,000 for the three months ended November 30, 2019, due to decreased labor costs and improved productivity. Expressed as a percentage of net sales, cost of sales decreased to 78% for the three months ended November 30, 2020 from 80% for the three months ended November 30, 2019.

Gross profit for the three months ended November 30, 2020 increased to $513,000 from $461,000 for the three months ended November 30, 2019, due primarily to increased net sales. Accordingly, gross margins increased to 22% for the three months ended November 30, 2020 as compared to 20% for the three months ended November 30, 2019.

For the three months ended November 30, 2020, we shipped 10,259 units as compared to 20,021 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, and administrative expenses increased to $575,000for the three months ended November 30, 2020 from $422,000 for the same period in the prior year. The increase was due to bonus expense and increased professional fees. During the three months ended November 30, 2020, selling, general and administrative expenses as a percentage of net sales increased to 25% as compared to 19% for the three months ended November 30, 2019.

14

Operating income (loss) for the three months ended November 30, 2020 decreased to ($62,000)as compared to operating income of $39,000 for the three months ended November 30, 2019. This decrease is due primarily to increased selling, general and administrative expense.

Interest and dividend income for the three months ended November 30, 2020 was $0 as compared to $1,000 for the three months ended November 30, 2019. Realized gains on investments for the three months ended November 30, 2020 increased to $9,000 as compared to a loss of ($2,000) for the three months ended November 30, 2019. Unrealized gains on investments for the three months ended November 30, 2020 were $26,000 as compared to $0 for the three months ended November 30, 2019.

Net income (loss) for the three months ended November 30, 2020 decreased to ($27,000)as compared to net income of $38,000 for the three months ended November 30, 2019. This decrease is due primarily to increased selling, general and administrative expenses as described above.

Results of Operations-Nine Months Ended November 30, 2020 Compared to Nine Months Ended November 30, 2019:

Net sales for the nine months ended November 30, 2020 increased 9% to $7,913,000 as compared to $7,240,000 for the nine months ended November 30, 2019.

Net bookings for the nine months ended November 30, 2020 decreased 52% to $4,428,000 versus $9,206,000 during the nine months ended November 30, 2019. Backlog as of November 30, 2020 decreased 45% to $4,401,000 as compared to a backlog of $8,061,000 as of November 30, 2019.

Cost of sales for the nine months ended November 30, 2020 decreased to $5,419,000 from $6,126,000 for the nine months ended November 30, 2019, due to decreased inventory obsolescence, raw materials and labor costs, and improved productivity. Expressed as a percentage of net sales, cost of sales decreased to 68% for the nine months ended November 30, 2020 from 85% for the nine months ended November 30, 2019.

Gross profit for the nine months ended November 30, 2020 increased to $2,494,000 from $1,114,000 for the nine months ended November 30, 2019, due primarily to increased net sales and lower cost of sales. Accordingly, gross margins increased to 32% for the nine months ended November 30, 2020 as compared to 15% for the nine months ended November 30, 2019.

For the nine months ended November 30, 2020, we shipped 58,770 units as compared to 55,168 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, and administrative expenses decreased to $1,587,000for the nine months ended November 30, 2020 from $1,645,000 for the same period in the prior year. The decrease was primarily due to decreased bonus expense. During the nine months ended November 30, 2020, selling, general and administrative expenses as a percentage of net sales decreased to 20% as compared to 23% for the nine months ended November 30, 2019.

Operating income for the nine months ended November 30, 2020 increased to $907,000as compared to an operating loss of ($531,000) for the nine months ended November 30, 2019. This increase is due primarily to increased net sales and lower cost of sales described above.

Interest and dividend income for the nine months ended November 30, 2020 increased to $7,000 as compared to $3,000 for the nine months ended November 30, 2019. Realized gains on investments for the nine months ended November 30, 2020 increased to $35,000 as compared to a loss of ($22,000) for the nine months ended November 30, 2019. Unrealized gains on investments for the nine months ended November 30, 2020 were $28,000 as compared to a gain of $19,000 for the nine months ended November 30, 2019.

Net income for the nine months ended November 30, 2020 increased to $977,000as compared to a net loss of ($531,000) for the nine months ended November 30, 2019. This increase is due primarily to increased net sales and decreased cost of sales as described above.

15

Liquidity and Capital Resources:

Operating Activities:

Net cash provided by operating activities was $1,427,000 for the nine months ended November 30, 2020 primarily reflecting net income of $977,000, an increase in accrued expenses, other current and non-current liabilities of $297,000, a decrease in accounts receivable of $213,000, and depreciation and amortization of $179,000, partially offset by increases in inventories of $183,000 and prepaid and other current assets of $72,000.

Net cash provided by operating activities was $803,000 for the nine months ended November 30, 2019 primarily reflecting a net loss of ($531,000) offset by a decrease in inventory of $1,161,000, stock compensation expense of $282,000, partially offset by a decrease in accounts payable of $304,000.

Investing Activities:

Net cash used in investing activities was ($107,000) for the nine months ended November 30, 2020 principally reflecting $340,000 in proceeds from the sale of securities, offset by $379,000 in purchases of securities and $68,000 in purchases of property, plant and equipment.

Net cash (used in) investing activities was ($77,000) for the nine months ended November 30, 2019 principally reflecting $57,000 in proceeds from sale of securities, offset by $51,000 in purchases of securities and $83,000 in purchases of plant, property and equipment.

Financing Activities:

Net cash provided by financing activities was $801,000 for the nine months ended November 30, 2020 principally reflecting proceeds of the SBA Paycheck Protection Program loan.

There was no net cash used or provided by financing activities during the nine months ended November 30, 2019.

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 to sustain operations will be approximately $350,000 during the next twelve months and will be funded from operations and cash and cash equivalents, if necessary.

At November 30, 2020, February 29, 2020, and November 30, 2019, we had cash and cash equivalents of approximately $3,453,000, $1,332,000, and $1,120,000, respectively. The increase for the nine months ended November 30, 2020 was primarily due to income from operations and the SBA Paycheck Protection Program loan.

At November 30, 2020, February 29, 2020, and November 30, 2019, we had investments in securities of approximately $267,000, $164,000, and $69,000, respectively.

At November 30, 2020, February 29, 2020, and November 30, 2019, we had working capital of $6,589,000, $4,687,000, and $4,746,000, respectively. The increase for the nine months ended November 30, 2020 was due primarily to income from operations and the SBA Paycheck Protection Program loan.

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 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. 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, 2020, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.

16

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.

●

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 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, could continue to 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 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.

●

The COVID-19 pandemic may have a material adverse effect on our business, cash flows and results of operations.

17

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, 2020 due to the material weakness described in the Company’s Annual Report on Form 10-K for the year ended February 29, 2020 under “Management’s Report on Internal Control over Financial Reporting”. 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 months ended November 30, 2020.

Changes in Internal Control over Financial Reporting.

Other than the changes referenced in the Company’s Annual Report on Form 10-K for the year ended February 29, 2020 under “Management’s Report on Internal Control over Financial Reporting”, there were no changes in the Company’s internal control over financial reporting during the quarter ended November 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

18

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, 2020, 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, 2020, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
31	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS* XBRL Instance Document

101.SCH* XBRL Taxonomy Extension Schema

101.CAL* XBRL Taxonomy Extension Calculation Linkbase

101.DEF* XBRL Taxonomy Extension Definition Linkbase

101.LAB* XBRL Taxonomy Label Linkbase

101.PRE* XBRL Taxonomy Presentation Linkbase

* Filed herewith

** Furnished herewith

19

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: March 23, 2021	/s/ Tim Eriksen
	Tim Eriksen
	Chief Executive Officer, and Interim Chief Financial Officer

 

20

EXHIBIT INDEX

EXHIBIT NUMBER	DESCRIPTION
31	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
32	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS* XBRL Instance Document

101.SCH* XBRL Taxonomy Extension Schema

101.CAL* XBRL Taxonomy Extension Calculation Linkbase

101.DEF* XBRL Taxonomy Extension Definition Linkbase

101.LAB* XBRL Taxonomy Label Linkbase

101.PRE* XBRL Taxonomy Presentation Linkbase

* Filed herewith

** Furnished herewith

21

EX-31

Exhibit 31

CERTIFICATION

I, Tim Eriksen, Chief Executive Officer and

Interim Chief Financial Officer of Solitron Devices, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Solitron Devices, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

         a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within this entity, particularly during the period in which this report is being prepared;

         b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

         c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

         d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

         a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

         b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 25, 2021	/s/ Tim Eriksen
	Tim Eriksen
	Chief Executive Officer, and Interim Chief Financial Officer

 

EX-32

Exhibit 32

Certification Required by 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Quarterly Report of Solitron Devices, Inc. (the “Company”) on Form 10-Q for the period ended November 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tim Eriksen, as Chief Executive Officer and Interim Chief Financial Officer of Solitron Devices, Inc., certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

1.

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: March 25, 2021	/s/ Tim Eriksen
	Tim Eriksen
	Chief Executive Officer, and Interim Chief Financial Officer

  

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Document and Entity Information - shares	9 Months Ended
	Nov. 30, 2020	Mar. 17, 2021
Cover [Abstract]
Entity Registrant Name	SOLITRON DEVICES INC
Entity Central Index Key	0000091668
Amendment Flag	false
Current Fiscal Year End Date	--02-28
Document Type	10-Q
Document Period End Date	Nov. 30, 2020
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2021
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	DE
Entity File Number	001-04978
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		2,083,462

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Balance Sheets - USD ($) $ in Thousands	Nov. 30, 2020	Feb. 29, 2020
CURRENT ASSETS
Cash and cash equivalents	$ 3,453	$ 1,332
Securities	267	164
Accounts receivable	1,166	1,379
Inventories, net	3,053	2,870
Prepaid expenses and other current assets	190	118
Total current assets	8,129	5,863
Property, plant and equipment, net	317	405
Operating lease - right-of-use asset	438	723
Other assets	45	45
Total assets	8,929	7,036
CURRENT LIABILITIES
Accounts payable	318	269
Customer deposits	31	53
Operating lease liability	447	417
Accrued expenses and other current liabilities	744	437
Total current liabilities	1,540	1,176
Notes payable (PPP Loan)	807	0
Operating lease liability	39	377
Capital lease liability	14	0
Total liabilities	2,400	1,553
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 500,000 shares, none issued	0	0
Common stock, $.01 par value, authorized 10,000,000 shares, 2,083,462 shares outstanding, net of 487,801 treasury shares at November 30, 2020; 2,062,949 shares outstanding, net of 508,314 treasury shares at February 29, 2020, respectively	21	21
Additional paid-in capital	1,834	1,834
Retained earnings	6,086	5,109
Less treasury stock	(1,412)	(1,481)
Total stockholders' equity	6,529	5,483
Total liabilities and stockholders' equity	$ 8,929	$ 7,036

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Balance Sheets (Parenthetical) - $ / shares	Nov. 30, 2020	Feb. 29, 2020
Statement of Financial Position [Abstract]
Preferred stock, par value	$ .01	$ 0.01
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued	0	0
Common stock, par value	$ .01	$ .01
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares outstanding	2,083,462	2,062,949
Treasury stock, shares	487,801	508,314

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Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Nov. 30, 2020	Nov. 30, 2019
Income Statement [Abstract]
Net sales	$ 2,312	$ 2,263	$ 7,913	$ 7,240
Cost of sales	1,799	1,802	5,419	6,126
Gross profit	513	461	2,494	1,114
Selling, general and administrative expenses	575	422	1,587	1,645
Operating income (loss)	(62)	39	907	(531)
Other income (loss):
Interest income	0	1	0	2
Dividend income	0	0	7	1
Realized gain (loss) on investments	9	(2)	35	(22)
Unrealized gain (loss) on investments	26	0	28	19
Total other income (loss)	35	(1)	70	0
Net income (loss)	$ (27)	$ 38	$ 977	$ (531)
Net income (loss) per common share - basic and diluted	$ (0.01)	$ 0.02	$ 0.47	$ (0.27)
Weighted average common shares outstanding - basic and diluted	2,064,754	2,062,952	2,062,713	1,992,702

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Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock	Treasury Stock	Additional Paid-in Capital	Retained Earnings	Total
Beginning balance, shares at Feb. 28, 2019	2,571,263	(669,304)
Beginning balance at Feb. 28, 2019	$ 19	$ (1,761)	$ 1,834	$ 5,806	$ 5,898
Adjustment for Adoption of ASC 842				(91)	(91)
Net income (loss)				(249)	(249)
Ending balance, shares at May. 31, 2019	2,571,263	(669,304)
Ending balance at May. 31, 2019	$ 19	$ (1,761)	1,834	5,466	5,558
Beginning balance, shares at Feb. 28, 2019	2,571,263	(669,304)
Beginning balance at Feb. 28, 2019	$ 19	$ (1,761)	1,834	5,806	5,898
Adjustment for Adoption of ASC 842					(91)
Net income (loss)					(531)
Ending balance, shares at Nov. 30, 2019	2,571,263	(508,314)
Ending balance at Nov. 30, 2019	$ 21	$ (1,481)	1,834	5,184	5,558
Beginning balance, shares at May. 31, 2019	2,571,263	(669,304)
Beginning balance at May. 31, 2019	$ 19	$ (1,761)	1,834	5,466	5,558
Stock based compensation, shares		161,000
Stock based compensation	2	$ 280			282
Net income (loss)				(320)	(320)
Ending balance, shares at Aug. 31, 2019	2,571,263	(508,304)
Ending balance at Aug. 31, 2019	$ 21	$ (1,481)	1,834	5,146	5,520
Purchase of common stock, shares		(10)
Purchase of common stock					0
Net income (loss)				38	38
Ending balance, shares at Nov. 30, 2019	2,571,263	(508,314)
Ending balance at Nov. 30, 2019	$ 21	$ (1,481)	1,834	5,184	5,558
Beginning balance, shares at Feb. 29, 2020	2,571,263	(508,314)
Beginning balance at Feb. 29, 2020	$ 21	$ (1,481)	1,834	5,109	5,483
Adjustment for Adoption of ASC 842					0
Net income (loss)				369	369
Ending balance, shares at May. 31, 2020	2,571,263	(508,314)
Ending balance at May. 31, 2020	$ 21	$ (1,481)	1,834	5,478	5,852
Beginning balance, shares at Feb. 29, 2020	2,571,263	(508,314)
Beginning balance at Feb. 29, 2020	$ 21	$ (1,481)	1,834	5,109	5,483
Adjustment for Adoption of ASC 842					0
Net income (loss)					977
Ending balance, shares at Nov. 30, 2020	2,571,263	(487,801)
Ending balance at Nov. 30, 2020	$ 21	$ (1,412)	1,834	6,086	6,529
Beginning balance, shares at May. 31, 2020	2,571,263	(508,314)
Beginning balance at May. 31, 2020	$ 21	$ (1,481)	1,834	5,478	5,852
Purchase of common stock, shares		(2,493)
Purchase of common stock		$ (6)			(6)
Net income (loss)				635	635
Ending balance, shares at Aug. 31, 2020	2,571,263	(510,807)
Ending balance at Aug. 31, 2020	$ 21	$ (1,487)	1,834	6,113	6,481
Issuance of common stock, shares		23,006
Stock based compensation				75	75
Net income (loss)				(27)	(27)
Ending balance, shares at Nov. 30, 2020	2,571,263	(487,801)
Ending balance at Nov. 30, 2020	$ 21	$ (1,412)	$ 1,834	$ 6,086	$ 6,529

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Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019
Statement of Cash Flows [Abstract]
Net income (loss)	$ 977	$ (531)
Adjustments to reconcile net income (loss) to net cash provided in operating activities:
Depreciation and amortization	179	163
Operating lease expense	285	266
Net realized and unrealized losses (gains) on investments	(63)	3
Stock based compensation	75	282
Changes in operating assets and liabilties:
Accounts receivable	213	13
Inventories	(183)	1,161
Prepaid expenses and other current assets	(72)	(25)
Other assets	0	1
Payments on operating lease liabilities	(308)	(279)
Accounts payable	49	(304)
Customer deposits	(22)	33
Accrued expenses and other current and non-current liabilities	297	20
Net cash provided by operating activities	1,427	803
Investing Activities:
Proceeds from sale of securities	340	57
Purchases of securities	(379)	(51)
Purchases of property and equipment	(68)	(83)
Net cash (used in) investing activities	(107)	(77)
Financing Activities:
Proceeds from SBA Paycheck Protection Program loan	807	0
Purchase of treasury stock	(6)	0
Net cash provided by financing activities	801	0
Net increase (decrease) in cash and cash equivalents	2,121	726
Cash and cash equivalents - beginning of the year	1,332	394
Cash and cash equivalents - end of period	3,453	1,120
Non-cash Transactions:
Capitalization of ROU asset and liability	26	1,081
Adjustment for Adoption of ASC 842	$ 0	$ (91)

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THE COMPANY AND OPERATIONS

9 Months Ended

Nov. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

THE COMPANY AND OPERATIONS

Solitron Devices, Inc., a Delaware corporation (“Solitron,” the “Company,” “we,” “us,” or “our”), 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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Nov. 30, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) 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, 2020 are not necessarily indicative of the results to be expected for the year ended February 28, 2021.

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, 2020.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market accounts.

Investment in Securities

Investment in securities includes investments in common stocks and bonds. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the income statement.

The following table summarizes available-for-sale investments (in $000’s):

November 30, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		232		45		(10	)		267

February 29, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		155		16		(7	)		164

At November 30, 2020 and February 29, 2020, the deferred tax liability related to unrecognized gains and losses on short-term investments was $0.

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 Company’s securities are subject to level 1 fair value measurement.

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.

Accounts Receivable

Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business. The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account. The allowance amount was $0 as of November 30, 2020 and February 29, 2020.

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 maintains a three inch wafer fab which procures raw wafers and produces finished wafers based on management’s estimates of projected future demand. Finished wafers are considered work-in-process since they are usable for many years, and in some circumstances can be used on more than one finished product depending on customer parameters.

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 are reserved for after three years. Finished wafers produced m our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs.

Property, Plant, Equipment, and Leasehold Improvements

Property, plant, and equipment is recorded at cost. Major renewals and improvements are capitalized, whilemaintenance 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:

     Leasehold Improvements        10 years

     Machinery and Equipment      5 years

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, 2020, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $2,518,000 at November 30, 2020. 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 no stock options outstanding during fiscal 2020 and 2021; therefore, there is no effect from dilution on earnings per share.

Revenue Recognition 

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue 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. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

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 occurs upon shipment or delivery. 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.

Effective January 1, 2018, we adopted Topic 606. Since all open contracts at that time were based on a point-in-time recognition model for revenue, there was no impact to retained earnings or revenue. The future impact of Topic 606 is dependent on the mix and nature of specific customer contracts.

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 Mr. Aubrey is the majority owner of ES Components. For the nine months ended November 30, 2020, the Company purchased $66,045 of die from ES Components. For the nine months ended November 30, 2019, the Company purchased $33,568 of die from ES Components. The Company has included these expenses in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the nine months ended November 30, 2020 and November 30, 2019, 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. No vesting of stock options or grants occurred during the three and nine month periods ended November 30, 2020 or November 30, 2019.

Financial Statement Estimates

The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and the differences could be material. Such estimates include depreciable life, valuation allowance, and allowance for inventory obsolescence.

Recent Accounting Pronouncements

No recent accounting pronouncements affecting the Company were issued by the Financial Accounting Standards Board or other standards-setting bodies.

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REVENUE RECOGNITION

9 Months Ended

Nov. 30, 2020

Revenue Recognition [Abstract]

REVENUE RECOGNITION

As of November 30, 2020, and November 30, 2019, sales returns and allowances accrual activity is shown below:

	November 30, 2020		November 30, 2019
Beginning Balance	$	325,000	$	86,000
Accrued Allowances		—		33,000
Credits Issued		—		—
Ending Balance	$	325,000	$	119,000

As noted 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, 2020, and February 29, 2020, the inventory balance at that distributor was believed to be $1,693,000 and $1,387,000, 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.

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INVENTORIES

9 Months Ended

Nov. 30, 2020

Inventory Disclosure [Abstract]

INVENTORIES

As of November 30, 2020, and February 29, 2020, inventories, net of reserves, consist of the following:

	November 30, 2020		February 29, 2020
Raw Materials	$	859,000	$	766,000
Work-In-Process		2,087,000		2,058,000
Finished Goods		107,000		46,000
Totals	$	3,053,000	$	2,870,000

Wafer related inventory, which includes raw wafers, work-in-process wafers, and wafer bank (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled $1,262,000 as of November 30, 2020 and $1,239,000 as of February 29, 2020. Wafer production was temporarily curtailed during fiscal 2020 due to implementation of an improvement plan, which was completed in the first quarter of fiscal 2021. As of November 30, 2020, 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2016 and 2021. 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.

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

9 Months Ended

Nov. 30, 2020

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of November 30, 2020, and February 29, 2020, accrued expenses and other current liabilities consist of the following:

	November 30, 2020		February 29, 2020
Payroll and related employee benefits	$	330,000	$	303,000
Return Allowance		325,000		126,000
Bonus accrual		77,000		—
Other current liabilities		12,000		8,000
Totals	$	744,000	$	437,000

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DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS

9 Months Ended

Nov. 30, 2020

Disaggregation of Revenue [Abstract]

DISAGGREGATION OF REVENUES 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, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020		November 30, 2019
Europe and Australia		—		—
Canada and Latin America		—		10,000
Far East and Middle East		—		—
United States		2,312,000		2,253,000
Totals	$	2,312,000	$	2,263,000

Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020		November 30, 2019
Europe and Australia		—		—
Canada and Latin America		13,000		14,000
Far East and Middle East		9,000		—
United States		7,891,000		7,226,000
Totals	$	7,913,000	$	7,240,000

For the three months ended November 30, 2020 and November 30, 2019, approximately 72% and 66%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 28% and 34%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

For the nine months ended November 30, 2020 and November 30, 2019, approximately 69% and 73%, respectively, of the Company’s sales have been attributable to contracts with customers whose products are sold to the United States government. The remaining 31% and 27%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information.

Revenues from the Company’s top two customers for the three months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020			November 30, 2019
Raytheon		38	%		47	%
Avnet / USI Electronics		8	%		21	%
Totals		46	%		68	%

Revenues from the Company’s top two customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020			November 30, 2019
Raytheon		51	%		53	%
Avnet / USI Electronics		15	%		16	%
Totals		66	%		69	%

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MAJOR SUPPLIERS

9 Months Ended

Nov. 30, 2020

Major Suppliers [Abstract]

MAJOR SUPPLIERS

For the three months ended November 30, 2020, CPS Technologies accounted for 21% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials. For the three months ended November 30, 2019, Stellar Industries accounted for 20% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials.

For the nine months ended November 30, 2020, Egide USA, accounted for 19% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials. For the nine months ended November 30, 2019, Egide USA, accounted for 18% of purchases of production materials, no other supplier accounted for 10% or more of purchases of production materials.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Nov. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

The balance sheet classification of operating lease assets and liabilities as of November 30, 2020 was as follows:

Balance Sheet Classification	November 30, 2020
Assets
Operating lease right-of-use assets, March 1, 2020	$	723,000
Amortization for the nine months ended November 30, 2020		(285,000	)
Total operating lease right-of-use asset, November 30, 2020	$	438,000
Liabilities
Current
Operating lease liability, short-term	$	447,000
Non-current
Operating lease liability, long-term		39,000
Total lease liabilities	$	486,000

Future minimum lease payments as of November 30, 2020 for the Company’s manufacturing facility are as follows:

Fiscal Year Ending February 28/29	Amount
2021		115,000
2022		388,000
Total Future Undiscounted Cash Flows	$	503,000
Less Imputed Interest to be recognized in lease expense		17,000
Operating Lease Liabilities, as reported	$	486,000

The balance sheet classification of lease assets and liabilities as of February 29, 2020 was as follows:

Balance Sheet Classification	February 29, 2020
Assets
Operating lease right-of-use assets, March 1, 2019	$	1,081,000
Amortization for the fiscal year ended February 29, 2020		(358,000	)
Total operating lease right-of-use asset, February 29, 2020	$	723,000
Liabilities
Current
Operating lease liability, short-term	$	417,000
Non-current
Operating lease liability, long-term		377,000
Total lease liabilities	$	794,000

Future minimum lease payments as of February 29, 2020 for the Company’s manufacturing facility was as follows:

Fiscal Year Ending February 28/29	Amount
2021		454,000
2022		388,000
Total Future Undiscounted Cash Flows	$	842,000
Less Imputed Interest to be recognized in lease expense		48,000
Operating Lease Liabilities, as reported	$	794,000

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NOTES PAYABLE

9 Months Ended

Nov. 30, 2020

Notes Payable [Abstract]

NOTES PAYABLE

On July 22, 2020, the Company received loan proceeds of $807,415 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company is being made through Bank of America, N.A., a national banking association. The PPP Loan matures on July 21, 2025 and bears interest at a rate of 1% per annum. Payments of principal and interest on the loan will be deferred through October 31, 2021. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on certain other debt obligations. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

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EQUITY

9 Months Ended

Nov. 30, 2020

Equity [Abstract]

EQUITY

Repurchase Program

The Board of Directors has authorized a stock repurchase program of up to $1.0 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 a variety of factors including price, corporate and regulatory requirements and other conditions.

The Company did not repurchase any shares under the stock repurchase program during the three months ending November 30, 2020, and repurchased 2,493 shares during the nine months ended November 30, 2020, at a total cost of $5,734, or $2.30 per share.

Stock Compensation

On November 13, 2020, the Company granted Mr. Eriksen and Mr. Matson the option to receive half of their bonuses in shares instead of cash, which both elected. Mr. Eriksen received 7,669 shares, with a fair market value of $25,000, or $3.26 per share, and Mr. Matson received 15,337 shares, with a fair market value of $50,000, or $3.26 per share. Shares were issued under the 2019 Stock Incentive Plan.

On June 28, 2019 the Board approved restricted stock grants totaling 161,000 shares: 120,000 shares to COO and President Mark Matson, 15,000 shares to CEO Tim Eriksen, 8,000 shares to Board Chairman David Pointer, and 6,000 shares each to Directors John Chiste, Dwight Aubrey, and Charles Gillman. Fair value was approximately $282,000 based on then current price of $1.75 per share.

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SUBSEQUENT EVENTS

9 Months Ended

Nov. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

On March 1, 2021, the Company entered into a Commercial Contract with 901 Sansbury LLC to purchase a facility and real estate property in West Palm Beach, Florida for a purchase price of $4,200,000. Subject to due diligence, the Company expects to close the transaction on April 15, 2021, unless extended. Assuming the Company closes the contract, it expects to begin making the necessary improvements to the property in order to completely relocate its manufacturing operation and corporate headquarters later in the 2021 calendar year.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Nov. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

The unaudited financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) 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, 2020 are not necessarily indicative of the results to be expected for the year ended February 28, 2021.

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, 2020.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits and money market accounts.

Investment in Securities

Investment in securities includes investments in common stocks and bonds. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the income statement.

The following table summarizes available-for-sale investments (in $000’s):

November 30, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		232		45		(10	)		267

February 29, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		155		16		(7	)		164

At November 30, 2020 and February 29, 2020, the deferred tax liability related to unrecognized gains and losses on short-term investments was $0.

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 Company’s securities are subject to level 1 fair value measurement.

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.

Accounts Receivable

Accounts receivable consists of unsecured credit extended to the Company’s customers in the ordinary course of business. The Company reserves for any amounts deemed to be uncollectible based on past collection experiences and an analysis of outstanding balances, using an allowance account. The allowance amount was $0 as of November 30, 2020 and February 29, 2020.

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 maintains a three inch wafer fab which procures raw wafers and produces finished wafers based on management’s estimates of projected future demand. Finished wafers are considered work-in-process since they are usable for many years, and in some circumstances can be used on more than one finished product depending on customer parameters.

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 are reserved for after three years. Finished wafers produced m our 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 (material and overhead) 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. Manufacturing overhead costs are allocated to finished goods and work in process inventory as a ratio to direct labor costs.

Property, Plant, Equipment, and Leasehold Improvements

Property, plant, and equipment is recorded at cost. Major renewals and improvements are capitalized, whilemaintenance 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:

     Leasehold Improvements        10 years

     Machinery and Equipment      5 years

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, 2020, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $2,518,000 at November 30, 2020. 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 no stock options outstanding during fiscal 2020 and 2021; therefore, there is no effect from dilution on earnings per share.

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue 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. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

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 occurs upon shipment or delivery. 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.

Effective January 1, 2018, we adopted Topic 606. Since all open contracts at that time were based on a point-in-time recognition model for revenue, there was no impact to retained earnings or revenue. The future impact of Topic 606 is dependent on the mix and nature of specific customer contracts.

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 Mr. Aubrey is the majority owner of ES Components. For the nine months ended November 30, 2020, the Company purchased $66,045 of die from ES Components. For the nine months ended November 30, 2019, the Company purchased $33,568 of die from ES Components. The Company has included these expenses in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the nine months ended November 30, 2020 and November 30, 2019, 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. No vesting of stock options or grants occurred during the three and nine month periods ended November 30, 2020 or November 30, 2019.

Financial Statement Estimates

The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and the differences could be material. Such estimates include depreciable life, valuation allowance, and allowance for inventory obsolescence.

Recent Accounting Pronouncements

No recent accounting pronouncements affecting the Company were issued by the Financial Accounting Standards Board or other standards-setting bodies.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Nov. 30, 2020

Accounting Policies [Abstract]

Available-for-sale investments

November 30, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		232		45		(10	)		267

February 29, 2020			Gross		Gross
Marketable Securities:	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Common Stocks		155		16		(7	)		164

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REVENUE RECOGNITION (Tables)

9 Months Ended

Nov. 30, 2020

Revenue Recognition [Abstract]

Sales returns and allowances accrual activity

	November 30, 2020		November 30, 2019
Beginning Balance	$	325,000	$	86,000
Accrued Allowances		—		33,000
Credits Issued		—		—
Ending Balance	$	325,000	$	119,000

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INVENTORIES (Tables)

9 Months Ended

Nov. 30, 2020

Inventory Disclosure [Abstract]

Inventories

	November 30, 2020		February 29, 2020
Raw Materials	$	859,000	$	766,000
Work-In-Process		2,087,000		2,058,000
Finished Goods		107,000		46,000
Totals	$	3,053,000	$	2,870,000

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

9 Months Ended

Nov. 30, 2020

Payables and Accruals [Abstract]

Accrued expenses and other current liabilities

	November 30, 2020		February 29, 2020
Payroll and related employee benefits	$	330,000	$	303,000
Return Allowance		325,000		126,000
Bonus accrual		77,000		—
Other current liabilities		12,000		8,000
Totals	$	744,000	$	437,000

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DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Tables)

9 Months Ended

Nov. 30, 2020

Disaggregation of Revenue [Abstract]

Revenues from domestic and export sales to unaffiliated customers

Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020		November 30, 2019
Europe and Australia		—		—
Canada and Latin America		—		10,000
Far East and Middle East		—		—
United States		2,312,000		2,253,000
Totals	$	2,312,000	$	2,263,000

Revenues from domestic and export sales to unaffiliated customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Geographic Region	November 30, 2020		November 30, 2019
Europe and Australia		—		—
Canada and Latin America		13,000		14,000
Far East and Middle East		9,000		—
United States		7,891,000		7,226,000
Totals	$	7,913,000	$	7,240,000

Revenues by customers

Revenues from the Company’s top two customers for the three months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020			November 30, 2019
Raytheon		38	%		47	%
Avnet / USI Electronics		8	%		21	%
Totals		46	%		68	%

Revenues from the Company’s top two customers for the nine months ended November 30, 2020 and November 30, 2019, respectively are as follows:

Customer	November 30, 2020			November 30, 2019
Raytheon		51	%		53	%
Avnet / USI Electronics		15	%		16	%
Totals		66	%		69	%

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Nov. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Balance sheet classification of lease assets and liabilities

The balance sheet classification of operating lease assets and liabilities as of November 30, 2020 was as follows:

Balance Sheet Classification	November 30, 2020
Assets
Operating lease right-of-use assets, March 1, 2020	$	723,000
Amortization for the nine months ended November 30, 2020		(285,000	)
Total operating lease right-of-use asset, November 30, 2020	$	438,000
Liabilities
Current
Operating lease liability, short-term	$	447,000
Non-current
Operating lease liability, long-term		39,000
Total lease liabilities	$	486,000

The balance sheet classification of lease assets and liabilities as of February 29, 2020 was as follows:

Balance Sheet Classification	February 29, 2020
Assets
Operating lease right-of-use assets, March 1, 2019	$	1,081,000
Amortization for the fiscal year ended February 29, 2020		(358,000	)
Total operating lease right-of-use asset, February 29, 2020	$	723,000
Liabilities
Current
Operating lease liability, short-term	$	417,000
Non-current
Operating lease liability, long-term		377,000
Total lease liabilities	$	794,000

Future minimum lease payments

Future minimum lease payments as of November 30, 2020 for the Company’s manufacturing facility are as follows:

Fiscal Year Ending February 28/29	Amount
2021		115,000
2022		388,000
Total Future Undiscounted Cash Flows	$	503,000
Less Imputed Interest to be recognized in lease expense		17,000
Operating Lease Liabilities, as reported	$	486,000

Future minimum lease payments as of February 29, 2020 for the Company’s manufacturing facility was as follows:

Fiscal Year Ending February 28/29	Amount
2021		454,000
2022		388,000
Total Future Undiscounted Cash Flows	$	842,000
Less Imputed Interest to be recognized in lease expense		48,000
Operating Lease Liabilities, as reported	$	794,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Common Stock - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Nov. 30, 2020	Feb. 29, 2020
Marketable Securities
Cost	$ 232	$ 155
Gross unrealized gains	45	16
Gross unrealized losses	(10)	(7)
Fair value	$ 267	$ 164

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Feb. 29, 2020
Allowance for doubtful accounts	$ 0		$ 0
FDIC insured limit	250,000
Deposits in excess of FDIC insured limits	2,518,000
ES Components
Related party purchases	66,045	$ 33,568
Related party sales	$ 0	$ 0
Leasehold Improvements
Estimated useful lives	10 years
Machinery and Equipment
Estimated useful lives	5 years

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REVENUE RECOGNITION (Details) - USD ($) $ in Thousands	9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019
Revenue Recognition [Abstract]
Sales return and allowances, beginning	$ 325	$ 86
Accrued allowances	0	33
Credits issued	0	0
Sales return and allowances, ending	$ 325	$ 119

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REVENUE RECOGNITION (Details Narrative) - USD ($) $ in Thousands	Nov. 30, 2020	Feb. 29, 2020
Inventory	$ 3,053	$ 2,870
Distributor
Inventory	$ 1,693	$ 1,387

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INVENTORIES (Details) - USD ($) $ in Thousands	Nov. 30, 2020	Feb. 29, 2020
Inventory Disclosure [Abstract]
Raw materials	$ 859	$ 766
Work-in-process	2,087	2,058
Finished goods	107	46
Totals	$ 3,053	$ 2,870

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	Nov. 30, 2020	Feb. 29, 2020
Payables and Accruals [Abstract]
Payroll and related employee benefits	$ 330	$ 303
Return allowance	325	126
Bonus accrual	77	0
Other current liabilities	12	8
Totals	$ 744	$ 437

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DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Nov. 30, 2020	Nov. 30, 2019
Net sales	$ 2,312	$ 2,263	$ 7,913	$ 7,240
Europe and Australia
Net sales	0	0	0	0
Canada and Latin America
Net sales	0	10	13	14
Far East and Middle East
Net sales	0	0	9	0
United States
Net sales	$ 2,312	$ 2,253	$ 7,891	$ 7,226

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DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Details 1)	3 Months Ended		9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Nov. 30, 2020	Nov. 30, 2019
Sales from major customers	46.00%	68.00%	66.00%	69.00%
Raytheon
Sales from major customers	38.00%	47.00%	51.00%	53.00%
Avnet / USI Electronics
Sales from major customers	8.00%	21.00%	15.00%	16.00%

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DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Details Narrative)	3 Months Ended		9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Nov. 30, 2020	Nov. 30, 2019
Sales from major customers	46.00%	68.00%	66.00%	69.00%
United States Government
Sales from major customers	72.00%	66.00%	69.00%	73.00%
Non-Military, Scientific and industrial Applications
Sales from major customers	28.00%	34.00%	31.00%	27.00%

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MAJOR SUPPLIERS (Details Narrative)	3 Months Ended		9 Months Ended
	Nov. 30, 2020	Nov. 30, 2019	Nov. 30, 2020	Nov. 30, 2019
CPS Technologies Corp.
Purchases from major suppliers	21.00%
Stellar Industries
Purchases from major suppliers		20.00%
Egide USA
Purchases from major suppliers			19.00%	18.00%

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Nov. 30, 2020	Feb. 29, 2020
Assets
Operating lease right-of-use assets	$ 723	$ 1,081
Amortization	(285)	(358)
Total operating lease right-of-use-asset	438	723
Liabilities
Operating lease liability, short-term	447	417
Operating lease liability, long-term	39	377
Total lease liabilities	$ 486	$ 794

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COMMITMENTS AND CONTINGENCIES (Details 1) - USD ($) $ in Thousands	Nov. 30, 2020	Feb. 29, 2020
Commitments and Contingencies Disclosure [Abstract]
2021	$ 115	$ 454
2022	388	388
Total future undiscounted cash flows	503	842
Less: imputed interest to be recognized in lease expense	17	48
Operating lease liabilities, as reported	$ 486	$ 794