Financial Analysis

8. COMMITMENTS AND CONTINGENCIES Contingencies: We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of May 31, 2026 , we had no known material current, pending, or threatened litigation.

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9. NOTES PAYABLE On April 16, 2021, the Company closed on the acquisition of a facility and real estate located in West Palm Beach, Florida for a purchase price of $4,200,000 pursuant to the Commercial Contract entered into on March 1, 2021. In connection with the acquisition, the Company obtained mortgage financing from Bank of America, N.A. (the Bank) in the amount of $2,940,000 to fund that portion of the total purchase price, and entered into the Master Credit Agreement, a Note, a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing and Financial Covenant Agreement (the FCA). The loan accrues interest at a fixed rate of 3.8% per year and matures on April 15, 2031. Beginning on May 15, 2021, the Company began making monthly installments of $17,593 consisting of principal and interest. The payment and performance of the loan is secured by a security interest in the property acquired. As of May 31, 2026 , the principal balance due on the note was $2,391,000. On May 21, 2024, Micro Engineering, Inc., a wholly owned subsidiary of Solitron purchased the property and facilities occupied by the Company, located at 401 Roger Williams Road, Apopka, Florida (the Micro Property), for a purchase price of $1,750,000. Micro Engineering, Inc. previously occupied the Micro Property under a commercial lease agreement dated September 1, 2023, which provided the Company with an option to purchase the Micro Property for $1,750,000 at any time before the six -month anniversary …

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10. STOCK OPTIONS AND GRANTS Repurchase Program On October 14, 2024, the Board of Directors authorized an increase in the Company's stock repurchase program of up to $2,000,000 of its outstanding common stock. Purchases under the program may be made through the open market or privately negotiated transactions as determined by the Companys management, and in accordance with the requirements of the Securities and Exchange Commission. The timing and actual number of shares repurchased will depend on variety of factors including price, corporate and regulatory requirements and other conditions. The company did not repurchase any shares under the stock repurchase program during the three months ended May 31, 2026 and 2025 . Stock Options and Grants Under the terms of the updated employment agreement with Mr. Matson effective as of August 13, 2025, Mr. Matson was given the right to purchase up to 50,000 shares of Company common stock for $14.50 per share within 90 days after the effective date of the new employment agreement. In addition, during the initial term of the updated employment agreement, which has a three -year term through August 2028, Mr. Matson has the ability to purchase 5,000 shares within 30 days after the end of each quarter, as long as he fulfills the service requirement to work through the last day of each quarter, based on the weighted average share price during the quarter. These shares are issued from treasury shares and are not through the Company's 2019 Sto …

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3. REVENUE RECOGNITION Sales returns and allowances accrual activity is shown below for May 31, 2026 , and February 28, 2026 . May 31, 2026 February 28, 2026 Beginning Balance $ 265,000 $ 310,000 Accrued Allowances and Adjustments (38,000 ) (45,000 ) Ending Balance $ 227,000 $ 265,000 As mentioned in Note 2 above, one of our distributor agreements has a termination clause that would allow for a full credit for all inventory upon 60 days notice of terminating the agreement. As of May 31, 2026 , and February 28, 2026 , the inventory balance at that distributor was believed to be $874,000 and $1,014,000, 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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"2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States for interim financial information and with the instructions to Form 10 -Q and Article 8 of Regulation S- X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Companys financial position, results of operations and cash flows for the interim periods. The results of operations for the three months ended May 31, 2026 are not necessarily indicative of the results to be expected for the year ending February 28, 2027 . The information included in this Form 10 -Q should be read in conjunction with the Companys Annual Report on Form 10 -K for the year ended February 28, 2026 . Use of Estimates The consolidated condensed financial statements are prepared in accordance with U.S. GAAP. Preparation of these consolidated condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions tha …

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