UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ForFor the quarterly period ended November 30, 2015May 31, 2016

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)

(561) 848-4311

(Registrant’s Telephone Number, Including Area Code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  ☒    No  ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 30, 2015July 8, 2016 was 2,232,977.

SOLITRON DEVICES, INC.

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTSSOLITRON DEVICES, INC.  

CONDENSED BALANCE SHEETS  

AS OF MAY 31, 2016 AND FEBRUARY 29, 2016

(unaudited)

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

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

SOLITRON DEVICES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MAY 31, 2016 AND MAY 31, 2015

(Unaudited)

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

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Nature of Operations and Activities

Solitron Devices, Inc., a Delaware corporation (the “Company” or “Solitron”), designs, develops, manufactures, and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. The Company was incorporated under the laws of the State of New York in 1959 and reincorporated under the laws of the State of Delaware in August 1987.

Basis of Presentation

The unaudited condensed 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 condensed 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 ninethree months ended November 30, 2015May 31, 2016 are not necessarily indicative of the results to be expected for the year ending February 29, 2016.28, 2017.

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 28, 2015.29, 2016.

Cash and Cash Equivalents

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

Investment in Treasury Bills and Certificates of Deposit

Investment in treasury bills and certificates of deposit include treasury bills with maturities of one year or less, and is stated at market value.

All of the Company’s investments are classified as available-for-sale.  As they are available for current operations, they are classified as current on the balance sheets.  Investments in available-for-sale securities are reported at fair value with unrecognized gains or losses, net of tax, as a component of accumulated other comprehensive income and is included as a separate component of stockholders’ equity. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when the declines are determined to be other-than-temporary.

The following table summarizes the total face value of treasury bills and certificates of deposit.

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

As of November 30, 2015,May 31, 2016, contractual maturities of the Company's available-for-sale non-equity investments were as follows:

Fair Value of Financial Instruments

ASCAccounting 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:

The Company’s brokered Treasury bills and certificates of deposits are subject to levelLevel 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. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities, and the carrying amount of the long-term debt approximates fair value.

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 $2,000 as of November 30, 2015May 31, 2016 and February 28, 2015.29, 2016.

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.

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Inventories

Inventories are stated at the lower of cost or market. 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 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.

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

The Company’s inventory valuation policy is as follows:

Revenue Recognition

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 104,Revenue Recognition.  This pronouncement requires that four basic criteria be met before revenue can be recognized: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. We recognize revenue upon determination that all criteria for revenue recognition have been met.  The criteria are usually met at the time of product shipment. Shipping terms are generally FCA (Free Carrier) shipping point.

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.

While the Company believes that it has the environmental permits necessary to conduct its business and that its operations conform to present environmental regulations, increased public attention has been focused on the environmental impact of semiconductor manufacturing operations. The Company, in the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state and local laws and, therefore, is subject to regulations related to their use, storage, discharge and disposal. No assurance can be made that the risk of accidental release of such materials can be completely eliminated. In the event of a violation of environmental laws, the Company could be held liable for damages and the costs of remediation. In addition, the Company, along with the rest of the semiconductor industry, is subject to variable interpretations and governmental priorities concerning environmental laws and regulations.

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault. There can be no assurance that the Company and its subsidiaries will not be required to incur costs to comply with, or that the operations, business or financial condition of the Company will not be materially adversely affected by current or future environmental laws or regulations.

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

The shares used in the computation of the Company’s basic and diluted earnings per common share were as follows:

Weighted average common shares outstanding, assuming dilution, include the incremental shares that would be issued upon the assumed exercise of stock options. Since there is a loss in the nine months ended November 30, 2015, there is no dilutive effect of employee stock options for said time period.

As of November 30, 2015,May 31, 2016, inventories consistedconsist of the following:

As of February 28, 2015,29, 2016, inventories consistedconsist of the following:

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

At November 30, 2015,May 31, 2016, the Company has net operating loss carryforwards of approximately $10,122,000$10,037,000 that expire through February 2029.2036. Such net operating losses are available to offset future taxable income, if any. As the utilization of such net operating losses for tax purposes is not assured, the deferred tax asset has been fully reserved through the recording of a 100% valuation allowance. Should a cumulative change in the ownership of more than 50% occur within a three-year period, there could be an annual limitation on the use of the net operating loss carryforwards.

Total net deferred taxes are comprised of the following at November 30, 2015May 31, 2016 and February 28, 2015:29, 2016:

The change in the valuation allowance on deferred tax assets is due principally to the changes betweenutilization of the financial statement carrying amounts of existing assets and liabilities and their respective tax bases andnet operating loss carryforwards.for the period ended May 31, 2016 and the year ended February 29, 2016. A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate for the quarter ended November 30, 2015May 31, 2016 and for the year ended February 28, 201529, 2016 is as follows:

The Company did not earnAs of May 31, 2016 and February 29, 2016, accrued expenses and other income forliabilities consisted of the nine months ended November 30, 2015 as compared to $8,000 of other income for the nine months ended November 30, 2014. The $8,000 of other income reflected in the unaudited condensed statements of operations for the nine months ended November 30, 2014 consists of income from relief of obligation related to the Company’s 1992 bankruptcy proceedings.following:

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

As of November 30, 2015 and February 28, 2015, accrued expenses and other liabilities consisted of the following:

Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2015May 31, 2016 are as follows:

Revenues from domestic and export sales to unaffiliated customers for the three months ended November 30, 2014May 31, 2015 are as follows:

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.

For the quarter ended November 30,May 31, 2016, sales to the Company’s top three customers consisted of the following:

For the quarter ended May 31, 2015, sales to the Company’s top two customers consisted of the following:

For the quarter ended November 30, 2014, sales to the Company’s top two customers consisted of the following:

SOLITRON DEVICES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

For the quarter ended November 30,May 31, 2016, purchases from the Company’s top five vendors consisted of the following:

For the quarter ended May 31, 2015, purchases from the Company’s top two vendors consisted of the following:

Future minimum lease payments for the Company’s manufacturing facility are as follows:

OnIn connection with the fiscal year ended February 29, 2016, the Board of Directors of the Company has not declared a cash dividend. In July 22, 2015, the Company paid a cash dividend of $.25$0.25 per share of common stock to all stockholders of record as ofat the close of business on June 29, 2015. The aggregate dividend payment was approximately $575,000.

On May 29, 2015, the Company announced that its Board of Directors of the Company authorized a stock repurchase program under which the Company may repurchase up to $500,000 of its outstandingthe Company’s common stock from time to time through February 29, 2016 on the open market or in privately negotiated transactions as determined by the Company’s management and in accordance with the requirements of the Securities and Exchange Commission.

2016. On July 28, 2015, the Company announced that itsthe Board of Directors had expanded the stock repurchase program to cover repurchases of up to $1,000,000 of its outstanding common stock from time to time through February 29, 2016. On November 20, 2015, the Company purchased for $279,616 a total of 65,027 shares of the Company’s common stock pursuant to the repurchase program. On January 15, 2016, the Board of Directors of the Company amended the repurchase program under which the Company may repurchase up to $1,000,000 of its outstanding common stock without an expiration date to the repurchase program. Under the repurchase program, repurchases may be made by the Company from time to time on the open market or in 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 dependdepending on a variety of factors includingmarket conditions, stock price, corporate and regulatory requirements, and other conditions.

On November 20, 2015, thefactors. The Company repurchased 65,027 shares ofdid not repurchase any outstanding common stock under its previously authorized stock repurchase program at $4.30 per share from a stockholder in a privately negotiated transaction for an aggregate price of $279,616.the quarter ended May 31, 2016.

Overview:

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 28, 201529, 2016 and the Unaudited Condensed Financial Statements and the related Notes to Unaudited Condensed 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 Treasury bills and Certificates of Deposit, revenue recognition, earnings per common share, shipping and handling, and inventories. A discussion of these critical accounting policies are included in Note 1 of the “Notes To Financial Statements” in Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2015.29, 2016.

Trends and Uncertainties::

During the three months ended November 30, 2015,May 31, 2016, the Company’s book-to-bill ratio was approximately .34.28 as compared to approximately .86..67 for the three months ended November 30, 2014,May 31, 2015, reflecting adecrease in the volume of orders booked. The Company does not believe that, in most years, the year-to-year change in the book-to-bill ratio indicates a specific trend in the demand for the Company’s products. Generally, the intake of orders over the last twenty four months has varied greatly as a result of the fluctuations in the general economy, variations in defense spending on programs the Company supports, and the timing of contract awards by the Department of Defense and subsequently by its prime contractors, which is expected to continue over the next twelve to twenty four months. DuringSubsequent to the 2^nd quarterthree months ended AugustMay 31, 2015,2016, the Company washas been advised by certain of its key customers that they are currently experiencing delays in receiving contract awards from the U.S. government and delays in foreign military sales. Key customers confirmed during the 3^rd quarter ended November 30, 2015, that they continue to experience delays in receiving contract awards from the U.S. government and delays in foreign military sales, and they anticipate these delays may continue into the 1^stfirst quarter of calendar year 2016.2017. The Company expects these delays may continue to impact the Company’s level of bookings over the corresponding period. The Company continues to identify means intended to reduce its variable manufacturing costs to offset the potential impact of a lowerlow volume of orders to be shipped. However, should order intake continue to fall drastically in the coming periods, the Company might be required to implement further cost cutting or other downsizing measures in order to generate net income instead of net losses. For example, during the quarter ended November 30, 2015, the Company reduced the weekly production hours of all employees by 10% as a way to reduce variable manufacturing costs.continue profitable business operations.

Inventories

Inventories are stated at the lower of cost or market. 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 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’s inventory valuation policy is as follows:

Results of Operations-Three Months Ended November 30, 2015May 31, 2016 Compared to Three Months Ended November 30, 2014May 31, 2015:

Net sales for the three months ended November 30, 2015May 31, 2016 decreased 21%24% to $1,919,000$1,813,000 as compared to $2,418,000$2,383,000 for the three months ended November 30, 2014.May 31, 2015. This decrease was primarily attributable to a decrease in the valuelevel of orders of products that were shipped in accordance with customer requirements.

Cost of sales for the three months ended November 30, 2015May 31, 2016 decreased 23% to $1,549,000 from $1,811,000$1,454,000 as compared to $1,880,000 for the three months ended November 30, 2014,May 31, 2015, mostly due to the lower purchaseslevel of raw materials.sales. Expressed as a percentage of net sales, cost of sales increased to 81%80% as compared to 79% for the three months ended November 30, 2015 from 75% for the three months ended November 30, 2014.same period in 2015.

Gross profit for the three months ended November 30, 2015May 31, 2016 decreased to $370,000$359,000 from $607,000$503,000 for the three months ended November 30, 2014,May 31, 2015, mostly due primarily to the lower netlevel of sales. Accordingly, gross margins on the Company’s net sales decreased to 19%20% for the three months ended November 30, 2015 in comparison to 25%May 31, 2016 from 21% for the three months ended November 30, 2014.ending May 31, 2015.

For the three months ended November 30, 2015,May 31, 2016, the Company shipped 23,82320,829 units as compared to 23,68719,804 units shipped during the same period of the prior year. It should be noted that since the Company manufactures a wide variety of products with an average sales price ranging from less than one dollar to several hundred dollars, such periodic variations in the Company’s volume of units shipped should not be regarded as a reliable indicator of the Company’s performance.

For the three months ended November 30, 2015,May 31, 2016, the Company’s backlog of open orders decreased 28%22% to $3,324,000$4,532,000 as compared to the backlog of $4,588,000$5,832,000 as of August 31, 2015.February 29, 2016. The Company’s backlog as of November 30, 2015May 31, 2016 is 48%29% lower than the backlog of $6,417,000 as of November 30, 2014.May 31, 2015. Changes in backlog reflect changes in the intake of orders and in the delivery requirements of customers.

The Company has experienced a decrease of 69%68% to $651,000$513,000 in the level of bookings during the three months ended November 30, 2015May 31, 2016 as compared to $2,083,000 for the same period in the prior year.three months ended May 31, 2015. The decrease in bookings for the three months ended November 30, 2015May 31, 2016 is principally a result of a decrease in the placement of orders by key customers, resulting in a decreasefrom delays in the monetary value of, and timing differences in, the placementaward of contracts by the Department of Defense andto its prime contractors.

Selling, general, and administrative expenses increased 10% to $351,000$512,000for the three months ended May 31, 2016 from $466,000 for the three months ended November 30, 2015 from $343,000 for the same period in the prior year.May 31, 2015. The increase reflects an increase in legalhigher wages, consulting fees, of $67,000 during said period offset by a decrease in selling wages, commissionsdirector fees and travel expenses of $59,000 related to the Director of Sales position that was vacant during the quarter ended November 30, 2015.directors and officers liability insurance premiums. During the three months ended November 30, 2015,May 31, 2016, selling, general, and administrative expenses as a percentage of net sales increased to 18%28% as compared to 14%with 20% for the three months ended November 30, 2014.

May 31, 2015.

Operating income(loss) for the three months ended November 30, 2015 decreased 93% to $19,000asMay 31, 2016 was ($153,000)as compared to operating income of $264,000$37,000 for the three months ended November 30, 2014.May 31, 2015. This decrease is due primarily to lower net sales as described above.and higher selling, general and administrative expenses.

Interest income for the three months ended November 30, 2015 remained flat at $6,000May 31, 2016 increased to $10,000 as compared to $6,000$5,000 for the three months ended November 30, 2014. The interest incomeMay 31, 2015. This change is due primarily driven byto the rate of return on funds invested in certificates of deposit and treasury bills.

The Company had no other income for the three monthsquarters ended November 30, 2015May 31, 2016 and the three months ended November 30, 2014.May 31, 2015.

Net incomeTotal comprehensive (loss) for the three months ended November 30, 2015 decreased 92% to $20,000asMay 31, 2016 was ($152,000)as compared to nettotal comprehensive income of $258,000$37,000 for the three months ended November 30, 2014.May 31, 2015. This decrease is due primarily to a decrease in net sales as described above.

Results of Operations-Nine Months Ended November 30, 2015 Compared to Nine Months Ended November 30, 2014:

Net sales for the nine months ended November 30, 2015 decreased to $6,514,000as compared to $7,028,000 for the nine months ended November 30, 2014. This was primarily attributable to a decrease in the number of units sold and the corresponding value of the orders that were shipped in accordance with customer requirements during the nine months ended November 30, 2015.

Cost of sales for the nine months ended November 30, 2015 decreased to $5,076,000 from $5,292,000for the nine months ended November 30, 2014, mostly due to lower purchases of raw materials, lower labor costs, and a shift in the mix of products manufactured. Expressed as a percentage of net sales, cost of sales increased to 78% for the nine months ended November 30, 2015 from 75% for the nine months ended November 30, 2014.

Gross profit for the nine months ended November 30, 2015 decreased to $1,438,000 from $1,736,000 for the nine months ended November 30, 2014, due primarily to the reduction in net sales. Accordingly, gross margins on the Company’s sales decreased to 22% for the nine months ended November 30, 2015 in comparison to 25% for the nine months ended November 30, 2014.

For the nine months ended November 30, 2015, the Company shipped 64,250 units as compared to 68,563 units shipped during the same period of the prior year. It should be noted that since the Company manufactures a wide variety of products with an average sales price ranging from less than one dollar to several hundred dollars, such periodic variations in the Company’s volume of units shipped should not be regarded as a reliable indicator of the Company’s performance.

For the nine months ended November 30, 2015, the Company’s backlog of open orders decreased 54% to $3,324,000 as compared to the backlog of open orders of $7,176,000 as of February 28, 2015. The Company’s backlog of $3,324,000 as of November 30, 2015 was 48% lower as compared to the backlog of open orders of $6,417,000 as of November 30, 2014. Changes in backlog resulted from changes in the intake of orders and in the delivery requirements of customers.

The Company has experienced a decrease of 50% to $2,648,000 in the level of bookings during the nine months ended November 30, 2015 when compared to $5,273,000 during the nine months ended November 30, 2014. The decrease occurred principally as a result of decreases in the placement of orders by key customers, resulting in a decrease in the monetary value of, and timing differences in, the placement of contracts by the Department of Defense and its prime contractors.

Selling, general and administrative expenses increased to $1,573,000 for the nine months ended November 30, 2015 from $1,065,000 for the same period in the prior year, primarily due to $408,000 of higher legal fees mainly associated with the proxy contest the company experienced in connection with its 2015 annual stockholders’ meeting as compared to $125,000 for the same period in the prior year, increased expenses of $145,000 associated with holding such annual stockholders’ meeting as compared to $42,000 for the same period in the prior year, and $45,000 of higher sales commissions as compared to $33,000 for the same period in the prior year. During the nine months ended November 30, 2015, selling, general and administrative expenses as a percentage of net sales increased to 24% as compared to 15% for the nine months ended November 30, 2014.

Operating income for the nine months ended November 30, 2015 decreased 120% to an operating loss of $135,000 as compared to operating income of $671,000 for the nine months ended November 30, 2014. This decrease is due primarily to higher selling, general and administrative expenses and the lower net sales as described above.

The Company recorded other income of $18,000 for the nine months ended November 30, 2015 as compared to other income of $20,000 for the nine months ended November 30, 2014. Included in other income for the nine months ended November 30, 2015 was $18,000 of interest income on investment in treasury bills and certificates of deposit. Included in other income for the nine months ended November 30, 2014 was $8,000 of income from relief of obligation related to the Company’s 1992 bankruptcy proceedings and $12,000 of interest income on investment in treasury bills and certificates of deposit.

Net income for the nine months ended November 30, 2015 decreased to a net loss of $122,000 from net income of $672,000 for the same period in 2014. This decrease is due primarily to lower sales volume and an increase in selling, general and administrative expenses, and a decrease in other income as describedoutlined above.

Liquidity and Capital Resources:

Operating Activities:

Net cash provided byused in operating activities was $482,000$296,000 for the ninethree months ended November 30, 2015May 31, 2016 primarily reflecting a net loss of $122,000$143,000, depreciation of $45,000, $179,000 of higher inventories, $278,000 of higher accounts receivable and a decrease in$291,000 of higher accounts payable of $235,000 offset by depreciation and amortization of $162,000 and a decrease in inventory of $404,000.

payable.

Net cash provided by operating activities was $766,000$431,000 for the ninethree months ended November 30, 2014 primarilyMay 31, 2015 principally reflecting net income of $672,000 plus a $105,000 decrease in accounts receivable.$35,000, depreciation of $51,000 and $349,000 of lower inventories.

Investing Activities:

Net cash provided by investing activities was $336,000$169,000 for the ninethree months ended November 30, 2015May 31, 2016 principally reflecting $5,478,000$249,000 in sales of treasury bills and certificates of deposit, $4,992,000 in purchases of treasury bills and certificates of deposit, and $150,000$80,000 in purchases of property, plant and equipment.

Net cash used in investing activities was $799,000$324,000 for the ninethree months ended November 30, 2014 primarilyMay 31, 2015 principally reflecting $4,769,000$1,754,000 in sales of treasury bills and certificates of deposit, $5,478,000$1,995,000 in investments inpurchases of treasury bills and certificates of deposit, and $90,000$83,000 in purchases of property, plant and equipment.

Financing Activities:

Net cash used inprovided by financing activities was $843,000$-0- for the ninethree months ended November 30, 2015 primarily reflecting a $575,000 dividend paid to stockholders and $279,000 paid to a stockholder in connection with a privately negotiated stock repurchase offset by $11,000 from stock option exercises by the Company’s employees.May 31, 2016.

Net cash used inprovided by financing activities was $103,000$2,000 for the ninethree months ended November 30, 2014 primarilyMay 31, 2015 principally reflecting a $109,000 dividend paid to stockholders offset by $6,000$2,000 from stock option exercisesoptions exercised by the Company’s employees.

Subject to the following discussion, the Company expects its sole source of liquidity over the next twelve months to become from cash generated from operations.operations, cash on hand and cash invested in Treasury bills and certificates of deposit. The Company anticipates that its capital expenditures required to sustain operations will be approximately $300,000$180,000 during the next twelve monthsbalance of the current fiscal year and will be funded from operations.

Based upon (i) management’s best information as to current national defense priorities, future defense programs, as well as management’s expectations as to future defense spending, (ii) the market trends signaling a declining level of bookings, but with an increase in the cost of raw materials if precious metal recovery cannot be utilized, an increase in cost of salesand operations that will result in the potential erosion of profit levels and continued price pressures due to more intense competition, and (iii) the continued competition in the defense and aerospace market, the Company believes that it will have sufficient cash on hand to satisfy its operating needs duringover the next twelve months withand cash from operations. However, due to the level of current backlog, projected new order intake, the status of the general economy and the shift to Commercial Off –The-ShelfOff-The-Shelf (COTS) by the defense industry, the Company might be required to take additional cost cutting and productivity enhancing measuresactivity to assure its continued profitability.

Over the long-term, based on these factors and at the current level of bookings, costs of raw materials and services, profit margins and sales levels, the Company believes that it will generate sufficient cash from operations to satisfy its operating needs over the next twelve months. In the event that bookings in the long-term decline significantly below the level experienced during the previous two fiscal years, the Company may be required to implement further cost-cutting or other downsizing measures to continue its business operations. Such cost-cutting measures could inhibit future growth prospects. In appropriate situations, the Company may seek strategic alliances, joint ventures with others or acquisitions in order to maximize marketing potential and utilization of existing resources toand provide further opportunities for growth.

At November 30,May 31, 2016, February 29, 2016 and May 31, 2015, February 28, 2015 and November 30, 2014, the Company had cash and cash equivalentson hand of approximately $795,000, $820,000$507,000, $634,000 and $489,000,$929,000, respectively. The cash decrease for the ninethree months ended November 30, 2015May 31, 2016 was primarily due to the payment of dividends and the repurchase of shares from a stockholder during the quarter ended November 30, 2015.lower revenues.

At November 30,May 31, 2016, February 29, 2016 and May 31, 2015, February 28, 2015 and November 30, 2014, the Company had investments in treasury bills and certificates of deposit of approximately $6,485,000, $6,971,000$6,491,000, $6,740,000 and $6,970,000,$7,212,000, respectively.

At November 30, 2015,May 31, 2016, the Company had working capital of $11,100,000$10,881,000 as compared with a working capital at November 30, 2014February 29, 2016 of $11,774,000. At$11,068,000. The decrease for the three months ended May 31, 2016 was primarily due to increases in accrued expenses.

Capital Allocation:

Cash Dividend:

In connection with the fiscal year ended February 28,29, 2016, the Board of Directors of the Company has not declared a cash dividend. In July 2015, the Company had working capitalpaid a dividend of $12,052,000.$0.25 per share to all stockholders of record at the close of business on June 29, 2015. The $952,000 decrease for the nine months ended November 30, 2015aggregate dividend payment was due primarily to decreases in cash and inventories.approximately $575,000.

Stock Repurchase Program:

On May 29, 2015, the Company also announced that its Board of Directors authorized a stock repurchase program under which the Company may repurchase up to $500,000 of its outstanding common stock from time to time through February 29, 2016 on the open market or in privately negotiated transactions as determined by the Company’s management and in accordance with the requirements of the Securities and Exchange Commission.

2016. On July 28, 2015, the Company announced that itsthe Board of Directors had expanded the stock repurchase program to cover repurchases of up to $1,000,000 of its outstanding common stock from time to time through February 29, 2016. On November 20, 2015, the Company purchased for $279,616 a total of 65,027 shares of the Company’s common stock pursuant to the repurchase program. On January 15, 2016, the Board of Directors of the Company amended the repurchase program under which the Company may repurchase up to $1,000,000 of its outstanding common stock without an expiration date to the repurchase program. Under the repurchase program, repurchases may be made by the Company from time to time on the open market or in 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 dependdepending on a variety of factors includingmarkets conditions, stock price, corporate and regulatory requirements, and other conditions.factors.

On November 20, 2015,The Company did not repurchase any shares under the Company repurchased 65,027 shares of outstanding common stock under its previously authorized stock repurchase program at $4.30 per share from a stockholder in a privately negotiated transaction for an aggregate price of $279,616.during the three months ended May 31, 2016.

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," as that term is defined in the Private Securities Litigation Reform Act of 1995. 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 28, 2015,29, 2016, including those identified below. We do not undertake any obligation to update forward-looking statements, except as required by law.

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

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 May 31, 2016 due to the end ofmaterial weakness described in the period covered byCompany’s Annual Report on Form 10-K for the year ended February 29, 2016 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.Report fairly present, in all material respects, the Company’s financial condition and results of operations as of and for the quarter ended May 31, 2016.

Changes in Internal Control over Financial ReportingReporting.

Other than the changes referenced in the Company’s Annual Report on Form 10-K for the year ended February 28, 201529, 2016 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 thirdfirst quarter ended November 30, 2015May 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of November 30, 2015,May 31, 2016, we had no known material current, pending, or threatened litigation.

The following table presents information related to repurchases of our common stock made during the three months ended November 30, 2015:

Exhibits

*Filed herewith

**Furnished herewith

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.

EXHIBIT INDEX

* Filed herewith

** Furnished herewith

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