Cover
Cover - shares | 6 Months Ended | |
Aug. 31, 2022 | Oct. 04, 2022 | |
Cover [Abstract] | ||
Entity Registrant Name | SOLITRON DEVICES, INC. | |
Entity Central Index Key | 0000091668 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Current Fiscal Year End Date | --02-28 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Aug. 31, 2022 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2023 | |
Entity Common Stock Shares Outstanding | 2,083,436 | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Entity File Number | 001-04978 | |
Entity Incorporation State Country Code | DE | |
Entity Interactive Data Current | Yes | |
Entity Address Address Line 1 | 901 Sansburys Way | |
Entity Address City Or Town | West Palm Beach | |
Entity Address State Or Province | FL | |
Entity Address Postal Zip Code | 33411 | |
City Area Code | 561 | |
Local Phone Number | 848‑4311 | |
Entity Tax Identification Number | 22-1684144 |
Balance Sheets
Balance Sheets - USD ($) $ in Thousands | Aug. 31, 2022 | Feb. 28, 2022 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 806 | $ 4,088 |
Short-term investments | 2,495 | 0 |
Marketable securities | 1,079 | 684 |
Accounts receivable | 1,336 | 1,591 |
Inventories, net | 2,244 | 2,260 |
Prepaid expenses and other current assets | 451 | 196 |
TOTAL CURRENT ASSETS | 8,411 | 8,819 |
Property, plant and equipment, net | 4,928 | 4,926 |
Construction in progress | 2,085 | 609 |
Other assets | 14 | 4 |
TOTAL ASSETS | 15,438 | 14,358 |
CURRENT LIABILITIES | ||
Accounts payable | 190 | 135 |
Customer deposits | 64 | 24 |
Finance lease liability | 8 | 9 |
Mortgage loan, current portion | 105 | 103 |
Accrued expenses and other current liabilities | 842 | 888 |
TOTAL CURRENT LIABILITIES | 1,209 | 1,159 |
Mortgage loan, net of current portion | 2,702 | 2,755 |
Finance lease liability, net of current portion | 0 | 3 |
TOTAL LIABILITIES | 3,911 | 3,917 |
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, 2,083,436 shares outstanding, net of 487,827 treasury shares at August 31, 2022 and 2,083,436 shares outstanding, net of 487,827 treasury shares at February 28, 2022, respectively | 21 | 21 |
Additional paid-in capital | 1,834 | 1,834 |
Retained Earnings | 11,084 | 9,998 |
Less treasury stock | (1,412) | (1,412) |
TOTAL STOCKHOLDERS' EQUITY | 11,527 | 10,441 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 15,438 | $ 14,358 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - $ / shares | Aug. 31, 2022 | Feb. 28, 2022 |
Balance Sheets | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 500,000 | 500,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 10,000,000 | 10,000,000 |
Common stock, shares outstanding | 2,083,436 | 2,083,436 |
Treasury stock, shares | 487,827 | 487,827 |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2022 | Aug. 31, 2021 | |
Statements of Operations (Unaudited) | ||||
Net sales | $ 2,187 | $ 4,230 | $ 4,323 | $ 7,840 |
Cost of sales | 1,486 | 2,010 | 2,805 | 3,956 |
Gross profit | 701 | 2,220 | 1,518 | 3,884 |
Selling, general and administrative expenses | 499 | 659 | 1,075 | 1,373 |
Operating income | 202 | 1,561 | 443 | 2,511 |
Other income (loss) | ||||
Interest income | 2 | 0 | 2 | 0 |
Interest expense | (27) | (26) | (55) | (46) |
Dividend income | 2 | 1 | 5 | 1 |
Realized gain (loss) on investments | 24 | (1) | 32 | 26 |
Unrealized gain (loss) on investments | 106 | 21 | 55 | 1 |
PPP loan forgiveness | 0 | 812 | 0 | 812 |
Scrap income | 6 | 82 | 604 | 172 |
Total other income | 113 | 889 | 643 | 966 |
Net income | $ 315 | $ 2,450 | $ 1,086 | $ 3,477 |
Net income per common share - basic and diluted | $ 0.15 | $ 1.18 | $ 0.52 | $ 1.67 |
Weighted average shares outstanding - basic and diluted | 2,083,436 | 2,083,462 | 2,083,436 | 2,083,462 |
Statements of Changes in Stockh
Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings (Accumulated Deficit) |
Balance, shares at Feb. 28, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at Feb. 28, 2021 | $ 6,933 | $ 21 | $ 1,834 | $ (1,412) | $ 6,490 |
Net income | 1,027 | $ 0 | 0 | $ 0 | 1,027 |
Balance, shares at May. 31, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at May. 31, 2021 | 7,960 | $ 21 | 1,834 | $ (1,412) | 7,517 |
Balance, shares at Feb. 28, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at Feb. 28, 2021 | 6,933 | $ 21 | 1,834 | $ (1,412) | 6,490 |
Net income | 3,477 | ||||
Balance, shares at Aug. 31, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at Aug. 31, 2021 | 10,410 | $ 21 | 1,834 | $ (1,412) | 9,967 |
Balance, shares at May. 31, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at May. 31, 2021 | 7,960 | $ 21 | 1,834 | $ (1,412) | 7,517 |
Net income | 2,450 | $ 0 | 0 | $ 0 | 2,450 |
Balance, shares at Aug. 31, 2021 | 2,571,263 | 487,801 | |||
Balance, amount at Aug. 31, 2021 | 10,410 | $ 21 | 1,834 | $ (1,412) | 9,967 |
Balance, shares at Feb. 28, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at Feb. 28, 2022 | 10,441 | $ 21 | 1,834 | $ (1,412) | 9,998 |
Net income | 771 | $ 0 | 0 | $ 0 | 771 |
Balance, shares at May. 31, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at May. 31, 2022 | 11,212 | $ 21 | 1,834 | $ (1,412) | 10,769 |
Balance, shares at Feb. 28, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at Feb. 28, 2022 | 10,441 | $ 21 | 1,834 | $ (1,412) | 9,998 |
Net income | 1,086 | ||||
Balance, shares at Aug. 31, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at Aug. 31, 2022 | 11,527 | $ 21 | 1,834 | $ (1,412) | 11,084 |
Balance, shares at May. 31, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at May. 31, 2022 | 11,212 | $ 21 | 1,834 | $ (1,412) | 10,769 |
Net income | 315 | $ 0 | 0 | $ 0 | 315 |
Balance, shares at Aug. 31, 2022 | 2,571,263 | 487,827 | |||
Balance, amount at Aug. 31, 2022 | $ 11,527 | $ 21 | $ 1,834 | $ (1,412) | $ 11,084 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Aug. 31, 2022 | Aug. 31, 2021 | |
Statements of Cash Flows (Unaudited) | ||
Net income | $ 1,086 | $ 3,477 |
Adjustments to reconcile net income to net cash used in operating activities: | ||
Depreciation and amortization | 138 | 124 |
Operating lease expense | 0 | 202 |
Net realized and unrealized (gains) on investments | (87) | (27) |
PPP loan forgiveness | 0 | (812) |
Changes in Operating Assets and Liabilities: | ||
Accounts receivable | 255 | (779) |
Inventories | 16 | 216 |
Prepaid expenses and other current assets | (255) | 33 |
Other assets | (10) | (48) |
Payments on operating lease liabilities | 0 | (224) |
Payments on capital lease liabilities | (4) | (5) |
Accounts payable | 55 | 158 |
Customer deposits | 40 | (25) |
Accrued expenses, other current and non-current liabilities | (46) | 300 |
Net cash provided by operating activities | 1,188 | 2,590 |
Investing activities | ||
Proceeds from sale of marketable securities | 803 | 117 |
Purchases of marketable securities | (1,111) | (171) |
Purchases of short-term investments | (2,495) | 0 |
Expenditures on construction in progress | (1,476) | 0 |
Purchases of property, plant and equipment | (140) | (4,746) |
Net cash used in investing activities | (4,419) | (4,800) |
Financing activities | ||
Proceeds from mortgage loan | 0 | 2,940 |
Principal payments on mortgage loan | (51) | (33) |
Net cash provided by (used in) financing activities | (51) | 2,907 |
Net increase (decrease) in cash and cash equivalents | (3,282) | 697 |
Cash and cash equivalents - beginning of the year | 4,088 | 3,785 |
Cash and cash equivalents - end of period | 806 | 4,482 |
Supplemental disclosures of cash flow data | ||
Income taxes paid | 0 | 0 |
Interest expense paid | $ 55 | $ 38 |
THE COMPANY AND OPERATIONS
THE COMPANY AND OPERATIONS | 6 Months Ended |
Aug. 31, 2022 | |
THE COMPANY AND OPERATIONS | |
THE COMPANY AND OPERATIONS | 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. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Aug. 31, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 six months ended August 31, 2022 are not necessarily indicative of the results to be expected for the year ended February 28, 2023. 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, 2022. Use of estimates The financial statements are prepared in accordance with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company could have reasonably used different accounting estimates. This applies in particular to inventory and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The ultimate impact from COVID-19 on the Company’s operations and financial results during fiscal 2023 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, and the speed with which the economy recovers. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during fiscal 2023 and beyond. The Company believes COVID-19 had a negative impact on the Company’s bookings in fiscal 2022, which will negatively impact fiscal 2023 net sales. Cash and Cash Equivalents Cash and cash equivalents include demand deposits and money market accounts. Short-term Investments Short-term investments consist of certificates of deposit and U.S. Treasury securities. The U.S. Treasury securities are classified as held to maturity, mature in less than twelve Investment in Marketable Securities Investment in Marketable 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 investments in marketable securities at: August 31, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 1,007,000 $ 123,000 $ (51,000 ) $ 1,079,000 February 28, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 668,000 $ 42,000 $ (26,000 ) $ 684,000 At August 31, 2022 and August 31, 2021, the deferred tax liability related to unrecognized gains and losses on marketable securities 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 Topic 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. August 31, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 1,079,000 $ - $ - $ 1,079,000 Limited Partnerships $ - $ - $ - $ - Total $ 1,079,000 $ - $ - $ 1,079,000 February 28, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 603,000 $ 69,000 $ - $ 672,000 Limited Partnerships $ 12,000 $ - $ - $ 12,000 Total $ 615,000 $ 69,000 $ - $ 684,000 The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued expenses and other liabilities approximate their fair value due to the relatively short period to maturity for these instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. Accounts Receivable Accounts receivable 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 August 31, 2022 and February 28, 2022. 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. Through February 28, 2022, the Company maintained a three-inch wafer fab which procured raw wafers and produced 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 in 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, while maintenance and repairs that do not extend their expected life are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the lives of the related assets: Building 39 years 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 August 31, 2022, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $462,000 at August 31, 2022, as compared to $3,448,000 at February 28, 2022. 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 Topic 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 common stock equivalents outstanding during fiscal 2022 and 2023; therefore, there is no effect from dilution on earnings per share. Revenue Recognition The Company records revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,” The core principle of the guidance in ASC 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. 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. Dwight Aubrey, a director of the Company, is a minority owner and an immediate family member of the majority owner of ES Components. For the six months ended August 31, 2022, the Company purchased $89,860 of die and $0 of used equipment from ES Components. For the six months ended August 31, 2021, the Company purchased $65,400 of die and $0 of used equipment from ES Components. The Company has included the expenses related to die in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the six months ended August 31, 2022 and August 31, 2021, 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 six months ended August 31, 2022 or August 31, 2021. Financial Statement Estimates The preparation of financial statements in conformity with GAAP 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 variable consideration related to revenue recognition, stock-based compensation, depreciable life of property and equipment, accounts receivable allowance, deferred tax valuation allowance, and allowance for inventory obsolescence. Recent Accounting Pronouncements The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. |
REVENUE RECOGNITION
REVENUE RECOGNITION | 6 Months Ended |
Aug. 31, 2022 | |
REVENUE RECOGNITION | |
REVENUE RECOGNITION | 3. REVENUE RECOGNITION As of August 31, 2022, and August 31, 2021, sales returns and allowances accrual activity is shown below: August 31, 2022 August 31, 2021 Beginning Balance $ 471,000 $ 354,000 Accrued Allowances - 92,000 Credits Issued - - Ending Balance $ 471,000 $ 446,000 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 August 31, 2022, and February 28, 2022, the inventory balance at that distributor was believed to be $1,997,000 and $2,178,000, 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. |
INVENTORIES
INVENTORIES | 6 Months Ended |
Aug. 31, 2022 | |
INVENTORIES | |
INVENTORIES | 4. INVENTORIES As of August 31, 2022, inventories consisted of the following: Gross Reserve Net Raw Materials $ 1,320,000 $ (485,000 ) $ 835,000 Work-In-Process 4,901,000 (3,613,000 ) 1,288,000 Finished Goods 593,000 (472,000 ) 121,000 Totals $ 6,814,000 $ (4,570,000 ) $ 2,244,000 As of February 28, 2022, inventories consisted of the following: Gross Reserve Net Raw Materials $ 1,504,000 $ (813,000 ) $ 691,000 Work-In-Process 5,410,000 (3,906,000 ) 1,504,000 Finished Goods 723,000 (658,000 ) 65,000 Totals $ 7,637,000 $ (5,377,000 ) $ 2,260,000 Wafer bank inventory (completed wafers that are available to be consumed in the Company’s products), net of reserves, totaled $823,000 as of August 31, 2022 and $965,000 as of February 28, 2022. As of August 31, 2022, 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2018 and 2022. We do not expect all of our wafer inventory to be consumed within twelve months; however, since it is not possible to know which wafers will or will not be used, we classify all our inventory as current. We did not relocate the wafer fab to our new facility. |
ACCRUED EXPENSES AND OTHER CURR
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 6 Months Ended |
Aug. 31, 2022 | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of August 31, 2022, and February 28, 2022, accrued expenses and other current liabilities consisted of the following: August 31, 2022 February 28, 2022 Payroll and related employee benefits $ 294,000 $ 375,000 Legal fees 3,000 8,000 Property, sales, and franchise taxes 74,000 18,000 Return allowance 471,000 471,000 Other liabilities - 16,000 Totals $ 842,000 $ 888,000 |
DISAGGREGATION OF REVENUES AND
DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS | 6 Months Ended |
Aug. 31, 2022 | |
DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS | |
DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS | 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 August 31, 2022 and August 31, 2021, respectively, are as follows: Geographic Region August 31, 2022 August 31, 2021 Europe and Australia $ 224,000 $ - Canada and Latin America 2,000 5,000 Far East and Middle East - - United States 1,961,000 4,225,000 Totals $ 2,187,000 $ 4,230,000 Revenues from domestic and export sales to unaffiliated customers for the six months ended August 31, 2022 and August 31, 2021, respectively are as follows: Geographic Region August 31, 2022 August 31, 2021 Europe and Australia $ 459,000 $ - Canada and Latin America 19,000 20,000 Far East and Middle East - - United States 3,845,000 7,820,000 Totals $ 4,323,000 $ 7,840,000 For the three months ended August 31, 2022 and August 31, 2021, approximately 81% and 89%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the United States government. The remaining 19% and 11%, respectively of sales are for non-military, scientific and industrial applications, or to distributors where we do not have end user information. For the six months ended August 31, 2022 and August 31, 2021, approximately 80% and 87%, respectively, of the Company’s sales are attributable to contracts with customers whose products are sold to the United States government. The remaining 20% and 13%, respectively of sales are for nonmilitary, scientific and industrial applications, or to distributors where we do not have end user information. Customers who contributed ten percent or more of revenues for the three months ended August 31, 2022 and August 31, 2021, respectively are as follows: Customer August 31, 2022 Customer August 31, 2021 1. Raytheon 34 % 1. Raytheon 50 % 2. Nasco Aerospace 12 % 2. L3Harris 24 % 3. Intracom Defense Electronics 10 % 4. L3Harris 10 % Totals 66 % Totals 74 % Customers who contributed ten percent or more of revenues for the six months ended August 31, 2022 and August 31, 2021, respectively are as follows: Customer August 31, 2022 Customer August 31, 2021 1. Raytheon 41 % 1. Raytheon 51 % 2. Intracom Defense Electronics 11 % 2. L3Harris 15 % 3. Avnet / USI Electronics 12 % Totals 52 % Totals 78 % As of August 31, 2022, and February 28, 2022, our top four customers accounted for 67% and 77% of accounts receivable, respectively. |
MAJOR SUPPLIERS
MAJOR SUPPLIERS | 6 Months Ended |
Aug. 31, 2022 | |
MAJOR SUPPLIERS | |
MAJOR SUPPLIERS | 7. MAJOR SUPPLIERS For the three months ended August 31, 2022, ES Components accounted for 19% of purchases of production materials, Platronics Seals accounted for 18% of purchases of production materials, Stellar Industries accounted for 14% of purchases of production materials, and Wuxi Streamtek accounted for 13% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials. For the three months ended August 31, 2021, Wuxi Streamtek accounted for 26% of production materials, Platronics Seals accounted for 16% of purchases of production materials and Egide USA accounted for 10% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials. For the six months ended August 31, 2022, Stellar Industries accounted for 16% of purchases of production materials, Wuxi Streamtek accounted for 15% of purchases of production materials, Platronics Seals accounted for 14% of purchases of production materials, and ES Components accounted for 13% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials. For the six months ended August 31, 2021, Wuxi Streamtek accounted for 18% of purchases of production materials and Platronics Seals accounted for 17% of purchases of production materials. Stellar Industries accounted for 14% of purchases of production materials. No other supplier accounted for 10% or more of purchases of production materials. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Aug. 31, 2022 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | 8. COMMITMENTS AND CONTINGENCIES Finance lease: During fiscal 2021 the Company entered into a 36-month finance lease for $27,000 of computer equipment. The Company does not consider the lease to be material to the Company’s financial statements. As of August 31, 2022, and February 28, 2022, the carrying value of the asset was $8,000 and $12,000, respectively, and was included in Property, plant and equipment on the balance sheet. Operating lease: On October 1, 2014, the Company extended its current lease with its landlord, CF EB REO II LLC, for the occupancy and use of its 47,000 square foot facility located at 3301 Electronics Way, West Palm Beach, Florida 33407 (the “Lease”). The property subsequently was sold to La Boheme Properties, Inc., a Florida corporation, which is the current landlord as the Lease was assigned to them. The term of the Lease ended on December 31, 2021. The base rent provided in the Lease is $31,555 per month, excluding sales tax. The Company had the option to extend the term of the Lease for an additional five years beginning on January 1, 2022 and ending on December 31, 2026. The Company did not exercise its option. The Company entered into a month-to-month rental agreement for a substantially smaller portion of the facility that ended in September 2022. Contingencies: We may from time to time become a party to various legal proceedings arising in the ordinary course of business. As of August 31, 2022, we had no known material current, pending, or threatened litigation. |
NOTES PAYABLE
NOTES PAYABLE | 6 Months Ended |
Aug. 31, 2022 | |
NOTES PAYABLE | |
NOTES PAYABLE | 9. NOTES PAYABLE On July 21, 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 was made through Bank of America, N.A., a national banking association. The PPP Loan was scheduled to mature on July 21, 2025 and bore interest at a rate of 1% per annum. Payments of principal and interest on the PPP Loan were initially deferred until January 1, 2021 and based on applying for forgiveness the deferral was extended through October 31, 2021. The PPP Loan could have been 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 to continue group health care benefits, mortgage payments, rent, utilities, and interest payments on certain other debt obligations. The Company used 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. On June 12, 2021 the SBA notified Bank of America that the Company’s application for complete forgiveness of its PPP loan was approved. 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 (the “Loan”) 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 installment payments of $17,593 consisting of principal and interest. The payment and performance of the Loan is secured by a security interest in the property acquired. The Master Credit Agreement contains certain representations and warranties, undertakings and events of default customary for these types of agreements. Additionally, under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 of unrestricted, unencumbered liquid assets. On June 29, 2022 the Company received notification from the Bank that the Bank had elected to suspend certain financial and reporting requirements set forth in the FCA. Specifically, the Bank elected on a going forward basis to suspend measurement of any of the following financial covenants to the extent they are included in Section 2.1, ‘Financial Covenants’ of the FCA: Tangible Net Worth; Debt Service Coverage Ratio; Fixed Charge Coverage Ratio; Asset Coverage Ratio; Funded Debt to EBITDA; and/or Liquidity. In addition, the Bank elected to suspend the requirements in the FCA, if any, for the submission of financial statements and information by the Borrower on a periodic basis as specified in Section 2.4, ‘Financial Information’ of the FCA. The Bank reserves the right in its sole discretion to require the Company to resume delivery of financial statements and other information and to evidence compliance with the financial covenant requirements as currently provided in the FCA. |
STOCKHOLDERS EQUITY
STOCKHOLDERS EQUITY | 6 Months Ended |
Aug. 31, 2022 | |
STOCKHOLDERS EQUITY | |
STOCKHOLDERS' EQUITY | 10. STOCKHOLDERS’ 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 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 six months ended August 31, 2022 or August 31, 2021. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Aug. 31, 2022 | |
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 six months ended August 31, 2022 are not necessarily indicative of the results to be expected for the year ended February 28, 2023. 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, 2022. |
Use of estimates | The financial statements are prepared in accordance with GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company could have reasonably used different accounting estimates. This applies in particular to inventory and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The ultimate impact from COVID-19 on the Company’s operations and financial results during fiscal 2023 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, and the speed with which the economy recovers. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during fiscal 2023 and beyond. The Company believes COVID-19 had a negative impact on the Company’s bookings in fiscal 2022, which will negatively impact fiscal 2023 net sales. |
Cash and Cash Equivalents | Cash and cash equivalents include demand deposits and money market accounts. |
Short-term Investments | Short-term investments consist of certificates of deposit and U.S. Treasury securities. The U.S. Treasury securities are classified as held to maturity, mature in less than twelve |
Investment in Marketable Securities | Investment in Marketable 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 investments in marketable securities at: August 31, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 1,007,000 $ 123,000 $ (51,000 ) $ 1,079,000 February 28, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 668,000 $ 42,000 $ (26,000 ) $ 684,000 At August 31, 2022 and August 31, 2021, the deferred tax liability related to unrecognized gains and losses on marketable securities 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 Topic 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. August 31, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 1,079,000 $ - $ - $ 1,079,000 Limited Partnerships $ - $ - $ - $ - Total $ 1,079,000 $ - $ - $ 1,079,000 February 28, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 603,000 $ 69,000 $ - $ 672,000 Limited Partnerships $ 12,000 $ - $ - $ 12,000 Total $ 615,000 $ 69,000 $ - $ 684,000 The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued expenses and other liabilities approximate their fair value due to the relatively short period to maturity for these instruments. The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. |
Accounts Receivable | Accounts receivable 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 August 31, 2022 and February 28, 2022. |
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. Through February 28, 2022, the Company maintained a three-inch wafer fab which procured raw wafers and produced 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 in 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, while maintenance and repairs that do not extend their expected life are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the lives of the related assets: Building 39 years 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 August 31, 2022, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $462,000 at August 31, 2022, as compared to $3,448,000 at February 28, 2022. 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 Topic 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 common stock equivalents outstanding during fiscal 2022 and 2023; therefore, there is no effect from dilution on earnings per share. |
Revenue Recognition | The Company records revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers,” The core principle of the guidance in ASC 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. 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. Dwight Aubrey, a director of the Company, is a minority owner and an immediate family member of the majority owner of ES Components. For the six months ended August 31, 2022, the Company purchased $89,860 of die and $0 of used equipment from ES Components. For the six months ended August 31, 2021, the Company purchased $65,400 of die and $0 of used equipment from ES Components. The Company has included the expenses related to die in cost of goods sold in the accompanying statement of operations. The Company occasionally makes sales to ES Components. For the six months ended August 31, 2022 and August 31, 2021, 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 six months ended August 31, 2022 or August 31, 2021. |
Financial Statement Estimates | The preparation of financial statements in conformity with GAAP 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 variable consideration related to revenue recognition, stock-based compensation, depreciable life of property and equipment, accounts receivable allowance, deferred tax valuation allowance, and allowance for inventory obsolescence. |
Recent Accounting Pronouncements | The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Aug. 31, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Available-for-sale investments | August 31, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 1,007,000 $ 123,000 $ (51,000 ) $ 1,079,000 February 28, 2022 Gross Gross Marketable Securities: Cost Unrealized Gains Unrealized Losses Fair Value Common Stocks $ 668,000 $ 42,000 $ (26,000 ) $ 684,000 |
Result in management's best estimate of fair value | August 31, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 1,079,000 $ - $ - $ 1,079,000 Limited Partnerships $ - $ - $ - $ - Total $ 1,079,000 $ - $ - $ 1,079,000 February 28, 2022 Level 1 Level 2 Level 3 Total Common Stocks $ 603,000 $ 69,000 $ - $ 672,000 Limited Partnerships $ 12,000 $ - $ - $ 12,000 Total $ 615,000 $ 69,000 $ - $ 684,000 |
Property, Plant, Equipment, and Leasehold Improvements | Building 39 years Leasehold Improvements 10 years Machinery and Equipment 5 years |
REVENUE RECOGNITION (Tables)
REVENUE RECOGNITION (Tables) | 6 Months Ended |
Aug. 31, 2022 | |
REVENUE RECOGNITION | |
Sales returns and allowances accrual activity | August 31, 2022 August 31, 2021 Beginning Balance $ 471,000 $ 354,000 Accrued Allowances - 92,000 Credits Issued - - Ending Balance $ 471,000 $ 446,000 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 6 Months Ended |
Aug. 31, 2022 | |
INVENTORIES | |
Inventories | Gross Reserve Net Raw Materials $ 1,320,000 $ (485,000 ) $ 835,000 Work-In-Process 4,901,000 (3,613,000 ) 1,288,000 Finished Goods 593,000 (472,000 ) 121,000 Totals $ 6,814,000 $ (4,570,000 ) $ 2,244,000 Gross Reserve Net Raw Materials $ 1,504,000 $ (813,000 ) $ 691,000 Work-In-Process 5,410,000 (3,906,000 ) 1,504,000 Finished Goods 723,000 (658,000 ) 65,000 Totals $ 7,637,000 $ (5,377,000 ) $ 2,260,000 |
ACCRUED EXPENSES AND OTHER CU_2
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) | 6 Months Ended |
Aug. 31, 2022 | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | |
Accrued expenses and other current liabilities | August 31, 2022 February 28, 2022 Payroll and related employee benefits $ 294,000 $ 375,000 Legal fees 3,000 8,000 Property, sales, and franchise taxes 74,000 18,000 Return allowance 471,000 471,000 Other liabilities - 16,000 Totals $ 842,000 $ 888,000 |
DISAGGREGATION OF REVENUES AN_2
DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS (Tables) | 6 Months Ended |
Aug. 31, 2022 | |
DISAGGREGATION OF REVENUES AND MAJOR CUSTOMERS | |
Revenues from domestic and export sales to unaffiliated customers | Geographic Region August 31, 2022 August 31, 2021 Europe and Australia $ 224,000 $ - Canada and Latin America 2,000 5,000 Far East and Middle East - - United States 1,961,000 4,225,000 Totals $ 2,187,000 $ 4,230,000 Geographic Region August 31, 2022 August 31, 2021 Europe and Australia $ 459,000 $ - Canada and Latin America 19,000 20,000 Far East and Middle East - - United States 3,845,000 7,820,000 Totals $ 4,323,000 $ 7,840,000 |
Revenues by customers | Customer August 31, 2022 Customer August 31, 2021 1. Raytheon 34 % 1. Raytheon 50 % 2. Nasco Aerospace 12 % 2. L3Harris 24 % 3. Intracom Defense Electronics 10 % 4. L3Harris 10 % Totals 66 % Totals 74 % Customer August 31, 2022 Customer August 31, 2021 1. Raytheon 41 % 1. Raytheon 51 % 2. Intracom Defense Electronics 11 % 2. L3Harris 15 % 3. Avnet / USI Electronics 12 % Totals 52 % Totals 78 % |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Aug. 31, 2022 | Feb. 28, 2022 | |
Marketable Securities | ||
Cost | $ 1,007,000 | $ 668,000 |
Gross unrealized gains | 123,000 | 42,000 |
Gross unrealized losses | (51,000) | (26,000) |
Fair value | $ 1,079,000 | $ 684,000 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | Aug. 31, 2022 | Feb. 28, 2022 |
Marketable Securities | $ 1,079,000 | $ 684,000 |
Common Stocks [Member] | ||
Marketable Securities | 1,079,000 | 672,000 |
Limited Partnerships [Member] | ||
Marketable Securities | 0 | 12,000 |
Level 2 [Member] | ||
Marketable Securities | 0 | 69,000 |
Level 2 [Member] | Common Stocks [Member] | ||
Marketable Securities | 0 | 69,000 |
Level 2 [Member] | Limited Partnerships [Member] | ||
Marketable Securities | 0 | |
Level 3 [Member] | ||
Marketable Securities | 0 | |
Level 3 [Member] | Common Stocks [Member] | ||
Marketable Securities | 0 | |
Level 3 [Member] | Limited Partnerships [Member] | ||
Marketable Securities | 0 | |
Level 1 [Member] | ||
Marketable Securities | 1,079,000 | 615,000 |
Level 1 [Member] | Common Stocks [Member] | ||
Marketable Securities | 1,079,000 | 603,000 |
Level 1 [Member] | Limited Partnerships [Member] | ||
Marketable Securities | $ 0 | $ 12,000 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) | 6 Months Ended |
Aug. 31, 2022 | |
Building Member | |
Estimated useful lives | 39 years |
Leasehold Improvements | |
Estimated useful lives | 10 years |
Machinery and Equipment | |
Estimated useful lives | 5 years |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 6 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Feb. 28, 2022 | |
Allowance amount on receivables | $ 0 | $ 0 | |
Fair value of short term investment | 2,495,000 | ||
Deferred tax liability related to unrecognized gains and losses on short-term investments | 0 | $ 0 | |
FDIC insured limit | 250,000 | ||
Deposits in excess of FDIC insured limits | 462,000 | $ 3,448,000 | |
ES Components | |||
Related party purchases | 89,860 | 65,400 | |
Used equipment from related party | 0 | 0 | |
Related party sales | $ 0 | $ 0 |
REVENUE RECOGNITION (Details)
REVENUE RECOGNITION (Details) - USD ($) | Aug. 31, 2022 | Aug. 31, 2021 |
REVENUE RECOGNITION | ||
Beginning balance | $ 471,000 | $ 354,000 |
Accrued Allowances | 0 | 92,000 |
Credits Issued | 0 | 0 |
Ending Balance | $ 471,000 | $ 446,000 |
REVENUE RECOGNITION (Details Na
REVENUE RECOGNITION (Details Narrative) - USD ($) | Aug. 31, 2022 | Feb. 28, 2022 |
Inventory | $ 6,814,000,000 | $ 7,637,000,000 |
Distributor | ||
Inventory | $ 1,997,000 | $ 2,178,000 |
INVENTORIES (Details)
INVENTORIES (Details) - USD ($) | Aug. 31, 2022 | Feb. 28, 2022 |
Inventory, Gross, Total | $ 6,814,000,000 | $ 7,637,000,000 |
Inventory, Reserve | (4,570,000) | (5,377,000) |
Inventory, Net | 2,244,000 | 2,260,000 |
Inventory, Net | 2,244,000 | 2,260,000 |
Inventories, Raw Material Member | ||
Inventory, Gross, Total | 1,320,000 | 1,504,000 |
Inventory, Reserve | (485,000) | (813,000) |
Inventory, Net | 835,000 | 691,000 |
Inventories, Work In Process Member | ||
Inventory, Gross, Total | 4,901,000 | 5,410,000 |
Inventory, Reserve | (3,613,000) | (3,906,000) |
Inventory, Net | 1,288,000 | 1,504,000 |
Inventories, Finished Goods Member | ||
Inventory, Gross, Total | 593,000 | 723,000 |
Inventory, Reserve | (472,000) | (658,000) |
Inventory, Net | $ 121,000 | $ 65,000 |
INVENTORIES (Details Narratives
INVENTORIES (Details Narratives) - USD ($) | 6 Months Ended | |
Aug. 31, 2022 | Feb. 28, 2022 | |
INVENTORIES | ||
Wafer Inventory, Reserve | $ 823,000 | $ 965,000 |
Inventory consisted | 100% of the wafer bank inventory consisted of wafers manufactured between calendar year 2018 and 2022 |
ACCRUED EXPENSES AND OTHER CU_3
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) | Aug. 31, 2022 | Feb. 28, 2022 |
Accrued expenses and other liabilities | ||
Payroll and related employee benefits | $ 294,000 | $ 375,000 |
Legal fees | 3,000 | 8,000 |
Property, sales and franchise taxes | 74,000 | 18,000 |
Return Allowance | 471,000 | 471,000 |
Other Liabilities | 0 | 16,000 |
Totals | $ 842,000 | $ 888,000 |
DISAGGREGATION OF REVENUE AND M
DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2022 | Aug. 31, 2021 | |
Revenues, Total | $ 2,187,000 | $ 4,230,000 | $ 4,323,000 | $ 7,840,000 |
Revenues | 2,187,000 | 4,230,000 | 4,323,000 | 7,840,000 |
Europe and Australia | ||||
Revenues | 224,000 | 0 | 459,000 | 0 |
Canada and Latin America | ||||
Revenues | 2,000 | 5,000 | 19,000 | 20,000 |
Far East and Middle East | ||||
Revenues | 0 | 0 | 0 | 0 |
United States [Member] | ||||
Revenues | $ 1,961,000 | $ 4,225,000 | $ 3,845,000 | $ 7,820,000 |
DISAGGREGATION OF REVENUE AND_2
DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details 1) | 3 Months Ended | 6 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2022 | Aug. 31, 2021 | |
Sales from major customers | 66% | 74% | 52% | 78% |
Avnet USI Electronics | ||||
Sales from major customers | 12% | |||
Raytheon | ||||
Sales from major customers | 34% | 50% | 41% | 51% |
Nasco Aerospace | ||||
Sales from major customers | 12% | |||
Intracom Defense Electronics | ||||
Sales from major customers | 10% | 11% | ||
L3Harris | ||||
Sales from major customers | 10% | 24% | 15% |
DISAGGREGATION OF REVENUE AND_3
DISAGGREGATION OF REVENUE AND MAJOR CUSTOMERS (Details Narrativel) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2022 | Aug. 31, 2021 | Feb. 28, 2022 | |
Sales from major customers | 66% | 74% | 52% | 78% | |
Accounts Receivable | |||||
Sales from major customers | 67% | 77% | |||
United States Government | Net Sales | |||||
Sales from major customers | 81% | 89% | 80% | 87% | |
Other | Net Sales | |||||
Sales from major customers | 19% | 11% | 20% | 13% |
MAJOR SUPPLIERS (Details Narrat
MAJOR SUPPLIERS (Details Narrative) | 3 Months Ended | 6 Months Ended | ||
Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2022 | Aug. 31, 2021 | |
Wuxi Streamtek | ||||
Purchases from major suppliers | 13% | 26% | 15% | 18% |
Platronics Seals | ||||
Purchases from major suppliers | 18% | 16% | 14% | 17% |
Other | ||||
Purchases from major suppliers | 10% | 10% | 10% | 10% |
Stellar Industries | ||||
Purchases from major suppliers | 14% | 16% | 14% | |
ES Component | ||||
Purchases from major suppliers0E | 19% | 13% | ||
Egide USA | ||||
Purchases from major suppliers | 10% |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 6 Months Ended | |
Aug. 31, 2022 | Feb. 28, 2022 | |
Asset | $ 8,000 | $ 12,000 |
Lease rental expense, per month | $ 31,555 | |
Description of extended current lease with its landlord, CF EB REO II LLC | On October 1, 2014, the Company extended its current lease with its landlord, CF EB REO II LLC, for the occupancy and use of its 47,000 square foot facility located at 3301 Electronics Way, West Palm Beach, Florida 33407 (the “Lease”) | |
Computer Equipment [Member] | ||
Finance lease | $ 27,000 | |
Lease term | 36 years |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) - USD ($) | 1 Months Ended | 6 Months Ended | |
Apr. 16, 2021 | Jul. 21, 2020 | Aug. 31, 2022 | |
Business Acquisition | Commercial Contract | |||
Description | 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 (the “Loan”) 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 | ||
Purchace price | $ 4,200,000 | ||
Interest rate | 3.80% | ||
Maturity | April 15, 2031 | ||
Paycheck Protection Program (PPP Loan) | |||
Interest rate | 1% | ||
Maturity | July 21, 2025 | ||
Loan proceeds | $ 807,415 | ||
Financial Covenant Agreement | |||
Agreement description | under the terms of the FCA, the Company has agreed to maintain a fixed charge coverage ratio of at least 1.15:1.0, calculated at the end of each fiscal year, using the results of the twelve-month period ending with that reporting period, and has agreed to maintain on a consolidated basis a minimum of no less than $1,000,000 |
STOCKHOLDERS EQUITY (Details Na
STOCKHOLDERS EQUITY (Details Narrative) $ in Millions | Aug. 31, 2022 USD ($) |
Director [Member] | Stock Repurchase Program | |
Outstanding common stock | $ 1 |