The consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements include the accounts of the Company and wholly owned subsidiary, Micro Engineering Inc. Significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these consolidated 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.

Cash and cash equivalents include demand deposits and money market accounts. The Company considers any short-term, highly liquid investments with maturities of three months or less as cash and cash equivalents.

Investment in Marketable Securities includes investments in equity securities. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the consolidated statements of operations.

As of February 28, 2026, one security accounted for $2,000 of the $2,000 balance in marketable securities, and ($79,000) of the ($79,000) in unrealized losses. As of February 28, 2025, one security accounted for $628,000 of the $919,000 balance in marketable securities, and $376,000 of the $402,000 in unrealized gains.

At February 28, 2026 and February 28, 2025, the deferred tax liability related to unrecognized gains and losses on marketable securities was ($19,000) and $94,000, respectively (see Note 9).

Investment in Non-Current Securities consist of investments in equity securities, which are without a readily determinable fair value, and are expected to be held for longer than one year. As there is no readily determinable fair value, the Company has elected to use the measurement alternative methodology. Using this approach, investments in non-current equity securities are initially valued at cost. Fair value adjustments are made based on observable price changes for identical or similar investments of the same issuer as of the date the observable transaction took place (measurement date). Qualitative assessments are completed each reporting period to determine if the fair value of the investment is less than the carrying value, and an adjustment to the carrying value will be recorded if the investment is impaired. Changes in fair value or impairments (unrecognized gains or losses) are included in other income on the consolidated statements of operations. For the fiscal year ended February 28, 2026, the Company received $154,000 in interest income based on the timing of the long-term investment purchase, as compared to $0 for the fiscal year ended February 28, 2025.

The following table summarizes the Company’s non-current securities, which consists of membership interest in an investment fund:

Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or liability) used to measure fair value. This hierarchy prioritizes the inputs into the following three levels:

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that results in management’s best estimate of fair value.

The table below shows the Company’s marketable securities and contingent consideration as of February 28, 2026 and 2025.

The table below shows the Company's fair value rollforward of the contingent consideration recorded as a liability for the MEI acquisition completed during the fiscal years ended February 28, 2026 and 2025. Additional information regarding the contingent consideration accrual is available under Note 3 Acquisition of Micro Engineering, Inc.

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.

The Company maintains an allowance for expected credit losses on accounts receivable in accordance with ASC 326, Financial Instruments - Credit Losses. The Company’s accounts receivable are short-term in nature and arise from contracts with prime contractor customers supporting U.S. federal government agencies and government programs. The Company’s portfolio segment has remained consistent since the Company’s inception. The Company evaluates expected credit losses on a pooled basis due to similar risk characteristics among its customers. In developing its estimate of expected credit losses, the Company considers historical loss experience, current conditions, and relevant qualitative factors.

Effective in the current year, the Company elected to apply the practical expedient under ASU 2025‑05, which allows the Company to assume that current conditions as of the balance sheet date will persist over the remaining life of its current accounts receivable. Accordingly, the Company did not incorporate forward-looking macroeconomic forecasts into its estimate of expected credit losses. Given the Company’s customer base, along with a history of minimal credit losses and strong collection experience, the estimated expected credit loss was determined to be immaterial to the financial statements. As of February 28, 2026 and 2025, the Company's allowance for credit losses was $0. The Company has not experienced significant write-offs historically and does not expect future credit losses to be material.

The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in income (or an offset to credit loss expense) in the year of recovery, in accordance with the Company’s accounting policy election. The total amount of write-offs for the years ended February 28, 2026 and 2025 was $0 for both years.

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 are stated at the lower of cost and net realizable value. Cost is determined using the “first-in, first-out” (FIFO) method. The Company buys raw material only to fill customer orders. Excess raw material is created only when a vendor imposes a minimum quantity buy in excess of actual requirements. Such excess material will usually be utilized to meet the requirements of the customer’s subsequent orders. If excess material is not utilized after two fiscal years, it is fully reserved. Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities.

The Company 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.

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:

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 February 28, 2026, and February 28, 2025, all non-interest bearing checking accounts were FDIC insured to a limit of $250,000. Deposits in excess of FDIC insured limits were approximately $981,000 at February 28, 2026 and $775,000 at February 28, 2025. 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. As of the fiscal year ended February 28, 2026, account receivables balances consisted of the following: ConMed Linvatec 26%, L3 Harris Technologies 26%, RTX Corporation 16% and Intracom Defense Electronics 12%. No other customer accounted for 10% or more of accounts receivable. As of the fiscal year ended February 28, 2025, account receivables balances consisted of the following: ConMed Linvatec 61% and RTX Corporation 10%. No other customer accounted for 10% or more of accounts receivable.

The Company records revenue in accordance with ASC 606, Revenues from Contracts with Customers (Topic 606) which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. Revenue is recognized at a point in time, generally upon shipment of products to customers.

The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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.

The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.

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 generally occurs upon shipment. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each order upon shipment and recognizes revenues at the fixed price for each distinct product sold 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 and 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.

The Company currently purchases and has purchased in the past die and wafers, as specified by the Company's customers, from ES Components. Mr. Aubrey, a director of the Company, is a minority owner, and an immediate family member of Mr. Aubrey is the majority owner of ES Components. For the fiscal year ended February 28, 2026, the Company purchased $164,000 of die and $0 of used equipment from ES Components. For the fiscal year ended February 28, 2025, the Company purchased $106,000 of die and $0 of used equipment from ES Components. The Company has included these expenses in cost of goods sold in the accompanying consolidated statements of operations. The Company occasionally makes sales to ES Components. For both the fiscal years ended February 28, 2026, and February 28, 2025, sales were $0.

Income taxes are accounted for under the asset and liability method of ASC 740-10, “Income Taxes”. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of a valuation allowance.

The Company accounts for the uncertainty in income taxes in accordance with ASC 740-10 and evaluates its tax positions utilizing a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination based on the technical merits of the position. The second step is to measure the benefit to be recorded from tax positions that meet the more-likely-than-not recognition threshold by determining the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement and recognizing that amount in the financial statements.

Net income/loss per common share is presented in accordance with ASC 260-10 “Earnings per Share.” Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options, or stock purchase rights, to the extent they are not anti-dilutive using the treasury stock method. The Company had no potentially dilutive securities outstanding during the fiscal years ended February 28, 2026 and 2025, respectively.

Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review. In accordance with ASC Subtopic 360-10, “Property, Plant and Equipment – Overall,” impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value. No impairment losses were incurred during the fiscal years ended February 28, 2026, or February 28, 2025.

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. See Note 10. Stock Options for the stock options and grants which were awarded and vested during the fiscal year ended February 28, 2026 under the Company’s 2019 Stock Incentive Plan. There were no stock options and grants awarded and vested during the fiscal year ended February 28, 2025 under the Company’s 2019 Stock Incentive Plan.

The Company capitalizes all leased assets pursuant to ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

Operating segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, Segment Reporting, the Company has concluded it operates as one business segment. We currently produce one line of products and manage our business accordingly. Additionally, our CODM (President and Chief Operating Officer, Mark Matson) uses reports on bookings, backlogs and orders along with consolidated financial information to evaluate our performance, which is the same basis on which he communicates our results and performance to our Board of Directors. The CODM bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operated as one operating and reportable segment.

In July 2025, the FASB issued ASU 2025‑05, which amends ASC 326 to simplify the estimation of expected credit losses for current accounts receivable and contract assets arising from revenue transactions. The standard introduces a practical expedient allowing entities to assume that current economic conditions remain unchanged over the remaining life of such assets. The Company adopted this standard as of March 1, 2025. Upon adoption, the Company elected the practical expedient for all qualifying receivables within the scope of the guidance. Accordingly, the Company’s estimate of expected credit losses for these assets is based on historical loss experience and current conditions and does not include forward-looking forecast adjustments. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, that requires entities to disclose additional information in the notes to the financial statements about prescribed categories underlying any relevant income statement expense caption. The new standard is effective for annual reporting periods beginning after December 15, 2026 (fiscal year 2028 for the Company) and interim periods within annual reporting periods beginning after December 15, 2027.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in a public business entity’s income tax rate reconciliation table and other disclosures regarding cash taxes paid both in the U.S. and to foreign taxing jurisdictions. This ASU is effective for annual periods beginning after December 15, 2024 and was adopted by the Company for the fiscal year ended February 28, 2026.

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 consolidated financial statements.