SODI 10-K & 10-Q changes, risk factors and insider trading

During the fiscal year ended February 28, 2026, two customers accounted for approximately 60% of revenue. During the fiscal year ended February 28, 2025, two customers accounted for approximately 69% of revenue. During the fiscal year ended February 29, 2024, four customers accounted for approximately 75% of revenue. The loss or financial failure of any significant customer or distributor, any reduction in orders by any of our significant customers or distributors, or the cancellation of a significant order could materially and adversely affect our business. Furthermore, due to continued industry consolidation, the loss of any one customer or significant order may occur with greater frequency and/or have a greater impact than we anticipate. We cannot guarantee that we will be able to retain long-term relationships or secure renewals of short-term relationships with our more substantial customers in the future.

We rely on several suppliers for the purchase of materials used in the manufacture and production of our goods, including various foreign suppliers in multiple foreign jurisdictions. In fiscal year 2025,2026, approximately 50%31% of our materials were purchased from foreign suppliers, including 39%1% from Malaysia and 5%30% from China. President Trump has proposedTrump's steep and additional tariffs on the importation of goods from a number of countries from which we purchase materials, including the raw materials we currently use for the manufacture of our products, including, but not limited to, Malaysia and China. This increase in tariffs imposed could materially and adversely affect our business and our results of operations. While we have alternative suppliers outside Malaysia and China, the Trump administration has imposed or threatened additional tariffs on substantially all foreign jurisdictions, which are potential alternative providers of raw materials to our company. Since the beginning of 2018 during Trump’s first administration, there has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding the possibility of instituting tariffs on the foreign imports of certain materials and products. During this trend, the U.S. and China imposed tariffs or announced proposed tariffs to be applied in the future to certain of each other’s exports. Beginning in 2019, the first Trump administration imposed tariffs on imports of electronics products of up to 25% and recently an additional 10% tariff to all products. Trump’s second administration has significantly increased its focus on tariffs. In March 2025, additional tariffs have beenwere instituted on Chinese and all other foreign products and materialsmaterials. andWhile on February 20, 2026, the US Supreme Court ruled that most tariffs imposed by the Trump Administration were unlawful, we could see potential additional tariffs in the future. Under the current Trump administration, the imposition of additional tariffs fluctuates dramatically and have created uncertainty in global markets. These tariffs apply to a substantial percentage of our respective materials and, as a result, in the future, we may be forced to implement additional price increases to adjust to the higher costs of production and sale of our products, which imposes the risk of reduced demand for such products, thus lowering sales and the resulting revenue. Additionally, future tariffs, or any further costs or restrictions imposed on materials that we import, which lead to an increase in our prices, may result in the loss of customers and harm our business.

We do not have an annual dividend policy in place. We have not declared and paid a cash dividend since June 29, 2015. Our Board of Directors has authorized a repurchase program under which the Company may repurchase up to $2,000,000 of the Company's common stock. The Company repurchased 3,850 shares of common stock in fiscal 2026 and did not repurchase any shares of common stock in fiscal 2025 or fiscal 2024.2025. Any determination to pay cash dividends or repurchase shares of the Company’s common stock in the future is contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our Board of Directors' determination that such dividends or stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements. Accordingly, there is no assurance that we will pay cash dividends or repurchase stock pursuant to our stock repurchase program, or that any declaration of cash dividends or stock repurchases under our stock repurchase program will have a beneficial impact on our stock price.

Cost of Sales. Cost of sales for the fiscal year ended February 28, 2025,2026, increased to $10,057,000$11,851,000 from $8,950,000$10,057,000 for the fiscal year ended February 29,28, 2024.2025. ExpressedHowever, expressed as a percentage of sales, cost of sales increaseddecreased to 70% for the fiscal year ended February 28, 2026, as compared to 72% for the fiscal year ended February 28, 2025, as compared to 70% for the fiscal year ended February 29, 2024. Included in cost of sales in fiscal 2024 was $718,000 of non-cash cost due to the fair value adjustment of inventory as required in the MEI acquisition. The increase is primarily due to the acquisition of MEI.2025.

Gross Profit. Gross profit for the fiscal year ended February 28, 2025,2026, increased to $3,992,000$5,119,000 from $3,807,000$3,992,000 for the fiscal year ended February 29,28, 2024,2025, due primarily to increased net sales and the acquisition of MEI.sales. Expressed as a percentage of sales, actual gross profit for the fiscal year ended February 28, 2025,2026, decreasedincreased to 28%30% as compared to 30%28% for the fiscal year ended February 29,28, 2024.2025.

Total Other Income. Interest income and dividend income were $163,000 and $97,000, respectively for the fiscal year ended February 28, 2026, compared to $6,000 and $70,000, respectively for the fiscal year ended February 28, 2025,2025. comparedThe toincrease $29,000in andinterest $29,000,income respectivelywas a result of the Company's long-term investment, which was acquired in the 2026 fiscal year. Interest expense was ($263,000) for the fiscal year ended February 29,28, 2024.2026, Interestcompared expense wasto ($272,000) for the fiscal year ended February 28, 2025, compared to ($177,000) for the fiscal year ended February 29, 2024. The increase in interest expense was primarily due to the purchase of MEI's property and building, which occurred in May 2024.2025. Realized gains (losses) on investments for the fiscal year ended February 28, 2025,2026, was $127,000$285,000 compared to $332,000$127,000 for the fiscal year ended February 29,28, 2024.2025. The change in unrealized gains (loss) on investments for the fiscal year ended February 28, 2025,2026, was $64,000 compared to a loss of ($579,000$465,000) compared to a gain of $64,000 for the fiscal year ended February 29,28, 2024.2025. BargainOther purchaseincome gain(expense) onwas $7,000 in the acquisitionfiscal ofyear MEIended wasFebruary 28, 2026, as compared to $0 in the fiscal year ended February 28, 2025,2025. versusContingent $2,236,000consideration in the fiscal year ended February 29, 2024. Other income (expense) was $0$346,000 infor the fiscal year ended February 28, 2025, as2026, compared to ($27,000)$0 infor the fiscal year ended February 29,28, 2024.2025. This adjustment to the contingent consideration was due to the increase in MEI's backlog for the fiscal year ended February 28, 2026.

Income Taxes. Income taxes for the fiscal year ended February 28, 2025,2026, were ($178,000$289,000) as compared to a benefit of $3,024,000($178,000) for the fiscal year ended February 29,28, 2024.2025. The increase in tax benefit for fiscal year 2024expense was due to thehigher releaseoperating ofincome during the Company’s deferred tax valuation.year.

Net Income. Net income for the fiscal year ended February 28, 2025,2026, was $815,000$807,000 as compared to net income of $5,801,000$815,000 for the fiscal year ended February 29,28, 2024.2025. The decrease in net income was mainly attributable to the bargainadjustment purchase gain and release ofto the Company'scontingent deferredconsideration tax valuation recorded in fiscal year 2024 as part offor the MEI acquisitionacquisition, as noted above.

Net cash used in investing activities was ($1,750,000$2,135,000) for the year ended February 28, 2025,2026, primarily reflecting ($1,838,000)$1,650,000 for the purchase of a long-term investment, $895,000 of cash paid for earn out payment, contingent consideration, $327,000 in purchases of property and equipment,equipment and ($651,000)$682,000 in purchases of marketable securities, partially offset by $827,000$1,419,000 from proceeds from the sale of marketable securities.

Net cash used in investing activities was ($1,037,000$1,750,000) for the year ended February 29,28, 2024,2025, primarily reflecting ($2,425,000) in cash paid for acquisition, ($355,000)$1,838,000 in purchases of property and equipment, and ($139,000)$651,000 in purchases of marketable securities, partially offset by $1,000,000 in maturities of short-term investments and $882,000$827,000 from proceeds from the sale of marketable securities.

Net cash provided by financing activities was $1,234,000$600,000 for the year ended February 28, 2025,2026, primarily reflecting $1,400,000$815,000 in proceeds from theissuance MEIof mortgage loan,stock, partially offset by ($131,000)$152,000 in principal payments on mortgage loans.

Net cash provided by financing activities was $1,234,000 for the year ended February 28, 2025, primarily reflecting $1,400,000 in proceeds from the MEI mortgage loan, partially offset by $131,000 in principal payments on mortgage loans We expect our sole source of liquidity over the next twelve months to be cash from operations and cash and cash equivalents, if necessary. We anticipate that our capital expenditures required during the next twelve months to sustain operations will be approximately $0.3 million and will be funded from operations and cash and cash equivalents, if necessary.

At February 28, 20252026 and February 29,28, 2024,2025, the Company had cash and cash equivalents of approximately $4,099,000$3,914,000 and $2,217,000,$4,099,000, respectively. The cash increasedecrease for the year ended February 28, 2025,2026, was primarily due to cash used in investing activities to purchase the long-term investment offset by proceeds from operatingthe activities.sale of marketable securities.

At February 28, 2025,2026, the Company had working capital of $8,594,000$9,025,000 as compared with working capital at February 29,28, 20242025 of $6,227,000.$8,594,000. The increase for the year ended February 28, 2025,2026, was due primarily to increased revenue during the acquisition2026 offiscal MEI.year.

PROPOSED TARIFFS

The Company relies on various foreign suppliers for raw materials used in the manufacture and production of our products. If the proposed increasedIncreased tariffs areimplemented implemented,during this2025 may havehad a significant impact on the cost of the materials the Company purchasespurchased and therefore our expenses and revenues. Based on the uncertainty of tariffs in the future, the Company expects it will continue to experience higher material costs going forward.

Results of Operations-Three Months Ended NovemberMay 30,31, 2025,2026, Compared to Three Months Ended NovemberMay 30,31, 20242025:

Net Sales. Net sales for the three months ended NovemberMay 30,31, 2025,2026, increased 49%101% to $5,022,000$5,436,000 as compared to $3,369,000$2,700,000 for the three months ended NovemberMay 30,31, 2024.2025. The increase in net sales was largely due to increased backlog in fiscal year 2026 as compared to fiscal year 2025 and the associated delivery dates of those orders.

Net bookings for the three months ended NovemberMay 30,31, 2025,2026, increaseddecreased 73%48% to $13,907,000$1,454,000 versus $8,049,000$2,797,000 during the three months ended NovemberMay 30,31, 20242025 primarily due to an increase in price and volume on the AMRAAM order from our largest customer, and to a lesser extent the variable timing on the receipt of orders. Backlog as of NovemberMay 30,31, 2025,2026, increased 124%28% to $27,482,000$23,341,000 as compared to a backlog of $12,277,000$18,256,000 as of NovemberMay 30,31, 2024.2025. The large order MEI received, which increased the contingent consideration liability, was received after the end of the quarter and is not included in the backlog numbers shown above.

GrossCost Profit.of GrossSales. profitCost of sales for the three months ended NovemberMay 30,31, 2025,2026, increased to $1,723,000$2,971,000 from $1,001,000$2,310,000 for the three months ended NovemberMay 30,31, 2024.2025. ExpressedHowever, expressed as a percentage of net sales, grosscost profitof increasedsales decreased to 34%55% for the three months ended NovemberMay 30,31, 2025,2026, compared to 30%86% for the three months ended NovemberMay 30,31, 2024.2025.

Gross Profit. Gross profit for the ninethree months ended NovemberMay 30,31, 2025,2026, decreasedincreased to $2,948,000$2,465,000 from $3,414,000$390,000 for the ninethree months ended NovemberMay 30,31, 2024.2025. Expressed as a percentage of net sales, gross profit decreasedincreased to 25%45% for the ninethree months ended NovemberMay 30,31, 2025, as2026, compared to 31%14% for the ninethree months ended NovemberMay 30,31, 2024.2025. This wasincrease is due to the overall higher costrevenue ofduring materialsthe and increased tariffs, as mentioned above.quarter.

For the ninethree months ended NovemberMay 30,31, 2025,2026, we shipped 59,06923,968 units as compared to 52,57215,035 units shipped during the same period of the prior year. It should be noted that since we manufacture a wide variety of products with an average sales price ranging from a few dollars to several hundred dollars, such periodic variations in our volume of units shipped should not be regarded as a reliable indicator of our performance.

Selling, General & Administrative Expenses. Selling, general, and administrative expenses increased to $2,688,000$930,000 for the ninethree months ended NovemberMay 30,31, 20252026 from $2,246,000$768,000 for the samethree periodmonths inended theMay prior31, year.2025. Expressed as a percentage of net sales, selling, general and administrative expenses during the ninethree months ended NovemberMay 30,31, 2025,2026, was 23%17% as compared to 21%28% for the ninethree months ended NovemberMay 30,31, 2024.2025. TheThis Companyincrease experiencedis due to higher administration expenses during fiscal year 2026 as noted above including $344,000 of stock compensation expense, and increasedcorporate salaries and salesrelated expenses.

Operating Income.Income (Loss). The operating income for the ninethree months ended NovemberMay 30,31, 2025,2026, was $260,000$1,535,000 as compared to operating incomeloss of $1,168,000($378,000) for the ninethree months ended NovemberMay 30,31, 2024.2025. This decreaseincrease inis income wasis due to weakthe firstoverall andhigher secondrevenue quarters in fiscal 2026 asduring the Company ramped up production.quarter.

Other Income (Loss). Interest income increased to $96,000$82,000 for the ninethree months ended NovemberMay 30,31, 2025,2026, as compared to $6,000$0 for the ninethree months ended NovemberMay 30,31, 2024,2025. This increase was due to interest received on the Company's long-term investment.investment in addition to interest received on a tax refund. Interest expense increaseddecreased to ($205,000$62,000) for the ninethree months ended NovemberMay 30,31, 2025,2026, as compared to ($194,000$74,000) for the ninethree months ended NovemberMay 30, 2024, due to the timing of the MEI property acquisition during fiscal year31, 2025. Dividend income increaseddecreased to $78,000$25,000 for the ninethree months ended NovemberMay 30,31, 2025,2026, as compared to $34,000$41,000 for the ninethree months ended NovemberMay 30,31, 2024.2025. Realized gains on investments for the ninethree months ended NovemberMay 30,31, 2025,2026, increaseddecreased to $314,000$0, due to the Company liquidating its marketable securities, as compared to $46,000$81,000 for the ninethree months ended NovemberMay 30,31, 2024.2025. Unrealized gains (losses) on investments for the ninethree months ended NovemberMay 30,31, 2025,2026, were ($433,000$2,000) due to market price changes in the company’s common stock investments as compared to a gain of $126,000($127,000) for the ninethree months ended NovemberMay 30,31, 2024.2025. MiscellaneousContingent incomeconsideration expense was ($331,000) for the ninethree months ended NovemberMay 30,31, 2025 was $7,0002026, as compared to $0 for the ninethree months ended NovemberMay 30,31, 2024.2025. This adjustment to the contingent consideration was due to the increase in MEI's backlog for a large order received after the end of the quarter, which increased the earn out payment on the MEI acquisition. Scrap income was $100,000 for the three months ended May 31, 2026, as compared to $0 for the three months ended May 31, 2025.

Income Taxes.(Taxes) Benefit. Income taxes for the ninethree months ended NovemberMay 30,31, 2025,2026, wasincreased an expense ofto ($34,000$357,000) as compared to an expense of ($314,000)$121,000 for the ninethree months ended NovemberMay 30,31, 2024.2025. This change in income tax is due to the company's losseshigher duringincome in the firstcurrent twoquarter quartersended ofMay fiscal31, 2026 compared to the netthree incomemonths recordedended forMay during fiscal31, 2025.

Net Income.Income (Loss). Net income for the ninethree months ended NovemberMay 30,31, 2025,2026, was $83,000$990,000 as compared to net incomeloss of $872,000($336,000) for the ninethree months ended NovemberMay 30,31, 2024.2025.

Net cash provided by operating activities was $625,000$2,171,000 for the ninethree months ended NovemberMay 30,31, 2025,2026, primarily reflecting net income of $83,000, an increase in accounts payable of $486,000,$990,000, depreciation of $431,000, stock compensation of $344,000, an increased in accrued expense of $166,000,$154,000, amortization of intangibles of $158,000,$52,000, a decrease in net deferred taxes of $357,000, a decrease in accounts receivable of $366,000, an increase in contingent consideration of $331,000 and a decrease in other non-current assets of $131,000,$284,000, partially offset by an increase in accounts receivableinventories of $1,058,000$435,000 and an increase in inventoriesprepaid expenses and other current assets of $200,000.$181,000.

Net cash provided by operating activities was $2,060,000$391,000 for the ninethree months ended NovemberMay 30,31, 2024,2025, primarily reflecting a net incomeloss of $872,000,$336,000, a decrease in accounts receivable of $1,033,000,$379,000, an increase in accounts payable of $293,000, depreciation of $420,000,$141,000, aan changeincrease in other non-current assets of $127,000 and an increase in net deferred taxes of $248,000, and amortization of intangibles of $157,000$121,000, partially offset by decreasedan customerincrease depositsin inventories of $475,000 and a decrease in accrued expenses of $236,000.$151,000.

Net cash used in investing activities was ($1,821,000$114,000) for the ninethree months ended NovemberMay 30,31, 2024,2026, principally reflecting $1,788,000$114,000 in purchases of property and equipment, $592,000 in purchases of marketable securities, and $88,000 of cash paid for acquisition, contingent consideration, partially offset by proceeds from the sale of marketable securities of $647,000.equipment.

Net cash provided by financing activities was $1,271,000$65,000 for the ninethree months ended NovemberMay 30,31, 2024,2026, principally reflecting $1,400,000$107,000 in proceedssales fromof mortgagethe loan,Company's stock, partially offset by $94,000$42,000 in principal payments on the mortgage loans.

We expect our sole sources of liquidity over the next twelve months to be cash from operations and cash and cash equivalents, if necessary. We anticipate that our capital expenditures required to sustain operations will be approximately $250,000 during the next twelve months and that our cash from operations and cash and cash equivalents, if necessary, will be sufficient to fund these needs for the next twelve months. Available cash and cash equivalents as of DecemberJune 31,30, 20252026 was approximately $3.4$6.1 million.

At NovemberMay 30,31, 20252026 and February 28, 2025,2026, we had cash and cash equivalents of approximately $3,602,000$6,036,000 and $4,099,000,$3,914,000, respectively. The decreaseincrease for the ninethree months ended NovemberMay 30,31, 2025,2026, was primarily due to the cash usedprovided inby investingincreased activitiessales toover purchasethe alast long-termfew investment.quarters..

At NovemberMay 30,31, 20252026 and February 28, 2025,2026, we had investments in securities of approximately $311,000$0 and $919,000,$2,000, respectively. This is due to the Company selling its marketable securities.

At NovemberMay 30,31, 20252026 and February 28, 2025,2026, we had working capital of $7,906,000$10,812,000 and $8,594,000,$9,025,000, respectively. The decreaseincrease for the ninethree months ended NovemberMay 30,31, 20252026 was due primarily to the cash usedprovided inby investingincreased activitiessales to purchaseover the long-termlast investmentfew and cash paid for acquisition, contingent consideration.quarters.

Based on various factors, including the Company’s desire to fully utilize its current net operating loss carryforwards, the Company may seek out acquisitions, additional product lines, and/or invest a portion of its cash into common stocks or higher yielding debt instruments.