UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q


(Mark
one)





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


For the
quarterly period ended May 31, 2010





or


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


For the
transition period from _______ to _______





Commission
File No.  1-4978





SOLITRON DEVICES,
INC.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
                    
                    22-1684144(State
      or Other Jurisdiction of
                    
                    (I.R.S.
      EmployerIncorporation
      or Organization)
                    
                    Identification
      No.)





3301 Electronics Way, West Palm Beach,
      Florida
                    33407(Address
      of Principal Executive Offices)
                    (Zip
      Code)





(561)
848-4311


(Registrant’s
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No   ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
   Yes   ̈    No   ̈




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




Large
      accelerated filer   ̈
                Accelerated
      filer   ̈Non-accelerated
      filer     ̈
                Smaller
      reporting company  x




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




The
number of shares of the registrant’s common stock, $0.01 par value, outstanding
as of July 13, 2010 was 2,263,775.







SOLITRON
DEVICES, INC.





TABLE OF
CONTENTS




Page No.PART
      1 - FINANCIAL INFORMATIONItem
                                      1.
                                      Financial
      Statements (unaudited)Condensed
      Balance Sheets
                                      3May
      31, 2010 and February 28, 2010Condensed
      Statements of Income
                                      4Three
      Months Ended May 31, 2010 and 2009Condensed
      Statements of Cash Flows
                                      5Three
      Months Ended May 31, 2010 and 2009Notes
      to Condensed Financial Statements
                                      6-11Item
                                      2.
                                      Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
                                      12-14Item
                                      3.
                                      Quantitative
      and Qualitative Disclosures about Market Risk
                                      14-15Item
                                      4.
                                      Controls
      and Procedures
                                      16PART II – OTHER INFORMATIONItem
                                      6.
                                      Exhibits
                                      16Signatures
                                      
                                      17




2





PART I – FINANCIAL
INFORMATION





ITEM
1.      FINANCIAL
STATEMENTS





SOLITRON
DEVICES, INC.


CONDENSED
BALANCE SHEETS


AS OF MAY
31, 2010 AND FEBRUARY 28, 2010


(Unaudited)




May 31,
                    
                    
                    Feb 28,2010
                    
                    
                    2010(in thousands, except for shares)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    243
                    
                    
                    $
                    400Treasury
      bills
                    
                    
                    5,846
                    
                    
                    
                    5,601Accounts
      receivable, less allowance for doubtful accounts of $2
                    
                    
                    926
                    
                    
                    
                    685Inventories,
      net (Note 5)
                    
                    
                    2,859
                    
                    
                    
                    2,809Prepaid
      expenses and other current assets
                    
                    
                    136
                    
                    
                    
                    125TOTAL
      CURRENT ASSETS
                    
                    
                    10,010
                    
                    
                    
                    9,620PROPERTY,
      PLANT AND EQUIPMENT
                    
                    
                    579
                    
                    
                    
                    561OTHER
      ASSETS
                    
                    
                    65
                    
                    
                    
                    52TOTAL
      ASSETS
                    
                    $
                    10,654
                    
                    
                    $
                    10,233LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable-Post-petition
                    
                    $
                    310
                    
                    
                    $
                    266Accounts
      payable-Pre-petition, current portion
                    
                    
                    1,051
                    
                    
                    
                    1,058Customer
      deposits
                    
                    
                    214
                    
                    
                    
                    39Accrued
      expenses and other current liabilities    (Note
      8)
                    
                    
                    569
                    
                    
                    
                    505TOTAL
      CURRENT LIABILITIES
                    
                    
                    2,144
                    
                    
                    
                    1,868LONG-TERM
      LIABILITIES, net of current portion
                    
                    
                    138
                    
                    
                    
                    148TOTAL
      LIABILITIES
                    
                    
                    2,282
                    
                    
                    
                    2,016COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYPreferred
      stock, $.01 par value, authorized 500,000 shares, none
    issued
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.01 par value, authorized 10,000,000 shares,2,263,775
      shares issued and outstanding, net of 173,287 shares of treasury
      stock
                    
                    
                    23
                    
                    
                    
                    23Additional
      paid-in capital
                    
                    
                    2,733
                    
                    
                    
                    2,733Retained
      earnings
                    
                    
                    5,616
                    
                    
                    
                    5,461TOTAL
      STOCKHOLDERS' EQUITY
                    
                    
                    8,372
                    
                    
                    
                    8,217TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    10,654
                    
                    
                    $
                    10,233





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


3





SOLITRON
DEVICES, INC.


CONDENSED
STATEMENTS OF INCOME


THREE
MONTHS ENDED MAY 31, 2010 AND MAY 31, 2009


(Unaudited)





2010
                  
                  
                  2009(in thousands, except for share and per
                    share amounts)Net
      sales
                  
                  $
                  2,123
                  
                  
                  $
                  1,820Cost
      of sales
                  
                  
                  1,678
                  
                  
                  
                  1,549Gross
      profit
                  
                  
                  445
                  
                  
                  
                  271Selling,
      general and administrative expenses
                  
                  
                  292
                  
                  
                  
                  271Operating
      income
                  
                  
                  153
                  
                  
                  
                  -Other
      income (expenses)Interest
      income
                  
                  
                  5
                  
                  
                  
                  7Other,
      net
                  
                  
                  -
                  
                  
                  
                  (6
                  )Income
      before provision for income taxes
                  
                  
                  158
                  
                  
                  
                  1Provision
      for income taxes
                  
                  
                  3
                  
                  
                  
                  -Net
      income
                  
                  $
                  155
                  
                  
                  $
                  1Income
      per share from continuing operations-Basic
                  
                  $
                  0.07
                  
                  
                  $
                  .00Income
      per share from continuing operations-Diluted
                  
                  $
                  0.06
                  
                  
                  $
                  .00Net
      income per share-Basic
                  
                  $
                  0.07
                  
                  
                  $
                  .00Net
      income per share-Diluted
                  
                  $
                  0.06
                  
                  
                  $
                  .00Weighted
      average shares outstanding-Basic
                  
                  
                  2,263,775
                  
                  
                  
                  2,263,775Weighted
      average shares outstanding-Diluted
                  
                  
                  2,474,771
                  
                  
                  
                  2,454,884





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


4





SOLITRON
DEVICES, INC.


CONDENSED
STATEMENTS OF CASH FLOWS


THREE
MONTHS ENDED MAY 31, 2010 AND MAY 31, 2009


(Unaudited)





2010
                        
                        
                        2009(in thousands)Net
      income
                        
                        $
                        155
                        
                        
                        $
                        1Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                        
                        
                        50
                        
                        
                        
                        50Changes
      in operating assets and liabilities:(Increase)
      decrease in accounts receivable
                        
                        
                        (241
                        )
                        
                        
                        242(Increase)
      decrease in inventories
                        
                        
                        (50
                        )
                        
                        
                        88Increase
      in prepaid expenses and other current assets
                        
                        
                        (11
                        )
                        
                        
                        (19
                        )Increase
      in other assets
                        
                        
                        (13
                        )
                        
                        
                        -Increase
      (decrease) in accounts payable-post-petition
                        
                        
                        44
                        
                        
                        
                        (94
                        )Decrease
      in accounts payable-pre-petition
                        
                        
                        (7
                        )
                        
                        
                        (7
                        )Increase
      in customer deposits
                        
                        
                        175
                        
                        
                        
                        94Increase
      in accrued expenses and other liabilities
                        
                        
                        64
                        
                        
                        
                        15Decrease
      in other long-term liabilities
                        
                        
                        (10
                        )
                        
                        
                        (10
                        )Total
      adjustments
                        
                        
                        1
                        
                        
                        
                        359NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                        
                        
                        156
                        
                        
                        
                        360CASH
      FLOWS FROM INVESTING ACTIVITIES:Investment
      in treasury bills
                        
                        
                        (245
                        )
                        
                        
                        (359
                        )Purchase
      of property, plant and equipment
                        
                        
                        (68
                        )
                        
                        
                        (39
                        )NET
      CASH (USED IN) INVESTING ACTIVITIES
                        
                        
                        (313
                        )
                        
                        
                        (398
                        )Net
      decrease in cash and cash equivalents
                        
                        
                        (157
                        )
                        
                        
                        (38
                        )Cash
      and cash equivalents – beginning of the period
                        
                        
                        400
                        
                        
                        
                        440Cash
      and cash equivalents - end of the period
                        
                        $
                        243
                        
                        
                        $
                        402





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


5





SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





1. 
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of Operations and
Activities


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





Basis of
Presentation


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





Cash and Cash
Equivalents


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





Investment in Treasury
Bills


Investment
in Treasury Bills includes treasury bills with maturities of one year or less
and is stated at market value.





Accounts
Receivable


Accounts
receivable consists of unsecured credit extended to the Company’s customers in
the ordinary course of business.  The Company reserves for any amounts
deemed to be uncollectible based on past collection experiences and an analysis
of outstanding balances using an allowance account.  The allowance
amount was $2,000 as of May 31, 2010 and February 28, 2010.





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




The
Company’s inventory valuation policy is as follows:





Raw
      material /Work in process:
                  
                  All
      material purchased, processed, and/or used in the last two fiscal years is
      valued at the lower of its acquisition cost or market.  All
      material not purchased/used in the last two fiscal years is fully reserved
      for.Finished
      goods:
                  
                  All
      finished goods with firm orders for later delivery are valued (material
      and overhead) at the lower or cost or market.  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 amount of man-hours required from
      the different direct labor departments to bring each device to its
      particular level of
completion.




6





SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





2.
            ENVIRONMENTAL
      REGULATION:





While the
Company believes that it has the environmental permits necessary to conduct its
business and that its operations conform to present environmental regulations,
increased public attention has been focused on the environmental impact of
semiconductor manufacturing operations.  The Company, in the conduct
of its manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations related to their use, storage, discharge
and disposal.  No assurance can be made that the risk of accidental
release of such materials can be completely eliminated.  In the event
of a violation of environmental laws, the Company could be held liable for
damages and the costs of remediation. In addition, the Company, along with the
rest of the semiconductor industry, is subject to variable interpretations and
governmental priorities concerning environmental laws and
regulations.  Environmental statutes have been interpreted to provide
for joint and several liability and strict liability regardless of actual
fault.  There can be no assurance that the Company will not be
required to incur costs to comply with, or that the operations, business or
financial condition of the Company will not be materially adversely affected by
current or future environmental laws or regulations.





3.
            ENVIRONMENTAL
      LIABILITIES:





The
Company entered into an Ability to Pay Multi-Site Settlement Agreement with the
United States Environmental Protection Agency (“USEPA”), effective February 24,
2006 (“Settlement Agreement”), to resolve the Company’s alleged liability to
USEPA at the following sites:  Solitron Microwave Superfund Site, Port
Salerno, Florida (“Port Salerno Site”); Petroleum Products Corporation Superfund
Site, Pembroke Park, Florida; Casmalia Resources Superfund Site, Santa Barbara,
California (“Casmalia Site”); Solitron Devices Site, Riviera Beach, Florida (the
“Riviera Beach Site”); and City Industries Superfund Site, Orlando, Florida
(collectively, the “Sites”).  The Settlement Agreement required the
Company to pay to USEPA the sum of $74,000 by February 24, 2008; the Company
paid the entire sum of $74,000 to USEPA on February 27, 2006. In addition, the
Company is required to pay to USEPA the sum of $10,000 or 5% of Solitron’s net
after-tax income over the first $500,000, if any, whichever is greater, for each
year from fiscal years 2010-2013.  For payment to USEPA to be above
$10,000 for any of these five years, the Company’s net income must exceed
$700,000 for such year, which has happened in fiscal year 2001, fiscal year
2006, fiscal year 2009 and fiscal year 2010.  In February 2010, the
Company paid $10,000 to USEPA for fiscal year 2010 based on preliminary net
income projections. The Company has accrued an additional $4,000 for fiscal year
2010 pursuant to its obligations under the Settlement Agreement. The Company
accrued $30,000 for its remaining minimum obligations under the Settlement
Agreement.  This amount is reflected in “Accrued expenses and other
current liabilities” on the Company’s balance sheets at May 31,
2010.


7





SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





In
consideration of the payments made by the Company under the Settlement
Agreement, USEPA agreed not to sue or take any administrative action against the
Company with regard to any of the Sites.  The Company has also been
notified by a group of alleged responsible parties formed at the Casmalia Site
(“Casmalia PRP Group”) that, based on their review and lack of objection to the
Settlement Agreement, the Casmalia PRP Group does not anticipate pursuing
Solitron for cost recovery at the Casmalia site.





On
October 21, 1993, a Consent Final Judgment was entered into between the Company
and the Florida Department of Environmental Protection (“FDEP”) in the Circuit
Court of the Nineteenth Judicial Circuit of Florida in and for Martin County,
Florida, in Case No. 91-1232 CA (the “Consent Final Judgment”).  The
Consent Final Judgment required the Company to remediate the Port Salerno and
Riviera Beach Sites, make monthly payments to escrow accounts for each Site
until the sale of the Sites to fund the remediation work, take all reasonable
steps to sell the two Sites and, upon the sale of the Sites, apply the net
proceeds from the sales to fund the remediation work.  Both Sites have
been sold pursuant to purchase agreements approved by FDEP.





Prior to
the sale of the Port Salerno Site and Riviera Beach Site, USEPA took over from
FDEP as the lead regulatory agency for the remediation of the
Sites.   At the closing of the sale of each Site, the net
proceeds of sale were distributed to USEPA and/or FDEP or other parties, as
directed by the agencies.  In addition, upon the sale of the Riviera
Beach Site, the Riviera Beach Escrow Account was transferred to USEPA, as
directed by the agencies.  The current balance in the Port Salerno
Escrow Account is approximately $58,000.  At present, work at the Port
Salerno Site is being performed by USEPA.  Work at the Riviera Beach
Site is being performed by Honeywell, Inc. (“Honeywell”), pursuant to an
Administrative Order on Consent entered into between Honeywell and
USEPA.  The Company has been notified by FDEP that the successful
performance of remediation work in accordance with the Consent Final Judgment
standards by USEPA at the Port Salerno Site and by Honeywell at the Riviera
Beach Site will be construed by FDEP as discharging the Company’s remediation
obligations under the Consent Final Judgment.





There
remains a possibility that FDEP will determine at some time in the future that
the final remedy approved by USEPA and implemented at either, or both of, the
Port Salerno Site and Riviera Beach Site does not meet the State cleanup
requirements imposed by the Consent Final Judgment.  If such a final
determination is made by FDEP, there is a possibility that FDEP will require the
Company to implement additional remedial action at either, or both of, the Port
Salerno Site and Riviera Beach Site.





By letter
dated November 16, 2006, FDEP notified the Company that FDEP has unreimbursed
expenses associated with the Port Salerno Site and Riviera Beach Site of
$214,800.  FDEP further notified the Company that FDEP required the
Company to resume payments under the Consent Final Judgment to ensure that there
are adequate funds to cover FDEP’s unreimbursed expenses and the Company’s
residual liability under the Consent Final Judgment.  During a follow
up telephone conversation with the Company’s attorney, FDEP advised the Company
that FDEP will prepare a justification for the asserted unreimbursed
expenses.  Upon receipt of the cost reimbursement package, the Company
is required to transfer $55,000 from the Port Salerno Escrow Account to FDEP as
partial payment for FDEP’s unreimbursed expenses that are otherwise recoverable
under the Consent Final Judgment.  FDEP further stated, during the
telephone conversation, that FDEP will work with the Company to establish a
reduced payment schedule for the Company to resume under the Consent Final
Judgment based on an appropriate showing by the Company of financial
hardship.  The Company is currently awaiting receipt of FDEP’s cost
reimbursement package.  Upon receipt of that documentation, the
Company will be required to provide a recommendation to FDEP for resumption of
payments to FDEP under the Consent Final Judgment based on the Company’s present
ability to pay.


8





SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





On August
7, 2002, the Company received a Request for Information from the State of New
York Department of Environmental Conservation (“NYDEC”), seeking information on
whether the Company had disposed of certain wastes at the Clarkstown Landfill
Site located in the Town of Clarkstown, Rockland County, New York (The
Clarkstown Landfill Site”).  By letter dated August 29, 2002, the
Company responded to the Request for Information and advised NYDEC that the
Company’s former Tappan, New York facility had closed in the mid-1980’s, prior
to the initiation of the Company’s bankruptcy proceedings described
below.  The Company contends that, to the extent that NYDEC has a
claim against the Company as a result of the Company’s alleged disposal of
wastes at the Clarkstown Landfill Site prior to the closing of the Company’s
former Tappan facility in the mid-1980’s, the claim was discharged in bankruptcy
as a result of the Bankruptcy Court’s August 1993 Order.  At NYDEC’s
request, the Company entered into a revised Tolling Agreement with NYDEC on
December 28, 2009, which provides for the tolling of applicable statutes of
limitation through the earlier of November 19, 2010, or the date the State
institutes a suit against the Company for any claims associated with the
Clarkstown Landfill Site.  It is not known at this time whether NYDEC
will pursue a claim against the Company in connection with the Clarkstown
Landfill Site.  As of the date of this filing, no such claim has been
made by NYDEC. The Clarkstown Landfill Joint Defense Group (“Clarkstown JDG”), a
group of potentially responsible parties formed to respond to claims by NYDEC
for recovery of closure and clean-up response costs at the Clarkstown Landfill
Site, is negotiating with NYDEC to settle the claims of NYDEC against all
potentially responsible parties at the Clarkstown Landfill site that participate
in the Clarkstown JDG.  In connection with those negotiations, the
Clarkstown JDG, by letter dated March 17, 2010, offered to pursue a settlement
of NYDEC’s claim against the Company in return for the Company’s agreement to
pay the sum of $125,000.00, representing the Company’s alleged share of the
overall settlement with NYDEC.  The Company rejected the settlement
offer on March 29, 2010, based on its continuing contention that any claim of
NYDEC against the Company was discharged in bankruptcy as a result of the
Bankruptcy Court’s August 1993 Order.





4.
            EARNINGS PER
      SHARE:





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





For the three months ended
                    May 31,2010
                  
                  
                  2009Weighted
      average common shares outstanding
                  
                  
                  2,263,775
                  
                  
                  
                  2,263,775Dilutive
      effect of employee stock options
                  
                  
                  210,996
                  
                  
                  
                  191,109Weighted
      average common shares outstanding, assuming dilution
                  
                  
                  2,474,771
                  
                  
                  
                  2,454,884





Weighted
average common shares outstanding, assuming dilution, include the incremental
shares that would be issued upon the assumed exercise of stock
options.  For the three month periods ended May 31, 2010 and May 31,
2009, 13,500 shares underlying the Company's stock options were excluded from
the calculation of diluted earning per share because the exercise prices of the
stock options were greater than or equal to the average price of the common
shares, and therefore their inclusion would have been
anti-dilutive.





5.
            INVENTORIES:





As of May
31, 2010, inventories consist of the following:





Gross
                    
                    
                    Reserve
                    
                    
                    NetRaw
      Materials
                    
                    $
                    1,618,000
                    
                    
                    $
                    (379,000
                    )
                    
                    $
                    1,239,000Work-In-Process
                    
                    
                    2,364,000
                    
                    
                    
                    (760,000
                    )
                    
                    
                    1,604,000Finished
      Goods
                    
                    
                    508,000
                    
                    
                    
                    (492,000
                    )
                    
                    
                    16,000Totals
                    
                    $
                    4,490,000
                    
                    
                    $
                    (1,631,000
                    )
                    
                    $
                    2,859,000




9





SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





As of
February 28, 2010, inventories consist of the following:





Gross
                    
                    
                    Reserve
                    
                    
                    NetRaw
      Materials
                    
                    $
                    1,515,000
                    
                    
                    $
                    (379,000
                    )
                    
                    $
                    1,136,000Work-In-Process
                    
                    
                    2,364,000
                    
                    
                    
                    (760,000
                    )
                    
                    
                    1,604,000Finished
      Goods
                    
                    
                    557,000
                    
                    
                    
                    (488,000
                    )
                    
                    
                    69,000Totals
                    
                    $
                    4,436,000
                    
                    
                    $
                    (1,627,000
                    )
                    
                    $
                    2,809,000





6.
            INCOME
      TAXES:





At May
31, 2010, the Company has net operating loss carryforwards of approximately
$15,802,000 that expire through 2024.  Such net operating losses are
available to offset future taxable income, if any.  As the utilization
of such net operating losses for tax purposes is not assured, the deferred tax
asset has been mostly reserved through the recording of a 100% valuation
allowance.  Should a cumulative change in the ownership of more than
50% occur within a three-year period, there could be an annual limitation on the
use of the net operating loss carryforward.





Total net
deferred taxes were comprised of the following as of May 31 and February 28,
2010:





Deferred tax assets:
                    
                    5/31/10
                    
                    
                    2/28/10Loss
      carryforwards
                    
                    $
                    5,946,000
                    
                    
                    $
                    6,005,000Allowance
      for doubtful accounts
                    
                    
                    4,000
                    
                    
                    
                    1,000Inventory
      allowance
                    
                    
                    614,000
                    
                    
                    
                    612,000Depreciation
                    
                    
                    108,000
                    
                    
                    
                    109,000Section
      263A capitalized costs
                    
                    
                    126,000
                    
                    
                    
                    126,000Total
      deferred tax assets
                    
                    
                    6,798,000
                    
                    
                    
                    6,853,000Valuation
      allowance
                    
                    
                    (6,798,000
                    )
                    
                    
                    (6,853,000
                    )Total
      net deferred taxes
                    
                    $
                    0
                    
                    
                    $
                    0





The
change in the valuation allowance on deferred tax assets is due principally to
the utilization of the net operating loss for the quarter ended May 31, 2010 and
for the year ended February 28, 2010.





A
reconciliation of the U.S. federal statutory tax rate to the Company’s effective
tax rate for the quarter ended May 31, 2010 and for the year ended February 28,
2010 is as follows:





5/31/10
                    
                    
                    2/28/10U.S.
      federal statutory rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %Change
      in valuation allowance
                    
                    
                    (34.0
                    )
                    
                    
                    (34.0
                    )Effective
      income tax rate
                    
                    
                    0.1
                    %
                    
                    
                    0.1
                    %





7.
            OTHER
      INCOME:





The
$5,000 of other income reflected in the condensed statements of income for the
quarter ended May 31, 2010 consists entirely of interest income on investment in
treasury bills net of changes in market value. The $1,000 of  net
other income reflected in the condensed statements of income for the quarter
ended May 31, 2009 consists of $7,000 of interest income on investment in
treasury bills net of changes in market value less $6,000 of other expense
related to receivables adjustments.




10




SOLITRON
DEVICES, INC.


NOTES TO CONDENSED FINANCIAL
STATEMENTS


(Unaudited)





8.
            ACCRUED
      EXPENSES:





As of May
31, 2010 and February 28, 2010, accrued expenses and other liabilities consisted
of the following:





5/31/10
                                            
                                            
                                            2/28/10Payroll
      and related employee benefits
                                            
                                            $
                                            516,000
                                            
                                            
                                            $
                                            469,000Other
      liabilities
                                            
                                            
                                            53,000
                                            
                                            
                                            
                                            36,000$
                                            569,000
                                            
                                            
                                            $
                                            505,000





9.
            EXPORT SALES AND MAJOR
      CUSTOMERS:





Revenues
from domestic and export sales to unaffiliated customers for the three months
ended May 31, 2010 are as follows:





Power
                          
                          
                          
                          
                          
                          Field
      Effect
                          
                          
                          PowerGeographic Region
                          
                          Transistors
                          
                          
                          Hybrids
                          
                          
                          Transistors
                          
                          
                          MOSFETS
                          
                          
                          TotalsEurope
      and Australia
                          
                          $
                          0
                          
                          
                          $
                          132,000
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          132,000Canada
      and Latin America
                          
                          
                          7,000
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          7,000Far
      East and Middle East
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          56,000
                          
                          
                          
                          56,000United
      States
                          
                          
                          304,000
                          
                          
                          
                          681,000
                          
                          
                          
                          288,000
                          
                          
                          
                          655,000
                          
                          
                          
                          1,928,000Totals
                          
                          $
                          311,000
                          
                          
                          $
                          813,000
                          
                          
                          $
                          288,000
                          
                          
                          $
                          711,000
                          
                          
                          $
                          2,123,000





Revenues
from domestic and export sales to unaffiliated customers for the three months
ended May 31, 2009 are as follows:





Power
                      
                      
                      
                      
                      
                      Field
      Effect
                      
                      
                      PowerGeographic Region
                      
                      Transistors
                      
                      
                      Hybrids
                      
                      
                      Transistors
                      
                      
                      MOSFETS
                      
                      
                      TotalsEurope
      and Australia
                      
                      $
                      3,000
                      
                      
                      $
                      248,000
                      
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      251,000Canada
      and Latin America
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      1,000
                      
                      
                      
                      1,000Far
      East and Middle East
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      49,000
                      
                      
                      
                      49,000United
      States
                      
                      
                      202,000
                      
                      
                      
                      797,000
                      
                      
                      
                      188,000
                      
                      
                      
                      332,000
                      
                      
                      
                      1,519,000Totals
                      
                      $
                      205,000
                      
                      
                      $
                      1,045,000
                      
                      
                      $
                      188,000
                      
                      
                      $
                      382,000
                      
                      
                      $
                      1,820,000





Revenues
from domestic and export sales are attributed to global geographic region
according to the location of the customer’s primary manufacturing or operating
facilities.





For the
quarter ended May 31, 2010, sales to the Company's top two customers, Raytheon
Company (36%) and Harris Corporation (13%), accounted for 49% of net
sales.  For the quarter ended May 31, 2009, sales to the Company's top
two customers, Raytheon Company (30%) and BAE Systems Australia (14%), accounted
for 44% of net sales.




10.
            EXPORT SALES AND MAJOR
      CUSTOMERS:





Purchases
from the Company’s two top suppliers, WUXI Streamtek ltd. (10%) and Hybrid
Sources, Inc. (7%), accounted for 17% of total purchases of production materials
for the quarter ended May 31, 2010.  For the quarter ended May 31,
2009, purchases from the Company’s two top suppliers, Platronics Seals (17%) and
Stellar Industries (7%), accounted for 24% of the Company's total purchases
of production materials.




11


Item
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Overview:




Solitron
Devices, Inc., a Delaware corporation (the “Company” or “Solitron”), designs,
develops, manufactures and markets solid-state semiconductor components and
related devices primarily for the military and aerospace markets.  The
Company manufactures a large variety of bipolar and metal oxide semiconductor
(“MOS”) power transistors, power and control hybrids, junction and power MOS
field effect transistors and other related products.  Most of the
Company’s products are custom made pursuant to contracts with customers whose
end products are sold to the United States government.  Other
products, such as Joint Army/Navy transistors, diodes and Standard Military
Drawings voltage regulators, are sold as standard or catalog items.




The
following discussion and analysis of factors which have affected the Company's
financial position and operating results during the periods included in the
accompanying condensed financial statements should be read in conjunction with
the Financial Statements and the related Notes to Financial Statements and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in the Company’s Annual Report on Form 10-K for the year
ended February 28, 2010 and the Condensed Financial Statements and the related
Notes to Condensed Financial Statements included in Item 1 of this Quarterly
Report on Form 10-Q.




Significant Accounting
Policies:




The
discussion and analysis of our financial condition and results of operations are
based upon the condensed financial statements included elsewhere in this
Quarterly Report on Form 10-Q which are prepared in accordance with accounting
principles generally accepted in the United States. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, and expenses. These estimates
and assumptions are affected by management’s application of accounting policies.
Our significant accounting policies include inventories, valuation of plant,
equipment, revenue recognition and accounting for income taxes. A discussion of
all of these significant accounting policies can be found in Note 1 of the
“Notes To Financial Statements” in Item 8 of our Annual Report on Form 10-K
for the fiscal year ended February 28, 2010.




Trends and
Uncertainties:




During
the three months ended May 31, 2010, the Company’s book-to-bill ratio was
approximately 1.46 as compared to approximately .40 for the three months ended
May 31, 2009, reflecting an increase in the volume of orders
booked.  Generally, the intake of orders varies greatly from period to
period as a result of the fluctuations in the general economy, variations in
defense spending on programs the Company supports, and the timing of contract
awards by the Department of Defense and subsequently by its prime contractors,
which is expected to continue over the next twenty four months. Although the
Company’s book-to-bill ratio increased during the three months ended May 31,
2010, the Company continues its efforts to reduce its variable manufacturing
costs to offset the potential impact of low volume of orders to be
shipped.  However, should order intake fall drastically below the
level experienced in the last twenty four months, the Company might be required
to implement further cost cutting or other downsizing measures to continue its
business operations.




Inventories


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




The
Company’s inventory valuation policy is as follows:





Raw
      material /Work in process:
              All
      material purchased, processed and/or used in the last two fiscal years is
      valued at the lower of its acquisition cost or market. All material not
      purchased/used in the last two fiscal years is fully reserved
      for.




12





Finished
      goods:
              All
      finished goods with firm orders for later delivery are valued (material
      and overhead) at the lower of cost or market.  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 amount of man hours required from
      the different direct labor departments to bring each device to its
      particular level of
completion.





Results of Operations-Three
Months Ended May 31, 2010 Compared to Three Months Ended May 31,
2009:





Net sales
for the three months ended May 31, 2010 increased 17% to $2,123,000 as compared
to $1,820,000 for the three months ended May 31, 2009.  This increase
was primarily attributable to a higher level of orders that were shipped in
accordance with customer requirements.





Cost of
sales for the three months ended May 31, 2010 increased to $1,678,000 from
$1,549,000 for the comparable period in 2009.  Expressed as a
percentage of sales, cost of sales decreased to 79% from 85% for the same period
in 2009.  This change was due primarily to an increase in net sales
combined with a decrease in cost of materials percentage.





Gross
profit for the three months ended May 31, 2010 increased to $445,000 from
$271,000 for the three months ended May 31, 2009.  Accordingly, gross
margins on the Company’s sales increased to 21% for the three months ended May
31, 2010 in comparison to 15% for the three months ended May 31,
2009.  This change was due mainly to an increase in net sales combined
with a decrease in cost of materials percentage.





For the
three months ended May 31, 2010, the Company shipped 51,241 units as compared to
48,459 units shipped during the same period of the prior year.  It
should be noted that since the Company manufactures a wide variety of products
with an average sales price ranging from less than one dollar to several hundred
dollars, such periodic variations in the Company’s volume of units shipped
should not be regarded as a reliable indicator of the Company’s
performance.





The
Company’s backlog of open orders increased 17% to $6,900,000 for the three
months ended May 31, 2010 from $5,218,000 for the three months ended May 31,
2009.  Changes in backlog reflect changes in the intake of orders and
in the delivery requirements of customers.





The
Company has experienced an increase of 321% to $3,097,000 in the level of
bookings during the three months ended May 31, 2010 from $735,000 for the three
months ended May 31, 2009. The increase in bookings for the current quarter is
principally as a result of an increase in defense spending, resulting in an
increase in the monetary value of, and timing differences in the placement of
contracts by the Department of Defense and its prime contractors.





Selling,
general, and administrative expenses increased to $292,000 for the three
months ended May 31, 2010 from $271,000 for the comparable period in
2009.  The increase reflects higher labor and sales commission
expenses. During the three months ended May 31, 2010, selling, general, and
administrative expenses as a percentage of net sales fell to 14% as compared
with 15% for the three months ended May 31, 2009.  The percentage
decrease was due primarily to an increase in net sales.





Operating
income for the three months ended May 31, 2010 increased to $153,000 as
compared to $0 for the three months ended May 31, 2009. This increase is due
primarily to higher net sales.





The
Company recorded net other income of $5,000 for the three months ended May 31,
2010 as compared to $1,000 for the three months ended May 31,
2009.  Included in net other income was $5,000 of interest income on
investment in treasury bills net of changes in market value for the three months
ended May 31, 2010.  For the three months ended May 31, 2009, the
Company recorded $7,000 of interest income on investment in treasury bills net
of changes in market value offset by $6,000 of other expense related to
receivables adjustments.  The decrease in interest income is due
primarily to lower rates of return on invested funds.




13


Net
income for the three months May 31, 2010 increased to $155,000 as compared
to $1,000 for the same period in 2009.  This increase is due primarily
to higher net sales.




Liquidity and Capital
Resources:




Subject
to the following discussion, the Company expects its sole source of liquidity
over the next twelve months to be cash from operations. The Company anticipates
that its capital expenditures required to sustain operations will be
approximately $300,000 during the current fiscal year and will be funded from
operations.





Based
upon (i) management’s best information as to current national defense
priorities, future defense programs, as well as management’s expectations as to
future defense spending, (ii) the market trends signaling a leveling off in the
amount of bookings, and an increase in the cost of raw materials and operations
that will result in the potential erosion of profit levels and continued price
pressures due to more intense competition, and (iii) the continued competition
in the defense and aerospace market, the Company believes that it will have
sufficient cash on hand to satisfy its operating needs during the current fiscal
year.  However, due to the level of current backlog and new order
intake (due to the status of the general economy and the shift to Commercial Off
–The-Shelf (COTS) by the defense industry), the Company might operate at a break
even or a small profit during the balance of the current fiscal
year.  Thus, based on these factorsand at the current
level of bookings, costs of raw materials and services, profit margins and sales
levels, the Company believes it will generate sufficient cash to satisfy its
operating needs and its obligations to pre-bankruptcy creditors in accordance
with the Company’s plan of reorganization.  In the event that bookings
in the long-term decline significantly below the level experienced during the
previous fiscal year, the Company may be required to implement further
cost-cutting or other downsizing measures to continue its business
operations.  Such cost-cutting measures could inhibit future growth
prospects. In appropriate situations, the Company may seek strategic alliances,
joint ventures with others or acquisitions in order to maximize marketing
potential and utilization of existing resources and provide further
opportunities for growth.





The
Company reported net income of $155,000 and operating income of $153,000 for the
three months ended May 31, 2010.





At May
31, 2010, February 28, 2010 and May 31, 2009, the Company had cash of
approximately $243,000, $400,000 and $402,000, respectively.  Net
income contributed $155,000 to the last three months’ cash flow generated by
ongoing operations.





At May
31, 2010, February 28, 2010 and May 31, 2009, the Company had investments in
treasury bills of approximately $5,846,000, $5,601,000 and $5,472,000,
respectively.





At May
31, 2010, the Company had working capital of $7,866,000 as compared with a
working capital at May 31, 2009 of $6,974,000.  At February 28, 2010,
the Company had a working capital of $7,752,000.  The $114,000
increase for the three months ended May 31, 2010 was due mainly to a $486,000
combined increase in receivables and investments in treasury bills offset by an
increase in customer deposits and an increase in accrued expenses.





Off-Balance Sheet
Arrangements:





The
Company has not engaged in any off-balance sheet arrangements.





ITEM
      3.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURE ABOUT MARKET
RISK





Not
applicable


14


FORWARD-LOOKING
STATEMENTS




Some of
the statements in this Quarterly Report on Form 10-Q are "forward-looking
statements," as that term is defined in the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include statements regarding our
business, financial condition, results of operations, strategies or
prospects. You can identify forward-looking statements by the fact that these
statements do not relate strictly to historical or current matters. Rather,
forward-looking statements relate to anticipated or expected events, activities,
trends or results. Because forward-looking statements relate to matters that
have not yet occurred, these statements are inherently subject to risks and
uncertainties. Many factors could cause our actual activities or results to
differ materially from the activities and results anticipated in forward-looking
statements. These factors include those described under the caption "Risk
Factors" in our Annual Report on Form 10-K for the year ended February 28, 2010,
including those identified below. We do not undertake any obligation to update
forward-looking statements.




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




·
            Our
      complex manufacturing processes may lower yields and reduce our
      revenues.


·
            Our
      business could be materially and adversely affected if we are unable to
      obtain qualified supplies of raw materials, parts and finished components
      on a timely basis and at a cost-effective
price.


·
            We
      are dependent on government contracts, which are subject to termination,
      price renegotiations and regulatory compliance, which can increase the
      cost of doing business and negatively impact our
  revenues.


·
            Changes
      in government policy or economic conditions could negatively impact our
      results.


·
            Our
      inventories may become obsolete and other assets may be subject to
      risks.


·
            Environmental
      regulations could require us to incur significant
  costs.


·
            Our
      business is highly competitive, and increased competition could reduce
      gross profit margins and the value of an investment in our
      Company.


·
            Downturns
      in the business cycle could reduce the revenues and profitability of our
      business.


·
            Our
      operating results may decrease due to the decline of profitability in the
      semiconductor industry.


·
            Uncertainty
      of current economic conditions, domestically and globally, could continue
      to affect demand for our products and negatively impact our
      business.


·
            Cost
      reduction efforts may be unsuccessful or insufficient to improve our
      profitability and may adversely impact
  productivity.


·
            We
      may not achieve the intended effects of our new business strategy, which
      could adversely impact our business, financial condition and results of
      operations.


·
            Our
      inability to introduce new products could result in decreased revenues and
      loss of market share to competitors; new technologies could also reduce
      the demand for our products.


·
            Loss
      of, or reduction of business from, substantial clients could hurt our
      business by reducing our revenues, profitability and cash
      flow.


·
            A
      shortage of three-inch silicon wafers could result in lost revenues due to
      an inability to build our products.


·
            The
      nature of our products exposes us to potentially significant product
      liability risk.


·
            We
      depend on the recruitment and retention of qualified personnel, and our
      failure to attract and retain such personnel could seriously harm our
      business.


·
            Provisions
      in our charter documents and rights agreement could make it more difficult
      to acquire our Company and may reduce the market price of our
      stock.


·
            Natural
      disasters, like hurricanes, or occurrences of other natural disasters
      whether in the United States or internationally may affect the markets in
      which our common stock trades, the markets in which we operate and our
      profitability.


·
            Failure
      to protect our proprietary technologies or maintain the right to use
      certain technologies may negatively affect our ability to
      compete.


·
            The
      price of our common stock has fluctuated widely in the past and may
      fluctuate widely in the future.


15


ITEM
      4.
            CONTROLS AND
      PROCEDURES





Our
Evaluation of Disclosure Controls and Procedures





The
Company carried out an evaluation, under the supervision and with the
participation of its management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e), and 15d-15(e)) as of the
end of the period covered by this Quarterly Report.  Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by this Quarterly Report.





Changes
in Internal Control over Financial Reporting





Based on
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
there has been no change in our internal control over financial reporting during
our last fiscal quarter identified in connection with that evaluation, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.





PART II– OTHER
INFORMATION





ITEM
      6.
            EXHIBITS:





Exhibits





31
            Certification
      of  Chief Executive Officer and Chief Financial Officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of
  2002.





32
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906  of the Sarbanes-Oxley Act of
  2002.


16


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





SOLITRON
      DEVICES, INC.Date:
      July 14, 2010/s/
      Shevach SarafShevach
      SarafChairman,
      President,Chief
      Executive Officer,Treasurer
      andChief
      Financial Officer(Principal
      executive officer andprincipal
      financial officer)




17




EXHIBIT
INDEX




EXHIBIT NUMBER
              
              DESCRIPTION31
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.32
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.


18