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

The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company's consolidated financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position or results of operations may be materially affected when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.

Our ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for estimated credit losses through a charge to expense and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved.involved, historical trends, and forecasted economic conditions. Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging expense and crediting a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 20252026 equaledwere 0.2%less than 0.1% of sales for that period. The balance of the valuation allowance has increaseddecreased tofrom $564,000 at May 31, 2025 fromto $29,000$195,000 at May 31, 20242026 due to the uncertaintyfull collection of collecting a $751,000 overdue balance overdueat onMay a31, structural project. The Company is in discussions with the customer regarding payment of this balance.2025.

This inventory is particularly sensitive to technical obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances, and product obsolescence. Therefore, management of the Company has recorded an allowance for potential inventory obsolescence. Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory allowance. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically, actual results have not varied materially from the Company's estimates. There was $107,000$318,000 and $791,000$107,000 of inventory disposed of during the years ended May 31, 20252026 and 2024,2025, respectively. The provision for potential inventory obsolescence was zero$225,000 and $386,000zero for the years ended May 31, 20252026 and 2024,2025, respectively.

For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenuesrevenue recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenuesrevenue recognized.

The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and badcredit debtloss reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. The deferred tax liabilities relate primarily to differences between financial statement and tax depreciation. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.

Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $13.6$12.1 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 20252026 of $2,848,000.$2,542,000. This deferred tax asset balance is 31%11% ($671,000$306,000) higherlower than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. If actual results differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities, which could impact its effective tax rate.

The Company's consolidated results of operations showed a 4%10% increasedecrease in net revenuesrevenue and ana increase15% decrease in net incomeincome. of 5%. RevenuesRevenue recorded in the year ended May 31, 20252026 for long-term projects (“Project(s)”)was were25% 19% higherlower than the level recorded in the prior year. We had 3740 Projectslong-term projects in process during the year ended May 31, 20252026 compared with 3937 during the same period last year. RevenuesRevenue recorded in the year ended May 31, 20252026 for other-thanother than long-term projects (non-projects) werewas 18%22% lowerhigher than the level recorded in the prior year. The number of Projectslong-term in-processprojects in process fluctuates from period to period. The changes from the prior year to the year ended May 31, 20252026 are not necessarily representative of future results.

Sales of the Company's products are made to three general groups of customers: industrial, structural and aerospace / defense. The Company saw a 3%31% increasedecrease from last year’s level in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 2%1% increase in sales to customers in aerospace / defense and aan 24%11% increasedecrease in sales to customers using our products in industrial applications.

Total sales within the U.S. decreasedwere 5%consistent fromwith last year. Total sales to Asia increaseddecreased to $3.2 million from $7.0 million fromlast $2.0year, while sales to countries outside of the U.S. and Asia decreased $0.7 million from last year. The shift in domestic and international sales concentration from the prior year is attributable to normal changes in structural project activity. Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 20252026 and 20242025 is as follows:

The gross profit as a percentage of net revenue of 46%44% in the year ended May 31, 20252026 is intwo linepercentage withpoints lower than the same period oflast theyear prior year.(46%).

At May 31, 2026, we had 139 open sales orders in our backlog with a total sales value of $52.8 million. At May 31, 2025, we had 142 open sales orders in our backlog with a total sales value of $27.1 million. At May 31, 2024, we had 134 open sales orders in our backlog with a total sales value of $33.1 million. $13.1$10.1 million of the current backlog is on Projectslong-term projects already in progress. $18.6$13.1 million of the $33.1$27.1 million sales order backlog at May 31, 20242025 was in progress at that date. 75%92% of the sales value in the backlog is for aerospace / defense customers compared to 72%75% at the end of fiscal 2024.2025. As a percentage of the total sales order backlog, orders from structural customers accounted for 5% at May 31, 2026 and 19% at May 31, 20252025. andThe 22%backlog at May 31, 2024.2026 includes a $19.0 million non-project order with $1.7 million scheduled to be delivered in fiscal year ending May 31, 2027, $5.0 million scheduled to be delivered in fiscal year ending May 31, 2028, $10.0 million scheduled to be delivered in fiscal year ending May 31, 2029 and $2.3 million scheduled to be delivered in fiscal year ending May 31, 2030. The Company expects to recognize revenue for the majority of the remaining backlog during the fiscal year ending May 31, 2026,2027, with the remainderbalance during the fiscal year ending May 31, 2027.2028.

The Company's backlog, revenues,revenue, commission expense, gross margins, gross profits,profit, and net income fluctuate from period to period. Total sales in the current period and the changes in the current period compared to the prior period,period are not necessarily representative of future results.

Research and development costs increased 14%75% from the prior year.year due to increased aerospace / defense activity.

Selling, general and administrative expenses increaseddecreased 4%10% from the prior year, primarily from increasedlower creditemployee lossincentive expense.compensation accruals.

Operating income of $9,627,000$7,343,000 for the year ended May 31, 20252026 increaseddecreased 2%24% from the prior year, primarily from increaseddecreased revenue.

Other income decreasedincreased 2%17% from the prior year. The decreaseincrease was driven by short-term investment interest income.

The Company has a $10,000,000 bank demand line of credit with M&T Bank, with interest payable at the Company's option of 30, 60 or 90 day SOFR rate plus 2.365%. There is no outstanding balance at May 31, 2025.2026. The line is secured by a negative pledge of the Company's real and personal property and is subject to renewal annually. The bank is not committed to make loans under this line of credit and no commitment fee is charged.

Inventory, at $8,113,000$7,529,000 as of May 31, 2025,2026, is eight7% percent higherlower than at the prior year-end. Of this, approximately 89% is work in process, 3% is finished goods, and 8% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.

Accounts receivable of $5,600,000 as of May 31, 2025 includes no retainage by customers on long-term construction projects. The number of an average day's sales outstanding in accounts receivable (DSO) was 40 days at May 31, 2026 and 32 days at May 31, 2025 and 39 days at May 31, 2024.2025. The Company increaseddecreased its allowance for estimated credit losses to $195,000 at May 31, 2026 from $564,000 at May 31, 2025 from $29,000 at May 31, 2024 due to the uncertaintyfull collection of collecting a $751,000 overdue balance onat aMay structural31, project.2025.

The status of the long-term projects in-progressin progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC:

There are two morefewer projects in-processin process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has decreased by 12% between those two dates.

As noted above, CIEB represents revenuesrevenue recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, these contract provisions such as this are often not possible.possible to obtain. The $5,360,000$8,032,000 balance in this accountCIEB at May 31, 20252026 is a 23%50% increase from the prior year end. This increase reflects the higher aggregate level of the percentage of completion of these Projectslong-term projects as of the current year end as compared with the Projectslong-term projects in process at the prior year end. Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 38%24% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2025,2026, was billed to those customers in the current fiscal quarter ended May 31, 2025.2026. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.

As noted above, BIEC represents billings to customers in excess of revenuesrevenue recognized. The $4,382,000$1,367,000 balance in this accountBIEC at May 31, 20252026 is in comparison to a $5,601,000$4,382,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings," discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

A summary of the period-to-period changes in the principal items included in the unaudited condensed consolidated statements of income is shown below:

Sales under certain fixed-price contracts, in which the product has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date, inclusive of profit, are recognized over timetime, whereby revenues are based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct and indirect charges related to specific contracts.

For the ninethree months ended FebruaryAugust 28,31, 2026 (All figures discussed are for the ninethree months ended FebruaryAugust 28,31, 2026,2026 as compared to the ninethree months ended FebruaryAugust 28,31, 2025).

The Company's consolidated results of operations showed a 6%26% increasedecrease in net revenuesales and a 17%79% increasedecrease in net income. Revenue recorded in the nine-month periodquarter ended FebruaryAugust 28,31, 2026 for long-term projects was 11%33% lower than the level recorded in the prior year. The Company had 3724 long-term projects in process during the nine-month periodquarter ended FebruaryAugust 28,31, 2026 as compared to 3125 during the same period last year. Revenue recorded in the nine-month periodquarter ended FebruaryAugust 28,31, 2026 for other-than long-term projects was 35%18% higherlower than the level recorded in the prior year. Total sales within the U.S. during the nine-month periodquarter ended FebruaryAugust 28,31, 2026 increaseddecreased 12%20% from the same period last year. Total sales outsideto the U.S.Asia during the nine-month periodquarter ended FebruaryAugust 28,31, 2026 decreased 21%31% from the same period of the prior year. The shiftchange in domestic and international sales concentration from the prior year is attributableattributed to normal changesfluctuations in structural project activity. Sales increasesdecreases were recorded over the same period last year to customers in aerospace / defense customers (22%-17%) with decreases toand customers involved in construction of buildings and bridges (-16%-49%) andwith an increase to industrial customers (-12%8%). The increasedecrease in total sales from the prior year is attributable to differences in the timing of bookings and backlog conversion to revenue.

The gross profit as a percentage of net revenuesales of 44%30% in the nine-month periodquarter ended FebruaryAugust 28,31, 2026 is one15 percentage pointpoints lower than the same period of the prior year (45%). The decrease in gross profit percentage is attributed to lower revenue and shift in sales mix.

The Company's backlog, revenues, gross profits,profit, and net income fluctuate from period to period. The changes in the nine-month periodquarter ended FebruaryAugust 28,31, 2026,2026 compared to the same period in the prior year,year are not necessarily representative of future results.

Net revenuesales by geographic region, as a percentage of total net revenuesales for the nine-monththree-month periods ended FebruaryAugust 28,31, 2026 and February 28, 2025, is as follows:

Research and development costs increased $39,000$71,000 during the quarter ended August 31, 2026, from the same period in the prior year.

Operating income was $6,790,000$38,000 for the nine-monththree-month period ended FebruaryAugust 28,31, 2026, higher98.3% lower than $5,869,000$2,245,000 in the same period of the prior year. The increasedecrease in operating income is attributable to increasedlower gross margin associated with reduced revenue and lowershift selling,in generalsales and administrative expenses.mix.

Other income was $1,231,000$418,000 for the nine-monththree-month period ended FebruaryAugust 28,31, 2026, a 22%9% increase from the same period of the prior year. This increase was driven by short-term investment interest income.

Capital expenditures for the nine-monththree periodmonths ended FebruaryAugust 28,31, 2026 were $2,006,000$242,000 compared to $1,158,000$185,000 in the same period of the prior year. As of FebruaryAugust 28,31, 2026, the Company has commitments for capital expenditures totaling $1,610,000$1,928,000 during the next twelve months. The Company is evaluating additional capital expenditures to expand capacity.

NOTE: Inventory turnover is annualized for the nine-monththree-month period ended FebruaryAugust 28,31, 2026.

Inventory, at $7,481,000$9,356,000 as of FebruaryAugust 28,31, 2026, is $632,000$1,827,000 lowerhigher than the prior year-end level of $8,113,000.$7,529,000. AsApproximately of February 28, 2026, approximately 90%88% of the inventory as of August 31, 2026 was work-in-process, 2%3% was finished goods, and 8%9% was raw materials.

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. ManagementCompany of the Companymanagement has, from time to time, recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $195,000 and zero for both the nine-monththree-month periods ended FebruaryAugust 28,31, 2026 and February 28, 2025, respectively.2025.

Accounts receivable of $4,863,000$3,371,000 as of FebruaryAugust 28,31, 2026 is net of $319,000$195,000 of an allowance for estimated credit losses (“Allowance”). The accounts receivable balance as of May 31, 20252026 of $5,600,000$3,932,000 is net of an Allowance of $564,000. The decrease to the Allowance was due to collections against an overdue structural project balance. After discussions with the customer regarding payment of this balance, the overdue balance has been reduced from $751,000 at prior year end to $111,000 at February 28, 2026.$195,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 3240 days at May 31, 20252026 to 3942 days at FebruaryAugust 28,31, 2026. The DSO is a function of (1) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and (2) the level of accounts receivable at the balance sheet date. The Company expects to collect the net accounts receivable balance during the next twelve months.

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill,bill and collect from the customer,customer payments in advance of shipments. Unfortunately, these contract provisions are often not possible to obtain. The $5,681,000$2,332,000 balance in CIEB at FebruaryAugust 28,31, 2026 is 6%71% higherlower than the prior year-end balance. This increasedecrease is the result of normal flow of the long-term projects through production with billings to the customers as permitted in the related contracts. 33%83% of the CIEB balance as of the end of the last fiscal quarter, NovemberMay 30,31, 2025,2026, was billed to those customers in the fiscal quarter ended FebruaryAugust 28,31, 2026. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $1,404,000$4,539,000 balance in BIEC at FebruaryAugust 28,31, 2026 is downup 68%232% from the $4,382,000$1,367,000 balance at the end of the prior year. The balance in BIEC fluctuates in the same manner and for the same reasons as the CIEB, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

The Company's backlog of sales orders at FebruaryAugust 28,31, 2026 is $20.8$55.2 million, downup from $27.1$52.8 million at the end of the prior year. Of the Company’s backlog as of FebruaryAugust 28,31, 2026, $8.2$9.5 million was on projects already in progress.

Accounts payable, at $1,129,000$1,043,000 as of FebruaryAugust 28,31, 2026, is 1%82% higher than the prior year-end. Accrued expenses decreased 32%31% from the prior year-endyear-end, to $2,773,000$2,042,000, due to athe reductionpayout of accruedfiscal year 2026 incentive compensation. The Company expects the accrued amounts to be paid or applied during the next twelve months.