Quarterly Report for Quarter Ending August 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

General:

Park Aerospace Corp. ("Park" or the "Company") develops and manufactures solution and hot-melt advanced composite materials used to produce composite structures for the global aerospace markets. Park's advanced composite materials include film adhesives and lightning strike protection materials. Park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement ("AFP") manufacturing applications. Park's advanced composite materials are used to produce primary and secondary structures for jet engines, large and regional transport aircraft, military aircraft, Unmanned Aerial Vehicles ("UAV"s commonly referred to as "drones"), business jets, general aviation aircraft and rotary wing aircraft. Park also offers specialty ablative materials for rocket motors and nozzles and specially designed materials for radome applications. As a complement to Park's advanced composite materials offering, Park designs and fabricates composite parts, structures and assemblies and low volume tooling for the aerospace industry. Target markets for Park's composite parts and structures (which include Park's proprietary composite Sigma Strut^TM and Alpha Strut^TM product lines) are, among others, prototype and development aircraft, special mission aircraft, spares for legacy military and civilian aircraft and exotic spacecraft.

Financial Overview

The Company's net sales in the 13 weeks and 26 weeks ended August 30, 2026 were $20.8 million and $39.1 million, respectively, compared to $16.4 million and $31.8 million, respectively, in the 13 weeks and 26 weeks ended August 31, 2025. The increase for the 13-week period was primarily due to higher sales to military and commercial markets partially offset by lower sales to the general aviation market. The increase in sales for the 26 weeks ended August 30, 2026 was due to higher sales to military and commercial markets. Sales in the 13-week and 26-week periods ended August 30, 2026 were negatively impacted by $0.9 million due to refunds to customers during the periods for amounts charged for tariffs in fiscal year 2026. The Company refunded these tariffs to customers subsequent to receiving refunds for these tariffs, which were originally paid in fiscal year 2026, from U.S. Customs and Border Protection during the second quarter of fiscal year 2027.

The Company's gross profit in the 13 weeks ended August 30, 2026 was higher than the gross profit in the prior year's comparable period due to the increase in sales, a more favorable product mix partially offset by higher materials, labor and overhead costs. The Company's gross profit in the 26 weeks ended August 30, 2026 was higher than the gross profit in the prior year's comparable period due to the higher sales in the period and a more favorable sales mix partially offset by the higher costs noted above. While sales were negatively impacted by the tariff refunds to customers, the impact was wholly offset by a reduction of cost of goods sold due to tariff refunds received by the Company during the quarter.

The Company's gross profit margins, measured as percentages of sales, were 34.3% and 34.6%, respectively, in the 13 weeks and 26 weeks ended August 30, 2026, compared to 31.2% and 30.9%, respectively, in the 13 weeks and 26 weeks ended August 31, 2025. The higher gross profit margins for the 13 and 26 weeks ended August 30, 2026 compared to the prior year's comparable periods were primarily due to higher sales in those periods, which allowed for improved leverage of fixed overhead costs and a more favorable sales mix partially offset by higher labor costs.

The Company's earnings before income taxes and net earnings increased 72.2% and 88.6%, respectively, in the 13 weeks ended August 30, 2026, compared to the 13 weeks ended August 31, 2025, primarily as a result of higher gross profit margins mentioned above and higher interest and other income partially offset by higher selling, general and administrative costs.

The Company's earnings before income taxes and net earnings increased 72.6% and 79.9%, respectively, in the 26 weeks ended August 30, 2026, compared to the 26 weeks ended August 31, 2025, primarily due to the higher gross profit margins mentioned above and higher interest and other income partially offset by higher selling, general and administrative expenses.

While the Company continues to experience inflation in costs of raw materials and supplies, freight costs and other costs and expenses, the impact of this has been largely mitigated by the Company's ability to adjust pricing for a large portion of its sales. The impact of global tariffs has been minimal and been largely mitigated by the Company's ability to adjust pricing of its products.

Programs in which the Company participates as a supplier are, in some cases, experiencing supply chain issues from other suppliers to the programs that could result in delays in production for certain customers of the Company. The Company's sales may be affected by supply chain challenges experienced by its customers as a result of delays involving other suppliers.

The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company's revenue, place orders. Long-term contracts with the Company's customers are primarily requirements-based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the contract. Purchase orders are generally received by the Company more than three months in advance of delivery.

Under a Business Partner Agreement with ArianeGroup SAS of Les Mureaux, France ("ArianeGroup"), Park is the exclusive North American distributor of ArianeGroup's RAYCARB C2®B NG proprietary product. RAYCARB C2®B NG is used to produce ablative composite materials for critical rocket and missile systems. Park is a long-term customer of ArianeGroup and uses ArianeGroup's RAYCARB C2®B NG product in the production of many of Park's key ablative materials, which Park supplies into critical rocket and missile programs. On March 27, 2025, Park and ArianeGroup entered into an agreement under which Park would advance funds to ArianeGroup against future purchases of C2®B product in the total amount in Euros of €4,587,000 payable in three installments. These advanced funds are to be used to help fund the purchase and installation, by ArianeGroup, of additional manufacturing equipment for ArianeGroup's production of C2®B product.

In July 2026, the Company entered into a sublease agreement covering approximately 18 acres of total land in Tulsa, Oklahoma. The Company plans to build a new composites material manufacturing and development facility on the site. The facility will include full production lab facilities, office space, storage and freezer space and ancillary equipment necessary to support all planned manufacturing operations. The sublease commences on September 1, 2026, and has an initial term of 25 years with a renewal option for an additional 25 years. Annual rent under the sublease agreement for the initial five years of the sublease would be $269,469 with increases for each subsequent five-year period based upon the Consumer Price Index for All Urban Consumers, U.S., City Average All Items as published by the U.S. Bureau of Labor Statistics ("BLS"). The Company expects economic development incentives to offset a significant portion of the rent expense.

Results of Operations:

The following table sets forth the components of the Condensed Consolidated Statements of Operations:

		13 Weeks Ended												26 Weeks Ended
(Amounts in thousands, except per share		August 30,				August 31,				%				August 30,				August 31,				%
amounts)		2026				2025				Change				2026				2025				Change
Net sales		$	20,791			$	16,381				26.9	%		$	39,103			$	31,781				23.0	%
Cost of sales			13,656				11,265				21.2	%			25,592				21,947				16.6	%
Gross profit			7,135				5,116				39.5	%			13,511				9,834				37.4	%
Selling, general and administrative expenses			2,403				2,271				5.8	%			4,764				4,570				4.2	%
Earnings from operations			4,732				2,845				66.3	%			8,747				5,264				66.2	%
Interest and other income			839				390				115.1	%			1,625				745				118.1	%
Earnings from operations before income taxes			5,571				3,235				72.2	%			10,372				6,009				72.6	%
Income tax provision (Note 9)			1,037				831				24.8	%			2,305				1,525				51.1	%
Net earnings		$	4,534			$	2,404				88.6	%		$	8,067			$	4,484				79.9	%
Earnings per share:
Basic:
Basic earnings per share		$	0.21			$	0.12				75.0	%		$	0.38			$	0.23				65.2	%
Diluted:
Diluted earnings per share		$	0.21			$	0.12				75.0	%		$	0.37			$	0.22				68.2	%

Net Sales

The Company's net sales in the 13 weeks and 26 weeks ended August 30, 2026, were $20.8 million and $39.1 million, respectively, compared to $16.4 million and $31.8 million, respectively, in the 13 weeks and 26 weeks ended August 31, 2025. Sales for the 13 weeks and 26 weeks ended August 30, 2026 were higher by 26.9% and 23.0%, respectively, primarily driven by higher sales in the military and commercial markets partially offset by lower sales in the general aviation market. Sales in the 13-week and 26-week periods ended August 30, 2026 were negatively impacted by $0.9 million due to refunds to customers during the periods for amounts charged for tariffs in fiscal year 2026. The Company refunded these tariffs to customers subsequent to receiving the refunds for these tariffs, which were originally paid in fiscal year 2026, from U.S. Customs and Border Protection during the second quarter of fiscal year 2027.

Gross Profit

The Company's gross profits in the 13 weeks and 26 weeks ended August 30, 2026 were higher than the gross profits in the prior year's comparable periods due to the higher sales mentioned above and a more favorable product mix partially offset by higher labor and overhead costs. The increased overhead costs were driven by higher salaries and fringe benefits, as well as increased utilities and shipping supplies.

The Company's gross profit margins, measured as a percentage of sales, were 34.3% and 34.6%, respectively, in the 13 weeks and 26 weeks ended August 30, 2026, compared to 31.2% and 30.9%, respectively, in the 13 weeks and 26 weeks ended August 31, 2025. The higher gross profit margins for the 13 and 26 weeks ended August 30, 2026 compared to the prior year's comparable periods, were primarily due to the higher sales volume in the 13-week and 26-week periods which allowed for improved leverage of fixed overhead costs and a more favorable product mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $132,000, or 5.8%, during the 13 weeks ended August 30, 2026 compared to the 13 weeks ended August 31, 2025, and these expenses, measured as percentages of sales, were 11.6% in the 13 weeks ended August 30, 2026 compared to 13.9% in the 13 weeks ended August 31, 2025. The increase in selling, general and administrative expenses during the 13 weeks ended August 30, 2026 was primarily due to higher freight costs, incentive compensation, information technology expenses, shareholder expenses, professional fees and trade show costs partially offset by lower legal expenses.

Selling, general and administrative expenses increased by $194,000, or 4.2%, during the 26 weeks ended August 30, 2026 compared to the 26 weeks ended August 31, 2025, and these expenses, measured as a percentage of sales, were 12.2% in the 26 weeks ended August 30, 2026 compared to 14.4% in the 26 weeks ended August 31, 2025. The increase in selling, general and administrative expenses during the 26 weeks ended August 30, 2026 was primarily due to the expenses noted above.

Selling, general and administrative expenses included stock option expenses of $84,000 and $176,000, respectively, for the 13 weeks and 26 weeks ended August 30, 2026, compared to stock option expenses of $101,000 and $189,000 for the 13 weeks and 26 weeks ended August 31, 2025.

Earnings from Operations

For the reasons set forth above, the Company's earnings from operations were $4.7 million and $8.7 million, respectively, for the 13 weeks and 26 weeks ended August 30, 2026, compared to $2.8 million and $5.3 million, respectively, for the 13 weeks and 26 weeks ended August 31, 2025.

Interest and Other Income

Interest and other income were $839,000 and $1,625,000, respectively, for the 13 weeks and 26 weeks ended August 30, 2026, compared to $390,000 and $745,000, respectively, for the prior year's comparable periods. Interest income increased 115.1% and 118.1%, respectively, for the 13 weeks and 26 weeks ended August 30, 2026, primarily due to higher cash and investment balances primarily driven by the cash raised from the Company's $50 million At The Market stock offering conducted in the fourth quarter of fiscal year 2026 and the second quarter of fiscal year 2027 as well as higher returns on cash and investments. These increases were partially offset by interest received in the prior year on tax refunds. During the 13 weeks and 26 weeks ended August 31, 2025, the Company earned interest income principally from its cash and investments, which consisted primarily of short-term instruments and money market funds.

Income Tax Provision

For the 13 weeks and 26 weeks ended August 30, 2026, the Company recorded income tax provisions of $1.0 million and $2.3 million, respectively, which included discrete income tax benefits of $430,000 and $430,000, respectively, for excess tax benefits from stock option exercises. For the 13 weeks and 26 weeks ended August 31, 2025, the Company recorded income tax provisions of $831,000 and $1.5 million, respectively, which included discrete income tax benefits of $10,000 and $38,000, respectively, for the excess tax benefits from stock option exercises offset by the accrual of interest related to unrecognized tax benefits.

The Company's effective tax rates for the 13 weeks and 26 weeks ended August 30, 2026 were 18.6% and 22.2%, respectively, compared to 25.7% and 25.4%, respectively, in the prior year's comparable periods. The effective tax rate for the 13 weeks ended August 30, 2026 was lower than the U.S. statutory rate of 21% due to the discrete tax benefits recorded in the period. Absent these benefits, the effective tax rate for the 13 weeks was higher than the U.S. statutory rate of 21% due to state and local taxes and liabilities. The effective rate for the 26 weeks ended August 30, 2026 was higher than the U.S. statutory rate of 21% primarily due to state and local taxes and liabilities, offset by excess tax benefits on stock option exercises. The effective tax rates for the 13 weeks and 26 weeks ended August 31, 2025 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and liabilities, and the accrual of interest related to unrecognized tax benefits offset by excess tax benefits on stock option exercises.

Net Earnings

For the reasons set forth above, the Company's net earnings for the 13 weeks and 26 weeks ended August 30, 2026 were $4.5 million and $8.1 million, respectively, compared to net earnings of $2.4 million and $4.5 million, respectively, for the 13 weeks and 26 weeks ended August 31, 2025.

Basic and Diluted Earnings Per Share

In the 13 weeks and 26 weeks ended August 30, 2026, basic earnings per share were $0.21 and $0.38, respectively, and diluted earnings per share were $0.21 and $0.37, respectively. In the 13 weeks and 26 weeks ended August 31, 2025, basic earnings per share were $0.12 and $0.23, respectively, and diluted earnings per share were $0.12 and $0.22, respectively.

Liquidity and Capital Resources

(Amounts in thousands)		August 30,				March 1,
		2026				2026				Change
Cash and cash equivalents and marketable securities		$	114,749			$	89,368			$	25,381
Working capital			133,784				102,714				31,070

		26 Weeks Ended
(Amounts in thousands)		August 30,				August 31,
		2026				2025				Change
Net cash provided by (used in) operating activities		$	1,270			$	(527	)		$	1,797
Net cash (used in) provided by investing activities			(5,927	)			14,931				(20,858	)
Net cash provided by (used in) financing activities			24,489				(6,482	)			30,971

On January 13, 2026, the Company entered into an Equity Distribution Agreement with Needham & Company, LLC ("Needham") and Citizens JMP Securities, LLC ("Citizens") (the "Distribution Agreement") with respect to an "at the market offering" program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.10 per share, having an aggregate offering price of up to $50.0 million through Needham and Citizens as its sales agents. The Company is not obligated to sell any shares under the Distribution Agreement. Subject to the terms and conditions of the Distribution Agreement, Needham and Citizens will use commercially reasonable efforts, consistent with their normal trading and sales practices and applicable laws and regulations, to sell shares of the Company's common stock from time to time based upon instructions received from the Company, including any price, time or size limits or other customary parameters or conditions specified, subject to certain limitations. Under the Distribution Agreement, Needham and Citizens may sell shares of the Company's common stock by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The issuance and sale, if any, of shares of the Company's common stock under the Distribution Agreement are made pursuant to a registration statement on Form S-3 that the Company filed with the U.S. Securities and Exchange Commission ("SEC") on January 13, 2026 and was declared effective on January 21, 2026. The offering is described in a prospectus filed as part of the registration statement. During the fiscal year ended March 1, 2026, the Company sold 942,749 shares under the Distribution Agreement at an average price of $24.21 per share. Gross proceeds of $22.8 million were reduced by commissions and other expenses of $1.1 million resulting in net proceeds of $21.7 million. During the quarter ended August 30, 2026, the Company completed sales under the program. During that period, the Company sold 869,852 shares at an average price of $31.24 per share. Gross proceeds of $27.2 million were reduced by commissions and other expenses of $0.9 million resulting in net proceeds of $26.3 million.

Cash and Marketable Securities

Of the $114.7 million of cash and cash equivalents and marketable securities at August 30, 2026, $32.8 million was owned by one of the Company's wholly-owned foreign subsidiaries.

The change in cash and cash equivalents and marketable securities at August 30, 2026 compared to March 1, 2026 was the result of the $26.3 million of proceeds from the issuance of common stock under the "at the market offering" described above and improved earnings in the 26 weeks ended August 30, 2026. These increases were partially offset by capital expenditures, dividends paid to shareholders, and the payment of a supplier advance of $2.2 million paid in May 2026. The significant changes in cash provided by (used in) operating activities were as follows:

●

accounts receivable increased by 35% at August 30, 2026 compared to March 1, 2026 primarily due to the timing of sales in the 13 weeks ended August 30, 2026 compared to the 13 weeks ended March 1, 2026;

●

inventories increased by 21% at August 30, 2026 compared to March 1, 2026 primarily due to higher raw materials and finished goods inventories to support expected growth in the remainder of fiscal 2027;

●

prepaid and other current assets increased by 51% at August 30, 2026 compared to March 1, 2026 primarily due to higher accrued interest income balances on cash and investments as well as higher prepaid insurance and information technology contracts;

●

other assets increased $2.1 million during the 26 weeks ended August 30, 2026 due to a long-term supplier advance paid in May 2026;

●

accounts payable decreased by 2% at August 30, 2026 compared to March 1, 2026 primarily due to timing of vendor payments;

●

accrued liabilities increased by 4% at August 30, 2026 compared to March 1, 2026 primarily due to increases in profit sharing and vacation and sick pay accruals partially offset by decreases in bonus, and property tax accruals; and

●

income taxes payable increased by 31% at August 30, 2026 compared to March 1, 2026 due to higher earnings in fiscal 2027.

In addition, the Company paid $5.3 million in cash dividends in the 26-week period ended August 30, 2026 compared to $5.0 million in the 26-week period ended August 31, 2025. The Company received proceeds from stock option exercises of $3.6 million in the 26-week period ended August 30, 2026 compared to proceeds of $0.7 million from stock option exercises during the 26-week period ended August 31, 2025. While the Company did not repurchase shares in the 26 weeks ended August 30, 2026, the Company used cash of $2.2 million to repurchase shares during the 26 weeks ended August 31, 2025.

Working Capital

The increase in working capital at August 30, 2026 compared to March 1, 2026 was primarily due to higher cash and investment balances at August 30, 2026 for the reasons described above as well as higher accounts receivable and inventory balances.

The Company's current ratio (the ratio of current assets to current liabilities) was 22.7 to 1.0 at August 30, 2026, compared to 18.2 to 1.0 at March 1, 2026.

Cash Flows

During the 26 weeks ended August 30, 2026, the Company's net earnings, adjusted for depreciation and amortization, deferred income taxes, stock-based compensation, amortization of bond premium, provision for credit losses, loss on sale of marketable securities and changes in operating assets and liabilities, resulted in a $1.3 million operating cash inflow compared to a cash outflow of $0.5 million for the 26 weeks ended August 31, 2025. The increase was driven by increased earnings during the 26 weeks ended August 30, 2026. During the same 26-week period, the Company expended $469,000 for the purchase of property, plant and equipment compared with $664,000 during the 26 weeks ended August 31, 2025. The Company paid $5.3 million in cash dividends in the 26-week period ended August 30, 2026 compared to $5.0 million in the 26-week period ended August 31, 2025. The Company received proceeds from stock option exercises of $3.6 million during the 26 weeks ended August 30, 2026 compared to $0.7 million during the 26 weeks ended August 31, 2025. The Company purchased no treasury shares during the 26 weeks ended August 30, 2026 while it purchased $2.2 million in the 26-week period ended August 31, 2025.

Other Liquidity Factors

The Company believes its financial resources will be sufficient, through the 12 months following the filing of this Form 10-Q Quarterly Report and for the foreseeable future thereafter, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes, including the Company's plans to build a new composites material manufacturing and development facility with an expected cost of approximately $65 million. The Company's financial resources are also available for purchases of the Company's common stock, cash dividend payments, and appropriate acquisitions and other expansions of the Company's business.

The Company is not aware of any other circumstances or events that are reasonably likely to occur that could materially affect its liquidity. The Company further believes its balance sheet and financial position to be very strong.

Contractual Obligations:

The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist primarily of operating lease commitments, commitments to purchase raw materials and remaining advance payable to ArianeGroup SAS. In March 2025, the Company entered into an agreement with a supplier, ArianeGroup SAS, under which the Company would advance funds against future purchases. The agreement requires payments of €4,587,000 in three installments, of which €1,376,000 was paid in April 2025 (actual cost of $1,564,000), €1,835,000 was paid in May 2026 (actual cost of $2,156,000) and €1,376,000 (approximately $1,549,000 based on October 5, 2026 exchange rates) that will be paid in the third quarter of fiscal 2027. Under the agreement, the Company commits to purchase C2®B product through December 2033 at an estimated cost of €36,000,000. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $140,000, to secure the Company's obligations under its workers' compensation insurance program. In July 2026, the Company entered into a sublease agreement covering approximately 18 acres of total land in Tulsa, Oklahoma. The Company plans to build a new composites material manufacturing and development facility on the site. The facility will include full production lab facilities, office space, storage and freezer space and ancillary equipment necessary to support all planned manufacturing operations. The sublease commences on September 1, 2026, and has an initial term of 25 years with a renewal option for an additional 25 years. Annual rent under the sublease agreement for the initial five years of the sublease would be $269,469 with increases for each subsequent five-year period based upon the Consumer Price Index for All Urban Consumers, U.S., City Average All Items as published by the U.S. Bureau of Labor Statistics ("BLS"). The Company expects economic development incentives to offset a significant portion of the rent expense.

Off-Balance Sheet Arrangements:

The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities.

Critical Accounting Policies and Estimates:

The foregoing Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company's Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to sales allowances, allowances for credit losses, inventories, valuation of long-lived assets, income taxes, contingencies and litigation, and employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company's critical accounting policies that are important to the Condensed Consolidated Financial Statements and that entail, to a significant extent, the use of estimates and assumptions and the application of management's judgment are described in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 2026. There have been no significant changes to such accounting policies during the 2027 fiscal year second quarter.

Contingencies:

The Company is subject to a small number of immaterial proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters.

Factors That May Affect Future Results.

Certain portions of this report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from the Company's expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Such factors include, but are not limited to, general conditions in the aerospace industry, the Company's competitive position, the status of the Company's relationships with its customers, economic conditions in international markets, the cost and availability of raw materials, transportation and utilities, and the various factors set forth under the caption "Factors That May Affect Future Results" in Item 1 and in Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 2026.