UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


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


			For the quarterly period ended			September 30, ~~2022~~2023


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


			For the transition period from						to

			Commission file number						1-367


THE L. S. STARRETT COMPANY
(Exact name of registrant as specified in its charter)


Massachusetts						04-1866480
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


121 Crescent Street, Athol, Massachusetts			01331-1915
(Address of principal executive offices)			(Zip Code)


Registrant's telephone number, including area code			978-249-3551

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common - $1.00 Per Share Par Value	SCX	New York Stock Exchange
Class B Common - $1.00 Per Share Par Value	Not applicable	Not applicable

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒


Common Shares outstanding as of						October ~~26, 2022~~24, 2023
Class A Common Shares						~~6,787,025~~6,934,387
Class B Common Shares						~~595,381~~549,319

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “anticipate”, “believe”, “contemplate”, “continue”, “could”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “will”, “would”, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in our Annual Report on Form 10-K and other filings with the Securities Exchange Commission (the “SEC”). You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K, as amended, for the year ended June 30, ~~2022~~2023.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Table of Contents

THE L. S. STARRETT COMPANY

CONTENTS


			Page No.

Part I.	Financial Information:

	Item 1.	Financial Statements	4

		Condensed Consolidated Balance Sheets – September 30, ~~2022~~2023 (unaudited) and June 30, ~~2022~~2023	4

		Condensed Consolidated Statements of Operations (unaudited)– three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	5

		Condensed Consolidated Statements of Comprehensive ~~Income~~ (Loss) (unaudited) – three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	6

		Condensed Consolidated Statements of Stockholders' Equity (unaudited) – three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	7

		Condensed Consolidated Statements of Cash Flows (unaudited) - three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022	8

		Notes to Unaudited Condensed Consolidated Financial Statements	9-18

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1716

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2120

	Item 4.	Controls and Procedures	2120

Part II.	Other Information:

	Item 1A.	Risk Factors	2221

	Item 6.	Exhibits	2322

SIGNATURES			2423

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Condensed Consolidated Balance Sheets

(in thousands except share data)

(unaudited)


		9/30/2022		6/30/2022			9/30/2023		6/30/2023
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	11,902	$	14,523	Cash	$	12,529	$	10,454
Accounts receivable (less allowance for credit losses of $770 and $796, respectively)		38,062		42,961
Accounts receivable (less allowance for credit losses of $508 and $449, respectively)						Accounts receivable (less allowance for credit losses of $508 and $449, respectively)	34,506		36,611
Inventories	Inventories	70,085		66,900		Inventories	65,126		65,414
Prepaid expenses and other current assets	Prepaid expenses and other current assets	10,142		8,669		Prepaid expenses and other current assets	9,859		9,723
Total current assets	Total current assets	130,191		133,053		Total current assets	122,020		122,202

Property, plant and equipment, net	Property, plant and equipment, net	36,178		37,116		Property, plant and equipment, net	42,600		39,375
Right of use assets	Right of use assets	5,026		5,540		Right of use assets	4,630		4,931

Deferred tax assets, net	Deferred tax assets, net	14,351		14,924		Deferred tax assets, net	17,313		17,056
Intangible assets, net	Intangible assets, net	4,506		4,640		Intangible assets, net	4,774		4,672
Goodwill	Goodwill	1,015		1,015		Goodwill	1,015		1,015
Other assets	Other assets	3,162		3,266		Other assets	3,417		3,551
Total assets	Total assets	$	194,429	$	199,554	Total assets	$	195,769	$	192,802

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of debt	Current maturities of debt	$	5,384	$	6,547	Current maturities of debt	$	5,270	$	4,961
Current lease liability	Current lease liability	1,432		1,530		Current lease liability	1,625		1,689
Accounts payable	Accounts payable	15,748		14,624		Accounts payable	16,587		15,047
Accrued expenses	Accrued expenses	10,429		11,776		Accrued expenses	11,646		11,579
Accrued compensation	Accrued compensation	5,521		6,703		Accrued compensation	6,379		6,287
Total current liabilities	Total current liabilities	38,514		41,180		Total current liabilities	41,507		39,563

Other tax obligations	Other tax obligations	2,839		2,936		Other tax obligations	2,859		2,884
Long-term lease liability	Long-term lease liability	3,777		4,166		Long-term lease liability	3,149		3,423
Long-term debt, net of current portion	Long-term debt, net of current portion	24,007		24,905		Long-term debt, net of current portion	7,944		5,273
Postretirement benefit and pension obligations	Postretirement benefit and pension obligations	23,459		23,938		Postretirement benefit and pension obligations	11,320		12,192
Total liabilities	Total liabilities	92,596		97,125		Total liabilities	66,779		63,335
Contingencies (Note 12)						Contingencies (Note 12)

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,770,681 outstanding at September 30, 2022 and 6,682,521 outstanding at June 30, 2022)		6,771		6,683
Class B Common stock $1 par (10,000,000 shares authorized; 596,903 outstanding at September 30, 2022 and 610,087 outstanding at June 30, 2022		597		610
Class A Common stock $1 par (20,000,000 shares authorized; 8,340,540 issued, and 6,932,646 outstanding at September 30, 2023 and 8,265,033 issued and 6,853,673 outstanding at June 30, 2023)						Class A Common stock $1 par (20,000,000 shares authorized; 8,340,540 issued, and 6,932,646 outstanding at September 30, 2023 and 8,265,033 issued and 6,853,673 outstanding at June 30, 2023)	6,933		6,854
Class B Common stock $1 par (10,000,000 shares authorized; 851,907 issued 551,039 outstanding at September 30, 2023 and 875,192 issued and 576,396 outstanding at June 30, 2023)						Class B Common stock $1 par (10,000,000 shares authorized; 851,907 issued 551,039 outstanding at September 30, 2023 and 875,192 issued and 576,396 outstanding at June 30, 2023)	551		576
Additional paid-in capital	Additional paid-in capital	57,247		57,143		Additional paid-in capital	57,813		57,825
Retained earnings	Retained earnings	91,115		89,059		Retained earnings	114,067		112,147
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(53,897)		(51,066)		Accumulated other comprehensive loss	(50,374)		(47,935)
Total stockholders' equity	Total stockholders' equity	101,833		102,429		Total stockholders' equity	128,990		129,467
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	194,429	$	199,554	Total liabilities and stockholders’ equity	$	195,769	$	192,802

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Operations

(in thousands except per share data)

(unaudited)

Three Months Ended
9/30/2022 9/30/2021
Net sales $ 60,461 $ 61,514
Cost of goods sold 40,261 41,369
Gross profit 20,200 20,145
% of Net sales 33.4 % 32.7 %
Restructuring charges 190 —
Selling, general and administrative expenses 16,294 16,012
Operating income 3,716 4,133
Other (expense) income (676) 226
Income before income taxes 3,040 4,359
Income tax expense 984 1,127
Net income $ 2,056 $ 3,232
Basic income per share $ 0.28 $ 0.45
Diluted income per share $ 0.27 $ 0.44
Weighted average outstanding shares used in per share calculations:
Basic 7,304 7,126
Diluted 7,505 7,396


	Three Months Ended
	9/30/2023			9/30/2022

Net sales	$	60,636		$	60,461
Cost of goods sold	41,100			40,261
Gross profit	19,536			20,200
% of Net sales	32.2		%	33.4		%

Restructuring charges	—			190
Selling, general and administrative expenses	17,077			16,294

Operating income	2,459			3,716

Other (expense)	(365)			(676)

Income before income taxes	2,094			3,040

Income tax expense	174			984

Net income	$	1,920		$	2,056


Basic income per share	$	0.26		$	0.28
Diluted income per share	$	0.25		$	0.27

Weighted average outstanding shares used in per share calculations:
Basic	7,437			7,304
Diluted	7,608			7,505

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Comprehensive ~~Income~~ (Loss)

(in thousands)

(unaudited)


		Three Months Ended				Three Months Ended
		9/30/2022		9/30/2021				9/30/2023		9/30/2022

Net income	Net income	$	2,056	$	3,232		Net income	$	1,920	$	2,056
Other comprehensive (loss):	Other comprehensive (loss):						Other comprehensive (loss):
Currency translation (loss), net of tax	Currency translation (loss), net of tax	(2,806)		(3,611)			Currency translation (loss), net of tax	(2,405)		(2,806)
Pension and postretirement plans, net of tax	Pension and postretirement plans, net of tax	(25)		(66)			Pension and postretirement plans, net of tax	(34)		(25)
Other comprehensive (loss)	Other comprehensive (loss)	(2,831)		(3,677)			Other comprehensive (loss)	(2,439)		(2,831)

Total comprehensive (loss) income		$	(775)	$	(445)
Total comprehensive (loss)							Total comprehensive (loss)	$	(519)	$	(775)

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Stockholders' Equity

(in thousands)

(unaudited)

For the Three Month Period Ended September 30, ~~2022:~~2023:


		Common Stock Outstanding				Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total				Common Stock Outstanding						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
		Class A		Class B								Class A								Class B

Balance June 30, 2022		$	6,683	$	610			$	57,143						$	89,059			$	(51,066)			$	102,429
Balance June 30, 2023																				Balance June 30, 2023	$	6,854			$	576		$	57,825		$	112,147		$	(47,935)		$	129,467
Total comprehensive income (loss)	Total comprehensive income (loss)	—		—		—				2,056			(2,831)				(775)			Total comprehensive income (loss)	—				—		—			1,920			(2,439)			(519)
Repurchase of shares	Repurchase of shares	—		(1)		(5)				—			—				(6)			Repurchase of shares	—				(2)		(21)			—			—			(23)
Stock-based compensation	Stock-based compensation	76		—		109				—			—				185			Stock-based compensation	56				—		9			—			—			65
Conversion	Conversion	12		(12)		—				—			—				—			Conversion	23				(23)		—			—			—			—
Balance September 30, 2022		$	6,771	$	597	$	57,247			$	91,115		$	(53,897)			$	101,833
Balance September 30, 2023																				Balance September 30, 2023	$	6,933			$	551	$	57,813		$	114,067		$	(50,374)		$	128,990

Accumulated balance consists of:	Accumulated balance consists of:																			Accumulated balance consists of:
Translation loss	Translation loss												$	(62,881)						Translation loss													$	(58,245)
Pension and postretirement plans, net of taxes	Pension and postretirement plans, net of taxes												8,984							Pension and postretirement plans, net of taxes													7,871
													$	(53,897)																			$	(50,374)

For the Three Month Period Ended September 30, ~~2021:~~2022:


		Common Stock Outstanding				Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total				Common Stock Outstanding						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
		Class A		Class B								Class A								Class B

Balance June 30, 2021		$	6,475	$	634			$	56,507						$	74,181			$	(54,262)			$	83,535
Balance June 30, 2022																				Balance June 30, 2022	$	6,683			$	610		$	57,143		$	89,059		$	(51,066)		$	102,429
Total comprehensive income (loss)	Total comprehensive income (loss)	—		—		—				3,232			(3,677)				(445)			Total comprehensive income (loss)	—				—		—			2,056			(2,831)			(775)

Repurchase of shares	Repurchase of shares	—		(2)		(14)				—			—				(16)			Repurchase of shares	—				(1)		(5)			—			—			(6)

Stock-based compensation	Stock-based compensation	119		—		55				—			—				174			Stock-based compensation	76				—		109			—			—			185
Conversion	Conversion	25		(25)		—				—			—				—			Conversion	12				(12)		—			—			—			—
Balance September 30, 2021		$	6,619	$	607	$	56,548			$	77,413		$	(57,939)			$	83,248
Balance September 30, 2022																				Balance September 30, 2022	$	6,771			$	597	$	57,247		$	91,115		$	(53,897)		$	101,833

Accumulated balance consists of:	Accumulated balance consists of:																			Accumulated balance consists of:
Translation loss	Translation loss												$	(59,657)						Translation loss													$	(62,881)
Pension and postretirement plans, net of taxes	Pension and postretirement plans, net of taxes												1,718							Pension and postretirement plans, net of taxes													8,984
													$	(57,939)																			$	(53,897)

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended
9/30/2022 9/30/2021
Cash flows from operating activities:
Net income $ 2,056 $ 3,232
Non-cash operating activities:
Depreciation 1,288 1,262
Amortization 363 335
Stock-based compensation 185 174
Net long-term tax obligations 18 38
Deferred taxes 356 193
Postretirement benefit and pension obligations 162 (353)
Working capital changes:
Accounts receivable 3,135 (5,797)
Inventories (5,022) (2,887)
Other current assets (1,740) (1,888)
Other current liabilities 31 104
Prepaid pension expense (263) (288)
Other 59 34
Net cash provided by (used in) operating activities 628 (5,841)
Cash flows from investing activities:
Purchases of property, plant and equipment (960) (2,334)
Software development (202) (290)
Net cash (used in) investing activities (1,162) (2,624)
Cash flows from financing activities:
Proceeds from borrowing 575 13,767
Debt repayments (2,663) (8,040)
Shares repurchased (6) (16)
Net cash provided (used in) by financing activities (2,094) 5,711
Effect of exchange rate changes on cash 7 276
Net decrease in cash (2,621) (2,478)
Cash, beginning of period 14,523 9,105
Cash, end of period $ 11,902 $ 6,627
Supplemental cash flow information:
Interest paid $ 374 $ 224
Income taxes paid, net 2,244 1,116


	Three Months Ended
	9/30/2023		9/30/2022

Cash flows from operating activities:

Net income	$	1,920	$	2,056

Non-cash operating activities:
Depreciation	1,377		1,288
Amortization	260		363
Stock-based compensation	65		185
Net long-term tax obligations	23		18
Deferred taxes	(454)		356
Postretirement benefit and pension obligations	153		162
Working capital changes:
Accounts receivable	1,057		3,135
Inventories	(892)		(5,022)
Other current assets	(370)		(1,740)
Other current liabilities	2,511		31
Prepaid pension expense	(903)		(263)
Other	71		59
Net cash provided by operating activities	4,818		628

Cash flows from investing activities:
Purchases of property, plant and equipment	(3,145)		(960)
Software development	(367)		(202)
Net cash (used in) investing activities	(3,512)		(1,162)

Cash flows from financing activities:

Proceeds from line of credit borrowings	2,000		575
Term debt repayments	(1,047)		(2,663)


Shares repurchased	(23)		(6)
Net cash provided by (used in) financing activities	930		(2,094)

Effect of exchange rate changes on cash	(161)		7

Net increase (decrease) in cash	2,075		(2,621)
Cash, beginning of period	10,454		14,523
Cash, end of period	$	12,529	$	11,902

Supplemental cash flow information:
Interest paid	$	150	$	374
Income taxes paid, net	987		2,244
Property and equipment acquired through term-loan borrowings	2,000		—

See Notes to Unaudited Condensed Consolidated Financial Statements

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THE L. S. STARRETT COMPANY

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, ~~2022~~2023

Note 1: Basis of Presentation and Summary of Significant Accounting Policies

The unaudited ~~interim consolidated financial statements~~Condensed Consolidated Financial Statements as of and for the three months ended September 30, ~~2022~~2023 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited ~~consolidated financial statements,~~Condensed Consolidated Financial Statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the ~~consolidated financial statements~~audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the year ended June 30, ~~2022.~~2023. The balance sheet as of June 30, ~~2022~~2023 has been derived from the audited ~~consolidated financial statements~~Consolidated Financial Statements as of and for the year ended June 30, ~~2022.~~2023. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for ~~doubtful accounts~~credit losses is the Company's estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered.

Fair Value Measurements

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 10 and 11 to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for financial assets and liabilities held at carrying amount on the ~~consolidated balance sheet.~~unaudited Condensed Consolidated Balance Sheet.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes. Note 2 within the notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and the Company’s ~~consolidated financial statements~~Consolidated Financial Statements included in the Annual Report on Form 10-K, as amended, for the year ended June 30, ~~2022~~2023 describes the significant accounting policies and methods used in the preparation of the ~~consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

~~Note 2: Recently Adopted Accounting Pronouncements~~

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments -Credit Losses" (ASC 326) "Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace historic incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This pronouncement was extended for Small Reporting Companies and for the Company beginning July 1, 2022. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Note 3:2: Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the condensed consolidated financial statements entitled “Financial Information by ~~Segment & Geographic Area”~~Segment” included in our Annual Report on Form 10-K, as amended, for the year ended June 30, ~~2022.~~2023. The chief operating decision maker, who is the Company’s ~~business is aggregated into two reportable segments~~President and CEO, allocates resources and assesses performance based on ~~geography of operations:~~three segments: North ~~American Operations~~America Industrial "NAI", International Industrial "INI" and ~~International Operations ("International")~~Global Test and Measurement "GTM".

Segment income

~~Table of Contents~~

is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets

Table of Contents

from the Annual ~~Report.~~Report on Form 10-K, as amended for the year ended June 30, 2023. Financial results for each reportable segment are as follows (in thousands):


		North American Operations		International Operations		Unallocated		Total			NAI		INI		GTM		Unallocated		Total
Three Months Ended September 30, 2022
Three Months Ended September 30, 2023										Three Months Ended September 30, 2023

Sales1	Sales1	$	36,484	$	23,977	$	—	$	60,461	Sales1	$	19,470	$	25,374	$	15,792	$	—	$	60,636

Operating Income (Loss)	Operating Income (Loss)	$	3,198	$	2,836	$	(2,318)	$	3,716	Operating Income (Loss)	$	(683)	$	2,760	$	2,371	$	(1,989)	$	2,459

Three Months Ended September 30, 2021
Three Months Ended September 30, 2022										Three Months Ended September 30, 2022

Sales2	Sales2	$	33,809	$	27,705	$	—	$	61,514	Sales2	$	22,371	$	23,299	$	14,791	$	—	$	60,461

Operating Income (Loss)	Operating Income (Loss)	$	2,501	$	3,583	$	(1,951)	$	4,133	Operating Income (Loss)	$	700	$	2,880	$	2,278	$	(2,142)	$	3,716

1.Excludes ~~$927~~$334 of ~~North American~~NAI segment intercompany sales to the ~~International~~INI segment, ~~and $5,035~~$78 of ~~International~~GTM segment intercompany sales to the ~~North American segment.~~INI segment, $3,475 of INI segment intercompany sales to NAI and $202 of GTM intercompany sales to NAI.

2.Excludes ~~$749~~$652 of ~~North American~~NAI segment intercompany sales to the ~~International~~INI segment, ~~and $5,336~~$275 of ~~International~~GTM segment intercompany sales to the ~~North American segment.~~INI segment, $4,626 of INI segment intercompany sales to NAI and $409 of GTM intercompany sales to NAI.

Note 4:3: Revenue from Contracts with Customers

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the ~~Unaudited~~unaudited Condensed Consolidated Balance Sheet. As of September 30, ~~2022,~~2023, and June 30, ~~2022,~~2023, the balance of the return asset was ~~$0.1~~ $0.2 million and $0.1 million, respectively, and the balance of the refund liability was ~~$0.2~~$0.3 million and $0.2 million, respectively. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the unaudited Condensed Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to one year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had contract liability balances of $~~0.5~~0.3 million and ~~$0.9~~$0.3 million at September 30, ~~2022~~2023 and June 30, ~~2022,~~2023, respectively, located in Accounts Payable in the unaudited Condensed Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in ~~two~~three reportable segments: ~~North America~~NAI, INI and ~~International.~~GTM. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):

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		Three Months Ended				Three Months Ended
		9/30/2022		9/30/2021				9/30/2023		9/30/2022
North America	North America						North America
United States	United States	$	34,272	$	32,020		United States	$	32,777	$	34,272
Canada & Mexico	Canada & Mexico	2,212		1,789			Canada & Mexico	1,758		2,212
		36,484		33,809				34,535		36,484
International	International						International
Brazil	Brazil	17,248		19,203			Brazil	19,430		17,248
United Kingdom	United Kingdom	3,201		4,968			United Kingdom	3,535		3,201
China	China	1,686		1,618			China	1,456		1,686
Australia & New Zealand	Australia & New Zealand	1,842		1,916			Australia & New Zealand	1,680		1,842
		23,977		27,705				26,101		23,977

Total Sales	Total Sales	$	60,461	$	61,514		Total Sales	$	60,636	$	60,461

Note 54: Leases

Operating lease ~~cost~~expense amounted to $0.5 million and ~~$0.7~~$0.5 million for three months period ended September 30, ~~2022~~2023 and ~~2021.~~2022. As of September 30, ~~2022,~~2023, the Company’s right-of-use "ROU" assets, lease obligations and remaining cash commitment on these leases were as follows (in thousands):

Right-of-Use
Assets Operating Lease
Obligations Remaining Cash
Commitment
Operating leases 5,026 $ 5,209 $ 6,637


	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	4,630	$	4,773	$	5,486

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and ~~3.9~~3.1 years. As of September 30, ~~2022,~~2023, the Company’s financing leases are ~~de minimis.~~not material. The foreign exchange impact affecting the operating leases are, ~~de minimis.~~also, not material.

~~In September 2021,~~There are no significant changes to fiscal year minimum operating lease commitments as reported in Note 9 to the ~~Company entered into a six year lease in China for 100,682 square feet and recorded a right of use asset for $2.6 million.~~

In July 2021, Starrett UK leased space to another company for annual rent of $0.2 million and incremental applicable service charges. The lease is a 20 year agreement with a contract review in 2026. The fees are recorded in Other IncomeConsolidated Financial Statements in the Company's ~~Consolidated Statement of Operations.~~Annual Report on Form 10-K, as amended, for the period ended June 30, 2023.

Note 6:5: Stock-based Compensation

Compensation expense related to all stock-based plans for the three-month ~~periods~~period ended September 30, ~~2022 and 2021~~2023 was $0.1 million recorded and adjusted down for ~~both periods.~~cancelled performance shares and for the three-month period ended 2022 as $0.1 million.

Note7: 6: Inventories

Inventories consist of the following (in thousands):


	9/30/2023		6/30/2023
Raw material and supplies	$	36,975	$	36,402
Goods in process and finished parts	20,153		20,978
Finished goods	34,305		34,414
	91,433		91,794
LIFO Reserve	(26,307)		(26,380)
Total Inventory	$	65,126	$	65,414

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9/30/2022 6/30/2022
Raw material and supplies $ 36,668 $ 35,752
Goods in process and finished parts 23,205 22,268
Finished goods 36,212 35,589
96,085 93,609
LIFO Reserve (26,000) (26,709)
$ 70,085 $ 66,900

Of the Company’s ~~$70.1~~$65.1 million and ~~$66.9~~$65.4 million total inventory at September 30, ~~2022~~2023 and June 30, ~~2022,~~2023, respectively, the ~~$26.0~~$26.3 million and ~~$26.7~~$26.4 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was ~~$41.6~~$37.8 million on a FIFO basis and ~~$15.6~~$11.5 million on a LIFO basis at September 30, ~~2022.~~2023. The Core U.S. business had total Inventory, on a FIFO basis, of ~~$39.3~~$38.1 million and ~~$12.6~~$11.7 million on a LIFO basis as of June 30, ~~2022.~~2023. The use of LIFO, as compared to FIFO, resulted in a ~~$0.7~~$0.1 million decrease in cost of sales for the goods sold in the three month period ended September 30, ~~2022~~2023 compared to ~~$4.6~~$0.3 million decrease in ~~fiscal~~the three month period ended September 30, 2022.

Note8: 7: Goodwill and Intangible Assets

Amortizable intangible assets consist of the following (in thousands):


		9/30/2022		6/30/2022			9/30/2023		6/30/2023
Trademarks and trade names	Trademarks and trade names	2,070		2,070		Trademarks and trade names	$	2,070	$	2,070
Completed technology		—		—
Customer relationships	Customer relationships	630		630		Customer relationships	630		630
Software development	Software development	11,471		11,269		Software development	9,429		11,149

Other intangible assets						Other intangible assets	101		105
Gross intangible assets	Gross intangible assets	14,171		13,969		Gross intangible assets	12,230		13,954
Accumulated amortization and impairment	Accumulated amortization and impairment	(9,665)		(9,329)		Accumulated amortization and impairment	(7,456)		(9,282)

Net intangible assets	Net intangible assets	$	4,506	$	4,640	Net intangible assets	$	4,774	$	4,672

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for trademark and trade name assets.

The goodwill gross balance at ~~June~~September 30, ~~2022, gross~~2023 was $4.7 million and accumulated impairment of $3.7 million. There was no change to goodwill in the three months ended September 30, ~~2022~~2023 and the balance is a net $1.0 million.

Note 89:: Accrued Expenses (in thousands):


		09/30/2022		06/30/2022			09/30/2023		06/30/2023
Sales related programs (commissions, rebates, distributor programs, warranty and related)	Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	2,868	$	2,733	Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	2,893	$	2,590
Income taxes	Income taxes	614		2,420		Income taxes	192		509
Professional fees	Professional fees	1,669		1,758		Professional fees	2,412		2,237
Other	Other	1,562		1,463		Other	1,319		1,499
Current portion pension cost	Current portion pension cost	1,297		1,289		Current portion pension cost	2,215		2,216
Taxes other than income tax	Taxes other than income tax	1,058		1,243		Taxes other than income tax	1,950		1,888
Workers compensation and employee deposits	Workers compensation and employee deposits	558		518		Workers compensation and employee deposits	377		491
Freight	Freight	803		352		Freight	288		149
Total	Total	$	10,429	$	11,776	Total	$	11,646	$	11,579

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Note ~~10:~~9: Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees which was frozen for new participants in 2016 and another for U.K. ~~employees.~~employees frozen for new participants in 2009. The Company has a postretirement medical ~~and~~ insurance benefit plan for U.S. ~~employees.~~employees which remains open. The Company also has defined contribution plans.

~~The U.K. defined benefit plan was closed to new entrants in fiscal 2009.~~

On December 21, 2016, the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective December 31, 2016. Consequently, the Plan is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

Net periodic benefit costs for the Company's defined benefit pension plans are located in Other (expense) in the unaudited Condensed Consolidated Statements of Operations except ~~(in the table below)~~ for service cost. Service cost are in cost of sales and selling, general and administrative ~~expenses.~~expenses allocated on headcount. Net periodic benefit costs consist of the following (in thousands):

Three Months Ended
9/30/2022 9/30/2021
Interest cost 1,482 1,033
Expected return on plan assets (1,032) (1,100)
Amortization of net loss 10 14
$ 460 $ (53)

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	Three Months Ended
	9/30/2023		9/30/2022

Interest cost	1,552		1,482
Expected return on plan assets	(1,098)		(1,032)
Amortization of net loss	10		10
	$	464	$	460

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):


		Three Months Ended				Three Months Ended
		9/30/2022		9/30/2021				9/30/2023		9/30/2022
Service cost	Service cost	$	6	$	9		Service cost	$	5	$	6
Interest cost	Interest cost	18		12			Interest cost	17		18
Amortization of prior service credit	Amortization of prior service credit	(369)		(368)			Amortization of prior service credit	(369)		(369)
Amortization of net loss	Amortization of net loss	44		47			Amortization of net loss	31		44
		$	(301)	$	(300)			$	(316)	$	(301)

For the three ~~month period~~months ended September 30, ~~2022,~~ 2023, the Company contributed ~~zero~~ $0.6 million in the U.S. and $0.2 million in the UK pension plans. Based upon the actuarial valuations performed on the Company’s defined benefit plans ~~as of September 30, 2022,~~ the contribution for fiscal ~~2023~~2024 for the U.S. plans ~~would require~~requires a contribution of ~~$1.4~~$3.0 million and the U.K. plan ~~would require~~ requires one of ~~$0.8 million~~$0.9 million. However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan in fiscal ~~2022 was reduced from $1.4 million to~~ ~~$0.6 million~~.2024 can be lower. The Company believes that government regulation is only a small part of deciding the pension funding, and as a result, may contribute more than the federal requirement. The Company contributed ~~$2.5~~$2.2 million in total during fiscal year ~~2022,~~2023, with ~~$1.5~~$1.4 million in the U.S. and ~~$1.0~~$0.8 million in the U.K.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10%) of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of accumulated other comprehensive loss.

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Note ~~11:~~10: Debt

Debt is comprised of the following (in thousands):


		9/30/2022		6/30/2022			9/30/2023		6/30/2023
Short-term and current maturities	Short-term and current maturities					Short-term and current maturities

Loan and Security Agreement (Term loan)		1,495		1,495
Loan and Security Agreement (Term Loan)						Loan and Security Agreement (Term Loan)	$	2,168	$	1,495
Brazil Loans	Brazil Loans	3,889		5,052		Brazil Loans	3,102		3,466
		5,384		6,547
Subtotal short-term and current maturities						Subtotal short-term and current maturities	5,270		4,961
Long-term debt (net of current portion)	Long-term debt (net of current portion)					Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	Loan and Security Agreement (Term Loan)	9,878		10,252		Loan and Security Agreement (Term Loan)	3,284		1,957
Loan and Security Agreement (Line of Credit)	Loan and Security Agreement (Line of Credit)	11,397		11,397		Loan and Security Agreement (Line of Credit)	4,897		2,897
Brazil Loans	Brazil Loans	3,220		3,771		Brazil Loans	145		827
Debt Reacquisition Cost	Debt Reacquisition Cost	(488)		(515)		Debt Reacquisition Cost	(382)		(408)

		24,007		24,905
Subtotal long-term debt						Subtotal long-term debt	7,944		5,273
Total Debt	Total Debt	$	29,391	$	31,452	Total Debt	$	13,214	$	10,234

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a Loan and Security agreement (the "Loan and Security Agreement") with HSBC Bank USA (the ~~"Loan and Security Agreement"~~"Lender"). The Company incurred ~~an increase in~~ debt re-acquisition cost of $0.5 million ~~as a result~~which are recorded net of debt ~~reacquisition cost.~~and amortized over five years.

These ~~new~~ credit facilities ~~replaced the Company’s previous TD Bank credit facilities and~~ are comprised of a $30 million revolving ~~line~~Loan and Security Agreement Line of ~~credit~~Credit ("Line of Credit") with a $10 million uncommitted accordion provision, a Loan and Security Agreement Term Loan ("the Term Loan") with

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original principal of $12.1 million ~~term loan~~ and a $7 million Capital Expenditure draw down credit facility (collectively, the "Facilities").The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries.

The interest rate on the Facilities is based on a grid which uses the percentage of the remaining availability of the revolving credit line to determine the floating margin to be added to the one month or three ~~month~~months Secured Overnight Financing Rate, ("SOFR)"~~. The initial rate for the first three months of the Loan and Security Agreement is the one-month SOFR plus 1.60%~~. The Facilities mature on April 29, 2027.

Availability under the revolving line of credit is secured by and subject to a borrowing base comprised of eligible inventory and accounts receivable. The percentage of receivables included in the borrowing base is 90% for domestic investment grade and foreign insured accounts, 85% for domestic accounts that are neither investment grade nor insured, and 75% of foreign uninsured accounts. The percentage of inventory included in the borrowing base is the lower of 65% of the value of eligible inventory at cost or 85% of the net orderly liquidation value of eligible inventory at cost. Receivables and inventory are reported monthly to HSBC and subject to an annual field exam and inventory appraisal by an independent auditor commissioned by the Bank. The Company believes that the agreement provides an initial borrowing base sufficient for current domestic working capital needs and flexibility to accommodate potential growth-related working capital needs.

Availability under the Line of Credit remains subject to a borrowing base comprised of accounts receivable, inventory, and real estate. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $30.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

Availability under the Term Loan facility was comprised of 70% of the fair market value of the Borrowers’ eligible real estate, which included facilities located in Westlake, Ohio, and Waite Park, Minnesota and totaled $4.6 million; and 85% of the net orderly liquidation value of the Borrowers’ machinery and equipment, capped at $7.5 million. The real estate portion of the Term facility is subject to a 12.5 year straight line amortization paid quarterly, and the machinery and equipment portion of the facility is subject to a 6.67 year straight line amortization, also paid quarterly. The ~~term loan~~Term Loan is subject to equal quarterly installments of $373,650, payable on the last day of each fiscal quarter.

The capital expenditure loan facility is available for the purchase of new machinery and equipment at 80% of the net invoice value of new machinery and equipment purchases, with a draw period of eighteen months past the closing date, with any amount outstanding under the facility subject to a 3.75% amortization rate per quarter.

The Facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the U.S. borrowing companies tested quarterly and the Condensed Consolidated L.S. Starrett Company tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate

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all commitments and facilities, and require the immediate payment of the entire unpaid principal balances, accrued interest, and all other obligations.

The TD Bank loan was retired in the quarter ended June 2022.. Prior to the Loan and Security Agreement with HSBC, the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof.

Total debt decreased $2.1 million during the three months ended September 30, 2022 and $1.7 million of which was a decrease in Brazilian loans. This is a result of cash provided from operations of $0.6 million and the use of the credit balance of $0.6 million of the contingency gain, related to exclusion of ICMS.

In Brazil affecting the need for borrowing, the Company ~~is actively mitigating this consequence of the~~historically had a build-up of ICMS ~~(sales tax) credits by filing applications with the relevant tax authorities~~(which translates to ~~change~~"Tax on Commerce and Services"). The Company has changed the methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at ~~this~~that rate again. ~~This new methodology is common for similar sized, export focused companies in Brazil.~~ The ICMS balance as of June 30, ~~2022~~2023 was ~~$5.4~~$4.9 million and $4.8 million as of September 30, ~~2022 was $4.9 million.~~

~~Availability under the Line of Credit remains subject to a borrowing base comprised of Accounts Receivable, Inventory, and Real Estate.~~2023. The ~~Company believes that the borrowing base will consistently produce availability under the Line of Credit of $25.0 million. A 0.25% commitment fee~~balance is ~~charged~~located on the ~~unused portion of the Line of Credit.~~unaudited Condensed Consolidated Balance Sheets in prepaid expenses and other current assets.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of September 30, ~~2022~~2023 (in thousands):


Lending Institution	Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance		Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Itau	Itau	4.52	%	October 2021	September 2024	$	4,000	Itau	4.52	%	October 2021	September 2024	$	2,286
Santander		2.71	%	December 2021	December 2022	275
Bradesco		2.52	%	January 2022	January 2023	443
Itau	Itau	4.98	%	February 2022	February 2024	1,828		Itau	4.98	%	February 2022	February 2024	609
Brasil		4.95	%	August 2022	July 2025	401
Brasil	Brasil	3.80	%	September 2022	August 2024	115		Brasil	4.95	%	August 2022	July 2025	289
Brasil	Brasil	4.18	%	September 2022	September 2023	48		Brasil	3.80	%	September 2022	August 2024	63

						$	7,110						$	3,247

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Note ~~12:~~11: Income Taxes

Tax expense for the three month period ended September 30, 2023 was $0.2 million on profit before tax of $2.1 million (an effective tax rate of 8%). During the three months ended September 30, 2023 the Company recorded a discrete tax benefit of $0.7 million primarily related to IRS Notice 2023-55 released in July 2023, which grants taxpayers temporary relief from applying these final foreign tax credit regulations for tax years beginning on or after December 28, 2021 and ending on or before December 31, 2023. Excluding this discrete tax benefit recorded, the effective tax rate for the three months ended September 30, 2023 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, foreign losses not benefitted, and non-creditable foreign withholding tax.

Tax expense for the three month period ended September 30, 2022 was $1.0 million on profit before tax of $3.0 million (an effective tax rate of 32%). ~~Tax expense~~The effective tax rate for the three month period ended September 30, ~~2021~~2022 was ~~$1.1 million on profit before tax of $4.4 million (an effective tax rate of 26%). The effective tax rate for the three month periods ended September 30, 2022 and 2021 were~~ higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits and permanent deductions generated from research expenses. ~~Tax expense for the three month period ended September 30, 2022 reflects the impact of~~ final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion. In the period ended September 30, 2022 the GILTI impact resulted in a 7.27% rate as compared to the period ended September 30, 2021 resulting in a rate of 2.22%.

The Company has considered the positive and negative evidence to determine the need for a valuation allowance offsetting the deferred tax assets in the U.S. and has concluded that a partial valuation allowance is required against foreign tax credit carryforwards and certain state net operating loss carryforwards and a full valuation allowance against deferred tax assets generated in China and Australia at September 30, ~~2022~~2023 and June 30, ~~2022.~~2023. The Company had long term tax obligations related primarily to transfer pricing adjustments at September 30, ~~2022~~2023 and June 30, ~~2022.~~

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2023.

Note ~~13:~~12: Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. The Company does not believe it is reasonably possible that these matters will have a material impact on the Company’s results of operations or cash flows.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Use of Non- GAAP Financial Measures

In "Management's ~~discussion~~Discussion and ~~analysis~~Analysis on ~~financial condition~~Financial Condition and ~~results~~Results of ~~operations"~~Operations" in this ~~quarterly report~~Quarterly Report on Form 10-Q, we discuss non-GAAP financial measures related to currency-neutral sales, as well as adjusted operating income.

We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. Such non-GAAP financial measures assist investors in understanding the ongoing operating performance of the Company by presenting financial results between periods on a more comparable basis. Such measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Currency-neutral ~~numbers~~sales are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations. Adjusted operating income adjusts for restructuring costs ~~and the gain on the sale of assets~~ in order to show comparative operational performance. We include a reconciliation of currency-neutral ~~revenues~~sales and adjusted operating income to its comparable GAAP financial measures.

References to currency-neutral sales and adjusted operating income should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with GAAP and may not be comparable to similarly titled non-GAAP financial measures used by other companies. In evaluating these non-GAAP financial measures, investors should be aware that in the future we may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. Our presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

Please see Note 2 to the unaudited Condensed Consolidated Financial Statement in this Quarterly Report on this Form 10-Q regarding segment results of operations. ~~The Company’s~~Our business is ~~aggregated~~organized into ~~two~~three reportable segments ~~based on geography of operations:~~between North American ~~Operations~~Industrial "NAI", International Industrial, "INI", and ~~International Operations.~~the Global Test and Measurement, "GTM". Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the following tables as well as Note 2. These tables ~~above~~below are included to better explain our consolidated operational performance by showing more detail by business segment and reconciling U.S. GAAP operating income and adjusted operating income.

Three months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022

The following table represents key results of operations on a consolidated basis for the three months ended September 30, ~~2022~~2023 and September 30, ~~2021:~~2022:

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		Three Months Ended											Three Months Ended
(Amounts in thousands)	(Amounts in thousands)	9/30/2022			09/30/2021			$ Change favorable (unfavorable)		% Change		(Amounts in thousands)	9/30/2023			09/30/2022			$ Change favorable (unfavorable)		% Change
Net sales	Net sales	$	60,461		$	61,514		$	(1,053)	(1.7)	%	Net sales	$	60,636		$	60,461		$	149	0.2	%
Gross profit	Gross profit	20,200			20,145			55		0.3	%	Gross profit	19,536			20,200			(664)		(3.3)	%
% of net sales	% of net sales	33.4		%	32.7		%					% of net sales	32.2		%	33.4		%

Restructuring charges	Restructuring charges	190			—			(190)		(100.0)	%	Restructuring charges	—			190			190		(100.0)	%
Selling, general and administrative expenses	Selling, general and administrative expenses	16,294			16,012			(282)		(1.8)	%	Selling, general and administrative expenses	17,077			16,294			(783)		(4.8)	%
% of net sales	% of net sales	26.9		%	26.0		%					% of net sales	28.2		%	27.3		%

Operating income	Operating income	3,716			4,133			(417)		(10.1)	%	Operating income	2,459			3,716			(1,249)		(33.6)	%

Other income (expense), net		(676)			226			(902)		(399.1)	%
Other (expense), net												Other (expense), net	(365)			(676)			311		(46.0)	%

Income before income taxes	Income before income taxes	3,040			4,359			(1,319)		(30.3)	%	Income before income taxes	2,094			3,040			(946)		(31.1)	%

Income tax expense (benefit)		984			1,127			143		12.7	%
Income tax expense												Income tax expense	174			984			810		82.3	%

Net income	Net income	$	2,056		$	3,232		(1,176)		(36.4)	%	Net income	$	1,920		$	2,056		$	(136)	(6.6)	%


GAAP to Non-GAAP reconciliation:
	Three Months Ended
(Amounts in thousands)	09/30/23		09/30/22		$ Change favorable (unfavorable)		% Change
Operating income as reported	$	2,459	$	3,716	$	(1,257)	(33.8)	%
Add back restructuring charges	—		190		(190)		(100.0)	%
Non- GAAP adjusted operating income	$	2,459	$	3,906	$	(1,918)	(49.1)	%

Key Results by Reporting Segment


		Three Months Ended September 2022											Three Months Ended September 2021												Three Months Ended September 2023														Three Months Ended September 2022
(Amounts in thousands)	(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total			(Amounts in thousands)	NAI			INI			GTM			Corporate		Total			NAI			INI			GTM			Corporate		Total
Net sales	Net sales	$	36,484		$	23,977		$	—	$	60,461		$	33,809		$	27,705		$	—	$	61,514		Net sales	$	19,470		$	25,374		$	15,792		$	—	$	60,636		$	22,371		$	23,299		$	14,791		—		$	60,461
Gross profit	Gross profit	10,932			9,268			—		20,200			9,535			10,610			—		20,145			Gross profit	3,928			9,776			5,832			—		19,536			5,415			8,952			5,833			—		20,200
% of net sales	% of net sales	30.0		%	38.7		%			33.4		%	28.2		%	38.3		%			32.7		%	% of net sales	20.2		%	38.5		%	36.9		%			32.2		%	24.2		%	38.4		%	39.4		%	—		33.4		%
Restructuring charges	Restructuring charges	—			190			—		190			—			—			—		—			Restructuring charges	—			—			—			—		—			—			—			—			190		190
Selling, general and administrative expenses	Selling, general and administrative expenses	8,101			6,242			1,951		16,294			7,262			7,027			1,723		16,012			Selling, general and administrative expenses	4,611			7,016			3,461			1,989		17,077			4,715			6,072			3,555			1,952		16,294
% of net sales	% of net sales	22.2		%	26.0		%			26.9		%	21.5		%	25.4		%			26.0		%	% of net sales	23.7		%	27.7		%	21.9		%			28.2		%	21.1		%	26.1		%	24.0		%	—		26.9		%

Operating income		2,831			2,836			(1,951)		3,716			2,273			3,583			(1,723)		4,133
Operating (loss) income																								Operating (loss) income	$	(683)		$	2,760		$	2,371		$	(1,989)	$	2,459		$	700		$	2,880		$	2,278		$	(2,142)	$	3,716
% of net sales	% of net sales	7.8		%	11.8		%			6.1		%	6.7		%	12.9		%			6.7		%	% of net sales	(3.5)		%	10.9		%	15.0		%			4.1		%	3.1		%	12.4		%	15.4		%	—		6.1		%

Non-GAAP Measure Reconciliation: Fiscal 2024 Q1 "Currency Neutral" Net Sales

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	Three months ended
(Amounts in Thousands)	9/30/2023		9/30/2022		$ Change		% Change
Net Sales, as reported	$	60,636	$	60,461	$	175	0.3	%
Currency Neutralizing Adjustment*	(1,574)		—		(1,574)		(2.6)	%
Q1 FY24 Currency Neutral Net Sales	59,062		60,461		(1,399)		(2.3)	%
NAI Net Sales, as reported	20,432		22,371		(1,939)		(8.7)	%
Currency Neutralizing Adjustment*	(93)		—		(93)		(0.4)	%
Q1FY24 Currency Neutral NAI Net Sales	20,339		22,371		(2,032)		(9.1)	%
INl Net Sales, as reported	25,655		23,299		2,356		10.1	%
Currency Neutralizing Adjustment*	(1,449)		—		(1,449)		(6.2)	%
Q1FY24 Currency Neutral INI Net Sales	24,206		23,299		907		3.9	%
GTM Net Sales, as reported	14,549		14,791		(242)		(2)	%
Currency Neutralizing Adjustment*	(32)		—		(32)		100	%
Q1FY24 Currency Neutral GTM Net Sales	$	14,517	$	14,791	$	(274)	(2)	%
*"Currency Neutralizing Adjustment" = Change when converting Q1FY24 sales in non USD functional currencies at the same exchange rates used in the comparison period.

Overview

Net Sales for the three months ended September 30, 2023 and September 30, 2022 were $60.6 million and $60.5 million, respectively, an increase of $0.1 million or 0.3%. An increase to net sales due to pricing actions of 2.9% and a positive foreign exchange impact of 2.6% was offset by volume and mix declines totaling 5.2% compared to the prior year quarter. Consolidated gross profit was down $0.7 million or 3.3% versus prior year to $19.5 million for the three months ended September 30, 2023. Gross margin was 32.2% of sales in the three months ended September 30, 2023 versus 33.4% during the prior year. Selling, General and Administrative expenses have increased overall by $0.8 million or 4.8% versus prior year to $17.1 million in the three months ended September 30, 2023. In the three months ended September 30, 2023 operating income was $2.5 million, a $1.2 million or a 33.6% reduction versus September 30, 2022 during which we reported operating income of $3.7 million.

The U, S. Dollar has weakened since the prior year, predominately against the Brazilian Real, favorably impacting the translation of the Brazilian Real into United States Dollars. Currency neutral net sales for the three months ended September 30, 2023 would have been $59.1 million, representing a decline of $1.6 million or 2.3%, by using the exchange rates of the period ended September 30, 2022.

Net Sales

In the three months ended September 30, 2023 consolidated net sales were $60.6 million, with NAI net sales of $19.5 million. INI net sales of $25.4 million and GTM net sales of $15.8 million. In the three months ended September 30, 2023 NAI net sales decreased $2.9 million or 13.0% from $22.4 million in the three months ended September 30, 2022, While incoming orders remain stable and backlog healthy at over $10 million, NAI sales have been negatively impacted by low factory utilization and output of the measuring tools plant due to labor challenges. INI net sales increased $2.1 million or 8.9% from $23.3 million in the three months ended September 30, 2022. This increase is partially due to increased volumes in Brazil and Europe buoyed by new product introductions, and by favorable FX translation as the US Dollar has weakened since the comparative period. GTM net sales increased in the three months ended September 30, 2023 by $1.0 million or 6.8% from $14.8 million net sales in the three months ended September 30, 2022, and continue to be supported by high demand for our precision granite products. Currency neutral net sales consolidated would have been $59.1 million in the three months ended September 30, 2022, as referenced in the table above. Currency neutral net sales adjustments for the three months September 30, 2023 would lower net sales by $0.1 million in NAI, $1.4 million in INI.

Gross Profit

Gross profit of $19.5 million in the three months ended September 30, 2023 decreased $0.7 million or 3.3% over the three months ended September 30, 2022 of $20.2 million. In the three months ended September 30, 2023 gross margin was 32.2% compared to 33.4% for the three months ended September 30, 2022.

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~~Non-GAAP Measure Reconciliation: Fiscal 2023 Q1 "Currency Neutral" Net Sales~~

Three months ended
(Amounts in Thousands) 9/30/2022 9/30/2021 $ Change % Change
Net Sales, as reported 60,461 61,514 (1,053) (1.7) %
Currency Neutralizing Adjustment* 923 — 923 1.5 %
Q1 FY23 Currency Neutral Net Sales 61,384 61,514 (130) (0.2) %
North America Net Sales, as reported 36,484 33,809 2,675 7.9 %
Currency Neutralizing Adjustment* 64 — 64 0.2 %
Q1FY23 Currency Neutral North America Net Sales 36,548 33,809 2,739 8.1 %
International Net Sales, as reported 23,977 27,705 (3,728) (13.5) %
Currency Neutralizing Adjustment* 859 — 859 3.1 %
Q1FY23 Currency Neutral International Net Sales 24,836 27,705 (2,869) (10.4) %
*"Currency Neutralizing Adjustment" = Change when converting Q1FY23 sales in non USD functional currencies at the same exchange rates used in the comparison period

~~Overview~~

New order intake remained stable in the North American precision hand tools business and in the precision granite market. However, order intake in our International operations, particularly in Europe, has softened due to the recession there and the on-going war in Ukraine. Although backlog remains very high and nearly 20% higher than on June 30, 2022, the company continues to anticipate a softening in demand for its products across the portfolio.

~~For~~In the three months ended September 30, ~~2022 and September 30, 2021 sales were $60.5 million and $61.5 million, respectively, a reduction of $1.1~~2023, NAI gross profit decreased $1.5 million or ~~1.7%. Consolidated gross profit improved $0.1~~27.5% to $3.9 million, ~~versus prior year to $20.2~~or 20.2% of sales from $5.4 million, ~~in the three months ended September 30, 2022. Gross margin was 33.4%~~or 24.2% of sales in the three months ended September 30, ~~2022 versus 32.7% during~~2022. This is a result of the ~~prior year. This continues to reflect the positive impact of~~aforementioned headwinds in our factory restructuring efforts completed in fiscal 2021. While the Company continues to experience supply chain challenges, raw material price increases, and an increase in wages related to labor shortages globally, it has been able to keep pace with selling price increases. Selling, General and Administrative expenses havemeasuring tool production facility. INI gross profit increased overall by $0.3 million versus prior year to $16.3 million in the three months ended September 30, 2022 due in large part to increases in sales and marketing expenses. In the three months ended September 30, 2022 operating income was $3.7 million, a $0.4$0.8 million or a 10.1% reduction versus September 30, 2021 during which the company reported operating income of $4.1 million. During the three months ended September 30, 2022, the Company had $0.2 million in restructuring expenses related9.2% to the closure of its distribution and sales centers in Singapore and Japan as part of the March 2022 disclosed restructuring with a total expected projected cost $0.8 million. Project-to-date the total incurred as of September 30, 2022 was $0.5 million.

The United States Dollar has strengthened against the United Kingdom, New Zealand and Brazilian currencies versus the prior year. Currency neutral sales for the three months ended September 30, 2022 were $61.4 million bringing sales to the same level compared to net sales of the period ended September 30, 2021.

~~Net Sales~~

In the three months ended September 30, 2022 net sales were $60.5 million with North America net sales of $36.5 million and International of $24.0 million. In the three months ended September 30, 2022 North America net sales increased 7.9% by $2.7 million to $36.5 million and International net sales declined 13.5% to $24.0 million as compared to $27.7 million in the three months ended September 30, 2021. Currency neutral international net sales would have been $24.8 million in the three month ended September 30, 2022, as referenced in the table above.

~~Gross Profit~~

~~Gross profit of $20.2 million in the three months ended September 30, 2022 is an increase of $0.1~~ $9.8 million, or 0.3% over the three months ended September 30, 2021 at $20.1 million. In the three months ended September 30, 2022 compared to September 30, 2021, This equates to 33.4% gross margin in the three months ended September 30, 2022 compare to 32.7%, prior year. International gross profit decreased to $9.3 million, or 38.7%38.5% of sales, compared to ~~$10.6~~$9.0 million, or ~~38.3% of sales~~

~~Table of Contents~~

~~in the three months ended September 30, 2021. In the three months ended September 30, 2022 North American gross profit improved to $10.9 million, or 30.0% of sales from $9.5 million, or 28.2%~~38.4% of sales in the three months ended September 30, ~~2021. Although~~2022. GTM gross profit remained flat at $5.8 million on $1.0 million more in sales with gross margin at 36.9% in the ~~company continues~~three months ended September 30, 2023 as compared to ~~be challenged by macro pressures related~~39.4% in the three months ended September 30, 2022. This is partially due to ~~supply chain, raw material and labor cost increases in this inflationary environment, it~~mix, as sales of our higher margin in-line laser measuring systems has ~~been able to keep pace with~~declined as a ~~series~~result of ~~selling price increases~~the U.S. automotive strikes that temporarily paused capital spending across the ~~business.~~sector.

Selling, General and Administrative Expenses

Selling, general and administrative expenses of ~~$16.3~~$17.1 million in the three months ended September 30, ~~2022~~2023 increased ~~$0.3~~$0.8 million or ~~1.8%~~4.8% over the three months ended September 30, ~~2021~~2022 at ~~$16.0~~$16.3 million. ~~The~~About half of this increase ~~in selling, general and administrative expenses~~ is due ~~primarily~~ to ~~some variable selling expenses related to sales and marketing.~~the impact of the translation of foreign currencies into United States Dollars, notably the Brazilian Real. Overall, selling, general and administrative expenses as a percentage of sales increased ~~to 26.9%~~as the company reinvested globally. Selling, general and administrative expenses were 28.2% in the three months ended September 30, ~~2022 from 26.0%~~2023, compared to 27.3% including $0.2 million in restructuring in the three months ended September 30, ~~2021. North America increasing~~2022. NAI increased $0.1 million or 2.2% from ~~21.5%~~21.1% of sales to ~~22.2%~~23.7% of ~~sales, International decreased~~sales. INI selling, general and administrative expenses ~~$0.8~~increased $0.9 million ~~yet~~or 10.5% as expenses increased as a percentage of sales to ~~26.0%~~27.7% from ~~25.4%~~26.1% of sales during the comparative period. GTM selling, general and administrative expenses decreased in the three months ended September 30, 2023 $0.1 million or 2.6% to $3.5 million as compared to the three months ended September 30, 2022 of $3.6 million. Corporate expenses ~~were~~remained flat at $2.0 million in the three months ended September 30, ~~2022~~2023 compared ~~to $1.7 million in~~ the three months ended September 30, ~~2021.~~2022.

Income Taxes

In the three months ended September 30, ~~2022,~~2023, the Company recognized income tax expense of $0.2 million on profit before tax of $2.1 million (an effective tax rate of 8%) as compared to income tax expense of $1.0 million on profit before tax of $3.0 million (an effective tax rate ~~32%) as compared to income tax expense~~ of ~~$1.1 million on profit before tax of $4.4 million (an effective tax rate of 26%~~32%), in the three months ended September 30, ~~2021.~~2022. The ~~higher~~lower effective tax rate in the three months ended September 30, ~~2022,~~2023, when compared with the three months ended September 30, ~~2021~~2022 is primarily due to a discrete tax benefit of $0.7 million related to IRS Notice 2023-55 released in July 2023, which grants taxpayers temporary relief from applying these final ~~U.S.~~ foreign tax credit regulations ~~effective in fiscal~~for tax years beginning on or after December 28, 2021 and ending on or before December 31, 2023, ~~that result in an increase in tax expense from~~offset by certain foreign losses not benefited for the ~~GILTI inclusion which are $0.2 million higher in the quarter~~three months ended September 30, ~~2022 as a result of this change.~~2023.

Other Income and Net Income

Other expense in the three months ended September 30, 2023 and September 30, 2022 was ~~$0.7 million mainly related to exchange losses from Brazil, China and New Zealand of~~ $0.4 million and ~~interest expense of~~$0.7 million, respectively. Exchange gain was $0.1 million in the three months ended September 30, 2023 and exchange loss was $0.4 million ~~as SOFR is a variable rate.~~in the three months ended September 30, 2022. The effective interest rate on the borrowings under the Loan and Security Agreement during the three months ended September 30, 2023 and 2022 was 8.9% and ~~2021 was~~ 4.2% ~~and 1.9%~~, respectively. ~~Other income in the three months ended September 30, 2021 was a $0.2 million mainly related to pension adjustments.~~

In the three months ended September 30, ~~2022~~2023 net income was ~~$2.1~~$1.9 million, ~~$1.2~~$0.1 million or ~~36.4%~~6.6% lower than net ~~income~~income of ~~$3.2~~$2.1 million in the three months ended September 30, ~~2021~~2022. Dilutive earnings per share for the three months ended September 30, 2023 and 2022 were $0.25 and $0.27, respectively.

LIQUIDITY AND CAPITAL RESOURCES


Cash flows (in thousands)	Cash flows (in thousands)	Three Months Ended				Cash flows (in thousands)	Three Months Ended
		9/30/2022		9/30/2021			9/30/2023		9/30/2022

Cash provided by (used in) operating activities		$	628	$	(5,841)
Cash provided by operating activities						Cash provided by operating activities	$	4,818	$	628
Cash (used in) investing activities	Cash (used in) investing activities	(1,162)		(2,624)		Cash (used in) investing activities	(3,512)		(1,162)
Cash (used in) financing activities		(2,094)		5,711
Cash provided by (used in) financing activities						Cash provided by (used in) financing activities	930		(2,094)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	7		276		Effect of exchange rate changes on cash	(161)		7

Net (decrease) in cash		$	(2,621)	$	(2,478)
Net increase (decrease) in cash						Net increase (decrease) in cash	$	2,075	$	(2,621)

Table of Contents

Net cash flows used in the three months ended September 30, ~~2022~~2023 was ~~$2.6~~$2.1 million. Cash provided by operations was ~~$0.6~~$4.8 million resulting from net income of ~~$2.1~~$1.9 million, ~~decreases~~increases in accounts receivable of ~~$3.1~~$1.1 million partially due to ~~lower~~higher sales, and ~~the Company planned $5.0~~in other current liabilities of $2.5 million ~~increase~~driven by accounts payable and partially offset by a decrease of $0.9 million in ~~inventories due to global supply chain issues.~~inventories. Cash used in investing activities was ~~$1.2~~$3.5 million as a result of ~~$1.0~~$3.1 million in capital expenditures and ~~$0.2~~$0.4 million in software development while cash ~~used in~~provided by financing activities amounted to ~~$2.1~~$0.9 million as ~~the Company's~~we borrowed ~~$0.6~~$2.0 million and repaid ~~$2.7~~$1.1 million.

~~Table of Contents~~

~~The Company believes it maintains~~We believe we maintain sufficient liquidity and ~~has the resources to fund its operations with~~that existing cash and cash expected to be provided by future operating activities and available credit are adequate to satisfy ~~its~~our working capital, capital expenditure requirements and other contractual obligations for at least the next 12 ~~months.~~

~~On April 29, 2022,~~months from the ~~Company and certain~~date of the ~~Company’s domestic subsidiaries entered into~~financial statements included in this Quarterly Report on Form 10-Q.

We have implemented a ~~new Loan~~$5 million expansion at our precision granite manufacturing facility in Waite Park, MN in order to meet continued high demand for our products. The project is nearing completion and ~~Security agreement with HSBC Bank USA. These new credit facilities replaced~~is expected to be completed during fiscal year 2024. It is being financed by the ~~Company’s previous TD Bank credit facilities and are comprised~~use of a ~~$30~~$2.0 million ~~revolving line of credit with a $10~~borrowed from $7.0 million ~~uncommitted accordion provision, a $12.1 million term loan~~capital expenditure draw down facility, which was previously unused, and a ~~$7 million Capital Expenditure draw down credit facility. The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets~~combination of ~~the Company and its domestic subsidiaries. As September 30, 2022 the Company has excess availability on~~ the revolving line of credit and ~~the term loan of $16.2 million.~~current cash availability.

The effective interest rate on the borrowings under the Loan and Security Agreement during the three months ended September 30, 2023 and 2022 was 8.9% and ~~2021 was~~ 4.2% ~~and 1.9%~~, respectively.

~~The Company does~~

We do not have any material off-balance sheet arrangements as defined under the Securities and Exchange Commission rules.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

~~One should carefully review~~

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and ~~consider~~are not required to provide the information ~~regarding certain factors which could materially affect our business, financial condition or future results set forth~~ under ~~Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2022.~~this item.

ITEM 4. CONTROLS AND PROCEDURES

During the year ended June 30, 2023, in connection with evaluating the error in segment reporting, we identified a material weakness in our internal control over financial reporting. The ~~Company's management, under the supervision and with the participation~~Company has implemented certain changes in our internal controls as of the ~~Company's President~~filing of this report to address the material weakness to include, among other changes quarterly monitoring to any changes of the reporting package reviewed by the chief operating decision maker "CODM". The material weakness cannot be considered fully remediated until the improved controls have been in place and operated for a sufficient period of time. However, our management, including our Chief Executive Officer and Chief Financial Officer, has ~~evaluated the Company's disclosure controls and procedures as of September 30, 2022, and they have~~ concluded that, notwithstanding the identified material weakness in our ~~disclosure controls~~internal control over financial reporting, the financial statements fairly present, in all material respects, our financial condition, results of operations and ~~procedures were effective as of such date.~~ cash flows for the periods presented in conformity with U.S. GAAP.

All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. ~~Based on~~

Other than the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective. There have not been any changes in the Company’s internal control over financial reportingremediation actions described above, during the first quarter of fiscal 2024, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~its~~our internal control over financial reporting.

2120

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters. We do not believe we are currently party to any pending legal action, arbitration proceeding or governmental proceeding, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business or operating results. We are not a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors set forth in the Company’s Annual Report on Form 10-K,

as amended for the year ended June 30, ~~2022.~~

2023.

2221

Table of Contents

ITEM 6. EXHIBITS


3a			Restated Articles of Organization as amended, filed with Form 10-K for the year ended June 30, 2012 filed September 12, 2012, is hereby incorporated by reference.

3b			Amended and Restated Bylaws, filed with Form 10-Q for the quarter ended December 31, 2012 filed February 7, 2013, is hereby incorporated by reference

4a			Rights Agreement dated as of November 2, 2010 between the Company and Mellon Investor Services LLC, as Rights Agent (together with exhibits, including the Form of Rights Certificate, and the Summary of Rights to Purchase Shares of Class A Common Stock), filed with Form 10-Q for the quarter ended September 25, 2010, filed November 4, 2010 is hereby incorporated by reference.

4b			Amendment No. 1 to Rights Agreement dated as of February 5, 2013 by and between the Company and Computershare Shareowner Services LLC, filed with Form 10-Q for the quarter ended December 31, 2012, filed February 7, 2013 is hereby incorporated by reference.

31.1*			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 *			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1+			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+			Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as ~~Adopted Pursuant~~a dopted p ursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2022~~2023 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (I) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statement of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished, not filed.

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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.


		THE L. S. STARRETT COMPANY (Registrant)


Date	November ~~3, 2022~~10, 2023	/S/ Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)

Date	November ~~3, 2022~~10, 2023	/S/ John C. Tripp
		John C. Tripp - CFO and Treasurer (Principal Accounting Officer)

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