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● We rely heavily on sales to certain customers, including the U.S.
−Removed: government, particularly to agencies of the Department of Defense, and HAPSMobile, Inc.
−Removed: and SoftBank Corp.
−Removed: related to our design and development of HAPS UAS.
+Added: government, particularly to agencies of the DoD, and SoftBank related to our design and development of HAPS UAS.
● A decline in the U.S.
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● Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UAS.
−Removed: ● We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
−Removed: ● We face competition from other firms, many of which have substantially greater resources.
● If the UAS, UGV, TMS, and commercial UAS markets do not experience significant growth, if we cannot expand our customer base or if our products and services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth.
● Our international business poses potentially greater risks than our domestic business.
−Removed: ● If we are unable to manage the increasing complexity of our business or achieve or manage our expected growth, our business could be adversely affected.
● The markets in which we compete are characterized by rapid technological change, which requires us to develop new products and product enhancements, and could render our existing products obsolete.
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● If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business.
+Added: ● Our products and services are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes.
● Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.
Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.
−Removed: ● We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in product recalls or supply imbalances that could harm our business.
+Added: ● We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in supply imbalances that could harm our business.
● Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which could adversely affect our financial results.
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● Shortfalls in available external research and development funding could adversely affect us.
+Added: ● Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business.
● Our work for the U.S.
government and international governments may expose us to security risks.
−Removed: ● Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates.
● Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.
−Removed: ● Borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility.
● We face various risks related to the COVID-19 novel coronavirus pandemic and similar public health crises, which may adversely impact our business.
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● Our management, whose interests may not be aligned with yours, is able to exert significant influence over all matters requiring stockholder approval.
+Added: ● Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.
● Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium.
1 unchanged sentence
We rely heavily on sales to certain customers, including the U.S.
−Removed: government, particularly to agencies of the Department of Defense, and HAPSMobile, Inc.
−Removed: and SoftBank Corp.
−Removed: related to our design and development of HAPS UAS.
+Added: government, particularly to agencies of the DoD, and SoftBank related to our design and development of HAPS UAS.
Historically, we have derived a significant portion of our total sales and our small UAS and TMS sales from the U.S.
government and its agencies.
−Removed: Additionally, more recently, we have derived a significant portion of our revenue from contracts with HAPSMobile, Inc.
−Removed: and SoftBank Corp.
−Removed: related to our design and development of HAPS UAS.
+Added: Additionally, more recently, we have derived a significant portion of our revenue from contracts with HAPSMobile and SoftBank related to our design and development of HAPS UAS.
Sales to the U.S.
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We believe that the success and growth of our business for the foreseeable future will continue to depend to a significant degree on our ability to win government contracts, in particular from the DoD.
−Removed: Many of our government customers are subject to budgetary constraints and our continued performance under these contracts, or award of additional contracts from these agencies, could be jeopardized by spending reductions, including constraints on government spending imposed by the Balanced Budget Act of 2019 and its subsequent amendments, or budget cutbacks at these agencies.
+Added: Many of our government customers are subject to budgetary constraints and our continued performance under these contracts, or award of additional contracts from these
+Added: agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies.
The funding of U.S.
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These developments and other factors could cause governmental agencies to reduce their purchases under existing contracts, to exercise their rights to terminate contracts at-will or to abstain from renewing contracts, any of which would cause our revenue to decline and could otherwise harm our business, financial condition and results of operations.
−Removed: In fiscal year 2021, HAPSMobile accounted for 11% of our total revenue.
+Added: In fiscal year 2022, HAPSMobile accounted for 1% of our total revenue and SoftBank accounted for 9% of our total revenue.
In May 2021, we and HAPSMobile mutually agreed to terminate our Design and Development Agreement and we entered into a Master Design and Development Agreement with SoftBank to continue design and development work on HAPS UAS.
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and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue.
−Removed: Because we generate a significant portion of our total sales and our small and medium UAS and TMS sales from the U.S.
+Added: Because we generate a significant portion of our total sales, including sales of our small UAS, MUAS and TMS products and services, from the U.S.
government and its agencies, our results of operations could be adversely affected by government spending caps or changes in government budgetary priorities, as well as by delays in the government budget process, program starts, or the award of contracts or orders under existing contracts.
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If annual budget appropriations or continuing resolutions are not enacted timely, we could face U.S.
−Removed: government shutdowns, which could adversely impact our programs and contracts with the U.S.
+Added: government shutdowns, which could adversely impact our
+Added: programs and contracts with the U.S.
government, our ability to receive timely payment from U.S.
government entities and our ability to timely obtain export licenses for our products to fulfill contracts with our international customers.
−Removed: Additionally, there is a possibility that political decisions made by the new U.S.
−Removed: administration, or an impasse on policy issues, could impact future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts.
−Removed: Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the number and intensity of military conflicts or other factors.
+Added: Additionally, there is a possibility that political decisions made by the current U.S.
+Added: administration, such as changes in prior military commitments, including the withdrawal from Afghanistan or in response to the conflict between Russia and Ukraine, or an impasse on policy issues, could impact future spending and program authorizations, which may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded contracts.
+Added: Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs due to, among other factors, competing demands for federal funds and the number and intensity of military conflicts.
Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UAS.
−Removed: Over the last decade, operational activity in Afghanistan and Iraq led to adoption and an increase in demand for our small UAS.
−Removed: More recently, the U.S.
−Removed: military has reduced its presence and operational activity in Afghanistan and Iraq, reducing demand for certain of our small UAS products from prior levels.
−Removed: We cannot predict whether the reduction in overseas operational levels will continue, how future procurement priorities related to defense transformation will be impacted or how changes in the threat environment will impact opportunities for our UAS business, including the ISR services we provide, in terms of existing, additional or replacement programs.
−Removed: If defense transformation or overseas
−Removed: operations cease or slow down, then our business, financial condition and results of operations could be impacted negatively.
+Added: With the inception of the global war on terror, operational activity in the US-CENTCOM combatant command area of operations led to broad deployment and increased demand for UAS and TMS products, training and spares.
+Added: Since such time, there have been periods during which the tempo of DoD counterinsurgency operations receded, reducing demand for certain of our small UAS and TMS products, training and spares from prior levels.
+Added: We cannot predict whether and when a reduction in overseas operational levels will occur, how future procurement priorities related to defense transformation will be impacted, including by future events such as the conflict between Russia and Ukraine, or how changes in the threat environment will impact opportunities and competition for our UAS and TMS products and our ISR services, in terms of existing, additional or replacement programs.
+Added: If defense transformation or overseas operations slow down or cease in key operational areas, then our business, financial condition and results of operations could be impacted negatively.
+Added: The operations tempo in the U.S.
+Added: DoD both of training and deployments, both domestically and overseas, has reduced as a result of the COVID-19 pandemic.
+Added: This has negatively affected demand for spares, repairs, and replacement product ordinarily required for the operation and maintenance of our UAS products.
+Added: We cannot predict whether this reduction in demand will continue and to the extent it may cause an adverse impact on our results of operations.
We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.
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and Lockheed Martin Corporation.
−Removed: Our principal medium UAS competitors include Martin UAV and Northrop Grumman’s V-Bat , Textron, Inc.’s Aerosonde and L3 Harris Technologies’ FVR-90 , Elbit Systems Ltd.
+Added: Our principal MUAS competitors include those competing with us for the U.S.
+Added: Army’s Future Tactical UAS (FTUAS) program, including Martin UAV and Northrop Grumman’s V-Bat , Textron, Inc.’s Aerosonde and L3 Harris Technologies’ FVR-90 , Elbit Systems Ltd.
and Israeli Aircraft Industries.
+Added: International MUAS competitors include Elbit Systems Ltd.
+Added: and Israeli Aircraft Industries.
We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk or General Atomics, Inc.’s Predator and its derivatives as direct competitors to our small UAS because they perform different missions, do not typically deliver their information directly to front-line ground forces, and are not hand launched and controlled.
−Removed: We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk or General Atomics, Inc.’s Predator and its derivatives as direct competitors to our medium UAS because they perform different missions, require a larger logistical footprint and cost considerably more to procure and operate.
−Removed: However, we cannot be certain that these platforms will not become direct competitors to our small and medium UAS in the future.
+Added: We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk or General Atomics, Inc.’s Predator and its derivatives as direct competitors to our MUAS because they perform different missions, require a larger logistical footprint and cost considerably more to procure and operate.
+Added: However, we cannot be certain that these platforms will not become direct competitors to our small UAS and MUAS in the future.
Potential competition from consumer-focused drone manufacturers is emerging as their capabilities increase and their prices remain low relative to existing defense solutions, which is resulting in some level of military consideration even if such drones do not meet traditional military performance or security specifications.
+Added: Our TMS business faces competition from Textron Inc., Raytheon Technologies, Lockheed Martin Corporation, Anduril Industries and UVision Air Ltd.
+Added: We also face emerging competition from consumer and commercially focused drone manufacturers, such as Skydio, Inc.
+Added: and Shield AI, as their product capabilities increase and their product prices remain low relative to existing defense solutions, which has resulted in some level of military consideration and procurement even though their UAS products do not meet traditional military performance or security specifications.
Our competitors in the U.S.
defense market for UGVs include L3 Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton/Remotec, ICOR and Boston Dynamics.
−Removed: The HAPS UAS market is in an early stage of development and our HAPS UAS faces competition from several aerospace and defense contractors and internet technology companies pursuing the high altitude long endurance UAS market for global communication and remote sensing, including The Boeing Company, Airbus, Lockheed Martin Corporation and Northrop Grumman Corporation, and competition from companies pursuing alternative solutions for this market such as Lockheed Martin Corporation and Northrop Grumman Corporation with airships (high altitude
−Removed: aircraft that are kept buoyant by a body of gas that is lighter than air) and companies pursuing conventional satellites and LEO micro or cubesat satellite constellations.
−Removed: Our TMS business faces competition from competitors including Textron Inc., Raytheon Technologies and Lockheed Martin Corporation.
+Added: The market for commercial UAS products and services is in an early stage of development, but is evolving rapidly.
+Added: Competition for our commercial UAS products and services includes consumer drone manufacturers such as Dà-Jiāng Innovation, who seek to enhance their systems’ capabilities over time, and other small UAS manufacturers, including Lockheed Martin Corporation, PrecisionHawk, Sentera and SlantRange.
+Added: The HAPS UAS market is in an early stage of development and our HAPS UAS faces competition from several aerospace and defense contractors and internet technology companies pursuing the high altitude long endurance UAS market for global communication and remote sensing, including The Boeing Company, Airbus, Lockheed Martin Corporation and Northrop Grumman Corporation, and competition from companies pursuing alternative solutions for this market such as Lockheed Martin Corporation and Northrop Grumman Corporation with airships (high altitude aircraft that are kept buoyant by a body of gas that is lighter than air) and companies pursuing conventional satellites, such as The Boeing Company, Lockheed Martin Corporation, General Dynamics Corporation, EADS N.V., Ball Corporation and Northrop Grumman Corporation, and LEO micro or cubesat satellite constellations, including include Amazon, Planet, OneWeb, SpaceX and The Boeing Company.
Some of these firms have substantially greater financial, management, research and marketing resources than we have.
−Removed: Our UAS services business also faces competition from smaller businesses that can provide training and logistics services for multiple UAS platforms, including our small and medium UAS.
+Added: Our UAS services business also faces competition from smaller businesses that can provide training and logistics services for multiple UAS platforms, including our small UAS and MUAS.
Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of key professional personnel, including those with security clearances.
Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages.
−Removed: Small business competitors may be able to offer more cost competitive solutions, due to their lower overhead costs, and take advantage of small business incentive and set-aside programs for which we are ineligible.
−Removed: The market for small UAS and UGV products and services is expanding, and competition intensifying as additional competitors enter the market and current competitors expand their product lines.
+Added: Small business competitors may be able to offer more cost competitive solutions, due to their lower overhead costs, and take advantage of small
+Added: business incentive and set-aside programs for which we are ineligible.
+Added: Foreign competitors may also be able to offer more cost competitive solutions for our UAS and UGV products and services.
+Added: The market for small UAS, MUAS and UGV products and services is expanding, and competition intensifying as additional competitors enter the market and current competitors expand their product lines.
In order to secure contracts successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins.
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government foreign military sales in which an end user is a foreign government, during the fiscal year ended April 30, 2022 compared to 39% for the fiscal year ended April 30, 2021.
−Removed: We expect to continue to derive a significant portion of our revenue from international sales, and have now initiated international operations with the acquisition of Telerob Gesellschaft für Fernhantierungstechnik mbH, a German company (“Telerob”).
+Added: We expect to continue to derive a significant portion of our revenue from international sales, including direct sales to allied nations, and initiated international operations with the acquisition of
+Added: Telerob Gesellschaft für Fernhantierungstechnik mbH, a German company (“Telerob”) in May 2021.
Our international revenue and operations are subject to a number of material risks, including the following:
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governmental authorizations for the export of our products to certain foreign jurisdictions;
−Removed: ● regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions, sell certain products or repatriate profits to the United States;
−Removed: ● the complexity and necessity of using foreign representatives and consultants;
+Added: ● regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions, sell certain products and services or repatriate profits to the United States;
+Added: ● the complexity and necessity of using foreign representatives and consultants, and delays in and difficulty of validating foreign representatives and brokers;
● the complexities of operating a business in an international location through a subsidiary or joint venture structure that may include foreign business partners, subcontractors and suppliers;
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Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, destabilization of performance, difficulty in collecting receivables and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations.
−Removed: While we have adopted policies and procedures to
−Removed: facilitate compliance with laws and regulations applicable to our international operations and sales, our failure, or the failure by our employees or others working on our behalf, to comply with such laws and regulations may result in administrative, civil or criminal liabilities, including fines, suspension or debarment from government contracts or suspension of our export privileges.
+Added: While we have adopted policies and procedures to facilitate compliance with laws and regulations applicable to our international operations and sales, our failure, or the failure by our employees or others working on our behalf, to comply with such laws and regulations may result in administrative, civil or criminal liabilities, including fines, suspension or debarment from government contracts or suspension of our export privileges.
Moreover, our sales, including sales to customers outside the United States, substantially all are denominated in U.S.
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We have expanded the number of product lines being pursued, shifting from primarily a U.S.
−Removed: government focused business to a business that includes substantial international product sales and added commercial services and formed a joint venture with SoftBank Corp.
−Removed: to develop HAPS UAS.
−Removed: We also acquired Pulse Aerospace, LLC, a Kansas-based developer of UAS capable of VTOL, in June 2019, followed by acquisitions of Arcturus, which designs, engineers, tools, manufactures and provides UAS and related products and services, and certain assets of the Intelligent Systems Group business segment (“ISG”) of Progeny Systems Corporation, which develops artificial intelligence-enabled computer vision, machine learning and perceptive autonomy technologies and provides related services, in February 2021.
−Removed: Additionally, in May 2021, we acquired Telerob, which develops, manufactures, sells, and services remote-controlled unmanned ground robots and transport vehicles for civil and defense applications.
−Removed: Further, in conjunction with the acquisition of Arcturus, we entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business.
−Removed: These have increased complexity and our expected growth has placed, and will continue to place, a strain on our management and our administrative, operational and financial infrastructure.
+Added: government focused business to a business that includes substantial international product sales, added commercial services, accelerated development on HAPS UAS and engaged in numerous acquisitions further expanding our operations domestically and abroad.
+Added: Further, in conjunction with the acquisition of Arcturus in February 2021, we entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business.
+Added: These efforts have increased complexity and our expected growth has placed, and will continue to place, a strain on our management and our administrative, operational and financial infrastructure.
We anticipate further growth of headcount and facilities will be required to address expansion in our product and service offerings and the geographic scope of our customer base.
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military represents our largest source of revenue.
−Removed: We have, however, expanded our product sales into market segments, including those served by our unmanned ground vehicle product line and by our joint venture with SoftBank Corp.
−Removed: to develop HAPS UAS for global communication and remote sensing applications.
−Removed: Our efforts to expand our product offerings beyond our traditional markets may divert management resources from existing operations and require us to commit significant financial resources to unproven businesses that may not generate additional sales, either of which could significantly impair our operating results.
+Added: We have, however, expanded our product sales into new market segments, including those served by our unmanned ground vehicle product line and by our relationship with SoftBank to develop HAPS UAS for global communication and remote sensing applications.
+Added: Our efforts to expand our product and service offerings beyond our traditional markets may divert management resources from existing operations and require us to commit significant financial resources to unproven businesses that may not generate additional sales, either of which could significantly impair our operating results.
The markets in which we compete are characterized by rapid technological change, which requires us to develop new products and product enhancements, and could render our existing products obsolete.
Continuing technological changes in the market for our products could make our products and services less competitive or obsolete, either generally or for particular applications.
−Removed: Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements to our existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the markets in which we offer our products.
−Removed: Delays in introducing new products and enhancements, the failure to choose correctly among technical
−Removed: alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors’ products.
+Added: Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements, including but not limited to addressing counter UAS technologies, to our existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the markets in which we offer our products.
+Added: Delays in introducing new products and enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors’ products.
If we are unable to devote adequate resources to develop new products or cannot otherwise successfully develop new products or enhancements that meet customer requirements on a timely basis, our products could lose market share, our revenue and profits could decline, and we could experience operating losses.
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Our future growth depends on penetrating new markets, adapting existing products to new applications, and introducing new products and services that achieve market acceptance.
−Removed: We plan to incur substantial research and development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products.
+Added: We plan to incur substantial research and
+Added: development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products.
We spent $54.7 million, or 12% of our revenue, in our fiscal year ended April 30, 2022 on internal research and development activities.
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domestic airspace and urban areas.
−Removed: We also remain liable for warranty and product liability claims for our EV charging systems and power cycling and test systems sold by us prior to our sale of our efficient energy systems business segment (our “EES Business”) to Webasto Charging Systems, Inc.
−Removed: (“Webasto”) in June 2018 as contemplated by the purchase and sale agreement between the parties, which products have the potential to cause injury, death or property damage in the event that they are misused, malfunction or fail to operate properly due to unknown defects or errors.
Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all.
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If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business.
−Removed: We obtain hardware components, various subsystems and systems from a limited group of suppliers, some of which are sole source suppliers.
−Removed: We do not have long-term agreements with any of these suppliers that obligate them to continue to sell components, subsystems, systems or products to us.
−Removed: Our reliance on these suppliers involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components, subsystems, or systems of sufficient quality, will increase prices for the components, subsystems or systems and will perform their obligations on a timely basis.
+Added: Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers.
+Added: We obtain certain of our hardware components, various subsystems and systems from a limited group of suppliers, some of which are sole source suppliers.
+Added: Although we hold long term non-binding contracts with certain key suppliers that establish pricing, minimize lead times and to some degree mitigate risk, we do not have long-term agreements with all suppliers that obligate them to continue to sell components, products required to build our systems or products to us.
+Added: Our reliance on suppliers without long term non-binding contracts involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase prices for the components or products and will perform their obligations on a timely basis.
In addition, certain raw materials and components used in the manufacture of our products and in our development programs are periodically subject to supply shortages, and our business is subject to the risk of price increases and periodic delays in delivery.
−Removed: Particularly, the market for electronic components is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’ continued production of key components for our products.
−Removed: In the fourth quarter of our fiscal year ended April 30, 2021, we experienced shortages of certain components for our TMS product line, which caused short term delays in production and negatively affected our revenue for our fourth quarter and fiscal year ended April 30, 2021.
−Removed: If any additional shortages occur and we are unable to obtain components from third party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, then we may not be able to timely complete development programs or deliver our products on a timely or cost effective basis to our customers, which could cause customers to terminate their contracts with us, increase our costs and seriously harm our business, results of operations and financial condition.
−Removed: Moreover, if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials or components, then we may have to find new suppliers.
+Added: Particularly, the market for electronic components has been and currently still is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’ ongoing timely delivery of these components to us.
+Added: In the fiscal year ended April 30, 2022, we experienced delays in receiving of certain electronic and other components for our product lines resulting from shortages, which caused delays in production and development programs and negatively affected our revenue and results
+Added: for the period and could negatively impact our revenue and results in future periods.
+Added: We expect shortages in certain critical components to continue throughout at least the remainder of our fiscal year 2023.
+Added: Should such shortages of components continue or additional shortages occur, and we are unable to obtain components from third party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, then we may be impaired in our ability to execute development programs on schedule or deliver products on a timely or cost-effective basis to our customers.
+Added: Shortages in components for our products and delays in obtaining components for our products could cause customers to terminate their contracts with us, delay orders from us or cause us to delay accepting orders, negatively impact our ability to win new programs and/or contracts, negatively impact and disrupt our development programs, increase our costs and seriously harm our business, results of operations and financial condition.
+Added: Moreover, if any of our suppliers become capacity constrained, financially unstable or otherwise unable or unwilling to provide us with raw materials or components, then we may have to find new suppliers.
It may take several months to locate alternative suppliers, if required, or to redesign our products to accommodate components from different suppliers.
−Removed: We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources or are required to redesign our products.
−Removed: We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all.
−Removed: In particular, governmental measures responsive to the global COVID-19 pandemic have disrupted manufacturing and some supply chains, including our supply chain, which has had, and is expected to continue to have, a significant impact, both direct and indirect, on businesses and commerce worldwide.
−Removed: Although we have not yet seen significant delays from our suppliers and we keep stock of all our raw materials and other product components with long lead times to assist in the event that our supply chain is disrupted, if the COVID-19 outbreak continues and results in a prolonged period of commercial and/or governmental restrictions, this may impact our ability to obtain certain raw materials and certain components used in the manufacture of our products and in our development programs.
+Added: Even if we identify alternate suppliers, we may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish such alternative sources, are required to redesign our products and to complete additional quality control procedures.
+Added: In addition, credit constraints of key suppliers could result in accelerated payment of accounts payable by us, impacting our cash flow.
+Added: We have experienced increased costs for components, as well as increased shipping, warehousing and inventory costs.
+Added: We cannot predict the extent to which these costs will continue and/or continue to increase or if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all.
+Added: Additionally, shortages of components may result in increased inventory of unfinished products and significant quantities of other unused components remaining in inventory, which could expose us to increased risks of obsolescence and losses which may not be fully covered by insurance.
Earnings and cash flows can be impacted by changes in tax laws.
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If these or other tax rules and regulations should change, the company’s earnings and cash flows could be impacted.
−Removed: In particular, the changes proposed by the new U.S.
+Added: In particular, the changes proposed by the current U.S.
administration, including increasing the U.S.
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We do not have employment agreements with any of our executive officers or key employees, and these individuals could terminate their employment with us at any time.
−Removed: loss of any of our executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.
+Added: We have had some departures in fiscal year 2022 from our senior management team, which has resulted in remaining members bearing additional responsibilities as we seek to recruit additional leadership talent.
+Added: The loss of any of our continuing executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.
We must recruit and retain highly-skilled employees to succeed in our competitive business.
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These employees are in great demand and are likely to remain a limited resource in the foreseeable future.
−Removed: If we are unable to recruit and retain a sufficient number of these employees, then our ability to maintain our competitiveness and grow our business could be negatively affected.
+Added: The current tight labor market has adversely impacted our ability to recruit qualified personnel, including engineers.
+Added: Increased restrictions on the import of foreign labor may also increase demand for engineering personnel and adversely impact our ability to hire and retain qualified personnel.
+Added: If we are unable to recruit and retain a sufficient number of these employees, then our ability to maintain our competitiveness and grow our
+Added: business could be negatively affected.
In addition, because of the highly technical nature of our products, the loss of any significant number of our existing engineering personnel could have a material adverse effect on our business and operating results.
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In the event we are unable to provide these key personnel or acceptable substitutes, the customer may terminate the contract.
+Added: We have experienced shortages of skilled employees that has negatively affected our progress on development programs and our results of operations.
+Added: We cannot predict the extent to which these shortages will continue or the extent to which they could negatively impact our development programs and results of operations in future periods.
+Added: In September 2021, in furtherance of an executive order issued by President Biden, the U.S.
+Added: Safer Federal Workforce Task Force issued guidance that generally requires that employees of U.S.
+Added: government contractors receive COVID-19 vaccinations, unless an employee requests and receives a medical or religious accommodation.
+Added: The mandate is subject to various legal proceedings.
+Added: While the loss of certain employees due to this vaccine mandate, as well our own vaccine requirements for our employees, has not had a significant impact on our operations to date, our ability to recruit skilled employees in the future may be negatively impacted by vaccine mandates.
Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.
Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.
−Removed: We have limited experience manufacturing UAS and UGV in high volume.
+Added: We have limited experience manufacturing UAS, TMS and UGV in high volume.
We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable us to manufacture (or contract for the manufacture of) these products in commercial quantities while meeting the volume, speed, quality, price, engineering, design and production standards required to successfully market our products.
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We expect our suppliers to experience a sharp increase in demand for their products.
−Removed: As a result, we may not have reliable access to supplies that we require or be able to purchase such materials or components at cost effective prices.
+Added: During the fiscal year ended April 30, 2022, global supply chain issues resulted in delays in procuring components for our products and experienced significant increases in the costs to procure certain components.
+Added: The extent to which we will have reliable access to supplies that we require or be able to purchase such materials or components at cost effective prices is uncertain.
+Added: We expect that the global supply chain issues will adversely affect our ability to procure certain components through at least our fiscal year 2023.
There is no assurance that we will ever be in a position to realize any material, labor and machinery cost reductions associated with higher purchasing power and higher production levels.
Failure to achieve these cost reductions could adversely impact our business and financial results.
−Removed: We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in product recalls or supply imbalances that could harm our business.
−Removed: We maintain a variety of parts and components in inventory to allow us to customize our UAS products for specific customer requirements, which parts are subject to obsolescence and expiration.
−Removed: Due to the long-lead time for obtaining certain UAS product components and the manufacturing cycles, we need to make forecasts of demand and commit significant resources towards manufacturing our products.
+Added: We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in supply imbalances that could harm our business.
+Added: We maintain a variety of parts and components in inventory to allow us to customize our UAS and UGV products for specific customer requirements, which parts are subject to obsolescence and expiration.
+Added: Due to the long-lead time for obtaining certain UAS product components, including in response to procurement issues caused by shortages in the supply chain for such components, and the manufacturing cycles, we need to make forecasts of demand and commit significant resources towards manufacturing our products.
As such, we are subject to significant risks in managing the inventory needs of our business during the year, including estimating the appropriate demand for our products.
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In the future, we may be required to record write-downs of finished products and materials on-hand and/or additional charges for excess purchase commitments as a result of future changes in our sales forecasts or customer orders.
+Added: Additionally, our failure to manage inventory effectively, including in response to the effects of shortages of our components, could expose us to increased losses.
+Added: Additionally, shortages of components may result in increased inventory of unfinished products and significant quantities of other unused components remaining in inventory, which could expose us to increased risks of obsolescence and losses which may not be covered by insurance.
Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which could adversely affect our financial results.
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From time to time, these activities may result in incidents that could cause us to temporarily shut down or otherwise disrupt some manufacturing processes, causing production delays and resulting in liability for workplace injuries and/or fatalities.
−Removed: We have safety and loss prevention programs that
−Removed: require detailed reviews of process changes and new operations, along with routine safety audits of operations involving explosive materials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may be inadequate to cover all claims and losses related to such incidents.
+Added: We have safety and loss prevention programs that require detailed reviews of process changes and new operations, along with routine safety audits of operations involving explosive materials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may be inadequate to cover all claims and losses related to such incidents.
We may experience such incidents in the future, which could result in production delays or otherwise have a material adverse effect on our business and financial condition.
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Any reductions in available research and development funding could harm our business, financial condition and operating results.
−Removed: Our work for the U.S.
−Removed: government and international governments may expose us to security risks.
−Removed: government contractor, we face various security threats, including cyber security attacks on our information technology infrastructure, attempts to gain access to our proprietary, financial, banking or classified information as well as threats to the physical security of our facilities and employees.
−Removed: Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent disruptions, the unauthorized release of confidential technical, financial or banking information or corruption of data.
−Removed: Accordingly, any significant operational delays, or any destruction, manipulation or improper use of our data, information systems or networks could adversely affect our financial results and damage the reputation for our products and services.
−Removed: The occurrence of some of these risks may be increased due to the increase in remote working by our employees, suppliers, contractors and other third parties due to the COVID-19 pandemic.
−Removed: Due to the ever developing nature of such risks, the impact of any potential incident cannot be predicted.
−Removed: Previous cyber-attacks directed at us have not materially impacted our business or financial results, but the impact of future incidents cannot be predicted due to the evolving nature and complexity of cyber-attacks.
−Removed: If we or our partners are subject to data security breaches, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could materially and adversely affect our business and financial results.
+Added: Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business.
+Added: We face various security threats, including cyber security attacks on our information technology infrastructure, which may include attempts to gain access to our proprietary, financial, banking or classified information, disrupt use of our systems or otherwise compromise the integrity of our operations.
+Added: Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent physical or cyber access or system disruptions, including the unauthorized release of confidential technical, financial or banking information or corruption of data.
+Added: Accordingly, any significant operational delays, or any destruction, manipulation or improper use of our data, information systems or networks could adversely affect our financial results and damage our reputation with customers, suppliers and stockholders, and the reputation of our products and services.
+Added: The occurrence of some of these risks may be increased due to the increase in remote working by our employees, suppliers, contractors and other third parties.
+Added: Previous cyber-attacks directed at us have not materially impacted our business or financial results, but the impact of future incidents cannot be predicted due to the constantly evolving nature and complexity of cyber-attacks.
+Added: If we or our partners are subject to data security breaches, whether cyber or due to a failure in physical security protocols, we may have a loss in existing sales and new business opportunities, increased costs arising from remediation of the breach and the restoration or implementation of additional security measures, be subject to regulatory investigations and litigation, including fines and penalties, and face increased insurance or audit requirements in our third party contracts, any of which could materially and adversely affect our business and financial results.
Additionally, expenses resulting from cyber security attacks and other security risks may not be fully insured or otherwise mitigated, which could harm our financial results.
−Removed: In addition, we work in international locations where there are high security risks, which could result in harm to our employees and contractors or substantial costs.
−Removed: Some of our services are performed in or adjacent to high-risk locations, such as Iraq and Afghanistan, where the country or location is experiencing political, social or economic issues, or war or civil unrest.
−Removed: In those locations where we have employees or operations, we may incur substantial costs to maintain the safety of our personnel.
−Removed: Despite these precautions, the safety of our personnel in these locations may continue to be at risk, and we may in the future be negatively impacted by the loss of employees and contractors, which could harm our business and operating results.
+Added: Our work for the U.S.
+Added: government and international governments may expose us to increased security risks.
+Added: As a government contractor, given the enhanced sensitivity of the information we have access to and the nature of our products and services, we are at increased risk of being targeted for cyber and other security attacks, including threats to the physical security of our facilities and employees.
+Added: In addition, we work in international locations where there are high security risks, which could result in harm to our employees, contractors, and remote assets, and substantial protection or recovery costs.
+Added: Some of our services are performed in or adjacent to high risk locations where the country or location is experiencing political, social or economic issues, or war or civil unrest.
+Added: In those locations where we have employees or operations, we may incur substantial costs to maintain the safety of our personnel, our remote assets and our information.
+Added: As such international locations and the risks associated with them change rapidly, such precautions may be insufficient to avoid such risks including possible possession of our remote assets and related access to our intellectual property by unintended third parties and the possible loss of our personnel in these locations, which could harm our business and operating results.
Our cash may be subject to a risk of loss, and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates.
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government securities, U.S.
−Removed: government agency securities, municipal bonds and high-grade corporate
−Removed: bonds, the performance of which are subject to additional market risks related to their respective issuers.
+Added: government agency securities, municipal bonds and high-grade corporate bonds, the performance of which are subject to additional market risks related to their respective issuers.
Nearly all of our cash and bank deposits are not insured by the Federal Deposit Insurance Corporation.
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Negative Impact from Increased Financial Pressures on Key Suppliers:
−Removed: Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers.
−Removed: Certain of our hardware components and various subsystems are available only from a limited group of suppliers.
−Removed: If certain key suppliers were to become capacity constrained or insolvent as a result of a market downturn, then we may have to find new suppliers.
−Removed: We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources or are required to redesign our products.
−Removed: We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all.
−Removed: In addition, credit constraints of key suppliers could result in accelerated payment of accounts payable by us, impacting our cash flow.
+Added: Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and
+Added: components from our suppliers.
+Added: If certain key suppliers were to become capacity constrained or insolvent as a result of a market downturn or disruption, then we may have to find new suppliers, which can result in significant delays in manufacturing and shipping our products to customers and additional costs.
+Added: See above risk factor “If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business” for more detail on risks related to our supply chain.
Customers’ Inability to Obtain Financing to Make Purchases from Us and/or Maintain Their Business:
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In June 2019, we consummated the acquisition of Pulse Aerospace, LLC.
−Removed: In February 2021 we completed the acquisition of Arcturus and ISG, and in May 2021 we acquired Telerob.
+Added: In February 2021 we completed the acquisition of Arcturus and Intelligent Systems Group business segment (“ISG”), and in May 2021 we acquired Telerob.
We intend to consider additional acquisitions that could add to our customer base, technological capabilities or system offerings.
−Removed: Acquisitions, including our recent
−Removed: acquisitions of Arcturus, ISG and Telerob, involve numerous risks, any of which could harm our business, including the following:
+Added: Acquisitions involve numerous risks, any of which could harm our business, including the following:
● difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of each target company and realizing the anticipated synergies of the combined businesses;
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● assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company’s products or its regulatory compliance;
−Removed: ● expanded regulatory compliance complexity and risk;
+Added: ● expanded regulatory compliance complexity and risk, including compliance with regulations of foreign jurisdictions;
● inability to generate sufficient revenue to offset acquisition costs.
−Removed: Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results.
+Added: Acquisitions also frequently result in the recording of goodwill and other intangible assets that are subject to potential impairments in the future that could harm our financial results.
In addition, if we finance acquisitions by issuing equity, or securities convertible into equity, such as the stock issued as consideration for the purchase of Arcturus, then our existing stockholders may be diluted, which could lower the market price of our common stock.
−Removed: If we finance acquisitions through debt, such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus, then such future debt financing may contain covenants or other provisions that limit our operational or financial flexibility.
+Added: If we finance acquisitions through debt, such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus, then such future debt financing may contain covenants or other provisions that limit our operational or financial flexibility and represent default risk if we are unable to maintain certain financial performance metrics while the debt remains outstanding.
If we fail to properly evaluate acquisitions or investments, then we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate.
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Borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility.
−Removed: On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement with certain lenders, letter of credit issuers, and others (the “Credit Agreement”), which, together with its associated Security and Pledge Agreement, sets forth the terms and conditions of a five-year $100 million revolving credit facility, which includes a $10 million sublimit for the issuance of standby and commercial letters of credit (the “Revolving Facility”), and a five-year amortized $200 million term A loan (the “Term Loan Facility”, and together with the Revolving Facility, the “Credit Facilities”).
+Added: On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement with certain lenders, letter of credit issuers, and others (as amended February 4, 2022, the “Credit Agreement”), which, together with its associated Security and Pledge Agreement, sets forth the terms and conditions of a five-year $100 million revolving credit facility, which includes a $10 million sublimit for the issuance of standby and commercial letters of credit (the “Revolving Facility”), and a five-year amortized $200 million term A loan (the “Term Loan Facility”, and together with the Revolving Facility, the “Credit Facilities”).
Upon execution of the Credit Agreement, we drew down $200.0 million, the full principal amount of the Term Loan Facility, to partially finance the acquisition of Arcturus.
−Removed: The Term Loan Facility has a five-year term expiring in February 2026 and bears interest, at our option, either at a LIBOR rate or a base rate plus a fixed applicable margin dependent on our consolidated leverage ratio under the terms of the agreement.
−Removed: We are required to pay 5.0% of the outstanding obligations under the Term Loan Facility in each of the first four loan years, with the remaining 80.0% payable in the fifth loan year, consisting of three quarterly
−Removed: payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the maturity date.
+Added: The Term Loan Facility as amended has a five-year term expiring in February 2026 and bears interest, at our option, either at a secured overnight financing rate (“SOFR”) or a base rate plus a fixed applicable margin dependent on our consolidated leverage ratio under the terms of the agreement.
+Added: We are required to pay 5.0% of the outstanding obligations under the Term Loan Facility in each of the first four loan years, with the remaining 80.0% payable in the fifth loan year, consisting of three quarterly payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the maturity date.
The Revolving Facility has a term of 5 years.
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● placing us at a competitive disadvantage compared to our competitors with less indebtedness;
−Removed: ● exposing us to substantial interest rate risk due to the variable interest rate under the Credit Facilities, such that, if interest rates were to increase substantially during the term of the Credit Facilities, the resulting increase in our interest payment obligations could adversely affect our operating results and our ability to service the indebtedness under the Credit Facilities;
+Added: ● exposing us to substantial interest rate risk due to the variable interest rate under the Credit Facilities, such that, if interest rates were to increase substantially during the term of the Credit Facilities, the resulting increase in our interest payment obligations could adversely affect our operating results and our ability to
+Added: service the indebtedness under the Credit Facilities;
● making it more difficult for us to borrow additional funds in the future to fund our growth, acquisitions, working capital, capital expenditures, and other purposes.
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Our business and operations are subject to the risks of earthquakes and other natural catastrophic events.
−Removed: The majority of our research and development and manufacturing operations are located in California, regions known for seismic activity and wild fires.
−Removed: A significant natural disaster, such as an earthquake, fire or other catastrophic event, could severely affect our ability to conduct normal business operations, and as a result, our future operating results could be materially and adversely affected.
+Added: The majority of our research and development and manufacturing operations are located in California in regions known for seismic activity and wildfires.
+Added: While we maintain insurance coverage to cover certain of risks of losses for damage or destruction to facilities and property and for interruption of our business, such insurance may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses.
+Added: A significant natural disaster, such as an earthquake, fire or other catastrophic event, could severely affect our ability to conduct normal business operations, and as a result, our future operating results could be materially and adversely affected, including if our losses are not adequately or timely covered by our insurance.
We face various risks related to the COVID-19 novel coronavirus pandemic and similar public health crises, which may adversely impact our business.
−Removed: In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced in Wuhan, China, and has reached multiple other regions and countries, including the United States and, more specifically, Southern California, where our primary operations are located.
−Removed: The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed stay-at-home orders and quarantines, travel restrictions and other public health safety measures.
−Removed: Although our operations have mostly continued uninterrupted during the COVID-19 outbreak, adoption of work from home protocols, social distancing measures in the workplace and other responsive actions have required certain changes to our operations.
−Removed: Despite an increase in vaccinations in the United States, vaccinations have adopted more slowly internationally, and if the current COVID-19 pandemic continues and results in additional periods of travel and other similar logistics restrictions, this may further reduce our and our customers’ capabilities to travel, domestically and internationally, which may impact our ability to perform certain contracts, develop and renew contracts, or market our products, or could otherwise disrupt portions of our business and have a material adverse effect on our results of operations.
−Removed: Global health concerns, such as coronavirus, could result in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate.
−Removed: It is not currently possible to ascertain the overall impact of the COVID-19 outbreak, if any, on our business.
−Removed: The extent to which COVID-19 impacts on our business, financial condition and results of operations and those of our third party partners will depend on future developments as to the geographic presence of COVID-19, rates of vaccination, government and healthcare responses to such spread including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others, which remain highly uncertain.
−Removed: We cannot presently predict the scope and severity of any potential business disruptions, but if we or any of the third parties with whom we engage, including suppliers and other third parties with whom we conduct business, were to experience prolonged shutdowns or other business disruptions, including a slowdown in the effectiveness of our workforce due to illness or otherwise, our ability to conduct our business in the manner presently planned could be materially and negatively impacted.
−Removed: The COVID-19 outbreak has caused delays in the timing of our customers’ awarding of contracts to us, and while such delays have not yet had a significant impact on our business, there can be no assurances that any such delays would not have a material adverse impact on our business and results of operations in the future.
+Added: In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced in Wuhan, China, and has reached multiple other regions and countries, including the United States where our primary
+Added: operations are located.
+Added: The coronavirus pandemic continues to evolve, and has led to the implementation of various responses and evolving public health safety measures.
+Added: Although our operations have mostly continued uninterrupted during the COVID-19 outbreak, adoption of work from home protocols, social distancing measures in the workplace, international travel restrictions, vaccine mandates and other responsive actions have required certain changes to our operations.
+Added: In particular, additional surges in infection rates and resulting travel disruptions, quarantine requirements or other similar logistics restrictions, may further reduce our and our customers’ capabilities to travel, domestically and internationally, which may impact our ability to perform certain contracts, develop and renew contracts, or market our products, or could otherwise disrupt portions of our business and have a material adverse effect on our results of operations.
+Added: Global health concerns, such as the coronavirus pandemic, could result in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate.
+Added: The extent to which COVID-19 will continue to impact our business, financial condition and results of operations and those of our third party partners will depend on future developments as to the geographic presence of COVID-19, new and potentially more contagious variants of the SARS-CoV-2 virus, rates of vaccination, government and healthcare responses to such spread including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others, which remain highly uncertain.
+Added: We cannot presently predict the scope and severity of existing and other potential business disruptions, but if we or any of the third parties with whom we engage, including suppliers and other third parties with whom we conduct business, were to experience prolonged shutdowns or other business disruptions, including a slowdown in the effectiveness of our workforce due to illness or otherwise, our ability to conduct our business in the manner presently planned could be materially and negatively impacted.
+Added: The COVID-19 outbreak has caused delays in the timing of our customers’ awarding of contracts to us, which has had some negative impact on our business in fiscal year 2022;
+Added: and there can be no assurances that any further delays would not have a material adverse impact on our business and results of operations in the future.
The COVID-19 pandemic could also cause delays or limits in the ability of our customers to make timely payments to us.
−Removed: Additionally, our government customers may have more limited resources available to purchase our
−Removed: products due to deteriorating economic conditions or due to the diversion of resources to other budget priorities, including efforts to address the COVID-19 pandemic.
+Added: Additionally, our government customers may have more limited resources available to purchase our products due to deteriorating economic conditions or due to the diversion of resources to other budget priorities, including efforts to address the COVID-19 pandemic.
The future progression of the COVID-19 outbreak and its resulting effects on our business, financial condition and results of operations are uncertain and are continuing to be assessed.
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However, unanticipated changes in assumptions and management estimates underlying our recorded liabilities for medical claims could result in materially different amounts of expense than expected under our health insurance program, which could have an adverse material impact on our financial condition and results of operations.
+Added: Recession, financial and credit market disruptions may adversely affect us.
+Added: If another global recession emerges, we may experience declines in revenues, profitability and cash flows from reduced orders, payment delays, collection difficulties, increased price pressures for our products, increased risk of excess and obsolete inventories or other factors caused by the economic problems of our customers.
+Added: The COVID pandemic has increased volatility and pricing in the capital markets.
+Added: If negative conditions in the global credit markets prevent our customers from having access to credit or render them insolvent, orders for our products may decrease, which would result in lower revenue.
+Added: Likewise, if our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses or remaining solvent, they may become unable to offer the materials we use to manufacture our products.
+Added: An economic or credit crisis could also impact our ability to raise capital when
+Added: These events could adversely impact our ability to manufacture affected products and could also result in reductions in our revenue, increased price competition, and increased operating costs, which could adversely affect our business, financial condition, operational results, and cash flows.
Risks Related to Our U.S.
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The indirect costs we incur in performing government contracts have been audited or have been subject to audit on an annual basis.
−Removed: The audit of our 2010 incurred cost claim was settled in April 2016 without payment of any consideration.
−Removed: Our incurred cost claims for fiscal years 2011 through 2014 were accepted as submitted during the fiscal year ended April 30, 2017.
−Removed: Our 2016 and 2017 rates claims were accepted without audit during the fiscal year ended April 30, 2019 without payment of any consideration.
−Removed: During the fiscal year ended April 30, 2020, the Company settled rates for its incurred cost claims with the DCAA for fiscal year 2015 for an amount that was not significant.
+Added: The audits of our incurred cost claims through fiscal year 2020 have been settled.
At April 30, 2022 we had no reserve for open incurred cost claim audits.
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Since a substantial majority of our revenue is dependent on the procurement, performance and payment under our U.S.
−Removed: government contracts, the termination of one or more critical
−Removed: government contracts could have a negative impact on our results of operations and financial condition.
+Added: government contracts, the termination of one or more critical government contracts could have a negative impact on our results of operations and financial condition.
Termination arising out of our default could result in damage to our reputation, expose us to liability and have a material adverse effect on our ability to re-compete for future contracts and orders.
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government contracts that were awarded through a competitive bidding process.
−Removed: Much of the business that we expect to seek in the foreseeable future likely will be awarded through competitive bidding.
+Added: Much of the business that we expect to
+Added: seek in the foreseeable future likely will be awarded through competitive bidding.
Competitive bidding presents a number of risks, including the following:
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We could be prohibited from shipping our products to certain countries if we are unable to obtain U.S.
−Removed: government authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business.
+Added: government authorization regarding the export of our products and services, or if current or future export laws limit or otherwise restrict our business.
In addition, failure to comply with export laws could result in fines, export restrictions and other sanctions and penalties.
We must comply with U.S.
−Removed: and other laws regulating the export of our products.
+Added: and other laws regulating the export of our products and services.
In some cases, explicit authorization from the relevant U.S.
−Removed: government authorities is needed to export our products.
+Added: government authorities is needed to export our products and services.
The export regulations and the governing policies applicable to our business are subject to change.
−Removed: We cannot provide assurance that such export authorizations will be available for our products in the future.
+Added: We cannot provide assurance that such export authorizations will be available for our products and services in the future.
Compliance with these laws has not significantly limited our operations or our sales in the recent past but could significantly limit them in the future.
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In November 2019, we entered into a consent agreement (the “Consent Agreement”) with the U.S.
−Removed: Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance to resolve various alleged violations of the Armed Export Control Act and the International Traffic in Arms Regulations (“ITAR”) that occurred between June 2014 and December 2016.
−Removed: The Consent Agreement has a two-year term and provides for, among other things:
+Added: Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance to resolve
+Added: various alleged violations of the Armed Export Control Act and the International Traffic in Arms Regulations (“ITAR”) that occurred between June 2014 and December 2016.
+Added: The Consent Agreement, under which we are currently operating, provides for, among other things:
(i) a civil penalty of $1,000,000 payable in installments, $500,000 of which was suspended on the condition that such amount be used future remedial compliance costs over the term of the Consent Agreement and/or credited against prior compliance enhancement costs already expended by us;
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Our failure to comply with the terms of the Consent Agreement or export laws and regulations in general can subject us to additional fines, penalties and sanctions, including suspension of export privileges, which could have a material adverse impact on our business, operations and financial condition and limit or prevent us from being able to sell our products in certain international jurisdictions.
−Removed: Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small and medium UAS in response to public privacy concerns, may prevent us from expanding the sales of our small and medium UAS to non-military customers in the United States.
−Removed: The regulation of small and medium UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.
−Removed: In 2006, the FAA issued a clarification of its existing policies stating that, in order to engage in commercial use of small and medium UAS in the U.S.
+Added: Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS and MUAS in response to public privacy concerns, may prevent us from expanding the sales of our small UAS and MUAS to non-military customers in the United States.
+Added: The regulation of small UAS and MUAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.
+Added: In 2006, the FAA issued a clarification of its existing policies stating that, in order to engage in commercial use of small UAS and MUAS in the U.S.
National Airspace System, a public operator must obtain a COA from the FAA or fly in restricted airspace.
The FAA’s COA approval process requires that the public operator certify the airworthiness of the aircraft for its intended purpose, that a collision with another aircraft or other airspace user is extremely improbable, that the small unmanned aircraft system complies with appropriate cloud and terrain clearances and that the operator or spotter of the small unmanned aircraft system is generally within one half-mile laterally and 400 feet vertically of the small unmanned aircraft system while in operation.
−Removed: Furthermore, the FAA’s clarification of existing policy stated that the rules for radio-controlled hobby aircraft do not apply to public or commercial use of small and medium UAS.
−Removed: On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlines for the FAA to allow expanded use of small and medium UAS for both public and commercial applications.
+Added: Furthermore, the FAA’s clarification of existing policy stated that the rules for radio-controlled hobby aircraft do not apply to public or commercial use of small UAS and MUAS.
+Added: On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlines for the FAA to allow expanded use of small UAS and MUAS for both public and commercial applications.
On June 21, 2016, the FAA released its final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S.
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Additionally, in December 2019 and January 2020, the FAA proposed rules regarding remote UAS identification and a new policy regarding the airworthiness certification of a newly created special class of UAS.
−Removed: It is unclear when, if ever, the FAA will implement any final rules regarding remote UAS identification and whether such final rules will differ from the proposed rules or when, if ever, the FAA will create a new class of UAS and what the
−Removed: final rules regarding the certification of such new class of UAS will state.
−Removed: We cannot assure you that the Part 107 Rules, or any final rules enacted in furtherance on the FAA’s recently announced proposals, will result in the expanded use of our small and medium UAS by law enforcement or other non-military government agencies or commercial entities and we may not be able to expand our sales of small and medium UAS beyond our military customers, which could harm our business prospects.
+Added: It is unclear when, if ever, the FAA will create a new class of UAS and what the final rules regarding the certification of such new class of UAS will state.
+Added: We cannot assure you that the Part 107 Rules, or any final rules enacted in furtherance on the FAA’s recently announced proposals, will result in the expanded use of our small UAS and MUAS by law enforcement or other non-military government agencies or commercial entities and we may not be able to expand our sales of small UAS and MUAS beyond our military customers, which could harm our business prospects.
In addition, there exists public concern regarding the privacy implications of U.S.
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This concern has included calls to develop explicit written policies and procedures establishing usage limitations.
−Removed: We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small and medium UAS by non-military customers.
+Added: We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small UAS and MUAS by non-military customers.
Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as our ability to obtain security clearances for the facilities in which we perform sensitive government work.
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The DoD has strict security clearance requirements for personnel who work on classified programs.
−Removed: Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances.
+Added: Obtaining and
+Added: maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances.
If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain the clearances or terminate employment with us, then a customer requiring classified work could terminate the contract or decide not to renew it upon its expiration.
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In addition, any product recall, regardless of direct costs of the recall, may harm consumer perceptions of our products and have a negative impact on our future revenues and results of operations.
−Removed: Subject to a determination of the appropriateness of any recall, we remain responsible for the non-warranty costs from the recall of completed products we manufactured, sold or serviced prior to closing of the sale of substantially all of the assets and related liabilities of our EES Business to Webasto, pursuant to an Asset Purchase Agreement (the “Purchase Agreement”).
−Removed: In particular, on August 24, 2018, Webasto filed a recall report with the National Highway Traffic Safety Administration (“NHTSA”) that named us as a brand of the affected equipment.
−Removed: To the extent we are obligated under the terms of the Purchase Agreement with Webasto or as a result of the lawsuit filed by
−Removed: Webasto against us seeking costs related to the recall or pursuant to applicable law for all or any portion of the costs incurred in connection with such recall, or any other such recall, our results of operations may be negatively affected.
In addition to government regulation, products that have been or may be developed by us may expose us to potential liability from personal injury or property damage claims by the users of such products.
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While we maintain insurance coverage for product liability claims, our insurance may be inadequate to cover any such claims.
−Removed: Any successful claim could significantly harm our business, financial condition and results of operations.
+Added: Any successful claim or material settlement of such claims could significantly harm our business, financial condition and results of operations.
We are subject to pending legal proceedings that may disrupt our business, cause us to incur substantial costs, expose us to significant legal liabilities and could have a material adverse impact on our financial performance.
−Removed: We are subject to various legal proceedings and claims, including a lawsuit filed by Webasto alleging several claims against us arising out of or related to our sale of our EES Business to Webasto in June 2018 and the NHTSA recall.
−Removed: Additional lawsuits may arise in the future.
+Added: We are subject to various legal proceedings and claims, and additional lawsuits may arise in the future.
Occasionally we are also involved in governmental inquiries and investigations and administrative and regulatory proceedings.
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The results of any such proceedings are unpredictable.
−Removed: We record accruals for liabilities where we believe a loss is probable and reasonably estimable, however, our actual losses may differ significantly from our estimates.
−Removed: As a result of an offer of settlement we made to Webasto in the pending litigation to avoid the future cost, expense and distraction of the litigation, we were required to record a litigation reserve related to the litigation, although such offer does not reflect our view of the merits of the claims made in the litigation.
−Removed: An adverse or unfavorable resolution of any proceedings against us, including the litigation with Webasto, could have a material impact on our financial position, cash flows and results of operations.
+Added: We record accruals for liabilities where we believe a loss is probable and reasonably estimable, including when negotiating settlement where appropriate in response to such claims, however, our actual losses may differ significantly from our interim estimates.
+Added: An adverse or unfavorable resolution of any proceedings against us could have a material impact on our financial position, cash flows and results of operations.
Our business is subject to federal, state and international laws regarding data protection, privacy, and information security, as well as confidentiality obligations under various agreements, and our actual or perceived failure to comply with such obligations could damage our reputation, expose us to litigation risk and adversely affect our business and operating results.
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Additionally, we expect that existing laws, regulations and standards may be interpreted differently in the future.
−Removed: There remains significant uncertainty surrounding the regulatory framework for the future of personal data transfers from the European Union to the United States with regulations such as the recently adopted General Data Protection Regulation (“GDPR”), which imposes more stringent E.U.
−Removed: data protection requirements, provides an enforcement authority, and imposes large penalties for noncompliance.
+Added: There remains significant uncertainty surrounding the regulatory framework for the future of personal data transfers from the European Union to the United States with regulations such as the General Data Protection Regulation (“GDPR”), which imposes stringent E.U.
+Added: data protection requirements, provides an enforcement authority, and imposes large penalties for noncompliance, including for the transfer of personal data between AeroVironment and its recently acquired German subsidiary, Telerob.
Future laws, regulations, standards and other obligations, including the adoption of the GDPR, as well as changes in the interpretation of existing laws, regulations, standards and other obligations could impair our ability to collect, use or disclose information relating to individuals, which could decrease demand for our products, require us to restrict our business operations, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.
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Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal information or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
−Removed: Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and operating results.
−Removed: Environmental laws and regulations and unforeseen costs could impact our future earnings.
+Added: Any inability
+Added: to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and operating results.
+Added: Environmental laws and regulations and unforeseen costs, including in response to climate change, could impact our future earnings.
The manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations.
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Although we have never been named a responsible party at a contaminated site, we could be named a potentially responsible party in the future.
−Removed: We cannot assure you that such existing laws or future laws will not have a material adverse effect on our future earnings or results of operations.
+Added: The increasing global focus on climate change, including greenhouse gas (“GHG”) emissions, has resulted in legislative and regulatory efforts to address the causes and impacts of climate change.
+Added: New and more strict laws and regulations to reduce GHG emissions and address other aspects of climate change, including carbon taxes, cap and trade programs, GHG reduction requirements, requirements for the use of green energy, and changes in procurement requirements, may result in increased operational and compliance obligations, which could adversely affect our financial condition and results of operations.
+Added: Such laws and regulations could result in increased energy costs and costs to upgrade our facilities or change our manufacturing processes.
+Added: Additionally, our suppliers may also face similar increased costs, which could result in them increasing the costs of components for our products and development programs.
+Added: Changes to government procurement laws, including proposed changes to the Federal Acquisition Regulations, designed to require climate risk and GHG emissions to be taken into account in the procurement process could result in increased costs to change our operations and manufacturing processes to ensure we remain competitive in the bidding process.
+Added: We cannot predict the materiality of any potential additional costs associated with complying with such laws and regulations or whether we could raise prices to account for any such additional costs.
+Added: Any non-compliance could negatively affect our reputation, our ability to compete in competitive bidding processes, including with the U.S.
+Added: government, and our ability to sell our products and services.
+Added: We cannot assure you that such existing laws or future laws addressing environmental concerns, including climate change, will not have a material adverse effect on our future earnings or results of operations.
Compliance with the SEC’s conflict minerals regulations may increase our costs and adversely impact the supply-chain for our UAS products.
−Removed: In August 2012, the SEC adopted disclosure rules regarding a company’s use of conflict minerals in its products with substantial supply chain verification requirements in the event that the conflict minerals come from, or
−Removed: could have come from, the Democratic Republic of the Congo or adjoining countries.
+Added: In August 2012, the SEC adopted disclosure rules regarding a company’s use of conflict minerals in its products with substantial supply chain verification requirements in the event that the conflict minerals come from, or could have come from, the Democratic Republic of the Congo or adjoining countries.
These rules and verification requirements have imposed additional costs on us and on our suppliers, including costs related to determining the source of conflict minerals used in our products, which may adversely affect our results of operations.
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We may face challenges in satisfying our customers who may require that our products be certified as conflict mineral-free, which could place us at a competitive disadvantage and could harm our business.
−Removed: These regulations could also have the effect of limiting the pool of suppliers from which we source items containing conflict minerals, and we may be unable to obtain conflict-free minerals at competitive prices, if at all, which could increase our costs and adversely affect our results of operations.
+Added: These regulations could
+Added: also have the effect of limiting the pool of suppliers from which we source items containing conflict minerals, and we may be unable to obtain conflict-free minerals at competitive prices, if at all, which could increase our costs and adversely affect our results of operations.
Risks Related to Our Intellectual Property
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● terrorist acts or military action related to international conflicts, wars or otherwise;
+Added: ● media coverage regarding our products and services;
● sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
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These broad market and industry factors may affect the market price of our common stock adversely, regardless of our operating performance.
−Removed: In the past, following periods of volatility in the market price of a company’s securities, securities class
−Removed: action litigation often has been instituted against that company.
+Added: In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation often has been instituted against that company.
This type of litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.
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These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premium over the then-prevailing market price for shares of our common stock.
+Added: Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.
+Added: It is management’s responsibility to establish and maintain effective internal control in order to provide reasonable assurance regarding the financial reporting soundness for external purposes.
+Added: Internal control over financial reporting is not intended to impart absolute assurance that the Company can prevent or detect misstatements of its financial statement or fraud due to its inherent limitations.
+Added: As of April 30, 2022, our management determined that the Company’s internal control over financial reporting was not effective due to certain identified material weaknesses.
+Added: A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
+Added: Management identified deficiencies related to inadequate design and operation of certain controls at certain newly acquired businesses.
+Added: Specifically, management did not effectively select and develop certain information technology (“IT”) general controls related to access and change management controls that led to deficiencies in the design and operation of control activities, including segregation of duties.
+Added: The Company also had deficiencies in the design and operation of account reconciliations at certain newly acquired businesses.
+Added: These deficiencies and a lack of sufficient resources contributed to the potential for there to have been material errors related to certain newly acquired businesses in the Company’s financial statements.
+Added: While these deficiencies did not result in any material misstatements of the Company’s consolidated financial statements, they did collectively represent a material weakness in internal control over financial reporting.
+Added: Additional information about the nature of these material weaknesses and how we are remediating and addressing them is provided in Item 9A.- “Controls and Procedures.”
+Added: Although the current material weaknesses identified did not result in a need to restate any prior period financial statements, if the current material weaknesses are not remediated in full, or if additional material weaknesses or significant deficiencies in the Company’s internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate financial results.
+Added: Further, because of ongoing changes in our operations and business condition and changes in accounting rules and regulations, even our remediation of the current material weaknesses will not remove the need to timely assess such changes and develop additional updates to our internal controls from time to time.
+Added: The failure to maintain an effective system of internal control over financial reporting could limit our ability to report its financial results accurately and in a timely manner or to detect and prevent fraud, which could cause a loss of investor confidence in our reporting, depress our stock price, adversely limit our liquidity and access to the capital markets and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements.
Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium .
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This statute, as well as the provisions in our organizational documents, could have the effect of delaying, deterring or preventing certain potential acquisitions or a change in control of us.
+Added: Significant inflation could adversely affect our business and financial results.
+Added: Although historically our operations have not been materially affected by inflation and we have been successful in adjusting prices to our customers to reflect changes in our material and labor costs, the rate of current inflation and resulting pressures on our costs and pricing could adversely impact our business and financial results.
+Added: Inflation can adversely affect us by increasing our operating costs, including our materials, freight and labor costs, which are already under pressure due to supply chain constraints and the continuing effects of the COVID-19 pandemic.
+Added: As interest rates rise to address inflation, such increases will also impact the base rates applicable in our credit arrangements and will result in borrowed funds becoming more expensive to us over time;
+Added: similar financing pressures from inflation also can have a negative impact on customers’ willingness to purchase our products in the same volumes and at the same rates as previously anticipated.
+Added: In a highly inflationary environment, we may be unable to raise the sales prices of our products at or above the rate of inflation, which could reduce our profit margins having a material adverse effect on our financial performance.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.