What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-07-27 compared with 2022-07-14 · 57 added, 101 removed, 132 unchanged (54% of the section changed)

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Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

Factors that would cause or contribute to such differences include, but are not limited to, the risks associated with health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, such as their impact on our financial condition and results of operations and on our ability to continue manufacturing and distributing our products, and the impact of health epidemics and pandemics on general economic conditions, including any resulting recession, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, and the outcome of any litigation and arbitration proceedings.

Factors that would cause or contribute to such differences include, but are not limited to, the risks associated with health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, such as their impact on our financial condition and results of operations and on our ability to continue manufacturing and distributing our products, and the impact of health epidemics and pandemics on general economic conditions, including any resulting recession, our inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, reliance on key customers, continued acceptance of the Company’s products in the marketplace, competitive factors, new products and technological changes, product prices and raw material costs, dependence upon third-party vendors, other supply chain related issues, increasing costs for materials, operating related expenses, competitive developments, changes in manufacturing and transportation costs, the availability of capital, the outcome of any litigation and arbitration proceedings, and failure to maintain an effective system of internal controls over financial reporting.

The factors listed above are not exhaustive.

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Any or all of the forward-looking statements contained in this Form 10-K and any other public statement made by the Company or its management may turn out to be incorrect.

The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies and Estimates

The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Estimates

The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements.

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Revenue Recognition

Revenue is recognized when a performance obligation is satisfied, which is when the expected goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to receive.

A performance obligation is a distinct product or service that is transferred to the customer based on the contract.

The transaction price is allocated to each performance obligation and is recognized as revenue upon satisfaction of that performance obligation.

The Company derives revenue from contracts with the government, government prime contractors and commercial companies by units sold with specific contractual performance requirements, in many cases unique to the specific customer and/or application.

The Company’s contracts typically include one performance obligation which is satisfied by shipped projects and completed services/reports required in the contract.

Control over these performance obligations passes to the customer over time and therefore these revenues are reported in operating results over time using the cost-to-cost method.

Revenues are reported in operating results over time using the cost-to-cost method.

Under this method, revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of revenues recorded as the costs are incurred.

Each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract.

The effect of any change in the estimated gross margin rate for a contract is reflected in revenues in the period in which the change is known.

Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.

For smaller contracts or orders, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order.

When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.

The Company’s products generally carry a one-year warranty, but may vary based on the contract terms.

Significant judgment is used in evaluating the financial information for certain contracts to determine an appropriate budget and estimated cost.

The Company evaluates this information continuously and bases its judgments on historical experience, design specifications, and expected costs for material and labor.

Contract costs include all direct material, direct labor costs, manufacturing overhead and other direct costs related to contract performance.

Selling, general and administrative costs are charged to expense as incurred.

In accordance with industry practice, inventoried costs contain amounts relating to contracts and programs with long production cycles, a portion of which will not be realized within one year.

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Such write-downs are based upon management’s experience and expectations for future business.

Any changes arising from revised expectations are reflected in cost of revenues in the period the revision is made.

Our income tax expense, deferred tax asset and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.

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As of April 30, 2023 and 2022, we have a full valuation allowance against our U.S.

net deferred tax assets.

deferred tax assets.

If these estimates and assumptions change in the future, the Company may be required to reduce its existing valuation allowance resulting in less income tax expense.

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While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its liability for unrecognized tax benefits is adequate.

Interest and penalties recognized on income taxes are recorded as income tax expense.

COVID-19 Pandemic Update

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (“COVID-19”) and the risks to the international community as the virus spread globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 pandemic as a pandemic, based on the rapid increase in exposure globally.

The Company’s priority during the COVID-19 pandemic has been to protect the health and safety of its employees while remaining operational.

Within the limitations imposed by governmental health and safety procedures, the Company has continued to manufacture its full range of products at its facilities.

The Company has educated employees about COVID-19 symptoms and hygiene best practices.

The Company’s policies also include taking an employee’s temperature before entering facilities; mandating handwashing and use of hand sanitizer; requiring social distancing and, requiring face coverings; encouraging, and in some cases, requiring remote work for those employees who can work from home; and disinfecting facilities.

As of July 8, 2022, the Company was aware of eighty-three employees that have had confirmed cases of COVID-19 since the COVID-19 pandemic began, with one fatality in fiscal year 2021.

Additional employees have been absent or self-quarantined due to possible COVID exposure, although not having tested positive.

Since the COVID-19 pandemic began, facilities have remained open except for needing to temporarily vacate certain areas for cleaning and disinfecting following employees either testing positive for COVID or because they had been exposed or possibly exposed to third parties who were positive.

Certain Company vendors have been unable to deliver materials on time due to COVID-19 related impacts to their workforces or their supply chains.

These delays have impacted the Company’s production schedules, and increased costs associated with procurement of materials and services.

The Company continues to monitor these and its other vendors and, if necessary, seek alternative suppliers.

The Company also believes the pandemic has impacted customers, resulting in delays with respect to anticipated new orders.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that the pandemic may ultimately have on the Company’s financial condition, liquidity, and future financial results.

Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Given the changing dynamics of the pandemic and the global responses to curb its spread, including the progress on vaccine distribution, the Company is not able to estimate any future effects of the COVID-19 pandemic on its future results of operations, financial condition, or liquidity.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act also appropriated funds for the Small Business Administration (SBA) Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by the COVID-19 pandemic.

The Company received a loan under the Paycheck Protection Program in April 2020, which it repaid in full in May 2020.

RESULTS OF OPERATIONS

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Other (expense) income, net

Benefit from income taxes

Net (loss) income

Provision from income taxes

Fiscal Years Ended April 30,

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Intersegment revenues

Fiscal 2022 revenues from satellite programs, one of the Company’s largest business areas, decreased by $0.9 million, or 3%, compared to the prior fiscal year.

Fiscal year 2023 revenues from satellite programs, one of the Company’s largest business areas, decreased by $8.2 million, or 31%, compared to the prior fiscal year.

Satellite program revenues for government end-use were 43% and 52% of total revenues for fiscal years 2023 and 2022, respectively.

Satellite program revenues for commercial end-use were 2% and 7% of total revenue for Fiscal 2022 and Fiscal 2021, respectively.

Satellite program revenues for commercial end-use were 1% and 2% of total revenue for fiscal year 2023 and 2022, respectively.

Revenues on satellite program contracts are recorded in the FEI-NY segment and are recognized primarily under the Percentage-of-Completion (“POC”) method.

Revenues from non-space U.S.

Government/DOD customers decreased by approximately $5.2 million, or 21%, in Fiscal 2022 compared to Fiscal 2021.

Government/DOD customers increased by approximately $0.7 million, or 4%, in fiscal year 2023 compared to fiscal year 2022.

These revenues are recorded in both the FEI-NY and FEI-Zyfer segments and accounted for approximately 50% and 41% of consolidated revenues for fiscal years 2023 and 2022, respectively.

For the years ended April 30, 2022 and 2021, other commercial and industrial sales accounted for approximately 5% of total revenues.

Sales in this business area were $2.6 million for the year ended April 30, 2022 compared to $2.5 million for the preceding fiscal year.

The majority of the decrease in sales for fiscal 2022 were in the FEI-Zyfer segment caused by two main factors.

The first was a delay in bookings and the second was the relocation of manufacturing from the California facility to the New York facility.

It is important to note that in both cases the revenue was not lost;

instead, the Company believes has been shifted into fiscal 2023.

Other commercial and industrial sales accounted for approximately 6% and 5% of consolidated revenues for fiscal years 2023 and 2022, respectively.

Sales in this business area were $2.6 million for both the fiscal year ended April 30, 2023 and the fiscal year ended April 30, 2022.

The majority of the decrease in sales for fiscal year 2023 was in government satellite programs.

This decrease is attributable in part to space programs which were delayed due to engineering issues, and in part to programs which were expected to start during fiscal year 2023 but have been delayed.

The Company believes those engineering issues have largely been resolved, and the delayed programs are expected to start during fiscal year 2024 and contribute significantly to sales in fiscal year 2024.

Fiscal Years Ended April 30,

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Gross Profit Percentage

For the fiscal year ended April 30, 2022, the gross profit and gross profit percentage decreased as the result of several factors.

Decreased revenues in the FEI-NY segment, which includes FEI-Elcom, as well as at FEI-Zyfer, had a concomitant impact on absorption.

Delays in the award of anticipated contracts had a significant down-stream effect on revenue, with a resulting reduction of gross profit.

Supply chain impacts resulted in delays on contract execution and caused increased engineering costs necessitated by changing suppliers or reengineering certain subassemblies to replace parts that were unavailable or which had unacceptable delivery schedules.

Several developmental stage programs experienced substantially higher than anticipated engineering costs due to problems encountered in the design phase.

Additionally, an anticipated settlement of a request for equitable adjustment with respect to one of these programs did not materialize, which would have had the effect of reducing the cost impact.

The program is cutting edge technology with extremely challenging specifications.

However, the Company believes progress continues to be made and the majority of the challenges have been overcome as of the date of this report.

For the fiscal year ended April 30, 2023, the gross profit decreased and gross profit percentage increased as the result of several factors.

The decrease in gross profit dollars was directly related to the decrease in revenues.

Although the gross profit percentage increased slightly in fiscal year 2023 as compared to fiscal year 2022, it remains far below our targeted gross profit percentage range of 35%-40%.

However, the Company is encouraged by the fact that the gross profit percentage for the third and fourth quarters of fiscal year 2023 were both over 30%, and the Company anticipates that this trend will continue in fiscal year 2024.

The low gross profit percentage for fiscal 2022 and fiscal 2023 started in the fourth quarter of fiscal 2022, when we reported that several developmental stage programs experienced substantially higher than anticipated engineering costs.

This continued into the first quarter and partially into second quarter of fiscal year 2023, however, the Company believes those issues have been largely resolved and the gross margin for the third and fourth quarters of fiscal year 2023 has increased to over 30%, as mentioned above.

Selling and Administrative Expenses

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(in thousands)

In fiscal years ended April 30, 2022 and 2021, selling and administrative expenses (“SG&A”) were 24% of consolidated revenues.

Stock compensation expenses, which are included in total SG&A, were $144,000 and $160,000 in Fiscal 2022 and Fiscal 2021, respectively.

The decrease in SG&A expenses was mainly due to the decrease in professional fees (relating to litigation for which the Company has received insurance reimbursement for a portion of such legal fees), bonus expenses, and commission expenses.

In fiscal years ended April 30, 2023 and 2022, selling and administrative expenses (“SG&A”) were 23% and 24% of consolidated revenues, respectively.

The decrease in SG&A expenses was mainly due to the decrease in professional fees, deferred compensation expense, stock compensation expense and depreciation expense.

Research and Development Expenses

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(in thousands)

As a percentage of consolidated revenue, R&D expense for the years ended April 30, 2022 and 2021 was approximately 10% and 9%, respectively.

The approximately $0.3 million increase in R&D expense year over year was due to new and ongoing R&D projects as the Company continues to invest in R&D to keep its products at the state of the art.

As a percentage of consolidated revenue, R&D expense for the fiscal years ended April 30, 2023 and 2022 were 8% and 10%, respectively.

The $1.8 million decrease in R&D expense year over year was largely due to a renewed focus on correcting the program specific engineering issues identified above as part of an overall effort to return the Company to profitability.

It should also be noted that FEI has dedicated resources and made substantial progress on two advanced technology development programs which are externally funded, and thus do not show up as internally funded R&D.

That being said, FEI is committed to maintaining its technical excellence, and expects future R&D investment to be in line with, or even potentially above historical commitments.

The funds received in connection with customer funded R&D appears in revenues and the associated expenses are included in cost of revenues and are not included in the table above.

The Company believes that internally generated cash and cash reserves are adequate to fund its R&D activity.

The Company believes that internally generated cash and cash reserves are adequate to fund its future R&D activity.

Operating Loss

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(in thousands)

For the fiscal year ended April 30, 2022, the Company recorded an operating loss of $8.1 million compared to an operating loss of $1.0 million in the prior year.

Operating loss was the result of the same factors discussed in gross profit.

Of most significance was the impact of increased engineering costs incurred on the developmental programs and the delay in Zyfer bookings, including the relocation of the manufacturing from the California facility to the New York facility.

For the fiscal year ended April 30, 2023, the Company recorded an operating loss of $4.7 million compared to an operating loss of $8.1 million in the prior fiscal year.

The decrease in operating loss was due to changes made affecting the second half of fiscal year 2023.

The Company recorded approximately $614,000 of operating income in the second half of fiscal year 2023, a significant improvement from the $5.4 million operating loss for the first half of fiscal year 2023.

Other Income (Expense), net

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(in thousands)

Investment income

(Loss) income on Investments

Loss on disposal of asset

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Other income (expense), net

Investment income is derived primarily from the Company’s holdings of marketable securities, which primarily consist of fixed income securities.

Earnings on securities may vary based on fluctuating interest rates, dividend payout levels, and the timing of purchases, sales, redemptions or maturities of securities.

Included in other income (expense) for the fiscal year ended April 30, 2022, is a $796,000 impairment charge related to the Company’s investment in Morion.

Included in other income (expenses) for the fiscal year ended April 30, 2021 was the collection of the $1 million note that was due relating to the Company’s sale of its Belgium subsidiary, Gilliam-FEI s.a., to a European entity on April 26, 2018.

Income Tax Provision (Benefit)

Losses on investment income was derived primarily from the sale of the Company’s available-for-sale marketable securities, which primarily consisted of fixed income securities, during the fiscal year ended April 30, 2023.

Investment income was derived primarily from the Company’s holdings of marketable securities, which primarily consisted of fixed income securities for the fiscal year ended April 30, 2022.

Income Tax Provision

Fiscal Years Ended April 30,

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(in thousands)

Effective tax rate on pre-tax book income (loss):

Effective tax rate on pre-tax book loss:

For the fiscal year ended April 30, 2023, the Company recorded an income tax provision of $74,000.

For the fiscal year ended April 30, 2021, the Company recorded an income tax benefit of $(204,000) primarily due to a reduction in the uncertain tax position liability in connection with the expiration of the statute of limitations

The Company’s effective tax rate of (0.0)% for Fiscal 2022 differs from the U.S.

For the fiscal year ended April 30, 2022, the Company recorded an income tax provision of $1,000.

The Company’s effective tax rate of (1.3)% for fiscal year 2023 differs from the U.S.

federal statutory rate of 21% primarily due to state taxes and domestic losses for which the Company is not recognizing an income tax benefit.

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As of April 30, 2023, the Company has U.S.

federal net operating losses of $29.6 million of which $15.9 million begins to expire in Fiscal 2026 through Fiscal 2038, including $3.4 million which is subject to annual limitation under IRC Section 382.

federal net operating losses of $31.3 million of which $15.7 million begins to expire in fiscal year 2026 through fiscal year 2038, including $3.1 million which is subject to annual limitation under IRC Section 382.

The remaining U.S.

federal net operating losses of $15.6 million have an indefinite carry-forward period.

federal capital loss carry-forward of $9.9 million expires in Fiscal 2023.

federal R&D credits of $1.0 million begin to expire in Fiscal 2036 through Fiscal 2040.

federal capital loss carry-forward of $0.9 million expires in fiscal years 2025 and 2027.

federal R&D credits of $0.9 million begin to expire in fiscal year 2036 through fiscal year 2040.

The Company also has state net operating loss carryforwards, and state tax credits that expire in various years and amounts.

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The Company’s balance sheet continues to reflect a highly liquid position with working capital of $21.0 million at April 30, 2023 as compared to $34.2 million at April 30, 2022.

Included in working capital at April 30, 2022 was $21.5 million consisting of cash, cash equivalents and short-term investments.

Included in working capital at April 30, 2023 was $12.0 million consisting of cash and cash equivalents.

The Company’s current ratio at April 30, 2023 was 1.8 to 1 compared to 2.6 to 1, at the end of the prior fiscal year.

During fiscal years 2023 and 2022, the Company incurred $5.0 million and $5.4 million, respectively, in non-cash charges to earnings, including adjustments relating to net assets and liabilities for operating leases, loss provision accrual, loss on impairment of Morion, provision for a note receivable, depreciation and amortization expense, inventory adjustments, warranty and accounts receivable reserves and certain employee benefit plan expenses, including accounting for stock-based compensation.

During fiscal year 2022, operating cash was increased by decreases in contract assets and inventory and increases in contract liabilities.

During fiscal year 2021, operating cash was increased by decreases in inventory and increases in contract assets and contract liabilities.

During fiscal year 2023, operating cash was increased by decreases in loss on provision accrual and other liabilities and increases in contract assets and inventory, offset by an increase in contract liabilities.

During fiscal year 2022, operating cash was increased by a decrease in contract assets and inventory and increases in contract liabilities.

Contract liabilities include amounts for programs that are pre-funded for long-lead materials required to be purchased.

Net cash used in investing activities for the fiscal year ended April 30, 2022 was $2.3 million compared to $1.2 million used in investing activities for the fiscal year ended April 30, 2021.

In fiscal year 2022, investing activities included the proceeds related to sales of marketable securities net of the purchases of marketable securities of $422,000 and purchases of capital expenditures of $1.9 million.

Net cash provided by investing activities for the fiscal year ended April 30, 2023 was $8.7 million compared to $2.3 million used in investing activities for the fiscal year ended April 30, 2022.

In fiscal year 2023, investing activities included the proceeds related to sales of marketable securities net of the purchases of marketable securities of $9.6 million and purchases of capital expenditures of $0.9 million.

The Company may continue to invest cash equivalents as dictated by its investment and acquisition strategies.

Net cash used in financing activities for the fiscal year ended April 30, 2023 was approximately $9.4 million related to a dividend payout.

There was no cash used in financing activities for the fiscal year ended April 30, 2022.

Cash used in financing activities for the fiscal year ended April 30, 2021 was $5.0 million related to the repayment in full of a loan acquired from JPMorgan Chase Bank, N.A.

as the lender, pursuant to the Small Business Administration Paycheck Protection Program under the CARES Act.

As of April 30, 2022, the Company had available credit at variable terms based on its securities holdings under an advisory arrangement.

No borrowings have been made under this advisory arrangement.

The Company will continue to expend resources to develop, improve and acquire products for space and other applications, which management believes will result in future growth and profitability.

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For fiscal year 2024, the Company anticipates securing additional customer funding for a portion of its R&D activities and will allocate internal funds depending on market conditions and identification of new opportunities as in fiscal 2023.

The Company expects internally generated cash will be adequate to fund these R&D efforts.

The Company expects internally generated cash will be adequate to fund these future R&D efforts.

The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

During fiscal year 2023, as in fiscal year 2022, the impact of inflation on the Company’s business was due to increases in costs for materials and services.

The Company believes this may continue to impact expenses in fiscal year 2024 and future years.

As of April 30, 2023, the Company had an accumulated deficit of $25.6 million.

The Company believes that its cash and cash equivalents, as well as marketable securities as of April 30, 2022 and cash flows from operations will provide sufficient liquidity to meet its operating needs in the normal course of business through the next twelve months from the date of issuance of these consolidated financial statements.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

The Company believes that its cash, as of April 30, 2023, and cash flows from operations will provide sufficient liquidity to meet its operating needs in the normal course of business in both the short-term (next twelve months from the date of issuance of these consolidated financial statements) and in the long-term (beyond the next twelve months).

RECENT ACCOUNTING PRONOUNCEMENTS

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The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2022, with early adoption permitted.

The Company will not be adopting ASU 2017-04 early, and is in the process of determining the effect that ASU 2017-04 may have.

However, the Company expects the new standard to have an immaterial effect on its consolidated financial statements.

The Company is evaluating the effect, if any, the update will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

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During the fiscal years ended April 30, 2023 and 2022, the Company acquired product from Morion in the aggregate amount of approximately $196,000 and $215,000, respectively.

During the fiscal years ended April 30, 2022 and 2021, the Company sold product and training services to Morion in the aggregate amount of approximately $23,000 and $94,000, respectively, included in revenues in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal years ended April 30, 2022 and 2021, the Company received dividends from Morion in the amount of approximately $123,000 and $105,000, respectively, which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal year ended April 30, 2022, the Company sold product and training services to Morion in the aggregate amount of approximately $23,000, included in revenues in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal years ended April 30, 2022, the Company received dividends from Morion in the amount of approximately $123,000, which is included in other income, net in the consolidated statements of operations as part of the FEI-NY segment.

During the fiscal year ended April 30, 2023, the Company sold no product and training services to Morion, and the Company received no dividends from Morion.

Purchases of materials from Morion consist mainly of quartz crystal blanks which are used in the fabrication of quartz resonators.

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According to OFAC, the Cautionary Letter was issued instead of pursuing a civil monetary penalty or taking other enforcement action.

Due to the current Russia-Ukraine conflict and resulting sanctions, the future status of FEI’s equity investment in Morion is uncertain.

In response to these conditions, in connection with the preparation of the audited financial statements included in this annual report on Form 10-K, the Company impaired its investment in Morion in full.

Due to the Russia-Ukraine conflict and resulting sanctions, the future status of FEI’s equity investment in Morion is uncertain.

In response to these conditions, in connection with the preparation of the audited financial statements included in the 2022 Form 10-K, the Company impaired its investment in Morion in full.

The impairment of $796,000 is included in other income (expense), net, in the Consolidated Statements of Operations for the fiscal year ended April 30, 2022.

The likelihood of future sales to, purchases, and dividend payments from Morion is questionable.

During fiscal year 2022, as in fiscal year 2021, the impact of inflation on the Company’s business was due to increases for materials and services throughout fiscal year 2022.

The Company believes this may continue to impact expenses in fiscal 2023 and future years.

Quantitative and Qualitative Disclosure about Market Risk

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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.

What changed 10-K

Item 7. Management’s Discussion and Analysis