PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Amounts in thousands)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands, except share and per share amounts)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

PARK AEROSPACE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share (unless otherwise stated), per share and option amounts)

The Condensed Consolidated Balance Sheet and the Consolidated StatementsStatement of Shareholders’ Equity as of November 27, 2022,May 28, 2023, the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Earnings for the 13 weeks ended May 28, 2023 and 39 weeks ended November 27,May 29, 2022, and November 28, 2021, and the Condensed Consolidated Statements of Cash Flows for the 3913 weeks then ended have been prepared by Park Aerospace Corp. (the “Company”), without audit. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at November 27, 2022May 28, 2023 and the results of operations and cash flows for all periods presented. The Consolidated Statements of Operations are not necessarily indicative of the results to be expected for the full fiscal year or any subsequent interim period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2022.26, 2023. There have been no significant changes to such accounting policies during the 3913 weeks ended November 27, 2022.May 28, 2023.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

Fair value measurements are broken down into three levels based on the reliability of inputs as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to their short-term nature. Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs. (See Note 3).

The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and any long-lived assets written down to fair value. To measure fair value of such assets, the Company uses Level 3 inputs consisting of techniques including an income approach and a market approach. The income approach is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the discounted cash flow analysis require the exercise of significant judgment, including judgment about appropriate discount rates, terminal values, growth rates and the amount and timing of expected future cash flows. With respect to goodwill, the Company first assesses qualitative factors to determine whether it is more likely than not that fair value is less than carrying value. If, based on that assessment, the Company believes it is more likely than not that fair value is less than carrying value, a goodwill impairment test is performed. There have been no changes in events or circumstances which required impairment charges to be recorded during the 13 weeks and 39 weeks ended November 27, 2022.May 28, 2023.

All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, included in comprehensive earnings. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in interest and other income in the Condensed Consolidated Statements of Operations. The costs of securities sold are based on the specific identification method.

The following is a summary of available-for-sale securities:

The following table shows the amortized cost basis of, and gross unrealized gains and losses on, the Company’s available-for-sale securities:

The estimated fair values of such securities at November 27, 2022May 28, 2023 by contractual maturity are shown below:

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company’s products and market conditions. Work-in-process and finished goods inventories cost valuations include direct material costs as well as a portion of the Company’s overhead expenses. The Company’s overhead expenses that are applied to its finished goods inventories are based on actual expenses related to the procurement, storage, shipment and production of the finished goods. Inventories consisted of the following:

The Company has operating leases related to land, office space, warehouse space and equipment. All of the Company’s leases have been assessed to be operating leases. Renewal options are included in the lease termterms to the extent the Company is reasonably certain to exercise the option.options. The exercise of lease renewal options is at the Company’s sole discretion. The incremental borrowing rate represents the Company’s ability to borrow on a collateralized basis over a term similar to the lease term. The leases typically contain renewal options for periods ranging from one year to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2068 assuming exercise of all applicable renewal options by the Company. The Company’s existing leases are not subject to any restrictions or covenants which preclude its ability to pay dividends, obtain financing or exercise its available renewal options.

Future minimum lease payments under non-cancellable operating leases as of November 27, 2022May 28, 2023 are as follows:

The above payment schedule includes renewal options that the Company is reasonably likely to exercise. Leases with an initial term of 12 months or less are not recorded on the Company’s condensed consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the terms of the leases.

For the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, the Company’s operating lease expenses were $15 and $46, respectively.$15. Cash payments of $40,$13, pertaining to operating leases, are reflected in the cash flow statement under cash flows from operating activities.

The following table sets forth the right-of-use assets and operating lease liabilities as of November 27, 2022:May 28, 2023:

The Company’s weighted average remaining lease term for its operating leases is 7.47.8 years.

In December 2018, the Company entered into a Development Agreement with the City of Newton, (“City”), Kansas and the Board of County Commissioners of Harvey County, Kansas. Pursuant to this agreement, the Company agreed to construct and operate a redundant manufacturing facility of approximately 90,000 square feet for the design, development and manufacture of advanced composite materials and parts, structures and assemblies for aerospace. The Company further agreed to equip the facility through the purchase of machinery, equipment and furnishings and to create additional new full-time employment of specified levels during a five-year period. In exchange for these agreements, the City and the County agreed to lease to the Company three acres of land at the Newton, Kansas Airport, in addition to the eight acres previously leased to the Company by the City and County. The City and County further agreed to provide financial and other assistance toward the construction of the additional facility as set forth in the Development Agreement. The Company estimates the total cost of the additional facility to be approximately $19,800. Thewas $19,800 and the expansion construction is complete and is undergoing customer qualifications, which are expected to be completed in the first half of the 2023 calendar year.complete. As of November 27, 2022,May 28, 2023, the Company had $225$42 in equipment purchase obligations and $19,314 of construction-in-progress related to the additional facility.

Pursuant to the Development Agreement, the City provided a sales tax exemption for materials the Company purchased for the facility, subject to issuance of Industrial Revenue Bonds (“IRBs”). On June 7, 2022, the City issued IRB Series 2022, in an aggregate principal amount not to exceed $18,500,000, pursuant to a Trust Indenture between the City and Security Bank of Kansas City. The Company simultaneously entered into a Bond Purchase Agreement with the City, whereby the Company agreed to buy the IRBs at a purchase price equal to the par amount of the IRBs issued. The Company redeemed the IRBs in August of 2022. Neither the purchase nor redemption of the IRBs had an impact on the Company’s Consolidated Statements of Operations.

As of November 27, 2022,May 28, 2023, the Company had a 2018 Stock Option Plan (the “2018 Plan”) and no other stock-based compensation plan. The 2018 Plan was adopted by the Board of Directors of the Company on May 8, 2018 and approved by the shareholders of the Company at the Annual Meeting of Shareholders of the Company on July 24, 2018 and provides for the grant of options to purchase up to 800,000 shares of common stock of the Company. Prior to the 2018 Plan, the Company had the 2002 Stock Option Plan (the “2002 Plan”) which had been approved by the Company’s shareholders and provided for the grant of stock options to directors and key employees of the Company. All options granted under the 2018 Plan and 2002 Plan have exercise prices equal to the fair market value of the underlying common stock of the Company at the time of grant which, pursuant to the terms of such Plans, is the reported closing price of the common stock on the New York Stock Exchange on the date preceding the date the option is granted. Options granted under the Plans become exercisable 25% one year after the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant, and expire 10 years after the date of grant. Upon termination of employment or service as a director, all options held by the optionee that have not previously become exercisable shall terminate and all other options held by such optionee may be exercised, to the extent exercisable on the date of such termination, for a limited time after such termination. Any shares of common stock subject to an option under the 2018 Plan, which expireexpires or areis terminated unexercised as to such shares, shall again become available for issuance under the 2018 Plan.

During the 3913 weeks ended November 27, 2022,May 28, 2023, the Company granted options under the 2018 Plan to purchase a total of 131,600133,300 shares of common stock to its directors and certain of its employees. The future compensation expense to be recognized in earnings before income taxes is $338$387 and will be recorded on a straight-line basis over the requisite service period. The weighted average fair value of the granted options was $2.66$3.01 per share using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 2.69%-2.70%3.61%-3.85%; expected volatility factor of 28.2%-28.3%28.5%-29.6%; expected dividend yield of 3.32%3.82%; and estimated option termterms of 5.4-8.14.9-8.3 years.

The risk-free interest rates were based on U.S. Treasury rates at the date of grant with maturity dates approximately equal to the estimated terms of the options at the date of the grant. Volatility factors were based on historical volatility of the Company’s common stock. The expected dividend yields were based on the regular quarterly cash dividend per share most recently declared by the Company and on the exercise price of the options granted during the 13 weeks and 39 weeks ended November 27, 2022.May 28, 2023. The estimated term of the options was based on evaluations of the historical and expected future employee exercise behavior.

During the 2024 fiscal year, the Company recorded non-cash charges of $109 related to the modification of previously granted employee stock options resulting from the $1.00 per share special cash dividend paid by the Company in April 2023.

The following is a summary of option activity for the 3913 weeks ended November 27, 2022:May 28, 2023:

Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are the Company’s only potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method.

The following table sets forth the calculation of basic and diluted earnings per share:

Potentially dilutive securities, which were not included in the computation of diluted earnings per share, because either the effect would have been anti-dilutive or the options’ exercise prices were greater than the average market price of the common stock, were 595,000157,000 and 322,000397,000 for the 13 weeks ended November 27,May 28, 2023 and May 29, 2022, and November 28, 2021, respectively, and 498,000 and 221,000 for the 39 weeks ended November 27, 2022 and November 28, 2021, respectively.

On May 23, 2022, the Company announced that its Board of Directors authorized the Company’s purchase, on the open market and in privately negotiated transactions, of up to 1,500,000 additional shares of its common stock. This authorization supersedessuperseded any unused prior Board of Directors’ authorizations to purchasespurchase shares of the Company’s Common Stock. The Company purchased 129,654 and 0 shares of its common stock during the 13 weeks ended May 28, 2023 and May 29, 2022, respectively. As a result, the Company is authorized to purchase up to a total of 1,500,0001,279,001 shares of its common stock, representing approximately 7.3%6.3% of the Company’s 20,471,21020,250,211 total outstanding shares as of the close of business on January 2,July 3, 2023. There is no assurance the Company will purchase any shares pursuant to this Board of Directors’ authorization. Shares purchased by the Company, if any, will be retained as treasury stock and will be available for use under the Company’s stock option plan and for other corporate purposes.

The Company did not purchase any shares of its common stock during the 39 weeks ended November 27, 2022 and November 28, 2021.

For the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, the Company recorded an income tax provisions from operationsprovision of $990 and $2,362, respectively,$688, which included a discrete income tax provisions of $58 and $133, respectively. Additionally, tax expense was negatively impacted by $153 in the 13 weeks and 39 weeks ended November 27, 2022 by tax deductions becoming unavailable due to stock options expiring unexercised.$37. For the 13 weeks and 39 weeks ended November 28, 2021,May 29, 2022, the Company recorded an income tax provisions from operationsprovision of $569 and $2,571, respectively,$682, which included a discrete income tax provisionsprovision of $5 and $175, respectively.$28.

The Company’s effective tax ratesrate for the 13 weeks and 39 weeks ended November 27, 2022 were income tax provisions of 30.7% and 28.2%, respectively,May 28, 2023 was 27.1% compared to income tax provisions of 24.6% and 28.3%26.3% in the comparable prior periods.year period. The effective tax ratesrate for the 13 weeks and 39 weeks ended November 27, 2022 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and a discrete income tax provision for the accrual of interest related to unrecognized tax benefits and tax deductions becoming unavailable. The effective rates for the 13 weeks and 39 weeks ended NovemberMay 28, 2021 were2023 was higher than the U.S. statutory rate of 21% primarily due to state and local taxes and discrete income tax provisions for the write-offaccrual of deferred tax assets and liabilitiesinterest related to its closed Singapore facilityunrecognized tax benefits. The effective rate for the 13 weeks ended May 29, 2022 was higher than the U.S. statutory rate of 21% primarily due to state and local taxes and discrete income tax provisions for the accrual of interest related to unrecognized tax benefits.

Notwithstanding the U.S. taxation of the deemed repatriated earnings as a result of the mandatory one-time transition tax on the accumulated untaxed earnings of foreign subsidiaries of U.S. shareholders included in the 2017 Tax Cuts and Jobs Act, the Company intends to indefinitely invest approximately $25 million of undistributed earnings outside of the U.S. If these future earnings are repatriated to the U.S., or if the Company determines such earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred taxes on such earnings.

The Company’s products are sold to customers in North America, Asia and Europe. The Company’s manufacturing facility is located in Kansas. Sales are attributed to geographic regions based upon the region in which the materials were delivered to the customer. All of the Company’s long-lived assets are located in North America.

Financial information regarding the Company’s continuing operations by geographic region is as follows:

Litigation

The Company is subject to a small number of immaterial proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. The Company believes that the ultimate disposition of such proceedings, lawsuits and claims will not have a material adverse effect on the liquidity, capital resources, business, consolidated results of operations or financial position of the Company.

Environmental Contingencies

The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the “EPA”) or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the “Superfund Act”) or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at three sites.

Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company’s subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiariessub‐sidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program.

The insurance carriers which provided general liability insurance coverage to the Company and its subsidiaries for the years duringdur‐ing which the Company’s subsidiaries’ waste was disposed at these three sites have in the past reimbursed the Company and its subsidiaries for 100% of their legal defense and remediation costs associated with two of these sites.

The Company does not record environmental liabilities and related legal expenses for which the Company believes that it and its subsidiaries have general liability insurance coverage for the years during which the Company’s subsidiaries’ waste was disposed at two sites for which certain subsidiaries of the Company have been named as potentially responsible parties. Pursuant to such general liability insurance coverage, three insurance carriers reimburse the Company and its subsidiaries for 100% of the legal defense and remediation costs associated with the two sites.

Included in selling, general and administrative expenses are charges for actual expenditures and accruals, based on estimates, for certain environmental mattersmat‐ters described above. The Company accrues estimated costs associatedasso‐ciated with known environmental matters when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the Company’s results of operations, cash flows or financial position.

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

General:

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

Financial Overview

The Company's total net sales in the 13 weeks and 39 weeks ended November 27, 2022May 28, 2023 were $13.9$15.6 million and $40.5 million, respectively, compared to $13.9$12.8 million and $41.1 million, respectively, in the 13 weeks ended May 29, 2022. The increase in sales was primarily due to higher sales to both the commercial and 39 weeks ended November 28, 2021.military markets. 

The Company’s gross profit margins, measured as percentages of sales, were 32.0% and 31.1%, respectively, in the 13 weeks and 39 weeks ended November 27, 2022May 28, 2023 compared to 27.7% and 33.4%, respectively,32.0% in the 13 weeks and 39 weeks ended November 28, 2021.May 29, 2022. The higherlower gross profit margin for the 13 weeks ended November 27, 2022 compared to last year’s comparable periodMay 28, 2023 was primarily due to a favorable sales mixhigher costs for raw materials, supplies, freight, utilities and higher production volumes partially offset by increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation. The lower gross profit margin for the 39 weeks ended November 27, 2022 compared to last year’s comparable period was primarily due to a favorable sales mix in the prior year’s first quarter and increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation.labor resulting from inflationary trends.

The Company’s earnings from operations before income taxes and net earnings increased 28%were essentially flat in the 13 weeks ended November 27, 2022May 28, 2023 compared to the 13 weeks ended November 28, 2021May 29, 2022, primarily as a result of a favorablehigher sales mix, higher production levels, recovery of a bad debt and higher interest income partially offset by increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation. The Company’s net earnings decreased 7% in the 39 weeks ended November 27, 2022 compared to the 39 weeks ended November 28, 2021 primarily as a result of a less favorable sales mix and increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation, partially offset by higher interest income comparedcosts for raw materials, supplies, freight, utilities and labor resulting from inflationary trends, $65,000 of losses on sales of investments to last year’s comparable period. Additionally, taxfund the $1.00 per share special dividend paid on April 6, 2023 to shareholders of record on March 9, 2023, additional stock option expense was negatively impacted by $153,000 in the 13 weeks and 39 weeks ended November 27, 2022 by tax deductions becoming unavailableof $109,000 due to the modification of previously granted stock options expiring unexercised.in connection with the special dividend and $570,000 of activist shareholder defense costs.

The Company is experiencing inflation in costs of raw materialmaterials, supplies, freight, utilities, labor and other costs. The impact of inflation on the Company’s profits has been partially mitigated by the Company’s ability to adjust pricing for a large portion of its sales to pass the impact of inflation through to its customers.

With the recovery of the aerospace markets, some companies in the aerospace supply chain may not be fully prepared to ramp up their production as quickly as needed, which may create a risk to the Company of not getting enough raw materials on a timely basis to fully support the Company’s customers’ demands. Delays in raw material shipments continue to represent a risk to the Company.

Programs that the Company supplies into may also be experiencing supply chain issues from other suppliers to the programs. The Company’s sales could be impacted by delays and reductions in its customers’ production schedules caused by other suppliers in the chain.

The tight labor market has created challenges in hiring personnel. Although the Company feels very positive about its workforce, high wage inflation createsstaffing to proper levels continues to pose challenges in hiring to add tofor the Company. The Company’s employee base and has made recent progress in recruiting new employees. Additionally, the Company has across-training “Customer Flexibility Program” whereby employees can cross train on different equipment and processescontinues to earn extra pay for attaininghelp the added skills.Company deal with the staffing shortages

The war in Ukraine has not had a material impact on the Company’s results of operations, but the Company has the potential for an increase in future sales due to increases in spending worldwide on missile defense systems and it is not expected to have a material impact.other defense programs. The Company does not have any significant customers in Russia or Ukraine.  The Company continueshas experienced some increases to evaluateraw material costs from overseas suppliers due to the impactimpacts of the war in Ukraine may have on the Company’s customers and on the Company’s supply chain.Ukraine.

The Company has a long-term contract pursuant to which one of its customers, which represents a substantial portion of the Company’s revenue, places orders. The long-term contract with the customer is requirements based and does not guarantee quantities. An order forecast and pricing were agreed upon in the contract. However, this order forecast is updated periodically during the term of the contract. Purchase orders generally are received by the Company in excess of three months in advance of delivery by the Company to the customer.

In December 2019, a novel strain of coronavirus was reported in Wuhan, China and since spread worldwide, including to the United States, posing public health risks that reached pandemic proportions (the “COVID-19 Pandemic”).

The COVID-19 Pandemic and resultant global economic crisis had significant impacts on the Company’s results of operations and cash flow for the 13 weeks and 39 weeks ended November 27, 2022 and November 28, 2021, respectively. The COVID-19 Pandemic and crisis had significant impacts on the markets the Company sells into, particularly the commercial and business aircraft markets. As a result, the Company experienced significant reductions in sales and backlog during those periods. The Company continues to experience the impacts related to raw material availability and costs.

Even after the COVID-19 Pandemic subsided, the Company continues to experience adverse impacts to its business as a result of the potential impact of the economic crisis on the markets the Company serves.

Results of Operations:

The following table sets forth the components of the consolidated statements of operations:

Net Sales

The Company’s total net sales worldwide in the 13 weeks and 39 weeks ended November 27, 2022 were $13.9May 28, 2023 increased to $15.6 million and $40.5from $12.8 million respectively, compared to $13.9 million and $41.1 million, respectively, in the 13 weeks ended May 29, 2022. The increase in sales was principally due to higher sales to both the commercial and 39 weeks ended November 28, 2021.military markets.

Gross Profit

The Company’s gross profit in the 13 weeks ended November 27, 2022May 28, 2023 was higher than its gross profit in the prior year’s comparable period and thedue to higher sales. The gross profit as a percentage of sales for the Company’s worldwide operations in the 13 weeks ended November 27, 2022 increasedMay 28, 2023 decreased to 32.0%31.1% from 27.7%32.0% in the 13 weeks ended November 28, 2021. The higher gross profit margin for the 13 ended November 27, 2022 compared to last year’s comparable period was primarily due to a favorable sales mix partially offset by increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation.

The Company’s gross profit in the 39 weeks ended November 27, 2022 was lower than its gross profit in the prior year’s comparable period, and the gross profit as percentage of sales for the Company’s worldwide operations in the 39 weeks ended November 27, 2022 decreased to 31.1% from 33.4% in the 39 weeks ended November 28, 2021.May 29, 2022. The lower gross profit margin for the 3913 weeks ended November 27, 2022 compared to last year’s comparable periodMay 28, 2023 was primarily due to a less favorable sales mix,higher costs for raw materials, supplies and increases in material costs, utility costs, supplier costs, freight costs and other costs due to inflation.freight.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $70,000 during the 13 weeks ended November 27, 2022, or by 4.4%,were higher compared to the prior year’s comparable period, and these expenses, measured as percentages of sales, were 11.0%16.8% in the 13 weeks ended November 27, 2022May 28, 2023 compared to 11.5%12.8% in the 13 weeks ended November 28, 2021.May 29, 2022.  The decrease were primarily due to recovery of bad debt expense related to a customer bankruptcy.

Selling,increase in selling, general and administrative expenses increased by $159,000 during the 39 weeks ended November 27, 2022, or by 3.4%, compared to the prior year’s comparable period, and these expenses, measured as percentages of sales, were 12.1% in the 39 weeks ended November 27, 2022 compared to 11.5% in the 39 weeks ended November 28, 2021. The increases werewas primarily due to increased salary expense, travel and entertainment expense and freight out.$570,000 of activist shareholder defense costs.

Selling, general and administrative expenses included stock option expenses of $95,000 and $274,000, respectively,$218,000, including $109,000 due to the modification of previously granted stock options, for the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, compared to stock option expenses of $73,000 and $211,000, respectively,$85,000 for the 13 weeks and 39 weeks ended November 28, 2021.

Restructuring Charges

In the 13 weeks and 39 weeks ended November 28, 2021, the Company recorded no pre-tax restructuring charges in connection with the closure of the Company’s Park Aerospace Technologies Asia Pte. Ltd facility located in Singapore compared to $13,000 and $197,000, respectively, in the prior year’s comparable periods.May 29, 2022.

Earnings from operations

For the reasons set forth above, the Company’s earnings from operations were $2.9$2.2 million and $7.7 million, respectively, for the 13 weeks and 39 weeks ended November 27, 2022May 28, 2023 compared to $2.2$2.5 million and $8.8 million, respectively, for the 13 weeks and 39 weeks ended November 28, 2021.May 29, 2022.

Interest and Other Income

Interest and other income were $299,000 and $653,000, respectively,was $324,000 for the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, compared to $80,000 and $286,000, respectively,$133,000 for the prior year'syear’s comparable periods.period. Interest income increased 273.8% and 128.3%, respectively,144% for the 13 weeks and 39 weeks ended November 27, 2022May 28, 2023 primarily as a result of higher weighted average interest rates in the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023 compared to the prior year'syear’s comparable periods.period. Interest and other income for the 13 weeks ended May 28, 2023 included $65,000 of losses on sales of investments to fund the $1.00 per share special dividend paid on April 6, 2023 to shareholders of record on March 9, 2023. During the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, the Company earned interest income principally from its investments, which consisted primarily of short-term instruments and money market funds.

Income Tax Provision

For the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, the Company recorded an income tax provisionsprovision of $990,000 and $2.4 million, respectively,$688,000, which included a discrete income tax provisionsprovision of $58,000 and $133,000, respectively,$37,000 for the accrual of interest related to unrecognized tax benefits and tax deductions becoming unavailable related to stock options expiring unexercised. Additionally, tax expense was negatively impacted by $153,000 in the 13 weeks and 39 weeks ended November 27, 2022 by tax deductions becoming unavailable due to stock options expiring unexercised.benefits. For the 13 weeks and 39 weeks ended November 28, 2021,May 29, 2022, the Company recorded an income tax provisionsprovision of $569,000 and $2.6 million, respectively,$682,000, which included a discrete income tax provisionsprovision of $5,000 and $175,000, respectively,$28,000 for the write-offaccrual of deferred tax assets and liabilitiesinterest related to a changeunrecognized tax benefits.

The Company’s effective tax rate for the 13 weeks ended May 28, 2023 was 27.1% compared to 26.3% in the prior year’s comparable period. The effective tax filing basisrate for the 13 weeks ended May 28, 2023 was higher than the U.S. statutory rate of 21% primarily due to state and local taxes and the Company’s Singapore entityaccrual of interest related to unrecognized tax benefits. The effective rate for the 13 weeks ended May 29, 2022 was higher than the U.S. statutory rate of 21% primarily due to state and local taxes and the accrual of interest related to unrecognized tax benefits.

The Company’s effective tax rates for the 13 weeks and 39 weeks ended November 27, 2022 were 30.7% and 28.2%, respectively, compared to 24.6% and 28.3%, respectively, in the prior year’s comparable periods. The effective tax rates for the 13 weeks and 39 weeks ended November 27, 2022 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and liabilities, the accrual of interest related to unrecognized tax benefits and the tax deductions becoming unavailable due to stock options expiring unexercised . The effective rates for the 13 weeks and 39 weeks ended November 28, 2021 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes, the write-off of deferred tax assets and the accrual of interest related to unrecognized tax benefits.

Net Earnings

For the reasons set forth above, the Company'sCompany’s net earnings for the 13 weeks and 39 weeks ended November 27, 2022May 28, 2023 were $2.2$1.9 million and $6.0 million, respectively, compared to net earnings of $1.7$1.9 million and $6.5 million, respectively, for the 13 weeks and 39 weeks ended November 28, 2021.May 29, 2022.

Basic and Diluted Earnings Per Share

In the 13 weeks and 39 weeks ended November 27, 2022,May 28, 2023, basic and diluted earnings per share were $0.11$0.09, including the pretax charges of $570,000 related to activist shareholder defense costs, the stock option modification pretax charge of $109,000 and $0.29, respectively,the $65,000 of losses on sales of investments to fund the special dividend, compared to basic and diluted earnings per share of $0.08 and $0.09 respectively, in the 13 weeks ended November 28, 2021 and  basic and diluted earnings per share of $0.32 in the 39 weeks ended November 28, 2021.May 29, 2022.

Liquidity and Capital Resources - Continuing Operations::