3 unchanged sentences
If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings.
−Removed: In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.
+Added: In addition, if any of the following risks and
+Added: uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.
Risk Factor Summary
3 unchanged sentences
● We rely heavily on sales to certain customers, including the U.S.
−Removed: government, particularly to agencies of the DoD, and SoftBank related to our design and development of HAPS UAS.
+Added: government, particularly to agencies of the DoD.
● 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: ● 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.
+Added: ● If the markets for UAS, UGV and TMS 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.
1 unchanged sentence
● We expect to incur substantial research and development costs and devote significant resources to identifying and commercializing new products and services, which could significantly reduce our profitability and may never result in revenue to us.
−Removed: ● 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.
● 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.
+Added: ● 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.
● Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.
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● Our work for the U.S.
−Removed: government and international governments may expose us to security risks.
+Added: government and international governments may expose us to increased security risks.
● Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.
−Removed: ● We face various risks related to the COVID-19 novel coronavirus pandemic and similar public health crises, which may adversely impact our business.
Risks Related to Our U.S.
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government allow it to use inventions developed under the contracts and to disclose technical data to third parties, which could harm our ability to compete.
−Removed: government contracts are generally not fully funded at inception and contain certain provisions that may be unfavorable to us, which could prevent us from realizing our contract backlog and materially harm our business and results of operations.
+Added: government contracts are generally not fully funded at inception, contain certain provisions that may be unfavorable to us and may be undefinitized at the time of the start of performance, which could prevent us from realizing our contract backlog and materially harm our business and results of operations.
government contracts are subject to a competitive bidding process that can consume significant resources without generating any revenue.
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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.
−Removed: ● Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response to public privacy concerns, may prevent us from expanding the sales of our small UAS to non-military customers in the United States.
+Added: ● Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS and MUAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS and MUAS to non-military customers in the United States.
● 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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Risks Related to Securities Markets and Investment in Our Stock
−Removed: ● Our management, whose interests may not be aligned with yours, is able to exert significant influence over all matters requiring stockholder approval.
● Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.
2 unchanged sentences
We rely heavily on sales to certain customers, including the U.S.
−Removed: government, particularly to agencies of the DoD, and SoftBank related to our design and development of HAPS UAS.
−Removed: Historically, we have derived a significant portion of our total sales and our small UAS and TMS sales from the U.S.
+Added: government, particularly to agencies of the DoD.
+Added: Historically, we have derived a significant portion of our total sales and our SUAS 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 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
−Removed: agencies, could be jeopardized by spending reductions 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 agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies.
The funding of U.S.
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We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline.
−Removed: Additionally, 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.
−Removed: government, our ability to receive timely payment from U.S.
−Removed: government entities and our ability to timely obtain export licenses for our products to fulfill contracts with our international customers.
−Removed: military funds our contracts primarily through operational needs statements, and to a lesser extent, through programs of record, which provides us with less visibility and certainty on future funding allocations for our contracts.
+Added: military funds a portion of our contracts through operational needs statements, and to a lesser extent, through programs of record, which provides us with less visibility and certainty on future funding allocations for our contracts.
Furthermore, all of our contracts with the U.S.
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government at will.
−Removed: A significant decline in government expenditures generally, or with respect to programs for which we provide products, could adversely affect our business and prospects.
+Added: A significant decline in government expenditures generally, or with respect to programs for which we provide products and/or services, could adversely affect our business and prospects.
Our operating results may also be negatively impacted by other developments that affect these government programs generally, including the following:
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● delays in the payment of our invoices by government payment offices.
−Removed: 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 2022, HAPSMobile accounted for 1% of our total revenue and SoftBank accounted for 9% of our total revenue.
−Removed: 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.
−Removed: The Master Design and Development Agreement allows SoftBank to terminate the contract at its convenience for any reason.
−Removed: The termination of this contract or the loss of revenues from programs with HAPSMobile and/or SoftBank related to the design and development of HAPS UAS, could cause our revenue to decline and materially adversely affect our results of operations.
+Added: 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 or entering into new contracts, any of which would cause our revenue to decline and could otherwise harm our business, financial condition and results of operations.
+Added: In fiscal year 2023, SoftBank accounted for 7% of our total revenue.
+Added: Prior to the fiscal year ended April 30, 2022, we derived a significant portion of our revenue from contracts with HAPSMobile and SoftBank related to our design and development of HAPS UAS.
+Added: In May 2021, we entered into a MDDA with SoftBank to continue design and development work on HAPS UAS, as a successor arrangement to our prior HAPSMobile agreement.
+Added: The MDDA allows SoftBank to terminate the contract at its convenience for any reason.
+Added: The termination of this contract or the loss of revenues from programs SoftBank related to the design and development of HAPS UAS, could cause our revenue to decline and materially adversely affect our results of operations.
A decline in the U.S.
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, including sales of our small UAS, MUAS and TMS products and services, from the U.S.
+Added: Because we generate a significant portion of our total sales, including sales of our SUAS, 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.
−Removed: As a result, our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions under the new U.S.
−Removed: administration.
+Added: As a result, our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions.
We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline.
If annual budget appropriations or continuing resolutions are not enacted timely, we could face U.S.
−Removed: government shutdowns, which could adversely impact our
−Removed: programs and contracts with the U.S.
+Added: government shutdowns, which could adversely impact our programs and contracts with the U.S.
government, our ability to receive timely payment from U.S.
−Removed: 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 current U.S.
−Removed: 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: government entities and our ability to timely obtain export licenses for our products and services to fulfill contracts with our international customers.
+Added: Additionally, there is a possibility that political decisions made by the U.S.
+Added: government, 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.
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.
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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.
−Removed: 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.
−Removed: 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: Since such time, there have been periods during which the tempo of DoD counterinsurgency operations receded, reducing demand for certain of our SUAS 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, in terms of existing, additional or replacement programs, for example the closure of all of our Mid-Endurance Unmanned Aircraft System (“MEUAS”) COCO sites.
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.
−Removed: The operations tempo in the U.S.
−Removed: DoD both of training and deployments, both domestically and overseas, has reduced as a result of the COVID-19 pandemic.
−Removed: This has negatively affected demand for spares, repairs, and replacement product ordinarily required for the operation and maintenance of our UAS products.
−Removed: 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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The defense industry is highly competitive and generally characterized by intense competition to win contracts.
−Removed: Our current principal small UAS competitors include Elbit Systems Ltd., Teledyne Technologies, Inc., L3 Technologies, Inc.
+Added: Our current principal SUAS competitors include Elbit Systems Ltd., Quantum Systems, Edge Autonomy, Teledyne Technologies, Inc.
and Lockheed Martin Corporation.
−Removed: Our principal MUAS competitors include those competing with us for the U.S.
−Removed: 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.
−Removed: and Israeli Aircraft Industries.
−Removed: International MUAS competitors include Elbit Systems Ltd.
+Added: Our principal MUAS competitors are The Boeing Company’s ScanEagle and Textron Inc.’s Shadow UAS , as well as those competing for the U.S.
+Added: Army’s Future Tactical UAS (“FTUAS”) program, including Shield AI and Northrop Grumman’s V-Bat , Textron, Inc.’s Aerosonde , Sierra Nevada Corporation’s Voly-T, Griffon Aerospace’s G2E and L3Harris Technologies’ FVR-90 , and international competitors Elbit Systems Ltd.
and Israeli Aircraft Industries.
−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 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.
+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 SUAS because they perform different missions, do not typically deliver their information directly to front-line ground forces, and are not hand launched and controlled.
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.
−Removed: However, we cannot be certain that these platforms will not become direct competitors to our small UAS and MUAS in the future.
−Removed: 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.
−Removed: Our TMS business faces competition from Textron Inc., Raytheon Technologies, Lockheed Martin Corporation, Anduril Industries and UVision Air Ltd.
−Removed: We also face emerging competition from consumer and commercially focused drone manufacturers, such as Skydio, Inc.
−Removed: 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.
+Added: However, we cannot be certain that these platforms will not become direct competitors to our SUAS and MUAS in the future.
+Added: Our TMS business faces competition from Textron Inc., Raytheon Technologies, Lockheed Martin Corporation, Anduril Industries, Aevex Aerospace and UVision Air Ltd.
Our competitors in the U.S.
−Removed: defense market for UGVs include L3 Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton/Remotec, ICOR and Boston Dynamics.
−Removed: The market for commercial UAS products and services is in an early stage of development, but is evolving rapidly.
−Removed: 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: defense market for UGVs include L3Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton/Remotec, ICOR Technology and Boston Dynamics.
+Added: We also face emerging competition from consumer and commercially focused drone manufacturers, such as Skydio, Inc., 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.
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.
+Added: Companies owning and operating terrestrial cellular tower networks include American Tower Corporation, Crown Castle International Corp.
+Added: and SBA Communications Corporation.
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 UAS and MUAS.
+Added: Our UAS services business also faces competition from smaller businesses that can provide training and logistics services for multiple UAS platforms, including our SUAS 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.
−Removed: 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
−Removed: business incentive and set-aside programs for which we are ineligible.
+Added: Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing
+Added: 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.
+Added: 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.
Foreign competitors may also be able to offer more cost competitive solutions for our UAS and UGV products and services.
−Removed: 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.
+Added: The market for SUAS, 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.
1 unchanged sentence
Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, prospects, financial condition or operating results.
−Removed: 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.
+Added: If the markets for UAS, UGV and TMS 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.
We cannot accurately predict the future growth rates or sizes of the markets for our products and services.
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Although we have expanded our UAS customer base to include foreign governments and domestic non-military agencies, and made our first approved export of our tactical missile systems to a foreign customer, we cannot assure you that our continued efforts to further increase our sales to international customers will be successful.
−Removed: The expansion of the UAS, UGV, TMS, and commercial UAS markets in general, and the market for our products and services in particular, depends on a number of factors, including the following:
+Added: The expansion of the markets for UAS, UGV and TMS in general, and the market for our products and services in particular, depends on a number of factors, including the following:
● customer satisfaction with these types of systems as solutions;
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● marketing efforts and publicity regarding these types of systems and services.
−Removed: Even if UAS, UGV, TMS, and commercial UAS gain wide market acceptance, our products and services may not adequately address market requirements and may not continue to gain market acceptance.
+Added: Even if the markets for UAS, UGV and TMS gain wide acceptance, our products and services may not adequately address market requirements and may not continue to gain market acceptance.
If these types of systems generally, or our products and services specifically, do not gain wide market acceptance, then we may not be able to achieve our anticipated level of growth and our revenue and results of operations would decline.
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government foreign military sales in which an end user is a foreign government, during the fiscal year ended April 30, 2023 compared to 41% for the fiscal year ended April 30, 2022.
−Removed: 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
−Removed: Telerob Gesellschaft für Fernhantierungstechnik mbH, a German company (“Telerob”) in May 2021.
+Added: We expect to continue to derive a significant portion of our revenue from international sales, including direct sales to allied nations, and initiated through our international operations, Telerob
+Added: Gesellschaft für Fernhantierungstechnik mbH (“Telerob”).
Our international revenue and operations are subject to a number of material risks, including the following:
● the unavailability of, or difficulties in obtaining any, necessary U.S.
−Removed: governmental authorizations for the export of our products to certain foreign jurisdictions;
+Added: governmental authorizations for the export of our products and services to certain foreign jurisdictions;
● 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;
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manufacturers;
+Added: ● the imposition of in-country production and manufacturing requirements by international customers;
● the imposition of tariffs, embargoes, export controls and other trade restrictions;
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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.
−Removed: 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
−Removed: for the period and could negatively impact our revenue and results in future periods.
−Removed: We expect shortages in certain critical components to continue throughout at least the remainder of our fiscal year 2023.
+Added: In the fiscal years ended April 30, 2023 and 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 such periods and could negatively impact our revenue and results in future periods.
+Added: We expect shortages in certain critical components to continue into our fiscal year 2024.
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.
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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.
+Added: Some of our components are sourced from foreign countries which are at risk of sanctions and other trade restrictive actions, such as China, and any escalation in global trade tensions or trade restrictions may hinder our ability to obtain these components from 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: 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.
−Removed: In addition, credit constraints of key suppliers could result in accelerated payment of accounts payable by us, impacting our cash flow.
+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, be 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, adversely impacting our cash flow.
We have experienced increased costs for components, as well as increased shipping, warehousing and inventory costs.
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The relevant tax rules and regulations are complex, often changing and, in some cases, are interdependent.
−Removed: 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 current U.S.
+Added: If these or other tax rules and regulations should change, the company’s earnings and cash flows could be negatively impacted.
+Added: In particular, the changes proposed by the U.S.
administration, including increasing the U.S.
corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of non-U.S.
−Removed: subsidiaries and the imposition of a 15% minimum tax on worldwide book income, could materially affect the company’s financial results if enacted.
+Added: subsidiaries and the imposition of a 15% minimum tax on worldwide book income, could materially negatively affect the company’s financial results if enacted.
The company’s worldwide provision for income taxes is determined, in part, through the use of significant estimates and judgments.
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Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors related to our contracts.
−Removed: In general, we perform our production work under fixed-price contracts and our repair and customer-funded research and development work under cost-plus-fee contracts.
+Added: In general, we perform our production work under fixed-price contracts and our repair and customer-funded R&D work under cost-plus-fee contracts.
Under fixed-price contracts, we perform services under a contract at a stipulated price.
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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: 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: We have had some departures in fiscal years 2023 and 2022 from our senior management team, which has resulted in remaining members bearing additional responsibilities as we seek to recruit additional leadership talent.
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.
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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.
−Removed: In September 2021, in furtherance of an executive order issued by President Biden, the U.S.
−Removed: Safer Federal Workforce Task Force issued guidance that generally requires that employees of U.S.
−Removed: government contractors receive COVID-19 vaccinations, unless an employee requests and receives a medical or religious accommodation.
−Removed: The mandate is subject to various legal proceedings.
−Removed: 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.
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We expect our suppliers to experience a sharp increase in demand for their products.
−Removed: 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: During the fiscal years ended April 30, 2023 and 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.
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.
−Removed: We expect that the global supply chain issues will adversely affect our ability to procure certain components through at least our fiscal year 2023.
+Added: We expect that the global supply chain issues will adversely affect our ability to procure certain components into our fiscal year 2024.
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.
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The development and manufacture of certain of our products involves the handling of a variety of explosive and flammable materials as well as high power equipment.
−Removed: 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.
+Added: From time to time, these activities may result in incidents that
+Added: 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.
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.
4 unchanged sentences
As the usage of UAS has increased, particularly by military customers, the danger of such collisions has increased.
−Removed: Furthermore, the incorporation of our DDL technology into our small UAS has increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an increase in the risk of accidental collision.
+Added: Furthermore, the incorporation of our DDL technology into our SUAS has increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an increase in the risk of accidental collision.
In addition, obstructions to effective transmissions in urban environments, such as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose.
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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.
−Removed: 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.
+Added: As such international locations and the risks associated with them change rapidly, such precautions may
+Added: 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.
1 unchanged sentence
We adhere to an investment policy set by our board of directors which aims to preserve our financial assets, maintain adequate liquidity and maximize returns.
−Removed: We believe that our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are accurately reflected in our consolidated financial statements as of April 30, 2022.
−Removed: We currently invest the majority of our cash in U.S.
−Removed: government securities, U.S.
−Removed: 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.
1 unchanged sentence
Our investments are classified as available-for-sale and recorded at fair value each reporting period.
−Removed: Unrealized gains and losses are excluded from earnings and reported as a separate component of stockholders’ equity, net of deferred income taxes.
+Added: Unrealized gains and losses are recorded as other income or loss.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
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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
−Removed: components from our suppliers.
+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.
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.
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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 Intelligent Systems Group business segment (“ISG”), and in May 2021 we acquired Telerob.
+Added: In February 2021 we completed the acquisition of Arcturus and the Intelligent Systems Group business segment (“ISG”), in May 2021 we acquired Telerob and in August 2022 we acquired Planck Aerosystems, Inc.
We intend to consider additional acquisitions that could add to our customer base, technological capabilities or system offerings.
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● inability to generate sufficient revenue to offset acquisition costs.
−Removed: 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.
+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, such as the MUAS goodwill impairment charge of $156.0 million and accelerated amortization of certain MUAS intangibles of $34.1 million recorded for the MUAS reporting unit for the fiscal year ended April 30, 2023.
+Added: These charges resulted from decreases in expected cash flows associated with the Company not being down selected for a US DoD program of record and the closure of all of our MEUAS COCO sites.
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.
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The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.
+Added: We have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects, such as the impairment recorded for the MUAS reporting unit.
+Added: At April 30, 2023, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $180.8 million and $43.6 million, respectively.
+Added: We perform our annual impairment tests during the fourth quarter of each fiscal year or when events or circumstances change in a manner that indicates an asset might be impaired.
+Added: Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business or political climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance relative to projected future results of operations.
+Added: Subsequent to the performance of our annual goodwill impairment test, in May 2023 a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value.
+Added: Specifically, we received notification that we were not down selected for a US DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit.
+Added: As a result, we updated our estimates of long-term future cash flows used in the valuation of the MUAS reporting unit.
+Added: These changes in estimates, resulted in the recognition of a goodwill impairment charge of $156.0 million in the MUAS reporting unit.
+Added: Additionally, the closure of all of our MEUAS COCO sites resulted in accelerated intangible amortization expenses of $34.1 million during the fiscal year ended April 30, 2023.
+Added: The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature.
+Added: Actual results can be materially different from the estimates and assumptions.
+Added: If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the carrying amounts, we could recognize further future impairment charges, the amount of which could be material.
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 (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”).
+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 and June 6, 2023, 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 $25 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.
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The Revolving Facility has a term of 5 years.
−Removed: As of April 30, 2022 we have only letters of credit issued pursuant to the Revolving Facility, totaling $4.2 million.
+Added: As of April 30, 2023 we had only letters of credit issued pursuant to the Revolving Facility, totaling $5.0 million.
In support of our obligations under the Credit Facilities, we have granted security interests in substantially all of our personal property and that of our domestic subsidiaries, including a pledge of the equity interests in our subsidiaries (limited to 65% of outstanding equity interests in the case of our foreign subsidiaries), subject to customary exclusions and exceptions.
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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
−Removed: 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 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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To the extent we would wish to engage in any of the prohibited behaviors, we would need to obtain consent under the Credit Agreement, which may not be timely forthcoming or at all.
−Removed: If a default event were to occur, we may not have sufficient available cash to repay such outstanding debt obligations at the time they become due or be able to refinance such debt on acceptable terms or at all.
+Added: If a default event were to occur, we may not
+Added: have sufficient available cash to repay such outstanding debt obligations at the time they become due or be able to refinance such debt on acceptable terms or at all.
Any of the foregoing limitations or events could materially and adversely affect our financial condition and results of operations.
−Removed: Our business and operations are subject to the risks of earthquakes and other natural catastrophic events.
+Added: Risks associated with environmental, social and governance matters (“ESG”), including especially climate change and other environmental impacts, could negatively affect our business and operations.
+Added: Environmental, social and governance matters significantly impact our business and operations and present evolving risks and challenges.
+Added: Environmental impacts, including climate change specifically, create short and long-term financial risks to our business globally.
The majority of our research and development and manufacturing operations are located in California in regions known for seismic activity and wildfires.
−Removed: 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: Climate related changes can increase the frequency and severity of significant weather events and natural disasters.
+Added: While we maintain insurance coverage to cover certain 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.
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.
+Added: Increased attention on ESG matters, including from our customers, shareholders and other stakeholders, may lead to us expending more resources addressing these issues.
+Added: Legislative and regulatory efforts to combat climate change and address ESG issues may prove costly and burdensome for us to comply with and will likely continue to impact us, our customers and our suppliers.
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 where our primary
−Removed: operations are located.
+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 operations are located.
The coronavirus pandemic continues to evolve, and has led to the implementation of various responses and evolving public health safety measures.
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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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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;
−Removed: 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.
−Removed: 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 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.
−Removed: 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.
We self-insure a portion of our health insurance program, which may expose us to unexpected costs and negatively affect our results of operations .
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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.
−Removed: The COVID pandemic has increased volatility and pricing in the capital markets.
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.
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.
−Removed: An economic or credit crisis could also impact our ability to raise capital when
+Added: An economic or credit crisis could also impact our ability to raise capital when needed.
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.
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● the Federal Aviation Administration, which regulates the use of airspace for all aircraft, including UAS operation in the United States;
−Removed: ● the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defense articles and defense services and restrict from which countries we may purchase materials and services used in the production of certain of our products;
+Added: ● controls to protect U.S.
+Added: Government controlled unclassified information and that our suppliers that have access to this type of information comply with cyber security regulations;
+Added: ● the International Traffic in Arms Regulations and Export Administration Regulations, which regulate the export of sensitive technology and hardware, including controlled technical data, defense articles and defense services and restrict the countries from which we may purchase materials and services used in the production of certain of our products;
● laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes or determined to be “controlled unclassified information” and the exportation of certain products and technical data.
1 unchanged sentence
Classified programs generally will require that we comply with various executive orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees and facilities to obtain government security clearances.
+Added: We also must implement controls to protect U.S.
+Added: government controlled unclassified information (CUI).
+Added: Failing to implement such controls to protect CUI could jeopardize our ability to continue receiving U.S.
+Added: government contracts.
+Added: Additionally, certain of our products are sold to the U.S.
+Added: government as commercial items.
+Added: government were to dispute the commercial designation of such items, and absent a successful appeal by us of such designation, the profitability of sales of such items could be negatively affected.
Our failure to comply with applicable regulations, rules and approvals;
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Moreover, if any of our administrative processes and business systems are found not to comply with the applicable requirements, we may be subjected to increased government scrutiny or required to obtain additional governmental approvals that could delay or otherwise adversely affect our ability to compete for or perform contracts.
−Removed: In December 2015, DCMA concluded that our purchasing system was not approved.
−Removed: In an April 2016 follow-up review the DCMA approved our purchasing system.
−Removed: The purchasing systems was reviewed and approved again in January 2019.
+Added: The purchasing systems was reviewed and approved again in March 2022.
An unfavorable outcome to such an audit or investigation by the DCAA, U.S.
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If we were suspended or debarred from contracting with the federal government generally, or any specific agency, if our reputation or relationship with government agencies were impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and operating results could be materially harmed.
−Removed: For example, in February 2010, we were notified by the DOJ that it had initiated a civil investigation into our cost charging practices with respect to government contracts.
−Removed: We resolved these claims with the DOJ in October 2013.
−Removed: Under the settlement agreement, we reimbursed the government for an amount erroneously charged to the government in our fiscal 2006 incurred cost claim submittal.
Some of our contracts with the U.S.
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The potential that the government may release some of the technical data without constraint creates the possibility that third parties may be able to use this data to compete with us, which could have a material adverse effect on our business, results of operations or financial condition.
−Removed: government contracts are generally not fully funded at inception and contain certain provisions that may be unfavorable to us, which could prevent us from realizing our contract backlog and materially harm our business and results of operations.
+Added: government contracts are generally not fully funded at inception, contain certain provisions that may be unfavorable to us and may be undefinitized at the time of the start of performance, which could prevent us from realizing our contract backlog and materially harm our business and results of operations.
government contracts typically involve long lead times for design and development and are subject to significant changes in contract scheduling.
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Moreover, several of our contracts with the U.S.
−Removed: government do not contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental damages and consequential damages.
+Added: government do not contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental
+Added: damages and consequential damages.
These provisions could cause substantial liability for us, especially given the use to which our products may be put.
+Added: Furthermore, we may operate from time to time under undefinitized contract actions (“UCA”s), under which we may begin performance at the direction of the U.S.
+Added: government prior to completing contract negotiations regarding pricing, specifications and other terms.
+Added: Under a UCA, the U.S.
+Added: Government has the ability to unilaterally definitize contracts and, absent a successful appeal of such action, the unilateral definitization of the contract would obligate us to perform under terms and conditions imposed by the U.S.
+Added: Such unilaterally imposed contract terms could include less favorable pricing and/or terms and conditions more burdensome than those negotiated in other circumstances, which could negatively affect our expected profitability under such contract and could negatively affect our results of operations.
government contracts are subject to a competitive bidding process that can consume significant resources without generating any revenue.
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government contracts that were awarded through a competitive bidding process.
−Removed: Much of the business that we expect to
−Removed: seek in the foreseeable future likely will be awarded through competitive bidding.
+Added: Much of the business that we expect to 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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Although we believe we have procedures in place to comply with these regulations and requirements, the regulations and requirements are complex and change frequently.
−Removed: Our or our agents’ failure to comply with these regulations and requirements under certain circumstances could lead to suspension or debarment from U.S.
+Added: Our or our agents’ failure to comply with these regulations and
+Added: requirements under certain circumstances could lead to suspension or debarment from U.S.
government contracting or subcontracting for a period of time and could have a negative effect on our reputation and ability to receive other U.S.
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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
−Removed: 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, under which we are currently operating, provides for, among other things:
−Removed: (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;
+Added: 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.
+Added: The Consent Agreement provided among other things:
+Added: (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 for future remedial compliance costs over the term of the Consent Agreement and/or credited against prior compliance enhancement costs already expended by us;
(ii) the appointment of an external Special Compliance Officer for a minimum of one year to oversee our compliance with the Consent Agreement and ITAR;
1 unchanged sentence
The $500,000 suspension amount was satisfied by our compliance program remediation efforts during our fiscal year ended April 30, 2021.
−Removed: 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 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.
−Removed: The regulation of small UAS and MUAS 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 UAS and MUAS in the U.S.
+Added: While we were released from the Consent Agreement in May 2023, our failure to comply with the export laws and regulations in the future 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.
+Added: Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS and MUAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS and MUAS to non-military customers in the United States.
+Added: The regulation of SUAS 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 SUAS 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 UAS and MUAS.
−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 UAS and MUAS for both public and commercial applications.
−Removed: 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.
+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 SUAS 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 SUAS and MUAS for both public and commercial applications.
+Added: On June 21, 2016, the FAA released its final rules regarding the routine use of certain SUAS (under 55 pounds) in the U.S.
National Airspace System pursuant to the act (the “Part 107 Rules”).
−Removed: The Part 107 Rules, which became effective in August 2016, provided safety regulations for small UAS conducting non-recreational operations and contain various limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS.
+Added: The Part 107 Rules, which became effective in August 2016, provided safety regulations for SUAS conducting non-recreational operations and contain various
+Added: limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS.
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.
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.
−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 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.
+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 SUAS 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 SUAS 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.
−Removed: commercial and law enforcement use of small UAS.
+Added: commercial and law enforcement use of SUAS.
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 UAS and MUAS 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 SUAS 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
−Removed: 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 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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We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact of such future laws, regulations and standards may have on our business.
−Removed: For example, the California Consumer Privacy Act, which became effective in 2020, provides new data privacy rights for consumers and new operational requirements for companies.
+Added: For example, the California Consumer Privacy Act, which became effective in 2020, provides new data privacy rights for consumers and employees and new operational requirements for companies.
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 General Data Protection Regulation (“GDPR”), which imposes stringent E.U.
+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
+Added: regulations such as the General Data Protection Regulation (“GDPR”), which imposes stringent E.U.
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.
+Added: We will also be subject to the DoD Cybersecurity Maturity Model Certification (“CMMC”) requirements, which will require companies that do business with the DoD to receive specific third-party certifications relating to specified cybersecurity standards to be eligible for new contract awards.
+Added: We are in the process of preparing for the CMMC requirements, but to the extent we are unable to achieve certification in advance of contract awards, or we fail to achieve certification at the level required for a particular contract award, we will be unable to bid on such contract awards or follow-on awards for existing work with the DoD, which could adversely impact our revenue, profitability, and cash flows.
+Added: Additionally, our subcontractors, and certain of our vendors, may also need to comply with CMMC requirements and, potentially obtain CMMC certification.
+Added: We may be negatively impacted if our subcontractors or vendors are not compliant with CMMC requirements.
+Added: The costs to comply with the new CMMC requirements are significant and may increase, which could negatively affect our results of operations.
Although we are working to comply with those federal, state and foreign laws and regulations, industry standards, contractual obligations and other legal obligations that apply to us, such laws, regulations, standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another, other requirements or legal obligations, our practices or the features of our products.
1 unchanged sentence
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
−Removed: 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: 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.
Environmental laws and regulations and unforeseen costs, including in response to climate change, could impact our future earnings.
24 unchanged sentences
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
−Removed: 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 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
11 unchanged sentences
Moreover, many of our employees have access to our trade secrets and other intellectual property.
−Removed: If one or more of these employees leave our employment to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position.
+Added: If one or more of these employees
+Added: leave our employment to work for one of our competitors, then they may disseminate this proprietary information, which may as a result damage our competitive position.
If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations or financial condition could be materially harmed.
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This type of litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.
+Added: The market price of our common stock may decline because of our acquisition activity .
+Added: The market price of our common stock may decline as a result of our acquisition activity if, among other things, we are unable to achieve the expected growth in revenue and earnings, or if the operational cost savings estimates in connection with the integration of acquired businesses are not realized.
+Added: The market price of our common stock also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial results is not consistent with the expectations of financial or industry analysts.
+Added: The market price of our common stock may also be influenced by the issuance of our equity securities in acquisition transactions, which may or may not be at prevailing market prices and may have a dilutive effect on other stockholders.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
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In addition, certain of our customers require that we obtain letters of credit to support our obligations under some of our contracts.
−Removed: Our management, whose interests may not be aligned with yours, is able to exert significant influence over all matters requiring stockholder approval.
−Removed: As of June 22, 2022, our directors, executive officers and their affiliates collectively beneficially owned 394,855 shares, or approximately 2%, of our total outstanding shares of common stock.
−Removed: Accordingly, our directors and executive officers as a group may be able to exert significant influence over matters requiring stockholder approval, including the election of directors.
−Removed: The interests of our directors and executive officers may not be fully aligned with yours.
−Removed: Although there is no agreement among our directors and executive officers with respect to the voting of their shares, this concentration of ownership may delay, defer or even prevent a change in control of our company, and make transactions more difficult or impossible without the support of all or some of our directors and executive officers.
−Removed: 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.
Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.
2 unchanged sentences
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: As of April 30, 2023, our management determined that the material weaknesses were remediated.
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.
4 unchanged sentences
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.
−Removed: 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.”
−Removed: 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: Additional information about the nature of these material weaknesses and how they were remediated is provided in Item 9A.- “Controls and Procedures.”
+Added: Although the material weaknesses identified did not result in a need to restate any prior period financial statements, if additional material weaknesses 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.
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.
15 unchanged sentences
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;
−Removed: 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: 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
+Added: previously anticipated.
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.