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Item 1A. Risk Factors

2024-06-27 compared with 2023-06-28 · 198 added, 189 removed, 668 unchanged (37% of the section changed)

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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.

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.

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.

Risk Factor Summary

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and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue.

● Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UAS.

● 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.

● Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UxS and LMS.

● If the markets for UxS and LMS 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.

● The markets in which we compete are characterized by rapid technological change, which requires us to develop new products and product enhancements, and could render our existing products obsolete.

● 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.

● We expect to incur substantial R&D 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.

● 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.

● 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.

Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.

● Our ability to stay competitive within our markets may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.

Failing to adequately increase production capacity and achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.

● We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in supply imbalances that could harm our business.

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● The operation of UAS in urban environments may be subject to risks, such as accidental collisions and transmission interference, which may limit demand for our UAS in such environments and harm our business and operating results.

● Shortfalls in available external research and development funding could adversely affect us.

● Shortfalls in available external R&D funding could adversely affect us.

● Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business.

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● 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.

● As a manufacturer of commercial UAS, we are subject to various government regulations and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm our business.

● We are subject to pending legal proceedings that may disrupt our business, cause us to incur substantial costs, expose us to significant legal liabilities and could have a material adverse impact on our financial performance.

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government, particularly to agencies of the DoD.

Historically, we have derived a significant portion of our total sales and our SUAS and TMS sales from the U.S.

Historically, we have derived a significant portion of our total sales and our SUAS and LMS sales from the U.S.

government and its agencies.

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These developments and other factors could cause governmental agencies to reduce their purchases under existing contracts, to exercise their rights to terminate contracts at-will or to abstain from renewing contracts 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.

In fiscal year 2023, SoftBank accounted for 7% of our total revenue.

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.

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.

The MDDA allows SoftBank to terminate the contract at its convenience for any reason.

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.

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.

As a result, our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions.

Because we generate a significant portion of our total sales, including sales of our UxS and LMS products and services, from the U.S.

government and its agencies and foreign governments, 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.

Delays in the definitization of a contract could result in delayed funding, billing and payment.

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.

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Additionally, there is a possibility that political decisions made by the U.S.

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.

government, such as changes in prior military commitments, including the withdrawal from Afghanistan or in response to the conflicts between Russia and Ukraine or Israel and Hamas, 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.

Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UAS.

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.

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.

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.

Military transformation and changes in overseas operational levels may affect future procurement priorities and existing programs, which could limit demand for our UxS and LMS.

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 UxS and LMS products, training and spares.

Since such time, there have been periods during which the tempo of DoD counterinsurgency operations receded, reducing demand for certain of our UxS and LMS products, training and spares from prior levels.

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 conflicts between Russia and Ukraine or Israel and Hamas, or how changes in the threat environment will impact opportunities and competition for our UxS and LMS products, in terms of existing, additional or replacement programs.

An example was the closure of all of our Mid-Endurance Unmanned Aircraft System (“MEUAS”) COCO sites during the three months ended April 30, 2023.

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.

We operate in evolving markets, which makes it difficult to evaluate our business and future prospects.

Our UAS are sold in new and rapidly evolving markets.

The commercial UAS market is in the early stages of customer adoption.

Our solutions are sold in new and rapidly evolving markets.

The market for HAPS UAS is also in an early stage of development.

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We cannot accurately predict the extent to which demand for our products and services will increase, if at all.

The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

The challenges, risks and

uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

● generate sufficient revenue to maintain profitability;

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The defense industry is highly competitive and generally characterized by intense competition to win contracts.

Our current principal SUAS competitors include Elbit Systems Ltd., Quantum Systems, Edge Autonomy, Teledyne Technologies, Inc.

and Lockheed Martin Corporation.

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.

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.

Our current principal SUAS competitors include Elbit Systems Ltd., Quantum-Systems, Inc., Edge Autonomy, Teledyne Technologies, Inc., Sierra Nevada Corporation and Lockheed Martin Corporation.

Our principal MUAS competitors are The Boeing Company, Shield AI, Inc., Northrop Grumman Corporation, Textron, Inc., Sierra Nevada Corporation , Griffon Aerospace, Inc.

and L3Harris Technologies, Inc.

and international competitors Elbit Systems Ltd.

and Israeli Aircraft Industries.

We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk or General Atomics, Inc.’s Predator and its derivatives as direct competitors to our 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.

We do not view large UAS producers such as Northrop Grumman Corporation or General Atomics, Inc.

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 producers as direct competitors to our MUAS because they perform different missions, require a larger logistical footprint and cost considerably more to procure and operate.

However, we cannot be certain that these platforms will not become direct competitors to our SUAS and MUAS in the future.

Our TMS business faces competition from Textron Inc., Raytheon Technologies, Lockheed Martin Corporation, Anduril Industries, Aevex Aerospace and UVision Air Ltd.

Our LMS business faces competition from Textron Inc., RTX Corporation, Lockheed Martin Corporation, Anduril Industries, Inc., Aevex Holdings, LLC and UVision Air Ltd.

Our competitors in the U.S.

defense market for UGVs include L3Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton/Remotec, ICOR Technology and Boston Dynamics.

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.

Companies owning and operating terrestrial cellular tower networks include American Tower Corporation, Crown Castle International Corp.

defense market for UGVs include L3Harris Technologies, Inc., Teledyne Technologies, Inc., QinetiQ North America, Inc., Peraton Remotec, ICOR Technology, Inc., Ghost Robotics, Inc.

and Boston Dynamics, Inc.

We also face emerging competition from consumer and commercially focused drone manufacturers 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 SE, 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., BAE Systems and Northrop Grumman Corporation, and LEO micro or cubesat satellite constellations, including include Amazon, Planet Labs PBC, OneWeb, SpaceX and The Boeing Company.

Companies owning and operating terrestrial

cellular tower networks include American Tower Corporation, Crown Castle International Corp.

and SBA Communications Corporation.

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Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence, price and the availability of key professional personnel, including those with security clearances.

Furthermore, many of our competitors may be able to utilize their substantially greater resources and economies of scale to develop competing

products and technologies, manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages.

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.

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.

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.

Foreign competitors may also be able to offer more cost competitive solutions for our UxS and LMS products and services.

The markets for UxS and LMS products and services are expanding, and competition intensifying as additional competitors enter such markets and current competitors expand their product lines.

In order to secure contracts successfully when competing with larger, well-financed companies, we may be forced to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins.

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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.

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.

If the markets for UxS and LMS 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.

Demand for our products and services may not increase, or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods.

We believe the market for commercial UAS is nascent.

Moreover, there are only a limited number of major programs under which the U.S.

military, our primary customer, is currently funding the development or purchase of our UAS, UGV and TMS.

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.

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:

military, our primary customer, is currently funding the development or purchase of our UxS and LMS.

Although we have expanded our UxS customer base to include foreign governments and domestic non-military agencies, and made our first approved export of our LMS to a foreign customer, we cannot assure you that our continued efforts to further increase our sales to international customers will be successful.

The expansion of the markets for UxS and LMS 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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● customer perceptions regarding the effectiveness and value of these types of systems;

● limitations on our ability to market our UAS and TMS products and services outside the United States due to U.S.

● limitations on our ability to market our UxS and LMS products and services outside the United States due to U.S.

government regulations;

● obtaining timely regulatory approvals, including, with respect to any of our unmanned systems, access to airspace and wireless spectrum;

● obtaining timely regulatory approvals, including, with respect to any of our uncrewed systems, access to airspace and wireless spectrum;

● marketing efforts and publicity regarding these types of systems and services.

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.

Even if the markets for UxS and LMS 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, 2024 compared to 53% for the fiscal year ended April 30, 2023.

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

Gesellschaft für Fernhantierungstechnik mbH (“Telerob”).

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 Gesellschaft für Fernhantierungstechnik mbH (“Telerob”).

Our international revenue and operations are subject to a number of material risks, including the following:

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Further, in conjunction with the acquisition of Arcturus in February 2021, we entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business.

These efforts have increased complexity and our expected growth has placed, and will continue to place, a strain on our management and our administrative, operational and financial infrastructure.

Our growth has placed, and our expected growth will continue to place, a strain on our management and our administrative, operational and financial infrastructure.

We anticipate further growth of headcount and facilities will be required to address expansion in our product and service offerings and the geographic scope of our customer base.

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military represents our largest source of revenue.

We have, however, expanded our product sales into new market segments, including those served by our unmanned ground vehicle product line and by our relationship with SoftBank to develop HAPS UAS for global communication and remote sensing applications.

We have, however, expanded our product sales into new market segments, including (i) those served by our relationships with SoftBank and the U.S.

DoD to develop HAPS UAS for global communication and remote sensing applications and (ii) the AI-enabled common control system from our recent Tomahawk acquisition.

Our efforts to expand our product and service offerings beyond our traditional markets may divert management resources from existing operations and require us to commit significant financial resources to unproven businesses that may not generate additional sales, either of which could significantly impair our operating results.

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Continuing technological changes in the market for our products could make our products and services less competitive or obsolete, either generally or for particular applications.

The length and severity of the up-and-down cycles in the commercial and defense industries are difficult to predict.

Our future success will depend upon our ability to develop and introduce a variety of new capabilities and enhancements, including but not limited to addressing counter UAS technologies, to our existing product offerings, as well as introduce a variety of new product offerings, to address the changing needs of the markets in which we offer our products.

Delays in introducing new products and enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors’ products.

Delays in introducing new products and

enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products or enhancements at competitive prices may cause existing and potential customers to purchase our competitors’ products.

If we are unable to devote adequate resources to develop new products or cannot otherwise successfully develop new products or enhancements that meet customer requirements on a timely basis, our products could lose market share, our revenue and profits could decline, and we could experience operating losses.

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.

We expect to incur substantial R&D 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.

Our future growth depends on penetrating new markets, adapting existing products to new applications, and introducing new products and services that achieve market acceptance.

We plan to incur substantial research and

development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products.

We spent $64.3 million, or 12% of our revenue, in our fiscal year ended April 30, 2023 on internal research and development activities.

We plan to incur substantial R&D costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products.

We spent $97.7 million, or 14% of our revenue, in our fiscal year ended April 30, 2024 on internal R&D activities.

We believe that there are significant investment opportunities in a number of business areas.

Because we account for internal research and development as an operating expense, these expenditures will adversely affect our earnings in the future.

Further, our research and development programs may not produce successful results, and our new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially harm our business, prospects, financial results and liquidity.

Because we account for internal R&D as an operating expense, these expenditures will adversely affect our earnings in the future.

Further, our R&D programs may not produce successful results, and our new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially harm our business, prospects, financial results and liquidity.

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.

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Although we hold long term non-binding contracts with certain key suppliers that establish pricing, minimize lead times and to some degree mitigate risk, we do not have long-term agreements with all suppliers that obligate them to continue to sell components, products required to build our systems or products to us.

Our reliance on suppliers without long term non-binding contracts involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase prices for the components or products and will perform their obligations on a timely basis.

Our reliance on suppliers without long term non-

binding contracts involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components or products of sufficient quality, will increase prices for the components or products and will perform their obligations on a timely basis.

If any of our supplier’s face capacity constraints, financial instability, or an unwillingness to provide raw materials or components to us, we may need to seek alternative suppliers or revise our designs, particularly because some of our components are sourced from foreign countries.

Locating alternative sources may take several months, and even then, we might encounter significant delays in manufacturing and shipping.

Additionally, credit constraints among key suppliers could impact our cash flow.

We have also experienced rising costs for components, shipping, warehousing, and inventory.

The permanence of these cost increases remains uncertain, and obtaining replacement components within our required time frames may prove challenging.

Shortages could lead to excess inventory and potential obsolescence risks.

In addition, certain raw materials and components used in the manufacture of our products and in our development programs, are periodically subject to supply shortages, and our business is subject to the risk of price increases and periodic delays in delivery.

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.

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

for such periods and could negatively impact our revenue and results in future periods.

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.

Shortages in components for our products and delays in obtaining components for our products could cause customers to terminate their contracts with us, delay orders from us or cause us to delay accepting orders, negatively impact our ability to win new programs and/or contracts, negatively impact and disrupt our development programs, increase our costs and seriously harm our business, results of operations and financial condition.

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.

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.

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.

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.

We cannot predict the extent to which these costs will continue and/or continue to increase or if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all.

Additionally, shortages of components may result in increased inventory of unfinished products and significant quantities of other unused components remaining in inventory, which could expose us to increased risks of obsolescence and losses which may not be fully covered by insurance.

The electronic components industry has experienced significant shifts in supply levels in recent years.

Demand for components in the memory sector is poised for substantial growth, driven by artificial intelligence applications such as large language models and generative artificial intelligence.

Due to the volatility of supply and increase in demand, lead times and prices for certain components, such as memory related microprocessors, may continue to experience supply and price uncertainty.

Escalating restrictions between the U.S.

and China contribute to supply chain complexities.

In January 2024, China imposed sanctions on AeroVironment in response to sales of military equipment by the U.S.

Government to Taiwan.

The impact of the announced sanctions, or other potential sanctions implemented by China, on our business is uncertain.

Some of our components sourced from foreign countries, including China, are at risk of further sanctions and other trade restrictive actions, and any escalation in global trade tensions or trade restrictions may hinder our ability to obtain these components from new suppliers.

Restrictions on semiconductor manufacturing equipment and raw materials could lead to higher material costs, material unavailability, and transportation uncertainty.

Earnings and cash flows can be impacted by changes in tax laws.

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While the company believes its estimates of its tax obligations are reasonable, the final outcome after the conclusion of any tax examinations and any litigation could be materially different from what has been reflected in the company’s historical financial statements.

Also due to the new U.S.

Internal Revenue Service tax capitalization rules, Section 174, which requires R&D expenditures to be capitalized and amortized over a 5-year period for tax purposes, we expect an increase in cash paid for U.S.

federal income taxes in future fiscal years relative to prior periods.

Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors related to our contracts.

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We typically experience lower profit margins under cost-plus-fee contracts than under fixed-price contracts, though fixed-price contracts involve higher risks.

In general, if the volume of services we perform under cost-plus-fee contracts increases relative to the volume of services we perform under fixed-price contracts, we expect that our operating margin will decline.

general, if the volume of services we perform under cost-plus-fee contracts increases relative to the volume of services we perform under fixed-price contracts, we expect that our operating margin will decline.

In addition, our earnings and margins may decrease depending on the costs we incur in contract performance, our achievement of other contract performance objectives and the stage of our performance at which our right to receive fees, particularly under incentive and award fee contracts, is finally determined.

We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our future financial results.

Contract accounting requires judgments relative to assessing risks, including risks associated with estimating contract transaction prices and costs, assumptions for schedule and technical issues, customer-directed delays and reductions in scheduled deliveries, and unfavorable resolutions of claims and contractual matters.

Contract accounting requires judgments relative to assessing risks, including risks associated with estimating contract transaction prices and costs, definitization of certain contract prices, assumptions for schedule and technical issues, customer-directed delays and reductions in scheduled deliveries, and unfavorable resolutions of claims and contractual matters.

Due to the size and nature of many of our contracts, the estimation of total costs at completion is complicated and subject to many variables.

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Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.

Our senior management and key employees, including key employees of business recently acquired, are important to our customer relationships and overall business.

Our senior management and key employees, including key employees of businesses recently acquired, are important to our customer relationships and overall business.

We believe that our success depends in part on the continued contributions of our senior management and key employees.

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These employees are in great demand and are likely to remain a limited resource in the foreseeable future.

The current tight labor market has adversely impacted our ability to recruit qualified personnel, including engineers.

Our ability to recruit qualified, technical personnel, such as engineers, has been adversely impacted by the labor market.

Increased restrictions on the import of foreign labor may also increase demand for engineering personnel and adversely impact our ability to hire and retain qualified personnel.

If we are unable to recruit and retain a sufficient number of these employees, then our ability to maintain our competitiveness and grow our

business could be negatively affected.

If we are unable to recruit and retain a sufficient number of these employees, then our ability to maintain our competitiveness and grow our business could be negatively affected.

In addition, because of the highly technical nature of our products, the loss of any significant number of our existing engineering personnel could have a material adverse effect on our business and operating results.

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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.

Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.

Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.

We have limited experience manufacturing UAS, TMS and UGV in high volume.

Our ability to stay competitive within our markets may be dependent upon increasing manufacturing capacity to support anticipated growth and achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products.

Failing to adequately increase production capacity and achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.

Our future growth depends on increasing manufacturing capacity of our product, and our failure to adequately increase such capacity could have a material adverse impact on our business and financial results.

We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable us to manufacture (or contract for the manufacture of) these products in commercial quantities while meeting the volume, speed, quality, price, engineering, design and production standards required to successfully market our products.

Our failure to develop such manufacturing processes and capabilities in locations that can efficiently service our markets could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our future profitability is, in part, dependent upon achieving increased savings from volume purchases of raw materials and component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies.

Our ability to remain competitive \is, in part, dependent upon achieving increased savings from volume purchases of raw materials and component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies.

We expect our suppliers to experience a sharp increase in demand for their products.

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.

During the fiscal years ended April 30, 2024, 2023 and 2022, global supply chain issues resulted in delays in procuring components for our products, and we 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.

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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We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels may result in supply imbalances that could harm our business.

We maintain a variety of parts and components in inventory to allow us to customize our UAS and UGV products for specific customer requirements, which parts are subject to obsolescence and expiration.

Due to the long-lead time for obtaining certain UAS product components, including in response to procurement issues caused by shortages in the supply chain for such components, and the manufacturing cycles, we need to make forecasts of demand and commit significant resources towards manufacturing our products.

We maintain a variety of parts and components in inventory to allow us to customize our UxS products for specific customer requirements, which parts are subject to obsolescence and expiration.

Due to the long-lead time for obtaining certain UxS product components, including in response to procurement issues caused by shortages in the supply chain for such components, and the manufacturing cycles, we need to make forecasts of demand and commit significant resources towards manufacturing our products.

As such, we are subject to significant risks in managing the inventory needs of our business during the year, including estimating the appropriate demand for our products.

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In the future, we may be required to record write-downs of finished products and materials on-hand and/or additional charges for excess purchase commitments as a result of future changes in our sales forecasts or customer orders.

Additionally, our failure to manage inventory effectively, including in response to the effects of shortages of our components, could expose us to increased losses.

We may hold material amounts of inventory at third parties which are subject to separate management processes.

Additionally, our failure to manage inventory effectively, including in response to the effects of shortages of our components, could expose us to losses.

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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.

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.

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.

From time to time, these activities may result in incidents that could cause us to temporarily shut down or otherwise disrupt some manufacturing processes, which could cause production delays, and could result 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, though our insurance coverage may be inadequate to cover all claims and losses related to such incidents.

We may experience such incidents in the future, which could result in production delays or otherwise have a material adverse effect on our business and financial condition.

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Our quarterly revenue, cash flow and operating results have and may continue to fluctuate significantly in the future due to a number of factors, including the following:

● fluctuations in revenue derived from government contracts, including cost-plus-fee contracts and contracts with a performance-based fee structure;

● fluctuations in revenue derived from government contracts, including undefinitized contracts, cost-plus-fee contracts and contracts with a performance-based fee structure;

● the size and timing of orders from military and other governmental agencies, including increased purchase requests from government customers for equipment and materials in connection with the U.S.

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In addition, payments due to us from government agencies may be delayed due to billing cycles or as a result of failures of governmental budgets to gain congressional and presidential approval in a timely manner.

Shortfalls in available external research and development funding could adversely affect us.

We depend on our research and development activities to develop the core technologies used in our products and for the development of our future products.

A portion of our research and development activities depends on funding by commercial companies and the U.S.

Shortfalls in available external R&D funding could adversely affect us.

We depend on our R&D activities to develop the core technologies used in our products and for the development of our future products.

A portion of our R&D activities depends on funding by commercial companies and the U.S.

government and commercial spending levels can be impacted by a number of variables, including general economic conditions, specific companies’ financial performance and competition for U.S.

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government-sponsored programs in the budget formulation and appropriation processes.

To the extent that these external sources of funding are reduced or eliminated, company funding for research and development could be reduced.

Any reductions in available research and development funding could harm our business, financial condition and operating results.

To the extent that these external sources of funding are reduced or eliminated, company funding for R&D could be reduced.

Any reductions in available R&D funding could harm our business, financial condition and operating results.

Unauthorized access to our, our customers’ and/or our suppliers’ information and systems could negatively impact our business.

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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.

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.

As such international locations and the risks associated with them change rapidly, such precautions may be insufficient to avoid such risks including possible possession of our remote assets and related access to our intellectual property by unintended third parties and the possible loss of our personnel in these locations, which could harm our business and operating results.

Our cash may be subject to a risk of loss, and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates.

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Therefore, our cash and any bank deposits that we now hold or may acquire in the future may be subject to risks, including the risk of loss or of reduced value or liquidity.

Our investments are classified as available-for-sale and recorded at fair value each reporting period.

Our investments classified as available-for-sale are recorded at fair value each reporting period.

Our investments classified as equity method investments are recorded using the equity method.

Unrealized gains and losses are recorded as other income or loss.

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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.

See above risk factor “If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business” for more detail on risks related to our supply chain.

See above risk factor “If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable,

then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business” for more detail on risks related to our supply chain.

Customers’ Inability to Obtain Financing to Make Purchases from Us and/or Maintain Their Business:

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Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.

In June 2019, we consummated the acquisition of Pulse Aerospace, LLC.

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.

In February 2021, we completed the acquisition of Arcturus and the Intelligent Systems Group business segment (“ISG”).

We acquired Telerob in May 2021, Planck Aerosystems, Inc.

(“Planck”) in August 2022, and Tomahawk Robotics, Inc.

(“Tomahawk”) in September 2023.

We intend to consider additional acquisitions that could add to our customer base, technological capabilities or system offerings.

Acquisitions involve numerous risks, any of which could harm our business, including the following:

● difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of each target company and realizing the anticipated synergies of the combined businesses;

● difficulties in supporting and transitioning customers, if any, of each target company;

● difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the companies we acquire and realizing the anticipated synergies of the combined businesses;

● difficulties in supporting and transitioning customers, if any, of the companies we acquire;

● diversion of financial and management resources from existing operations;

● the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

● risks of entering new markets in which we have limited or no experience the complexities of managing a workforce under foreign labor and employment law and related organizational requirements;

● potential loss of key employees, customers and strategic alliances from either our current business or the target company’s business;

● assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company’s products or its regulatory compliance;

● risks of entering new markets in which we have limited or no experience;

● the complexities of managing a workforce under foreign labor and employment law and related organizational requirements;

● potential loss of key employees, customers and strategic alliances from either our current business or the acquired company’s business;

● assumption of unanticipated problems or latent liabilities, such as problems with the quality of the acquired company’s products or its regulatory compliance;

● expanded regulatory compliance complexity and risk, including compliance with regulations of foreign jurisdictions.

● inability to generate sufficient revenue to offset acquisition costs.

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.

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.

If we finance acquisitions through debt, such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus, then such future debt financing may contain covenants or other provisions that limit our operational or financial flexibility and represent default risk if we are unable to maintain certain financial performance metrics while the debt remains outstanding.

These charges resulted from decreases in expected cash flows associated with the Company not being down selected for a U.S.

DoD program of record and the closure of all of our MEUAS COCO sites in the fiscal year ended April 30, 2023.

In addition, if we finance acquisitions by issuing equity, or securities convertible into equity, such as the stock issued as considerations for the purchase of Arcturus and Tomahawk, then our existing stockholders may be diluted, which could lower the market price of our common stock.

Further, as lock-up and other restrictions on such consideration shares lapse, we could experience heightened trading activity that could disrupt the market price for our common stock.

If we finance acquisitions through debt, such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus, then such future debt financing may

contain covenants or other provisions that limit our operational or financial flexibility and represent default risk if we are unable to maintain certain financial performance metrics while the debt remains outstanding.

If we fail to properly evaluate acquisitions or investments, then we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate.

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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.

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.

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.

In May 2023, a trigger event was identified that indicated that the carrying value of the MUAS reporting unit exceeded its fair value.

Specifically, we received notification that we were not down selected for a U.S.

DoD program of record which resulted in a significant decrease in the projected future cash flows of the MUAS reporting unit.

As a result, we updated our estimates of long-term future cash flows used in the valuation of the MUAS reporting unit.

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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.

The estimates and assumptions used to determine the fair value of our reporting units are highly subjective in nature.

Accordingly, the MUAS reporting unit is considered at an increased risk of failing future quantitative goodwill impairment tests as the estimated fair value of the MUAS reporting unit does not substantially exceed its carrying value.

Fair value determinations utilized in the quantitative goodwill impairment test require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.

Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding future plans, as well as industry, economic, and regulatory conditions.

These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors.

Estimated future annual net cash flows based in part upon the Company’s ability to obtain contracts from the U.S.

DoD and foreign allied nations and negotiate the estimated pricing are considered the most significant, sensitive assumptions.

Actual results can be materially different from the estimates and assumptions.

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.

If current expectations of future growth rates and margins are not met, if market factors outside of the Company’s control, such as discount rates, income tax rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to long-term operating plans, then 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.

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The Revolving Facility has a term of 5 years.

As of April 30, 2023 we had only letters of credit issued pursuant to the Revolving Facility, totaling $5.0 million.

As of April 30, 2024, the outstanding balance of the Term Loan Facilities was $28.0 million, and we had only letters of credit issued pursuant to the Revolving Facility, totaling $15.5 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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● increasing our vulnerability to adverse general economic and industry conditions;

● requiring us to dedicate a portion of our cash flows to the payment of interest and when applicable, principal, on our indebtedness and other obligations thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, execution of our business strategy, acquisitions and other general corporate purposes;

● requiring us to dedicate a portion of our cash flows to the payment of interest and when applicable, principal, on our indebtedness and other obligations thereby reducing the availability of our cash flow to fund working capital, capital expenditures, R&D efforts, execution of our business strategy, acquisitions and other general corporate purposes;

● limiting our flexibility in planning for, or reacting to, changes in the economy, the defense industry, and the markets in which we operate;

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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.

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.

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.

Any of the foregoing limitations or events could materially and adversely affect our financial condition and results of operations.

Risks associated with environmental, social and governance matters (“ESG”), including especially climate change and other environmental impacts, could negatively affect our business and operations.

Environmental, social and governance matters significantly impact our business and operations and present evolving risks and challenges.

Risks associated with environmental, social and governance matters (“ESG”), including climate change specifically and other environmental impacts, could negatively affect our business and operations.

ESG matters significantly impact our business and operations and present evolving risks and challenges.

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.

The majority of our R&D and manufacturing operations are located in California in regions known for seismic activity and wildfires.

Climate related changes can increase the frequency and severity of significant weather events and natural disasters.

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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.

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.

Although our operations have mostly continued uninterrupted during the COVID-19 outbreak, adoption of work from home protocols, social distancing measures in the workplace, international travel restrictions, vaccine mandates and other responsive actions have required certain changes to our operations.

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.

We face various risks related to pandemics and similar public health crises, such as the recent COVID-19 coronavirus pandemic, which may adversely impact our business.

Global pandemics and similar public health crises, such as the recent COVID-19 coronavirus pandemic.

Although our operations mostly continued uninterrupted during the COVID-19 pandemic, we cannot predict the effect of future public health crises on our business and operations.

Pandemics and other public health crises can require the adoption of work from home protocols, social distancing measures in the workplace, international travel restrictions, vaccine mandates and other responsive actions and other changes to our operations.

Public health crisis may result in 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.

We self-insure a portion of our health insurance program, which may expose us to unexpected costs and negatively affect our results of operations .

We are self-insured for the majority of our employee medical claims, subject to individual and aggregate stop loss insurance policies.

We estimate a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by us.

We estimate liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by us.

However, unanticipated changes in assumptions and management estimates underlying our recorded liabilities for medical claims could result in materially different amounts of expense than expected under our health insurance program, which could have an adverse material impact on our financial condition and results of operations.

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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.

An economic or credit crisis could also impact our ability to raise capital when needed.

An economic or credit crisis could also have an impact on 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 loss of our small business classification could have a material adverse effect on our financial position and/or results of operations.

Additionally, if we are no longer eligible for the small business exemption from compliance with the full range of Cost Accounting Standards (“CAS”), we would be required to demonstrate compliance with such standards upon the award of a contract subject to the full range of CAS, which will impose additional administrative costs on our business, and may significantly affect the manner in which we conduct our business with our customers and adversely affect our results of operations.

Additionally, in accordance with 48 CFR § 9903.201-1(b), Cost Accounting Standards (“CAS”) Applicability, if we are no longer eligible for the small business exemption and we receive a CAS triggering contract of more than $7.5 million, we will be subject to the requirements of modified CAS.

If net CAS-covered awards received in the prior year exceed $50 million or we receive a single CAS-covered contract of $50 million or more in the current year, we will be subject to full CAS requirements.

We would be required to demonstrate compliance with such standards upon the award of a contract subject to the full range of CAS, which will impose additional administrative costs on our business, and may significantly affect the manner in which we conduct our business with our customers and adversely affect our results of operations.

We are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business.

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● controls to protect U.S.

Government controlled unclassified information and that our suppliers that have access to this type of information comply with cyber security regulations;

Government controlled unclassified information (“CUI”), which our suppliers have access to in order to comply with cyber security regulations;

● 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.

● laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes or determined to be CUI and the exportation of certain products and technical data.

Also, we need special security clearances and regulatory approvals to continue working on certain of our projects with the U.S.

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We also must implement controls to protect U.S.

government controlled unclassified information (CUI).

Failing to implement such controls to protect CUI could jeopardize our ability to continue receiving U.S.

government CUI.

Failure to implement such controls to protect CUI could jeopardize our ability to continue receiving U.S.

government contracts.

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government generally, any of which could harm our business, financial condition and results of operations.

We are also subject to certain regulations of comparable government agencies in other countries, and our failure to comply with these non-U.S.

We are also subject to certain regulations of comparable government

agencies in other countries, and our failure to comply with these non-U.S.

regulations could also harm our business, financial condition or results of operations.

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Any costs found to be improperly allocated to a specific cost reimbursement contract will not be reimbursed, while such costs already reimbursed must be refunded.

If an audit or investigation of our business were to uncover improper or illegal activities, then we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, suspension of payments, fines and suspension or debarment from doing business with the U.S.

If an audit or investigation of our business were to uncover improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, suspension of payments, fines and suspension or debarment from doing business with the U.S.

We could experience serious harm to our reputation if allegations of impropriety or illegal acts were made against us, even if the allegations were inaccurate.

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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.

The purchasing systems was reviewed and approved again in March 2022.

The purchasing systems was most recently 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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Moreover, several of our contracts with the U.S.

government do not contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental

damages and consequential damages.

government do not contain a limitation of liability provision, creating a risk of responsibility for indirect, incidental damages and consequential damages.

These provisions could cause substantial liability for us, especially given the use to which our products may be put.

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.

Furthermore, we may operate from time to time under UCAs or UCOs, under which we may begin performance at the direction of the U.S.

government prior to completing contract negotiations regarding pricing, specifications and other terms.

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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.

Our or our agents’ failure to comply with these regulations and

requirements under certain circumstances could lead to suspension or debarment from U.S.

Our or our agents’ failure to comply with these regulations and 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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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.

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 uncrewed aircraft system complies with appropriate cloud and terrain clearances and that the operator or spotter of the small uncrewed aircraft system is generally within one half-mile laterally and 400 feet vertically of the small uncrewed aircraft system while in operation.

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.

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National Airspace System pursuant to the act (the “Part 107 Rules”).

The Part 107 Rules, which became effective in August 2016, provided safety regulations for SUAS 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.

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.

The Part 107 Rules, which became effective in August 2016, provided safety regulations for SUAS 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.

Additionally, in December 2019, the FAA proposed rules regarding remote UAS identification, which final rule became effective on September 16, 2023.

In April 2021, the final rule for operation of SUAS over people went into effect, which permits routine operations of small, uncrewed aircraft over people, moving vehicles, and at night under certain conditions.

The FAA has also introduced proposed rules for a new policy regarding the airworthiness certification of a newly created special class of UAS, which rules are not yet in effect.

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.

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.

We cannot assure you that the Part 107 Rules, or any final rules enacted in furtherance on the FAA’s 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.

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To the extent we are not able to obtain facility security clearances or engage employees with the required security clearances for a particular contract, we may not be able to bid on or win new contracts, or effectively rebid on expiring contracts.

As a manufacturer of commercial UAS, we are subject to various government regulations and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm our business.

As a manufacturer of consumer products, we are subject to significant government regulations, including, in the United States, those issued under the Consumer Products Safety Act, as well as those issued under product safety and consumer protection statutes in our international markets.

Failure to comply with any applicable product safety or consumer protection regulation could result in sanctions that could have a negative impact on our business, financial condition and results of operations.

Governments and regulatory agencies in the markets where we manufacture and sell products may enact additional regulations relating to product safety and consumer protection in the future and may also increase the penalties for failure to comply with product safety and consumer protection regulations.

In addition, one or more of our customers might require changes in our products, such as the non-use of certain materials, in the future.

Complying with any such additional regulations or requirements could impose increased costs on our business.

Similarly, increased penalties for non-compliance could subject us to greater expenses in the event any of our products were found to not comply with such regulations.

Such increased costs or penalties could harm our business.

We could be the subject of future product liability suits or product recalls, which could harm our business.

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The costs associated with any future product recalls could be significant.

In addition, any product recall, regardless of direct costs of the recall, may harm consumer perceptions of our products and have a negative impact on our future revenues and results of operations.

In addition, any product recall, regardless of the direct costs of the recall, may harm consumer perceptions of our products and have a negative impact on our future revenues and results of operations.

In addition to government regulation, products that have been or may be developed by us may expose us to potential liability from personal injury or property damage claims by the users of such products.

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Additionally, we expect that existing laws, regulations and standards may be interpreted differently in the future.

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.

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.

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.

data protection requirements, provides an enforcement authority, and imposes large penalties for noncompliance, including for the transfer of personal data between the Company and our 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.

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.

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.

Additionally, our subcontractors, and certain of our vendors, may also need to comply with CMMC requirements and, potentially obtain CMMC certification.

We may be negatively impacted if our subcontractors or vendors are not compliant with CMMC requirements.

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.

Our business operations are subject to the evolving requirements of the U.S.

DoD Cybersecurity Maturity Model Certification (CMMC) program.

CMMC mandates third-party assessments for companies working with the U.S.

DoD, verifying their adherence to specific cybersecurity standards.

These certifications are essential for eligibility in new contract awards.

We have achieved CMMC Level 2 certification, demonstrating our commitment to cybersecurity best practices.

However, we are actively preparing to meet the more stringent requirements of CMMC Level 3.

There's a potential risk of not achieving Level 3 certification before upcoming contract awards or failing to attain the level required for a specific contract.

This scenario could restrict us from bidding on those contracts, including follow-on awards for existing U.S.

Such limitations could negatively impact our revenue, profitability, and cash flow.

Furthermore, compliance with CMMC may extend to our subcontractors and certain vendors, potentially requiring their certification as well.

Their non-compliance could also pose challenges for our business.

The associated costs of CMMC compliance are significant and may increase in the future, potentially affecting our operating results.

Although we endeavor 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.

As such, we cannot assure ongoing compliance with all such laws or regulations, industry standards, contractual obligations and other legal obligations, and our efforts to do so may cause us to incur significant costs or require changes to our business practices, which could adversely affect our business and operating results.

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Furthermore, certain environmental laws, including the U.S.

Comprehensive, Environmental Response, Compensation and Liability Act of 1980, impose strict, joint and several liability on current and previous owners or operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources.

Comprehensive, Environmental Response, Compensation and Liability Act of 1980, impose strict, joint and several liability on current and previous owners or

operators of real property for the cost of removal or remediation of hazardous substances and impose liability for damages to natural resources.

These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances.

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Additionally, our suppliers may also face similar increased costs, which could result in them increasing the costs of components for our products and development programs.

Changes to government procurement laws, including proposed changes to the Federal Acquisition Regulations, designed to require climate risk and GHG emissions to be taken into account in the procurement process could result in increased costs to change our operations and manufacturing processes to ensure we remain competitive in the bidding process.

Changes to government procurement laws, including changes to the Federal Acquisition Regulations, designed to require climate risk and GHG emissions to be taken into account in the procurement process could result in increased costs to change our operations and manufacturing processes to ensure we remain competitive in the bidding process.

We cannot predict the materiality of any potential additional costs associated with complying with such laws and regulations or whether we could raise prices to account for any such additional costs.

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Moreover, existing U.S.

legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and our rights may be challenged by third parties.

standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and our rights may be challenged by third parties.

The laws of countries other than the United States may be even less protective of our intellectual property rights.

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Moreover, many of our employees have access to our trade secrets and other intellectual property.

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.

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.

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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or obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our affected product.

An adverse determination also could prevent us from offering our products to others.

An adverse determination could prevent us from offering our products to others.

Infringement claims asserted against us may have a material adverse effect on our business, results of operations or financial condition.

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Internal control over financial reporting is not intended to impart absolute assurance that the Company can prevent or detect misstatements of its financial statement or fraud due to its inherent limitations.

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.

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.

Management identified deficiencies related to inadequate design and operation of certain controls at certain newly acquired businesses.

Specifically, management did not effectively select and develop certain information technology (“IT”) general controls related to access and change management controls that led to deficiencies in the design and operation of control activities, including segregation of duties.

The Company also had deficiencies in the design and operation of account reconciliations at certain newly acquired businesses.

These deficiencies and a lack of sufficient resources contributed to the potential for there to have been material errors related to certain newly acquired businesses in the Company’s financial statements.

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.

Additional information about the nature of these material weaknesses and how they were remediated is provided in Item 9A.- “Controls and Procedures.”

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.

The failure to maintain an effective system of internal control over financial reporting could limit our ability to report its financial results accurately and in a timely manner or to detect and prevent fraud, which could cause a loss of investor confidence in our reporting, depress our stock price, adversely limit our liquidity and access to the capital markets and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements.

The failure to maintain an effective system of internal control over financial reporting could limit our ability to report financial results accurately and in a timely manner or to detect and prevent fraud, which could cause a loss of investor confidence in our reporting, depress our stock price, adversely limit our liquidity and access to the capital markets and we may be unable to maintain compliance with applicable stock exchange listing requirements and debt covenant requirements.

We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

We have not declared any cash dividends since becoming a public company and currently intend to retain all earnings to finance the operation and expansion of our business.

Therefore, we do not anticipate that we will pay any cash dividends on shares of our common stock in the foreseeable future.

We also do not expect to buy back any of our common stock for the foreseeable future.

In addition, our ability to pay dividends and buy back shares of our common stock is restricted by the Credit Agreement.

Any determination to pay dividends or stock buybacks in the future will be at the discretion of our board of directors and will be dependent upon our future financial condition, results of operations, capital requirements, legal restrictions, general business conditions and other relevant factors as determined by our board of directors.

See the section herein titled, “Dividend Policy.”

Delaware law and anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium .

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Although historically our operations have not been materially affected by inflation and we have been successful in adjusting prices to our customers to reflect changes in our material and labor costs, the rate of current inflation and resulting pressures on our costs and pricing could adversely impact our business and financial results.

Inflation can adversely affect us by increasing our operating costs, including our materials, freight and labor costs, which are already under pressure due to supply chain constraints and the continuing effects of the COVID-19 pandemic.

Inflation can adversely affect us by increasing our operating costs, including our materials, freight and labor costs, which are already under pressure due to supply chain constraints.

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;

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.

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.

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.

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What changed 10-K

Item 1A. Risk Factors