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Item 1A. Risk Factors

2025-06-25 compared with 2024-06-27 · 350 added, 232 removed, 634 unchanged (48% of the section changed)

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You should carefully consider such risks and uncertainties, together with the other information contained in this report and in our other public filings before investing in our common stock.

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.

If any such risks and uncertainties actually occur, 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.

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● 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.

● 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.

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

● If the markets for our products do not grow as expected, 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.

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

● There are difficult issues to navigate in the development and use of AI, which may result in reputational harm or liability, and failure to introduce new and innovative products that have AI capabilities could put us at a competitive disadvantage.

● 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.

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● Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which could adversely affect our financial results.

● 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.

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

● 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.

● Our employees or others acting on our behalf may engage in misconduct or other improper activities, which could cause us to lose contracts or cause us to incur costs.

● Our work for the U.S.

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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.

● Our substantial borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility.

Risks Related to Our U.S.

Government Contracts

● We are presently classified as a small business defense contractor and the loss of our small business status may adversely affect our ability to compete for small business set aside US government contracts.

● As of April 30, 2025, we were classified as a small business defense contractor.

The loss of our small business status may adversely affect our ability to compete for small business set aside US government contracts.

● 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.

● Our business could be adversely affected by a negative audit or investigation by the U.S.

● If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected.

● Some of our contracts with the U.S.

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In addition, failure to comply with export laws could result in fines, export restrictions and other sanctions and penalties.

● Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS and MUAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS and MUAS to non-military customers in the United States.

● Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as our ability to obtain security clearances for the facilities in which we perform sensitive government work.

● We may become subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

● Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS, MUAS and C-UAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS, MUAS and C-UAS to non-military customers in the United States.

● 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.

● Our business is subject to federal, state and international laws regarding data protection, privacy, and information security, as well as confidentiality obligations under various agreements, and our actual or perceived failure to comply with such obligations could damage our reputation, expose us to litigation risk and adversely affect our business and operating results.

perceived failure to comply with such obligations could damage our reputation, expose us to litigation risk and adversely affect our business and operating results.

Risks Related to Our Intellectual Property

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Risks Related to Securities Markets and Investment in Our Stock

● Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.

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

● The price of our common stock may fluctuate significantly.

● Our largest stockholder may have the ability to significantly influence all matters submitted to stockholders for approval.

● The market price of our common stock may decline because of our acquisition activity.

● We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

● Prior to our acquisition of BlueHalo, BlueHalo was not a U.S.

public reporting company.

The obligations associated with integrating into a public company, including to remediate BlueHalo’s material weaknesses in internal control over financial reporting, may require significant resources and management attention.

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

Risks Related to Our Business and Industry

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government customer, accounted for approximately 35% of our revenue for the fiscal year ended April 30, 2025.

With the acquisition of BlueHalo, we expect the proportion of total revenue attributable to sales to the U.S.

DoD and other U.S.

government agencies to increase in fiscal year 2026.

We believe that the success and growth of our business for the foreseeable future will continue to depend to a significant degree on our ability to win government contracts, in particular from the DoD.

Many of our government customers are subject to budgetary constraints and our continued performance under these contracts, or award of additional contracts from these agencies, could be jeopardized by spending reductions or budget cutbacks at these agencies.

The funding of U.S.

government programs is uncertain and dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process.

Recently, the reduction of government spending has been a primary focus of the federal government.

In January 2025, President Trump announced an executive order establishing the Department of Government Efficiency (“DOGE”) to maximize government efficiency and productivity.

In February 2025, President Trump stated that he has directed DOGE to review Pentagon spending for potential waste and fraud.

As a result of these recent developments and other factors, the funding of U.S.

government programs is uncertain.

We are dependent on continued congressional appropriations and administrative allotment of funds based on an annual budgeting process.

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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government are terminable by the U.S.

government at will.

A significant decline in government expenditures generally, or with respect to programs for which we provide products and/or services, could adversely affect our business and prospects.

government at will, and the increasing government spending reviews may result in revocation of previously awarded contracts.

A significant decline in government expenditures generally, or with respect to programs for which we provide products and/or

services, could adversely affect our business and prospects.

Our operating results may also be negatively impacted by other developments that affect these government programs generally, including the following:

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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 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.

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

Because we generate a significant portion of our total sales from the U.S.

government and its agencies and from foreign governments, our results of operations could be adversely affected by government spending caps, delays in the government budget process, program starts, the award of contracts or orders under existing contracts, or delays in release of funds by the federal government.

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.

Our business may be adversely impacted due to shifts in the political environment and resulting changes in the government and agency leadership positions and priorities for funding.

We cannot assure you that current levels of congressional funding for our products and services will continue and that our business will not decline, or that such funding will be accessible consistent with previously realized timelines due to federal budgetary review activities and potential freezes on or cancellation of various governmental programs from time to time.

If annual budget appropriations or continuing resolutions are not enacted timely, we could face U.S.

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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 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.

government, such as the establishment of DOGE and the related probes into and reductions in government spending, policy changes regarding prior military commitments by the second Trump administration, including those regarding ongoing conflicts, including between Russia and Ukraine, Israel and Hamas, Israel and Iran, or an impasse on policy issues between the executive branch and Congress, 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 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.

We previously received a stop work order, which was lifted shortly after issuance, on certain existing U.S.

government contracts previously awarded to us for foreign military sales funded by the U.S.

government via foreign military financing because of shifting foreign military aid priorities.

We may continue to receive future stop work orders and/or contract cancellations for other existing U.S.

government contracts due to shifting foreign military aid priorities, including due to the recently announced pause on U.S.

military assistance to Ukraine, and we cannot project the aggregate negative impact on our results of operations due to any future stop work orders and/or contract cancellations.

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

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 products, for existing, additional or replacement programs.

While strategically, we have diversified our portfolio in an effort to mitigate the susceptibility of our business to reductions in overseas operational levels, we cannot be certain that such actions have mitigated the risk of our business to such reductions.

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 solutions are sold in new and rapidly evolving markets.

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

One of our key strategies is to invest in R&D to drive innovation and spur growth.

Our innovative solutions are often sold in new and rapidly evolving markets.

Accordingly, our business and future prospects may be difficult to evaluate.

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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● adapt to new or changing policies and spending priorities of governments and government agencies;

● access additional capital when required and on reasonable terms.

● access additional capital when required and on reasonable terms, including capital to refinance our substantial indebtedness.

If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.

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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, 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.

Our current principal competitors in the UAS market include Elbit Systems Ltd., Quantum-Systems, Inc., Edge Autonomy, Teledyne Technologies, Inc., Sierra Nevada Corporation, Lockheed Martin Corporation, The Boeing Company, Textron, Inc., Shield AI, Inc., Northrop Grumman Corporation, Griffon Aerospace, Inc., L3Harris Technologies, Inc.

and Israeli Aircraft Industries.

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 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, 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.

Some of these firms have substantially greater financial, management, research and marketing resources than we have.

Our UAS services business also faces competition from smaller businesses that can provide training and logistics services for multiple UAS platforms, including our SUAS and MUAS.

The defense and technology markets for the C-UAS and Precision Strike products and solutions are highly competitive, evolving with rapid technological advancements and shifting customer needs.

Competitors in the LMS market include Textron Inc., RTX Corporation, Lockheed Martin Corporation, Anduril Industries, Inc., Aevex Holdings, LLC and UVision Air Ltd.

Competitors in the C-UAS and Electronic Warfare markets include Anduril Industries, Inc., The Boeing Company, Lockheed Martin Corporation, RTX Corporation and other emerging technology firms and international players.

The space technology and directed energy market includes competitors such as The Boeing Company, Lockheed Martin Corporation, L3Harris Technologies, Inc., BAE Systems, Inc., and RTX Corporation.

These companies have extensive experience and resources, offering satellite systems and spacecraft engineering solutions that compete with our offerings.

The cyber and mission systems areas are highly competitive, with principal competitors including L3Harris Technologies, Inc., Thales Group, Anduril Industries, Inc, and Sierra Nevada Corporation.

We also face competition from specialized cybersecurity firms.

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 use their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales 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 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.

Foreign competitors may also be able to offer more cost-competitive solutions as compared to our products and services.

The markets our 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 need 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.

In addition, larger diversified competitors serving as prime contractors may be able to supply underlying products and services from affiliated entities, which would prevent us from competing for subcontracting opportunities on these contracts.

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 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.

If the markets for our products do not grow as expected, 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.

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 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:

Despite expanding our customer base to include international clients and non-military domestic agencies and making initial export breakthroughs, sustained increases in sales to international customers are not guaranteed.

Historically, a large portion of our and BlueHalo’s revenue has been with the U.S.

An increase of international sales of our product and services may not occur as anticipated.

The expansion of the markets for our products in general, and the market for our products and services in particular, depends on several 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 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 uncrewed systems, access to airspace and wireless spectrum;

● restrictions on our ability to market our products and services internationally due to U.S.

government laws and regulations;

● securing necessary regulatory approvals, including access to airspace and wireless spectrum for our uncrewed systems;

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

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.

Our international business poses potentially greater risks than our domestic business.

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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”);

however, we expect the proportion of our total revenue attributable to international sales will decrease in fiscal year 2026 due to BlueHalo’s lower mix of international sales.

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

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● regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions, sell certain products and services or repatriate profits to the United States;

● the complexity and necessity of using foreign representatives and consultants, and delays in and difficulty of validating foreign representatives and brokers;

● the complexity and necessity of using foreign representatives and consultants, and delays in and difficulty of validating foreign representatives and consultants;

● the complexities of operating a business in an international location through a subsidiary or joint venture structure that may include foreign business partners, subcontractors and suppliers;

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● potential preferences by prospective customers to purchase from local (non-U.S.) sources;

● general economic and political conditions in the markets in which we operate;

● general economic and political conditions in the geographic markets in which we operate;

● laws or regulations relating to non-U.S.

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● different and changing legal and regulatory requirements, including those pertaining to anti-corruption, anti-boycott, data protection and privacy, employment law, intellectual property, contracts and tax in the jurisdictions in which we currently operate or may operate in the future.

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, destabilization of performance, difficulty in collecting receivables and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations.

While we have adopted policies and procedures to facilitate compliance with laws and regulations applicable to our international operations and sales, our failure, or the failure by our employees or others working on our behalf, to comply with such laws and regulations may result in administrative, civil or criminal liabilities, including fines, suspension or debarment from government contracts or suspension of our export privileges.

Negative developments in any of these areas in one or more countries in which we operate could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, destabilization of performance, difficulty in collecting receivables and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations.

While we have adopted policies and procedures to facilitate compliance with laws and regulations applicable to our international operations and sales,

our failure, or the failure by our employees or others working on our behalf, to comply with such laws and regulations may result in administrative, civil or criminal liabilities, including fines, suspension or debarment from government contracts or suspension of our export privileges.

Moreover, our sales, including sales to customers outside the United States, substantially all are denominated in U.S.

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If we are unable to manage the increasing complexity of our business, or achieve or manage our expected growth, our business could be adversely affected.

The complexity of our business has increased significantly over the last several years.

We have expanded the number of product lines being pursued, shifting from primarily a U.S.

government focused business to a business that includes substantial international product sales, added commercial services, accelerated development on HAPS UAS and engaged in numerous acquisitions further expanding our operations domestically and abroad.

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.

The complexity of our business has increased significantly over the last several years, most recently with the closing of our acquisition of BlueHalo in May 2025.

We have increased the number of product lines being pursued, expanded international product sales and added commercial services and engaged in numerous acquisitions further expanding our operations domestically and abroad.

Further, we have entered into certain credit facilities that include affirmative and negative covenants and place some restrictions on how we operate our business.

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

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Our success will depend in part upon the ability of our senior management to manage our increased complexity and expected growth effectively.

To do so, we must continue to hire, train, manage and integrate a significant number of qualified managers and engineers.

To do so, we must continue to hire, train, manage and integrate a significant number of qualified managers and engineers, as well as an adequate support structure.

If our new employees perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or retaining these or our existing employees, then our business may experience declines.

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If we are unable to manage our growth while maintaining our quality of service, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, then our business, prospects, financial condition or operating results could be adversely affected.

Our business relationships, including those of BlueHalo, may be subject to disruption due to uncertainty associated with the post-acquisition integration, which could have a material adverse effect on our results of operations, cash flows and financial position.

Parties with which we do business and with which BlueHalo did business prior to the acquisition may experience uncertainty associated with the acquisition integration, including with respect to current or future business relationships with the combined company.

Our and BlueHalo’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than us.

These disruptions could have a material and adverse effect on our results of operations, cash flows and financial position, as well as a material and adverse effect on our ability to realize the expected cost savings and other benefits of the acquisition.

Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively impact our operating results.

military represents our largest source of revenue.

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.

We have, however, expanded our product sales into new market segments, such as the AI-enabled common control system from our 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.

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.

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

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

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.

The length and severity of the 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 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.

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.

There are difficult issues to navigate in the development and use of AI, which may result in reputational harm or liability, and failure to introduce new and innovative products that have AI capabilities could put us at a competitive disadvantage.

We currently incorporate machine learning and AI capabilities into certain of our products and solutions and may seek to expand the use of AI in our offerings in the future.

As with many innovations, AI presents risks, challenges, and unintended consequences that could affect our business.

AI algorithms and training methodologies may be flawed.

These deficiencies and other failures of AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm.

Further, incorporating AI could give rise to litigation risk and risk of non-compliance and unknown cost of compliance, as AI is an emerging technology for which the legal and regulatory landscape is not fully developed (including potential liability for breaching intellectual property or privacy rights or laws).

While new AI initiatives, laws, and regulations are emerging and evolving, what they ultimately will look like remains uncertain, and our obligation to comply with them could entail significant costs, negatively affect our business, or entirely limit our ability to incorporate certain AI capabilities into our offerings.

Additionally, leveraging AI capabilities to potentially improve internal functions and operations presents further risks and challenges.

The use of AI to support business operations carries inherent risks related to data privacy and security, such as intended, unintended, or inadvertent transmission of proprietary, sensitive or export-controlled information, as well as challenges related to implementing and maintaining AI tools.

Additionally, our competitors might move faster than us to gain efficiencies by incorporating AI into their design and development processes, and our products and/or cost structure could become less competitive as a result.

The rapid evolution of AI will require the application of resources by us to develop, test and maintain our products, services and operations to help ensure that AI is implemented ethically in order to minimize unintended, harmful impact.

Our competitors may be faster or more successful than we are in incorporating AI and other disruptive technology into their offerings, which would impair our ability to compete successfully.

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.

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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.

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.

Our products rely on complex avionics, sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions.

Despite testing, our products have contained defects and errors and may in the future contain defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers for a period of time.

Our products rely on complex avionics, space qualified electronics, RF-based systems, digital phased array antennas and radars, sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions.

Despite extensive testing, our products have contained defects and errors and may in the future contain defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers for a period of time.

These problems could result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, damaged customer relationships and harm to our reputation, any of which could materially harm our results of operations and ability to achieve market acceptance.

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A defect, error or failure in one of our products could result in injury, death or property damage and significantly damage our reputation and support for our products in general.

We anticipate this risk will grow as our products begin to be used in U.S.

We anticipate this risk will grow as our UAS products begin to be used in U.S.

domestic airspace and urban areas.

Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all.

Although we maintain insurance policies, we cannot be certain that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all.

A successful product liability claim could result in substantial cost to us.

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If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business.

Our ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers.

We obtain certain of our hardware components, various subsystems and systems from a limited group of suppliers, some of which are sole source suppliers.

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 ability to meet customers’ demands depends, in part, on our ability to obtain timely and adequate delivery of high quality materials, components and subsystems, many of which are obtained from a select group of specialized suppliers, including some sole-source providers.

In order to mitigate potential disruptions, we maintain long-term, non-binding agreements with several key suppliers that help stabilize pricing, reduce lead times and enhance planning accuracy.

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 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.

Locating alternative sources may take significant time, and even then, we may 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.

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

Our domestic suppliers have experienced increased demand for their products due to tariffs, which could impact the availability or price of our components.

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.

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 risks of price increases and periodic delays in delivery.

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.

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

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.

Our products, including motors, batteries, and other advanced components, rely on rare earth metals for their manufacturing, of which a significant majority are sourced from China.

Any disruption in the supply of these metals could adversely affect our ability to produce and deliver our products.

Factors that might lead to such disruptions include geopolitical tensions, trade restrictions, supply chain bottlenecks, and environmental regulations affecting mining operations.

A limited supply or increased cost of rare earth metals could lead to higher production costs, delays in manufacturing schedules, and potential inability to meet customer demand, thereby impacting our revenue and growth plans.

Managing these risks necessitates close monitoring of supply chains, diversification of suppliers, and the pursuit of alternative materials or technologies where possible.

Escalating restrictions between the U.S.

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Government to Taiwan.

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

Additionally, in March 2025, China’s Ministry of Commerce placed AeroVironment on China’s export control list.

While we have not experienced, and do not expect to experience, a material negative impact on our business as a result of the announced sanctions and export restrictions, we cannot be certain that a material negative effect will not occur in the future as a result of these sanctions and restrictions or future sanctions or restrictions that may be imposed.

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.

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The relevant tax rules and regulations are complex, often changing and, in some cases, are interdependent.

If these or other tax rules and regulations should change, the company’s earnings and cash flows could be negatively impacted.

In particular, the changes proposed by the U.S.

administration, including increasing the U.S.

corporate income tax rate from 21% to 28%, doubling the rate of tax on certain earnings of non-U.S.

subsidiaries and the imposition of a 15% minimum tax on worldwide book income, could materially negatively affect the company’s financial results if enacted.

The company’s worldwide provision for income taxes is determined, in part, through the use of significant estimates and judgments.

If these or other tax rules and regulations should change, our earnings and cash flows could be negatively impacted.

Our worldwide provision for income taxes is determined, in part, through the use of significant estimates and judgments.

Numerous transactions arise in the ordinary course of business where the ultimate tax determination is uncertain.

The company undergoes tax examinations by tax authorities on a regular basis.

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.

We undergo tax examinations by tax authorities on a regular basis.

While we believe our estimates of our 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 our historical financial statements.

Also due to the 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.

The One Big Beautiful Bill Act features several tax reforms including suspending the capitalization and amortization of domestic R&D expenditures for amounts paid or incurred in tax years beginning after December 31, 2024, and before January 1, 2030.

Changes in trade policies, including the recently-announced tariff regime, could cause adverse impacts to our business.

In the first half of 2025, we observed a significant shift in U.S.

trade policy, with increased tariffs and the imposition of significant new tariffs that could have an adverse impact our supply chain and business operation.

While certain of the recently announced tariffs have been paused, whether and to what degree they may be reinstated is uncertain at this time and may have implications for our supplier and our business.

Changes in trade policies, such as new tariffs or increases in tariffs, or reactionary measures including retaliatory tariffs, legal challenges, or currency manipulation, could adversely impact us.

We rely on imported materials, components, or finished goods, and if tariffs increase, our supply chain costs may rise, adversely affecting our business, results of operations and cash flows.

We also manufacture internationally through Telerob, and if we are not granted exemptions from tariffs due to the nature of our business and customers, we could see greater impacts than we currently expect.

Additionally, retaliatory measures, or prolonged uncertainty in trade relationships could result in supply chain disruptions, delayed shipments, or increased operational complexity, which could also adversely affect our business, results of operations and cash flows.

While we intend to take steps to mitigate any impacts of tariffs or other impacts resulting from changes in trade policy, our ability to do so may be limited by operational and supply chain constraints, especially in the short term.

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

In general, we perform our production work under fixed-price contracts and our repair and customer-funded R&D work under cost-plus-fee contracts.

Under fixed-price contracts, we perform services under a contract at a stipulated price.

In general, we perform our work under fixed-price contracts and cost-plus-fee contracts.

Under fixed-price contracts, we deliver products or perform services under a contract at a stipulated price.

Under cost-plus-fee contracts, which are subject to a contract ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based.

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

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 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.

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Fixed-price contracts (including both government and commercial contracts) represented approximately 91% of our revenue for the fiscal year ended April 30, 2025.

With the acquisition of BlueHalo, we expect the proportion of fixed-price contracts to decrease in fiscal year 2026.

If we fail to anticipate technical problems, estimate costs accurately or control costs during our performance of fixed-price contracts, then we may incur losses on these contracts because we absorb any costs in excess of the fixed price.

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We do not have employment agreements with any of our executive officers or key employees, and these individuals could terminate their employment with us at any time.

We have had some departures in fiscal years 2023 and 2022 from our senior management team, which has resulted in remaining members bearing additional responsibilities as we seek to recruit additional leadership talent.

The loss of any of our continuing executive officers, members of our senior management team or key employees could significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships and impair our ability to identify and secure new contracts and otherwise manage our business.

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

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

Our ability to recruit and retain 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.

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In the event we are unable to provide these key personnel or acceptable substitutes, the customer may terminate the contract.

Certain of our programs also require staffing by employees who hold high-level security clearances, the market for which is extremely competitive and not limited to the aerospace & defense industry.

We have experienced shortages of skilled employees that has negatively affected our progress on development programs and our results of operations.

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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 growth depends on increasing manufacturing capacity of our products, 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) our 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 clients and markets could have a material adverse effect on our business, financial condition, results of operations and prospects.

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.

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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 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.

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

Due to the long-lead time for obtaining certain 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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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.

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.

Urban environments may present certain challenges to the operators of UAS.

UAS may accidentally collide with other aircraft, persons or property, which could result in injury, death or property damage and significantly damage the reputation of and support for UAS in general.

As the usage of UAS has increased, particularly by military customers, the danger of such collisions has increased.

Furthermore, the incorporation of our DDL technology into our SUAS has increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an increase in the risk of accidental collision.

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

Urban environments may present certain challenges to the operators of UAS and C-UAS.

C-UAS may cause and UAS may accidentally collide with other aircraft, persons or property, which could result in injury, death or property damage and significantly damage the reputation of and support for UAS and C-UAS in general.

As the usage of UAS and C-UAS has increased, particularly by military customers, the danger of such collisions has increased.

Furthermore, the incorporation of our Digital Data Link (“DDL”) technology into our SUAS has increased the number of vehicles which can operate simultaneously in a given area and with this increase has come an increase in the risk of accidental collision.

In addition, obstructions to effective transmissions in urban environments, such as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose.

The risks or limitations of operating UAS in urban environments may limit their value in such environments, which may limit demand for our UAS and consequently materially harm our business and operating results.

The risks or limitations of operating UAS and C-UAS in urban environments may limit their value in such environments, which may limit demand for our UAS and C-UAS and consequently materially harm our business and operating results.

Our quarterly operating results may vary widely.

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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.

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

government funding with other U.S.

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We face various security threats, including cyber security attacks on our information technology infrastructure, which may include attempts to gain access to our proprietary, financial, banking or classified information, disrupt use of our systems or otherwise compromise the integrity of our operations.

Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent physical or cyber access or system disruptions, including the unauthorized release of confidential technical, financial or banking information or corruption of data.

The threats we face vary from those common to most industries, to attacks by more advanced and persistent, highly organized adversaries, including nation state actors, which target us for the national security information in our possession, for our role in developing advanced technological systems or with the goal of committing fraudulent activity.

Our customers, suppliers and subcontractors are likewise targeted, and attack methods continue to evolve.

Some cyberattacks depend on human error or manipulation, including phishing attacks or schemes that use social engineering or AI to gain access to systems or carry out disbursement of funds or other frauds.

Developments in AI and machine learning provide threat actors with the capability to use more sophisticated means to attack our systems and may exacerbate cybersecurity risk.

Although we use multiple procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent physical or cyber access or system disruptions, including the unauthorized release of confidential technical, financial or banking information or corruption of data.

Accordingly, any significant operational delays, or any destruction, manipulation or improper use of our data, information systems or networks could adversely affect our financial results and damage our reputation with customers, suppliers and stockholders, and the reputation of our products and services.

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Previous cyber-attacks directed at us have not materially impacted our business or financial results, but the impact of future incidents cannot be predicted due to the constantly evolving nature and complexity of cyber-attacks.

If we or our partners are subject to data security breaches, whether cyber or due to a failure in physical security protocols, we may have a loss in existing sales and new business opportunities, increased costs arising from remediation of the breach and the restoration or implementation of additional security measures, be subject to regulatory investigations and litigation, including fines and penalties, and face increased insurance or audit requirements in our third-party contracts, any of which could materially and adversely affect our business and financial results.

If we or our partners are subject to data security breaches, whether cyber or due to a failure in physical security protocols, we may lose existing sales and new business opportunities, see increased costs arising from remediation of the breach and the restoration or implementation of additional security measures, be subject to regulatory investigations and litigation, including fines and penalties, and face increased insurance or audit requirements in our third-party contracts, any of which could materially and adversely affect our business and financial results.

Additionally, expenses resulting from cyber security attacks and other security risks may not be fully insured or otherwise mitigated, which could harm our financial results.

Our employees or others acting on our behalf may engage in misconduct or other improper activities, which could cause us to lose contracts or cause us to incur costs.

We are exposed to the risk that employee fraud or other misconduct from our employees or others acting on our behalf could occur.

Misconduct by employees or others could include intentional failures to comply with U.S.

government procurement regulations, engaging in unauthorized activities, insider threats to our cybersecurity, or falsifying time records.

Misconduct by our employees or others acting on our behalf could also involve the improper use of our customers’ sensitive or classified information, which could result in regulatory sanctions against us, serious harm to our reputation, a loss of contracts and a reduction in revenues, or cause us to incur costs to respond to any related governmental inquiries.

It is not always possible to deter misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could cause us to lose contracts or cause a reduction in revenues.

In addition, alleged or actual misconduct by employees or others acting on our behalf could result in investigations or prosecutions of persons engaged in the subject activities, which could result in unanticipated consequences or expenses and management distraction for us regardless of whether we are alleged to have any responsibility.

We may in the future experience such misconduct, despite our various compliance programs.

Misconduct or improper actions by our employees, agents, subcontractors, suppliers, business partners and/or joint ventures could subject us to administrative, civil or criminal investigations and enforcement actions;

monetary and non-monetary penalties;

and the loss of privileges and other sanctions, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.

Our work for the U.S.

government and international governments may expose us to increased security risks.

As a government contractor, given the enhanced sensitivity of the information we have access to and the nature of our products and services, we are at increased risk of being targeted for cyber and other security attacks, including threats to the physical security of our facilities and employees.

As a government contractor, given the enhanced sensitivity of the information to which we have access and the nature of our products and services, we are at increased risk of being targeted for cyber and other security attacks, including threats to the physical security of our facilities and employees.

In addition, we work in international locations where there are high security risks, which could result in harm to our employees, contractors, and remote assets, and substantial protection or recovery costs.

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Uncertainty about current and future global economic conditions may cause governments, including the U.S.

government, which is our largest customer, consumers and businesses to modify, defer or cancel purchases in response to tighter credit, decreased cash availability and declining consumer confidence.

government, which is our largest customer, other customers and businesses to modify, defer or cancel purchases in response to tighter credit, decreased cash availability and declining consumer confidence.

Accordingly, future demand for our products could differ materially from our current expectations.

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Some of our customers may require substantial financing in order to fund their operations and make purchases from us.

The inability of these customers to obtain sufficient credit to finance purchases of our products, or otherwise meet their payment obligations to us could adversely impact our financial condition and results of operations.

The inability of these customers to obtain sufficient credit to finance purchases of our products or services, or otherwise meet their payment obligations to us could adversely impact our financial condition and results of operations.

In addition, if a market downturn results in insolvencies for our customers, it could adversely impact our financial condition and results of operations.

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

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.

In May 2025, we closed our acquisition of BlueHalo, the most recent in a series of acquisitions beginning in February 2021, with the acquisition of Arcturus and the Intelligent Systems Group business segment (“ISG”).

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

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

(“Tomahawk”) in September 2023.

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● 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;

● maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the post-acquisition combined company;

● diversion of financial and management resources from existing operations;

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

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 U.S.

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.

For example, as part of our annual goodwill impairment test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025.

Due to the changes in estimates, we recorded a goodwill impairment charge of $18.4 million and accelerated amortization of certain UGV intangibles of $4.3 million for our fiscal year ended April 30, 2025.

During the fiscal year ended April 30, 2023, we recorded a MUAS

goodwill impairment charge of $156.0 million and accelerated amortization of certain MUAS intangibles of $34.1 million for the MUAS reporting unit.

The MUAS related charges resulted from decreases in expected cash flows associated with us 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.

In addition, if we finance acquisitions by issuing equity, or securities convertible into equity, such as the stock issued as consideration for the purchases of BlueHalo, 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.

If we finance acquisitions through debt, such as the credit facilities we entered into in connection with the consummation of our acquisition of Arcturus and subsequently amended with our acquisition of BlueHalo, 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.

It is possible that following an acquisition, the integration process could result in the loss of key employees, the loss of customers, the disruption of either or both of our and the acquired company’s ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues including the integration of IT systems, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

In addition, the actual integration may result in additional and unforeseen expenses.

If we are not able to adequately address integration challenges, we may be unable to successfully integrate operations, and the anticipated benefits of the acquisition may not be realized.

In addition, we must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth.

If we are not able to successfully achieve these objectives, the anticipated synergies and other benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected.

Additionally, we may inherit from acquired companies legal, regulatory, and other risks that occurred prior to the acquisition, whether known or unknown to us, which may be material.

Actual growth, cost and capital expenditure synergies and other cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated.

Moreover, at times the attention of the management and resources may be focused on the business integration and diverted from day-to-day business operations or other opportunities that may have been beneficial to us, which may disrupt our ongoing business.

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

The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

We have a significant amount of goodwill and intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects, such as the impairment recorded for the MUAS reporting unit.

At April 30, 2024, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $275.7 million and $72.2 million, respectively.

As of April 30, 2025, the carrying values of goodwill and identifiable intangible assets on our balance sheet were $256.8 million and $48.7 million, respectively.

With the acquisition of BlueHalo, the carrying values of goodwill and identifiable intangible assets will increase significantly in fiscal year 2026.

We perform our annual impairment tests during the fourth quarter of each fiscal year or when events or circumstances change in a manner that indicates an asset might be impaired.

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.

During our annual impairment test during the fiscal quarter ended April 30, 2025, we determined the carrying value of the UGV reporting unit exceeded its fair value due to a decrease in forecasted results of the UGV reporting unit resulting from reduced probability and delays of obtaining certain opportunities as well as an increase in forecast

expenditures to support operational decisions identified during the fiscal quarter ended April 30, 2025.

The changes in estimates resulted in the recognition of a goodwill impairment charge of $18.4 million in the UGV reporting unit and accelerated intangible amortization expenses of $4.3 million during the fiscal year ended April 30, 2025.

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

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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.

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.

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

During the annual impairment test during the fiscal quarter ended April 30, 2025, the MUAS reporting unit was no longer considered at an increased risk of failing future quantitative goodwill impairment tests due to an increase in the estimated fair value of the reporting unit from significant increases in forecasted results.

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.

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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.

Estimated future annual net cash flows based in part upon our 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 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.

On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement with certain lenders, letter of credit issuers, and others (as amended February 4, 2022 and June 6, 2023, the “Credit Agreement”), which, together with its associated Security and Pledge Agreement, sets forth the terms and conditions of a five-year $100 million revolving credit facility, which includes a $25 million sublimit for the issuance of standby and commercial letters of credit (the “Revolving Facility”), and a five-year amortized $200 million term A loan (the “Term Loan Facility”, and together with the Revolving Facility, the “Credit Facilities”).

Upon execution of the Credit Agreement, we drew down $200.0 million, the full principal amount of the Term Loan Facility, to partially finance the acquisition of Arcturus.

The Term Loan Facility, as amended, has a five-year term expiring in February 2026 and bears interest, at our option, either at a secured overnight financing rate (“SOFR”) or a base rate plus a fixed applicable margin dependent on our consolidated leverage ratio under the terms of the agreement.

We are required to pay 5.0% of the outstanding obligations under the Term Loan Facility in each of the first four loan years, with the remaining 80.0% payable in the fifth loan year, consisting of three quarterly payments of 1.25% each, with the remaining outstanding principal amount of the Term Loan Facility due and payable on the maturity date.

The Revolving Facility has a term of 5 years.

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.

If current expectations of future growth rates and margins are not met, if market factors outside of our 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.

Our substantial borrowings under our credit facilities could adversely affect our financial condition and restrict our operating flexibility.

On February 19, 2021, in connection with the consummation of the Arcturus acquisition, we entered into a credit agreement with certain lenders, letter of credit issuers, and others (as amended February 4, 2022, June 6, 2023, October 4, 2024 and May 1, 2025 the “Credit Agreement”), which, together with its associated Security and Pledge Agreement, provides for a $700.0 million term A loan (the “Term A Loan”) and provides for a revolving commitment in an aggregate principal amount of $350.0 million (the “Revolving Facility” and together with the Term A Loan, the “Credit Facilities”).

The Term A Loan matures on May 1, 2027, the two year anniversary of the closing of the BlueHalo acquisition, and amortizes at a rate of 5.00% per annum, with the remaining outstanding principal amount due and payable on the maturity date.

The applicable margin on the Term A Loan is based upon our Consolidated Leverage Ratio (as defined in the Credit Agreement) and whether we elect as its benchmark rate (i) SOFR (in which case, the applicable margin ranges from 1.50 - 2.50% per annum depending on our Consolidated Leverage Ratio) plus a credit spread adjustment of 0.10% or (ii) Base Rate (in which case, the applicable margin ranges from 0.50 - 1.50% per annum depending on our Consolidated Leverage Ratio).

Upon the occurrence of an event of default, an additional 2.00% per annum default interest rate may apply.

Mandatory prepayments of the Term A Loan are required in connection with (i) the disposition of certain assets to the extent not reinvested and (ii) the incurrence of non-permitted debt.

On the closing date of the BlueHalo acquisition, the Term A Loan was drawn in full for $700.0 million, and we borrowed approximately $225.0 million from our available Revolving Facility, the combined proceeds of which were used to repay certain outstanding indebtedness of BlueHalo upon the closing of the acquisition of BlueHalo and to pay for certain related transaction costs.

Following the BlueHalo acquisition, as of May 1, 2025, the total amount of borrowings outstanding under the Credit Facilities was $955.0 million.

In support of our obligations under the Credit Facilities, we have granted security interests in substantially all of our personal property and that of our domestic subsidiaries, including a pledge of the equity interests in our subsidiaries (limited to 65% of outstanding equity interests in the case of our foreign subsidiaries), subject to customary exclusions and exceptions.

In addition, our domestic subsidiaries, including Arcturus, are required to be guarantors of the Credit Facilities.

In addition, our domestic subsidiaries, including BlueHalo and Arcturus, are required to be guarantors of the Credit Facilities.

In addition, our increased level of indebtedness may have important consequences to us, including:

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To the extent we incur additional indebtedness, the risks described above could increase.

If we do not have sufficient funds to repay the Term Loan Facility when it becomes due in 2026, it may be necessary to refinance our debt through additional debt or equity financings.

If, at the time of any such refinancing, prevailing interest rates or other factors result in higher interest rates on such refinanced debt, such increases in our interest expense could have an adverse effect on our business, results of operations and financial condition.

If we do not have sufficient funds to repay the Term A Loan when it becomes due in 2027, it may be necessary to refinance our debt through additional debt or equity financings.

Any refinancing with new debt could be at higher interest rates and may require us to comply with more onerous covenants than the Credit Agreement, which could further restrict our business operations.

Any refinancing through our sale of equity or equity-linked securities would result in further dilution to our stockholders or may provide for rights, preferences or privileges senior to those of holders of our common stock.

The Credit Agreement contains customary events of default, upon the occurrence and during the continuation of which, after any applicable grace period, the lenders would have the ability to declare the loans due and payable in whole or in part.

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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 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 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.

While we maintain insurance coverage to cover certain risks of losses for damage or destruction to facilities and property and for interruption of our business, such insurance may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses.

A significant natural disaster, such as an earthquake, fire or other catastrophic event, could severely affect our ability to conduct normal business operations, and as a result, our future operating results could be materially and adversely affected, including if our losses are not adequately or timely covered by our insurance.

Increased attention on ESG matters, including from our customers, shareholders and other stakeholders, may lead to us expending more resources addressing these issues.

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 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.

We face various risks related to pandemics and similar public health crises, which may adversely impact our business.

Global pandemics and similar public health crises, such as the 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.

Pandemics and other public health crises may 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 crises 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.

Our business and operations are subject to the risks of earthquakes and other natural catastrophic events.

We have research and development and manufacturing operations located in California in regions known for seismic activity and wildfires, and in other areas prone to natural disasters.

While we maintain insurance coverage to cover certain of risks of losses for damage or destruction to facilities and property and for interruption of our business, such insurance may not cover specific losses and the amount of our insurance coverage may not be adequate to cover all of our losses.

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 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 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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If negative conditions in the global credit markets prevent our customers from having access to credit or render them insolvent, orders for our products may decrease, which would result in lower revenue.

Likewise, if our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses or remaining solvent, they may become unable to offer the materials we use to manufacture our products.

Likewise, if our suppliers face challenges in obtaining credit, 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 have an impact on our ability to raise capital when needed.

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Government Contracts

We are presently classified as a small business defense contractor and the loss of our small business status may adversely affect our ability to compete for small business set aside US government contracts.

Because we have fewer than 1,500 employees, we are presently classified as a small business defense contractor under our primary North American Industry Classification Systems (“NAICS”) industry and product specific codes (336411 - Aircraft Manufacturing) which are regulated in the United States by the Small Business Administration (“SBA”).

As of April 30, 2025, we were classified as a small business defense contractor.

The loss of our small business status may adversely affect our ability to compete for small business set aside US government contracts.

As of April 30, 2025 we had fewer than 1,500 employees, and we are presently classified as a small business defense contractor under our primary North American Industry Classification Systems (“NAICS”) industry and product specific codes (336411 - Aircraft Manufacturing) which are regulated in the United States by the Small Business Administration (“SBA”).

Businesses that meet the small business size standard for the relevant NAICS code are able to bid on small business set aside contracts.

While we do not presently derive a substantial portion of our business from contracts which are set aside for small businesses, we are able to bid on small business set aside contracts as well as contracts which are open to non-small business entities.

As we continue to grow and add employees, including through acquisitions, or if NAICS codes are revised, we could cease to qualify as a small business, which could adversely impact our eligibility for special small business programs and limit our ability to partner with other business entities that seek to team with small business entities as may be required under a specific contract.

If we outgrow our small business classification, we would not be eligible to serve as the prime contractor on small business set aside programs and may need to implement a small business subcontracting plan with other companies that qualify as a small business, for SBA approval.

While we do not presently derive a substantial portion of our business from contracts which are set aside for small businesses, we have been able to bid on small business set aside contracts as well as contracts which are open to non-small business entities.

With the acquisition of BlueHalo, we exceed 1,500 employees and no longer qualify as a small business, which could limit our ability to partner with other business entities that seek to team with small business entities as may be required under a specific contract.

We will not be eligible to serve as the prime contractor on small business set aside programs and may need to implement a small business subcontracting plan with other companies that qualify as a small business, for SBA approval.

The loss of our small business classification could have a material adverse effect on our financial position and/or results of operations.

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

Classified programs generally will require that we comply with various executive orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees and facilities to obtain government security clearances.

Classified programs generally require that we comply with various executive orders, federal laws and regulations and customer security requirements that may include restrictions on how we develop, store, protect and share information, and may require our employees and facilities to obtain government security clearances.

We also must implement controls to protect U.S.

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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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The indirect costs we incur in performing government contracts have been audited or have been subject to audit on an annual basis.

The audits of our incurred cost claims through fiscal year 2022 have been settled.

At April 30, 2024, we had no reserve for open incurred cost claim audits.

In addition, non-audit reviews or investigations by the government may still be conducted on all of our government contracts.

The audits of our incurred cost claims through fiscal year 2022 have been settled and the audits of BlueHalo’s incurred cost claims through fiscal 2021 have been settled.

As of April 30, 2025, we had no reserve for open incurred cost claim audits.

In addition, non-audit reviews or investigations by the government may still be conducted on all our government contracts.

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, 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 most recently reviewed and approved again in March 2022.

Our purchasing system was most recently reviewed and approved again in February 2025 and BlueHalo’s purchasing system was recently reviewed and approved again in April 2025.

An unfavorable outcome to such an audit or investigation by the DCAA, U.S.

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If we were suspended or debarred from contracting with the federal government generally, or any specific agency, if our reputation or relationship with government agencies were impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our revenue and operating results could be materially harmed.

If we fail to establish and maintain important relationships with government agencies and prime contractors, our ability to successfully maintain and develop new business may be adversely affected.

Our reputation and relationship with the U.S.

government, and in particular with the agencies of the DoD and the U.S.

intelligence community, are key factors in maintaining and developing new business opportunities.

In addition, we often act as a subcontractor or in arrangements in which we and other contractors bid together on particular contracts or programs for the U.S.

government or government agencies.

We expect to continue to depend on relationships with other prime contractors for a portion of our revenue for the foreseeable future.

Negative press reports regarding conflicts of interest, poor contract performance, employee misconduct, information security breaches or other aspects of our business, regardless of accuracy, could harm our reputation.

Additionally, as a subcontractor or team member, we often lack control over the fulfillment of a contract, and poor performance on the contract could tarnish our reputation, even when we perform as required.

As a result, we may be unable to successfully maintain our relationships with government agencies or prime contractors, and any failure to do so could adversely affect our ability to maintain our existing business and compete successfully for new business.

Some of our contracts with the U.S.

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Some of our contracts allow the U.S.

government to use, royalty-free, or have others use, inventions developed under those contracts on behalf of the government.

government to use, royalty-free, or have others use, inventions or intellectual property developed under those contracts on behalf of the government.

Some of the contracts allow the federal government to disclose technical data without constraining the recipient on how that data is used.

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Congress generally appropriates funds on a fiscal year basis, even though a program may continue for several years.

Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations.

Consequently, programs are often only partially funded initially, and additional

funds are committed only as Congress makes further appropriations.

The termination or reduction of funding for a government program would result in a loss of anticipated future revenue attributable to that program.

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government contracts are frequently awarded only after formal, protracted competitive bidding processes and, in many cases, unsuccessful bidders for U.S.

government contracts are provided the opportunity to protest contract awards through various agency, administrative and judicial channels.

government contracts may protest contract awards through various agency, administrative and judicial channels.

We derive significant revenue from U.S.

government contracts that were awarded through a competitive bidding process.

Much of the business that we expect to seek in the foreseeable future likely will be awarded through competitive bidding.

Much of the business that we expect to seek in the foreseeable future will likely be awarded through competitive bidding.

Competitive bidding presents a number of risks, including the following:

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These costs might increase in the future, reducing our margins, which could have a negative effect on our financial condition.

Although we believe we have procedures in place to comply with these regulations and requirements, the regulations and requirements are complex and change frequently.

Although we believe we have implemented procedures 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.

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We maintain an export compliance program but there are risks that our compliance controls may be ineffective.

In November 2019, we entered into a consent agreement (the “Consent Agreement”) with the U.S.

Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance to resolve various alleged violations of the Armed Export Control Act and the International Traffic in Arms Regulations (“ITAR”) that occurred between June 2014 and December 2016.

The Consent Agreement provided among other things:

(i) a civil penalty of $1,000,000 payable in installments, $500,000 of which was suspended on the condition that such amount be used for future remedial compliance costs over the term of the Consent Agreement and/or credited against prior compliance enhancement costs already expended by us;

(ii) the appointment of an external Special Compliance Officer for a minimum of one year to oversee our compliance with the Consent Agreement and ITAR;

and (iii) one external audit of our compliance with the Consent Agreement and ITAR.

The $500,000 suspension amount was satisfied by our compliance program remediation efforts during our fiscal year ended April 30, 2021.

While we were released from the Consent Agreement in May 2023, our failure to comply with the export laws and regulations in the future can subject us to additional fines, penalties and sanctions, including suspension of export privileges, which could have a material adverse impact on our business, operations and financial condition and limit or prevent us from being able to sell our products in certain international jurisdictions.

Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS and MUAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS and MUAS to non-military customers in the United States.

The regulation of SUAS and MUAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.

Any failure to comply with the export laws and regulations in the future can subject us to additional fines, penalties and sanctions, including suspension of export privileges, which could have a material adverse impact on our business, operations and financial condition and limit or prevent us from being able to sell our products in certain international jurisdictions.

We may become subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity .

government contractors are subject to extensive legal and regulatory requirements, including International Traffic in Arms Regulations (“ITAR”) and U.S.

Foreign Corrupt Practices Act (“FCPA”), and from time to time agencies of the U.S.

government investigate whether we have been and are operating in accordance with these requirements.

government regulations, an indictment of AeroVironment by a federal grand jury, or an administrative finding against us as to our present responsibility to be a U.S.

government contractor or subcontractor, could result in us being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

A conviction, or an administrative finding against us that satisfies the requisite level of seriousness, could result in debarment from contracting with the U.S.

government for a specific term, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of SUAS, MUAS and C-UAS in response to public privacy concerns, may prevent us from expanding the sales of our SUAS, MUAS and C-UAS to non-military customers in the United States.

The regulation of SUAS, MUAS and C-UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.

In 2006, the FAA issued a clarification of its existing policies stating that, in order to engage in commercial use of SUAS and MUAS in the U.S.

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This concern has included calls to develop explicit written policies and procedures establishing usage limitations.

We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of SUAS and MUAS by non-military customers.

We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of SUAS, MUAS and C-UAS by non-military customers.

The deployment of C-UAS that utilize RF and directed energy is subject to stringent regulatory scrutiny, which could limit the sales and operational deployment of these technologies.

Non-compliance with these evolving regulations could lead to fines, operational restrictions, or other penalties that may adversely affect our business.

Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as our ability to obtain security clearances for the facilities in which we perform sensitive government work.

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Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances.

If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain the clearances or terminate employment with us, then a customer requiring classified work could terminate the contract or decide not to renew it upon its expiration.

upon its expiration.

In addition, we expect that many of the contracts on which we will bid will require us to demonstrate our ability to obtain facility security clearances and employ personnel with specified types of security clearances.

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.

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

We may be subject to involuntary product recalls or may voluntarily conduct a product recall.

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

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.

There can be no assurance that a claim will not be brought against us in the future, regardless of merit.

While we maintain insurance coverage for product liability claims, our insurance may be inadequate to cover any such claims.

Any successful claim or material settlement of such claims could significantly harm our business, financial condition and results of operations.

To the extent that 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.

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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We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact of such future laws, regulations and standards may have on our business.

For example, the California Consumer Privacy Act, which became effective in 2020, provides new data privacy rights for consumers and employees and new operational requirements for companies.

For example, the California Consumer Privacy Act, which became effective in 2020, provides certain data privacy rights for consumers and employees and new operational requirements for companies.

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

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.

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.

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

DoD, verifying their adherence to specific cybersecurity standards.

DoD, verifying such companies’ 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.

We have completed/passed a DoD Defense Industrial Base Cybersecurity Assessment Center (DIBCAC) audit, high confident assessment, in 2022, which met the Level 3 requirements under the CMMC 1.0 framework.

The recently acquired BlueHalo passed a Level 2 audit using a Third-Party Cybersecurity Assessor Organization (3CPAO), demonstrating adherence to updated security practices outlined in CMMC 2.0, which went into effect December 16, 2024.

Our ongoing compliance with the CMMC framework is critical, particularly as the National Institute of Standards and Technology (“NIST”) Special Publication 800-172 requirements, designed to enhance protection for controlled unclassified information, have not yet appeared in any government Requests for Proposals we have bid but are expected.

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 a 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.

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The manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations.

For example, we obtain a significant number of our electronics components from companies located in East Asia, where environmental rules may be less stringent than in the United States.

For example, we obtain a significant number of our electronics components from companies located in East Asia, where environmental rules may be less stringent than those in the United States.

Over time, the countries where these companies are located may adopt more stringent environmental regulations, resulting in an increase in our manufacturing costs.

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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.

These environmental laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are later found to be contaminated.

Such persons can be responsible for cleanup costs even if they never owned or operated the contaminated facility.

Although we have never been named a responsible party at a contaminated site, we could be named a potentially responsible party in the future.

Such persons can be held responsible for cleanup costs even if they never owned or operated the contaminated facility.

Although we have never been named a responsible party at a contaminated site, we could potentially be named a responsible party in the future.

The increasing global focus on climate change, including greenhouse gas (“GHG”) emissions, has resulted in legislative and regulatory efforts to address the causes and impacts of climate change.

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In addition, the U.S.

government has licenses under certain of our patents and certain other intellectual property that are developed or used in performance of government contracts, and it may use or authorize others to use such patents and intellectual property for government and other purposes.

government has licenses under certain of our patents and certain other intellectual property that are developed or used in performance of government contracts, and it may use or authorize

others to use such patents and intellectual property for government and other purposes.

Moreover, existing U.S.

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.

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.

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.

Despite our efforts to protect such information, 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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We may become subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of third parties.

Defending against, or otherwise addressing, any such claims, whether they are with or without merit, could be time-consuming and expensive, and could divert our management’s attention away from the execution of our business plan.

Moreover, any settlement or adverse judgment resulting from these claims could require us to pay substantial amounts or obtain a license to continue to use the disputed technology, or otherwise restrict or prohibit our use of the technology.

Defending against, or otherwise addressing, any such claims, regardless of their merit, could be time-consuming and expensive, and could divert our management’s attention away from the execution of our business plan.

Moreover, any settlement or adverse judgment resulting from such claims could require us to pay substantial amounts or obtain a license to continue to use the disputed technology, or otherwise restrict or prohibit our use of the technology.

We cannot assure you that we would be able to:

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government spending levels, both generally and by our particular customers;

● changes to the U.S.

trade policy, including the increase or introduction of tariffs;

● the volume of operational activity by the U.S.

military and allied militaries;

● delays in the payment of our invoices by government payment offices, resulting in potentially reduced earnings during a particular fiscal quarter;

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● sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;

● an increase in trading volume that may result from the expiration of lock-up arrangements pertaining to acquisition-related issuances of our common stock;

● additions or departures of key personnel.

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This type of litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.

Our largest stockholder may have the ability to significantly influence all matters submitted to stockholders for approval.

Entities affiliated with Arlington Capital Partners (the “Arlington Entities”), in the aggregate, beneficially own approximately 26.3% of our outstanding shares of common stock.

This concentration of voting power gives the Arlington Entities the power to significantly influence matters submitted to our stockholders for approval, as well as our management and affairs.

For example, the Arlington Entities could significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our stockholders.

Concurrently with the execution and delivery of the Merger Agreement, the Arlington Entities entered into a shareholder’s agreement with us pursuant to which the Arlington Entities have, among other things, agreed to abide by

customary standstill covenants, obligations to vote consistent with the recommendation of our Board of Directors, and customary employee non-solicit restrictions with respect to our and our subsidiaries’ employees (including BlueHalo and its subsidiaries).

Under the shareholder’s agreement, we have, among other things, agreed to provide the Arlington Entities with certain board designation rights and, following a lock-up period as set forth in the shareholder’s agreement, customary registration rights, including customary demand and piggyback rights.

The Arlington Entities will have such designation rights to designate two directors until they and their affiliates cease to collectively hold and own, directly or indirectly, at least 20% of our Adjusted Outstanding Shares and the Arlington Entities will have such designation rights to designate one director until they and their affiliates cease to collectively hold and own, directly or indirectly, at least 15% but less than 20% of our Adjusted Outstanding Shares.

“Adjusted Outstanding Shares” is defined in the shareholder’s agreement to refer to the total number of our issued and outstanding shares of common stock, less then number of shares issued by us within six months of May 1, 2025.

Our Board of Directors consists of ten members, two of whom have been designated by the Arlington Entities.

Moreover, the shareholder’s agreement provides that we renounce any interests or expectancy in being offered any business opportunities which the shareholder nominees, the Arlington Entities, or their affiliates conduct whether directly or indirectly, whether or not such business is competitive with or in the same or similar lines of business as us.

This renunciation does not extend to business opportunities invested in on the basis of confidential information received from us or our representatives.

The market price of our common stock may decline because of our acquisition activity .

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If this occurs, then we may need additional financing to pursue our business strategies, including to:

● hire additional engineers and other personnel;

● hire additional engineers and other critical personnel;

● develop new or enhance existing products and services;

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We have obtained capital from the Credit Facilities noted above including the Term Loan Facility and Revolving Facility.

We cannot assure you that additional financing will be available on terms favorable to us, or at all.

We cannot assure you that additional financing

will be available on terms favorable to us, or at all.

Our current Credit Facilities contain, and future debt financing may contain, covenants or other provisions that limit our operational or financial flexibility.

In addition, certain of our customers require that we obtain letters of credit to support our obligations under some of our contracts.

Failure to establish and maintain effective internal control over financial reporting could adversely affect our financial results.

It is management’s responsibility to establish and maintain effective internal control in order to provide reasonable assurance regarding the financial reporting soundness for external purposes.

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.

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.

Failure to maintain effective internal control over financial reporting could adversely affect our financial results.

We must maintain effective internal controls in order to provide reasonable assurance regarding the financial reporting soundness for external purposes.

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

The failure to maintain an effective system of internal controls 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.

Prior to our acquisition of BlueHalo, BlueHalo was not a U.S.

public reporting company.

Prior to being acquired by AeroVironment, BlueHalo was a private company and not subject to public company reporting requirements.

Additionally, from the time it was formed until the time it entered into the Merger Agreement, BlueHalo consummated a number of acquisitions of companies of varying degrees of size and sophistication with varying degrees of disclosure controls and procedures.

As a public company, we are required to document and test our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, so that our management can certify as to the effectiveness of our internal control over financial reporting in connection with our annual report.

BlueHalo (including all of its prior acquisitions) will be required to be included in the scope of our internal control over financial reporting in our annual report to be filed with the SEC following this annual report and thereafter, which requires us to make and document significant changes to our internal controls over financial reporting.

In connection with the preparation of its audited consolidated financial statements for the year ended December 31, 2024, BlueHalo identified three material weaknesses in its internal control over financial reporting.

A material weakness is 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 a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

First, BlueHalo did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements.

Specifically, BlueHalo did not design and maintain:

(i) program change management controls to ensure that program and data changes are identified, tested, authorized, and implemented appropriately;

(ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel.

Second, BlueHalo did not design and maintain an effective control environment commensurate with our financial reporting requirements.

Specifically, it did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and accounting knowledge, experience, and training commensurate with its accounting and financial reporting requirements.

The limited personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in the finance and accounting functions.

Third, BlueHalo did not design and maintain effective monitoring activities of the design and operation of controls on a timely basis, taking necessary corrective action to ensure that controls continue to operate effectively and are modified for changes in conditions as appropriate.

Bringing BlueHalo into compliance with rules and regulations applicable to us as a public company and integrating BlueHalo into our current compliance and accounting system and disclosure controls and procedures is expected to increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources.

We cannot predict or estimate the amount of additional costs we may incur to bring BlueHalo into compliance with these requirements (including by remediating its outstanding material weaknesses) and we cannot guarantee the measures we take will be sufficient to satisfy our obligations as a public company.

Ineffective internal control over financial reporting could also cause investors to lose confidence in our

reported financial information, which would harm our business and likely have a negative effect on the trading price of shares of our common stock.

Furthermore, the need to establish the necessary corporate infrastructure to integrate BlueHalo may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations.

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

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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.”

See the section herein titled, “Dividends.”

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.

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;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors