What changed in this filing

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Item 1A. Risk Factors

2023-07-27 compared with 2022-07-27 · 1117 added, 1116 removed, 31 unchanged (99% of the section changed)

Item 1A Risk Factors

Risks Related to Our Business

We may need additional capital to fund our expanding

operations until we reach profitability, and if we are not able to obtain sufficient capital, we may be forced to limit or curtail our

During the fiscal year ended April 30, 2022, we acquired

Skypersonic and Teal Drones.

Factors - Summary

Related to our Financial Results and Condition

have incurred net losses since inception.

may need additional capital to fund our expanding operations until we reach profitability,

and if we are not able to obtain sufficient capital, we may be forced to limit or curtail

our operations.

of long-term purchase orders and commitments from customers may lead to a rapid decline in

products require a continuing investment in research and development, and may experience

technical problems or delays, which could lead the business to fail.

nature of our business involves significant risks and uncertainties that may not be covered

by insurance or indemnity.

quality issues and a higher-than-expected number of warranty claims or returns could harm

our business and operating results.

products will likely experience declining unit prices and we may not be able to offset that

decline with production cost decreases or higher unit sales.

operating results may be adversely impacted by worldwide political, economic and public health

uncertainties and specific conditions in the markets we address.

Acquisitions

could divert the attention of key personnel, be difficult to integrate, dilute our existing

shareholders and adversely impact our financial results.

Divestitures

could divert the attention of key personnel, be difficult to complete, and adversely impact

our continuing operations.

failure to effectively manage growth could harm our business.

products are subject to lengthy development cycles.

expect to incur substantial research and development costs related to identifying and commercializing

new products and services which may never result in revenues.

Related to our Operations

operations may be adversely affected if we lose our rights under third-party technology licenses.

our customers are not satisfied with our technical support, firmware or software updates,

they may choose not to purchase our products which would adversely impact business and operating

use of open-source software could negatively affect our ability to sell our products and

could subject us to possible litigation.

could lose the services of key management personnel of the companies that we have acquired

which could adversely impact our ability to operate and execute our subsidiaries effectively.

must recruit and retain highly trained and experienced employees, especially engineers, in

order to succeed in our business.

facilities and information systems and those of our key suppliers could be damaged as a result

of disasters or unpredictable events which could have an adverse effect on our business operations.

rely on third-party suppliers, some of which are sole-source suppliers, to provide components

for our products which may lead to supply shortages, long lead times for components, and

supply changes, any of which could disrupt our supply chain, increase our costs, and adversely

impact our operating results.

steps of our manufacturing processes are dependent upon certain critical machines and tools

which could result in delivery interruptions and foregone revenues.

depend on third parties to provide integrated circuit chip sets and other critical components

for use in our products.

the COVID-19 pandemic has significantly subsided, it continues to pose risks to our business,

results of operations and financial condition, and the future nature and extent of COVID-19

is highly uncertain and unpredictable.

Related to our Industry

operate in an emerging and rapidly growing industry which makes it difficult to evaluate

our current business and future prospects.

face competition from larger companies that have substantially greater resources which challenges

our ability to establish market share, grow our business segments, and reach profitability.

may not be able to keep pace with technological advances in the drone industry.

significant disruption to ecommerce business could result in lost sales.

Cybersecurity

risks could adversely affect our business and disrupt our operations.

Related to Our Enterprise Segment

government contracts are generally not fully funded at inception and may include provisions

that are not favorable to us which could adversely impact our cash flows and results of operations.

decline in U.S.

government budgets, changes in spending priorities, or delays in contract

awards could adversely affect the revenues of our Teal subsidiary.

work for the U.S.

government could expose us to security risks.

are subject to extensive government regulation and our failure to comply with these regulations

could subject us to penalties that may adversely impact our ability to operate our business.

Related to Our Consumer Segment

Consumer Segment operates in a highly competitive market and the size, resources, and brand

name of its competitors may allow them to compete more effectively than our businesses which could result in a loss of market share and a decrease in revenues.

our Consumer Segment fails to keep pace with changing consumer preferences or technologies,

then our business and results of operations may be materially adversely affected.

we do not maintain and develop sales channels for products, then our sales could decline,

and our operating losses could increase.

HMD’s and pilot gear do not gain greater acceptance in the marketplace, the business

strategy may fail.

are a number of competing providers of micro-display-based personal display technology, including

HMDs, and we may fail to capture a substantial portion of the FPV personal wearable display

dependence on sales to VARs, resellers, and distributors increases the risks of managing

our supply chain and may result in excess inventory or inventory shortages.

do not control our contract manufacturers or suppliers and actions that they might take could

harm our reputation and sales.

principal manufacturer of HMDs is located in China and is owned by a related party which

could create conflicts of interest.

critical components become scarce or unavailable, then we may incur delays in fulfilling

sales orders which could adversely impact our business.

significant tariffs or other restrictions are placed and maintained on

Chinese imports or any related countermeasures are taken by China, our revenue and results of our Consumer operations may be adversely impacted.

the Consumer Segment is required to secure its inventory from sources other

than China, then we could encounter difficulties in purchasing sufficient quantities and types of inventory which would adversely impact

the sales, operating results, and financial condition of the Consumer Segment.

Related to Our Common Stock

management has voting control of the Company.

failure to maintain effective internal controls over financial reporting could have an adverse

impact on the Company.

have never paid dividends and we do not expect to pay dividends for the foreseeable future.

listing of our securities on Nasdaq subject us to additional regulations and compliance requirements.

Board of Directors may authorize and issue shares of new classes of stock that could adversely

affect current holders of our common stock.

shares will be subordinate to all of our debts and liabilities which increases the risk that

investors could lose their entire investment.

market price of our shares of common stock is subject to fluctuation.

capital raises may dilute our existing stockholders’ ownership and adversely impact

the fair value of their investment.

Related to Regulatory Matters

drone industry is subject to various laws and government regulations which could complicate

and delay our ability to introduce products, maintain compliance, and avoid violations which

could negatively impact our financial condition and results of operations.

business and products are subject to government regulation, and we may incur additional compliance

costs or be forced to suspend or cease operations if we fail to comply.

results of operations may suffer if we are not able to successfully manage our exposure to

foreign exchange rate risks.

international operations, including the use of foreign contract manufacturers, subjects us

to international operational, financial, legal, political and public health risks which could

harm our operating results.

could be adversely affected by violations of the U.S.

Foreign Corrupt Practices Act or similar

anti-bribery laws in other jurisdictions in which we operate.

are subject to governmental export and import controls, and economic sanctions laws that

could subject us to liability and impair our ability to compete in international markets.

in trade policy in the United States and other countries may have adverse impacts on our

business, results of operations and financial condition.

may collect, store, process and use the personal information of our customers which subjects

us to governmental regulation related to privacy, information security and data protection.

Any cybersecurity breaches or our failure to comply with such legal obligations by us, or

by our third-party service providers or partners, could harm our business.

Related to Intellectual Property

products could infringe on the intellectual property rights of others.

intellectual property rights and proprietary rights may not adequately protect our products.

Related to our Financial Results and Condition

have incurred net losses since inception.

have never been profitable and reported an accumulated deficit of almost $55 million at April 30, 2023.

These losses have had an adverse

effect on our financial condition, stockholders’ equity and working capital.

We will need to generate higher revenues and control

operating costs in order to attain profitability.

We can provide no assurances that we will even be able to reach profitability.

may need additional capital to fund our expanding operations until we reach profitability, and if we are not able to obtain sufficient

capital, we may be forced to limit or curtail our operations.

the fiscal year ended April 30, 2022, we acquired Skypersonic and Teal Drones.

Our other businesses include Rotor Riot and Fat Shark.

Historically, only Fat Shark has reported profits

and it was not profitable in fiscal 2022.

There can be no assurance that any of our operating businesses will reach profitability in the

If additional equity and/or debt financing is not

available, then we may not be able to continue to develop our business activities, and we will have to modify our business plan.

factors could have a material adverse effect on our future operating results and our financial condition.

If we are unable to raise additional

funds to continue as a going concern, we could be forced to cease our business activities and dissolve.

In such an event, we may incur

additional financial obligations, including the accelerated maturity of debt obligations, lease termination fees, employee severance payments,

and other creditor and dissolution-related obligations.

Our ability to raise financing through sales of equity

and/or debt securities depends on general market conditions and the demand for our common stock.

We may be unable to raise adequate capital

through sales of equity and/or debt securities, and if our stock has a low market price at the time of such sales, our existing stockholders

could experience substantial dilution.

If adequate financing is not available or unavailable on acceptable terms, we may find we are unable

to fund expansion, continue offering products and services, take advantage of acquisition opportunities, develop or enhance services or

products, or to respond to competitive pressures in the industry which may jeopardize our ability to continue operations.

We have incurred net losses since inception.

We have accumulated net losses of approximately $27,500,000

as of April 30, 2022.

These losses have had an adverse effect on our financial condition, stockholders’ equity and working capital.

We will need to generate higher revenues and control operating costs in order to attain profitability.

There can be no assurances that

we will be able to do so or to reach profitability.

We operate in an emerging and rapidly growing

industry which makes it difficult to evaluate our business and future prospects.

The drone industry is relatively new and is growing

Historically, only Fat Shark has reported profits and it was not profitable in fiscal 2022 or 2023.

There can be no assurance that any

of our operating businesses will reach profitability in the future.

additional equity and/or debt financing is not available, then we may not be able to continue to develop our business activities, and

we will have to modify our business plan.

These factors could have a material adverse effect on our future operating results and our

financial condition.

If we are unable to raise additional funds to continue as a going concern, we could be forced to cease our business

activities and dissolve.

In such an event, we may incur additional financial obligations, including the accelerated maturity of debt

obligations, lease termination fees, employee severance payments, and other creditor and dissolution-related obligations.

ability to raise financing through sales of equity and/or debt securities depends on general market conditions and the demand for our

common stock and/or debt securities.

We may be unable to raise adequate capital through sales of equity and/or debt securities, and if

our stock has a low market price at the time of such sales, our existing stockholders could experience substantial dilution.

financing is not available or unavailable on acceptable terms, we may find we are unable to fund expansion, continue offering products

and services, take advantage of acquisition opportunities, develop or enhance services or products, or to respond to competitive pressures

in the industry which may jeopardize our ability to continue operations.

of long-term purchase orders and commitments from customers may lead to a rapid decline in sales.

customers issue purchase orders solely at their own discretion, often shortly before the requested date of shipment.

Customers are generally

able to cancel orders (without penalty) or delay the delivery of products on relatively short notice.

In addition, current customers

may decide not to purchase products for any reason.

If our customers do not continue to purchase our products, then our sales volume

could decline rapidly with little or no warning.

cannot rely on long-term purchase orders or commitments to protect us from the negative financial effects of a decline in demand for

our products.

The uncertainty of product orders makes it difficult to forecast sales and allocate resources in a manner consistent with

actual sales.

Moreover, expense levels and the amounts invested in capital equipment and new product development costs are based in part

on expectations of future sales and, if expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely

manner to adjust for sales shortfalls.

As a result of lack of long-term purchase orders and purchase commitments, we may experience a

rapid decline in sales.

products require a continuing investment in research and development, and may experience technical problems or delays, which could lead

the business to fail.

research and development efforts remain subject to all the risks associated with the development of new products based on emerging and

innovative technologies.

This includes, for example, unexpected technical problems or the possible insufficiency of funds for completing

development of these products.

If technical problems or delays arise, further improvements in products and the introduction of future

products could be adversely impacted, and we could incur significant additional expenses, an inability to increase revenues and increasing

operating losses.

nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.

develop and sell products where insurance or indemnification may not be available, including (i) those using advanced and unproven technologies

and drones, and (ii) those that collect, distribute and analyze various types of information.

of certain of our products could result in loss of life or property damage.

Certain products may raise questions with respect to issues

of civil liberties, intellectual property, trespass, conversion and similar concepts.

Indemnification to cover potential claims or liabilities

resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others.

not and are not able to maintain insurance to protect against our risks and uncertainties.

Substantial claims resulting from an accident,

failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity

or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results.

Any accident,

even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult

for us to compete effectively.

quality issues and a higher-than-expected number of warranty claims or returns could harm our business and operating results.

products that we sell could contain defects in design or manufacture.

Defects could also occur in the products or components that are

supplied to us.

There can be no assurance we will be able to detect and remedy all defects in the hardware and software we sell which

could result in product recalls, product redesign efforts, loss of revenue, reputational damage and significant warranty and other remediation

Similar to other mobile and consumer electronics, our products have a risk of overheating in the course of usage or upon malfunction.

Any such defect could result in harm to property or in personal injury.

If we determine that a product does not meet product quality

standards or may contain a defect, the launch of such product could be delayed until we remedy the quality issue or defect.

associated with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.

generally provide a one-year warranty on all of our product except in certain European countries that mandate two years for some consumer-focused

The occurrence of any material defects in our products could expose us to liability for damages and warranty claims in excess

of our current reserves, and we could incur significant costs to correct any defects, warranty claims or other problems.

if any of our product designs are defective or are alleged to be defective, we may be required to participate in a recall campaign.

part due to the terms of our warranty policy, any failure rate of our products that exceeds our expectations may result in unanticipated

Any negative publicity related to the perceived quality of our products could affect our brand image and decrease retailer, distributor

and consumer confidence and demand, which could adversely affect our operating results and financial condition.

Further, accidental damage

coverage and extended warranties are regulated in the United States at the state level and are treated differently within each state.

Additionally, outside of the United States, regulations for extended warranties and accidental damage vary from country to country.

in interpretation of the regulations concerning extended warranties and accidental damage coverage on a federal, state, local or international

level may cause us to incur costs or have additional regulatory requirements to meet in the future in order to continue to offer our

support services.

Our failure to comply with past, present and future similar laws could result in reduced sales of our products, reputational

damage, penalties and other sanctions, which could harm our business and financial condition.

products will likely experience declining unit prices and we may not be able to offset that decline with production cost decreases or

higher unit sales.

of established consumer and enterprise electronics, displays, personal computers, and mobile products tend to decline significantly over

time or as new enhanced versions are introduced, frequently every 12 to 24 months in the markets in which we compete.

In order to maintain

adequate product profit margins over the long term, we believe that we will need to continuously develop product enhancements and new

technologies that will either slow price declines of our products or reduce the cost of producing and delivering our products.

we anticipate opportunities to reduce production costs over time, we may not be able to reduce our component costs.

We expect to attempt

to offset the anticipated decrease in our average selling price by introducing new products, increasing our sales volumes, or adjusting

our product mix.

If we fail to do so, our results of operations will be materially and adversely affected.

operating results may be adversely impacted by worldwide political, economic and public health uncertainties and specific conditions

in the markets we address.

deterioration in global economic, financial, and/or public health conditions, including global pandemics, economic recessions and political

turmoil could materially adversely affect (i) our ability to raise, or the terms of needed capital;

(ii) demand for our current and future

and (iii) the supply of components for our products.

We cannot predict the timing, strength, or duration of any economic slowdown

or subsequent economic recovery, worldwide, or in the drone industry.

could divert the attention of key personnel, be difficult to integrate, dilute our existing shareholders and adversely impact our financial

January 2020, we have completed four acquisitions which have significantly increased the scope of our operations and our employee headcount.

Acquisitions include a wide range of risks, any of which could hurt our business, including the following:

difficulties

in integrating the operations of a newly acquired company including existing products and

contracts, differences in corporate culture, operating systems and other integration issues;

supporting and transitioning the customers of acquired companies and the loss of any acquired

customers will adversely impact our revenues and operating results;

of known and unknown operating problems and our potential inability to address them in a

timely and efficient manner;

of entering new geographic markets where we have no prior experience and are required to

gain an understanding of the legal, regulatory, labor and business laws of these new markets;

addition, there are many financial risks associated with the cost of acquisitions.

If we finance the cost of an acquisition using common

stock, then our existing shareholders will be diluted and our stock price could decrease.

If we finance the cost of an acquisition using

debt, such financing could include restrictive covenants that restrict our operating and financial flexibility.

If the stock market perceives

that we overpaid for the acquisition, then our stock price could decrease.

could divert the attention of key personnel, be difficult to complete, and adversely impact our continuing operations.

have a signed purchase agreement (“SPA”) to sell our Consumer segment.

The SPA was executed in November 2022 but the sale still

has not been consummated as of the end of June 2023.

The process of selling the Consumer segment has required significant time and attention

from many of our key personnel.

This has adversely impacted the time and attention that these key personnel are able to commit to the

Enterprise segment which will be our primary business following the sale of the Consumer segment.

We do not presently have a firm closing

date and key personnel continue to spend significant time and attention trying to close the transaction.

If we are not able to successfully

close the sale of the Consumer segment, we will continue to operate the Consumer segment even though we would prefer to close the transaction

and sell the Consumer segment.

This may adversely impact the operation of the Enterprise segment including our ability to execute the

growth objectives that we have established for the Enterprise segment.

This could adversely impact our revenues, costs and financial

failure to effectively manage growth could harm our business.

intend to expand the number and types of products we sell.

We will need to replace and regularly introduce on a timely basis new products

and technologies, enhance existing products, and effectively stimulate customer demand for new products and upgraded or enhanced versions

of our existing products.

replacement and expansion of our products places a significant strain on our management, operations and engineering resources.

Specifically,

the areas that are strained most by these activities include the following:

Product Launches:

With the changes in and growth of our product portfolio, we will experience increased complexity in

coordinating product development, manufacturing, and shipping.

As this complexity increases, it places a strain on our ability to

accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effectively

market to stimulate demand and market acceptance.

We have experienced delays in the past.

If we are unable to scale and improve our

product launch coordination, we could frustrate our customers and lose possible retail shelf space and product sales;

Products Impacted by New Introductions :

The introduction of new products or product enhancements may shorten the life

cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of a successful

product introduction and may cause customers to defer purchasing our existing products in anticipation of the new products.

occurrences could potentially lead to challenges in managing inventory of existing products.

We may also provide price protection

to some of our retailers as a result of new product introductions and reduce the prices of existing products.

If we fail to effectively

manage new product introductions, our revenue and profitability may be harmed;

Planning and Supply Chain Logistics :

With the changes in and growth of our product portfolio, we will experience increased

complexity in forecasting customer demand, in planning for production, and in transportation and logistics management.

unable to scale and improve our forecasting, planning, production, and logistics management, we could frustrate our customers, lose

product sales or accumulate excess inventory.

products are subject to lengthy development cycles.

products are subject to lengthy product development cycles.

The time elapsed between initial sampling of our products, the custom design

of our products to meet specific product requirements, and the ultimate incorporation of our products into salable products is significant,

often with a duration of more than one year.

If our products fail to meet our customers’ cost, performance, or technical requirements

or if unexpected technical challenges arise in the integration of our products into enterprise or consumer markets, then our operating

results could be significantly and adversely affected.

Long delays in achieving customer qualification and incorporation of our products

also could adversely affect our business.

Many HMD companies including Fat Shark are introducing digital HMDs which could create shortages

of components and provide an opportunity for companies with significantly greater resources than us to accelerate migration to digital

products in a manner or timeline which we cannot meet, which could cause us to lose market share and harm our business and prospects.

These same risks exist in our Enterprise sector where our competitors include some of the largest defense companies in the world.

expect to incur substantial research and development costs related to identifying and commercializing new products and services which

may never result in revenues.

future growth depends on expanding into new markets, adapting existing products to new applications, and introducing new products and

services that achieve market acceptance.

We plan to incur substantial research and development costs as part of these efforts.

$5.2 million, or 53% of our revenue, in our fiscal year ended April 30, 2023, on internal research and development activities.

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

Because we account for internal research and development

as an operating expense, these expenditures will adversely affect our earnings in the future.

Further, our research and development programs

may not produce successful results, and our new products and services may not achieve market acceptance, generate revenue or cash flow,

which could adversely impact our financial results and liquidity.

Related to our Operations

operations may be adversely affected if we lose our rights under third-party technology licenses.

business relies on technology rights and software licensed from third parties.

We could lose our exclusivity or other rights to use the

technology if we fail to comply with the terms and performance requirements of the licenses.

In addition, certain licensors may terminate

a license upon our breach and have the right to consent to sublicense arrangements.

If we were to lose our rights under any of these

licenses, or if we were unable to obtain required consents to future sublicenses, we could lose a competitive advantage in the market,

and may even lose the ability to commercialize certain products or technologies.

our customers are not satisfied with our technical support, firmware or software updates, they may choose not to purchase our products

which would adversely impact business and operating results.

business relies on our customers’ satisfaction with the technical support, firmware, software and security updates we provide to

support our products.

If we fail to provide technical support services and necessary updates that are (i) responsive, (ii) satisfy our

customers’ expectations and (iii) resolve issues that they encounter with our products, then customers may choose not to purchase

additional products and we may face brand and reputational harm which could adversely affect our operating results.

use of open-source software could negatively affect our ability to sell our products and could subject us to possible litigation.

incorporate open-source software into our products.

Open-source software is generally licensed by its authors or other third parties

under open-source licenses.

Some of these licenses contain requirements that we make available source code for modifications or derivative

works we create based upon the open-source software, and that we license such modifications or derivative works under the terms of a

particular open-source license or other license granting third parties certain rights of further use.

Additionally, if a third-party

software provider has incorporated open-source software into software that we license from such provider, we could be required to disclose

any of our source code that incorporates or is a modification of our licensed software.

If an author or other third-party that distributes

open-source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we

could incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from

offering or selling our products that contained the open-source software and be required to comply with the foregoing conditions.

of the foregoing could disrupt and harm our business and financial condition.

could lose the services of key management personnel of the companies that we have acquired which could adversely impact our ability to

operate and execute our subsidiaries effectively.

In recent years, we have

completed four acquisitions which have resulted in a significant expansion in the number of key management personnel and our reliance

Allan Evans, the former CEO of Fat Shark is now Chief Operating Officer of Red Cat Holdings.

George Matus has remained as

President of Teal Drones.

Drew Camden has remained as President of Rotor Riot, LLC.

Each of these individuals were critical to the founding

and growth of their companies prior to their being acquired by Red Cat Holdings.

They have specific knowledge and insight regarding the

operations of their respective companies, and the loss of any of them could adversely affect the efficiency of the operations of the related

If we were required to replace any of these individuals, it would likely result in difficulties effectively growing the affected

businesses and higher operating costs which would adversely impact our operating results.

must recruit and retain highly trained and experienced employees, especially engineers, in order to succeed in our business.

will need to hire and retain highly skilled technical personnel as employees and as independent contractors in order to develop our products

and grow our business.

The competition for highly skilled technical, managerial, and other personnel can be intense.

Our recruiting and

retention success is substantially dependent upon our ability to offer competitive salaries and benefits to our employees.

We must compete

with companies that possess greater financial and other resources than we do and that may be more attractive to potential employees and

To be competitive, we may have to increase the compensation, bonuses, stock options and other fringe benefits we offer to

employees in order to attract and retain such personnel.

The costs of retaining or attracting new personnel may have a material adverse

effect on our business and operating results.

If we fail to attract and retain the technical and managerial personnel required to be

successful, our business, operating results and financial condition could be materially adversely affected.

facilities and information systems and those of our key suppliers could be damaged as a result of disasters or unpredictable events which

could have an adverse effect on our business operations.

manufacturing facility is located in Salt Lake City, Utah.

We also rely on third-party manufacturing plants in the US, Asia and other

parts of the world to provide key components for our products and services.

If major disasters such as earthquakes, hurricanes, tropical

storms pandemics, fires, floods, wars, terrorist attacks, computer viruses, transportation disasters or other events occur in any of

these locations, or the effect of climate change on any of these factors or our locations, or our information systems or communications

network or those of any of our key component suppliers breaks down or operates improperly as a result of such events, our facilities

or those of our key suppliers may be seriously damaged, and we may have to stop or delay production and shipment of our products.

may also incur expenses relating to such damages.

If production or shipment of our products or components is stopped or delayed or if

we incur any increased expenses as a result of damage to our facilities, our business, operating results and financial condition could

be materially adversely affected.

rely on third-party suppliers, some of which are sole-source suppliers, to provide components for our products which may lead to supply

shortages, long lead times for components, and supply changes, any of which could disrupt our supply chain, increase our costs, and adversely

impact our operating results

ability to meet customer demand depends on our ability to obtain timely and adequate delivery of components for our products.

the components that go into our products are sourced from third-party suppliers.

Some of the key components used to manufacture our products

come from a limited or single source of supply or by a supplier that could potentially become a competitor.

Our contract manufacturers

generally purchase these components on our behalf from approved suppliers.

We are subject to the risk of shortages and long lead times

in the supply of these components and the risk that our suppliers discontinue or modify components used in our products.

the lead times associated with certain components are lengthy and preclude rapid changes in quantities and delivery schedules.

experienced component shortages and the availability of these components may be unpredictable in the future.

we lose access to or experience a significant disruption in the supply of products and components from a supplier, we may be unable to

locate alternative suppliers of comparable quality at an acceptable price, or at all, and our business could be materially and adversely

In addition, if we experience a significant increase in demand for our products, our suppliers might not have the capacity

or elect not to meet our needs as they allocate components to other customers.

Developing suitable alternate sources of supply for these

components may be time-consuming, difficult and costly, and we may not be able to source these components on terms that are acceptable

to us, or at all, which may adversely affect our ability to fulfill our orders in a timely or cost-effective manner.

Identifying a suitable

supplier is an involved process that requires us to become satisfied with the supplier’s quality control, responsiveness and service,

financial stability, labor and other ethical practices.

If we seek to source materials from new suppliers, there can be no assurance

that we could do so in a manner that does not disrupt the manufacture and sale of our products.

reliance on single source, or a small number of suppliers involves a number of additional risks, including risks related to supplier

capacity constraints, price increases, timely delivery, component quality, failure of a key supplier to remain in business and adjust

to market conditions, as well as natural disasters, fire, acts of terrorism or other catastrophic events, including global pandemics.

steps of our manufacturing processes are dependent upon certain critical machines and tools which could result in delivery interruptions

and foregone revenues.

currently have little equipment redundancy in manufacturing locales.

If we experience any significant disruption in manufacturing or

a serious failure of a critical piece of equipment, we may be unable to supply products to our customers in a timely manner.

Interruptions

in our manufacturing could be caused by equipment problems, the introduction of new equipment into the manufacturing process or delays

in the delivery of new manufacturing equipment.

Lead-time for delivery, installation, testing, repair and maintenance of manufacturing

equipment can be extensive.

We have experienced production interruptions in the past and no assurance can be given that we will not lose

potential sales or be able to meet production orders due to future production interruptions in our manufacturing lines.

depend on third parties to provide integrated circuit chip sets and other critical components for use in our products.

do not manufacture the integrated circuit chip sets, optics, micro-displays, backlights, projection engines, printed circuit boards or

other electronic components which are used in our products.

Instead, we purchase them from third-party suppliers or rely on third-party

independent contractors for these integrated circuit chip sets and other critical components, some of which are customized, or custom

We also may use third parties to assemble all or portions of our products.

Some of these third-party contractors and suppliers

are small companies with limited financial resources.

If any of these third-party contractors or suppliers were unable or unwilling to

supply these components, our sales and operating results would be adversely impacted.

As the availability of components decreases, the

cost of acquiring those components ordinarily increases.

High growth product categories such as the consumer electronics and mobile phone

markets have experienced chronic shortages of components during periods of exceptionally high demand.

If we do not properly anticipate

the need for or procure critical components, we may pay higher prices for those components, our gross margins may decrease and we may

be unable to meet the demands of our customers and end-users which could reduce our competitiveness, cause a decline in our market share

and have a material adverse effect on our results of operations.

the COVID-19 pandemic has significantly subsided, it continues to pose risks to our business, results of operations and financial condition,

and the future nature and extent of COVID-19 is highly uncertain and unpredictable.

the Covid Pandemic is considered to be largely over, new strains of the virus continue to periodically emerge and certain countries have

implemented restrictions on their citizens which impacts business activities.

We continue to experience adverse impacts on our operations,

including supply chain delays related to international shipment of components for our drones.

Additionally,

the COVID-19 pandemic caused significant volatility and uncertainty in U.S.

and international markets which may result in a

prolonged economic downturn.

A disruption of financial markets may reduce our ability to access capital and increase the cost of doing

There are no assurances that the credit markets or the capital markets will be available to us in the future or that financing will

be available.

cannot reasonably estimate the length or severity of the COVID-19 pandemic or the related response, or the extent to which

the disruption may continue to impact our business, financial position, results of operations and cash flows.

Ultimately, the COVID-19 pandemic

could have a material adverse impact on our business, financial position, results of operations and cash flows.

Related to our Industry

operate in an emerging and rapidly growing industry which makes it difficult to evaluate our current business and future

drone industry is relatively new and is growing rapidly.

As a result, it is difficult to evaluate our business and future prospects.

We cannot accurately predict whether, and even when,

demand for our products will increase, if at all.

The risks, uncertainties and challenges encountered by companies operating in emerging

and rapidly growing industries include:

Generating sufficient revenue to cover

operating costs and sustain operations;

We cannot accurately predict whether, and even when, demand for our products will increase, if at all.

The risks, uncertainties and challenges

encountered by companies operating in emerging and rapidly growing industries include:

Generating sufficient revenue to cover operating costs and sustain operations;

Acquiring and maintaining market share;

Attracting and retaining qualified

personnel, especially engineers with the requisite technical skills;

Successfully developing and commercially

marketing new products:

Accessing the capital markets to raise

additional capital, on reasonable terms, if and when required to sustain operations or to grow the business.

The drone industry is subject to various laws

and government regulations which could complicate and delay our ability to introduce products, maintain compliance, and avoid violations

which could negatively impact our financial condition and results of operations.

We operate in the drone industry which is a highly

regulated environment in the US and international markets.

Federal, state and local governmental entities and foreign governments may

regulate aspects of the industry, including the production or distribution of our products, software or services.

These regulations may

include accounting standards, taxation requirements, product safety, trade restrictions, environmental regulations, products directed

toward children or hobbyists, and other administrative and regulatory restrictions.

While we endeavor to take all the steps necessary

to comply with these laws and regulations, there can be no assurance that we can maintain compliance on a continuing basis.

comply could result in monetary liabilities and other sanctions which could increase our costs or decrease our revenue resulting in a

negative impact on our business, financial condition and results of operations.

Our business and products are subject to government

regulation and we may incur additional compliance costs or be forced to suspend or cease operations if we fail to comply.

We must comply with a wide variety of laws, regulations,

standards and other requirements governing, among other things, electrical safety, wireless emissions, health and safety, e-commerce,

consumer protection, export and import requirements, hazardous materials usage, product-related energy consumption, packaging, recycling

and environmental matters.

Compliance with these laws, regulations, standards, and other requirements may be onerous and expensive, and

they may be inconsistent from jurisdiction to jurisdiction (including from country to country), further increasing the cost of compliance

and doing business.

Our products may require regulatory approvals or satisfaction of other regulatory concerns in the various jurisdictions

in which they are manufactured, sold or both.

These requirements create procurement and design challenges that require us to incur additional

costs identifying suppliers and manufacturers who can obtain and produce compliant materials, parts and products.

Failure to comply with

such requirements can subject us to liability, additional costs, and reputational harm and, in extreme cases, force us to recall products

or prevent us from selling our products in certain jurisdictions.

If there is a new regulation, or change to an existing regulation, that

significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this

would have a material adverse effect on our business, financial condition and results of operations.

Additionally, while we have implemented

policies and procedures designed to ensure compliance with applicable laws and regulations, there can be no assurance that our employees,

contractors, and agents will not violate such laws and regulations or our policies and procedures.

Our products must comply with certain requirements

Federal Communications Commission (“FCC”) regulating electromagnetic radiation in order to be sold in the United

States and with comparable requirements of the regulatory authorities of the European Union (“EU”), Japan, China and other

jurisdictions.

Our FPV products include wireless radios and receivers which require additional emission testing.

We are also subject to

various environmental laws and governmental regulations related to toxic, volatile, and other hazardous chemicals used in the third-party

components incorporated into our products, including the Restriction of Certain Hazardous Substances Directive (the “RoHS”)

and the EU Waste Electrical and Electronic Equipment Directive (the “WEEE Directive”), as well as the implementing legislation

of the EU member states.

This directive restricts the distribution of products within the EU that exceed very low maximum concentration

amounts of certain substances, including lead.

Similar laws and regulations have been passed or are pending in China, Japan, and numerous

countries around the world and may be enacted in other regions, including in the United States.

We are, or may in the future be, subject

to these laws and regulations.

Our products may be subject to new domestic and international

requirements.

Compliance with regulations enacted in the future could substantially increase our cost of doing business or otherwise have

a material adverse effect on our results of operations and our business.

Any inability by us to comply with regulations in the future

could result in the imposition of fines or in the suspension or cessation of our operations or sales in the applicable jurisdictions.

Any such inability by us to comply with regulations may also result in our not being permitted, or limit our ability, to ship our products

which would adversely affect our revenue and ability to achieve or maintain profitability.

Although we encourage our contract manufacturers and

major component suppliers to comply with the supply chain transparency requirements, such as the RoHS Directive, we cannot provide assurance

that our manufacturers and suppliers consistently comply with these requirements.

In addition, if there are changes to these or other

laws (or their interpretation) or if new related laws are passed in other jurisdictions, we may be required to re-engineer our products

to use components compatible with these regulations.

This re-engineering and component substitution could result in additional costs or

disrupt our operations or logistics.

The WEEE Directive requires electronic goods producers

to be responsible for the collection, recycling and treatment of such products.

Changes in interpretation of the directive may cause us

to incur costs or have additional regulatory requirements to meet in the future in order to comply with this directive, or with any similar

laws adopted in other jurisdictions.

Our failure to comply with past, present, and future similar laws could result in reduced sales of

our products, substantial product inventory write-offs, reputational damage, penalties and other sanctions, which could harm our business

and financial condition.

We also expect that our products will be affected by new environmental laws and regulations on an ongoing basis.

To date, our expenditures for environmental compliance have not had a material impact on our results of operations or cash flows.

we cannot predict the future impact of such laws or regulations, they will likely result in additional costs and may increase penalties

associated with violations or require us to change the content of our products or how they are manufactured.

These developments could

have a material adverse effect on our business and financial condition.

We face competition from larger companies

that have substantially greater resources which challenges our ability to establish market share, grow our business segments, and reach

profitability.

The drone industry is attracting a wide range

of significantly larger companies which have substantially greater financial, management, research and marketing resources than us.

in the Enterprise segment include transportation companies like United Parcel Service, Federal Express and Amazon, as well as defense

companies such as Lockheed Martin Corporation, Northrop Grumman Corporation, and AeroVironment.

Our competitors may be able to provide

customers with different or greater capabilities than we can provide, including technical qualifications, pricing, and key technical support.

Many of our competitors may utilize their greater resources to (i) develop competing products and technologies, (ii) leverage their financial

strength to utilize economies of scale and offer lower pricing, and (iii) hire more qualified personnel by offering more generous compensation

In order to secure orders and contracts, we may have to offer comparable products and services at lower pricing which could

adversely affect our operating margins.

Our inability to compete effectively against these larger companies could have a material adverse

effect on our business, financial condition and operating results.

We may not be able to keep pace with technological

advances in the drone industry.

The drone industry continues to undergo significant

changes, primarily related to technological developments.

The rapid growth of technology and shifting consumer tastes makes it impossible

to predict the overall effect these factors could have on the drone industry.

If we are not able to keep pace with these technological

advances, then our revenues, profitability and results from operations may be materially adversely affected.

We will continue to rely on components (including

micro-display panels organic light-emitting diode (“OLED”) and liquid crystal (“LC”) displays for our goggle displays,

transmitters and cameras) that are developed and produced by other companies.

The commercial success of our future products will depend

on advances in these and other technologies by other companies.

We may, from time to time, contract with and support companies developing

key technologies in order to accelerate the development of such products for our uses.

Such activities might not result in useful technologies

or components for us but may help our competitors.

If critical components become scarce or unavailable,

then we may incur delays in fulfilling sales orders which could adversely impact our business.

We obtain components for our drones from a limited

number of suppliers.

Most of these components are sourced from China which has been engaged in a trade war with the United States over

the past few years.

We do not have a long-term agreement with these suppliers that obligates them to sell components to us.

on these suppliers entails significant risks and uncertainties, including whether these suppliers will provide an adequate quantity of

components, at a reasonable price, and on a timely basis.

While there are options to purchase certain components from suppliers based

in the United States, we would be forced to pay higher prices which would adversely impact our gross margin and operating results.

operating results could be materially, adversely impacted if our suppliers do not provide the critical components used to assemble our

products on a timely basis, at a reasonable price, and in sufficient quantities.

Lack of long-term purchase orders and commitments

from customers may lead to a rapid decline in sales.

Our customers issue purchase orders solely at their

own discretion, often shortly before the requested date of shipment.

Customers are generally able to cancel orders (without penalty) or

delay the delivery of products on relatively short notice.

In addition, current customers may decide not to purchase products for any

If our customers do not continue to purchase our products, then our sales volume could decline rapidly with little or no warning.

We cannot rely on long-term purchase orders or commitments

to protect us from the negative financial effects of a decline in demand for products.

The uncertainty of product orders makes it difficult

to forecast sales and allocate resources in a manner consistent with actual sales.

Moreover, expense levels and the amounts invested in

capital equipment and new product development costs are based in part on expectations of future sales and, if expectations regarding future

sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls.

As a result of lack of long-term

purchase orders and purchase commitments, we may experience a rapid decline in sales.

Our products require a continuing investment

in research and development, and may experience technical problems or delays, which could lead the business to fail.

Our research and development efforts remain subject

to all the risks associated with the development of new products based on emerging and innovative technologies.

This includes, for

example, unexpected technical problems or the possible insufficiency of funds for completing development of these products.

problems or delays arise, further improvements in products and the introduction of future products could be adversely impacted, and we

could incur significant additional expenses, an inability to increase revenues and increasing operating losses.

The nature of our business involves significant

risks and uncertainties that may not be covered by insurance or indemnity.

We develop and sell products where insurance or indemnification

may not be available, including (i) those using advanced and unproven technologies and drones, and (ii) those that collect, distribute

and analyze various types of information.

Failure of certain of our products could result in

loss of life or property damage.

Certain products may raise questions with respect to issues of civil liberties, intellectual property,

trespass, conversion and similar concepts.

Indemnification to cover potential claims or liabilities resulting from a failure of technologies

developed or deployed may be available in certain circumstances but not in others.

We do not and are not able to maintain insurance

to protect against our risks and uncertainties.

Substantial claims resulting from an accident, failure of our product, or liability arising

from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained)

could harm our financial condition, cash flows, and operating results.

Any accident, even if fully covered or insured, could negatively

affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

Product quality issues and a higher-than-expected

number of warranty claims or returns could harm our business and operating results.

The products that we sell could contain defects in

design or manufacture.

Defects could also occur in the products or components that are supplied to us.

There can be no assurance we will

be able to detect and remedy all defects in the hardware and software we sell which could result in product recalls, product redesign

efforts, loss of revenue, reputational damage and significant warranty and other remediation expenses.

Similar to other mobile and consumer

electronics, our products have a risk of overheating in the course of usage or upon malfunction.

Any such defect could result in harm

to property or in personal injury.

If we determine that a product does not meet product quality standards or may contain a defect, the

launch of such product could be delayed until we remedy the quality issue or defect.

The costs associated with any protracted delay necessary

to remedy a quality issue or defect in a new product could be substantial.

We generally provide a one-year warranty on all of

our product except in certain European countries that mandate two years for some consumer-focused products.

The occurrence of any material

defects in our products could expose us to liability for damages and warranty claims in excess of our current reserves, and we could incur

significant costs to correct any defects, warranty claims or other problems.

In addition, if any of our product designs are defective

or are alleged to be defective, we may be required to participate in a recall campaign.

In part due to the terms of our warranty policy,

any failure rate of our products that exceeds our expectations may result in unanticipated losses.

Any negative publicity related to the

perceived quality of our products could affect our brand image and decrease retailer, distributor and consumer confidence and demand,

which could adversely affect our operating results and financial condition.

Further, accidental damage coverage and extended warranties

are regulated in the United States at the state level and are treated differently within each state.

Additionally, outside of the United

States, regulations for extended warranties and accidental damage vary from country to country.

Changes in interpretation of the regulations

concerning extended warranties and accidental damage coverage on a federal, state, local or international level may cause us to incur

costs or have additional regulatory requirements to meet in the future in order to continue to offer our support services.

to comply with past, present and future similar laws could result in reduced sales of our products, reputational damage, penalties and

other sanctions, which could harm our business and financial condition.

Our products will likely experience declining

unit prices and we may not be able to offset that decline with production cost decreases or higher unit sales.

Prices of established consumer and enterprise electronics,

displays, personal computers, and mobile products tend to decline significantly over time or as new enhanced versions are introduced,

frequently every 12 to 24 months in the markets in which we compete.

In order to maintain adequate product profit margins over the long

term, we believe that we will need to continuously develop product enhancements and new technologies that will either slow price declines

of our products or reduce the cost of producing and delivering our products.

While we anticipate opportunities to reduce production costs

over time, we may not be able to reduce our component costs.

We expect to attempt to offset the anticipated decrease in our average selling

price by introducing new products, increasing our sales volumes or adjusting our product mix.

If we fail to do so, our results of operations

will be materially and adversely affected.

Our products could infringe on the intellectual

property rights of others.

Companies in the consumer electronics, wireless communications,

semiconductor, IT, and display industries steadfastly pursue and protect intellectual property rights, often times resulting in considerable

and costly litigation to determine the validity of patents and claims by third parties of infringement of patents or other intellectual

property rights.

Our products could be found to infringe on the intellectual property rights of others.

Other companies may hold or obtain

patents or inventions or other proprietary rights in technology necessary for our business.

Periodically, other companies inquire about

our products and technology in their attempts to assess whether we violate their intellectual property rights.

If we are forced to defend

against infringement claims, we may face costly litigation, diversion of technical and management personnel, and product shipment delays,

even if the allegations of infringement are unwarranted.

If there is a successful claim of infringement against us and we are unable to

develop non-infringing technology or license the infringed or similar technology on a timely basis, or if we are required to cease using

one or more of our business or product names due to a successful trademark infringement claim against us, it could adversely affect our

Our intellectual property rights and proprietary

rights may not adequately protect our products.

Our commercial success will depend substantially on

the ability to obtain patents and other intellectual property rights and maintain adequate legal protection for products in the United

States and other countries.

We will be able to protect our intellectual property from unauthorized use by third parties only to the extent

that these assets are covered by valid and enforceable patents, trademarks, copyrights or other intellectual property rights, or are effectively

maintained as trade secrets.

As of the date of this filing, we own 29 granted United States and foreign patents and 13 pending United

States and foreign patent applications.

patents and patent applications include claims to, among other things, a drone, a printed

circuit board, and HMD technology.

We apply for patents covering our products, services, technologies, and designs, as we deem appropriate.

We may fail to apply for patents on important products, services, technologies or designs in a timely fashion, or at all.

We do not know

whether any of our patent applications will result in the issuance of any patents.

Even if patents are issued, they may not be sufficient

to protect our products, services, technologies, or designs.

Our existing and future patents may not be sufficiently broad to prevent

others from developing competing products, services technologies, or designs.

Intellectual property protection and patent rights outside

of the United States are even less predictable.

As a result, the validity and enforceability of patents cannot be predicted with certainty.

Moreover, we cannot be certain whether:

we were the first to conceive, reduce to practice, invent, or file the inventions covered by each of our issued patents and pending patent applications;

others will independently develop similar or alternative products, technologies, services or designs or duplicate any of our products, technologies, services or designs;

any patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

we will develop additional proprietary products, services, technologies or designs that are patentable;

the patents of others will have an adverse effect on our business.

The patents we own or license and those that may be

issued to us in the future may be challenged, invalidated, rendered unenforceable or circumvented, and the rights granted under any issued

patents may not provide us with proprietary protection or competitive advantages.

Moreover, third parties could practice our inventions

in territories where we do not have patent protection or in territories where they could obtain a compulsory license to our technology

where patented.

Such third parties may then try to import products made using our inventions into the United States or other territories.

We cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth, validity

and enforceability of the claims upheld in our and other companies’ patents.

Unauthorized parties may attempt to copy or otherwise

use aspects of our processes and products that we regard as proprietary.

Policing unauthorized use of our proprietary information and

technology is difficult and can be costly, and our efforts to do so may not prevent misappropriation of our technologies.

We may become

engaged in litigation to protect or enforce our patent and other intellectual property rights or in International Trade Commission proceedings

to abate the importation of goods that would compete unfairly with our products and, if unsuccessful, these actions could result in the

loss of patent or other intellectual property rights protection for the key technologies on which our business strategy depends.

We rely in part on unpatented proprietary technology,

and others may independently develop the same or similar technology or otherwise obtain access to our unpatented technology.

employees, contractors, consultants, financial advisors, suppliers, and strategic partners to enter into confidentiality and intellectual

property assignment agreements (as appropriate), but these agreements may not provide sufficient protection for our trade secrets, know-how

or other proprietary information.

The laws of certain countries do not protect intellectual

property and proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be

unable to protect our products, services, technologies and designs adequately against unauthorized third-party copying, infringement or

use, which could adversely affect our competitive position.

We may initiate proceedings or litigation against third parties.

or enforce our intellectual property rights such proceedings or litigation may be necessary to protect our trade secrets or know-how,

products, technologies, designs, brands, reputation, likeness, authorship works or other intellectual property rights.

Such proceedings

or litigation also may be necessary to determine the enforceability, scope and validity of the proprietary rights of others.

Any proceedings

or lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns.

Additionally, we may provoke third parties to assert claims against us which could invalidate or narrow the scope of our own intellectual

property rights.

We may not prevail in any proceedings or lawsuits that we initiate, and the damages or other remedies awarded, if any,

may be commercially valuable.

The occurrence of any of these events may adversely affect our business, financial condition and operating

We have registered and applied to register certain

of our trademarks in several jurisdictions worldwide.

In some jurisdictions where we have applied to register our trademarks, other applications

or registrations exist for the same, similar, or otherwise related products or services.

If we are not successful in arguing that there

is no likelihood of confusion between our marks and the marks that are the subject of the other applications or registrations owned by

third parties, our applications may be denied, preventing us from obtaining trademark registrations and adequate protection for our marks

in the relevant jurisdictions, which could impact our ability to build our brand identity and market our products and services in those

jurisdictions.

Whether or not our application is denied, third parties may claim that our trademarks infringe their rights.

we could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brand in the

United States or other jurisdictions.

Even in those jurisdictions where we are able to register

our trademarks, competitors may adopt or apply to register similar trademarks to ours, may register domain names that mimic ours or incorporate

our trademarks, or may purchase keywords that are identical or confusingly similar to our brand names as terms in Internet search engine

advertising programs, which could impede our ability to build our brand identity and lead to confusion among potential customers of our

products and services.

If we are not successful in proving that we have prior rights in our marks and arguing that there is a likelihood

of confusion between our marks and the marks of these third parties, our inability to prevent these third parties from using similar marks

may negatively impact the strength, value and effectiveness of our brand names and our ability to market our products and prevent consumer

Our operations may be adversely affected if

we lose our rights under our third-party technology licenses.

Our business depends in part on technology rights

and software licensed from third parties.

We could lose our exclusivity or other rights to use the technology if we fail to comply with

the terms and performance requirements of the licenses.

In addition, certain licensors may terminate a license upon our breach and have

the right to consent to sublicense arrangements.

If we were to lose our rights under any of these licenses, or if we were unable to obtain

required consents to future sublicenses, we could lose a competitive advantage in the market, and may even lose the ability to commercialize

certain products or technologies.

Either of these results could substantially decrease our revenues.

Our business depends in part on access to third-party

platforms or technologies, and if the access is withdrawn, denied, or is not available, or if the platforms or technologies change without

notice, then our business and operating results could be adversely affected.

With the growth of mobile devices and personal voice

assistants, cloud services and artificial intelligence (“AI”), the number of supporting platforms has grown, and with it the

complexity and increased need for us to have business and contractual relationships with the platform owners in order to produce products

compatible with these platforms and enable access to and use of these platforms with our products.

Our product strategy includes current

and future products designed for use with third-party platforms or software, such as iPhone, Android phones, Google Assistant and Amazon

Alexa, as well as gaming platforms.

Our business in these categories relies on our access to the platforms of third parties, some of whom

are our competitors.

Platform owners that are competitors may limit or decline access to their platforms, and in any case have a competitive

advantage in designing products for their own platforms and may produce products that work better, or are perceived to work better, than

our products in connection with those platforms.

As we expand the number of platforms and software applications with which our products

are compatible, we may not be successful in launching products for those platforms or software applications and/or we may not be successful

in establishing strong relationships with the new platform or software owners, which could negatively impact our ability to develop and

produce high-quality products on a timely basis for those platforms and software applications.

We may otherwise fail to navigate various

new relationships which could adversely affect our relationships with existing platform or software owners.

Our access to third-party platforms may also require

paying a royalty or licensing fee which lowers our product margins or may otherwise be on terms that are not acceptable to us.

the third-party platforms or technologies used to interact with our product portfolio can be delayed in production or can change without

prior notice to us which can result in our having excess inventory, lower margins, or customer support issues.

If our customers are not satisfied with our

technical support, firmware or software updates, they may choose not to purchase our products which would adversely impact business and

operating results.

Our business relies on our customers’ satisfaction

with the technical support, firmware, software and security updates we provide to support our products.

If we fail to provide technical

support services and necessary updates that are responsive, satisfy our customers’ expectations and resolve issues that they encounter

with our products, customers may choose not to purchase additional products and we may face brand and reputational harm which could adversely

affect our operating results.

Our use of open-source software could negatively

affect our ability to sell our products and could subject us to possible litigation.

We incorporate open-source software into our products.

Open-source software is generally licensed by its authors or other third parties under open-source licenses.

Some of these licenses contain

requirements that we make available source code for modifications or derivative works we create based upon the open-source software, and

that we license such modifications or derivative works under the terms of a particular open-source license or other license granting third

parties certain rights of further use.

Additionally, if a third-party software provider has incorporated open-source software into software

that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification of

our licensed software.

If an author or other third-party that distributes open-source software that we use or license were to allege that

we had not complied with the conditions of the applicable license, we could incur significant legal expenses defending against those allegations

and could be subject to significant damages, enjoined from offering or selling our products that contained the open-source software and

be required to comply with the foregoing conditions.

Any of the foregoing could disrupt and harm our business and financial condition.

Our operating results may be adversely impacted

by worldwide political, economic and public health uncertainties and specific conditions in the markets we address.

A deterioration in global economic, financial, and/or

public health conditions, including global pandemics, economic recessions and political turmoil could materially adversely affect (i)

our ability to raise, or the terms of needed capital;

(ii) demand for our current and future products;

and (iii) the supply of components

for our products.

We cannot predict the timing, strength, or duration of any economic slowdown or subsequent economic recovery, worldwide,

or in the drone industry.

Our results of operations may suffer if we are

not able to successfully manage our exposure to foreign exchange rate risks.

A substantial majority of our sales and cost of components

are denominated in U.S.

As our business grows, more of our sales and production costs may be denominated in other currencies.

Where such sales or production costs are denominated in other currencies, they are converted to U.S.

dollars for the purpose of calculating

any sales or costs to us.

Our sales may decrease as a result of any appreciation of the U.S.

dollar against these other currencies.

Most of our current expenditures are incurred

dollars and many of our components come from countries that currently base their currency against the U.S.

If the exchange

rates change adversely or are allowed to increase, then additional U.S.

dollars will be required to fund our purchases of these components.

Although we do not currently enter into currency option

contracts or engage in other hedging activities, we may do so in the future.

There is no assurance that we will undertake any such hedging

activities or that, if we do so, they will be successful in reducing the risks associated with our exposure to foreign currency fluctuations.

Our international operations, including the

use of foreign contract manufacturers, subjects us to international operational, financial, legal, political and public health risks which

could harm our operating results.

A substantial part of our operations, including manufacturing

of certain components used in our products, are outside of the United States and many of our customers and suppliers have some or all

of their operations in countries other than the United States.

Risks associated with our doing business outside of the United States include:

compliance burdens and costs with a wide variety of foreign laws and regulations, particularly labor, environmental and other laws and regulations that govern our operations in those countries;

legal uncertainties regarding foreign taxes, tariffs, border taxes, quotas, and export controls,

export licenses, import controls and other trade barriers;

economic instability and high levels of inflation in the countries where our suppliers are located and

customers, particularly in the Asia-Pacific region, causing delays or reductions in orders for their products and therefore our sales;

political or public health instability, including global pandemics, in the countries in which our suppliers operate;

changes or volatility in currency exchange rates;

difficulties in collecting accounts receivable and longer accounts receivable payment cycles;

Any of these factors could harm our own, our suppliers’ and our customers’ international operations and businesses and impair our and/or their ability to continue expanding into international markets.

We could be adversely affected by violations

Foreign Corrupt Practices Act or similar anti-bribery laws in other jurisdictions in which we operate.

The global nature of our business creates various

domestic and local regulatory challenges and subject us to risks associated with our international operations.

We operate in areas of

the world that experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery

and anticorruption laws may conflict with local customs and practices.

Our global operations require us to import and export to and from

several countries, which geographically expands our compliance obligations.

In addition, changes in such laws could result in increased

regulatory requirements and compliance costs which could adversely affect our business, financial condition, and results of operations.

Foreign Corrupt Practices Act (FCPA) and

similar anti-bribery and anticorruption laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from

making improper payments to non-U.S.

officials for the purpose of obtaining or retaining business, directing business to another, or securing

an advantage.

In addition, U.S.

public companies are required to maintain records that accurately and fairly represent their transactions

and have an adequate system of internal accounting controls.

Under the FCPA, U.S.

companies may be held liable for the corrupt actions

taken by directors, officers, employees, agents, or other strategic or local partners or representatives.

As such, if we or our intermediaries

fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the United States and elsewhere could

seek to impose substantial civil and/or criminal fines and penalties which could have a material adverse effect on our business, reputation,

operating results and financial condition.

We are subject to governmental export and import

controls, and economic sanctions laws that could subject us to liability and impair our ability to compete in international markets.

and various foreign governments have imposed

controls, export license requirements and restrictions on the import or export of some technologies.

Our products are subject to U.S.

export controls, including the Commerce Department’s Export Administration Regulations and various economic and trade sanction regulations

established by the Treasury Department’s Office of Foreign Assets Controls.

Exports of our products must be made in compliance with

Furthermore, U.S.

export control laws and economic sanctions prohibit the provision of products and services to countries,

governments, and persons targeted by U.S.

Even though we take precautions to prevent our products from being provided to targets

sanctions, our products could be provided to those targets or provided by our customers despite such precautions.

Any such provision

could have negative consequences, including government investigations, penalties, and reputational harm.

Our failure to obtain required

import or export approval for our products could harm our international and domestic sales and adversely affect our revenue.

If significant tariffs or other restrictions

are placed and maintained on Chinese imports or any related counter-measures are taken by China, our revenue and results of operations

may be adversely impacted.

If significant tariffs or other restrictions are placed

on Chinese imports or any related counter-measures are taken by China, our revenue and results of operations may be adversely impacted.

In 2018, the Trump Administration introduced a list of thousands of categories of goods that began facing tariffs of which may be increased

in the future.

These tariffs currently affect some of our products and we may be required to raise our prices on those products due to

the tariffs, which may result in a loss of customers and harm our operating performance.

If the existing tariffs are expanded or interpreted

by a court or governmental agency to apply to any of our other products, we may be required to raise our prices on those products, which

may further result in a loss of customers and harm our operating performance.

It is possible further tariffs will be imposed on imports

of our products, or that our business will be impacted by retaliatory trade measures taken by China or other countries in response to

existing or future tariffs, causing us to raise prices or make changes to our operations, any of which could materially harm our revenue

or operating results.

Changes in trade policy in the United States

and other countries may have adverse impacts on our business, results of operations and financial condition.

government has indicated its intent to alter

its approach to international trade policy through the renegotiation, and potential termination, of certain trade agreements and treaties

with China, countries in EMEA and other countries.

These changes could include the imposition of tariffs on a wide range of products.

Policy changes in the United States or other countries, such as the tariffs already proposed, implemented, and threatened, present risks

Tariffs already announced and implemented are having an adverse effect on certain of our products, tariffs announced but not yet

implemented may have an adverse effect on many of our products, and threatened tariffs could adversely affect more or all of our products.

There are also risks associated with retaliatory tariffs and resulting trade wars.

We cannot predict future trade policy, the terms of

any renegotiated trade agreements or treaties, or tariffs and their impact on our business.

A trade war could have a significant adverse

effect on world trade and the world economy.

To the extent that trade tariffs and other restrictions imposed by the United States or other

countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the

United States or other countries, or create adverse tax consequences, the sales, cost or gross margin of our products may be adversely

affected and the demand from our customers for products and services may be diminished.

Uncertainty surrounding international trade policy

and disputes and protectionist measures could also have an adverse effect on consumer confidence and spending.

If we deem it necessary

to alter all or a portion of our activities or operations in response to such policies, agreements or tariffs, our capital and operating

costs may increase.

Our ongoing efforts to address these risks may not be effective and may have long-term adverse effects on our operations

and operating results that we may not be able to reverse.

Such efforts may also take time to implement or to have an effect, and may result

in adverse quarterly financial results or fluctuations in our quarterly financial results.

As a result, changes in international trade

policy, changes in trade agreements and tariffs could adversely affect our business, results of operations and financial condition.

Any significant disruption to ecommerce business

could result in lost sales.

Our sales through ecommerce channels have been growing.

Sales through rotorriot.com, and fatshark.com and our related web stores generally have higher profit margins than sales through resellers,

and distributors.

Attracting and retaining qualified personnel, especially engineers with the requisite technical skills;

Successfully developing and commercially marketing new products:

Accessing the capital markets to raise additional capital, on reasonable terms, if and when required to sustain operations or to grow

the business.

face competition from larger companies that have substantially greater resources which challenges our ability to establish market share,

grow our business segments, and reach profitability.

drone industry is attracting a wide range of significantly larger companies which have substantially greater financial, management, research

and marketing resources than us.

Competitors in the Enterprise segment include transportation companies like United Parcel Service, Federal

Express and Amazon, as well as defense companies such as Lockheed Martin Corporation, Northrop Grumman Corporation, and AeroVironment.

Our competitors may be able to provide customers with different or greater capabilities than we can provide, including technical qualifications,

pricing, and key technical support.

Many of our competitors may utilize their greater resources to (i) develop competing products and

technologies, (ii) leverage their financial strength to utilize economies of scale and offer lower pricing, and (iii) hire more qualified

personnel by offering more generous compensation packages.

In order to secure orders and contracts, we may have to offer comparable products

and services at lower pricing which could adversely affect our operating margins.

Our inability to compete effectively against these

larger companies could have a material adverse effect on our business, financial condition, and operating results.

may not be able to keep pace with technological advances in the drone industry.

drone industry continues to undergo significant changes, primarily related to technological developments.

The rapid growth of technology

and shifting consumer tastes makes it impossible to predict the overall effect these factors could have on the drone industry.

are not able to keep pace with these technological advances, then our revenues, profitability and results from operations may be materially

adversely affected.

will continue to rely on components (including micro-display panels organic light-emitting diode (“OLED”) and liquid crystal

(“LC”) displays for our goggle displays, transmitters and cameras) that are developed and produced by other companies.

commercial success of our future products will depend on advances in these and other technologies by other companies.

We may, from time

to time, contract with and support companies developing key technologies in order to accelerate the development of such products for

Such activities might not result in useful technologies or components for us but may help our competitors.

significant disruption to ecommerce business could result in lost sales.

sales through ecommerce channels have been growing.

Sales through rotorriot.com, and fatshark.com and our related web stores generally

have higher profit margins than sales through resellers and distributors.

Online sales are subject to a number of risks.

System interruptions or delays could cause potential customers to fail

to purchase our products and could harm our brand.

The operation of our direct-to-consumer ecommerce business depends on our ability to

maintain the efficient and uninterrupted operation of online order-taking and fulfillment operations.

Our ecommerce operations subject

us to certain risks that could have an adverse effect on our operating results, including risks related to the computer systems that operate

our website and related support systems, such as system failures, viruses, denial of services attacks, computer hackers and similar disruptions.

If we are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure and take other steps

to improve the efficiency of our systems, then system interruptions or delays could occur that would adversely affect our operating results.

We utilize third-party vendors for our customer-facing

ecommerce technology, portions of our order management system and fulfillment internationally.

We depend on our technology vendors to

manage “up-time” of the front-end ecommerce store, manage the intake of our orders, and export orders for fulfillment.

failure on the part of our third-party ecommerce vendors or in our ability to transition third-party services effectively could result

in lost sales and harm our business.

We may collect, store, process and use the personally

identifiable information and other data, which subjects us to governmental regulation and other legal obligations related to privacy,

information security and data protection.

Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations

by us, or by our third-party service providers or partners, could harm our business.

We may collect, store, process and use the personally

identifiable information of our customers and other data in our transactions with them.

We also rely on third parties that are not directly

under our control to do so as well.

While we take reasonable measures to protect the security, integrity and confidentiality of the personal

information and other sensitive information we collect, store or transmit, we cannot guarantee that inadvertent or unauthorized use or

disclosure will not occur, or that third parties will not gain unauthorized access to this information.

While our privacy policies currently

prohibit such activities, our third-party service providers or partners may engage in such activity without our knowledge or consent.

If we or our third- party service providers were to experience a breach, disruption or failure of systems compromising our customers’

data, or if one of our third-party service providers or partners were to access our customers’ personal data without our authorization,

our brand and reputation could be adversely affected, use of our products could decrease, and we could be exposed to a risk of loss, litigation

and regulatory proceedings.

Regulatory scrutiny of privacy, data collection, use

of data and data protection is intensifying globally, and the personal information and other data we collect, store, process and use is

increasingly subject to legislation and regulations in numerous jurisdictions around the world, especially in Europe.

These laws often

develop in ways we cannot predict and may materially increase our cost of doing business, particularly as we expand the nature and types

of products we offer.

Data protection legislation is becoming increasingly

common in the United States at both the federal and state level.

For example, in June 2018, the State of California enacted the California

Consumer Privacy Act of 2018 (the "CCPA"), which went into effect on January 1, 2020.

The CCPA requires companies that process

information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows

consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches.

Additionally, the

Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards

for the online collection, use, dissemination and security of data.

The burdens imposed by the CCPA and other similar laws that may be

enacted at the federal and state level may require us to modify our data processing practices and policies and/or to incur substantial

expenditures in order to comply.

Cybersecurity risks could adversely affect our

business and disrupt our operations.

The threats to network and data security are increasingly

diverse and sophisticated.

Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems,

and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber-attacks such as viruses

and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions

from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could

lead to interruptions, delays, loss of critical data, unauthorized access to user data, and loss of consumer confidence.

we may be the target of email scams that attempt to acquire personal information or company assets.

Despite our efforts to create security

barriers to such threats, we may not be able to entirely mitigate these risks.

Any cyber-attack that attempts to obtain our or our users’

data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely

affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation.

In addition, any such

breaches may result in negative publicity, adversely affect our brand, decrease demand for our products and services, and adversely affect

our operating results and financial condition.

We could lose the services of key management

personnel of the companies that we have acquired which could adversely impact our ability to operate and execute our subsidiaries effectively.

In recent years, we have completed four acquisitions

which have resulted in a significant expansion in the number of key management personnel and our reliance on them.

the former President of Fat Shark is now Chief Operating Officer of Red Cat Holdings.

George Matus has remained as President of

Drew Camden has remained as President of Rotor Riot, LLC.

Giuseppe Santangelo has remained as President of Skypersonic.

Each of these individuals were critical to the founding and growth of their companies prior to their being acquired by Red Cat Holdings.

They have specific knowledge and insight regarding the operations of their respective companies, and the loss of any of them could adversely

affect the efficiency of the operations of the related subsidiary.

Our efforts to do so are likely to result in difficulties in

effectively growing their businesses and higher operating costs which would adversely impact our operating results.

We must recruit and retain highly trained and

experienced employees, especially engineers, in order to succeed in our business.

We will need to hire and retain highly skilled technical

personnel as employees and as independent contractors in order to develop our products and grow our business.

The competition for highly

skilled technical, managerial, and other personnel can be intense.

Our recruiting and retention success is substantially dependent upon

our ability to offer competitive salaries and benefits to our employees.

We must compete with companies that possess greater financial

and other resources than we do and that may be more attractive to potential employees and contractors.

To be competitive, we may have

to increase the compensation, bonuses, stock options and other fringe benefits we offer to employees in order to attract and retain such

The costs of retaining or attracting new personnel may have a material adverse effect on our business and operating results.

If we fail to attract and retain the technical and managerial personnel required to be successful, our business, operating results and

financial condition could be materially adversely affected.

Acquisitions could

divert the attention of key personnel, be difficult to integrate, dilute our existing shareholders and adversely impact our financial

Since January 2020, we have completed four acquisitions

which have significantly increased the scope of our operations and our employee headcount.

Acquisitions include a wide range of risks,

any of which could hurt our business, including the following:

* difficulties in integrating the operations of

a newly acquired company including existing products and contracts, differences in corporate culture, operating systems and other integration

* challenges supporting and transitioning the

customers of acquired companies and the loss of any acquired customers will adversely impact our revenues and operating results;

* assumption of known and unknown operating problems

and our potential inability to address them in a timely and efficient manner;

* risks of entering new geographic markets where

we have no prior experience and are required to gain an understanding of the legal, regulatory, labor and business laws of these new markets;

In addition, there are many financial risks associated

with the cost of acquisitions.

If we finance the cost of an acquisition using common stock, then our existing shareholders will

be diluted and our stock price could decrease.

If we finance the cost of an acquisition using debt, such financing could include

restrictive covenants that restrict our operating and financial flexibility.

If the stock market perceives that we overpaid for

the acquisition, then our stock price could decrease.

Our failure to effectively manage growth could

harm our business.

We intend to expand the number and types of products

We will need to replace and regularly introduce on a timely basis new products and technologies, enhance existing products, and

effectively stimulate customer demand for new products and upgraded or enhanced versions of our existing products.

The replacement and expansion of our products places

a significant strain on our management, operations and engineering resources.

Specifically, the areas that are strained most by these

activities include the following:

New Product Launches:

With the changes in and growth of our product portfolio, we will experience increased complexity in coordinating product development, manufacturing, and shipping.

As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate supply to meet anticipated customer demand and effectively market to stimulate demand and market acceptance.

We have experienced delays in the past.

If we are unable to scale and improve our product launch coordination, we could frustrate our customers and lose possible retail shelf space and product sales;

Existing Products Impacted by New Introductions :

The introduction of new products or product enhancements may shorten the life cycle of our existing products, or replace sales of some of our current products, thereby offsetting the benefit of a successful product introduction and may cause customers to defer purchasing our existing products in anticipation of the new products and potentially lead to challenges in managing inventory of existing products.

We may also provide price protection to some of our retailers as a result of new product introductions and reduce the prices of existing products.

If we fail to effectively manage new product introductions, our revenue and profitability may be harmed;

Forecasting, Planning and Supply Chain Logistics :

With the changes in and growth of our product portfolio, we will experience increased complexity in forecasting customer demand, in planning for production, and in transportation and logistics management.

If we are unable to scale and improve our forecasting, planning, production, and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.

Our facilities and information systems and those

of our key suppliers could be damaged as a result of disasters or unpredictable events, which could have an adverse effect on our business

We presently have facilities in Puerto Rico, Italy,

and in multiple locations in the United States.

We also rely on third-party manufacturing plants in the US and Asia and third-party logistics,

sales and marketing facilities elsewhere in other parts of the world to provide key components for our products and services.

disasters such as earthquakes, hurricanes, tropical storms pandemics, fires, floods, wars, terrorist attacks, computer viruses, transportation

disasters or other events occur in any of these locations, or the effect of climate change on any of these factors or our locations,

or our information systems or communications network or those of any of our key component suppliers breaks down or operates improperly

as a result of such events, our facilities or those of our key suppliers may be seriously damaged, and we may have to stop or delay production

and shipment of our products.

We may also incur expenses relating to such damages.

If production or shipment of our products or components

is stopped or delayed or if we incur any increased expenses as a result of damage to our facilities, our business, operating results

and financial condition could be materially adversely affected.

We rely on third-party suppliers, some of which

are sole-source suppliers, to provide components for our products which may lead to supply shortages, long lead times for components,

and supply changes, any of which could disrupt our supply chain, increase our costs, and adversely impact our operating results

Our ability to meet customer demand depends, in part,

on our ability to obtain timely and adequate delivery of components for our products.

All of the components that go into our products

are sourced from third-party suppliers.

Some of the key components used to manufacture our products come from a limited or single source

of supply, or by a supplier that could potentially become a competitor.

Our contract manufacturers generally purchase these components

on our behalf from approved suppliers.

We are subject to the risk of shortages and long lead times in the supply of these components and

the risk that our suppliers discontinue or modify components used in our products.

In addition, the lead times associated with certain

components are lengthy and preclude rapid changes in quantities and delivery schedules.

We have experienced component shortages, and the

availability of these components may be unpredictable in the future.

If we lose access to or experience a significant disruption

in the supply of products and components from a supplier, we may be unable to locate alternative suppliers of comparable quality at an

acceptable price, or at all, and our business could be materially and adversely affected.

In addition, if we experience a significant

increase in demand for our products, our suppliers might not have the capacity or elect not to meet our needs as they allocate components

to other customers.

Developing suitable alternate sources of supply for these components may be time-consuming, difficult and costly,

and we may not be able to source these components on terms that are acceptable to us, or at all, which may adversely affect our ability

to fulfill our orders in a timely or cost-effective manner.

Identifying a suitable supplier is an involved process that requires us to

become satisfied with the supplier’s quality control, responsiveness and service, financial stability, labor and other ethical practices.

If we seek to source materials from new suppliers, there can be no assurance that we could do so in a manner that does not disrupt the

manufacture and sale of our products.

Our reliance on single source, or a small number of

suppliers involves a number of additional risks, including risks related to supplier capacity constraints, price increases, timely delivery,

component quality, failure of a key supplier to remain in business and adjust to market conditions, and natural disasters, fire, acts

of terrorism or other catastrophic events, including global pandemics.

Several steps of our manufacturing processes

are dependent upon certain critical machines and tools which could result in delivery interruptions and foregone revenues.

We currently have little equipment redundancy in manufacturing

If we experience any significant disruption in manufacturing or a serious failure of a critical piece of equipment, we may be

unable to supply products to our customers in a timely manner.

Interruptions in our manufacturing could be caused by equipment problems,

the introduction of new equipment into the manufacturing process or delays in the delivery of new manufacturing equipment.

Lead-time for

delivery, installation, testing, repair and maintenance of manufacturing equipment can be extensive.

We have experienced production interruptions

in the past and no assurance can be given that we will not lose potential sales or be able to meet production orders due to future production

interruptions in our manufacturing lines.

Our products are subject to lengthy development

Our products are subject to lengthy product development

The time elapsed between initial sampling of our products, the custom design of our products to meet specific product requirements,

and the ultimate incorporation of our products into salable products is significant, often with a duration of between one to two years.

If our products fail to meet our customers’ cost, performance, or technical requirements or if unexpected technical challenges arise

in the integration of our products into enterprise or consumer markets, then our operating results could be significantly and adversely

Long delays in achieving customer qualification and incorporation of our products also could adversely affect our business.

Many HMD companies including Fat Shark are introducing digital HMDs which could create shortages of components and provide an opportunity

for companies with significantly greater resources than us to accelerate migration to digital products in a manner or timeline which we

cannot meet, which could cause us to lose market share and harm our business and prospects.

These same risks exist in our Enterprise sector

where our competitors include some of the largest defense companies in the world.

We depend on third parties to provide integrated

circuit chip sets and other critical components for use in our products.

We do not manufacture the integrated circuit chip

sets, optics, micro-displays, backlights, projection engines, printed circuit boards or other electronic components which are used in

our products.

Instead, we purchase them from third-party suppliers or rely on third-party independent contractors for these integrated

circuit chip sets and other critical components, some of which are customized, or custom made for us.

We also may use third parties to

assemble all or portions of our products.

Some of these third-party contractors and suppliers are small companies with limited financial

If any of these third-party contractors or suppliers were unable or unwilling to supply these components, our sales and operating

results would be adversely impacted.

As the availability of components decreases, the cost of acquiring those components ordinarily increases.

High growth product categories such as the consumer electronics and mobile phone markets have experienced chronic shortages of components

during periods of exceptionally high demand.

If we do not properly anticipate the need for or procure critical components, we may pay

higher prices for those components, our gross margins may decrease and we may be unable to meet the demands of our customers and end-users,

which could reduce our competitiveness, cause a decline in our market share and have a material adverse effect on our results of operations.

Risks Related to Our Enterprise Segment

government contracts are generally not fully funded at

inception and may include provisions that are not favorable to us which could adversely impact our cash flows and results of operations

US government contracts often have long lead times

for design and development, and can be subject to significant changes in delivery timelines.

Congress normally appropriates funds

on its fiscal year basis, and it may not fully fund a program in the same fiscal year.

Depending upon the results of political

elections, the actions of Congress can change from one fiscal year to the next.

As a result, we may be required to expend funds

to fulfill existing orders, but subsequently have the delivery timeline extended or the order cancelled.

Such results would have

an adverse impact on our financial position and results of operations.

A decline in U.S.

government budgets, changes in spending priorities,

or delays in contract awards could adversely affect the revenues of our Teal subsidiary.

We presently expect that much of our future revenue growth will be

generated by our wholly owned subsidiary, Teal Drones, and that their primary customer is likely to be the U.S.

System interruptions

or delays could cause potential customers to fail to purchase our products and could harm our brand.

The operation of our direct-to-consumer

ecommerce business depends on our ability to maintain the efficient and uninterrupted operation of online order-taking and fulfillment

Our ecommerce operations subject us to certain risks that could have an adverse effect on our operating results, including

risks related to the computer systems that operate our website and related support systems, such as system failures, viruses, denial

of services attacks, computer hackers and similar disruptions.

If we are unable to continually add software and hardware, effectively

upgrade our systems and network infrastructure and take other steps to improve the efficiency of our systems, then system interruptions

or delays could occur that would adversely affect our operating results.

utilize third-party vendors for our customer-facing ecommerce technology, portions of our order management system and fulfillment.

depend on our technology vendors to manage “up-time” of the front-end ecommerce store, manage the intake of our orders, and

export orders for fulfillment.

Any failure on the part of our third-party ecommerce vendors or in our ability to transition third-party

services effectively could result in lost sales and harm our business.

Cybersecurity

risks could adversely affect our business and disrupt our operations.

threats to network and data security are increasingly diverse and sophisticated.

Despite our efforts and processes to prevent breaches,

our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity

These risks include cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic

break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those

of third parties that we use in our operations.

The occurrence of any of these events could lead to interruptions, delays, loss of critical

data, unauthorized access to user data, and loss of consumer confidence.

In addition, we may be the target of email scams that attempt

to acquire personal information or company assets.

Despite our efforts to create security barriers to such threats, we may not be able

to entirely mitigate these risks.

Any cyber-attack that attempts to obtain our data and assets, disrupt our service, or otherwise access

our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition.

A cyber attack would be expensive to remedy and could damage our reputation.

In addition, any such breaches may result in negative publicity,

adversely affect our brand, decrease demand for our products and services, and adversely affect our operating results and financial condition.

Related to Our Enterprise Segment

government contracts are generally not fully funded at inception and may include provisions that are not favorable to us which could

adversely impact our cash flows and results of operations.

government contracts often have long lead times for design and development, and can be subject to significant changes in delivery timelines.

Congress normally appropriates funds on its fiscal year basis, and it may not fully fund a program in the same fiscal year.

upon the results of political elections, the actions of Congress can change from one fiscal year to the next.

As a result, we may be

required to expend funds to fulfill existing orders, but subsequently have the delivery timeline extended or the order cancelled.

results would have an adverse impact on our financial position and results of operations.

decline in U.S.

government budgets, changes in spending priorities, or delays in contract awards could adversely affect the revenues

of our Teal subsidiary.

presently expect that much of our future revenue growth will be generated by our wholly owned subsidiary, Teal Drones, and that their

primary customer is likely to be the U.S.

government and its agencies.

As a result, our business may be adversely impacted due to changes in the political environment, including those related to changes in

the leadership of the current and or future administrations.

We cannot provide assurance that the current levels of congressional funding,

for defense in general, and for drones specifically, will continue at their current levels or decrease in the future.

If annual budget

appropriations are not enacted on a timely basis, we could encounter government shutdowns which could adversely impact any existing programs

including the timely payment of prior shipments, as well as the receipt of future orders.

Our work for the U.S.

government could

expose us to security risks.

We expect that an increasing

percentage of our revenues will come from the U.S.

As a result, our business may be adversely impacted due to changes

in the political environment, including those related to changes in the leadership of the current and or future administrations.

provide assurance that the current levels of congressional funding, for defense in general, and for drones specifically, will continue

at their current levels or decrease in the future.

If annual budget appropriations are not enacted on a timely basis, we could encounter

government shutdowns which could adversely impact any existing programs including the timely payment of prior shipments, as well as the

receipt of future orders.

work for the U.S.

government could expose us to security risks.

expect that an increasing percentage of our revenues will come from the U.S.

government and its agencies.

This may expose us to numerous security threats, including

cyber security attacks on our information technology infrastructure as well as threats to the physical safety of our facilities and our

We utilize numerous controls and procedures to monitor and prevent these threats, however, we can provide no assurance that

they will be effective.

Any improper use of our data, information technology systems or facilities could adversely impact our operations

and operating results.

We expect to incur substantial research and development costs

and devote significant resources to identifying and commercializing new products and services which could significantly reduce our profitability

and may never result in revenue to us.

Our future growth depends on expanding into new

markets, adapting existing products to new applications, and introducing new products and services that achieve market acceptance.

plan to incur substantial research and development costs as part of these efforts.

We spent $2.6 million, or 41% of our revenue, in our

fiscal year ended April 30, 2022, on internal research and development activities.

We believe that there are significant investment opportunities

in a number of business areas.

Because we account for internal research and development as an operating expense, these expenditures will

adversely affect our earnings in the future.

Further, our research and development programs may not produce successful results, and our

new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially harm

our business, prospects, financial results and liquidity.

Risks Related to Our Consumer Business

Our Consumer Segment operates in a highly

competitive market and the size, resources, and brand name of its competitors may allow them to compete more effectively than our businesses

can which could result in a loss of market share and a decrease in revenues.

The market for drones and head-worn display devices,

including FPV HMDs, is highly competitive.

Further, we expect competition to intensify in the future as existing competitors introduce

new and more competitive offerings alongside their existing products, and as new market entrants introduce new products into our markets.

We compete against established, well-known diversified consumer electronics manufacturers such as Samsung, Sony, LG Electronics (LGE),

HTC, Lenovo, and large software and other products companies such as Alphabet Inc.

(Google), Microsoft, Facebook and Snap.

drone market, we compete with established, well-known manufacturers such as Epson, Yuneec, Boscam, Eachine, Walkera, SkyZone, MicroLED

Many of our current competitors have substantial market share, diversified product lines, well-established supply and distribution

systems, strong worldwide brand recognition and greater financial, marketing, research, development and other resources than us.

many of our existing and potential competitors enjoy substantial competitive advantages, such as:

This may expose us to numerous

security threats, including cyber security attacks on our information technology infrastructure as well as threats to the physical safety

of our facilities and our employees.

We utilize numerous controls and procedures to monitor and prevent these threats, however, we can

provide no assurance that they will be effective.

Any improper use of our data, information technology systems or facilities could adversely

impact our operations and operating results.

are subject to extensive government regulation and our failure to comply with these regulations could subject us to penalties that may

adversely impact our ability to operate our business.

a vendor to the U.S.

government and other state and local agencies, we are subject to and must comply with numerous government regulations

which impact how we operate our business.

These regulations could adversely affect our revenues, operating costs and profit margins.

Some of the regulations to which we are subject, and the federal agencies which administer these regulations, include:

Aviation Administration, which regulates the use of airspace for all aircraft, including UAS such as drones

Truth in Negotiations Act, which requires certification and disclosure of all factual pricing and cost data in contract negotiations

Federal Acquisition Regulations, which govern the formation and administration, as well as the performance, under government contracts

False Statements Act and The False Claims Act which imposes penalties on payments made on the basis of facts provided to the government

Federal Communications Commission which regulates the wireless spectrum upon which drones depend for data transmission

is expensive and time consuming to comply with the regulations and requirements of these federal government agencies.

The costs incurred

to maintain compliance will adversely impact our operating costs and could delay our ability to operate profitably in the future, if

Related to Our Consumer Segment

Consumer Segment operates in a highly competitive market and the size, resources, and brand name of its competitors may allow them to

compete more effectively than our businesses which could result in a loss of market share and a decrease in revenues.

market for drones and head-worn display devices, including FPV HMDs, is highly competitive.

We expect competition to intensify in the

future as existing competitors introduce new and more competitive offerings alongside their existing products, and as new market entrants

introduce new products into our markets.

We compete against established, well-known diversified consumer electronics manufacturers such

as Samsung, Sony, LG Electronics (LGE), HTC, Lenovo, and large software and other products companies such as Alphabet Inc.

Microsoft, Facebook and Snap.

In the FPV drone market, we compete with established, well-known manufacturers such as Epson, Yuneec, Boscam,

Eachine, Walkera, SkyZone, MicroLED and DJI.

Many of our current competitors have substantial market share, diversified product lines,

well-established supply and distribution systems, strong worldwide brand recognition and greater financial, marketing, research, development

and other resources than us.

In addition, many of our existing and potential competitors enjoy substantial competitive advantages, such

longer operating histories;

the capacity to leverage their

sales efforts and marketing expenditures across a broader portfolio of products;

broader distribution and established

relationships with channel partners;

access to larger, established

customer bases and known branding;

greater resources to fund research

and development and to make acquisitions;

larger intellectual property

the ability to bundle competitive

offerings with other products and services.

Smartphones, tablets, and new wearable devices with

larger video display screens and computing power have significantly improved the mobile personal computing experience.

In the future,

the manufacturers of these devices, such as Apple Inc., Samsung, LGE, Lenovo, Google/Fitbit, Snap, Garmin, Facebook, Microsoft and others

may design or develop products similar to ours.

In addition, new companies may emerge and offer competitive products.

Increased competition

may result in pricing pressure and reduced profit margins and may impede our ability to increase the sales of our products.

factors could substantially harm our business and results of operations.

If our Consumer Segment fails to keep pace with

changing consumer preferences or technologies, then our business and results of operations may be materially adversely affected.

Rapidly changing customer requirements, evolving technologies

and industry standards characterize the consumer electronics, wearables, and display industries.

To succeed in the consumer marketplace,

we seek to enhance existing products and develop and market new products that keep pace with continuing changes in industry standards,

requirements, and customer preferences.

Our success depends on our ability to develop new

products and to identify trends as well as to anticipate and react to changing customer demands in a timely manner.

If we are unable to

introduce new products or novel technologies in a timely manner, or new products or technologies are not accepted by customers, then our

competitors may introduce more advanced and competitive products which could hurt our competitive position.

Our new products might not

receive customer acceptance if customer preferences shift to other products, and our future success depends on our ability to anticipate

and respond to these changes.

Failure to anticipate and respond in a timely manner to changing customer preferences could lead to, among

other things, lost business, lower revenue and excess inventory levels.

If we do not maintain and develop sales channels

for products, then our sales could decline, and our operating losses could increase.

We depend upon effective sales channels in reaching

the customers who purchase our drone and HMD products.

We primarily sell products either from in-house sales teams directly to retail

outlets such as hobby shops or through websites and value-added resellers (“VARS”).

Distributors, third-party online resellers and VARs

generally offer products from several different manufacturers.

Accordingly, these distributors, resellers and VARs may give higher priority

to selling other companies’ products.

If we were to lose the services of a distributor, online reseller, or VAR, we might need to

find a replacement, and there can be no assurance of our ability to do so in a timely manner or on favorable terms.

Further, resellers

and distributors may build inventories in anticipation of future sales, and if such sales do not occur as rapidly as they anticipate,

resellers and distributors will decrease the size of their future product orders.

We are also subject to the risks of distributors, resellers

and VARs encountering financial difficulties which could impede their effectiveness and also expose us to financial risk.

if they are unable to pay for the products they purchase or ongoing disruptions in business, for example from natural disasters or the

effects of COVID-19.

Any reduction in sales by current distributors or VARs, loss of key distributors and VARs or decrease in revenue

from distributors and VARs could adversely affect our revenue, operating results, and financial condition.

create awareness of brands and products;

convert consumer awareness into actual

product purchases;

effectively manage marketing costs

(including creative and media) in order to maintain acceptable operating margins and return on marketing investment;

successfully offer to sell products

or license technology to third-party companies for sale.

Planned marketing expenditures are unknown and may

not result in increased total sales or generate sufficient levels of product and brand name awareness.

We may not be able to manage marketing

expenditures on a cost-effective basis.

If HMD’s and pilot gear do not gain greater

acceptance in the marketplace, the business strategy may fail.

The acquisition of Fat Shark was based upon the acceptance

of HMD wearables for FPV control of drones and the continuation of the attractiveness of that method for piloting drones.

Fat Shark has

experienced declining revenues over the past several years and such trend may continue or accelerate.

Advances in other technologies may

overcome their current market limitations and permit them to remain or become more attractive technologies for FPV applications, which

could limit the potential market for our products and cause our business strategy to fail.

the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products;

broader distribution and established relationships with channel partners;

access to larger, established customer bases and known branding;

greater resources to fund research and development and to make acquisitions;

larger intellectual property portfolios;

the ability to bundle competitive offerings with other products and services.

tablets, and new wearable devices with larger video display screens and computing power have significantly improved the mobile personal

computing experience.

In the future, the manufacturers of these devices, such as Apple Inc., Samsung, LGE, Lenovo, Google/Fitbit, Snap,

Garmin, Facebook, Microsoft and others may design or develop products similar to ours.

In addition, new companies may emerge and offer

competitive products.

Increased competition may result in pricing pressure and reduced profit margins and may impede our ability to increase

the sales of our products.

Any of these factors could substantially harm our business and results of operations.

our Consumer Segment fails to keep pace with changing consumer preferences or technologies, then our business and results of operations

may be materially adversely affected.

changing customer requirements, evolving technologies and industry standards characterize the consumer electronics, wearables, and display

To succeed in the consumer marketplace, we seek to enhance existing products and develop and market new products that keep

pace with continuing changes in industry standards, requirements, and customer preferences.

success depends on our ability to develop new products and to identify trends as well as to anticipate and react to changing customer

demands in a timely manner.

If we are unable to introduce new products or novel technologies in a timely manner, or new products or technologies

are not accepted by customers, then our competitors may introduce more advanced and competitive products which could hurt our competitive

Our new products might not receive customer acceptance if customer preferences shift to other products, and our future success

depends on our ability to anticipate and respond to these changes.

Failure to anticipate and respond in a timely manner to changing customer

preferences could lead to lost business, lower revenue and excess inventory levels.

we do not maintain and develop sales channels for products, then our sales could decline, and our operating losses could increase.

depend upon effective sales channels in reaching the customers who purchase our drone and HMD products.

We primarily sell products either

from in-house sales teams directly to retail outlets such as hobby shops or through websites and value-added resellers.

Distributors,

third-party online resellers, and VARs generally offer products from several different manufacturers.

Accordingly, these distributors,

resellers and VARs may give higher priority to selling other companies’ products.

If we were to lose the services of a distributor,

online reseller, or VAR, we might need to find a replacement, and there can be no assurance of our ability to do so in a timely manner

or on reasonable terms and conditions.

Further, resellers and distributors may build inventories in anticipation of future sales, and

if such sales do not occur as rapidly as they anticipate, resellers and distributors will decrease the size of their future product orders.

We are also subject to the risks of distributors, resellers and VARs encountering financial difficulties which could impede their effectiveness

and also expose us to financial risk.

For example, if they are unable to pay for the products they purchase or are subject to ongoing

disruptions in their business from unexpected events such as COVID-19.

Any reduction in sales by current distributors or VARs, loss of

key distributors and VARs or decrease in revenue from distributors and VARs could adversely affect our revenue, operating results, and

financial condition.

HMD’s and pilot gear do not gain greater acceptance in the marketplace, the business strategy may fail.

acquisition of Fat Shark was based upon the acceptance of HMD wearables for FPV control of drones and the continuation of the attractiveness

of that method for piloting drones.

Fat Shark has experienced declining revenues over the past several years and such trend may continue

or accelerate.

Advances in other technologies may enable them to become more attractive technologies for FPV applications, which could

limit the potential market for our products and cause our business strategy to fail.

If end-users fail to accept HMDs in the numbers

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our business strategy may fail.

There are a number of competing providers of

micro-display-based personal display technology, including HMDs, and we may fail to capture a substantial portion of the FPV personal

wearable display market.

In addition to competing with other HMD manufacturers

and distributors for FPV displays, we also compete with micro-display-based personal display technologies that have been developed by

other companies.

Numerous start-up companies have announced their intentions to offer HMD products and developer kits in the near future.

Further, industry blogs have speculated that companies such as Apple may offer HMDs soon.

Most of our competitors have greater financial, marketing,

distribution, and technical resources than we do.

Moreover, our competitors may succeed in developing new micro-display-based personal

display technologies and products that are more affordable or have more desirable features than our technology.

If our products are unable

to capture a reasonable portion of the HMD market, our business strategy may fail.

Our dependence on sales to VARs, resellers,

and distributors increases the risks of managing our supply chain and may result in excess inventory or inventory shortages.

The majority of our various reseller relationships

for our HMD products and their accessories could involve them taking inventory positions and reselling to multiple customers.

typical distributor relationships, we would not recognize revenue until the distributors sell the product to their end user customers

and receive payment thereon;

however, at this time we do not currently enter into these types of arrangements.

Our distributor and VAR

relationships may reduce our ability to forecast sales and increase risks to our business.

Since our distributors and VARs would act as

intermediaries between us and the end user customers or resellers, we would be required to rely on our distributors to accurately report

inventory levels and production forecasts.

This may require us to manage a more complex supply chain and monitor the financial condition

and credit worthiness of our distributors and VARs and their major end user customers.

Our failure to manage one or more of these risks

could result in excess inventory or shortages that could adversely impact our operating results and financial condition.

We do not control our contract manufacturers

or suppliers or require them to comply with a formal code of conduct, and actions that they might take could harm our reputation and sales.

We do not control our contract manufacturers or suppliers,

including their labor, environmental or other practices, or require them to comply with a formal code of conduct.

are a number of competing providers of micro-display-based personal display technology, including HMDs, and we may fail to capture a

substantial portion of the FPV personal wearable display market.

addition to competing with other HMD manufacturers and distributors for FPV displays, we also compete with micro-display-based personal

display technologies that have been developed by other companies.

Numerous start-up companies plan to offer HMD products and developer

kits in the future.

Further, industry blogs have speculated that companies such as Apple may also offer HMDs in the future.

of our competitors have greater financial, marketing, distribution, and technical resources than we do.

Moreover, our competitors may

succeed in developing new micro-display-based personal display technologies and products that are more affordable or have more desirable

features than our technology.

If our products are unable to capture a reasonable portion of the HMD market, our business strategy may

dependence on sales to VARs, resellers, and distributors increases the risks of managing our supply chain and may result in excess inventory

or inventory shortages.

majority of the reseller relationships for our HMD products and their accessories could involve them taking inventory positions and reselling

to multiple customers.

Under some typical distributor relationships, we would not recognize revenue until the distributors sell the product

to their end user customers and receive payment.

However, we do not currently enter into these types of arrangements.

Our distributor

and VAR relationships may reduce our ability to forecast sales and increase risks to our business.

Since our distributors and VARs would

act as intermediaries between us and the end user customers or resellers, we would be required to rely on our distributors to accurately

report inventory levels and production forecasts.

This may require us to manage a more complex supply chain and monitor the financial

condition and credit worthiness of our distributors and VARs and their major end user customers.

Our failure to manage one or more of

these risks could result in excess inventory or shortages that could adversely impact our operating results and financial condition.

do not control our contract manufacturers or suppliers and actions that they might take could harm our reputation and sales.

do not control our contract manufacturers or suppliers, including their labor, environmental or other practices.

Though we may seek to

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In addition, we may choose to seek alternative manufacturers or suppliers if these violations or failures were to occur.

Identifying and

qualifying new manufacturers or suppliers can be time consuming and we might not be able to substitute suitable alternatives in a timely

manner or at an acceptable cost.

and qualifying new manufacturers or suppliers can be time consuming and we might not be able to substitute suitable alternatives in a

timely manner or at an acceptable cost.

Other consumer products companies have faced significant criticism for the actions of their manufacturers

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reduce demand for our products and harm our ability to meet demand if we need to identify alternative manufacturers or suppliers.

Our principal manufacturer of HMDs is located

in China and is owned by a related party which could create conflicts of interest.

Fat Shark has historically made purchases and sales

of products and supplies for FPV and HMD products from and sold through three companies owned by the spouse of Greg French.

was the former owner of Fat Shark and is presently a consultant to the Company.

principal manufacturer of HMDs is located in China and is owned by a related party which could create conflicts of interest.

Shark has historically made purchases and sales of products and supplies for FPV and HMD products from and sold through three companies

owned by the spouse of Greg French.

French was the former owner of Fat Shark and was formerly a consultant to the Company.

is a significant shareholder in the Company.

These companies are Direct FPV Ltd.

(China), Shenzhen

FatShark Co., Ltd (China) and Zeng Linghao (China).

As a result, these business activities have and may, in the future, be subject to

influences and may provide such parties with conflicts of interest and business opportunities that may not be subject to reasonable assessment

and may not be available to Fat Shark or to the Company.

These persons may also face a conflict in selecting between Fat Shark and their

other business interests.

We have not formulated a policy for the resolution of such conflicts.

These entities are not subject to restrictions

on competition with Fat Shark or the Company.

Risks Related to Our Common Stock

Our management has voting control of the Company .

Jeffrey Thompson, our Chairman and Chief Executive

Officer, owns approximately 23% of our common stock and our current officers and directors currently own approximately 31% of our common

In addition, the founder of Fat Shark owns approximately 7% of our issued and outstanding common stock.

If they act together, they

will be able to influence the outcome of all corporate actions requiring approval of our shareholders, including the election of directors

and approval of significant corporate transactions which may result in corporate actions that other stockholders do not agree with.

concentration of ownership may have the effect of delaying or preventing a change in control and may adversely affect the market price

of our common stock.

Our failure to maintain effective internal controls

over financial reporting could have an adverse impact on the Company .

We are required to establish and maintain appropriate

internal controls over financial reporting.

Failure to establish and maintain those controls could adversely impact public disclosures

regarding our business, financial condition or results of operations.

In addition, management’s assessment of internal controls

over financial reporting may identify weaknesses and conditions that need to be addressed which may raise concerns for investors.

actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of

management’s assessment of our internal controls, or disclosure of our public accounting firm’s attestation to our internal

controls over financial reporting may have an adverse impact on the price of our Common Stock.

We have never paid dividends and we do not expect

to pay dividends for the foreseeable future

We have reported net losses every year since inception.

We intend to retain future earnings, if any, to finance the growth and development of our business.

If we ever become profitable, we do

not expect to pay cash dividends on shares of our common stock in the foreseeable future.

The payment of future cash dividends, if any,

depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions

in financing agreements, business opportunities and other factors.

As a result, capital appreciation, if any, of our common stock, will

be the sole source of gain for investors for the foreseeable future.

The listing of our securities on Nasdaq

subject us to additional regulations and compliance requirements.

We are required to maintain compliance with the continued

listing standards of Nasdaq.

These include certain financial and liquidity criteria to maintain such listing.

If we fail to meet any of

Nasdaq’s listing standards, our securities may be delisted.

Nasdaq requires that the trading price of its listed stocks remain above

one dollar in order for the stock to remain listed.

If a listed stock trades below one dollar for more than 30 consecutive trading days,

then it is subject to delisting from Nasdaq.

In addition, we must satisfy minimum financial and other continued listing requirements and

standards, including those regarding director and committee independence requirements, minimum stockholders’ equity, and certain

(China), Shenzhen FatShark Co., Ltd (China) and Zeng

Linghao (China).

As a result, these business activities have and may, in the future, be subject to influences and may provide such parties

with conflicts of interest and business opportunities that may not be subject to reasonable assessment and may not be available to Fat

Shark or to the Company.

These persons may also face a conflict in selecting between Fat Shark and their other business interests.

have not formulated a policy for the resolution of such conflicts.

These entities are not subject to restrictions on competition with

Fat Shark or the Company.

critical components become scarce or unavailable, then we may incur delays in fulfilling sales orders which could adversely impact our

obtain components for our drones from a limited number of suppliers.

Most of these components are sourced from China which has been engaged

in a trade war with the United States over the past few years.

We do not have a long-term agreement with these suppliers that obligates

them to sell components to us.

Our reliance on these suppliers entails significant risks and uncertainties, including whether these suppliers

will provide an adequate quantity of components, at a reasonable price, and on a timely basis.

While there are options to purchase certain

components from suppliers based in the United States, we would be forced to pay higher prices which would adversely impact our gross

margin and operating results.

Our operating results could be materially, adversely impacted if our suppliers do not provide the critical

components used to assemble our products on a timely basis, at a reasonable price, and in sufficient quantities.

If significant tariffs

or other restrictions are placed and maintained on Chinese imports or any related countermeasures are taken by China, our revenue and

results of our Consumer operations may be adversely impacted.

If significant tariffs or

other restrictions are placed on Chinese imports or any related counter-measures are taken by China, the revenue and results of operations

of our Consumer Segment may be adversely impacted.

In 2018, the Trump Administration introduced a list of thousands of categories of

goods that began facing tariffs which may be increased in the future.

These tariffs are still in effect in 2023.

These tariffs currently

affect some of the products of our Consumer segment, and we may be required to raise our prices on those products due to the tariffs

which may result in a loss of customers and harm our operating performance.

If the existing tariffs are expanded or interpreted by a

court or governmental agency to apply to any of our other products, we may be required to raise the selling prices on those Consumer

products, which may further result in a loss of customers and harm our operating performance.

It is possible further tariffs will be

imposed on imports of our products, or that our business will be impacted by retaliatory trade measures taken by China or other countries

in response to existing or future tariffs imposed by the U.S.

Such actions may cause us to raise prices or make changes to the operations

of our Consumer segment, any of which could materially harm the revenue and operating results of our Consumer segment.

If the Consumer Segment

is required to secure its inventory from sources other than China, then we could encounter difficulties in purchasing sufficient quantities

and types of inventory which would adversely impact the sales, operating results, and financial condition of the Consumer Segment.

Historically, a substantial

portion of the inventory, including components, for the Consumer Segment are sourced from China.

However, in recent years, the relationship

between China and the U.S.

has deteriorated, including trade wars resulting in tariffs and limited supplies.

In addition, the U.S.

government has become increasingly concerned with various methods in which China may be spying on the U.S.

in an attempt to secure valuable

trade secrets and intellectual property.

Many government agencies are mandating that products must be “Made in America”.

It is possible that these mandates could be expanded to include the consumer market.

While there are options to purchase most components

from suppliers based in the United States, in most instances the cost is higher which adversely impacts our gross margins and operating

The operating results of the Consumer Segment could be materially, adversely impacted if our suppliers do not provide the critical

components used to assemble our products on a timely basis, at reasonable prices, and in sufficient quantities.

Related to Our Common Stock

management has voting control of the Company .

Thompson, our Chairman and Chief Executive Officer, owns approximately 23% of our common stock and our current officers and directors

currently own approximately 31% of our common stock.

In addition, Greg French, the founder of Fat Shark owns approximately 9% of our

issued and outstanding common stock.

If they act together, they will be able to influence the outcome of all corporate actions requiring

approval of our shareholders, including the election of directors and approval of significant corporate transactions which may result

in corporate actions that other stockholders do not agree with.

This concentration of ownership may have the effect of delaying or preventing

a change in control and may adversely affect the market price of our common stock.

failure to maintain effective internal controls over financial reporting could have an adverse impact on the Company .

are required to establish and maintain appropriate internal controls over financial reporting.

Failure to establish and maintain those

controls could adversely impact public disclosures regarding our business, financial condition or results of operations.

management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed

which may raise concerns for investors.

Any actual or perceived weaknesses and conditions that need to be addressed in our internal controls

over financial reporting, disclosure of management’s assessment of our internal controls, or disclosure of our public accounting

firm’s attestation to our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.

have never paid dividends and we do not expect to pay dividends for the foreseeable future.

have reported net losses every year since inception.

We intend to retain future earnings, if any, to finance the growth and development

of our business.

If we ever become profitable, we do not expect to pay cash dividends on shares of our common stock in the foreseeable

The payment of future cash dividends, if any, depend upon, among other things, conditions then existing including earnings, financial

condition and capital requirements, restrictions in financing agreements, business opportunities and other factors.

As a result, capital

appreciation, if any, of our common stock, will be the sole source of gain for investors for the foreseeable future.

listing of our securities on Nasdaq subject us to additional regulations and compliance requirements.

are required to maintain compliance with the continued listing standards of Nasdaq.

These include certain financial and liquidity criteria

to maintain such listing.

If we fail to meet any of Nasdaq’s listing standards, our securities may be delisted.

Nasdaq requires

that the trading price of its listed stocks remain above one dollar in order for the stock to remain listed.

If a listed stock trades

below one dollar for more than 30 consecutive trading days, then it is subject to delisting from Nasdaq.

At times during May and June

2023, our stock has traded below $1 per share.

While our stock has been trading above $1 per share in late June, the stock price could

trade below $1 per share again in the future.

In addition, we must satisfy minimum financial and other continued listing requirements

and standards, including those regarding director and committee independence requirements, minimum stockholders’ equity, and certain

corporate governance requirements.

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of, and the efficiency of the trading market for, our securities.

Our Board of Directors may authorize and issue

shares of new classes of stock that could adversely affect current holders of our common stock.

Our Board of Directors has the power to authorize

and issue shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special

rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further shareholder

These powers could adversely affect the rights of the holders of our common stock.

In addition, our board could authorize the

issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock,

which could decrease the relative voting power of our common stock or result in dilution to our existing common stockholders.

Any of these actions could significantly adversely

affect the investment made by holders of our common stock.

In addition, holders of our common stock could receive less proceeds in connection

with any future sale of the Company, in liquidation or on any other basis.

Our shares will be subordinate to all of our

debts and liabilities which increases the risk that investors could lose their entire investment.

Our shares of common stock are equity interests that

will be subordinate to all of our current and future indebtedness with respect to claims on our assets.

In any liquidation, all of our

debts and liabilities must be paid before any payment is made to our shareholders.

The market price of our shares of common stock

is subject to fluctuation.

The market prices of our shares may fluctuate significantly

in response to a wide range of factors, many of which are beyond our control, including:

The announcement of new products by our competitors

The release of new products by our competitors

Developments in our industry or target markets

General market conditions including factors unrelated to our operating performance

Recently, the stock market, in general, has experienced

extreme price and volume fluctuations.

Continued market fluctuations could result in extreme market volatility in the price of our shares

of common stock which could cause a decline in the value of our shares.

Future capital raises may dilute our existing

stockholders’ ownership and adversely impact the fair value of their investment.

If we raise additional capital by issuing equity

securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution.

If we raise additional funds by issuing debt instruments, these debt instruments could impose significant restrictions on our operations

including liens on our assets.

If we raise additional funds through collaborations and licensing arrangements, we may be required to

relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us or could diminish

the rights of our stockholders.

Any of these developments could adversely impact our stock price.

Risks Related to Covid-19

The COVID-19 pandemic has adversely impacted,

and poses risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and

unpredictable.

The global spread of COVID-19 is having, and will

continue to have, an adverse impact on our operations, sales and delivery and supply chains.

Many countries including the United

States have implemented measures such as quarantine, shelter-in-place, curfew, travel restrictions and similar isolation measures,

including government orders and other restrictions on the conduct of business operations.

It remains uncertain what impact the pandemic

will have on our ability to generate sales and customer interest even once conditions begin to improve.

The COVID-19 pandemic

has also impacted our supply chain as we have experienced disruptions or delays in shipments of certain materials or components of

our products.

Prices of our supplies have also increased as a result of the pandemic.

Accordingly, COVID-19 has negatively affected

our business.

Given the rapid and evolving nature of the virus, it is uncertain how materially COVID-19 will affect our operations generally

if these impacts persist, worsen or re-emerge over an extended period of time.

Additionally, the COVID-19 pandemic caused

significant volatility and uncertainty in U.S.

and international markets, which may result in a prolonged economic downturn.

of financial markets may reduce our ability to access capital and increase the cost of doing so.

There are no assurances that the

credit markets or the capital markets will be available to us in the future or that financing will be available.

We cannot reasonably estimate the length or severity

of the COVID-19 pandemic or the related response, or the extent to which the disruption may continue to impact our business,

financial position, results of operations and cash flows.

Ultimately, the COVID-19 pandemic could have a material adverse impact

on our business, financial position, results of operations and cash flows.

Board of Directors may authorize and issue shares of new classes of stock that could adversely affect current holders of our common stock.

Board of Directors has the power to authorize and issue shares of classes of stock, including preferred stock that have voting powers,

designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights

and liquidation rights without further shareholder approval.

These powers could adversely affect the rights of the holders of our common

In addition, our board could authorize the issuance of a series of preferred stock that has greater voting power than our common

stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution

to our existing common stockholders.

of these actions could significantly adversely affect the investment made by holders of our common stock.

In addition, holders of our

common stock could receive less proceeds in connection with any future sale of the Company, in liquidation or on any other basis.

shares will be subordinate to all of our debts and liabilities which increases the risk that investors could lose their entire investment.

shares of common stock are equity interests that will be subordinate to all of our current and future indebtedness with respect to claims

on our assets.

In any liquidation, all of our debts and liabilities must be paid before any payment is made to our shareholders.

market price of our shares of common stock is subject to fluctuation.

market prices of our shares may fluctuate significantly in response to a wide range of factors, many of which are beyond our control,

announcement and release of new products by our competitors

in our industry or target markets

market conditions including factors unrelated to our operating performance

or international economic or political events which result in a material effect on the stock market

stock market has, from time to time, experienced extreme price and volume fluctuations.

Continued market fluctuations could result

in extreme market volatility in the price of our shares of common stock which could cause a decline in the value of our

capital raises may dilute our existing stockholders’ ownership and adversely impact the fair value of their investment.

we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these

stockholders may experience substantial dilution.

If we raise additional funds by issuing debt instruments, these debt instruments could

impose significant restrictions on our operations including liens on our assets.

If we raise additional funds through collaborations

and licensing arrangements, we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms

that are not favorable to us or could diminish the rights of our stockholders.

Any of these developments could adversely impact our stock

Related to Regulatory Matters

drone industry is subject to various laws and government regulations which could complicate and delay our ability to introduce products,

maintain compliance, and avoid violations which could negatively impact our financial condition and results of operations.

operate in the drone industry which is a highly regulated environment in the US and international markets.

Federal, state, and local governmental

entities and foreign governments may regulate aspects of the industry, including the production or distribution of our products, software

These regulations may include accounting standards, taxation requirements, product safety, trade restrictions, environmental

regulations, products directed toward children or hobbyists, and other administrative and regulatory restrictions.

While we endeavor

to take all the steps necessary to comply with these laws and regulations, there can be no assurance that we can maintain compliance

on a continuing basis.

Failure to comply could result in monetary liabilities and other sanctions which could increase our costs or decrease

our revenue resulting in a negative impact on our business, financial condition and results of operations.

business and products are subject to government regulation, and we may incur additional compliance costs or be forced to suspend or cease

operations if we fail to comply.

must comply with a wide variety of laws, regulations, standards and other requirements governing, among other things, electrical safety,

wireless emissions, health and safety, e-commerce, consumer protection, export and import requirements, hazardous materials usage, product-related

energy consumption, packaging, recycling and environmental matters.

Compliance with these laws, regulations, standards, and other requirements

may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction (including from country to country), further

increasing the cost of compliance and doing business.

Our products may require regulatory approvals or satisfaction of other regulatory

concerns in the various jurisdictions in which they are manufactured, sold or both.

These requirements create procurement and design

challenges that require us to incur additional costs identifying suppliers and manufacturers who can obtain and produce compliant materials,

parts and products.

Failure to comply with such requirements can subject us to liability, additional costs, and reputational harm and,

in extreme cases, force us to recall products or prevent us from selling our products in certain jurisdictions.

If there is a new regulation,

or change to an existing regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way

that we manufacture our products, this would have a material adverse effect on our business, financial condition and results of operations.

Additionally, while we have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, there

can be no assurance that our employees, contractors, and agents will not violate such laws and regulations or our policies and procedures.

products must comply with certain requirements of the U.S.

Federal Communications Commission (“FCC”) regulating electromagnetic

radiation in order to be sold in the United States and with comparable requirements of the regulatory authorities of the European Union

(“EU”), Japan, China and other jurisdictions.

Our FPV products include wireless radios and receivers which require additional

emission testing.

We are also subject to various environmental laws and governmental regulations related to toxic, volatile, and other

hazardous chemicals used in the third-party components incorporated into our products, including the Restriction of Certain Hazardous

Substances Directive (the “RoHS”) and the EU Waste Electrical and Electronic Equipment Directive (the “WEEE Directive”),

as well as the implementing legislation of the EU member states.

This directive restricts the distribution of products within the EU

that exceed very low maximum concentration amounts of certain substances, including lead.

Similar laws and regulations have been passed

or are pending in China, Japan, and numerous countries around the world and may be enacted in other regions, including in the United

We are, or may in the future be, subject to these laws and regulations.

products may be subject to new domestic and international requirements.

Compliance with regulations enacted in the future could substantially

increase our cost of doing business or otherwise have a material adverse effect on our results of operations and our business.

to comply with regulations in the future could result in the imposition of fines or in the suspension or cessation of our operations

or sales in the applicable jurisdictions.

Any such failure to comply with regulations may also result in our not being permitted, or

limit our ability, to ship our products which would adversely affect our revenue and ability to achieve or maintain profitability.

we encourage our contract manufacturers and major component suppliers to comply with the supply chain transparency requirements, such

as the RoHS Directive, we cannot provide assurance that our manufacturers and suppliers consistently comply with these requirements.

In addition, if there are changes to these or other laws or if new related laws are passed in other jurisdictions, we may be required

to re-engineer our products to use components compatible with these regulations.

This re-engineering and component substitution could

result in additional costs or disrupt our operations or logistics.

WEEE Directive requires electronic goods producers to be responsible for the collection, recycling and treatment of such products.

in interpretation of the directive may cause us to incur costs or have additional regulatory requirements to meet in the future in order

to comply with this directive, or with any similar laws adopted in other jurisdictions.

Our failure to comply with past, present, and

future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputational damage, penalties

and other sanctions which could harm our business and financial condition.

We also expect that our products will be affected by new environmental

laws and regulations on an ongoing basis.

To date, our expenditures for environmental compliance have not had a material impact on our

results of operations or cash flows.

Although we cannot predict the future impact of such laws or regulations, they will likely result

in additional costs and may require us to change the content of our products or how they are manufactured.

These developments could have

a material adverse effect on our business and financial condition.

results of operations may suffer if we are not able to successfully manage our exposure to foreign exchange rate risks.

substantial majority of our sales and cost of components are denominated in U.S.

As our business grows, more of our sales and

production costs may be denominated in other currencies.

Where such sales or production costs are denominated in other currencies, they

are converted to U.S.

dollars for the purpose of calculating any sales or costs to us.

Our sales may decrease as a result of any appreciation

dollar against these other currencies.

of our current expenditures are incurred in U.S.

dollars and many of our components come from countries that currently base their currency

against the U.S.

If the exchange rates change adversely or are allowed to increase, then additional U.S.

dollars will be required

to fund our purchases of these components.

we do not currently enter into currency option contracts or engage in other hedging activities, we may do so in the future.

no assurance that we will undertake any such hedging activities or that, if we do so, they will be successful in reducing the risks associated

with our exposure to foreign currency fluctuations.

international operations, including the use of foreign contract manufacturers, subjects us to international operational, financial, legal,

political and public health risks which could harm our operating results.

substantial part of our operations, including manufacturing of certain components used in our products, are outside of the United States

and many of our customers and suppliers have some or all of their operations in countries other than the United States.

Risks associated

with conducting business outside of the United States include:

burdens and costs associated with a wide variety of foreign laws and regulations, particularly labor and environmental, that govern

our operations in those countries;

uncertainties regarding foreign taxes, tariffs, border taxes, quotas, and export controls,

licenses, import controls and other trade barriers;

instability and high levels of inflation in certain countries where our suppliers are located and

particularly in the Asia-Pacific region, causing delays or reductions in orders for their products and therefore our sales;

or public health instability, including global pandemics, in the countries in which our suppliers operate;

or volatility in currency exchange rates;

in collecting accounts receivable and longer accounts receivable payment cycles;

of these factors could harm our own, our suppliers’ and our customers’ international operations and businesses and impair

our and/or their ability to continue expanding into international markets.

could be adversely affected by violations of the U.S.

Foreign Corrupt Practices Act or similar anti-bribery laws in other jurisdictions

in which we operate.

global nature of our business creates various domestic and local regulatory challenges and subject us to risks associated with our international

We operate in areas of the world that experience corruption by government officials to some degree and, in certain circumstances,

compliance with anti-bribery and anticorruption laws may conflict with local customs and practices.

Our global operations require us

to import from several countries which geographically expands our compliance obligations.

In addition, changes in such laws could result

in increased regulatory requirements and compliance costs which could adversely affect our business, financial condition, and results

of operations.

Foreign Corrupt Practices Act (FCPA) and similar anti-bribery and anticorruption laws in other jurisdictions prohibit U.S.-based

companies and their intermediaries from making improper payments to non-U.S.

officials for the purpose of obtaining or retaining business,

directing business to another, or securing an advantage.

In addition, U.S.

public companies are required to maintain records that accurately

and fairly represent their transactions and have an adequate system of internal accounting controls.

Under the FCPA, U.S.

companies may

be held liable for the corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives.

As a result, if we or our intermediaries fail to comply with the requirements of the FCPA or similar legislation, governmental authorities

in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties which could have a material

adverse effect on our business, reputation, operating results and financial condition.

are subject to governmental export and import controls, and economic sanctions laws that could subject us to liability and impair our

ability to compete in international markets.

and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some

technologies.

Our products are subject to U.S.

export controls, including the Commerce Department’s Export Administration Regulations

and various economic and trade sanction regulations established by the Treasury Department’s Office of Foreign Assets Controls.

Exports of our products must be made in compliance with these laws.

Furthermore, U.S.

export control laws and economic sanctions prohibit

the provision of products and services to countries, governments, and persons targeted by U.S.

Even though we take precautions

to prevent our products from being provided to targets of U.S.

sanctions, our products could be provided to those targets or provided

by our customers despite such precautions.

Any such provision could have negative consequences, including government investigations,

penalties, and reputational harm.

Our failure to obtain required import or export approval for our products could harm our international

and domestic sales and adversely affect our revenue.

in trade policy in the United States and other countries may have adverse impacts on our business, results of operations and financial

government has indicated its intent to alter its approach to international trade policy through the renegotiation, and potential

termination, of certain trade agreements and treaties with China, countries in EMEA and other countries.

These changes could include

the imposition of additional tariffs on a wide range of products.

Policy changes in the United States or other countries, such as the

tariffs already proposed, implemented, and threatened, present risks for us.

Tariffs already announced and implemented are having an

adverse effect on certain of our products, tariffs announced but not yet implemented may have an adverse effect on many of our products,

and threatened tariffs could adversely affect more or all of our products.

There are also risks associated with retaliatory tariffs and

resulting trade wars.

We cannot predict future trade policy, the terms of any renegotiated trade agreements or treaties, or tariffs and

their impact on our business.

A trade war could have a significant adverse effect on world trade and the world economy.

To the extent

that trade tariffs and other restrictions imposed by the United States or other countries increase the price of, or limit the amount

of, our products or components or materials used in our products imported into the United States or other countries, or create adverse

tax consequences, the sales, cost or gross margin of our products may be adversely affected and the demand from our customers for products

and services may be diminished.

Uncertainty surrounding international trade policy and disputes and protectionist measures could also

have an adverse effect on consumer confidence and spending.

If we deem it necessary to alter all or a portion of our activities or operations

in response to such policies, agreements or tariffs, our capital and operating costs may increase.

Our ongoing efforts to address these

risks may not be effective and may have long-term adverse effects on our operations and operating results that we may not be able to

Such efforts may also take time to implement or to have an effect, and may result in adverse quarterly financial results or

fluctuations in our quarterly financial results.

As a result, changes in international trade policy, changes in trade agreements and

tariffs could adversely affect our business, results of operations and financial condition.

may collect, store, process and use the personal information of our customers which subjects us to governmental regulation related to

privacy, information security and data protection.

Any cybersecurity breaches or our failure to comply with such legal obligations by

us, or by our third-party service providers or partners, could harm our business.

may collect, store, process and use the personally identifiable information of our customers and other data in our transactions with

We also rely on third parties that are not directly under our control to do so as well.

While we take reasonable measures to protect

the security, integrity and confidentiality of the personal information and other sensitive information we collect, store or transmit,

we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur, or that third parties will not gain unauthorized

access to this information.

While our privacy policies currently prohibit such activities, our third-party service providers or partners

may engage in such activity without our knowledge or consent.

If we or our third- party service providers were to experience a breach,

disruption or failure of systems compromising our customers’ data, or if one of our third-party service providers or partners were

to access our customers’ personal data without our authorization, our brand and reputation could be adversely affected, use of

our products could decrease, and we could be exposed to a risk of loss, litigation and regulatory proceedings.

scrutiny of privacy, data collection, use of data and data protection is intensifying globally, and the personal information and other

data we collect, store, process and use is increasingly subject to legislation and regulations in numerous jurisdictions around the world,

especially in Europe.

These laws often develop in ways we cannot predict and may materially increase our cost of doing business, particularly

as we expand the nature and types of products we offer.

Data protection legislation

is becoming increasingly common in the United States at both the federal and state level.

For example, in 2020, the State of California

implemented the California Consumer Privacy Act of 2018 (the "CCPA").

The CCPA requires companies that process information

on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers

to opt out of certain data sharing with third parties and provides a new cause of action for data breaches.

Additionally, the Federal

Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for

the online collection, use, dissemination and security of data.

The burdens of compliance imposed by the CCPA (and other similar laws

that may be enacted at the federal and state level) may require us to modify our data processing practices and policies and/or to incur

substantial expenditures.

Related to Intellectual Property

products could infringe on the intellectual property rights of others.

Companies in the consumer

electronics, wireless communications, semiconductor, IT, and display industries steadfastly pursue and protect intellectual property

rights, often resulting in considerable and costly litigation to determine the validity of patents and claims by third parties of infringement

of patents or other intellectual property rights.

Our products could be found to infringe on the intellectual property rights of others.

Other companies may hold or obtain patents or inventions or other proprietary rights in technology necessary for our business.

Periodically,

other companies inquire about our products and technology in their attempts to assess whether we violate their intellectual property

If we are forced to defend against infringement claims, we may face costly litigation, diversion of technical and management

personnel, and product shipment delays, even if the allegations of infringement are unwarranted.

If there is a successful claim of infringement

against us and we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, or

if we are required to cease using one or more of our business or product names due to a successful trademark infringement claim against

us, it could adversely affect our business.

intellectual property rights and proprietary rights may not adequately protect our products.

commercial success will depend substantially on the ability to obtain patents and other intellectual property rights and maintain adequate

legal protection for products in the United States and other countries.

We will be able to protect our intellectual property from unauthorized

use by third parties only to the extent that these assets are covered by valid and enforceable patents, trademarks, copyrights or other

intellectual property rights, or are effectively maintained as trade secrets.

As of the date of this filing, we own 36 granted United

States and foreign patents and 16 pending United States and foreign patent applications.

patents and patent applications include

claims to, among other things, a drone, a printed circuit board, and HMD technology.

We apply for patents covering our products,

services, technologies, and designs as we deem appropriate.

We may fail to apply for patents on important products, services, technologies

or designs in a timely fashion, or at all.

We do not know whether any of our patent applications will result in the issuance of any patents.

Even if patents are issued, they may not be sufficient to protect our products, services, technologies, or designs.

Our existing and

future patents may not be sufficiently broad to prevent others from developing competing products, services technologies, or designs.

Intellectual property protection and patent rights outside of the United States are even less predictable.

As a result, the validity

and enforceability of patents cannot be predicted with certainty.

Moreover, we cannot be certain whether:

were the first to conceive, reduce to practice, invent, or file the inventions covered by each of our issued patents and pending

patent applications;

will independently develop similar or alternative products, technologies, services or designs or duplicate any of our products, technologies,

services or designs;

patents issued to us will provide us with any competitive advantages, or will be challenged by third parties;

will develop additional proprietary products, services, technologies or designs that are patentable;

patents of others will have an adverse effect on our business.

UNRESOLVED STAFF COMMENTS

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