What changed in this filing

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Item 1A. Risk Factors

2024-08-08 compared with 2023-07-27 · 423 added, 665 removed, 483 unchanged (69% of the section changed)

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.

Risk Factor Summary

Risks Related

to our Financial Results and Condition

We have incurred net losses

since inception.

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 operations.

Lack of long-term purchase

orders and commitments from customers may lead to 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.

The nature of our business

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

Product quality issues and

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

Our products may experience

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

Our 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.

Our failure to effectively

manage growth could harm our business.

Our products are subject to

lengthy development cycles.

We expect to incur substantial

research and development costs related to identifying and commercializing new products and services which may never result in revenues.

Risks Related

to our Operations

Our operations may be adversely

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

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 use of open-source software

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

We must recruit and retain

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

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 operations.

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

Several steps of our manufacturing

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

We depend on third parties

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

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.

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

to evaluate our current business and prospects.

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.

We may not be able to keep

pace with technological advances in the drone industry.

Cybersecurity risks could adversely

affect our business and disrupt our 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.

A decline in U.S.

budgets, changes in spending priorities, or delays in contract awards could adversely affect the revenues of our Teal subsidiary.

Our work for the U.S.

could expose us to security risks.

We 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.

Risks Related to Our Common

Our management has voting control

of the Company.

Our failure to maintain effective

internal controls over financial reporting could have an adverse impact on the Company.

We have never paid dividends

and we do not expect to pay dividends for the foreseeable future.

The listing of our securities

on Nasdaq subject us to additional regulations and compliance requirements.

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 shares will be subordinate

to all of our debts and liabilities which increases the risk that investors could lose their entire investment.

The market price of our shares

of common stock is subject to fluctuation.

Future capital raises may dilute

our existing stockholders’ ownership and adversely impact the fair value of their investment.

Risks Related to Regulatory Matters

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.

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.

Our results of operations may

suffer if we are not able to successfully manage our exposure to foreign exchange rate risks.

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.

We 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.

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

Changes in trade policy in

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

We 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.

Our products could infringe

on the intellectual property rights of others.

Our 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.

have never been profitable and reported an accumulated deficit of approximately $81,100,000 at April 30, 2024.

These losses have had

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

We will need to generate higher revenues,

improve profit margins, and control operating costs in order to attain profitability.

We can provide no assurances that we will 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 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

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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.

If we are unable to raise additional funds, we could be forced to cease our business activities and dissolve.

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

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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.

customers issue purchase orders solely at their own discretion.

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

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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 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.

generally provide a one-year warranty on all of our 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.

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

of established 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

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

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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;

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;

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;

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

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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.

to effectively manage growth could harm our business.

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

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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.

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;

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 :

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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

or if unexpected technical challenges arise in the integration of our products into enterprise 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 head-mounted display companies are introducing digital head-mounted displays which could create shortages

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

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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.

to incur substantial research and development costs related to identifying and commercializing new products and services which may never

result in revenues.

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.

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

We spent $5,896,037

million, or 33% of our revenue, in our fiscal year ended April 30, 2024, on internal research and development activities.

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which could adversely impact our financial results and liquidity.

Related to our Operations

Risks Related

to our Operations

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

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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.

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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;

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.

High growth product categories 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 profits 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

We operate in an emerging

and rapidly growing industry which makes it difficult to evaluate our current business and prospects.

The drone industry is relatively

new and is growing rapidly.

As a result, it is difficult to evaluate our business and 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;

Acquiring and

maintaining market share;

Attracting and

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

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,

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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

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.

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.

Cybersecurity

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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.

Risks Related to

Our Enterprise Segment

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.

government budgets, changes in spending priorities, or delays in contract awards could adversely affect the revenues of our Teal

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.

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.

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.

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

work for the U.S.

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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

Federal Aviation

Administration, which regulates the use of airspace for all aircraft, including UAS such as drones

Negotiations Act, which requires certification and disclosure of all factual pricing and cost data in contract negotiations

Acquisition Regulations, which govern the formation and administration, as well as the performance, under government contracts

The False Statements

Act and The False Claims Act which imposes penalties on payments made on the basis of facts provided to the government

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.

1 unchanged sentence

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 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

we anticipate or as soon as we anticipate, the sales of our FPV products and our results of operations would be adversely affected, and

our 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 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

conduct periodic visits to some of our contract manufacturers and suppliers, these visits are not frequent or thorough enough to detect

non-compliance with applicable laws and good industry practices.

A violation of labor, environmental or other laws by our contract manufacturers

or suppliers, or a failure of these parties to follow ethical business practices, could lead to negative publicity and harm our reputation.

In addition, we may choose to seek alternative manufacturers or suppliers if these violations or failures were to occur.

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

and suppliers, and we could face such criticism ourselves.

Any of these events could adversely affect our brand, harm our reputation,

reduce demand for our products and harm our ability to meet demand if we need to identify alternative manufacturers or suppliers.

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.

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.

If we are unable to satisfy these requirements or standards, we could be subject to delisting which

would have a negative effect on the price of our common stock and would impair an investor’s ability to sell or purchase our common

In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can

provide no assurance that any such action would allow our common stock to become listed again, stabilize the market price, improve the

liquidity of our common stock, or prevent future non-compliance with the listing requirements.

A delisting of our securities from Nasdaq

may materially impair our stockholders’ ability to buy and sell our securities and could have an adverse effect on the market price

of, and the efficiency of the trading market for, our securities.

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.

Risks Related to

Our Common Stock

Our management

has voting control of the Company .

Jeffrey Thompson, our Chairman and Chief Executive

Officer, owns approximately 17% of our common stock, and our current officers and directors currently own approximately 21% of our common

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.

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 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.

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.

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 subjects 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 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.

While our stock has

been trading above $1 per share, the stock price may trade below $1 per share 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.

If we are unable to satisfy these requirements or

standards, we could be subject to delisting which would have a negative effect on the price of our common stock and would impair an investor’s

ability to sell or purchase our common stock.

In the event of a delisting, we would expect to take actions to restore our compliance

with the listing requirements, but we can provide no assurance that any such action would allow our common stock to become listed again,

stabilize the market price, improve the liquidity of our common stock, or prevent future non-compliance with the listing requirements.

A delisting of our securities from Nasdaq may materially impair our stockholders’ ability to buy and sell our securities and could

have an adverse effect on the market price of, and the efficiency of the trading market for, our securities.

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 approval.

These powers could adversely affect the rights of the holders of our common stock.

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.

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

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

and release of new products by our competitors

Developments in our industry

or target markets

General market conditions

including factors unrelated to our operating performance

National or international

economic or political events which result in a material effect on the stock market

The 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 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.

Related to Regulatory Matters

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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.

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.

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

19 unchanged sentences

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.

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 first-person view 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 Directive”) and the EU Waste Electrical

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

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.

products may be subject to new domestic and international requirements.

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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;

compliance burdens

and costs associated with a wide variety of foreign laws and regulations, particularly labor and environmental, 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 certain 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;

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

changes 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.

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.

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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

tax consequences, the sales, cost or gross profit of our products may be adversely affected and the demand from our customers for products

and services may be diminished.

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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.

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

in the 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

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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.

claims to, among other things, a drone, a printed circuit board, and head-mounted display 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.

existing and future patents may not be sufficiently broad to prevent others from developing competing products, services technologies,

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.

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,

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

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

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;

of others will have an adverse effect on our business.

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