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Item 7. Management’s Discussion and Analysis

2024-08-08 compared with 2023-07-27 · 211 added, 284 removed, 67 unchanged (88% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial

data included elsewhere in this Annual Report on Form 10-K.

Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements relating to our

liquidity, and our plans for our business focusing on providing products, services and solutions to the drone industry.

Any statements

that are not historical fact are forward-looking statements.

When used, the words "believe," "plan," "intend,"

"anticipate," "target," "estimate," "expect," and the like, and/or future-tense or conditional

constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain

of these forward-looking statements.

These forward-looking statements are subject to risks and uncertainties that could cause actual

results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report on

The Company's actual results and the timing of events could differ materially from those anticipated in these forward-looking

statements as a result of many factors.

forward-looking statements speak only as of the date on which they are made.

The Company does not undertake any obligation to update

such forward-looking statements to reflect events that occur or circumstances that exist after the date of this Annual Report on

Form 10-K except as required by federal securities law.

developments during the two years ended April 31, 2023 include:

May 4, 2021, the Company closed a firm commitment underwritten public offering (the "S-1 Offering") for the sale of 4,000,000

shares of common stock, at a public offering price of $4.00 per share, to ThinkEquity, a division of Fordham Financial Management, Inc.,

as representative of the underwriters ("ThinkEquity"), pursuant to an underwriting agreement with Think Equity.

were sold pursuant to a registration statement on Form S-1, as amended (File No.

333-253491), filed with the SEC, which was

declared effective by the Commission on April 29, 2021 (the "S-1 Registration Statement").

The S-1 offering generated

gross proceeds of $16 million and net proceeds of approximately $14.6 million.

July 21, 2021 the Company closed a firm commitment underwritten public offering (the "S-3 Offering") for the sale of 13,333,334

shares of common stock at a purchase price of $4.50 per share to ThinkEquity.

The shares were sold pursuant to a registration statement

on Form S-3, as amended (File No.

333-256216), filed with the SEC, which was declared effective by the SEC on June 14, 2021

and a Supplement to the Prospectus contained in a registration statement filed with the SEC on July 19, 2021.

The S-3 offering generated

gross proceeds of $60 million and net proceeds of approximately $55.5 million.

of Operations

April 2016, the Company's primary business has been to provide products, services, and solutions to the drone industry which it presently

does through its four wholly owned subsidiaries.

Beginning in January 2020, the Company expanded the scope of its drone products and

services through four acquisitions, including:

In January 2020, the Company acquired Rotor

Riot, a provider of First Person View (FPV) drones and equipment, primarily to the consumer marketplace.

The purchase price was $1,995,114.

In November 2020, the Company acquired Fat

Shark Holdings, a provider of FPV video goggles to the drone industry.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion

should be read in conjunction with our audited consolidated financial statements and related notes and other financial data included

elsewhere in this Annual Report on Form 10-K.

In addition to our historical consolidated financial information, the following discussion

contains forward-looking statements that reflect our plans, estimates, and beliefs.

Our actual results could differ materially from those

discussed in the forward-looking statements.

For more information regarding forward-looking statements, please refer to the discussion

above under the heading “Forward-Looking Statements.”

Recent Developments

Corporate developments

during the two years ended April 30, 2024 include:

the first quarter of fiscal 2022, the Company completed two firm commitment underwritten public offerings with ThinkEquity, a division

of Fordham Financial Management.

The first offering, in May 2021, generated gross and net proceeds of $16 and $14.6 million, respectively.

The second offering, in July 2021, generated gross and net proceeds of $60 and $55.5 million, respectively.

December 11, 2023, the Company completed a firm commitment underwritten public offering with ThinkEquity of 18,400,000 shares of common

stock which generated gross and net proceeds of $9.2 and $8.4 million, respectively.

Plan of Operations

Since April 2016, the

Company's primary business has been to provide products, services, and solutions to the drone industry which it presently does through

its four wholly owned subsidiaries.

Beginning in January 2020, the Company expanded the scope of its drone products and services through

four acquisitions, including:

In January 2020, the Company acquired Rotor Riot, a provider of First

Person View (FPV) drones and equipment, primarily to the consumer marketplace.

The purchase price was $1,995,114.

In May 2021, the Company acquired Skypersonic

which provides hardware and software solutions that enable drones to complete inspection services in locations where GPS is not available,

yet still record and transmit data even while being operated from thousands of miles away.

In November 2020, the Company acquired Fat Shark Holdings, a provider

of FPV video goggles to the drone industry.

The purchase price was $8,354,076.

In August 2021, the Company acquired Teal

Drones, a leader in commercial and government UAV (Unmanned Aerial Vehicles) technology.

In May 2021, the Company acquired Skypersonic which provides hardware

and software solutions that enable drones to complete inspection services in locations where GPS is not available, yet still record

and transmit data even while being operated from thousands of miles away.

The purchase price was $2,791,012.

the Teal acquisition, we focused on integrating and organizing these businesses.

Effective May 1, 2022, we established the Enterprise

and Consumer segments in order to sharpen our focus on the unique opportunities in each sector.

Enterprise's initial strategy was to

provide UAV's, primarily drones, to commercial enterprises, including the military, to navigate dangerous military environments and confined

industrial and commercial interior spaces.

Subsequently, Enterprise narrowed its near term focus on the military and other government

Skypersonic's technology has been re-focused on military applications and its operations consolidated into Teal.

segment, which includes Fat Shark and Rotor Riot, is focused on hobbyists and enthusiasts which are expected to increase as drones become

more visible in our daily lives.

November 2022, we entered into an agreement to sell our Consumer segment to Unusual Machines.

The adjusted sale price is $20 million,

including $3 million in cash, at closing, and $17 million in securities of Unusual Machines.

The agreement reflects the Company's decision

to focus its efforts and capital on military and defense where it believes that there are more opportunities to create long term shareholder

The closing of the transaction is contingent upon Unusual Machines completing (i) an initial public offering that raises sufficient

capital to close the transaction, and (ii) a listing on a public stock exchange such as the NYSE or Nasdaq.

of Operations

In August 2021,

the Company acquired Teal Drones, a leader in commercial and government UAV (Unmanned Aerial Vehicles) technology.

The purchase price

was $10,011,279.

Following the Teal

acquisition in August 2021, we concentrated on integrating and organizing these businesses.

Effective May 1, 2022, we established the

Enterprise segment and the Consumer segment to focus on the unique opportunities in each sector.

The Enterprise segment’s initial

strategy was to provide UAVs to commercial enterprises, and the military, to navigate dangerous military environments and confined industrial

and commercial interior spaces.

Subsequently, the segment narrowed its near-term attention on the military and other government agencies.

Skypersonic's technology has been redirected to military applications and its operations consolidated into Teal.

The Enterprise segment’s

current business strategy is focused on providing integrated robotic hardware and software for use across a variety of applications.

Its solutions provide critical situational awareness and actionable intelligence to on-the-ground warfighters and battlefield commanders

as well as firefighters and public safety officials.

Our Enterprise segment’s efforts are centered on developing and scaling an

American made family of systems.

We have since completed construction of a manufacturing facility in Salt Lake City and believe that

an increased focus by the United States government and American businesses on purchasing products that are “Made in America”

provide our Enterprise segment with a competitive advantage.

On February 16, 2024,

we closed the sale of our Consumer segment, consisting of Rotor Riot and Fat Shark, to Unusual Machines.

The sale reflects our decision

to focus our efforts and capital on defense where we believe there are more opportunities to create long term shareholder value.

Results of Operations

analysis of the Company's results of operations for the year ended April 30, 2024 ("Fiscal 2024") compared to the year ended

April 30, 2022 ("Fiscal 2022") includes its wholly owned subsidiaries including Teal Drones, Rotor Riot, Fat Shark, and Skypersonic.

The results for both periods is significantly impacted by the acquisition of Teal Drones on August 31, 2021.

Teal is the Company’s

largest operating subsidiary, and its operating results include 8 months for Fiscal 2022 and 12 months for Fiscal 2023.

Since acquiring

Teal, the Company has more than tripled the number of Teal employees and significantly expanded its facilities.

As a result, the comparison

of the year ended April 30, 2023 to the year ended April 30, 2022 yields more significant changes than might normally occur.

the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which was written down

April 30, 2023 ("Fiscal 2023") includes only the Company’s Enterprise segment as our Consumer segment was divested in

February 2024.

At the end of Fiscal 2023, the Company recognized an impairment loss of $2,826,918 related to Skypersonic goodwill which

was written down to zero.

In addition, its operations were consolidated into Teal.

Skypersonic's operating results represented 2% and 4% of consolidated

revenues and operating loss for Fiscal 2023.

Based on its immateriality, Skypersonic is not included in the operating analysis set forth

A summary comparison

of Fiscal 2023 operating results compared to Fiscal 2022 is as follows:

Cost of Goods

Skypersonic's operating results represented 0% and

2% of consolidated revenues and operating loss for Fiscal 2024.

Based on its immateriality, Skypersonic is not included in the operating

analysis set forth below.

Discussion and

Analysis of Fiscal 2024 compared to Fiscal 2023

revenues totaled $17,836,382 during the year ended April 30, 2024 (or the "2024 period") compared to $4,620,834 during the

year ended April 30, 2023 (or the "2023 period") representing an increase of $13,215,548, or 286%.

The increase primarily related

to higher product revenue related to the launch of the Teal 2 in April 2023.

Product revenue totaled $13,588,372 during the year

ended April 30, 2024 compared to $3,012,470 during the year ended April 30, 2023 representing an increase of $10,575,902, or 351%.

The increase in revenue also partially related to increased contract revenues during the 2024 period.

Contract revenues totaled $4,173,005

during the 2024 period compared to $1,312,427 during the 2023 period, representing an increase of $2,860,578, or 218%.

revenues are primarily sourced through government agencies and can fluctuate from period to period based on the timing of award deliverables

and amendments.

gross profit totaled $3,680,546 during the 2024 period compared to negative $834,311 during the 2023 period representing an increase

of $4,514,857, or 541%.

On a percentage basis, gross profit was 21% during the 2024 period compared to negative 18% during the 2023 period.

The percentage basis increase in gross profit in the 2024 period primarily related to obsolete inventory write-offs that occurred during

the 2023 period.

Additionally, lower manufacturing levels in the 2023 period resulted in higher relative overhead costs compared to the

Our manufacturing facility is presently producing drones at a lower level than it is designed for, and these lower production

levels, combined with higher overhead costs, continue to result in lower than targeted gross profits.

As production levels increase,

our fixed overhead costs, including labor, are expected to be allocated to a greater number of drones which is expected to drive our

per-drone production costs lower and increase gross profits.

Operating Expenses

Operating Loss

and Analysis of Fiscal 2023 compared to Fiscal 2022

Consolidated revenues totaled

$9,911,780 during the year ended April 30, 2023 ("Fiscal 2023") compared to $6,428,963 during the year ended April 30, 2022

("Fiscal 2022") representing an increase of $3,482,817, or 54%.

Revenue growth for Teal and Rotor Riot represented $2,854,413

and $1,345,972 of the dollar increase, or 82% and 39%, of the percentage increase, respectively, which was partially offset by Fat Shark’s

decrease of $606,006 or 17%.

Revenue growth for Teal benefitted from a full year of operations in Fiscal 2023 compared to only eight

months in Fiscal 2023.

Higher revenues for Rotor Riot were generated by a significant increase in digital marketing spending.

Lower revenues

for Fat Shark related to its newest product, the Dominator, which was launched at the beginning of Fiscal 2023, and while it generated

strong initial sales in the first quarter, sales declined significantly over the remaining quarters in Fiscal 2023.

Revenues for the Enterprise

Segment totaled $4,620,834 in Fiscal 2023 compared to $1,877,983 for Fiscal 2022, representing an increase of $2,742,851, or greater than

This revenue growth was entirely attributable to Teal which recognized product sales of $3,051,348 in Fiscal 2023 and $904,600 of

revenue under the SRR Tranche II program.

Revenues for the Consumer Segment totaled $5,290,946 in Fiscal 2023 compared to $4,550,980 for

Fiscal 2022, representing an increase of $739,966, or 16%.

This revenue growth was entirely attributable to Rotor Riot whose revenues

increased by $1,345,972, more than offsetting a $606,006 decrease for Fat Shark.

gross margin totaled negative $336,795 during Fiscal 2023 compared to $925,515 during Fiscal 2022 representing a decrease of $1,262,310,

Gross margin dollar contribution for Teal, Rotor Riot, and Fat Shark totaled negative $857,721, positive $431,751, and positive

$158,285, respectively.

The reported gross margin of negative 19% for Teal was adversely impacted by a charge of $1,405,807 related to

the write off of obsolete inventory related to its legacy drone, the Golden Eagle.

Excluding this charge, core gross margin for Teal

was 12% in Fiscal 2023 compared to 19% in Fiscal 2022.

The lower core gross margin in Fiscal 2023 reflects a significant investment by

the Company to build and scale a new manufacturing facility in Salt Lake City, Utah.

Our manufacturing facility is presently producing

drones at a lower level than it is designed for, and these lower production levels, combined with higher labor and overhead costs, are

adversely impacting core gross margins at Teal.

As production levels increase, our fixed overhead costs, including labor, will be allocated

to a greater number of drones which will drive our per-drone production costs lower and increase gross margins.

The core operating margin

for Fat Shark was 15% in Fiscal 2023 compared to 2% in Fiscal 2022.

The lower gross margin in Fiscal 2022 related to price reductions

of the prior digital goggle as the Company prepared for the launch of the Dominator in early Fiscal 2023.

Separately, Fat Shark recorded

a charge of $182,845 related to the write-off of excess quantities of Dominator inventory based on sales volumes during the second half

of Fiscal 2023.

This charge reduced gross margin from 15% to 7%.

The core operating margin for Rotor Riot was 13% in Fiscal 2023 compared

to 21% in Fiscal 2022.

The decrease related to higher product and shipping costs.

expenses totaled $4,411,685 during the 2023 period compared to $1,353,904 during the 2022 period, resulting in an increase of $3,057,781,

or greater than 100%.

Higher costs for Teal represented $2,934,250 or 96% of the percentage increase.

Since its acquisition, we have

more than tripled Teal's headcount and doubled the size of its facilities.

Approximately 49% of Teal's costs related to payroll, 21%

to employee-related office expenses, and 9% to overhead expenses with the balance spread ratably across numerous categories including

information technology, facilities, professional fees, and travel.

and development expenses totaled $5,248,336 during the year ended April 30, 2023 compared to $2,606,141 during the year ended April 30,

2022, representing an increase of $2,642,195, or approximately 100%.

The entire increase can be attributed to Teal, with approximately

43% of its expenses related to payroll, 33% related to office, 21% related to professional fees, and 3% related to information technology.

and marketing costs totaled $4,028,007 during the 2023 period compared to $1,127,532 during the 2022 period, resulting in an increase

of $2,900,475 or more than 100%.

Higher costs for Teal and Rotor Riot represented $2,487,331 and $572,891 of the dollar increase and

86% and 20% of the percentage increase.

Payroll costs, related to hiring at Teal, totaled $887,891 in the 2023 period compared to $24,428

during the 2022 period, resulting in an increase of $863,463 which represented 30% of the total increase in sales and marketing costs.

Travel and related costs totaled $567,307 in the 2023 period compared to $22,539 in the 2022 period resulting in an increase of $544,768

which represented 19% of the total increase.

In addition, higher advertising and show production costs represented 27% of the increase

while professional fees accounted for 15% of the increase.

and administrative expenses totaled $6,618,596 during the year ended April 30, 2023 compared to $5,548,589 during the year ended April

30, 2022, representing an increase of $1,070,007 or 19%.

Higher costs at the Corporate level essentially represented 100% of the increase.

Corporate includes executive compensation and other administrative costs associated with operating a publicly traded company including

departments such as finance, human resources, and administration.

Other significant costs include professional services fees (legal,

audit, and board compensation), Nasdaq listing fees and filing costs, and corporate insurance.

Specific increases in costs included payroll

which totaled $2,283,639 in the 2023 period compared to $1,536,125 in the 2022 period resulting in an increase of $747,514 or 70% of

the total increase in general and administrative expenses.

Legal and lobbying services costs totaled $928,621 in Fiscal 2023 compared

to $312,367, representing an increase of $616,254, or 58% of the total increase.

These higher costs were partially offset by decreases

in facilities costs of $140,634 and travel costs of $139,778.

the year ended April 30, 2023, we incurred stock-based compensation costs of $3,656,724 compared to $3,291,635 in the 2022 period, resulting

in an increase of $365,089 or 11%.

During the 2023 period, the Company issued 1,503,500 additional options which resulted in incremental

stock-based compensation costs of $322,215.

income totaled $39,324 during the 2023 period compared to $1,313,158 during the 2022 period, representing a decrease of $1,273,834.

decrease in other income was principally related to higher depreciation and amortization expense which totaled $966,072 during the 2023

period compared to $264,803 during the 2022 period resulting in an increase of $701,269 and representing 55% of the total decrease in

other income.

Higher depreciation expense related to approximately $2.5 million in capital expenditures in Fiscal 2023, primarily related

to the construction of the new manufacturing facility in Salt Lake City, Utah.

Higher amortization expense related to a full year of

amortization of intangible assets acquired through acquisitions, especially Teal.

Loss totaled $27,087,737 during the year ended April 30, 2023, compared to $11,689,128 during the year ended April 30, 2022, representing

an increase of $15,398,609, or greater than 100%.

Net Loss for Teal, Rotor Riot and Fat Shark totaled $12,554,652, $1,204,175, and $526,211,

or 46%, 4%, and 2% of the consolidated net loss.

The acquisition of Teal Drones in August 2021 accounted for most of the increase.

acquiring Teal, we have more than tripled its headcount and significantly expanded its facilities.

Net loss for Teal during the 2023

period totaled $12,554,652 compared to $2,198,232 for the 2022 period, representing an increase of $10,356,420, or almost 5 times.

higher net loss for Teal represented 67% of the increase in the consolidated net loss.

Corporate costs totaled $11,747,049 in the

2023 period compared to $6,978,663 in the 2022 period resulting in an increase of $4,768,386 or 68%.

The increase represented 31%

of the increase in the consolidated loss.

cash used in operating activities was $29,199,420 during the year ended April 30, 2023, compared to net cash used in operating activities

of $16,019,320 during the year ended April 30, 2022, representing an increase of $13,180,100 or 82%.

Net cash used in operations, net

of non-cash expenses, totaled $20,322,665 during the year ended April 30, 2023, compared to 8,924,419 during the year ended April 30,

2022, resulting in an increase of $11,398,246, or greater than 100%.

The higher use of cash primarily related to the acquisition of Teal

Drones in August 2021, and the subsequent expansion of its operations, as well the inclusion of a full year of operations in the 2023

period compared to eight months of operations in the 2022 period.

Net cash used related to changes in operating assets and liabilities

totaled $8,876,755 during the year ended April 30, 2023, compared to $7,094,901 during the year ended April 30, 2022, representing an

increase of $1,781,854 or 25%.

Changes in operating assets and liabilities can fluctuate significantly from period to period depending

upon the timing and level of multiple factors, including inventory purchases and vendor payments.

Net inventory purchases, including

deposits, totaled $8,805,110 and $3,457,633 in fiscal 2023 and fiscal 2022, respectively.

cash provided by investing activities was $29,590,235 during the year ended April 30, 2023, compared to net cash used in investing activities

of $46,603,486 during the year ended April 30, 2022 resulting in a decrease of $76,193,721 or greater than 100%.

Research and development

expenses totaled $5,896,037 during the 2024 period compared to $5,595,281 during the 2023 period, representing an increase of $300,756,

Supplies and materials expense totaled $2,017,979 in the 2024 period compared to $1,444,051 in the 2023 period.

This increase

of $573,928, or 40%, primarily related to increased efforts in developing new products and represented substantially all of the total

increase in research and development costs.

Sales and marketing

costs totaled $4,568,617 during the 2024 period compared to $3,731,776 during the 2023 period, representing an increase of $836,841 or

The increase was driven by higher payroll expenses to support increased sales efforts of the Teal 2.

General and administrative

expenses totaled $10,679,105 during the 2024 period compared to $12,383,470 during the 2023 period, representing a decrease of $1,704,365

The decrease primarily related to lower professional fees.

During the 2024 period,

net proceeds of $32,290,448 from the maturities of marketable securities were used to fund operations, and $2,450,213 was used to purchase

property and equipment, primarily related to the expansion of the manufacturing facilities for Teal.

During the 2022 period, purchases

of marketable securities, net of proceeds from sales of marketable securities, totaled $46,264,663.

During Fiscal 2023, the Company was

spending the proceeds from the Fiscal 2022 stock offerings to support operations for the full year, whereas in Fiscal 2022 the proceeds

from the stock offerings were invested in marketable securities and also used to support operations for the second half of Fiscal 2022.

cash used in financing activities totaled $1,215,325 during the year ended April 30, 2023, compared to net cash provided by financing

activities of $66,430,274 during the year ended April 30, 2022.

Financing activities can vary from period to period depending upon market

conditions, both at a macro-level and specific to the Company.

During the 2022 period, the Company received net proceeds of approximately

$70 million in connection with two offerings of common stock and made payments under debt obligations totaling $2,900,709.

Debt payments

totaled $646,954 during the 2023 period.

and Capital Resources

April 30, 2023, the Company reported current assets totaling $32,175,012, current liabilities totaling $4,760,616 and net working capital

of $27,414,396.

Cash and marketable securities totaled $16,074,343 at April 30, 2023.

Inventory related balances, including pre-paid

inventory, totaled $14,408,065.

We continue to maintain higher-than-normal inventory balances related to the global supply chain issues,

including chip shortages, which continue to impact the timing of our purchase decisions.

Company has never been profitable, and its net losses have been increasing related to acquisitions, as well as costs incurred to pursue

its long-term growth strategy.

During the year ended April 30, 2023, the Company incurred a net loss of $27,087,737 and used cash

in operating activities of $29,199,420.

As of April 30, 2023, the Company has working capital of $27,414,396.

While the Company has historically

been successful in raising capital to meet its working capital requirements, the ability to continue raising such capital to enable the

Company to continue its growth is not guaranteed.

Therefore, there is substantial doubt about the Company’s ability to continue

as a going concern as the Company will require additional liquidity to continue its operations and meet its financial obligations for

twelve months from the date these consolidated financial statements are issued.

The Company is evaluating strategies to obtain

the required funding and exploring opportunities to reduce expenses.

the Company is unable to raise additional capital, there is a risk that the Company could default on its financial obligations and could

be required to discontinue or significantly reduce the scope of its operations.

The consolidated financial statements do not include

any adjustments relating to the recoverability and classification of recorded asset amounts, or the amount and classification of liabilities

or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

Accounting Policies and Estimates

financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis.

The preparation

of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the reporting periods.

we incurred stock-based compensation costs of $3,609,267 compared to $3,656,724 in the 2023 period, resulting in a decrease of $47,457

Other expense totaled

$3,650,484 during the 2024 period compared to $1,004,887 during the 2023 period, representing a decrease of $2,645,597 or 263%.

the 2024 period, the divestiture of the Consumer segment resulted in a gain of $9,642,427, impairment of $11,353,875, and an equity method

loss of $503,625.

Additionally, during the 2024 period, the Company was awarded a manufacturing modernization grant from the State

of Utah for $750,000 of which $675,000 is attributable to the 2024 period.

Net Loss from Continuing

Net loss from continuing

operations totaled $21,526,696 for the 2024 period compared to $26,376,643 for the 2023 period, resulting in a decrease of $4,849,947

Total operating expenses totaled $21,556,758 for the 2024 period compared to $24,537,445 for the 2023 period.

The decrease in

operating expenses was offset by the increase in other expense.

Higher gross profit is attributable to the decrease in net loss from

continuing operations.

Results of Discontinued

Net loss from discontinued

operations totaled $2,525,933 for the 2024 period compared to $1,730,386 for the 2023 period, representing an increase of $795,547, or

Net loss for Fat Shark totaled $1,365,707 for the 2024 period, compared to $543,962 for the 2023 period, representing an increase

of $821,745 or 151%, and represents 103% of the total increase in net loss from discontinued operations.

Fat Shark’s results were

adversely impacted by a charge of $1,244,920 during the 2024 period related to the write-off of excess quantities of Dominator inventory

based on sales volumes.

Net loss for Rotor Riot totaled $1,160,226 for the 2024 period compared to $1,186,424 for the 2023 period, representing

a decrease of $26,198 or 2%.

Operating Activities

Net cash used in operating

activities was $17,687,063 during the 2024 period compared to net cash used in operating activities of $24,313,674 during the 2023 period,

representing a decrease of $6,626,611 or 27%.

The decreased use of cash primarily related to timing of accounts receivable receipts for

government customers.

Net cash used in operations, net of non-cash expenses, totaled $8,512,449 during the 2024 period, compared to $7,784,364

during the 2023 period, resulting in an increase of $728,085, or 9%.

Net cash used related to changes in operating assets and liabilities

totaled $4,672,816 during the 2024 period, compared to $5,721,395 during the 2023 period, representing a decrease of $1,048,579 or 18%.

Changes in operating assets and liabilities can fluctuate significantly from period to period depending upon the timing and level of

multiple factors, including inventory purchases, vendor payments, and customer collections.

Investing Activities

Net cash provided by investing activities was $13,567,078

during the 2024 period compared to net cash provided by investing activities of $29,590,235 during the 2023 period, resulting in a decrease

of $16,023,157 or 54%.

Proceeds of $12,826,217 and $32,290,448 from the sale of marketable securities were used to fund operations during

the 2024 period and the 2023 period, respectively.

Financing Activities

Net cash provided by

financing activities totaled $7,802,076 during the 2024 period compared to net cash used in financing activities of $1,215,325 during

the 2023 period.

Financing activities can vary from period to period depending upon market conditions, both at a macro-level and specific

to the Company.

During the fiscal 2024 period, the company received net proceeds from issuance of common stock of $8,395,600.

Liquidity and

Capital Resources

At April 30, 2024,

the Company reported current assets totaling $22,397,549, current liabilities totaling $3,651,130 and net working capital of $18,746,419.

Cash totaled $6,067,169 at April 30, 2024.

Inventory related balances, including pre-paid inventory, totaled

Going Concern

Company has never been profitable and has incurred net losses related to acquisitions, as well as costs incurred to pursue its long-term

growth strategy.

During the year ended April 30, 2024, the Company incurred a net loss from continuing operations of $21,526,696

and used cash in operating activities of continuing operations of $17,687,063 .

As of April 30, 2024, working capital for continuing operations totaled $18,746,419 .

financial results and our financial position at April 30, 2024 raise substantial doubt about our ability to continue as a going

However, the Company has recently taken actions to strengthen its liquidity.

On December 11, 2023, we completed a public

offering of 18,400,000 shares of common stock which generated net proceeds of approximately $8,400,000.

Subsequent to year end, the Company

sold its equity method investment for $4,400,000.

In addition, the Company’s operating plan for the next twelve months has been

updated to reflect recent operating improvements.

Revenues have accelerated and are expected to continue growing.

The Company’s

manufacturing facility is scaling production and gross profits are projected to increase.

If necessary, the Company will seek to

obtain additional debt financing for which there can be no guarantee.

Management has concluded that these recent positive developments

alleviate any substantial doubt about the Company’s ability to continue its operations, and meet its financial obligations,

for twelve months from the date these consolidated financial statements are issued.

Critical Accounting

Policies and Estimates

Our financial statements

and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis.

The preparation of financial statements

in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,

the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting periods.

regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.

5 unchanged sentences

Significant estimates reflected in these financial

statements include those used to (i) determine stock-based compensation, (ii) complete purchase price accounting for acquisitions, (iii)

accounting for derivatives, (iv) reserves and allowances related to accounts receivable and inventory, and (v) the evaluation of long

term assets, including goodwill, for impairment.

statements include those used to (i) complete purchase price accounting for acquisitions, (ii) the evaluation of long-term assets, including

goodwill, for impairment, and (iii) the evaluation of other-than-temporary-impairment of equity method investments.

and Long-lived Assets – Goodwill represents the future economic benefit arising from other assets acquired in an acquisition that

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inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including gross

margin, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present

profit, operating expenses, and capital expenditures), and a rate used to discount estimated future cash flow projections to their present

value based on estimated weighted average cost of capital (i.e., the selected discount rate).

Our assumptions our based on historical

Our assumptions are based on historical

data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans.

26 unchanged sentences

by little or no market data.

Company's financial instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt.

carrying amounts of cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due

to the short-term nature of these instruments.

Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting.

derivatives are valued separately from the host instrument and are recognized as liabilities on the Company's balance sheet.

measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations

during the period of change.

October 2020 and January 2021, the Company entered into convertible note agreements which included provisions under which the conversion

price was equal to the lesser of an initial stated amount or the conversion price of a future offering.

This variable conversion feature

was recognized as a derivative.

Both financings included the issuance of warrants which contained similar variable conversion features.

The Company values these convertible notes and warrants using the multinomial lattice method.

The valuation is updated each reporting

date with the change in the liability reflected as a change in derivative liability in the statement of operations.

Financial Instruments

The Company's financial

instruments mainly consist of cash, receivables, current assets, accounts payable, accrued expenses and debt.

The carrying amounts of

cash, receivables, current assets, accounts payable, accrued expenses and current debt approximates fair value due to the short-term

nature of these instruments.

Off-Balance Sheet

We have no off-balance

sheet arrangements.

have no off-balance sheet arrangements.

Issued Accounting Pronouncements

Company has implemented all new accounting pronouncements that are in effect.

These pronouncements did not have any material impact on

the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements

that have been issued that might have a material impact on its financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

a smaller reporting company, we are not required to provide this information.

Recently Issued

Accounting Pronouncements

The Company has implemented

all new accounting pronouncements that are in effect.

These pronouncements did not have any material impact on the financial statements

unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued

that might have a material impact on its financial position or results of operations.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting

company, we are not required to provide this information.

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 7. Management’s Discussion and Analysis