AeroVironment
Annual Report 2019

Plain-text annual report

CORPORATE INFORMATION FUTUREDEFINING 2019 OVERVIEW PROVIDING MORE ACTIONABLE INTELLIGENCE SO YOU CAN PROCEED WITH CERTAINTY At AeroVironment, we never limit ourselves to what we can attain today. We are relentless in our efforts to deploy technology in ways that push beyond the realm of the possible. With each innovation, we are always striving to broaden our customers’ horizons—allowing them to see the world in new, more powerful ways and to tackle challenges that had previously seemed insurmountable. Whether they are warfighters searching for the enemy or telecom providers connecting billions to the global digital economy, we deliver innovative technologies that help our customers achieve their goals and do so with unprecedented accuracy and precision. • Target Acquisition • Effects Delivery • Battle Damage Assessment • Force Protection • Communication • Facility Security DEFENSE APPLICATIONS SENSORS ANALYTICS AEROVIRONMENT TECHNOLOGY INTERSECTION OF FUTURE-DEFINING CAPABILITIES ROBOTICS CONNECTIVITY COMMERCIAL APPLICATIONS • Broadband Communications • Crop Analysis • Public Safety • Infrastructure Monitoring • Disaster Damage Assessment • Environmental Protection Where there is most at stake, we help people gain the actionable intelligence they need to proceed with certainty into a safer, more secure, more prosperous future. 2019 CORPORATE OVERVIEW // PG 01 ROBOTICS AUTONOMOUS VEHICLES INCREASE THE AUTONOMY OF THEIR USERS. THAT’S THE CRITICAL DIFFERENCE THAT ROBOTICS MAKE. WITH ROBOTIC AIRCRAFT, WARFIGHTERS CAN DEVOTE THE BULK OF THEIR ATTENTION TO THE MISSION AT HAND INSTEAD OF PILOTING THE AIRPLANE. WITH FULLY AUTOMATED AIRCRAFT, FARMERS CAN SCOUT THEIR FIELDS ON THEIR OWN SCHEDULE RATHER THAN WAITING FOR OTHERS TO DO IT FOR THEM. ROBOTICS PUTS CONTROL INTO THE HANDS OF OUR CUSTOMERS. POINT AND FLY Warfighters don’t have to guide our tactical unmanned aircraft systems or our tactical missiles systems. They can just give them orders. AeroVironment’s advanced avionics and ground control system allows operators to control the aircraft manually, program it for GPS-based autonomous navigation using operator-designated waypoints or simply follow a designated target. Seamless automated flight is one reason that AeroVironment has delivered thousands of tactical unmanned air vehicles to the United States military and to more than 45 allied governments. SENSORS AEROVIRONMENT GOES WELL BEYOND PUTTING AN EYE IN THE SKY. WE COMPLEMENT THE VISIBLE LIGHT CAMERAS ABOARD OUR UNMANNED AIRCRAFT WITH INFRARED AND MULTISPECTRAL SENSORS, GIVING OUR MILITARY AND COMMERCIAL CUSTOMERS MORE WAYS TO SEE THE WORLD AROUND THEM. USED IN COMBINATION, THESE SENSORS GENERATE DATA THAT CAN PRODUCE A RICHER, MORE REVEALING PICTURE OF THE LANDSCAPE. SHARPENING OUR FOCUS It is unlikely to find a sensor suite in an unmanned aircraft system like our Puma™ AE that equals our Mantis™ i45 gimbal. It stands alone for its compact size, low weight, high resolution, powerful visual awareness and flexibility. The i45 system also demonstrates our commitment to continuous improvement. Fully waterproof for extreme environments, the i45 offers seven times the zoom of previous versions, giving warfighters the choice of collecting much higher resolution data or positioning themselves farther from their target, increasing their safety and decreasing their likelihood of being observed. SOFTWARE ANALYTICS DATA ON ITS OWN IS NOT INFORMATION. AEROVIRONMENT ENGINEERS HAVE DEPLOYED A SUITE OF SOFTWARE ANALYTICS CAPABILITIES THAT TRANSFORM THE DATA OUR SENSORS COLLECT INTO ACTIONABLE INTELLIGENCE. OUR SOFTWARE ANALYTICS CAN TRACK TARGETS, UNCOVER PATTERNS IN THE DATA AND PINPOINT CRITICAL AREAS OF CONCERN THAT CAN LEAD TO FASTER, MORE INFORMED DECISIONS. INTERPRETING THE DATA Obtaining actionable crop insights couldn’t be simpler with AeroVironment’s cloud-based Decision Support System™ (AV DSS). When farmers complete a survey of their fields, they upload their Quantix™ data into AV DSS. It delivers true color, NDVI, GNDVI, canopy coverage, anomaly layer and variable rate visualizations, enabling farmers to quantify plant health at a glance. Farmers can also compare data sets to analyze crop development across time for in-season verification and multi-seasonal trend analysis. CONNECTIVITY GETTING INFORMATION AND INSIGHT TO THE PEOPLE WHO NEED IT THE MOST, AND DOING SO SECURELY, IS THE COMMON THREAD THAT UNITES AEROVIRONMENT’S PLATFORMS. WE HAVE DEVELOPED A SERIES OF NOVEL TECHNOLOGIES TO ESTABLISH ROBUST, FLEXIBLE, SECURE NETWORKS, LITERALLY ON THE FLY, BOTH FOR MILITARY AND COMMERCIAL APPLICATIONS. WIRELESS COMMUNICATIONS FROM THE STRATOSPHERE Using our technology to connect people around the world and improve their quality of life is extremely important to us. That’s the motivation behind HAPSMobile, our joint venture with SoftBank, the Japanese telecommunications company. This year, we assembled the first HAWK30, a solar-powered high-altitude platform station (HAPS) designed to serve a 200-kilometer area from a position 20 kilometers above the Earth. Our joint vision is to create a constellation of HAWK30s, reaching billions of people worldwide who lack even basic high-speed wireless communications and provide the additional bandwidth needed to support the emerging 5G standard and the Internet of Things. For nearly 50 years, we at AeroVironment have devoted ourselves to creating simpler, more innovative solutions that extend the reach and awareness of our military and commercial customers. PG 02 // AEROVIRONMENT, INC. We are driven to seek more powerful ways to combine advances in such future-defining technologies as robotics, sensors, software analytics and connectivity to generate ever-more meaningful information and to elevate our customers’ capacity to make smarter, quicker decisions. 2019 CORPORATE OVERVIEW // PG 03 CONTRIBUTING TO A BETTER FUTURE EVERYONE HAS A DIFFERENT VISION OF THE FUTURE. THAT’S WHY, AT AEROVIRONMENT, WE WORK TIRELESSLY TO GAIN A BETTER, MORE ACCURATE UNDERSTANDING OF OUR CUSTOMERS’ GOALS AND ASPIRATIONS, FOCUSING OUR EFFORTS ON CREATING RUGGED, RELIABLE, EASY-TO-USE SOLUTIONS THAT WILL FREE THEM TO DEFINE THEIR OWN FUTURES. ABOVE ALL, WE ARE DETERMINED TO ACT AS A FORCE FOR GOOD IN THE WORLD, BOTH THROUGH OUR PRODUCTS AND OUR ACTIONS AS A COMPANY. WE ARE DETERMINED TO MAKE A DIFFERENCE, SETTING THE STAGE FOR A BETTER, SAFER, MORE PROSPEROUS FUTURE. Forging New Relationships We see partnerships as an important way to a more powerful future. This year, we joined forces with General Dynamics Land Systems to integrate unmanned aircraft and tactical missile systems into next-generation armored ground combat vehicles, giving warfighters the ability to see first and strike first across the tactical landscape. We also teamed with Kratos Defense and Security Systems to arm its large, fast-moving unmanned aircraft with our tube-launched Switchblade® tactical missile systems, projecting precision power to distant battlefields. PG 04 // AEROVIRONMENT, INC. CORPORATE SOCIAL RESPONSIBILITY AT AEROVIRONMENT, OUR COMMITMENT TO SOCIAL RESPONSIBILITY AND ETHICAL ACTION PERMEATES EVERY ASPECT OF OUR BUSINESS RIGHT DOWN TO THE DESIGN OF OUR PRODUCTS. OUR SMALL UNMANNED AIRCRAFT ARE BATTERY-POWERED AND DESIGNED TO BE REUSABLE. OUR HAPS SYSTEM IS A SOLAR-POWERED, ZERO-EMISSION AIRCRAFT, WHICH IS DESIGNED AND ASSEMBLED IN A FACILITY THAT COMPLIES WITH STRICT SUSTAINABILITY STANDARDS. AND ALL OUR SYSTEMS ARE DESIGNED WITH THE GOAL OF PROTECTING AND DEFENDING PEOPLE AND PROPERTY AGAINST THREATS. CORPORATE SOCIAL RESPONSIBILITY IS ALSO PART OF OUR PHILOSOPHY OF DOING BUSINESS. WE ARE AND WILL CONTINUE TO BE RESPONSIBLE STEWARDS OF OUR RESOURCES AND AN ACTIVE CONTRIBUTOR TO THE COMMUNITIES AROUND US. IN DOZENS OF DIFFERENT WAYS, WE WORK HARD TO MAKE THE WORLD A BETTER PLACE. MAKING THE WORLD A BETTER PLACE AeroVironment maintains close relationships with key universities and military academies nationwide to support student development and product-related research. This year, for instance, AeroVironment donated more than 90 Quantix™ hybrid drones and access to the AV DSS™ ecosystem to the agricultural departments of 35 universities throughout the United States. They are being deployed in a variety of in-field trials and used to pursue research in artificial intelligence and precision agriculture systems. We also host West Point and United States Air Force Academy cadets as interns at our California facilities and donate numerous Puma™ and Raven® unmanned aircraft systems to the United States Air Force Academy annually. In times of emergency, AeroVironment stands ready to serve our neighbors. In 2018, the Woolsey Fire destroyed more than 616 park structures and consumed 88 percent of National Park Service (NPS) land in the Santa Monica Mountains National Recreation Area. Working in close concert with the NPS rangers and scientists, AeroVironment used our Quantix hybrid drone and Decision Support System to map a portion of the burn area, quantify oak tree mortality and measure vegetation stress. The data collected will facilitate the development of a long-term environmental recovery and park-rebuilding strategy. Environmental sustainability is a core value for AeroVironment. Accordingly, we are pursuing ISO 14001 certification, an international standard for the efficient use of resources and reduction of waste. We have also upgraded outdoor lighting at all of our Ventura County facilities with energy-saving LED bulbs and offer numerous electric vehicle chargers to support our employees who drive clean electric vehicles. 2019 CORPORATE OVERVIEW // PG 05 FINANCIAL HIGHLIGHTS In thousands except share data 2019 2018 2017 Total Revenue $314,274 $268,424 $233,105 Net Income from Continuing Operations Attributable to AeroVironment Fully Diluted EPS from Continuing Operations Attributable to AeroVironment Total Assets Total Stockholders’ Equity Operating Margin 41,912 21,750 17,701 1.74 508,844 462,571 11% 0.91 0.76 473,418 433,831 409,033 383,075 11% 9% REVENUE & EPS REVENUE (CONTINUING OPERATIONS) EPS ATTRIBUTABLE TO AEROVIRONMENT—DILUTED Total Revenue ($ in millions) $375 EPS Attributable to AeroVironment—Diluted (dollars) $2.00 300 225 150 75 0 FY‘15 FY‘16 FY‘17 FY‘18 FY‘19 Note: Amounts prior to 2017 do not reflect impact of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). PG 06 // AEROVIRONMENT, INC. 1.60 1.20 0.80 0.40 0 High Low $ 76.32 121.32 103.46 95.38 $49.69 71.21 63.01 64.05 High Low $40.10 55.75 58.99 58.06 $28.13 36.71 41.53 41.60 High Low $32.44 30.08 29.42 29.96 $26.02 22.16 23.40 25.42 SHARE PRICE Fiscal Year Ended April 30, 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended April 30, 2018 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended April 30, 2017 First Quarter Second Quarter Third Quarter Fourth Quarter REVENUE MIX BY GEOGRAPHY DOMESTIC INTERNATIONAL 100% 80 60 40 20 0 48% 52% 53% 47% 64% 36% 71% 29% 91% 9% FY‘15 FY‘16 FY‘17 FY‘18 FY‘19 2019 CORPORATE OVERVIEW // PG 07 DEAR FELLOW STOCKHOLDERS, FISCAL YEAR 2019 WAS ANOTHER YEAR OF OUTSTANDING RESULTS AND PROGRESS FOR AEROVIRONMENT. WE RE-SHAPED OUR PORTFOLIO EARLY IN THE FISCAL YEAR TO TRANSFORM AEROVIRONMENT INTO A PURE-PLAY UNMANNED SYSTEMS SOLUTIONS PROVIDER AT THE INTERSECTION OF FUTURE-DEFINING TECHNOLOGIES INCLUDING ROBOTICS, SENSORS, ANALYTICS AND CONNECTIVITY. BY EXECUTING OUR PLAN FOR THE YEAR, WE DELIVERED EXCELLENT FINANCIAL RESULTS, ENHANCED OUR STRATEGIC POSITION AND PROGRESSED IN OUR ONGOING TRANSFORMATION TO ACHIEVE OUR LONG-TERM VALUE CREATION OBJECTIVES. EXCELLENT FINANCIAL RESULTS For the second consecutive year, our team produced double-digit revenue growth and strong profitability. By nearly every measure, fiscal year 2019 results were strong and established a firm foundation for continued successful execution in fiscal year 2020. Highlights from fiscal year 2019 include: Increased revenue by 17 percent as compared to the previous year, to $314 million, and increased diluted earnings per share by $0.91 to $1.74, including a one-time litigation settlement gain of $0.26. Grew revenue from international customers to 52 percent of total revenue in fiscal year 2019, building on a multi-year growth trend and exceeding revenue from domestic customers for the first time in AeroVironment’s history. Delivered balanced revenue across all four quarters, enabling us to improve operational planning and execution. Achieved funded backlog of $164 million, which contributed to near-record visibility entering fiscal year 2020. ENHANCING OUR STRATEGIC POSITION The progress we made on our strategic growth initiatives in fiscal year 2019 positions us to deliver even stronger results in the future. This progress spans defense and commercial end markets. In April, we rolled-out the first HAWK30 solar high-altitude pseudo-satellite (HAPS) unmanned aircraft for HAPSMobile, our joint venture with SoftBank Corp. We successfully designed and assembled this innovative 100% solar powered UAS in less than two years, a remarkably short period for such an innovative UAS. We believe that this solar HAPS unmanned aircraft solution will play a valuable role in expanding broadband connectivity to more people and devices around the globe in the coming years. HAWK30 can deliver 5G mobile telecommunication and Internet of Things (IoT) connectivity to help close the digital divide, which limits the participation of billions of people in our connected society. AeroVironment can also market this innovative capability to defense customers. The successful demonstration and certification of the HAWK30 will position us to create a significant business opportunity for AeroVironment and HAPSMobile Inc. In our defense end markets, the United States military continues to seek innovative unmanned capabilities as it prosecutes counter-insurgency threats around the world and strengthens its ability to counter near-peer military forces. In our Tactical Missile Systems (TMS) business, the United States military continues to seek smarter, more effective solutions to protect and enable our troops, while minimizing collateral damage. AeroVironment is proud to continue to serve as a trusted solution provider of our Switchblade® tactical missile systems. Recent United States Department of Defense procurement PG 08 // AEROVIRONMENT, INC. appropriations indicate strong, ongoing support for their larger scale deployment. Switchblade is one among our emerging, uniquely capable family of loitering munition systems that can deliver very precise effects against lethal battlefield threats. We have also progressed in the development of a Switchblade variant that is larger in size, flies longer and farther and carries a larger warhead for more significant mission effects than its predecessor carries. Like Switchblade and traditional missiles, each of these variants performs only one mission, representing a recurring revenue opportunity. Due to its expanded capabilities, this variant positions us for a much larger market segment that expands on Switchblade’s existing target market. We look forward to the additional value creation potential across our TMS business. United States military planners are paying more attention to potential conflict with near-peer adversaries. As compared to the counter-insurgency operations of the last 17 years, near-peer conflicts present a different threat environment requiring different strategies, tactics and resources to operate over much greater distances and against more sophisticated, better-equipped adversaries. Operators typically use AeroVironment’s market-leading small UAS and tactical missile systems within a range of 5 to 20 kilometers from their adversaries. By teaming with General Dynamics Land Systems and Kratos Defense and Security Systems, we are pursuing compelling opportunities to equip next generation armored vehicles and unmanned supersonic fighter jets with our small UAS and tactical missile systems. AeroVironment’s combined solutions have the potential to deliver expanded capabilities to customers as they prepare for a range of military threats. We are confident our solutions position us well to participate in an increasingly important area for military investments. TRANSFORMING AEROVIRONMENT FOR LONG-TERM VALUE CREATION Our strong balance sheet enables us to deploy capital in support of our growth strategy, including investing a total of approximately $15 million in our HAPSMobile Inc. joint venture. The joint venture has already produced a customer-funded design, development and demonstration program valued at more than $130 million, and positions us for greater returns from HAWK30 production, delivery and support in subsequent phases of the program. Early in fiscal year 2020, we also announced the acquisition of Pulse Aerospace, a developer of the innovative VAPOR® line of Vertical Take-Off and Landing (VTOL) UAS. This acquisition immediately expanded our family of small UAS with a product line that addresses customer missions we could not support previously. In addition to growing our share of the small UAS market, we expect the acquisition to be accretive to AeroVironment’s earnings by the third full year of operations. An indicator of the demand for the VAPOR line of VTOL UAS is evidenced by Pulse’s recently signed $13 million contract with a defense customer. We realize that achieving our growth objectives requires greater scale and speed. To expand our capacity and harness innovation in other geographic regions, we announced the establishment of our Innovation Center—New England in fiscal year 2019. This is our first innovation center outside of California and we are rapidly growing our New England team and building more capability in robotics and VTOL UAS. Our new Innovation Center—Midwest in Kansas similarly expands our capacity in an area rich with innovative UAS talent. We are proud of the accomplishments our team has made to advance and diversify our portfolio, but are even more excited about the even bolder objectives we have yet to achieve. We believe we have the foundation in place to contribute even more meaningfully to helping our customers proceed with certainty, and create more value for our stockholders. On behalf of the Board of Directors and our management team, I thank our AeroVironment team members for another year of outstanding execution and results. We remain focused on executing our plan and delivering outstanding results to you, our valued stockholders, as we progress toward achieving our long-term objectives. Sincerely, Wahid Nawabi Wahid Nawabi President and Chief Executive Officer 2019 CORPORATE OVERVIEW Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended April 30, 2019☐☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to Commission file number 001‑33261 AEROVIRONMENT, INC.(Exact name of registrant as specified in its charter) Delaware95‑2705790(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)900 Innovators Way Simi Valley, CA93065(Address of Principal Executive Offices)(Zip Code)Registrant’s telephone number, including area code: (805) 520‑8350 Securities registered pursuant to Section 12(b) of the Act: Title of Class Trading Symbol(s)Name of each exchange on which registeredCommon Stock, par value $0.0001 per share AVAVThe NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submittedpursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantwas required to submit such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10‑K or any amendment to this Form 10‑K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and“emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐Smaller reporting company ☐ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒ The aggregate market value of the voting stock held by non‑affiliates of the registrant, based on the closing price on the NASDAQGlobal Select Market on October 28, 2018 was approximately $1,893.7 million. As of June 19, 2019, the issuer had 23,942,558 shares of common stock, par value $0.0001 per share, issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant toRegulation 14A not later than 120 days after the conclusion of the registrant’s fiscal year ended April 30, 2019, are incorporated by referenceinto Part III of this Form 10‑K. Table of ContentsAEROVIRONMENT, INC.INDEX TO FORM 10‑K Page PART I Item 1. Business 3 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 40 Item 2. Properties 41 Item 3. Legal Proceedings 41 Item 4. Mine Safety Disclosure 41 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities 42 Item 6. Selected Consolidated Financial Data 43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57 Item 8. Financial Statements and Supplementary Data 58 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 105 Item 9A. Controls and Procedures 105 Item 9B. Other Information 106 PART III Item 10. Directors, Executive Officers and Corporate Governance 109 Item 11. Executive Compensation 109 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 109 Item 13. Certain Relationships and Related Transactions, and Director Independence 109 Item 14. Principal Accounting Fees and Services 109 PART IV Item 15. Exhibits, Financial Statement Schedules 110 1Table of Contents PART I Forward‑Looking Statements This Annual Report on Form 10‑K, or Annual Report, contains forward‑looking statements, which reflect our currentviews about future events and financial results. We have made these statements in reliance on the safe harbor created by thePrivate Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or theSecurities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward‑lookingstatements include our views on future financial results, financing sources, product development, capital requirements,market growth and the like, and are generally identified by terms such as “may,” “will,” “should,” “could,” “targets,”“projects,” “predicts,” “contemplates,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans” and similarwords. Forward‑looking statements are merely predictions and therefore inherently subject to uncertainties and other factorswhich could cause the actual results to differ materially from the forward‑looking statement. These uncertainties and otherfactors include, among other things: ·unexpected technical and marketing difficulties inherent in major research and product development efforts; ·availability of U.S. government funding for defense procurement and research and development programs; ·the extensive regulatory requirements governing our contracts with the U.S. government and the results of anyaudit or investigation of our compliance therewith; ·our ability to remain a market innovator and to create new market opportunities; ·the potential need for changes in our long‑term strategy in response to future developments; ·unexpected changes in significant operating expenses, including components and raw materials; ·changes in the supply, demand and/or prices for our products and services; ·increased competition, including from firms that have substantially greater resources than we have and in theUAS business from lower‑cost consumer drone manufacturers who may seek to enhance their systems’capabilities over time; ·the complexities and uncertainty of obtaining and conducting international business, including exportcompliance and other reporting requirements; ·the impact of potential security and cyber threats; ·uncertainty in the customer adoption rate of commercial use unmanned aircraft systems; ·changes in the regulatory environment;·our ability to successfully integrate business we acquire;·unfavorable results in legal proceedings; and ·general economic and business conditions in the United States and elsewhere in the world. Set forth below in Item 1A, “Risk Factors” are additional significant uncertainties and other factors affectingforward‑looking statements. The reader should understand that the uncertainties and other factors identified in this AnnualReport are not a comprehensive list of all the uncertainties and other factors that may affect forward‑looking2Table of Contentsstatements. We do not undertake any obligation to update or revise any forward‑looking statements or the list ofuncertainties and other factors that could affect those statements. Item 1. Business. Sale of EES Business Segment On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of its efficient energysystems business segment (“the EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant to an AssetPurchase Agreement (the “Purchase Agreement”) between Webasto and AeroVironment. As of April 30, 2018, we determinedthat the EES Business met the criterion for classification as an asset held for sale and represented a strategic shift in ouroperations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this AnnualReport as discontinued operations for all periods presented. The disclosures and references in this Annual Report, including financial data, the description of our businessoperations in this Item 1, and risk factors related to our operations included in Item 1A relate to our continuing operations,unless otherwise specifically noted. Overview We design, develop, produce, support and operate a technologically‑advanced portfolio of products and services forgovernment agencies and businesses. We supply unmanned aircraft systems (“UAS”) and related services primarily toorganizations within the U.S. Department of Defense (“DoD”) and to international allied governments, and tactical missilesystems and related services to organizations within the U.S. Government. We derive the majority of our revenue from thesebusiness areas and we believe that the markets for these solutions have significant growth potential. Additionally, we believethat some of the innovative potential products and services in our research and development pipeline will emerge as newgrowth platforms in the future, creating additional market opportunities. Our success with current products and services stems from our investment in research and development and ourability to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, to help ourgovernment and commercial customers operate more effectively and efficiently. We develop these highly innovativesolutions by working very closely with our key customers to solve their most important challenges related to our areas ofexpertise. Our core technological capabilities, developed through more than 45 years of innovation, include robotics; sensordesign, development, miniaturization and integration; embedded software and firmware; miniature, low power wirelessdigital communications; lightweight aerostructures; high-altitude systems design, integration and operations; machinevision, machine learning and autonomy; low SWaP (Size, Weight and Power) system design and integration; manned-unmanned teaming, unmanned-unmanned teaming; power electronics and electric propulsion systems; efficient electricpower conversion, storage systems and high density energy packaging; controls and systems integration; vertical takeoff andlanding flight, fixed wing flight and hybrid aircraft flight; image stabilization and target tracking; advanced flight controlsystems; fluid dynamics; robotic systems autonomy; human-machine interface development; and integrated missionsolutions for austere environments. Our business focuses primarily on the design, development, production, marketing, support and operation ofinnovative UAS and tactical missile systems and the delivery of UAS‑related services that provide situational awareness,remote sensing, multi‑band communications, force protection and other information and mission effects to increase the safetyand effectiveness of our customers’ operations. Our Strategy As a technology solutions provider, our strategy is to grow our business by developing and acquiring innovative,safe and reliable new solutions that provide customers with valuable capabilities. Delivering these capabilities will enable usto create new markets or market segments, gain market share and grow as market adoption increases. We believe that byintroducing new solutions that provide customers with compelling value we are able to create new markets or marketsegments and then grow our positions within those markets or market segments profitably, 3Table of Contentsinstead of entering established, existing markets and competing directly against large, incumbent competitors that maypossess advantages in scope, scale, resources and relationships. We intend to grow our business by preserving a leadership position in our core UAS and tactical missile systemsmarkets, and by creating new solutions that enable us to create and establish leadership positions in new markets. Keycomponents of this strategy include the following: Grow existing markets and create new adjacent markets. Our small UAS and tactical missile systems enjoyleading positions in their respective markets. We intend to increase the penetration of our small UAS products and serviceswithin the U.S. military, the military forces of allied nations, other government agencies and non‑government organizations,including commercial entities, and to increase the penetration of our tactical missile systems within the U.S. military andallied nations. We believe that the broad adoption of our small UAS by the U.S. military will continue to spur demand byallied nations, and that our efforts to pursue new applications are creating opportunities beyond the early adopter militarymarket. Deliver innovative new solutions into existing and new markets. Customer‑focused innovation is the primarydriver of our growth. We plan to continue pursuing internal and customer‑funded research and development to developbetter, more capable products, services and business models, both in response to and in anticipation of emerging customerneeds. In some cases, these innovations result in upgrades to existing offerings, expanding their value among existingcustomers and markets. In other cases, these innovations become entirely new solutions that position us to address newmarkets, customers and business opportunities. We believe focused research and development investments will allow us todeliver innovative new products and services that address market needs within and outside of our current target markets, andenable us to create new opportunities for growth. We view strategic partnerships as a means by which to further the reach ofour innovative solutions through access to new markets, customers and complementary capabilities. Foster our entrepreneurial culture and continue to attract, develop and retain highly‑skilled personnel. Ourcompany culture encourages innovation and entrepreneurialism, which helps to attract and retain highly‑skilledprofessionals. We intend to preserve this culture to encourage the development of the innovative, highly technical systemsolutions and business models that give us our competitive advantage. A core component of our culture is our intent tooperate with trust and teamwork in all of our interactions, contributing to a positive work environment and engenderingloyalty among our employees and customers. Preserve our agility and flexibility. We respond rapidly to evolving markets, solve complicated customerproblems, and strive to deliver new products, services and capabilities quickly, efficiently and affordably relative toavailable alternatives. We believe our agility and flexibility help us to strengthen our relationships with customers andpartners. We intend to maintain our agility and flexibility, which we believe to be important sources of differentiation whenwe compete against organizations with more extensive resources. Effectively manage our growth portfolio for long‑term value creation. Our production and developmentprograms and services present numerous investment opportunities that we believe will deliver long‑term growth byproviding our customers with valuable new capabilities. We evaluate each opportunity independently and within the contextof other investment opportunities to determine its relative timing and potential, and thereby its priority. This process helps usto make informed decisions regarding potential growth capital requirements and supports our allocation of resources basedon relative risks and returns to maximize long‑term value creation, which is a key element of our growth strategy. We alsoreview our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growthopportunities. Customers We sell the majority of our UAS and services to organizations within the DoD, including the U.S. Army, MarineCorps, Special Operations Command, Air Force and Navy, and allied governments. We sell our tactical missile systems toorganizations within the U.S. government. We also develop High Altitude Pseudo-Satellite (“HAPS”) systems for acommercial customer based in Japan.4Table of Contents During our fiscal year ended April 30, 2019, we generated approximately 28% of our revenue from the U.S. Armypursuant to orders placed under contract by the U.S. Army on behalf of itself as well as for several other organizations withinthe DoD. Other U.S. government agencies and government subcontractors accounted for 20% of our sales revenue, whilepurchases by foreign inclusive of foreign military sales made through the DoD, commercial and consumer customersaccounted for the remaining 52% of sales revenue during our fiscal year ended April 30, 2019. Technology, Research and Development Technological Competence and Intellectual Property Our company was founded by the late Dr. Paul B. MacCready, the former Chairman of our board of directors and aninternationally renowned innovator who was instrumental in establishing our entrepreneurial and creative culture. Thisculture has consistently enabled us to attract and retain highly‑motivated, talented employees and has established ourreputation as an innovative leader in the industries in which we compete. The innovations developed by our company and our founder include, among others: the world’s first effectivehuman‑powered and manned solar‑powered airplanes; the first modern passenger electric car, the EV1 prototype for GeneralMotors; the world’s highest flying airplane in level flight, Helios™, a solar‑powered unmanned aircraft system that reachedover 96,000 feet above sea level in 2001; Global Observer, the world’s first liquid hydrogen‑fueled unmanned aircraftsystem; the Nano Hummingbird™, the world’s first flapping wing unmanned aircraft system capable of precise hover andomni‑directional flight; and Blackwing™, the first submarine-launched unmanned aircraft system deployed by the U.S.Navy. The Smithsonian Institution possesses seven vehicles developed by our company or our founder in its permanentcollection. Our history of innovation excellence is the result of our talented, creative and skilled employees whom weencourage to invent and develop innovative new solutions. A component of our ongoing innovation is a screening process that helps our business managers identify earlymarket needs, which assists us in making timely investments into critical technologies necessary to develop solutions toaddress these needs. Similarly, we manage new product and business concepts through a commercialization process thatbalances spending, resources, time and intellectual property considerations against market requirements and potential returnson investment. Strongly linking our technology and business development activities to customer needs in attractive growthmarkets constitutes an important element of this process. Through the process we revisit our customer requirementassumptions to evaluate continued investment and to help ensure that our products and services deliver high value.As of April 30, 2019, we had issued and retained 179 U.S. patents, as well as 67 pending U.S. patent applications; 10active Patent Cooperation Treaty applications; and numerous foreign patents and pending applications. In many cases, whenappropriate and to preserve confidentiality, we opt to protect our intellectual property through trade secrets as opposed tofiling for patent protection. The U.S. government has licenses to some of our intellectual property that was specifically developed inperformance of government contracts, and may use or authorize others to use this intellectual property. In some cases we fundthe development of certain intellectual property to maximize its value and limit its use by potential competitors. While weconsider the development and protection of our intellectual property to be integral to the future success of our business, atthis time we do not believe that a loss or limitation of rights to any particular piece of our intellectual property would have amaterial adverse effect on our overall business. Research, Development and Commercialization Projects A core component of our business strategy is the focused development and commercialization of innovativesolutions that we believe can become new products or services that enable us to create large new markets or accelerate thegrowth of our current products and services. We invest in an active pipeline of these commercialization projects that range inmaturity from technology validation to early market adoption. We cannot predict when, if ever, we will successfullycommercialize these projects, or the exact level of capital expenditures they could require, which could be substantial.5Table of Contents For the fiscal years ended April 30, 2019, 2018 and 2017, our internal research and development spendingamounted to 11%, 10% and 12%, of our revenue, respectively, and customer‑funded research and development spendingamounted to an additional 24%, 20% and 19%, of our revenue, respectively. Sales and Marketing Our marketing strategy is based on developing leadership positions in new markets that we create through theintroduction of innovation solutions that improve customer operational effectiveness and efficiency. Our ability to operate inan agile, flexible manner helps us achieve first mover advantage and work closely with early customers to achieve thesuccessful adoption of our solutions. Once we establish a market position we work to maintain our leadership while seekingto grow our revenue by expanding sales and through continuous innovation and customer support. Our reputation forinnovation is a key component of our brand and has been acknowledged through a variety of awards and recognized innumerous articles in domestic and international publications. We have many U.S. registered trademarks including those forAeroVironment, AV, Switchblade, Raven, and Wasp, and have several pending applications for trademark registration. International Sales We contract with international sales representatives and team with domestic organizations in a number of foreignmarkets and believe that these markets represent growth opportunities for our business. Our international sales accounted forapproximately 52%, 47% and 36%, of our revenue for the fiscal years ended April 30, 2019, 2018 and 2017, respectively. Competition We believe that the principal competitive factors in the markets for our products and services include productperformance; safety; features; acquisition cost; lifetime operating cost, including maintenance and support; ease of use; rapidintegration with existing equipment and processes; quality; reliability; customer support; and brand and reputation. Manufacturing and Operations We pursue a lean and efficient production strategy across our business, focusing on rapid prototyping, supply chainmanagement, final assembly, integration, quality and final acceptance testing. Using concurrent engineering techniqueswithin an integrated product team structure, we rapidly prototype design concepts and products, while working to optimizeour designs to meet manufacturing requirements, mission capabilities and customer specifications. Within this framework wedevelop our products with feedback and input from manufacturing, quality, supply chain management, key suppliers,logistics personnel and customers. We incorporate this input into product designs in an effort to maximize the efficiency andquality of our products while minimizing time to market. As a result, we believe that we significantly reduce the timerequired to move a product from its design phase to full rate production deliveries while achieving high reliability, qualityand yields. We outsource certain production activities, such as the fabrication of certain aerostructures, the manufacture andassembly of electronic printed circuit boards, payload components, and the production of our Quantix drone, to qualifiedsuppliers, with many of whom we have long-term relationships. This outsourcing enables us to focus on our core expertise offinal assembly, system integration and test processes for our products, ensuring high levels of quality and reliability. Weforge strong relationships with key suppliers based on their ability to grow with our production needs and support our growthplans. We continue to expand upon our suppliers’ expertise to improve our existing products and develop new solutions. Werely on both single and multiple suppliers for certain components and subassemblies. (See “Risk Factors—If criticalcomponents or raw materials used to manufacture our products become scarce or unavailable, then we may incur delays inmanufacturing and delivery of our products, which could damage our business” for more information.) All of our productionsystems operate in accordance with our AS9001D registered Quality Management System (QMS), which is focused oncontinuous improvement in order to increase acceptance rates, reduce lead times and lower cost.6Table of Contents Customer Funded Research and Development We actively pursue externally funded projects that help us to strengthen our technological capabilities. Our UASbusiness submits bids to large research customers such as the Defense Advanced Research Projects Agency, the U.S. AirForce, the U.S. Army and the U.S. Special Operations Command for projects that we believe have future commercialapplication. In some cases commercial enterprises may fund our research and development activities, as with ourHAPSMobile Inc. development program. Providing these services contributes to the development and enhancement of ourtechnical competencies. In an effort to manage the ability of our key technical personnel to support multiple, high‑valueresearch and development initiatives, we attempt to limit the volume of customer funded research and development projectsthat we accept. This process enables us to focus these personnel on projects we believe offer the greatest current and futurevalue to our business. Seasonality Historically our revenue in the second half of our fiscal years has exceeded our revenue in the first half of our fiscalyears. Our revenue was balanced between the first and second halves of fiscal year 2019. The factors that affect our revenuerecognition between accounting periods include the timing of new contract awards, the availability of U.S. government andinternational government funding, lead time to manufacture our family of systems to customer specification, customeracceptance and other regulatory requirements. Raw Materials and Suppliers Historically, we have not experienced significant delays in the supply or availability of our key raw materials orcomponents provided by our suppliers, nor have we experienced a significant price increase for raw materials orcomponents. We do not anticipate any such delays or significant price increases in our fiscal year 2020. Contract Mix The table below shows our revenue for the periods indicated by contract type, including both government andcommercial sales: Fiscal Year Ended April 30, 2019 2018 2017 Fixed-price contracts 71% 79% 76% Cost-reimbursable contracts 28% 21% 23% Time-and-materials contracts 1% —% 1% Employees As of April 30, 2019, we had 699 full time employees, of whom 254 were in research and development andengineering, 36 were in sales and marketing, 244 were in operations and 165 were general and administrative personnel. Webelieve that we have a good relationship with our employees. Backlog Consistent with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we define backlog asremaining unsatisfied performance obligations under firm orders for which work has not been performed. As of April 30, 2019and 2018, our backlog was approximately $164.3 million and $164.4 million, respectively. We expect that approximately92% of our backlog will be filled during our fiscal year ending April 30, 2020. In addition to our backlog, we had unfunded backlog of $45.2 million and $58.1 million as of April 30, 2019 and2018, respectively. We define unfunded backlog as the total remaining potential order amounts under cost7Table of Contentsreimbursable and fixed price contracts with (i) multiple one‑year options, and indefinite delivery, indefinite quantity, or IDIQcontracts, or (ii) incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. Therecan be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believesthat unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts. Unfundedbacklog does not include the remaining potential value associated with a U.S. Army IDIQ‑type contract for small UASbecause that contract was awarded to seven companies in 2018, including AeroVironment, and we cannot be certain that wewill receive all task orders issued against the contract. Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particulardate is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the yearmay not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarteras existing contracts expire, are renewed, or new contracts are awarded. A portion of our contracts, specifically our IDIQcontracts, do not obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government contractsincluded in backlog, whether or not they are funded, may be terminated at the convenience of the U.S. government. Other Information AeroVironment, Inc. was originally incorporated in California in July 1971 and reincorporated in Delaware in 2006. Our principal executive offices are located at 900 Innovators Way, Simi Valley, California 93065. Our telephonenumber is (805) 520‑8350. Our website home page is http://www.avinc.com. We make our website content available forinformation purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into thisAnnual Report. We make our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and proxystatements for our annual stockholders’ meetings, as well as any amendments to those reports, available free of chargethrough our website as soon as reasonably practical after we electronically file that material with, or furnish it to, theSecurities and Exchange Commission, or SEC. You can learn more about us by reviewing our SEC filings. Our SEC reportscan be accessed through the investor relations page of our web site at http://investor.avinc.com. The SEC also maintains aweb site at www.sec.gov that contains our reports, proxy statements and other information regarding us. Our Business Our UAS business addresses the increasing economic and security value of network‑centric intelligence,surveillance and reconnaissance (“ISR”), communications, remote sensing and effects delivery with innovative UAS andtactical missile system solutions. Industry Background Small UAS The defense market for small UAS has grown significantly since the early 2000s driven largely by the demandsassociated with the global threat environment and resulting procurement by military customers, the early adopters for thistechnology. Small UAS now represent an accepted and enduring capability for the military. The U.S. military’stransformation into a smaller, more agile force that operates via a network of observation, communication and precisiontargeting technologies accelerated following the terrorist attacks of September 11, 2001, as it required improved, distributedobservation and targeting of enemy combatants who operate in small groups, often embedded in dense population centers ordispersed in remote locations, to operate effectively in a counterinsurgency threat environment. We believe that UAS, whichrange from large systems, such as Northrop Grumman’s Global Hawk and General Atomics’ Predator, Sky Warrior, Reaperand Gray Eagle, to small systems, such as our Raven, Wasp AE, and Puma AE, serve as integral components of today’smilitary force. These systems provide critical observation and communications capabilities serving the increasing demandfor actionable intelligence, while reducing risk to individual “warfighters.”8Table of ContentsSmall UAS can provide real‑time observation and communication capabilities to the small units who control them. Asairspace regulations in the U.S. and other nations evolve to accommodate the commercial use of small UAS, significantgrowth in the number of entities developing small UAS solutions for markets such as precision agriculture is taking place. Tactical Missile Systems The development of weapons capable of rapid deployment and precision strike that also minimize the risk tosurrounding civilians, property and operators has accelerated due to advances in enabling technologies. Weapons such aslaser‑guided missiles, “smart” bombs and GPS‑guided artillery shells have dramatically improved the accuracy of strikesagainst hostile targets. When ground forces find themselves engaged in a firefight or near a hostile target, their ability toemploy a precision weapon system quickly and easily can mean the difference between mission success and failure. A rapidlydeployable solution could address emerging requirements beyond ground engagements for use in other types of missions andfrom a variety of sea, air and land platforms. We believe that embedding a precision lethal payload into a remotelycontrolled, man‑portable delivery system provides warfighters with a valuable and more cost‑effective alternative to existingmunition and missile systems. High-Altitude Pseudo-Satellite, or HAPS, UAS We believe a market opportunity exists for HAPS UAS that can fly for months at a time to provide continuousremote sensing and communications in an affordable manner over great distances. Existing solutions such as terrestrialcellular towers, communications satellites and manned and unmanned aircraft address some of the emerging demand for thiscapability, but do so at relatively high financial and resource costs. Next generation mobile telephony, referred to as 5G, canuse higher frequencies than those currently employed by 4G and LTE networks. These higher frequencies are not capable oftraveling large distances as compared to the frequencies associated with existing networks. As a result, 5G deploymentrequires the installation of a large number of base stations and cellular towers to complement existing infrastructure, resultingin a significant investment of time, resources and capital. Geosynchronous satellites provide fixed, continuouscommunications capabilities to large portions of the globe, but they operate more than 20,000 miles from the surface of theearth, therefore limiting the bandwidth they can provide, introducing latency in communications signals and requiringrelatively larger, higher power ground stations. Remote sensing satellites typically operate at lower altitudes, but are unableto maintain geosynchronous positions, meaning they are moving with respect to the surface of the earth, resulting in alimited presence over specific areas of interest and significant periods of time during which they are not present over thoseareas. A new category of constellations consisting of a large number of very small and low earth orbiting satellites isproposed to provide a lower cost alternative with more ubiquitous coverage for reconnaissance and communication, but hasyet to be deployed in meaningful quantities and may not be capable of providing the uninterrupted service and qualityrequired by commercial mobile carriers. High-altitude balloons carrying communication payloads are subject to winddirection and speed, and therefore may not be able to deliver the continuous, uninterrupted service and connection qualityrequired by commercial mobile carriers. UAS that are capable of operating in an affordable manner for extended periods oftime over an area of interest without gaps in availability while carrying a communications or observation payload could helpto satisfy this need. Our Solutions We supply our UAS products and services to multiple customers within and outside of the United States. Small UAS Products Our small UAS, including Raven, Wasp AE, and Puma AE, are designed to operate reliably at very low altitudes in awide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information.Military forces employ our small UAS to deliver ISR and communications, including real‑time tactical reconnaissance,tracking, combat assessment and geographic data, directly to the small tactical unit or individual operator, thereby increasingflexibility in mission planning and execution. In commercial applications, we operate our small UAS as part of a turnkeyinformation solution to deliver advanced analysis that can reduce customers’ costs, enhance their safety and increase theirrevenue. Our small UAS wirelessly transmit critical live video and other9Table of Contentsinformation generated by their payload of electro‑optical, infrared or other sensors directly to a hand‑held ground controlunit, enabling the operator to view and capture images, during the day or at night, on the control unit. Our Quantix datacollection drone generates a volume of high-resolution data significantly larger than wireless bandwidth can accommodate,requiring the transfer of data once the air vehicle has landed. With the exception of Quantix, our ground control systemsallow the operator to control the aircraft by programming it for GPS‑based autonomous navigation using operator‑designatedway‑points, or by manual flight operation. The ground control systems are designed for durability and ease of use in harshenvironments and incorporate a user‑friendly, intuitive user interface. All of our fixed wing small UAS currently inproduction for military customers operate from our common ground control system. Our Quantix system plots its own flightpath and launches, flies and lands autonomously to complete its mission. We designed our small UAS to be transportable by a single person, assembled without tools in less than five minutesand launched and operated by one or two people, with limited training required. The efficient and reliable electric motorsused in all of our small UAS are powered by modular battery packs that can be replaced quickly, enabling rapid return toflight. We designed all of our small UAS to be reusable for hundreds of flights under normal operating circumstances and tobe recovered through an autonomous landing feature that enables a controlled descent to a designated location. In military applications, our small UAS provide forward aerial observation capabilities that enable tacticalcommanders to observe around the next corner, to the next intersection or past a ridgeline in real‑time. This informationfacilitates faster, safer movement through urban, rural and mountainous environments and can enable troops to be proactivebased on field intelligence rather than reactive to attack. Moreover, by providing this information, our systems reduce therisk to warfighters and to the surrounding population by providing the ability to tailor the military response to the threat.U.S. military personnel regularly use our small UAS, such as Raven, for missions such as force protection, combat observationand damage assessment. These reusable systems are easy to transport, assemble and operate and are relatively quiet whenflying at typical operational altitudes of 200 to 300 feet above ground level, the result of our efficient electric propulsionsystems. Furthermore, their small size makes them difficult to see from the ground. In addition, the low cost of our small UASrelative to larger systems and alternatives makes it practical for customers to deploy these assets in large quantities directly towarfighters. In emerging commercial applications, our small UAS enable enterprises to manage valuable assets such as crops,powerlines and railroad infrastructure, more effectively and safely than previously possible. Our Quantix data collectiondrone and AeroVironment Decision Support System (“AVDSS”), a cloud‑based platform for processing, analyzing andstoring collected data, are designed to provide agriculture operations with more accurate and timely information regardingtheir crops. Better and more timely information can translate into more efficient activities that facilitate more efficient use ofscarce resources such as water for agriculture. Our small UAS offering also includes spare equipment, alternative payload modules, batteries, chargers, repairservices and customer support. We provide training by our highly‑skilled instructors, who typically possess extensivemilitary experience, and continuous refurbishment and repair services for our products. We designed our Quantix system forminimal training so customers can learn how to operate it on their own. By maintaining close contact with our customers andusers in the field, we gather critical feedback on our products and incorporate that information into ongoing productdevelopment and research and development efforts. This approach enables us to improve our solutions in response to, and inanticipation of, evolving customer needs. Each system in our small UAS portfolio typically includes multiple aircraft, our common and interoperablehand‑held ground control system and an array of spare parts and accessories. Our current small UAS portfolio for defenseapplications consists of the following aircraft: Small UAS Wingspan Weight Standard Range Flight Time Product (ft.) (lbs.) Recovery Sensors (mi.)(1) (min.)(1) Puma AE 9.2 14 Vertical autonomous landing capable(ground or water) Mechanical pan, tilt, zoom and digital zoomelectro-optical and infrared 9.0 210 Raven 4.5 4.5 Vertical autonomous landing capable Mechanical pan, tilt, zoom and digital zoomelectro-optical and infrared 6.0 60-90 Wasp AE 3.3 2.8 Vertical autonomous landing capable(ground or water) Mechanical pan, tilt, zoom and digital zoomelectro-optical and infrared 3.0 50 10Table of Contents(1)Represents point‑to‑point minimum customer‑mandated specifications for all operating conditions. In optimalconditions, the performance of our products may significantly exceed these specifications. Our digital data links(“DDL”) relay can enable operational modes that can extend range significantly. The ground control system serves as the primary interface between the operator and our small UAS designed fordefense applications, and allows the operator to control the direction, speed and altitude of the aircraft as well as theorientation of the sensors to view the visual information they produce through real‑time, streaming video and metadata. Ourcommon ground control system interfaces with each of our air vehicles, providing a common user interface with each of ourair vehicles. In addition to the thousands of air vehicles delivered to our customers, thousands of ground control systems arealso in our customers’ hands. Our line of miniature gimbaled sensor payloads provides small UAS operators with enhanced observation and targettracking functionality. Our DDL is integrated into Puma AE, Raven and Wasp AE systems, enhancing their capabilities, andultimately, the utility of our small UAS by enabling more efficient radio spectrum utilization and communications security.Small UAS incorporating our DDL offer many more channels as compared to our analog link, increasing the number of airvehicles that can operate in a given geographic area. Additionally, our DDL enables each air vehicle to operate as anInternet‑Protocol addressable hub capable of routing and relaying video, voice and data to and from multiple other nodes onthis ad hoc network. This capability enables beyond line‑of‑sight operation of our small UAS, further enhancing their valueproposition to our customers. Tactical Missile Systems Products Our tactical missile systems consist of tube-launched aircraft that deploy with the push of a button, fly at higherspeeds than our small UAS, and perform either effects delivery or reconnaissance missions. Switchblade, the first of ourtactical missile systems products, can be transported in its launch tube, within a backpack, and deployed within minutes todefend against lethal threats such as snipers and mortar launchers. With a high level of precision, including a customizedwarhead, wave-off, loiter and re-engagement capabilities, Switchblade can neutralize a target rapidly and accurately withoutcausing collateral damage. Furthermore, because it streams live electro-optical and thermal video to its operator, Switchbladecan be called off in the final moments prior to a strike should the situation require, minimizing damage to non-combatants. Blackwing, a variant of Switchblade, launches from a submerged submarine and carries extra batteries instead ofa warhead, providing longer flight time for reconnaissance operations. Support Services In support of our small UAS for defense applications we offer a suite of services that help to ensure the successfuloperation of our products by our customers. These services generate incremental revenue for us and provide us withcontinuous feedback to understand the performance of our systems, anticipate our customers’ needs and develop additionalcustomer insights. We believe that this ongoing feedback loop enables us to continue to provide our customers withinnovative solutions that help them succeed. We provide spare parts as well as repair, refurbishment and replacement servicesin a manner that seeks to minimize supply chain delays, and we support our customers with spare parts, replacement aircraftand support whenever and wherever they need them. One of our facilities also serves as the primary depot for repairs andspare parts. We provide comprehensive training services to support all of our small UAS for defense applications. Ourhighly‑skilled instructors typically have extensive military experience. We deploy training teams throughout the continentalUnited States and overseas to support our customers’ training needs on both production and development‑stage systems. Customer Funded Research and Development We provide specialized services in support of customer‑funded research and development projects, delivering newvalue‑added technology solutions to our customers. These types of projects typically involve developing new systemsolutions and technology or new capabilities for existing solutions that we introduce as retrofits or upgrades. We recognizecustomer‑funded research and development projects as revenue.11Table of Contents Technology, Research and Development Our primary areas of technological competence represent the sum of numerous technical skills and capabilities thathelp to differentiate our approach and product offerings. The following list highlights a number of our key UAStechnological capabilities: ·robotics technologies; ·sensor design, development, miniaturization and integration;·embedded software and firmware, analytics processing, database systems, web, desktop and mobile applications,standards-based interfaces;·miniature, low power wireless digital communications; ·lightweight, low speed aerostructures and aerodynamic design; ·high-altitude long-endurance systems design, integration and flight operations·machine vision, machine learning, advanced auto flight control, auto target recognition, autonomous missionplanning and teaming·low SWaP (Size, Weight and Power) system design and integration·manned-unmanned teaming, unmanned-unmanned teaming;·power electronics and electric propulsion systems;·efficient electric power conversion, storage systems and high‑density energy packaging;·controls and systems integration;·vertical takeoff and landing flight, fixed‑wing flight and hybrid flight unmanned aircraft systems; ·image stabilization and target tracking; ·advanced flight control systems; ·fluid dynamics;·robotic systems autonomy;·human-machine interface development; and ·integrated mission solutions for austere environments. Three of our UAS and tactical missile systems development initiatives are described below: Tactical Missile System Variants. We pioneered our first rapidly deployable, high‑precisiontactical missile system, named Switchblade, for use by defense ground forces. Switchblade is now deployedby the U.S. military to provide force protection to its troops overseas in combat operations. During amultitude of demonstrations over the course of several years, multiple potential customers12Table of Contentsrequested modifications to Switchblade to accommodate their specific mission requirements. We performeda number of successful demonstrations and are now developing several variants of Switchblade for newcustomers and applications, including deployment from sea and air vehicles. Blackwing, a submarine-launched reconnaissance system, represents one of the variants. Other variants have transitioned intoproduction and sale to U.S. customers. We believe these new variants have the potential to expand ourtactical missile systems opportunities significantly. Commercial Unmanned Aircraft Systems‑Based Information Solutions. In the same way oursmall UAS provide situational awareness to military customers, we can employ our small UAS withadvanced sensors to scan vast or inaccessible infrastructure, plants or wildlife, then process and analyze theresulting data to produce actionable information for a wide variety of companies in industries that includeenergy, agriculture and natural resource management. Our Quantix data collection drone is designed forhighly automated vegetation and topographical scanning of more than 400 acres in its 45 minute flighttime. Equipped with fixed electro-optical and multi-spectral sensors, Quantix takes off vertically,transitions to horizontal operation, flies its designated mission, then lands itself vertically at its launchpoint. Lower resolution data can be viewed immediately through the wireless transmission of image datafrom the Quantix to its commercial tablet controller pre-loaded with custom software. Further automatedanalysis can be performed by uploading the data to the AVDSS, a cloud-based platform for processing,analyzing and storing collected data. We have developed this capability based on extensive work withearly adopters for anticipated adoption in what could be a large market. HAPS Unmanned Aircraft Systems. Building on our decades of groundbreaking developmentand demonstration of high altitude solar-powered UAS, in fiscal year 2018 we established a joint venturewith SoftBank Corp. to create a global broadband and telecommunications company to demonstrate anddeploy HAPS UAS around the world. As of April 30, 2019, AeroVironment owned a 10% share ofHAPSMobile Inc., while SoftBank owned a majority share of 90%. During the first fiscal quarter of fiscalyear 2020, our ownership was diluted to approximately 5%. The joint venture is funding AeroVironment’sdevelopment and demonstration of solar-powered HAPS UAS. AeroVironment possesses exclusive rightsto manufacture and supply the solar HAPS UAS developed by the joint venture to HAPSMobile Inc.,subject to meeting contractual performance criteria. HAPSMobile Inc. possesses exclusive rights to marketthe solar HAPS UAS for commercial markets globally, while AeroVironment possesses exclusive rights tomarket the solar HAPS UAS for non-commercial markets globally, with the exception of Japan. Sales and Marketing We organize our U.S. UAS business development team members by target market and customer and we locate teammembers in close proximity to the customers they support, where possible. We organize our program managers by productand focus on designing optimal solutions and contract fulfillment, as well as internalizing feedback from customers andusers. By maintaining assigned points of contact with our customers, we believe that we are able to maintain ourrelationships, service existing contracts effectively and gain vital feedback to improve our responsiveness and productofferings. We employ a direct-sale and dealer-based distribution strategy for our Commercial Information Solutions. Manufacturing and Operations Continued investment in infrastructure has established our manufacturing capability to meet demand with scalablecapacity. We have the manufacturing infrastructure to produce UAS products at rates higher than our historical volumes,support initial low rate production for new UAS development programs and tactical missile systems and execute initiallow‑rate production of large UAS. By drawing upon experienced personnel across various manufacturing industriesincluding aerospace, automotive and volume commodities, we have instituted lean production systems and leverage ourInternational Organization for Standardization, or ISO certification for Quality Management, integrated supply chainstrategy, document control systems and process control methodologies for production. Presently, we13Table of Contentsperform small UAS manufacturing at the 85,000 square foot manufacturing facility we established in 2005. Our 9001:2019 +AS9100D certified manufacturing facilities are designed to accommodate demand of up to 1,000 aircraft per month. ISO9001:2019 + AS9100D refers to a set of voluntary standards for quality management systems. The 9001:2019 standards areestablished by the ISO to govern quality management systems used worldwide. We are regularly independently audited andcertified to be compliant to by a third party, accredited registrar. Accreditation of SAI Global, our third party registrar is bythe ANSI National Accreditation Board. These audits performed as part of certification evaluate the effectiveness ofcompanies’ quality management systems and their compliance with ISO standards. Some companies and governmentagencies view ISO certification as a positive factor in supplier assessments. Competition The market for defense small UAS continues to evolve in response to changing technologies, shifting customerneeds and expectations and the potential introduction of new products. We believe that a number of established domesticand international defense contractors have developed or are developing small UAS that continue to compete, or willcompete, directly with our products. Some of these contractors have significantly greater financial and other resources thanwe possess. Our current principal small UAS competitors include Elbit Systems Ltd., FLIR Systems, Inc., L3 Technologies,Inc., and Lockheed Martin Corporation. We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk,General Atomics, Inc.’s Predator and its derivatives, The Boeing Company’s ScanEagle and Textron Inc.’s Shadow as directcompetitors to our small UAS because they perform different missions, do not typically deliver their information directly tofront‑line ground forces and are not hand‑launched and controlled. However, we cannot be certain that these platforms willnot become direct competitors in the future. Potential competition from consumer-focused drone manufacturers could emergeas their capabilities increase and their prices remain low relative to existing defense solutions, which could result in somelevel of military consideration even if such drones do not meet traditional military performance or security specifications. The market for HAPS UAS is in an early stage of development. As a result, this category is not well defined and ischaracterized by multiple potential solutions. An existing contractor that claims to provide high altitude long enduranceUAS is Northrop Grumman Corporation with its Global Hawk. Several aerospace and defense contractors are pursuing thismarket opportunity with proposed very long duration UAS, including The Boeing Company, Airbus, Lockheed MartinCorporation and Northrop Grumman Corporation. Some internet technology companies have acquired small firms that focuson this type of capability and represent potential future competitors. Companies pursuing airships (high altitude aircraft thatare kept buoyant by a body of gas that is lighter than air) as a solution for this market include Lockheed Martin Corporationand Northrop Grumman Corporation. Loon LLC is pursuing the deployment of lighter-than-air high altitude balloonswithout propulsion to create networks that can provide connectivity. Companies pursuing conventional satellites as asolution for this market include The Boeing Company, Lockheed Martin Corporation, General Dynamics Corporation,EADS N.V., Ball Corporation and Orbital Sciences Corporation. Companies pursuing Low Earth Orbit, or LEO, micro orcubesat satellite constellations for global communication and remote sensing include Amazon, OneWeb, SpaceX and TheBoeing Company. Companies owning and operating terrestrial cellular tower networks include American Tower Corporation,Crown Castle International Corp. and SBA Communications Corporation. The market for tactical missile systems is in an early stage of development, but it is evolving rapidly. Competitors inthis market include Textron Inc., Raytheon Company and Lockheed Martin Corporation. The market for commercial UAS products and services is in an early stage of development, but is evolving rapidly,generating a great deal of interest as government regulations evolve to accommodate commercial UAS operations in theNational Airspace System and in the airspace systems of other countries. Given the breadth of applications and the diversityof industries that could benefit from UAS technology, a growing number of potential competitors in this market includeconsumer drone manufacturers such as Dà-Jiāng Innovation, who seek to enhance their systems’ capabilities over time; othersmall UAS manufacturers, including large aerospace companies such as Lockheed Martin Corporation, and drone and aerialsurveying and mapping service providers such as PrecisionHawk, Sentera and SlantRange; ground‑based surveying andmapping service providers; satellite imagery providers; and specialty system manufacturers, software as a service and otherservice providers aiming to address specific market segments. The emerging non‑military market is attracting numerousadditional competitors and significant venture14Table of Contentscapital funding given perceived lower barriers to entry and a much more fragmented marketplace as compared to the militarymarket. Potential additional competitors include start‑up companies providing low cost solutions. We believe that the principal competitive factors in the markets for our UAS products and services include productperformance, features, acquisition cost, lifetime operating cost, including maintenance and support, ease of use, integrationwith existing equipment and processes, quality, reliability, customer support, brand and reputation. Regulation Due to the fact that we contract with the DoD and other agencies of the U.S. government, we are subject to extensivefederal regulations, including the Federal Acquisition Regulations, Defense Federal Acquisitions Regulations, Truth inNegotiations Act, Foreign Corrupt Practices Act, False Claims Act and the regulations promulgated under the DoD IndustrialSecurity Manual, which establishes the security guidelines for classified programs and facilities as well as individual securityclearances. The federal government audits and reviews our performance on contracts, pricing practices, cost structure, andcompliance with applicable laws, regulations and standards. Like most government contractors, our contracts are audited andreviewed on a continual basis by federal agencies, including the Defense Contract Management Agency, or DCMA, and theDefense Contract Audit Agency, or DCAA. Certain of these regulations impose substantial penalties for violations, including suspension or debarment fromgovernment contracting or subcontracting for a period of time. We monitor all of our contracts and contractual efforts tominimize the possibility of any violation of these regulations. In addition, we are subject to industry‑specific regulations due to the nature of the products and services we provide.For example, certain aspects of our business are subject to further regulation by additional U.S. government authorities,including (i) the FAA, which regulates airspace for all air vehicles in the U.S. National Airspace System, (ii) the NationalTelecommunications and Information Administration and the Federal Communications Commission, which regulate thewireless communications upon which our UAS depend in the United States and (iii) the Defense Trade Controls of the U.S.Department of State that administers the International Traffic in Arms Regulations, which regulate the export of controlledtechnical data, defense articles and defense services. On June 21, 2016 the FAA released its final rules that allow routine use of certain small UAS in the U.S. NationalAirspace System. The FAA rules, which went into effect in August 2016, provide safety rules for small UAS (under 55pounds) conducting non‑recreational operations. The rules limit flights to visual‑line‑of‑sight daylight operation, unless theUAS has anti-collision lights in which case twilight operation is permitted. The final rule also addresses height and speedrestrictions, operator certification, optional use of a visual observer, aircraft registration and marking and operational limits,including prohibiting flights over unprotected people on the ground who are not directly participating in the operation ofthe UAS. Current FAA regulations require drone operators to register their systems with the FAA and secure operatinglicenses for their drones as per the Part 107 specifications. These regulations continue to evolve to accommodate theintegration of UAS into the national airspace system for commercial applications, including HAPS UAS. Furthermore, our non‑U.S. operations are subject to the laws and regulations of foreign jurisdictions, which mayinclude regulations that are more stringent than those imposed by the U.S. government on our U.S. operations. Government Contracting Process We sell the significant majority of our small UAS and tactical missile system products and services as the primecontractor under contracts with the U.S. government. Certain important aspects of our government contracts are describedbelow. Bidding Process Most of our current government contracts were awarded through a competitive bidding process. The U.S.government awards competitive‑bid contracts based on proposal evaluation criteria established by the procuring agency.15Table of ContentsCompetitive‑bid contracts are awarded after a formal bid and proposal competition among providers. Interested contractorsprepare a bid and proposal in response to the agency’s request for proposal or request for information. A bid and proposal isusually prepared in a short time period in response to a deadline and requires the extensive involvement of numeroustechnical and administrative personnel. Following award, competitive‑bid contracts may be challenged by unsuccessfulbidders. Funding The funding of U.S. government programs is subject to congressional appropriations. Although multi‑year contractsmay be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis, eventhough a program may continue for many years. Consequently, programs are often only partially funded initially, andadditional funds are committed only as Congress makes further appropriations. The U.S. military funds its contracts for our full‑rate production UAS either through operational need statements oras programs of record. Operational need statements require allocations of discretionary spending or reallocations of fundingfrom other government programs. Funding for our production of initial Raven system deliveries, for example, was providedthrough operational need statements. We define a program of record as a program which, after undergoing extensive DoDreview and product testing, is included in the five‑year government budget cycle, meaning that funding is allocated forpurchases under these contracts during the five‑year cycle, absent affirmative action by the customer or Congress to changethe budgeted amount. Despite being included in the five-year budget cycle, funding for these programs is subject to annualapproval. Material Government Contract Provisions All contracts with the U.S. government contain provisions, and are subject to laws and regulations, that give thegovernment rights and remedies not typically found in commercial contracts, including rights that allow the government to: ·terminate existing contracts for convenience, in whole or in part, when it is in the interest of the government todo so; ·terminate contracts for default upon the occurrence of certain enumerated events; ·unilaterally modify contracts with regard to certain performance requirements; ·cancel multi‑year contracts and related orders, if funds for contract performance for any subsequent year becomeunavailable; ·potentially obtain rights in, or ownership to, intellectual property associated with products and systemsdeveloped or delivered by a contractor as a result of its performance of the contract; ·adjust contract costs and fees on the basis of audits completed by its agencies; ·suspend or debar a contractor from doing business with the U.S. government; and ·control or prohibit the export of certain items. Generally, government contracts are subject to oversight audits by government representatives. Compensation, ifany, in the event of a termination for default is limited to payment for work completed at the time of termination. In the eventof a termination for convenience, the contractor may receive the contract price for completed work, as well as its costs ofperformance of terminated work including an allowance for profit and reasonable termination settlement costs. 16Table of ContentsGovernment Contract Categories We have three types of government contracts, each of which involves a different payment methodology and level ofrisk related to the cost of performance. These basic types of contracts are typically referred to as fixed‑price contracts, costreimbursable contracts, including cost‑plus‑fixed fee, cost‑plus‑award fee, and cost‑plus‑incentive fee, and time‑and‑materialscontracts. In some cases, depending on the urgency of the project and the complexity of the contract negotiation, we will enterinto a Letter Contract prior to finalizing the terms of a definitive fixed‑price, cost reimbursable or time‑and‑materialsdefinitive contract. A Letter Contract is a written preliminary contractual instrument that provides limited initial funding andauthorizes us to begin immediately manufacturing supplies or performing services while negotiating the definitive terms ofthe procurement. Fixed‑Price. These contracts are not subject to adjustment by reason of costs incurred in theperformance of the contract. With this type of contract, we assume the risk that we will not be able toperform at a cost below the fixed‑price, except for costs incurred because of contract changes ordered by thecustomer. Upon the U.S. government’s termination of a fixed‑price contract, generally we would be entitledto payment for items delivered to and accepted by the U.S. government and, if the termination is at the U.S.government’s convenience, for payment of fair compensation for work performed plus the costs of settlingand paying claims by any terminated subcontractors, other settlement expenses and a reasonable allowancefor profit on the costs incurred. Cost Reimbursable. Cost reimbursable contracts include cost‑plus‑fixed fee contracts,cost‑plus‑award fee contracts and cost‑plus‑incentive fee contracts, each of which are described below.Under each type of contract, we assume the risk that we may not be able to recover costs if they are notallowable under the contract terms or applicable regulations, or if the costs exceed the contract funding. ·Cost‑plus‑fixed fee contracts are cost reimbursable contracts that provide for payment of anegotiated fee that is fixed at the inception of the contract. This fixed fee does not vary withactual cost of the contract, but may be adjusted as a result of changes in the work to beperformed under the contract. This contract type poses less risk of loss than a fixed‑pricecontract, but our ability to win future contracts from the procuring agency may be adverselyaffected if we fail to perform within the maximum cost set forth in the contract. ·A cost‑plus‑award fee contract is a cost reimbursable contract that provides for a fee consistingof a base amount, which may be zero, fixed at inception of the contract and an award amount,based upon the government’s satisfaction with the performance under the contract. With thistype of contract, we assume the risk that we may not receive the award fee, or only a portion ofit, if we do not perform satisfactorily. ·A cost‑plus‑incentive fee contract is a cost reimbursable contract that provides for an initiallynegotiated fee to be adjusted later by a formula based on the relationship of total allowablecosts to total target costs. We typically experience lower profit margins and lower risk under cost reimbursable contractsthan under fixed‑price contracts. Upon the termination of a cost reimbursable contract, generally we wouldbe entitled to reimbursement of our allowable costs and, if the termination is at the U.S. government’sconvenience, a total fee proportionate to the percentage of work completed under the contract. Time‑and‑Materials. Under a time‑and‑materials contract, our compensation is based on a fixedhourly rate established for specified labor or skill categories. We are paid at the established17Table of Contentshourly rates for the hours we expend performing the work specified in the contract. Labor costs, overhead,general and administrative costs and profit are included in the fixed hourly rate. Materials, subcontractors,travel and other direct costs are reimbursed at actual costs plus an amount for material handling. We makecritical pricing assumptions and decisions when developing and proposing time‑and‑materials labor rates.We risk reduced profitability if our actual costs exceed the costs incorporated into the fixed hourly laborrate. One variation of a standard time‑and‑materials contract is a time‑and‑materials, award fee contract.Under this type of contract, a positive or negative incentive can be earned based on achievement againstspecific performance metrics. Indefinite Delivery Indefinite Quantity Contract Form The U.S. government frequently uses IDIQ contracts and IDIQ‑type contract forms, such as cost reimbursable andfixed price contracts with multiple one‑year options, to obtain fixed‑price, cost reimbursable and time‑and‑materialscontractual commitments to provide products or services over a period of time pursuant to established general terms andconditions. At the time of the award of an IDIQ contract or IDIQ‑type contract, the U.S. government generally commits topurchase only a minimal amount of products or services from the contractor to whom such contract is awarded. After award of an IDIQ contract the U.S. government may issue task orders for specific services or products it needs.The competitive process to obtain task orders under an award contract is limited to the pre‑selected contractors. If an IDIQcontract has a single prime contractor, then the award of task orders is limited to that contractor. If the contract has multipleprime contractors, then the award of the task order is competitively determined among only those prime contractors. IDIQ and IDIQ‑type contracts typically have multi‑year terms and unfunded ceiling amounts that enable, but do notcommit, the U.S. government to purchase substantial amounts of products and services from one or more contractors. Item 1A. Risk Factors. General Business Risks We rely heavily on sales to the U.S. government, particularly to agencies of the Department of Defense. Historically, we have derived a significant portion of our total sales and substantially all of our small UAS sales fromthe U.S. government and its agencies. Sales to the U.S. government, either as a prime contractor or subcontractor, representedapproximately 58% of our revenue for the fiscal year ended April 30, 2019. The DoD, our principal U.S. governmentcustomer, accounted for approximately 46% of our revenue for the fiscal year ended April 30, 2019. We believe that thesuccess and growth of our business for the foreseeable future will continue to depend to a significant degree on our ability towin government contracts, in particular from the DoD. Many of our government customers are subject to budgetaryconstraints and our continued performance under these contracts, or award of additional contracts from these agencies, couldbe jeopardized by spending reductions, including constraints on government spending imposed by the Budget Control Actof 2011 and its subsequent amendments, or budget cutbacks at these agencies. The funding of U.S. government programs isuncertain and dependent on continued congressional appropriations and administrative allotment of funds based on anannual budgeting process. We cannot assure you that current levels of congressional funding for our products and serviceswill continue and that our business will not decline. Additionally, if annual budget appropriations or continuing resolutionsare not enacted timely, we could face U.S. government shutdowns, which could adversely impact our programs and contractswith the U.S. government, our ability to receive timely payment from U.S. government entities and our ability to timelyobtain export licenses for our products to fulfill contracts with our international customers. The U.S. military funds our contracts primarily through operational needs statements, and to a lesser extent, throughprograms of record, which provides us with less visibility and certainty on future funding allocations for our contracts.Furthermore, all of our contracts with the U.S. government are terminable by the U.S. government at will. A significantdecline in government expenditures generally, or with respect to programs for which we provide products,18Table of Contentscould adversely affect our business and prospects. Our operating results may also be negatively impacted by otherdevelopments that affect these government programs generally, including the following: ·changes in government programs that are related to our products and services; ·adoption of new laws or regulations relating to government contracting or changes to existing laws orregulations; ·changes in political or public support for security and defense programs; ·delays or changes in the government appropriations and budget process; ·uncertainties associated with the current global threat environment and other geo‑political matters; and ·delays in the payment of our invoices by government payment offices. These developments and other factors could cause governmental agencies to reduce their purchases under existingcontracts, to exercise their rights to terminate contracts at‑will or to abstain from renewing contracts, any of which wouldcause our revenue to decline and could otherwise harm our business, financial condition and results of operations. Military transformation and changes in overseas operational levels may affect future procurement priorities and existingprograms, which could limit demand for our UAS. Over the last decade, operational activity in Afghanistan and Iraq led to adoption and an increase in demand for oursmall UAS. More recently, the U.S. military has reduced its presence and operational activity in Afghanistan and Iraq,reducing demand for certain of our small UAS products from prior levels. We cannot predict whether the reduction inoverseas operational levels will continue, how future procurement priorities related to defense transformation will beimpacted or how changes in the threat environment will impact opportunities for our small UAS business in terms of existing,additional or replacement programs. If defense transformation or overseas operations cease or slow down, then our business,financial condition and results of operations could be impacted negatively. We operate in evolving markets, which makes it difficult to evaluate our business and future prospects. Our UAS are sold in new and rapidly evolving markets. The commercial UAS market is in the early stages ofcustomer adoption. The market for HAPS UAS is also in an early stage of development. Accordingly, our business and futureprospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our products willincrease, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving marketscould impact our ability to do the following: ·generate sufficient revenue to maintain profitability; ·acquire and maintain market share; ·achieve or manage growth in our operations; ·develop and renew contracts; ·attract and retain additional engineers and other highly‑qualified personnel; ·successfully develop and commercially market new products; ·adapt to new or changing policies and spending priorities of governments and government agencies; and19Table of Contents ·access additional capital when required and on reasonable terms. If we fail to address these and other challenges, risks and uncertainties successfully, our business, results ofoperations and financial condition would be materially harmed. We face competition from other firms, many of which have substantially greater resources. The defense industry is highly competitive and generally characterized by intense competition to win contracts. Ourcurrent principal small UAS competitors include Elbit Systems Ltd., FLIR Systems, Inc., L3 Technologies, Inc. and LockheedMartin Corporation. We do not view large UAS such as Northrop Grumman Corporation’s Global Hawk, GeneralAtomics, Inc.’s Predator and related products, The Boeing Company’s ScanEagle and Textron Inc.’s Shadow as directcompetitors because they perform different missions, do not typically deliver their information directly to front‑line groundforces, and are not hand launched and controlled. However, we cannot be certain that these platforms will not become directcompetitors in the future. The HAPS UAS market is in an early stage of development and our HAPS UAS faces competitionfrom several aerospace and defense contractors and internet technology companies pursuing the high altitude longendurance UAS market for global communication and remote sensing, including The Boeing Company, Airbus, LockheedMartin Corporation and Northrop Grumman Corporation, and competition from companies pursuing alternative solutions forthis market such as Lockheed Martin Corporation and Northrop Grumman Corporation with airships (high altitude aircraftthat are kept buoyant by a body of gas that is lighter than air) and companies pursuing conventional satellites and Low EarthOrbit, or LEO, micro or cubesat satellite constellations. Our tactical missile systems business faces competition fromcompetitors including Textron Inc., Raytheon Company and Lockheed Martin Corporation. Some of these firms have substantially greater financial, management, research and marketing resources than wehave. Our UAS services business also faces competition from smaller businesses that can provide training and logisticsservices for multiple UAS platforms, including our small UAS. Our competitors may be able to provide customers with different or greater capabilities or benefits than we canprovide in areas such as technical qualifications, past contract performance, geographic presence, price and the availabilityof key professional personnel, including those with security clearances. Furthermore, many of our competitors may be able toutilize their substantially greater resources and economies of scale to develop competing products and technologies,manufacture in high volumes more efficiently, divert sales away from us by winning broader contracts or hire away ouremployees by offering more lucrative compensation packages. Small business competitors may be able to offer more costcompetitive solutions, due to their lower overhead costs, and take advantage of small business incentive and set‑asideprograms for which we are ineligible. The market for small UAS and services is expanding, and competition intensifying asadditional competitors enter the market and current competitors expand their product lines. In order to secure contractssuccessfully when competing with larger, well‑financed companies, we may be forced to agree to contractual terms thatprovide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Inaddition, larger diversified competitors serving as prime contractors may be able to supply underlying products and servicesfrom affiliated entities, which would prevent us from competing for subcontracting opportunities on these contracts. Ourfailure to compete effectively with respect to any of these or other factors could have a material adverse effect on ourbusiness, prospects, financial condition or operating results. If the UAS, tactical missile systems, and commercial UAS markets do not experience significant growth, if we cannotexpand our customer base or if our products do not achieve broad acceptance, then we may not be able to achieve ouranticipated level of growth. We cannot accurately predict the future growth rates or sizes of the markets for our products. Demand for ourproducts may not increase, or may decrease, either generally or in specific markets, for particular types of products or duringparticular time periods. We believe the market for commercial UAS is nascent. Moreover, there are only a limited number ofmajor programs under which the U.S. military, our primary customer, is currently funding the development or purchase of ourUAS and tactical missile systems. Although we have expanded our UAS customer base to include foreign governments, anddomestic non‑military agencies, we cannot assure you that our continued efforts to further20Table of Contentsincrease our sales to these customers will be successful. The expansion of the UAS, tactical missile systems, and commercialUAS markets in general, and the market for our products in particular, depends on a number of factors, including thefollowing: ·customer satisfaction with these types of systems as solutions; ·the cost, performance and reliability of our products and products offered by our competitors; ·customer perceptions regarding the effectiveness and value of these types of systems; ·limitations on our ability to market our UAS and tactical missile systems products and services outside theUnited States due to U.S. government regulations; ·obtaining timely regulatory approvals, including, with respect to our small UAS business, access to airspace andwireless spectrum; and ·marketing efforts and publicity regarding these types of systems. Even if UAS, tactical missile systems, and commercial UAS gain wide market acceptance, our products may notadequately address market requirements and may not continue to gain market acceptance. If these types of systems generally,or our products specifically, do not gain wide market acceptance, then we may not be able to achieve our anticipated level ofgrowth and our revenue and results of operations would decline. Our international business poses potentially greater risks than our domestic business. We derived approximately 52% of our revenue from international sales, including U.S. government foreign militarysales in which an end user is a foreign government, during the fiscal year ended April 30, 2019 compared to 47% for thefiscal year ended April 30, 2018. We expect to continue to derive an increasing portion of our revenue from internationalsales. Our international revenue and operations are subject to a number of material risks, including the following: ·the unavailability of, or difficulties in obtaining any, necessary U.S. governmental authorizations for the exportof our products to certain foreign jurisdictions; ·regulatory requirements that may adversely affect our ability to operate in foreign jurisdictions, sell certainproducts or repatriate profits to the United States; ·the complexity and necessity of using foreign representatives and consultants; ·the complexities of operating a business in an international location through a subsidiary or joint venturestructure that may include foreign business partners, subcontractors and suppliers; ·the complexity of shipping our products internationally through multiple jurisdictions with varying legalrequirements; ·difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevantlegal issues, including fewer legal protections for intellectual property; ·potential fluctuations in foreign economies and in the value of foreign currencies and interest rates; ·potential preferences by prospective customers to purchase from local (non‑U.S.) sources; ·general economic and political conditions in the markets in which we operate;21Table of Contents ·laws or regulations relating to non‑U.S. military contracts that favor purchases from non‑U.S. manufacturers overU.S. manufacturers; ·the imposition of tariffs, embargoes, export controls and other trade restrictions; and ·different and changing legal and regulatory requirements, including those pertaining to anti-corruption, anti-boycott, data protection and privacy, employment law, intellectual property and contracts in the jurisdictions inwhich we currently operate or may operate in the future. Negative developments in any of these areas in one or more countries could result in a reduction in demand for ourproducts, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collectingreceivables and a higher cost of doing business, any of which could negatively impact our business, financial condition orresults of operations. While we have adopted policies and procedures to facilitate compliance with laws and regulationsapplicable to our international sales, our failure, or the failure by our employees or others working on our behalf, to complywith such laws and regulations may result in administrative, civil or criminal liabilities, including suspension or debarmentfrom government contracts or suspension of our export privileges. Moreover, our sales, including sales to customers outsidethe United States, substantially all are denominated in U.S. dollars, and downward fluctuations in the value of foreigncurrencies relative to the U.S. dollar may make our products more expensive than other products, which could harm ourbusiness. We could be prohibited from shipping our products to certain countries if we are unable to obtain U.S. governmentauthorization regarding the export of our products, or if current or future export laws limit or otherwise restrict ourbusiness. In addition, failure to comply with export laws could result in fines, export restrictions and other sanctions andpenalties. We must comply with U.S. and other laws regulating the export of our products. In some cases, explicitauthorization from the relevant U.S. government authorities is needed to export our products. The export regulations and thegoverning policies applicable to our business are subject to change. We cannot provide assurance that such exportauthorizations will be available for our products in the future. Compliance with these laws has not significantly limited ouroperations or our sales in the recent past, but could significantly limit them in the future. We maintain an export complianceprogram but there are risks that our compliance controls may be ineffective. We have voluntarily disclosed export violationsto the U.S. Department of State, a number of which are currently under review by the department. The U.S. Department ofState has imposed significant fines, penalties and sanctions, including suspension of export privileges, on companies thathave violated the export laws. If the State Department determines that the conduct in our voluntary disclosures warrants theimposition of significant fines, penalties or sanctions, it could have a material adverse impact on our business, operations andfinancial condition and limit or prevent us from being able to sell our products in certain international jurisdictions. If we are unable to manage the increasing complexity of our business or achieve or manage our expected growth, ourbusiness could be adversely affected. The complexity of our business has increased significantly over the last several years. We have expanded thenumber of business areas being pursued, shifting from primarily a U.S. government focused business to a business thatincludes substantial international product sales and added commercial services and formed a joint venture with SoftBankCorp. to develop HAPS UAS. We also acquired Pulse Aerospace, LLC, a Kansas-based developer of UAS capable of verticaltake-off and landing (VTOL), in June 2019. These have increased complexity and our expected growth has placed, and willcontinue to place, a strain on our management and our administrative, operational and financial infrastructure. We anticipatefurther growth of headcount and facilities will be required to address expansion in our product offerings and the geographicscope of our customer base. However, if we are unsuccessful in our efforts, our business could decline. Our success willdepend in part upon the ability of our senior management to manage our increased complexity and expected growtheffectively. To do so, we must continue to hire, train, manage and integrate a significant number of qualified managers andengineers. If our new employees perform poorly, or if we are unsuccessful22Table of Contentsin hiring, training, managing and integrating these new employees, or retaining these or our existing employees, then ourbusiness may experience declines. To support our expected growth, we must continue to improve our operational, financial and managementinformation systems. If we are unable to manage our growth while maintaining our quality of service, or if new systems thatwe implement to assist in managing our growth do not produce the expected benefits, then our business, prospects, financialcondition or operating results could be adversely affected. Any efforts to expand our offerings beyond our current markets may not succeed, which could negatively impact ouroperating results. Until recently, we have focused on selling our small UAS to the U.S. military. We have, however, expanded oursmall UAS sales into other government and commercial markets, including the launch of our Quantix data collection droneand AV DSS for agriculture operations, and formed a joint venture with SoftBank Corp. to develop HAPS UAS for globalcommunication and remote sensing applications. Our efforts to expand our product offerings beyond our traditional marketsmay divert management resources from existing operations and require us to commit significant financial resources tounproven businesses that may not generate additional sales, either of which could significantly impair our operating results. The markets in which we compete are characterized by rapid technological change, which requires us to develop newproducts and product enhancements, and could render our existing products obsolete. Continuing technological changes in the market for our products could make our products less competitive orobsolete, either generally or for particular applications. Our future success will depend upon our ability to develop andintroduce a variety of new capabilities and enhancements to our existing product offerings, as well as introduce a variety ofnew product offerings, to address the changing needs of the markets in which we offer our products. Delays in introducingnew products and enhancements, the failure to choose correctly among technical alternatives or the failure to offerinnovative products or enhancements at competitive prices may cause existing and potential customers to purchase ourcompetitors’ products. If we are unable to devote adequate resources to develop new products or cannot otherwise successfully developnew products or enhancements that meet customer requirements on a timely basis, our products could lose market share, ourrevenue and profits could decline, and we could experience operating losses. We expect to incur substantial research and development costs and devote significant resources to identifying andcommercializing new products and services, which could significantly reduce our profitability and may never result inrevenue to us. Our future growth depends on penetrating new markets, adapting existing products to new applications, andintroducing new products and services that achieve market acceptance. We plan to incur substantial research anddevelopment costs as part of our efforts to design, develop and commercialize new products and services and enhanceexisting products. We spent $34.2 million, or 11% of our revenue, in our fiscal year ended April 30, 2019 on research anddevelopment activities. We believe that there are significant investment opportunities in a number of business areas. Becausewe account for research and development as an operating expense, these expenditures will adversely affect our earnings inthe future. Further, our research and development programs may not produce successful results, and our new products andservices may not achieve market acceptance, create additional revenue or become profitable, which could materially harmour business, prospects, financial results and liquidity. Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on theuse of small UAS in response to public privacy concerns, may prevent us from expanding the sales of our small UAS tonon‑military customers in the United States. The regulation of small UAS for commercial use in the United States is undergoing substantial change and theultimate treatment is uncertain. In 2006, the FAA issued a clarification of its existing policies stating that, in order to23Table of Contentsengage in commercial use of small UAS in the U.S. National Airspace System, a public operator must obtain a COA from theFAA, or fly in restricted airspace. The FAA’s COA approval process requires that the public operator certify the airworthinessof the aircraft for its intended purpose, that a collision with another aircraft or other airspace user is extremely improbable,that the small unmanned aircraft system complies with appropriate cloud and terrain clearances and that the operator orspotter of the small unmanned aircraft system is generally within one half‑mile laterally and 400 feet vertically of the smallunmanned aircraft system while in operation. Furthermore, the FAA’s clarification of existing policy stated that the rules forradio‑controlled hobby aircraft do not apply to public or commercial use of small UAS. On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlinesfor the FAA to allow expanded use of small UAS for both public and commercial applications. On June 21, 2016, the FAAreleased its final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace Systempursuant to the act. The rules, which became effective in August 2016, provided safety regulations for small UAS conductingnon‑recreational operations and contain various limitations and restrictions for such operations, including a requirement thatoperators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are notdirectly participating in the operation of the UAS. We cannot assure you that these new rules will result in the expanded useof our small UAS by law enforcement or other non‑military government agencies or commercial entities and we may not beable to expand our sales of small UAS beyond our military customers, which could harm our business prospects. In addition, there exists public concern regarding the privacy implications of U.S. commercial and law enforcementuse of small UAS. This concern has included calls to develop explicit written policies and procedures establishing usagelimitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to theseconcerns will not delay or restrict the adoption of small UAS by non‑military customers. Our products and services are complex and could have unknown defects or errors, which may give rise to claims against us,diminish our brand or divert our resources from other purposes. Our UAS rely on complex avionics, sensors, user‑friendly interfaces and tightly‑integrated, electromechanicaldesigns to accomplish their missions. Despite testing, our products have contained defects and errors and may in the futurecontain defects, errors or performance problems when first introduced, when new versions or enhancements are released, oreven after these products have been used by our customers for a period of time. These problems could result in expensive andtime‑consuming design modifications or warranty charges, delays in the introduction of new products or enhancements,significant increases in our service and maintenance costs, exposure to liability for damages, damaged customer relationshipsand harm to our reputation, any of which could materially harm our results of operations and ability to achieve marketacceptance. In addition, increased development and warranty costs could be substantial and could reduce our operatingmargins. The existence of any defects, errors, or failures in our products or the misuse of our products could also lead toproduct liability claims or lawsuits against us. A defect, error or failure in one of our UAS could result in injury, death orproperty damage and significantly damage our reputation and support for our UAS in general. We anticipate this risk willgrow as our UAS begin to be used in U.S. domestic airspace and urban areas. We also remain liable for warranty and productliability claims for our EV charging systems and power cycling and test systems sold prior the closing of the transactioncontemplated by the Purchase Agreement, which products have the potential to cause injury, death or property damage in theevent that they are misused, malfunction or fail to operate properly due to unknown defects or errors. Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate toprotect us from all material judgments and expenses related to potential future claims or that these levels of insurance will beavailable in the future at economical prices or at all. A successful product liability claim could result in substantial cost to us.Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management’sattention and resources, which could have a negative impact on our business, financial condition and results of operations. 24Table of ContentsIf critical components or raw materials used to manufacture our products become scarce or unavailable, then we may incurdelays in manufacturing and delivery of our products, which could damage our business. We obtain hardware components, various subsystems and systems from a limited group of suppliers. We do not havelong‑term agreements with any of these suppliers that obligate them to continue to sell components, subsystems, systems orproducts to us. Our reliance on these suppliers involves significant risks and uncertainties, including whether our supplierswill provide an adequate supply of required components, subsystems, or systems of sufficient quality, will increase prices forthe components, subsystems or systems and will perform their obligations on a timely basis. In addition, certain raw materials and components used in the manufacture of our products are periodically subjectto supply shortages, and our business is subject to the risk of price increases and periodic delays in delivery. Particularly, themarket for electronic components is experiencing increased demand, creating substantial uncertainty regarding our suppliers’continued production of key components for our products. If we are unable to obtain components from third party suppliersin the quantities and of the quality that we require, on a timely basis and at acceptable prices, then we may not be able todeliver our products on a timely or cost effective basis to our customers, which could cause customers to terminate theircontracts with us, increase our costs and seriously harm our business, results of operations and financial condition. Moreover,if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials orcomponents, then we may have to find new suppliers. It may take several months to locate alternative suppliers, if required,or to redesign our products to accommodate components from different suppliers. We may experience significant delays inmanufacturing and shipping our products to customers and incur additional development, manufacturing and other costs toestablish alternative sources of supply if we lose any of these sources or are required to redesign our products. We cannotpredict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if atall. Our earnings and profit margins may decrease based on the mix of our contracts and programs and other factors related toour contracts. In general, we perform our production work under fixed‑price contracts and our repair and customer‑funded researchand development work under cost‑plus‑fee contracts. Under fixed‑price contracts, we perform services under a contract at astipulated price. Under cost‑plus‑fee contracts, which are subject to a contract ceiling amount, we are reimbursed forallowable costs and paid a fee, which may be fixed or performance based. We typically experience lower profit margins undercost‑plus‑fee contracts than under fixed‑price contracts, though fixed‑price contracts involve higher risks. In general, if thevolume of services we perform under cost‑plus‑fee contracts increases relative to the volume of services we perform underfixed‑price contracts, we expect that our operating margin will decline. In addition, our earnings and margins may decreasedepending on the costs we incur in contract performance, our achievement of other contract performance objectives and thestage of our performance at which our right to receive fees, particularly under incentive and award fee contracts, is finallydetermined. We use estimates in accounting for many of our programs and changes in our estimates could adversely affect our futurefinancial results. Contract accounting requires judgments relative to assessing risks, including risks associated with estimatingcontract transaction prices and costs, assumptions for schedule and technical issues, customer‑directed delays and reductionsin scheduled deliveries, and unfavorable resolutions of claims and contractual matters. Due to the size and nature of many ofour contracts, the estimation of total costs at completion is complicated and subject to many variables. For example, we mustmake assumptions regarding the length of time to complete the contract because costs also include expected increases inwages and prices for materials; and consider incentives or penalties related to performance on contracts and include them inthe variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenuerecognized will not occur when the related uncertainty is resolved. Because of the significance of the judgments andestimation processes described above, it is likely that materially different amounts could be recorded if we used differentassumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances orestimates may adversely affect our future results of operations and financial condition. 25Table of ContentsCost overruns on our contracts could subject us to losses, decrease our operating margins and adversely affect our futurebusiness. Fixed‑price contracts (including both government and commercial contracts) represented approximately 71% of ourrevenue for the fiscal year ended April 30, 2019. If we fail to anticipate technical problems, estimate costs accurately orcontrol costs during our performance of fixed‑price contracts, then we may incur losses on these contracts because we absorbany costs in excess of the fixed price. Under cost‑plus‑fee contracts, if costs exceed the contract ceiling or are not allowableunder the provisions of the contract or applicable regulations, then we may not be able to obtain reimbursement for all suchcosts. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses.Because many of our contracts involve advanced designs and innovative technologies, we may experience unforeseentechnological difficulties and cost overruns. Under each type of contract, if we are unable to control the costs we incur inperforming under the contract, then our financial condition and results of operations could be materially adversely affected.Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards. Our senior management and key employees are important to our customer relationships and overall business. We believe that our success depends in part on the continued contributions of our senior management and keyemployees. We rely on our executive officers, senior management and key employees to generate business and executeprograms successfully. In addition, the relationships and reputation that members of our management team and keyemployees have established and maintain with government defense personnel contribute to our ability to maintain goodcustomer relations and to identify new business opportunities. We do not have employment agreements with any of ourexecutive officers or key employees, and these individuals could terminate their employment with us at any time. The loss ofany of our executive officers, members of our senior management team or key employees could significantly delay or preventthe achievement of our business objectives and could materially harm our business and customer relationships and impairour ability to identify and secure new contracts and otherwise manage our business. We must recruit and retain highly‑skilled employees to succeed in our competitive business. We depend on our ability to recruit and retain employees who have advanced engineering and technical servicesskills and who work well with our customers. These employees are in great demand and are likely to remain a limitedresource in the foreseeable future. If we are unable to recruit and retain a sufficient number of these employees, then ourability to maintain our competitiveness and grow our business could be negatively affected. In addition, because of thehighly technical nature of our products, the loss of any significant number of our existing engineering personnel could havea material adverse effect on our business and operating results. Moreover, some of our U.S. government contracts containprovisions requiring us to staff a program with certain personnel the customer considers key to our successful performanceunder the contract. In the event we are unable to provide these key personnel or acceptable substitutes, the customer mayterminate the contract. Our business may be dependent upon our employees obtaining and maintaining required security clearances, as well as ourability to obtain security clearances for the facilities in which we perform sensitive government work. Certain of our U.S. government contracts require our employees to maintain various levels of security clearances,and we are required to maintain certain facility security clearances complying with DoD requirements. The DoD has strictsecurity clearance requirements for personnel who work on classified programs. Obtaining and maintaining securityclearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who alreadyhold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if ouremployees who hold security clearances are unable to maintain the clearances or terminate employment with us, then acustomer requiring classified work could terminate the contract or decide not to renew it upon its expiration. In addition, weexpect that many of the contracts on which we will bid will require us to demonstrate our ability to obtain facility securityclearances and employ personnel with specified types of security clearances. To the extent we are not able to obtain facilitysecurity clearances or engage employees with the required security clearances for a particular contract, we may not be able tobid on or win new contracts, or effectively rebid on expiring contracts. 26Table of ContentsOur future profitability may be dependent upon achieving cost reductions and projected economies of scale fromincreasing manufacturing quantities of our products. Failing to achieve such reductions in manufacturing costs andprojected economies of scale could materially adversely affect our business. We have limited experience manufacturing small UAS and tactical missile systems in high volume. We do not knowwhether or when we will be able to develop efficient, low‑cost manufacturing capabilities and processes that will enable us tomanufacture (or contract for the manufacture of) these products in commercial quantities while meeting the volume, speed,quality, price, engineering, design and production standards required to successfully market our products. Our failure todevelop such manufacturing processes and capabilities in locations that can efficiently service our markets could have amaterial adverse effect on our business, financial condition, results of operations and prospects. Our future profitability is, inpart, dependent upon achieving increased savings from volume purchases of raw materials and component parts, achievingacceptable manufacturing yield and capitalizing on machinery efficiencies. We expect our suppliers to experience a sharpincrease in demand for their products. As a result, we may not have reliable access to supplies that we require or be able topurchase such materials or components at cost effective prices. There is no assurance that we will ever be in a position torealize any material, labor and machinery cost reductions associated with higher purchasing power and higher productionlevels. Failure to achieve these cost reductions could adversely impact our business and financial results. We face significant risks in the management of our inventory, and failure to effectively manage our inventory levels mayresult in product recalls or supply imbalances that could harm our business. We maintain a variety of parts and components in inventory to allow us to customize our UAS products for specificcustomer requirements, which parts are subject to obsolescence and expiration. Due to the long‑lead time for obtainingcertain UAS product components and the manufacturing cycles, we need to make forecasts of demand and commit significantresources towards manufacturing our products. As such, we are subject to significant risks in managing the inventory needs ofour business during the year, including estimating the appropriate demand for our products. Should orders and marketconditions differ significantly from our estimates, our future results of operations could be materially adversely affected. Inthe future, we may be required to record write‑downs of finished products and materials on‑hand and/or additional charges forexcess purchase commitments as a result of future changes in our sales forecasts or customer orders. Due to the volatile and flammable nature of certain components of our products and equipment, fires or explosions maydisrupt our business or cause significant injuries, which could adversely affect our financial results. The development and manufacture of certain of our products involves the handling of a variety of explosive andflammable materials as well as high power equipment. From time to time, these activities may result in incidents that couldcause us to temporarily shut down or otherwise disrupt some manufacturing processes, causing production delays andresulting in liability for workplace injuries and/or fatalities. We have safety and loss prevention programs that requiredetailed reviews of process changes and new operations, along with routine safety audits of operations involving explosivematerials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may beinadequate to cover all claims and losses related to such incidents. We may experience such incidents in the future, whichcould result in production delays or otherwise have a material adverse effect on our business and financial condition. The operation of UAS in urban environments may be subject to risks, such as accidental collisions and transmissioninterference, which may limit demand for our UAS in such environments and harm our business and operating results. Urban environments may present certain challenges to the operators of UAS. UAS may accidentally collide withother aircraft, persons or property, which could result in injury, death or property damage and significantly damage thereputation of and support for UAS in general. As the usage of UAS has increased, particularly by military customers, thedanger of such collisions has increased. Furthermore, the incorporation of our DDL technology into our small UAS hasincreased the number of vehicles which can operate simultaneously in a given area and with this increase has come anincrease in the risk of accidental collision. In addition, obstructions to effective transmissions in urban environments,27Table of Contentssuch as large buildings, may limit the ability of the operator to utilize the aircraft for its intended purpose. The risks orlimitations of operating UAS in urban environments may limit their value in such environments, which may limit demand forour UAS and consequently materially harm our business and operating results. As a manufacturer of commercial UAS, we are subject to various government regulations and may be subject to additionalregulations in the future, violation of which could subject us to sanctions or otherwise harm our business. As a manufacturer of consumer products, we are subject to significant government regulations, including, in theUnited States, those issued under the Consumer Products Safety Act, as well as those issued under product safety andconsumer protection statutes in our international markets. Failure to comply with any applicable product safety or consumerprotection regulation could result in sanctions that could have a negative impact on our business, financial condition andresults of operations. Governments and regulatory agencies in the markets where we manufacture and sell products may enact additionalregulations relating to product safety and consumer protection in the future, and may also increase the penalties for failure tocomply with product safety and consumer protection regulations. In addition, one or more of our customers might requirechanges in our products, such as the non‑use of certain materials, in the future. Complying with any such additionalregulations or requirements could impose increased costs on our business. Similarly, increased penalties for non‑compliancecould subject us to greater expenses in the event any of our products were found to not comply with such regulations. Suchincreased costs or penalties could harm our business. We could be the subject of future product liability suits or product recalls, which could harm our business. We may be subject to involuntary product recalls or may voluntarily conduct a product recall. The costs associatedwith any future product recalls could be significant. In addition, any product recall, regardless of direct costs of the recall,may harm consumer perceptions of our products and have a negative impact on our future revenues and results of operations.Subject to a determination of the appropriateness of any recall, we remain responsible for the non-warranty costs from therecall of completed products we manufactured, sold or serviced prior to closing of the sale of our EES Business to Webasto.In particular, on August 24, 2018, Webasto filed a recall report with the National Highway Traffic Safety Administration(“NHTSA”) that named us as a brand of the affected equipment. To the extent we are obligated under the terms of thePurchase Agreement with Webasto or as a result of the lawsuit filed by Webasto against us seeking costs related to the recallor pursuant to applicable law for all or any portion of the costs incurred in connection with such recall, or any other suchrecall, our results of operations may be negatively affected. In addition to government regulation, products that have been or may be developed by us may expose us topotential liability from personal injury or property damage claims by the users of such products. There can be no assurancethat a claim will not be brought against us in the future, regardless of merit. While we maintain insurance coverage forproduct liability claims, our insurance may be inadequate to cover any such claims. Any successful claim could significantlyharm our business, financial condition and results of operations. We are subject to pending legal proceedings that may disrupt our business, cause us to incur substantial costs, expose us tosignificant legal liabilities and could have a material adverse impact on our financial performance. We are subject to various legal proceedings and claims, including a lawsuit filed by a former employee allegingclaims arising out of the termination of his employment and a lawsuit filed by Webasto alleging several claims against usarising out of or related to our sale of our EES Business to Webasto in June 2018 and the NHTSA recall. Additional lawsuitsmay arise in the future. Occasionally we are also involved in governmental inquiries and investigations and administrativeand regulatory proceedings. Our activities relating to defending and responding to any such proceedings may result insubstantial legal expenses, may disrupt our sales and marketing or other business activities, including our relationships withour customers, suppliers, employees and other third parties, and divert management’s and our employees’ attention from ourday-to-day operations, which may have an adverse impact on our financial performance. The results of any such proceedingsare unpredictable. We record accruals for liabilities where we believe a loss is probable and reasonably estimable, however,our actual losses may differ significantly from our estimates. An adverse28Table of Contentsor unfavorable resolution of any proceedings against us could have a material impact on our financial position, cash flowsand results of operations. Our quarterly operating results may vary widely. Our quarterly revenue, cash flow and operating results have and may continue to fluctuate significantly in the futuredue to a number of factors, including the following: ·fluctuations in revenue derived from government contracts, including cost‑plus‑fee contracts and contracts witha performance‑based fee structure; ·the size and timing of orders from military and other governmental agencies, including increased purchaserequests from government customers for equipment and materials in connection with the U.S. government’sfiscal year end, which may affect our quarterly operating results; ·the mix of products that we sell in the period; ·seasonal fluctuations in customer demand for some of our products or services; ·unanticipated costs incurred in the introduction of new products; ·fluctuations in the adoption of our products in new markets; ·our ability to win additional contracts from existing customers or other contracts from new customers; ·cancellations, delays or contract amendments by our U.S. governmental agency and foreign governmentcustomers; ·changes in policy or budgetary measures that adversely affect our U.S. governmental agency and foreigngovernment customers; ·the cost of complying with various regulatory requirements applicable to our business and the potentialpenalties or sanctions that could be imposed for non‑compliance; and ·our ability to obtain the necessary export licenses for sales of our products and services to internationalcustomers. Changes in the volume of products and services provided under existing contracts and the number of contractscommenced, completed or terminated during any quarter may cause significant variations in our cash flow from operationsbecause a relatively large amount of our expenses are fixed. We incur significant operating expenses during the start‑up andearly stages of large contracts and typically do not receive corresponding payments in that same quarter. We may also incursignificant or unanticipated expenses when contracts expire or are terminated or are not renewed. In addition, payments dueto us from government agencies may be delayed due to billing cycles or as a result of failures of governmental budgets togain congressional and presidential approval in a timely manner. Shortfalls in available external research and development funding could adversely affect us. We depend on our research and development activities to develop the core technologies used in our UAS productsand for the development of our future products. A portion of our research and development activities depends on funding bycommercial companies and the U.S. government. U.S. government and commercial spending levels can be impacted by anumber of variables, including general economic conditions, specific companies’ financial performance and competition forU.S. government funding with other U.S. government‑sponsored programs in the budget formulation and appropriationprocesses. To the extent that these external sources of funding are reduced or29Table of Contentseliminated, company funding for research and development could be reduced. Any reductions in available research anddevelopment funding could harm our business, financial condition and operating results. Our work for the U.S. government and international governments may expose us to security risks. As a U.S. government contractor, we face various security threats, including cyber security attacks on ourinformation technology infrastructure, attempts to gain access to our proprietary, financial, banking or classified informationas well as threats to the physical security of our facilities and employees. Although we utilize various procedures andcontrols to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficientto prevent disruptions, the unauthorized release of confidential technical, financial or banking information or corruption ofdata. Accordingly, any significant operational delays, or any destruction, manipulation or improper use of our data,information systems or networks could adversely affect our financial results and damage the reputation for our products andservices. Previous cyber-attacks directed at us have not materially impacted our business or financial results, but the impactof future incidents cannot be predicted due to the evolving nature and complexity of cyber-attacks. If we or our partners aresubject to data security breaches, we may have a loss in sales or increased costs arising from the restoration orimplementation of additional security measures, either of which could materially and adversely affect our business andfinancial results. Additionally, expenses resulting from cyber security attacks and other security risks may not be fullyinsured or otherwise mitigated, which could harm our financial results. In addition, we work in international locations where there are high security risks, which could result in harm to ouremployees and contractors or substantial costs. Some of our services are performed in or adjacent to high‑risk locations, suchas Iraq and Afghanistan, where the country or location is experiencing political, social or economic issues, or war or civilunrest. In those locations where we have employees or operations, we may incur substantial costs to maintain the safety ofour personnel. Despite these precautions, the safety of our personnel in these locations may continue to be at risk, and wemay in the future be negatively impacted by the loss of employees and contractors, which could harm our business andoperating results. We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders. We operate in emerging and rapidly evolving markets, which makes our prospects difficult to evaluate. It is possiblethat we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our futurecapital needs. If this occurs, then we may need additional financing to pursue our business strategies, including to: ·hire additional engineers and other personnel; ·develop new or enhance existing products; ·enhance our operating infrastructure; ·fund working capital requirements; ·acquire complementary businesses or technologies; or ·otherwise respond to competitive pressures. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownershipof our stockholders could be significantly diluted, and these newly‑issued securities may have rights, preferences orprivileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on termsfavorable to us, or at all. Our former line of credit contained, and future debt financing may contain, covenants or otherprovisions that limit our operational or financial flexibility. In addition, certain of our customers require that we obtainletters of credit to support our obligations under some of our contracts. 30Table of ContentsOur cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolioinvestments and in interest rates. Our assets include a significant amount of cash and investments. We adhere to an investment policy set by ourBoard of Directors which aims to preserve our financial assets, maintain adequate liquidity and maximize returns. We believethat our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are accuratelyreflected in our consolidated financial statements as of April 30, 2019. We currently invest the majority of our cash in U.S.government securities, U.S. government agency securities, municipal bonds and high-grade corporate bonds, the performanceof which are subject to additional market risks related to their respective issuers. Nearly all of our cash and bank deposits arenot insured by the Federal Deposit Insurance Corporation, or the FDIC. Therefore, our cash and any bank deposits that wenow hold or may acquire in the future may be subject to risks, including the risk of loss or of reduced value or liquidity. Inthe future, should we determine that there is a decline in value of any of our portfolio securities which is not temporary innature, this would result in a loss being recognized in our consolidated statements of operations. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition andstock price. Global credit and financial markets have experienced extreme disruptions in recent years, including severelydiminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases inunemployment rates and uncertainty about economic stability. There can be no assurance that renewed deterioration in creditand financial markets and confidence in economic conditions will not occur. Our general business strategy may be adverselyaffected by any economic downturn, volatile business environment or continued unpredictable and unstable marketconditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equityfinancing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and onfavorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and couldrequire us to delay or abandon implementing business initiatives. These events and the continuing market upheavals couldadversely affect our business in a number of ways, including: Potential Deferment of Purchases and Orders by Customers: Uncertainty about current and future global economicconditions may cause governments, including the U.S. government, which is our largest customer, consumers and businessesto modify, defer or cancel purchases in response to tighter credit, decreased cash availability and declining consumerconfidence. Accordingly, future demand for our products could differ materially from our current expectations. Additionally,if customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not beable to pay, or may delay payment of, accounts receivable that are owed to us. Any inability of current and/or potentialcustomers to pay us for our products may adversely affect our earnings and cash flow. Negative Impact from Increased Financial Pressures on Key Suppliers: Our ability to meet customers’ demandsdepends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from oursuppliers. Certain of our hardware components and various subsystems are available only from a limited group of suppliers. Ifcertain key suppliers were to become capacity constrained or insolvent as a result of a market downturn, then we may have tofind new suppliers. We may experience significant delays in manufacturing and shipping our products to customers and incuradditional development, manufacturing and other costs to establish alternative sources of supply if we lose any of thesesources or are required to redesign our products. We cannot predict if we will be able to obtain replacement componentswithin the time frames that we require at an affordable cost, if at all. In addition, credit constraints of key suppliers couldresult in accelerated payment of accounts payable by us, impacting our cash flow. Customers’ Inability to Obtain Financing to Make Purchases from Us and/or Maintain Their Business: Some of ourcustomers may require substantial financing in order to fund their operations and make purchases from us. The inability ofthese customers to obtain sufficient credit to finance purchases of our products, or otherwise meet their payment obligationsto us could adversely impact our financial condition and results of operations. In addition, if a31Table of Contentsmarket downturn results in insolvencies for our customers, it could adversely impact our financial condition and results ofoperations. Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholdervalue and impair our financial results. In June 2019, we consummated the acquisition of Pulse Aerospace, LLC, a Kansas based developer of VTOLUAS. We intend to consider additional acquisitions that could add to our customer base, technological capabilities or systemofferings. Acquisitions, including the acquisition of Pulse Aerospace, involve numerous risks, any of which could harm ourbusiness, including the following: ·difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnelof the target company and realizing the anticipated synergies of the combined businesses; ·difficulties in supporting and transitioning customers, if any, of the target company; ·diversion of financial and management resources from existing operations; ·the price we pay or other resources that we devote may exceed the value we realize, or the value we could haverealized if we had allocated the purchase price or other resources to another opportunity; ·risks of entering new markets in which we have limited or no experience; ·potential loss of key employees, customers and strategic alliances from either our current business or the targetcompany’s business; ·assumption of unanticipated problems or latent liabilities, such as problems with the quality of the targetcompany’s products or its regulatory compliance; and ·inability to generate sufficient revenue to offset acquisition costs. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject topotential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuingequity, or securities convertible into equity, then our existing stockholders may be diluted, which could lower the marketprice of our common stock. If we finance acquisitions through debt, then such future debt financing may contain covenantsor other provisions that limit our operational or financial flexibility. If we fail to properly evaluate acquisitions or investments, then we may not achieve the anticipated benefits of anysuch acquisitions, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and executeacquisitions or investments or otherwise adequately address these risks could materially harm our business and financialresults. Environmental laws and regulations and unforeseen costs could impact our future earnings. The manufacture and sale of our products in certain states and countries may subject us to environmental and otherregulations. For example, we obtain a significant number of our electronics components from companies located in East Asia,where environmental rules may be less stringent than in the United States. Over time, the countries where these companies arelocated may adopt more stringent environmental regulations, resulting in an increase in our manufacturing costs. Given theincreasing focus on environmental compliance by regulators and the general public, any incidence of non‑compliance couldresult in damage to our reputation beyond the fines and other sanctions that could be imposed. Furthermore, certainenvironmental laws, including the U.S. Comprehensive, Environmental Response, Compensation and Liability Act of 1980,impose strict, joint and several liability on current and previous owners or operators of real property for the cost of removal orremediation of hazardous substances and impose liability for damages to natural resources. These laws often impose liabilityeven if the owner or operator did not know of, or was not32Table of Contentsresponsible for, the release of such hazardous substances. These environmental laws also assess liability on persons whoarrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are later found to becontaminated. Such persons can be responsible for cleanup costs even if they never owned or operated the contaminatedfacility. Although we have never been named a responsible party at a contaminated site, we could be named a potentiallyresponsible party in the future. We cannot assure you that such existing laws or future laws will not have a material adverseeffect on our future earnings or results of operations. Our business is subject to federal, state and international laws regarding data protection, privacy, and informationsecurity, as well as confidentiality obligations under various agreements, and our actual or perceived failure to complywith such obligations could damage our reputation, expose us to litigation risk and adversely affect our business andoperating results. In connection with our business, we receive, collect, process and retain certain sensitive and confidential customerinformation. As a result, we are subject to increasingly rigorous federal, state and international laws regarding privacy anddata protection. Personal privacy, data protection and information security are significant issues in the United States and theother jurisdictions where we offer our products and services. The regulatory framework for privacy and security issuesworldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Our handling of data is subject to avariety of laws and regulations, including regulation by various government agencies, including the United States FederalTrade Commission, or FTC, and various state, local and foreign bodies and agencies. We also execute confidentialityagreements with various parties under which we are required to protect their confidential information. The United States federal and various state and foreign governments have adopted or proposed limitations on thecollection, distribution, use and storage of personal information of individuals, including end-customers and employees. Inthe United States, the FTC and many state attorneys general are applying federal and state consumer protection laws to theonline collection, use and dissemination of data. Additionally, many foreign countries and governmental bodies, and otherjurisdictions in which we operate or conduct our business, have laws and regulations concerning the collection and use ofpersonal information obtained from their residents or by businesses operating within their jurisdiction. These laws andregulations often are more restrictive than those in the United States. Such laws and regulations may require companies toimplement new privacy and security policies, permit individuals to access, correct and delete personal information stored ormaintained by such companies, inform individuals of security breaches that affect their personal information, and, in somecases, obtain individuals’ consent to use personal information for certain purposes. We also expect that there will continue to be new proposed laws, regulations and industry standards concerningprivacy, data protection and information security in the United States, the European Union and other jurisdictions, and wecannot yet determine the impact of such future laws, regulations and standards may have on our business. For example, inJune 2018, California passed the California Consumer Privacy Act, or CCPA, which provides new data privacy rights forconsumers and new operational requirements for companies effective in 2020. Additionally, we expect that existing laws,regulations and standards may be interpreted differently in the future. There remains significant uncertainty surrounding theregulatory framework for the future of personal data transfers from the European Union to the United States with regulationssuch as the recently adopted General Data Protection Regulation, or GDPR, which imposes more stringent E.U. dataprotection requirements, provides an enforcement authority, and imposes large penalties for noncompliance. Future laws,regulations, standards and other obligations, including the adoption of the GDPR, as well as changes in the interpretation ofexisting laws, regulations, standards and other obligations could impair our ability to collect, use or disclose informationrelating to individuals, which could decrease demand for our products, require us to restrict our business operations, increaseour costs and impair our ability to maintain and grow our customer base and increase our revenue. Although we are working to comply with those federal, state and foreign laws and regulations, industry standards,contractual obligations and other legal obligations that apply to us, such laws, regulations, standards and obligations areevolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and mayconflict with one another, other requirements or legal obligations, our practices or the features of our products. As such, wecannot assure ongoing compliance with all such laws or regulations, industry standards,33Table of Contentscontractual obligations and other legal obligations, and our efforts to do so may cause us to incur significant costs or requirechanges to our business practices, which could adversely affect our business and operating results. Any failure or perceivedfailure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations or otherlegal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, oracquisition, release or transfer of personal information or other data, may result in governmental enforcement actions andprosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us,which could have an adverse effect on our reputation and business. Any inability to adequately address privacy and securityconcerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractualobligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales,and adversely affect our business and operating results. Compliance with the SEC’s conflict minerals regulations may increase our costs and adversely impact the supply‑chain forour UAS products. In August 2012, the SEC adopted disclosure rules regarding a company’s use of conflict minerals in its productswith substantial supply chain verification requirements in the event that the conflict minerals come from, or could have comefrom, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements will imposeadditional costs on us and on our suppliers, including costs related to determining the source of conflict minerals used in ourproducts, which will adversely affect our results of operations. We are dependent on information supplied by our first tiersuppliers in conducting due diligence into the origins of conflict minerals in our products and in complying with our SECreporting obligations. To the extent that information we receive from our suppliers is inaccurate or inadequate, we may notbe able to determine whether our products are conflict mineral‑free. We may face challenges in satisfying our customers whomay require that our products be certified as conflict mineral‑free, which could place us at a competitive disadvantage andcould harm our business. These regulations could also have the effect of limiting the pool of suppliers from which we sourceitems containing conflict minerals, and we may be unable to obtain conflict‑free minerals at competitive prices, if at all,which could increase our costs and adversely affect our results of operations. Our business and operations are subject to the risks of earthquakes and other natural catastrophic events. Our corporate headquarters, research and development and manufacturing operations are located in SouthernCalifornia, a region known for seismic activity and wild fires. A significant natural disaster, such as an earthquake, fire orother catastrophic event, could severely affect our ability to conduct normal business operations, and as a result, our futureoperating results could be materially and adversely affected. We self-insure a portion of our health insurance program which may expose us to unexpected costs and negatively affectour results of operations. We are self-insured for employee medical claims, subject to individual and aggregate stop loss insurance policies.We estimate a liability for claims filed and incurred but not reported based upon recent claims experience and an analysis ofthe average period of time between the occurrence of a claim and the time it is reported to and paid by us. However,unanticipated changes in assumptions and management estimates underlying our recorded liabilities for medical claimscould result in materially different amounts of expense than expected under our health insurance program, which could havean adverse material impact on our financial condition and results of operations. 34Table of ContentsRisks Related to Our U.S. Government Contracts We are subject to extensive government regulation, and our failure to comply with applicable regulations could subject usto penalties that may restrict our ability to conduct our business. As a contractor to the U.S. government, we are subject to and must comply with various government regulations thatimpact our revenue, operating costs, profit margins and the internal organization and operation of our business. The mostsignificant regulations and regulatory authorities affecting our business include the following: ·the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate theformation and administration of, and performance under, U.S. government contracts; ·the Truth in Negotiations Act, which requires certification and disclosure of all factual cost and pricing data inconnection with contract negotiations; ·the False Claims Act and the False Statements Act, which impose penalties for payments made on the basis offalse facts provided to the government and on the basis of false statements made to the government,respectively; ·the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to aforeign official to help obtain, retain or direct business, or obtain any unfair advantage; ·the National Telecommunications and Information Administration and the Federal CommunicationsCommission, which regulate the wireless spectrum allocations upon which UAS depend for operation and datatransmission in the United States; ·the Federal Aviation Administration, which regulates the use of airspace for all aircraft, including UASoperation in the United States; ·the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defensearticles and defense services and restrict from which countries we may purchase materials and services used inthe production of certain of our products; and ·laws, regulations and executive orders restricting the use and dissemination of information classified fornational security purposes or determined to be “controlled unclassified information” and the exportation ofcertain products and technical data. Also, we need special security clearances and regulatory approvals to continue working on certain of our projectswith the U.S. government. Classified programs generally will require that we comply with various executive orders, federallaws and regulations and customer security requirements that may include restrictions on how we develop, store, protect andshare information, and may require our employees and facilities to obtain government security clearances. Our failure tocomply with applicable regulations, rules and approvals or misconduct by any of our employees could result in theimposition of fines and penalties, the loss of security clearances, the loss of our government contracts or our suspension ordebarment from contracting with the U.S. government generally, any of which could harm our business, financial conditionand results of operations. We are also subject to certain regulations of comparable government agencies in other countries,and our failure to comply with these non‑U.S. regulations could also harm our business, financial condition or results ofoperations. Our business could be adversely affected by a negative audit or investigation by the U.S. government. U.S. government agencies, primarily the DCAA and the DCMA, routinely audit and investigate governmentcontractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance withapplicable laws, regulations and standards. These agencies also may review the adequacy of, and a contractor’s35Table of Contentscompliance with, its internal control systems and policies, including the contractor’s purchasing, quality, accounting,property, estimating, compensation and management information systems. Like most government contractors, our contracts are audited and reviewed on a continual basis by the DCMA andthe DCAA. The indirect costs we incur in performing government contracts have been audited or have been subject toaudit on an annual basis. The audit of our 2010 incurred cost claim was settled in April 2016 without payment of anyconsideration. Our incurred cost claims for fiscal years 2011 through 2014 were accepted as submitted during the fiscal yearended April 30, 2017. Our 2016 and 2017 rates claims were accepted without audit during the fiscal year ended April 30,2019 without payment of any consideration. At April 30, 2019 we had $0.1 million reserved for open incurred cost claimaudits. In addition, non‑audit reviews or investigations by the government may still be conducted on all of our governmentcontracts. Any costs found to be improperly allocated to a specific cost reimbursement contract will not be reimbursed, whilesuch costs already reimbursed must be refunded. If an audit or investigation of our business were to uncover improper orillegal activities, then we could be subject to civil and criminal penalties and administrative sanctions, including terminationof contracts, suspension of payments, fines and suspension or debarment from doing business with the U.S. government. Wecould experience serious harm to our reputation if allegations of impropriety or illegal acts were made against us, even if theallegations were inaccurate. In addition, responding to governmental audits or investigations may involve significantexpense and divert management attention. If any of the foregoing were to occur, our financial condition and operating resultscould be materially adversely affected. Moreover, if any of our administrative processes and business systems are found not to comply with the applicablerequirements, we may be subjected to increased government scrutiny or required to obtain additional governmentalapprovals that could delay or otherwise adversely affect our ability to compete for or perform contracts. In December 2015,DCMA concluded that our purchasing system was not approved. In an April 2016 follow-up review the DCMA approved ourpurchasing system. The purchasing systems was reviewed and approved again in January 2019. An unfavorable outcome tosuch an audit or investigation by the DCAA, U.S. Department of Justice or DOJ, or other government agency, couldmaterially adversely affect our competitive position, affect our ability to obtain new government business, and obtain themaximum price for our products and services, and result in a substantial reduction of our revenues. If we were suspended or debarred from contracting with the federal government generally, or any specific agency, ifour reputation or relationship with government agencies were impaired, or if the government otherwise ceased doingbusiness with us or significantly decreased the amount of business it does with us, our revenue and operating results could bematerially harmed. For example, in February 2010, we were notified by the DOJ that it had initiated a civil investigation intoour cost charging practices with respect to government contracts. We resolved these claims with the DOJ in October 2013.Under the settlement agreement, we reimbursed the government for an amount erroneously charged to the government in ourfiscal 2006 incurred cost claim submittal. Some of our contracts with the U.S. government allow it to use inventions developed under the contracts and to disclosetechnical data to third parties, which could harm our ability to compete. Some of our contracts allow the U.S. government to use, royalty‑free, or have others use, inventions developed underthose contracts on behalf of the government. Some of the contracts allow the federal government to disclose technical datawithout constraining the recipient on how those data are used. The ability of third parties to use patents and technical datafor government purposes creates the possibility that the government could attempt to establish alternative suppliers or tonegotiate with us to reduce our prices. The potential that the government may release some of the technical data withoutconstraint creates the possibility that third parties may be able to use this data to compete with us, which could have amaterial adverse effect on our business, results of operations or financial condition. 36Table of ContentsU.S. government contracts are generally not fully funded at inception and contain certain provisions that may beunfavorable to us, which could prevent us from realizing our contract backlog and materially harm our business andresults of operations. U.S. government contracts typically involve long lead times for design and development, and are subject tosignificant changes in contract scheduling. Congress generally appropriates funds on a fiscal year basis even though aprogram may continue for several years. Consequently, programs are often only partially funded initially, and additionalfunds are committed only as Congress makes further appropriations. The termination or reduction of funding for agovernment program would result in a loss of anticipated future revenue attributable to that program. The actual receipt of revenue on awards included in backlog may never occur or may change because a programschedule could change or the program could be canceled, or a contract could be reduced, modified or terminated early. In addition, U.S. government contracts generally contain provisions permitting termination, in whole or in part, atthe government’s convenience or for contractor default. Since a substantial majority of our revenue is dependent on theprocurement, performance and payment under our U.S. government contracts, the termination of one or more criticalgovernment contracts could have a negative impact on our results of operations and financial condition. Termination arisingout of our default could result in damage to our reputation, expose us to liability and have a material adverse effect on ourability to re‑compete for future contracts and orders. Moreover, several of our contracts with the U.S. government do notcontain a limitation of liability provision, creating a risk of responsibility for indirect, incidental damages and consequentialdamages. These provisions could cause substantial liability for us, especially given the use to which our products may beput. U.S. government contracts are subject to a competitive bidding process that can consume significant resources withoutgenerating any revenue. U.S. government contracts are frequently awarded only after formal, protracted competitive bidding processes and,in many cases, unsuccessful bidders for U.S. government contracts are provided the opportunity to protest contract awardsthrough various agency, administrative and judicial channels. We derive significant revenue from U.S. government contractsthat were awarded through a competitive bidding process. Much of the UAS business that we expect to seek in theforeseeable future likely will be awarded through competitive bidding. Competitive bidding presents a number of risks,including the following: ·the need to bid on programs in advance of the completion of their design, which may result in unforeseentechnological difficulties and cost overruns; ·the substantial cost and managerial time and effort that must be spent to prepare bids and proposals for contractsthat may not be awarded to us; ·the need to estimate accurately the resources and cost structure that will be required to service any contract weare awarded; and ·the expense and delay that may arise if our competitors protest or challenge contract awards made to us pursuantto competitive bidding, and the risk that any such protest or challenge could result in the delay of our contractperformance, the distraction of management, the resubmission of bids on modified specifications, or intermination, reduction or modification of the awarded contract. We may not be provided the opportunity to bid on contracts that are held by other companies and are scheduled toexpire if the government extends the existing contract. If we are unable to win particular contracts that are awarded through acompetitive bidding process, then we may not be able to operate for a number of years in the market for goods and servicesthat are provided under those contracts. If we are unable to win new contract awards over any extended period consistently,then our business and prospects will be adversely affected. 37Table of ContentsWe are subject to procurement rules and regulations, which increase our performance and compliance costs under our U.S.government contracts. We must comply with, and are affected by, laws and regulations relating to the formation, administration andperformance of U.S. government contracts. These laws and regulations, among other things, require certification anddisclosure of all cost and pricing data in connection with contract negotiation, define allowable and unallowable costs andotherwise govern our right to reimbursement under certain cost‑based U.S. government contracts, and restrict the use anddissemination of classified information and the exportation of certain products and technical data. These requirements,although customary in U.S. government contracts, increase our performance and compliance costs. These costs mightincrease in the future, reducing our margins, which could have a negative effect on our financial condition. Although webelieve we have procedures in place to comply with these regulations and requirements, the regulations and requirements arecomplex and change frequently. Our or our agents’ failure to comply with these regulations and requirements under certaincircumstances could lead to suspension or debarment from U.S. government contracting or subcontracting for a period oftime and could have a negative effect on our reputation and ability to receive other U.S. government contract awards in thefuture. Risks Related to Our Intellectual Property If we fail to protect, or incur significant costs in defending or enforcing our intellectual property and other proprietaryrights, our business, financial condition and results of operations could be materially harmed. Our success depends, in large part, on our ability to protect our intellectual property and other proprietary rights. Werely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements andother contractual provisions, to protect our intellectual property and other proprietary rights. However, a significant portionof our technology is not patented, and we may be unable or may not seek to obtain patent protection for this technology. Inaddition, the U.S. government has licenses under certain of our patents and certain other intellectual property that aredeveloped or used in performance of government contracts, and it may use or authorize others to use such patents andintellectual property for government and other purposes. Moreover, existing U.S. legal standards relating to the validity,enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us withany competitive advantages, and our rights may be challenged by third parties. The laws of countries other than the UnitedStates may be even less protective of our intellectual property rights. Accordingly, despite our efforts, we may be unable toprevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to ourtechnology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products orotherwise obtain and use our intellectual property. Moreover, many of our employees have access to our trade secrets andother intellectual property. If one or more of these employees leave our employment to work for one of our competitors, thenthey may disseminate this proprietary information, which may as a result damage our competitive position. If we fail toprotect our intellectual property and other proprietary rights, then our business, results of operations or financial conditioncould be materially harmed. From time to time, we have initiated lawsuits to protect our intellectual property and otherproprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact our results ofoperations. In addition, affirmatively defending our intellectual property rights and investigating whether any of our productsor services violate the rights of others may entail significant expense. Our intellectual property rights may be challenged byothers or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce ourintellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights ofothers, then the proceedings could result in significant expense to us and divert the attention and efforts of our managementand technical employees, even if we prevail. We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time‑consumingand limit our ability to use certain technologies in the future. We may become subject to claims that our technologies infringe upon the intellectual property or other proprietaryrights of third parties. Defending against, or otherwise addressing, any such claims, whether they are with or without merit,could be time‑consuming and expensive, and could divert our management’s attention away from the38Table of Contentsexecution of our business plan. Moreover, any settlement or adverse judgment resulting from these claims could require us topay substantial amounts or obtain a license to continue to use the disputed technology, or otherwise restrict or prohibit ouruse of the technology. We cannot assure you that we would be able to: obtain from the third party asserting the claim alicense on commercially reasonable terms, if at all; develop alternative technology on a timely basis, if at all; or obtain alicense to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, ouraffected product. An adverse determination also could prevent us from offering our products to others. Infringement claimsasserted against us may have a material adverse effect on our business, results of operations or financial condition. Risks Relating to Securities Markets and Investment in Our Stock The price of our common stock may fluctuate significantly. The market prices for securities of emerging technology companies have historically been highly volatile, and themarket has from time to time experienced significant price and volume fluctuations that are unrelated to the operatingperformance of particular companies. The market price of our common stock may fluctuate significantly in response to anumber of factors, most of which we cannot control, including the following: ·U.S. government spending levels, both generally and by our particular customers; ·the volume of operational activity by the U.S. military; ·delays in the payment of our invoices by government payment offices, resulting in potentially reduced earningsduring a particular fiscal quarter; ·announcements of new products or technologies, commercial relationships or other events relating to us or ourindustry or our competitors; ·failure of any of our key products to gain market acceptance; ·variations in our quarterly operating results; ·perceptions of the prospects for the markets in which we compete; ·changes in general economic conditions; ·changes in securities analysts’ estimates of our financial performance; ·regulatory developments in the United States and foreign countries; ·fluctuations in stock market prices and trading volumes of similar companies; ·news about the markets in which we compete or regarding our competitors; ·terrorist acts or military action related to international conflicts, wars or otherwise; ·sales of large blocks of our common stock, including sales by our executive officers, directors and significantstockholders; and ·additions or departures of key personnel. In addition, the equity markets in general, and NASDAQ in particular, have experienced extreme price and volumefluctuations that have often been unrelated or disproportionate to the operating performance of companies.39Table of ContentsFurther, the market prices of securities of emerging technology companies have been particularly volatile. These broadmarket and industry factors may affect the market price of our common stock adversely, regardless of our operatingperformance. In the past, following periods of volatility in the market price of a company’s securities, securities class actionlitigation often has been instituted against that company. This type of litigation, if instituted against us, could result insubstantial costs and a diversion of management’s attention and resources. Our management, whose interests may not be aligned with yours, is able to exert significant influence over all mattersrequiring stockholder approval. As of June 19, 2019, our directors, executive officers and their affiliates collectively beneficially owned 2,642,163shares, or approximately 11%, of our total outstanding shares of common stock. Accordingly, our directors and executiveofficers as a group may be able to exert significant influence over matters requiring stockholder approval, including theelection of directors. The interests of our directors and executive officers may not be fully aligned with yours. Although thereis no agreement among our directors and executive officers with respect to the voting of their shares, this concentration ofownership may delay, defer or even prevent a change in control of our company, and make transactions more difficult orimpossible without the support of all or some of our directors and executive officers. These transactions might include proxycontests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premiumover the then‑prevailing market price for shares of our common stock. Delaware law and anti‑takeover provisions in our organizational documents may discourage our acquisition by a thirdparty, which could make it more difficult to acquire us and limit your ability to sell your shares at a premium. Our certificate of incorporation and bylaws contain certain provisions that reduce the probability of a change ofcontrol or acquisition of our company, even if such a transaction would be beneficial to our stockholders. These provisionsinclude, but are not limited to: ·the ability of our board of directors to issue preferred stock in one or more series of with such rights, obligationsand preferences as the board may determine, without further vote or action by our stockholders; ·advanced notice procedures for stockholders to nominate candidates for election to the board of directors andfor stockholders to submit proposals for consideration at a meeting of stockholders; ·the absence of cumulative voting rights for our stockholders; ·the classification of our board of directors, which effectively prevents stockholders from electing a majority ofthe directors at any one annual meeting of stockholders; ·the limitation that directors may be removed only for cause by the affirmative vote of the holders of 66/3% ofthe total voting power of all of our outstanding securities entitled to vote in the election of directors, votingtogether as a single class; and ·restrictions on the ability of our stockholders to call a special meeting of stockholders. We are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits“business combinations” between a publicly‑held Delaware corporation and an “interested stockholder,” which is generallydefined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for athree‑year period following the date that such stockholder became an interested stockholder. This statute, as well as theprovisions in our organizational documents, could have the effect of delaying, deterring or preventing certain potentialacquisitions or a change in control of us. Item 1B. Unresolved Staff Comments. None. 402Table of Contents Item 2. Properties. All of our facilities are leased. Our corporate headquarters are located in Simi Valley, California where we leaseapproximately 85,000 square feet under an agreement expiring in May 2020. We also lease an additional 105,000 square feetof space in Simi Valley, California, which lease expires in 2022, and approximately 150,000 square feet of space inMoorpark, California, which lease expires in 2023, used to design, engineer, test and manufacture UAS. We also lease otherfacilities in California, Alabama, Kansas, Massachusetts and Virginia that are used for administration, research anddevelopment, logistics and manufacturing. We believe that our facilities are adequate to meet our needs for the foreseeablefuture. In January 2019 we exercised our one-time right of early termination to terminate our lease for our facilities inMonrovia, California effective January 15, 2020. All operations and personnel located at the Monrovia facilities will betransferred to our other facilities in Simi Valley, California. Item 3. Legal Proceedings. On April 18, 2018, a former employee of AeroVironment, Mark Anderson, filed a lawsuit against us and WahidNawabi, our President and Chief Executive Officer, in the Superior Court of the State of California for the County of LosAngeles. Mr. Anderson’s claims include whistle blower retaliation, race discrimination and wrongful termination related tothe termination of his employment with the Company. Mr. Nawabi was subsequently dismissed as an individual defendantfrom all claims in the lawsuit. The case is currently proceeding through discovery, including depositions. Mr. Anderson isseeking special damages, general damages, punitive damages, attorneys’ fees and other relief the court deems just and proper.We believe the complaint contains legal claims that are without merit and will defend ourselves vigorously. On February 22, 2019, Webasto Charging Systems, Inc. (“Webasto”) filed a lawsuit, which was subsequentlyamended on April 5, 2019, against us in Delaware Superior Court, arising from the sale of the EES division to Webasto inJune 2018. The lawsuit generally alleges several claims against us for breach of contract, indemnity, declaratory judgment,and fraud and misrepresentation, including allegations regarding inaccuracy of certain diligence disclosures, failure toprovide certain consents to contract assignments and related to the previously announced recall. Webasto seeks to recoverthe costs of the recall and other damages totaling over $100 million in addition to attorneys’ fees, costs, and punitivedamages. Additionally, Webasto is seeking a declaratory judgment that we did not meet the requirements to receive theadditional $6.5 million of the purchase price which was held back at the closing of the transaction. On May 20, 2019 wefiled a motion to dismiss certain claims regarding the recall and claims related to Webasto’s post-closing cancellation of anassigned contract. A hearing regarding the motion is scheduled for July 17, 2019. Our initial evaluation is that many of theallegations are meritless and that we lack sufficient information to fully analyze other allegations at this time. We intend tomount a vigorous defense. We are subject to lawsuits, government investigations, audits and other legal proceedings from time to time in theordinary course of our business. It is not possible to predict the outcome of any legal proceeding with any certainty. Theoutcome or costs we incur in connection with a legal proceeding could adversely impact our operating results and financialposition. Item 4. Mine Safety Disclosure. Not applicable. 41Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities. Common Stock On June 19, 2019, the closing sales price of our common stock as reported on the NASDAQ Global Select Marketwhere it trades under the symbol AVAV was $61.90 per share. As of June 19, 2019, there were 66 holders of record of ourcommon stock. Dividends To date we have retained all earnings for use in the operation and expansion of our business and do not anticipatepaying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at thediscretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition,capital requirements, capital allocation policy, expected return on invested capital, contractual restrictions and such otherfactors as our board of directors deems relevant. Stock Price Performance Graph The following graph shows a comparison of cumulative returns on our common stock, based on the market price ofthe common stock, with the cumulative total returns of companies in the Russell 2000 Index and the SPADE Defense Index. 42Table of ContentsThe following table shows the value of $100 invested on April 30, 2014 in AeroVironment, Inc., the Russell 2000Index and the SPADE Defense Index. Performance Graph Table ($) April 30, April 30 April 30, April 30, April 30 April 30, 2014 2015 2016 2017 2018 2019 AeroVironment Stock 100 76 86 85 161 203 Russell 2000 Index 100 108 100 124 138 141 SPADE Defense Index 100 115 115 142 178 197 The stock price performance shown on the graph above is not necessarily indicative of future price performance.Factual material was obtained from sources believed to be reliable, but we are not responsible for any errors or omissionscontained therein. No portions of this graph shall be deemed incorporated by reference into any filing under the SecuritiesAct, or the Exchange Act through any general statement incorporating by reference in its entirety the report in which thisgraph appears, except to the extent that we specifically incorporate this graph or a portion of it by reference. In addition, thisgraph shall not be deemed filed under either the Securities Act or the Exchange Act. Issuer Purchases of Equity Securities On September 24, 2015, we announced that on September 23, 2015 our Board of Directors authorized a sharerepurchase program (the “Share Repurchase Program”), pursuant to which we may repurchase up to $25 million of ourcommon stock from time to time, in amounts and at prices we deem appropriate, subject to market conditions and otherconsiderations. Share repurchases may be executed through open market transactions or negotiated purchases and may bemade under a Rule 10b5-1 plan. There is no expiration date for the program. The Share Repurchase Program does notobligate us to acquire any particular amount of common stock and may be suspended at any time by our Board ofDirectors. We did not repurchase any shares during the fiscal year ended April 30, 2019. As of April 30, 2019, approximately$21.2 million remained authorized for future repurchases under this program. Item 6. Selected Consolidated Financial Data. The following selected financial data should be read in conjunction with our consolidated financial statements. Theinformation set forth below is not necessarily indicative of results of future operations, and should be read in conjunctionwith Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and theconsolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary43Table of ContentsData” of this Annual Report in order to understand fully factors that may affect the comparability of the financial datapresented below. Year Ended April 30, 2019 2018 2017 2016 2015 (In thousands, except per share data) Consolidated Income Statement Data: Revenue $314,274 $268,424 $233,105 $233,738 $220,951 Net income from continuing operations attributableto AeroVironment $41,912 $21,750 $17,701 $15,393 $11,682 Earnings per common share from continuingoperations attributable to AeroVironment: Basic $1.77 $0.93 $0.77 $0.67 $0.51 Diluted $1.74 $0.91 $0.76 $0.67 $0.50 Weighted average common shares outstanding(basic): 23,663 23,471 23,059 22,936 22,869 Weighted average common shares outstanding(diluted): 24,072 23,814 23,308 23,153 23,146 Balance Sheet Data Total assets $508,844 $473,418 $433,831 $410,393 $397,467 Capital lease obligations, current portion $ — $161 $288 $390 $ — Capital lease obligations, net of current portion $ — $ — $161 $449 $ — Other long-term obligations $1,403 $2,274 $2,083 $2,339 $1,712 (1)Amounts prior to 2017 do not reflect impact of the adoption of ASU No. 2014-09, Revenue from Contracts withCustomers (Topic 606) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Introduction The following discussion of our financial condition and results of operations should be read in conjunction with our“Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto included herein asItem 8. This discussion contains forward‑looking statements. Refer to “Forward‑Looking Statements” on page 2 and “RiskFactors” beginning on page 19, for a discussion of the uncertainties, risks and assumptions associated with these statements. On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of our former EESBusiness to Webasto pursuant to the Purchase Agreement between Webasto and us. We determined that the EES Businessmet the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our operations.Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual Report asdiscontinued operations for all periods presented. Overview We design, develop, produce, support and operate a technologically‑advanced portfolio of products. We supplyunmanned aircraft systems (“UAS”) and related services to organizations within the U.S. Department of Defense (“DoD”) andto international allied governments, and tactical missile systems and related services primarily to organizations within theU.S. Government. We derive the majority of our revenue from these business areas and we44(1)(1)Table of Contentsbelieve that the markets for these solutions have significant growth potential. Additionally, we believe that some of theinnovative potential products in our research and development pipeline will emerge as new growth platforms in the future,creating additional market opportunities. The success we have achieved with our current products and services stems from our investment in research anddevelopment and our ability to invent and deliver advanced solutions, utilizing our proprietary technologies, to help ourgovernment and commercial customers operate more effectively and efficiently. We develop these highly innovativesolutions by working very closely with our key customers and solving their most important challenges related to our areas ofexpertise. Our core technological capabilities, developed through more than 45 years of innovation, include robotics; sensordesign, development, miniaturization and integration; embedded software and firmware; miniature, low power wirelessdigital communications; lightweight aerostructures; high-altitude systems design, integration and operations; machinevision, machine learning and autonomy; low SWaP (Size, Weight and Power) system design and integration; manned-unmanned teaming, unmanned-unmanned teaming; power electronics and electric propulsion systems; efficient electricpower conversion, storage systems and high density energy packaging; controls and systems integration; vertical takeoff andlanding flight, fixed wing flight and hybrid aircraft flight; image stabilization and target tracking; advanced flight controlsystems; fluid dynamics; robotic systems autonomy; human-machine interface development; and integrated missionsolutions for austere environments. Our UAS business focuses primarily on the design, development, production, marketing, support and operation ofinnovative UAS and tactical missile systems and the delivery of UAS-related services that provide situational awareness,remote sensing, multi‑band communications, force protection and other information and mission effects to increase the safetyand effectiveness of our customers’ operations. Revenue We generate our revenue primarily from the sale, support and operation of our small UAS and tactical missilesystems. Support for our small UAS customers includes training, spare parts, product repair, product replacement, and thecustomer‑contracted operation of our small UAS by our personnel. We refer to these support activities, in conjunction withcustomer‑funded research and development (“R&D”), as our services operation. We derive most of our small UAS revenuefrom fixed‑price and cost‑plus‑fee contracts with the U.S. government and allied foreign governments. Cost of Sales Cost of sales consists of direct costs and allocated indirect costs. Direct costs include labor, materials, travel,subcontracts and other costs directly related to the execution of a specific contract. Indirect costs include overhead expenses,fringe benefits and other costs that are not directly charged to a specific contract. Gross Margin Gross margin is equal to revenue minus cost of sales. We use gross margin as a financial metric to help us understandtrends in our direct costs and allocated indirect costs when compared to the revenue we generate. Selling, General and Administrative Our selling, general and administrative expenses, or SG&A, include salaries and other expenses related to selling,marketing and proposal activities, and other administrative costs. Some SG&A expenses relate to market and businessdevelopment activities that support both ongoing business areas as well as new and emerging market areas. These activitiescan be directly associated with developing requirements for and applications of capabilities created in our R&D activities.SG&A is an important financial metric that we analyze to help us evaluate the contribution of our selling, marketing andproposal activities to revenue generation. 45Table of ContentsResearch and Development Expense R&D is an integral part of our business model. We normally conduct significant internally funded R&D. Our R&Dactivities focus specifically on creating capabilities that support our existing product portfolio as well as new solutions. Other Income and Expenses Other income and expenses includes a one-time gain from a litigation settlement, income from transition servicesperformed on behalf of the buyer of the discontinued EES business, interest income, interest expense, amortization of capitallease payments, changes in fair value of certain financial investments, and gains resulting from the purchase of a controllinginterest in an entity formerly accounted for under the equity method. Income Tax Expense Our effective tax rates are lower than the statutory rates primarily due to research and development tax credits. Oureffective tax rate for the fiscal year ended April 30, 2018 was also impacted by the Tax Cut and Jobs Act of 2017. Equity Method Investment Loss, Net of Tax Equity method investment loss, net of tax, includes equity method gain or loss related to the HAPSMobile Inc. jointventure we formed in December 2017 with Softbank Corp, and our investment in Altoy Savunma Sanayi ve HavacilikAnonim Sirketi (“Altoy”) prior to obtaining a controlling interest on February 1, 2017. Loss from Discontinued Operations, Net of Tax On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of our former EESBusiness to Webasto pursuant to the Purchase Agreement between Webasto and us. We determined that the EES Businessmet the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategic shift in our operations.Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual Report asdiscontinued operations for all periods presented. Net Loss Attributable to Noncontrolling Interests Net loss attributable to noncontrolling interests includes the 15% interest in the income or losses of our Turkishjoint venture, Altoy. We acquired a controlling interest in Altoy on February 1, 2017. Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses ourconsolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States. When we prepare these consolidated financial statements, we are required to make estimates andassumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some ofour accounting policies require that we make subjective judgments, including estimates that involve matters that areinherently uncertain. Our most critical estimates include those related to revenue recognition, inventories and reserves forexcess and obsolescence, self‑insured liabilities, accounting for stock‑based awards, and income taxes. We base our estimatesand judgments on historical experience and on various other factors that we believe to be reasonable under thecircumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Our actual results may differ from these estimates under different assumptions orconditions. We believe the following critical accounting estimates affect our more significant judgments and estimates used inpreparing our consolidated financial statements. Please see Note 1 to our consolidated financial statements, which are46Table of Contentsincluded in Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for our Organization andSignificant Accounting Policies. There have been no material changes made to the critical accounting estimates during theperiods presented in the consolidated financial statements. Revenue Recognition Significant management judgments and estimates must be made and used in connection with the recognition ofrevenue in any accounting period. Material differences in the amount of revenue in any given period may result if thesejudgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of thebusiness or market conditions. Management judgments and estimates have been applied consistently and have been reliablehistorically. We believe that there are two key factors which impact the reliability of management’s estimates. The first ofthose key factors is that the terms of our contracts are typically less than six months. The short‑term nature of such contractsreduces the risk that material changes in accounting estimates will occur on the basis of market conditions or other factors.The second key factor is that we have hundreds of contracts in any given accounting period, which reduces the risk that anyone change in an accounting estimate on one or several contracts would have a material impact on our consolidated financialstatements. The substantial majority of our revenue is generated pursuant to written contractual arrangements to design,develop, manufacture and/or modify complex products, and to provide related engineering, technical and other servicesaccording to customer specifications. These contracts may be fixed price, cost‑reimbursable, or time and materials. Weaccount for all revenue contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is the unit ofaccount in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue isrecognized when each performance obligation under the terms of a contract is satisfied. For contracts with multipleperformance obligations, we allocate the contract’s transaction price to each performance obligation using its observablestandalone selling price for products and services. When the standalone selling price is not directly observable, we use itsbest estimate of the standalone selling price of each distinct good or service in the contract using the cost plus reasonablemargin approach. Our performance obligations are satisfied over time or at a point in time. Revenue for TMS product deliveries andCustomer-Funded R&D contracts is recognized over time as costs are incurred. Contract services revenue is composed ofrevenue recognized on contracts for the provision of services, including repairs and maintenance, training, engineeringdesign, development and prototyping activities, and technical support services. Contract services revenue is recognized overtime as services are rendered. Typically, revenue is recognized over time using an input measure (e.g., costs incurred to daterelative to total estimated costs at completion) to measure progress. Training services are recognized over time using anoutput method based on days of training completed. For performance obligations satisfied over time, revenue is generallyrecognized using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costsrepresent work performed, which correspond with, and thereby best depict, transfer of control to the customer. Contract costsinclude labor, materials, subcontractors’ costs, other direct costs, and indirect costs applicable on government andcommercial contracts. For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue isrecognized at the point in time in which each performance obligation is fully satisfied. Our small UAS product sales revenueis composed of revenue recognized on contracts for the delivery of small UAS systems and spare parts. Revenue is recognizedat the point in time when control transfers to the customer, which generally occurs when title and risk of loss have passed tothe customer. We review cost performance and estimates to complete at least quarterly and in many cases more frequently.Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are oftenrequired as work progresses under a contract, as experience is gained and as more information is obtained, even though thescope of work required under the contract may not change, or if contract modifications occur. The impact of revisions in theestimated costs to complete for all types of contracts are recognized on a cumulative catch‑up basis in the period in which therevisions are made. During the fiscal years ended April 30, 2019, 2018 and 2017, changes in accounting estimates onfixed‑price contracts recognized using the over time method are presented below. Amounts47Table of Contentsrepresenting contract change orders or claims are included in revenue the order or claim meets the criteria of a contract orcontract modification in accordance with ASC 606. Incentives or penalties and awards applicable to performance oncontracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assessanticipated contract performance. For the years ended April 30, 2019, 2018 and 2017, favorable and unfavorable cumulative catch‑up adjustmentsincluded in revenue were as follows (in thousands): Year Ended April 30, 2019 2018 2017 Gross favorable adjustments $1,190 $1,643 $46 Gross unfavorable adjustments (1,308) (2,310) (275) Net adjustments $(118) $(667) $(229) For the year ended April 30, 2019, favorable cumulative catch‑up adjustments of $1.2 million were primarily due tofinal cost adjustments on nine contracts, which individually were not material. For the same period, unfavorable cumulativecatch‑up adjustments of $1.3 million were primarily related to higher than expected costs on 14 contracts, whichindividually were not material. For the year ended April 30, 2018, favorable cumulative catch‑up adjustments of $1.6 million were primarily due tofinal cost adjustments on nine contracts, which individually were not material. For the same period, unfavorable cumulativecatch‑up adjustments of $2.3 million were primarily related to higher than expected costs on six contracts. During the yearended April 30, 2018, we revised our estimates of the total expected costs to complete a TMS variant contract. The aggregateimpact of these adjustments in contract estimates on revenue related to performance obligations satisfied or partially satisfiedin previous periods was a decrease to revenue of approximately $1.3 million. For the year ended April 30, 2017, favorable cumulative catch‑up adjustments of $46,000 were primarily due tofinal cost adjustments on 12 contracts, which individually were not material. For the same period, unfavorable cumulativecatch‑up adjustments of $0.3 million were primarily related to higher than expected costs on five contracts, whichindividually were not material. Inventories and Reserve for Excess and Obsolescence Our policy for valuation of inventory, including the determination of obsolete or excess inventory, requires us toperform a detailed assessment of inventory at each balance sheet date, which includes a review of, among other factors, anestimate of future demand for products within specific time horizons, valuation of existing inventory, as well as productlifecycle and product development plans. Inventory reserves are also provided to cover risks arising from slow‑moving items.We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the costof inventory and the estimated net realizable value based on assumptions about future demand and market conditions. Wemay be required to record additional inventory write‑downs if actual market conditions are less favorable than thoseprojected by our management. Self‑Insured Liability We are self‑insured for employee medical claims, subject to individual and aggregate stop‑loss policies. We estimatea liability for claims filed and incurred but not reported based upon recent claims experience and an analysis of the averageperiod of time between the occurrence of a claim and the time it is reported to and paid by us. We perform an annualevaluation of this policy and have determined that for all prior years during which this policy has been in effect there havebeen cost advantages to this policy, as compared to obtaining commercially available employee medical insurance.However, actual results may differ materially from those estimated and could have a material impact on our consolidatedfinancial statements.48Table of Contents Impairment of Long‑Lived Assets We review the recoverability of long‑lived assets whenever events or changes in circumstances indicate that thecarrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things,assumptions about expected future operating performance, and may differ from actual cash flows. If the sum of the projectedundiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down tothe estimated fair value in the period in which the determination is made. Intangible Assets – Acquired in Business Combinations We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a businesscombination and allocate the purchase price of each acquired business to our respective net tangible and intangible assets.Acquired intangible assets include: customer relationships and trade names. We use valuation techniques to value theseintangibles assets, with the primary technique being a discounted cash flow analysis. A discounted cash flow analysisrequires us to make various assumptions and estimates including projected revenue, gross margins, operating costs, growthrates, useful lives and discount rates. Intangible assets are amortized over their estimated useful lives using the straight-linemethod which approximates the pattern in which the economic benefits are consumed. Long‑Term Incentive Awards For our outstanding long-term incentive plans as of April 30, 2019, we grant long-term incentive awards and weestablish a target payout at the beginning of each performance period. The actual payout at the end of the performance periodis calculated based upon our achievement of such targets. Payouts of performance awards are made in shares of restrictedstock which become immediately vested upon issuance. At each reporting period, we reassess the probability of achieving the performance targets. The estimation ofwhether the performance targets will be achieved requires judgment, and to the extent actual results or updated estimatesdiffer from our current estimates, the cumulative effect on current and prior periods of those changes will be recorded in theperiod estimates are revised. Income Taxes We are required to estimate our income taxes, which includes estimating our current income taxes as well asmeasuring the temporary differences resulting from different treatment of items for tax and accounting purposes. We currentlyhave significant deferred assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assetsprincipally depends on our achieving projected future taxable income. We may change our judgments regarding futureprofitability due to future market conditions and other factors, which may result in recording a valuation allowance againstthose deferred tax assets. We have various foreign subsidiaries to conduct or support our business outside the United States. We do notprovide for U.S. income taxes on undistributed earnings for our foreign subsidiaries as management expects the foreignearnings will be indefinitely reinvested in such foreign jurisdictions. Fiscal Periods Our fiscal year ends on April 30. Due to our fixed year end date of April 30, our first and fourth quarters each consistof approximately 13 weeks. The second and third quarters each consist of exactly 13 weeks. Our first three quarters end on aSaturday. 49Table of ContentsResults of Operations The following table sets forth certain historical consolidated income statement data expressed in dollars (inthousands) and as a percentage of revenue for the periods indicated. Certain amounts may not sum due to rounding. Fiscal Year Ended April 30, 2019 2018 2017 Revenue $314,274 100% $268,424 100% $233,105 100%Cost of sales 185,871 59% 160,739 60% 136,232 58%Gross margin 128,403 41% 107,685 40% 96,873 42%Selling, general and administrative 60,343 19% 50,826 19% 47,642 20%Research and development 34,234 11% 26,433 10% 28,465 12%Income from continuing operations 33,826 11% 30,426 11% 20,766 9%Interest income, net 4,672 1% 2,240 1% 1,618 1%Other income (expense), net 11,980 4% (49) —% 172 0%Income from continuing operations before income taxes 50,478 16% 32,617 12% 22,556 10%Income tax expense 4,641 1% 9,800 4% 4,758 2%Equity method investment loss, net of tax (3,944) (1)% (1,283) —% (119) —%Net income from continuing operations 41,893 13% 21,534 8% 17,679 8%Gain on sale of business, net of tax 8,490 3% — —% — —%Loss from discontinued operations, net of tax (2,964) (1)% (3,887) (1)% (4,601) (2)%Net income 47,419 15% 17,647 7% 13,078 6%Net loss attributable to noncontrolling interest 19 —% 216 —% 22 —%Net income attributable to AeroVironment $47,438 15% $17,863 7% $13,100 6% Fiscal Year Ended April 30, 2019 Compared to Fiscal Year Ended April 30, 2018 Revenue. Revenue for the fiscal year ended April 30, 2019 was $314.3 million, as compared to $268.4 million forthe fiscal year ended April 30, 2018, representing an increase of $45.9 million, or 17%. The increase in revenue was due to anincrease in service revenue of $25.5 million and an increase in product deliveries of $20.4 million. The increase in servicerevenue was primarily due to an increase in customer-funded R&D work of $23.9 million predominantly associated with ourdesign and development agreement with HAPSMobile, partially offset by a decrease in tactical missile systems and tacticalmissile system variant programs, and an increase in sustainment activities in support of tactical missile system productdeliveries. The increase in product deliveries was primarily due to an increase in product deliveries of small UAS tointernational customers and to customers within the U.S. government and an increase in tactical missile systems revenue fromcustomers within the U.S. government. Cost of Sales. Cost of sales for the fiscal year ended April 30, 2019 was $185.9 million, as compared to $160.7million for the fiscal year ended April 30, 2018, representing an increase of $25.1 million, or 16%. The increase in cost ofsales was a result of an increase in service costs of sales of $21.0 million and an increase in product cost of sales of $4.1million. The increase in service costs of sales was primarily due to the increase in service revenue. The increase in productcosts was primarily due to the increase in product deliveries and an increase in inventory reserve charges largely related toour commercial Quantix product. As a percentage of revenue, cost of sales decreased from 60% to 59%, primarily due to afavorable product mix, partially offset by an increase in inventory reserve charges and an unfavorable service mix. Gross Margin. Gross margin for the fiscal year ended April 30, 2019 was $128.4 million, as compared to $107.7million for the fiscal year ended April 30, 2018, representing an increase of $20.7 million, or 19%. The increase in grossmargin was primarily due to an increase in product margins of $16.3 million and an increase in service margins50Table of Contentsof $4.4 million. The increase in product margins was primarily due to the increase in product deliveries, partially offset by anincrease in inventory reserve charges largely related to our commercial Quantix product. The increase in services margins wasprimarily due to the increase in customer-funded R&D revenue. As a percentage of revenue, gross margin increased from 40%to 41%, primarily due to a favorable product mix, partially offset by an increase in inventory reserve charges and anunfavorable service mix. Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2019 was $60.3 million, or19% of revenue, compared to SG&A expense of $50.8 million, or 19% of revenue, for the fiscal year ended April 30, 2018.The increase in SG&A expense was primarily due to an impairment charge related to the long-lived assets of our commercialQuantix product, an increase in corporate development expenses primarily related to the sale of our EES business, an increasein costs incurred related to the transition services agreement with Webasto, and an increase in employee-related expenses,partially offset by a decrease in legal expenses, a decrease in amortization expense, and a decrease in bad debt expense. Research and Development. R&D expense for the fiscal year ended April 30, 2019 was $34.2 million, or 11% ofrevenue, compared to R&D expense of $26.4 million, or 10% of revenue, for the fiscal year ended April 30, 2018. R&Dexpense increased primarily due to increased development activities for certain strategic initiatives. Interest Income, net. Interest income, net for the fiscal year ended April 30, 2019 was $4.7 million, compared to$2.2 million for the fiscal year ended April 30, 2018. The increase in interest income was primarily due to an increase in theaverage interest rates earned on our investments portfolio. Other Income (Expense), net. Other income, net for the fiscal year ended April 30, 2019 was $12.0 million, ascompared to other expense, net of $49,000 for the fiscal year ended April 30, 2018. The increase in other income, net wasprimarily due to a litigation settlement and income earned under a transition services agreement with the buyer of our formerEES Business. Income Taxes. Our effective income tax rate was 9.2% for the fiscal year ended April 30, 2019, as compared to30.0% for the fiscal year ended April 30, 2018. The provision for income taxes for the fiscal year ended 2018 included theimpact of the Tax Cut and Jobs Act of 2017, inclusive of a reduction in the blended fiscal year 2018 federal statutory tax ratefrom 35% to 30.4% and a $3.3 million one-time expense resulting from the remeasurement of our deferred tax assets andliabilities. Equity method investment loss, net of tax. Equity method investment loss, net of tax for the fiscal year ended April30, 2019 was $3.9 million, as compared to equity method investment loss, net of $1.3 million for the fiscal year ended April30, 2018. The increase was due to the equity method loss associated with our investment in the HAPSMobile joint ventureformed in December 2017 and our increase to 10% ownership in March 2019 which was diluted to approximately 5% duringthe first fiscal quarter of fiscal year 2020. Gain on sale of a business, net of tax. Gain on sale of a business, net of tax for fiscal 2019 was $8.5 million andresulted from the sale of our EES business. Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax for the fiscal yearended April 30, 2019 was a loss of $3.0 million as compared to a loss from discontinued operations, net of tax of $3.9 millionfor the fiscal year ended April 30, 2018. The loss from discontinued operations, net of tax relates to the results of our EESBusiness. Fiscal Year Ended April 30, 2018 Compared to Fiscal Year Ended April 30, 2017 Revenue. Revenue for the fiscal year ended April 30, 2018 was $268.4 million, as compared to $233.1 million forthe fiscal year ended April 30, 2017, representing an increase of $35.3 million, or 15%. The increase in revenue was due to anincrease in product deliveries of $32.8 million and an increase in service revenue of $2.5 million. The increase in productdeliveries was primarily due to an increase in product deliveries of small UAS to international customers and to customerswithin the U.S. government and product deliveries of tactical missile systems to customers within the U.S.51Table of Contentsgovernment. The increase in service revenue was primarily due to an increase in customer-funded R&D work of $9.2million, predominantly associated with our design and development agreement with HAPSMobile, partially offset by adecrease in tactical missile systems and tactical missile system variant programs and a decrease in sustainment activities insupport of tactical missile system product deliveries. Cost of Sales. Cost of sales for the fiscal year ended April 30, 2018 was $160.7 million, as compared to $136.2million for the fiscal year ended April 30, 2017, representing an increase of $24.5 million, or 18%. The increase in cost ofsales was a result of an increase in product cost of sales of $20.4 million and an increase in service costs of sales of $4.2million. The increase in product costs was primarily due to the increase in product deliveries and an increase in inventoryreserve charges. The increase in service costs of sales was primarily due to the increase in service revenue and the increase inthe proportion of customer-funded R&D revenue to total service revenue. As a percentage of revenue, cost of sales increasedfrom 58% to 60%, primarily due to unfavorable mix in both products and services and an increase in inventory reservecharges. Gross Margin. Gross margin for the fiscal year ended April 30, 2018 was $107.7 million, as compared to $96.9million for the fiscal year ended April 30, 2017, representing an increase of $10.8 million, or 11%. The increase in grossmargin was primarily due to an increase in product margins of $12.4 million, partially offset by a decrease in service marginsof $1.6 million. The increase in product margins was primarily due to the increase in product deliveries, partially offset by anincrease in inventory reserve charges. The decrease in services margins was primarily due to the increase in the proportion ofcustomer-funded R&D revenue to total service revenue, partially offset by the increase in service revenue. As a percentage ofrevenue, gross margin decreased from 42% to 40%, primarily due to an unfavorable mix in both products and services and anincrease in inventory reserve charges. Selling, General and Administrative. SG&A expense for the fiscal year ended April 30, 2018 was $50.8 million, or19% of revenue, compared to SG&A expense of $47.6 million, or 20% of revenue, for the fiscal year ended April 30, 2017.The increase in SG&A expense was primarily due to an increase in bonus expense associated with our fiscal 2018 financialresults, the recording of impairment charges related to the identifiable intangible assets and goodwill of Altoy during thethree months ended October 28, 2017, an increase in bad debt expense and an increase in legal expenses, partially offset by adecrease in sales commission expense as a result of a decrease in the number of international small UAS contracts underwhich we utilized sales agents. Research and Development. R&D expense for the fiscal year ended April 30, 2018 was $26.4 million, or 10% ofrevenue, compared to R&D expense of $28.5 million, or 12% of revenue, for the fiscal year ended April 30, 2017. R&Dexpense decreased primarily due to decreased development activities for certain strategic initiatives. Interest Income, net. Interest income, net for the fiscal year ended April 30, 2018 was $2.2 million, compared to$1.6 million for the fiscal year ended April 30, 2017. The increase in interest income was primarily due to an increase in theaverage interest rates earned on our investments portfolio. Other Income (Expense), net. Other expense, net for the fiscal year ended April 30, 2018 was $49,000, ascompared to other income, net of $0.2 million for the fiscal year ended April 30, 2017. Income Taxes. Our effective income tax rate was 30.0% for the fiscal year ended April 30, 2018, as compared to21.1% for the fiscal year ended April 30, 2017. The provision for income taxes for the fiscal year ended 2018 included theimpact of the Tax Cut and Jobs Act of 2017, inclusive of a reduction in the blended fiscal year 2018 federal statutory tax ratefrom 35% to 30.4% and a $3.3 million one-time expense resulting from the remeasurement of our deferred tax assets andliabilities. 52Table of ContentsEquity method investment loss, net of tax. Equity method investment loss, net of tax for the fiscal year ended April30, 2018 was $1.3 million, as compared to equity method investment loss, net of $0.1 million for the fiscal year ended April30, 2017. The increase was due to the equity method loss associated with our investment in the HAPSMobile joint ventureformed in December 2017. Equity method investment loss, net of tax for the fiscal year ended April 30, 2017 related to ourinvestment in Altoy prior to obtaining a controlling interest in February 2017. Loss from discontinued operations, net of tax. Loss from discontinued operations, net of tax for the fiscal yearended April 30, 2018 was a loss of $3.9 million as compared to a loss from discontinued operations, net of tax of $4.6 millionfor the fiscal year ended April 30, 2017. The loss from discontinued operations, net of tax relates to the results of our EESBusiness. Liquidity and Capital Resources We currently have no material cash commitments, except for normal recurring trade payables, accrued expenses andongoing research and development costs, all of which we anticipate funding through our existing working capital and fundsprovided by operating activities. The majority of our purchase obligations are pursuant to funded contractual arrangementswith our customers. We believe that our existing cash, cash equivalents, cash provided by operating activities and otherfinancing sources will be sufficient to meet our anticipated working capital, capital expenditure and debt servicerequirements, if any, during the next twelve months. There can be no assurance, however, that our business will continue togenerate cash flow at current levels. If we are unable to generate sufficient cash flow from operations, then we may berequired to sell assets, reduce capital expenditures or obtain additional financing. We anticipate that existing sources ofliquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future. Our primary liquidity needs are for financing working capital, investing in capital expenditures, supporting productdevelopment efforts, introducing new products and enhancing existing products, and marketing acceptance and adoption ofour products and services. Our future capital requirements, to a certain extent, are also subject to general conditions in oraffecting the defense industry and are subject to general economic, political, financial, competitive, legislative andregulatory factors that are beyond our control. Moreover, to the extent that existing cash, cash equivalents, cash fromoperations, and cash from short‑term borrowing are insufficient to fund our future activities, we may need to raise additionalfunds through public or private equity or debt financing. In addition, we may also need to seek additional equity funding ordebt financing if we become a party to any agreement or letter of intent for potential investments in, or acquisitions of,businesses, services or technologies. Our working capital requirements vary by contract type. On cost‑plus‑fee programs, we typically bill our incurredcosts and fees monthly as work progresses, and therefore working capital investment is minimal. On fixed‑price contracts, wetypically are paid as we deliver products, and working capital is needed to fund labor and expenses incurred during the leadtime from contract award until contract deliveries begin. On May 10, 2019, we purchased 500 million yen (approximately $4.6 million) of additional shares of HAPSMobileto maintain our 10% ownership interest HAPSMobile which was subsequently diluted to approximately 5%. On June 10, 2019, we purchased 100% of the issued and outstanding member units of Pulse Aerospace LLCpursuant to the terms of a Unit Purchase Agreement. We paid $20,650,000 in cash, less closing indebtedness and transactioncosts as defined in the Pulse Purchase Agreement, less a $250,000 retention and less a $1,250,000 holdback amount. Inaddition to the consideration paid at closing, the member unit holders of Pulse Aerospace may receive up to a maximum of$5,000,000 in additional cash consideration if specific research and development milestones are achieved by December 10,2021. We financed the acquisition entirely from available cash on hand. 53Table of ContentsCash Flows The following table provides our cash flow data from continuing operations for the periods ended: Fiscal Year Ended April 30, 2019 2018 2017 (In thousands) Net cash provided by (used in) operating activities $26,946 $69,832 $(8,253) Net cash provided by (used in) investing activities $11,546 $(6,397) $(36,516) Net cash (used in) provided by financing activities $(1,184) $2,020 $3,470 Cash Provided by (Used in) Operating Activities. Net cash provided by operating activities for the fiscal year endedApril 30, 2019 decreased by $42.9 million to $26.9 million, compared to net cash provided by operating activities of$69.8 million for the fiscal year ended April 30, 2018. This decrease in net cash provided by operating activities wasprimarily due to a decrease in the cash provided as a result of changes in operating assets and liabilities of $70.9 millionlargely resulting from increases in unbilled retentions and receivables due to year over year timing differences in revenue andrelated billings and increases in inventory primarily due to year over year timing differences in purchases to supportanticipated product deliveries, partially offset by an increase in non-cash expenses of $7.7 million primarily due to anincrease in the equity method loss associated with the our HAPS JV, partially offset by a decrease in amortization of held-to-maturity investments, and an increase in net income from continuing operations of $20.4 million. Net cash provided by operating activities for the fiscal year ended April 30, 2018 increased by $78.1 million to$69.8 million, compared to net cash used in operating activities of $8.3 million for the fiscal year ended April 30, 2017. Thisincrease in net cash provided by operating activities was primarily due to an increase in the cash provided as a result ofchanges in operating assets and liabilities of $66.6 million largely resulting from decreases in accounts receivable due toyear over year timing differences in revenue and related collections and decreases in inventory primarily due to year overyear timing differences in purchases to support anticipated product deliveries, an increase in non-cash expenses of $7.6million primarily due to the $3.3 million charge resulting from the remeasurement of our deferred tax assets and liabilities, anincrease in stock-based compensation, and the equity method loss associated with the our HAPS JV, and an increase in netincome from continuing operations of $3.9 million. Cash Provided by (Used in) Investing Activities. Net cash provided by investing activities increased by$17.9 million to $11.5 million for the fiscal year ended April 30, 2019, compared to net cash used in investing activities of$6.4 million for the fiscal year ended April 30, 2018. The increase in net cash provided by investing activities was primarilydue to the proceeds from the sale of the EES Business of $32.0 million, partially offset by higher net purchases ofheld‑to‑maturity investments of $12.2 million. During the fiscal years ended April 30, 2019 and 2018, we used cash topurchase property and equipment totaling $8.9 million and $9.6 million, respectively. Net cash used in investing activities decreased by $30.1 million to $6.4 million for the fiscal year ended April 30,2018, compared to net cash used in investing activities of $36.5 million for the fiscal year ended April 30, 2017. Thedecrease in net cash used in investing activities was primarily due to lower net purchases of held to maturity investments of$33.5 million, partially offset by the investment in our HAPSMobile joint venture. During the fiscal years ended April 30,2018 and 2017, we used cash to purchase property and equipment totaling $9.6 million and $9.0 million, respectively. Cash (Used in) Provided by Financing Activities. Net cash used by financing activities increased by $3.2 million to$1.2 million for the fiscal year ended April 30, 2019, compared to net cash provided by financing activities of $2.0 millionfor the fiscal year ended April 30, 2018. The decrease was primarily due to a decrease in the cash provided from the exerciseof employee stock options of $2.6 million. Net cash provided by financing activities decreased by $1.5 million to $2.0 million for the fiscal year ended April30, 2018, compared to net cash provided by financing activities of $3.5 million for the fiscal year ended April 30,54Table of Contents2017. The decrease was primarily due to a decrease in the cash provided from the exercise of employee stock options of $1.2million. Contractual Obligations The following table describes our commitments to settle contractual obligations as of April 30, 2019: Payments Due By Period Less Than More Than Total 1 Year 1 to 3 Years 3 to 5 Years 5 Years (In thousands) Operating lease obligations $14,055 $5,298 $6,250 $2,507 $ — Purchase obligations(1) 7,239 7,239 — — — Total $21,294 $12,537 $6,250 $2,507 $ — (1)Consists of all cancelable and non‑cancelable purchase orders as of April 30, 2019.(2)Not included in the table above is an additional capital contribution of 500,000,000 yen (approximately $4.6 million)on May 10, 2019 to maintain our 10% ownership interest HAPSMobile which was subsequently diluted toapproximately 5%.(3)As of April 30, 2019, the Company has no future commitments related to capital lease arrangements as final paymentswere made during fiscal year 2019. Off‑Balance Sheet Arrangements As of April 30, 2019 we had no off‑balance sheet arrangements as defined in Item 303(a)(4) of the SEC’sRegulation S‑K. Inflation Our operations have not been, and we do not expect them to be, materially affected by inflation. Historically, wehave been successful in adjusting prices to our customers to reflect changes in our material and labor costs. Recently Adopted Accounting Standards In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows—Classification of Certain Cash Receiptsand Cash Payments (Topic 230). This ASU adds and clarifies guidance on the classification of certain cash receipts andpayments in the statement of cash flows. Our adoption of ASU No. 2017-01 effective May 1, 2018 did not have a materialimpact on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations—Clarifying the definition of a business(Topic 805). This ASU clarifies the definition of a business with the objective of providing a more robust framework toevaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Our adoption ofASU No. 2017-01 effective May 1, 2018 did not have a material impact on our consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). This ASU reducesthe diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change in terms orconditions of a share-based payment award. Our adoption of ASU No. 2017-09 effective May 1, 2018 did not have a materialimpact on our consolidated financial statements. In the first quarter of fiscal 2019, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606),using the full retrospective method. Topic 606 requires revenue to be recognized when promised goods or services55Table of Contentsare transferred to customers in amounts that reflect the consideration to which we expect to be entitled in exchange for thosegoods or services. Revenue for small UAS product contracts with both the U.S. government and foreign governments under the newstandard will be recognized at the point in time when the transfer of control passes to the customer, which is generally whentitle and risk of loss transfer. Revenue for Tactical Missile Systems (“TMS”) contracts will now be recognized under the newstandard over time as costs are incurred. Under previous U.S. GAAP, revenue was generally recognized when deliveries of therelated TMS products were made. The new standard accelerates the timing of when the revenue is recognized; however, itdoes not change the total amount of revenue recognized on these contracts. The new standard does not affect revenuerecognition for our Customer-Funded Research and Development (“R&D”) contracts. We continue to recognize revenue forthese contracts over time as costs are incurred. The adoption of Topic 606 resulted in a cumulative adjustment to increaseretained earnings by $500,000 at May 1, 2016 relating to both our continuing and discontinued operations. For ourcontinuing operations, the adoption of Topic 606 resulted in a cumulative adjustment to increase retained earnings by$564,000 at May 1, 2016. We applied the standard’s practical expedient that permits the omission of prior-period information our remainingperformance obligations, the practical expedient that permits us to recognize the incremental costs of obtaining a contract asan expense when incurred if the amortization period of the asset the entity otherwise would have recognized is one year orless, and the practical expedient that permits us to not retrospectively restate contracts which were modified prior to ourinitial date of adoption, or May 1, 2016. Instead we reflected the aggregate effect of all modifications when identifying thesatisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price. Noother practical expedients were applied. New Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires the lessee to recognize theassets and liabilities for the rights and obligations created by leases. The guidance is effective for fiscal years beginning afterDecember 15, 2018 and interim periods therein, with early adoption permitted. We currently do not hold a large number ofleases that are classified as operating leases under the existing lease standard, with the only significant leases being ourvarious property leases.We plan to adopt Topic 842 using the required modified retrospective approach with the election to recognize acumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As part of adoption, weplan to elect the package of practical expedients which allows us to not reassess existing or expired contracts for existence ofa lease, lease classification, or amortization of previously capitalized initial direct leasing cost. Additionally, we also plan toelect the short-term lease exception to not record right-of-use assets and lease liabilities for leases with a term less than 12months, the hindsight practical expedient to utilize latest information in determining lease term, and the practical expedientto not separate lease and non-lease components for most asset classes. We are evaluating the potential impact of thisadoption on our consolidated financial statements.In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).This ASU is intended to replace the incurred loss impairment methodology under GAAP with a methodology that reflectsusing a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments, andrequires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. Theguidance is effective for fiscal years beginning after December 15, 2019 and the interim periods therein, with early adoptionpermitted. Entities are required to apply the amendments in this update using a modified retrospective approach through acumulative-effect adjustment to retained earnings as of the effective date. We are evaluating the potential impact of thisadoption on our consolidated financial statements.In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated OtherComprehensive Income (Topic 220). This ASU permits, but does not require, us to reclassify the disproportionate income taxeffects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within AOCI to retained earnings. The guidance iseffective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. Weare evaluating the potential impact of this adoption on our consolidated financial statements.56Table of ContentsIn August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirementsfor Fair Value Measurement (Topic 820). This ASU removes or modifies current disclosures while adding certain newdisclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periodstherein, with early adoption permitted for the removed or modified disclosures. The removed and modified disclosures can beadopted retrospectively, and the added disclosures should be adopted prospectively. We are evaluating the potential impactof this adoption on our consolidated financial statements.In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in aCloud Computing Arrangement That Is a Service Contract (Topic 350-40). This ASU allows for capitalization ofimplementation costs associated with certain cloud computing arrangements. The guidance is effective for fiscal yearsbeginning after December 15, 2019 and interim periods therein, with early adoption permitted. We are evaluating thepotential impact of this adoption on our consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk It is our policy not to enter into interest rate derivative financial instruments. We do not currently have anysignificant interest rate exposure. Foreign Currency Exchange Rate Risk Since a significant part of our sales and expenses are denominated in U.S. dollars, we have not experiencedsignificant foreign exchange gains or losses to date. We currently do not engage in forward contracts or other derivatives inforeign currencies to limit our exposure on non‑U.S. dollar transactions.57Table of Contents Item 8. Financial Statements and Supplementary Data. AeroVironment, Inc.Audited Consolidated Financial StatementsIndex to Consolidated Financial Statements and Supplementary Data Page Report of Independent Registered Public Accounting Firm 59 Consolidated Balance Sheets at April 30, 2019 and 2018 60 Consolidated Statements of Income for the Years Ended April 30, 2019, 2018 and 2017 61 Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2019, 2018 and 2017 62 Consolidated Statements of Stockholders’ Equity for the Years Ended April 30, 2019, 2018 and 2017 63 Consolidated Statements of Cash Flows for the Years Ended April 30, 2019, 2018 and 2017 64 Notes to Consolidated Financial Statements 65 Quarterly Results of Operations (Unaudited) 102 Supplementary Data Financial Statement Schedule: Schedule II—Valuation and Qualifying Accounts 104 All other schedules are omitted because they are not applicable, not required or the information required isincluded in the Consolidated Financial Statements, including the notes thereto. 58Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of AeroVironment, Inc. and subsidiaries Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of AeroVironment, Inc. and subsidiaries (the Company) asof April 30, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders' equity andcash flows for each of the three years in the period ended April 30, 2019, and the related notes and financial statementschedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion,the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended April 30,2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Company’s internal control over financial reporting as of April 30, 2019, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(2013 framework) and our report dated June 25, 2019 expressed an unqualified opinion thereon. Adoption of ASU No. 2014-09As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenuefrom contracts with customers in fiscal year 2019 due to the adoption of ASU No. 2014-09, Revenue from Contracts withCustomers. Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB andare required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether dueto error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1999. Los Angeles, CaliforniaJune 25, 2019 59Table of ContentsAEROVIRONMENT, INC.CONSOLIDATED BALANCE SHEETS(In thousands except share data) April 30, 2019 2018 Assets Current assets: Cash and cash equivalents $172,708 $143,517 Short-term investments 150,487 113,649 Accounts receivable, net of allowance for doubtful accounts of $1,041 at April 30, 2019 and$1,080 at April 30, 2018 31,051 56,813 Unbilled receivables and retentions (inclusive of related party unbilled receivables of $9,028 at April 30, 2019and $3,145 at April 30, 2018) 53,047 16,872 Inventories 54,056 37,425 Prepaid expenses and other current assets 7,418 5,103 Income taxes receivable 821 — Current assets of discontinued operations — 25,668 Total current assets 469,588 399,047 Long-term investments 9,386 40,656 Property and equipment, net 16,905 19,219 Deferred income taxes 6,685 11,494 Other assets 6,280 3,002 Total assets $508,844 $473,418 Liabilities and stockholders’ equity Current liabilities: Accounts payable $15,972 $21,340 Wages and related accruals 18,507 16,851 Income taxes payable — 4,085 Customer advances 2,962 3,564 Other current liabilities 7,425 6,954 Current liabilities of discontinued operations — 9,294 Total current liabilities 44,866 62,088 Deferred rent 1,173 1,536 Other non-current liabilities 150 622 Deferred tax liability 29 67 Liability for uncertain tax positions 51 49 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value: Authorized shares—10,000,000; none issued or outstanding at April 30, 2019 and April 30, 2018 — — Common stock, $0.0001 par value: Authorized shares—100,000,000 Issued and outstanding shares—23,946,293 shares at April 30, 2019 and 23,908,736 shares atApril 30, 2018 2 2 Additional paid-in capital 176,216 170,139 Accumulated other comprehensive loss 2 (21) Retained earnings 286,351 238,913 Total AeroVironment stockholders’ equity 462,571 409,033 Noncontrolling interest 4 23 Total equity 462,575 409,056 Total liabilities and stockholders’ equity $508,844 $473,418 See accompanying notes to consolidated financial statements.60Table of ContentsAEROVIRONMENT, INC.CONSOLIDATED STATEMENTS OF INCOME(In thousands except share and per share data) Year Ended April 30, 2019 2018 2017 Revenue: Product sales $212,089 $191,712 $158,924 Contract services (inclusive of related party revenue of $55,407 and $29,594 for theyears ended April 30, 2019 and April 30, 2018, respectively) 102,185 76,712 74,181 314,274 268,424 233,105 Cost of sales: Product sales 113,489 109,393 89,039 Contract services 72,382 51,346 47,193 185,871 160,739 136,232 Gross margin: Product sales 98,600 82,319 69,885 Contract services 29,803 25,366 26,988 128,403 107,685 96,873 Selling, general and administrative 60,343 50,826 47,642 Research and development 34,234 26,433 28,465 Income from continuing operations 33,826 30,426 20,766 Other income: Interest income, net 4,672 2,240 1,618 Other income (expense), net 11,980 (49) 172 Income from continuing operations before income taxes 50,478 32,617 22,556 Provision for income taxes 4,641 9,800 4,758 Equity method investment loss, net of tax (3,944) (1,283) (119) Net income from continuing operations 41,893 21,534 17,679 Discontinued operations: Gain on sale of business, net of tax expense of $2,444 for the year ended April 30,2019 8,490 — — Loss from discontinued operations, net of tax (2,964) (3,887) (4,601) Net income (loss) from discontinued operations 5,526 (3,887) (4,601) Net income 47,419 17,647 13,078 Net loss attributable to noncontrolling interest 19 216 22 Net income attributable to AeroVironment $47,438 $17,863 $13,100 Net income (loss) per share attributable to AeroVironment—Basic Continuing operations $1.77 $0.93 $0.77 Discontinued operations 0.23 (0.17) (0.20) Net income per share attributable to AeroVironment—Basic $2.00 $0.76 $0.57 Net income (loss) per share attributable to AeroVironment—Diluted Continuing operations $1.74 $0.91 $0.76 Discontinued operations 0.23 (0.16) (0.20) Net income per share attributable to AeroVironment—Diluted $1.97 $0.75 $0.56 Weighted-average shares outstanding: Basic 23,663,410 23,471,241 23,059,045 Diluted 24,071,713 23,813,772 23,307,738 See accompanying notes to consolidated financial statements.61Table of Contents AEROVIRONMENT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended April 30, 2019 2018 2017 Net income $47,419 $17,647 $13,078 Other comprehensive income: Change in foreign currency translation adjustments (34) 36 - Unrealized gain on investments, net of deferred tax expense of $51, $25, and$43 for the fiscal years ended 2019, 2018, and 2017, respectively 57 70 74 Total comprehensive income 47,442 17,753 13,152 Net loss attributable to noncontrolling interest 19 216 22 Comprehensive income attributable to AeroVironment $47,461 $17,969 $13,174 See accompanying notes to consolidated financial statements.62Table of ContentsAEROVIRONMENT, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands except share data) Accumulated Additional Other Total Non- Common Stock Paid-In Retained Comprehensive AeroVironment Controlling Shares Amount Capital Earnings Loss Equity Interest Total Balance at April 30, 2016 23,359,925 2 154,274 207,185 (201) 361,260 — 361,260 Adoption of ASU 2016-09 — — — 265 — 265 — 265 Adoption of ASU 2014-09 — — — 500 — 500 — 500 Net income — — — 13,100 — 13,100 (22) 13,078 Unrealized gain on investments — — — — 74 74 — 74 Stock options exercised 204,130 — 3,865 — — 3,865 — 3,865 Restricted stock awards 126,557 — — — — — — — Restricted stock awards forfeited (60,017) — — — — — — — Tax withholding payment related to netshare settlement of equity awards (176) — (5) — — (5) — (5) Reclassification from share-based liabilitycompensation to equity — — 307 — — 307 — 307 Business acquisition — — — — — — 261 261 Stock-based compensation — — 3,709 — — 3,709 — 3,709 Balance at April 30, 2017 23,630,419 2 162,150 221,050 (127) 383,075 239 383,314 Net income (loss) — — — 17,863 — 17,863 (216) 17,647 Unrealized gain on investments — — — — 70 70 — 70 Foreign currency translation — — — — 36 36 — 36 Stock options exercised 153,211 — 2,705 — — 2,705 — 2,705 Restricted stock awards 140,787 — — — — — — — Restricted stock awards forfeited (6,834) — — — — — — — Tax withholding payment related to netshare settlement of equity awards (8,847) — (397) — — (397) — (397) Reclassification from share-based liabilitycompensation to equity — — 384 — — 384 — 384 Stock-based compensation — — 5,297 — — 5,297 — 5,297 Balance at April 30, 2018 23,908,736 2 170,139 238,913 (21) 409,033 23 409,056 Net income (loss) — — — 47,438 — 47,438 (19) 47,419 Unrealized gain on investments — — — — 57 57 — 57 Foreign currency translation — — — — (34) (34) — (34) Stock options exercised 12,725 — 71 — — 71 — 71 Restricted stock awards 57,476 — — — — — — — Restricted stock awards forfeited (18,023) — — — — — — — Tax withholding payment related to netshare settlement of equity awards (14,621) — (1,094) — — (1,094) — (1,094) Stock based compensation — — 7,100 — — 7,100 — 7,100 Balance at April 30, 2019 23,946,293 $ 2 $176,216 $286,351 $ 2 $462,571 $ 4 $462,575 See accompanying notes to consolidated financial statements. 63Table of ContentsAEROVIRONMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended April 30, 2019 2018 2017 Operating activities Net income $47,419 $17,647 $13,078 Gain on sale of business, net of tax (8,490) — — Loss from discontinued operations, net of tax 2,964 3,887 4,601 Net income from continuing operations 41,893 21,534 17,679 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 7,669 5,982 5,054 Loss from equity method investment 3,944 1,283 119 Impairment of long-lived assets 4,398 255 46 Provision for doubtful accounts (39) 977 48 Impairment of intangible assets and goodwill — 1,021 — Gains on foreign currency transactions 38 (87) 284 Deferred income taxes 4,792 2,853 309 Gain on business acquisition — — (584) Stock-based compensation 6,985 4,956 3,392 Loss on disposition of property and equipment 76 20 44 Amortization of held-to-maturity investments (1,506) 1,424 2,382 Changes in operating assets and liabilities: Accounts receivable 25,821 11,070 (19,720) Unbilled receivables and retentions (36,175) 2,253 615 Inventories (16,631) 1,192 (16,816) Income tax receivable (821) — — Prepaid expenses and other assets (2,401) 139 (1,484) Accounts payable (7,054) 5,736 545 Other liabilities (4,043) 9,224 (166) Net cash provided by (used in) operating activities of continuing operations 26,946 69,832 (8,253) Investing activities Acquisition of property and equipment (8,896) (9,563) (9,017) Equity method investments (7,598) (3,267) — Business acquisitions, net of cash acquired — — (430) Proceeds from sale of business 31,994 — — Redemptions of held-to-maturity investments 260,918 227,663 121,522 Purchases of held-to-maturity investments (267,122) (221,680) (148,991) Redemptions of available-for-sale investments 2,250 450 400 Net cash provided by (used in) investing activities from continuing operations 11,546 (6,397) (36,516) Financing activities Principal payments of capital lease obligations (161) (288) (390) Tax withholding payment related to net settlement of equity awards (1,094) (397) (5) Exercise of stock options 71 2,705 3,865 Net cash (used in) provided by financing activities from continuing operations (1,184) 2,020 3,470 Discontinued operations Operating activities of discontinued operations (7,686) (623) (2,246) Investing activities of discontinued operations (431) (1,219) (838) Financing activities of discontinued operations — — — Net cash used in discontinued operations (8,117) (1,842) (3,084) Net increase (decrease) in cash and cash equivalents 29,191 63,613 (44,383) Cash and cash equivalents at beginning of period 143,517 79,904 124,287 Cash and cash equivalents at end of period $172,708 $143,517 $79,904 Supplemental disclosures of cash flow information Cash paid, net during the period for: Income taxes $6,780 $1,813 $1,804 Non-cash activities Unrealized gain on investments, net of deferred tax expense of $51, $25 and $43, respectively $57 $70 $74 Reclassification from share-based liability compensation to equity $ — $384 $307 Change in foreign currency translation adjustments $(34) $36 $ — Acquisitions of property and equipment included in accounts payable $810 $379 $724 See accompanying notes to consolidated financial statements. 64Table of ContentsAEROVIRONMENT, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies Organization AeroVironment, Inc., a Delaware corporation, is engaged in the design, development, production, support andoperation of unmanned aircraft systems (“UAS”) for various industries and governmental agencies. Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of AeroVironment, Inc. and itswholly‑owned subsidiaries: AeroVironment Rhode Island, LLC, Skytower Inc., AeroVironment, Inc. (Afghanistan), as well asthe Company’s Turkish joint venture, Altoy Savunma Sanayi ve Havacilik Anonim Sirketi (“Altoy”) (collectively referred toherein as the “Company”). The Company increased its ownership in Altoy to a controlling interest on February 1, 2017. As aresult of the increase in ownership, the consolidated financial statements include the balance sheet and results of operationsof Altoy from February 1, 2017 forward. Prior to this date, the Company's investment in Altoy was accounted for under theequity method. Refer to Note 19 - Business Acquisitions for further details. All intercompany balances and transactions havebeen eliminated in consolidation. In July 2016, the Company dissolved Charger Bicycles, LLC, the results of which were not material to theconsolidated financial statements. In October 2016, the Company dissolved Skytower, LLC and Regenerative Fuel CellSystems, LLC, the results of which were not material to the consolidated financial statements. In February 2018, theCompany dissolved AeroVironment GmbH, the results of which were not material to the consolidated financial statements. InFebruary 2019, the Company dissolved AeroVironment International PTE. LTD., the results of which were not material to theconsolidated financial statements. On June 29, 2018, the Company completed the sale of substantially all of the assets and related liabilities of itsefficient energy systems business segment (“the EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant toan Asset Purchase Agreement (the “Purchase Agreement”) between Webasto and the Company. The Company determinedthat the EES Business met the criteria for classification as an asset held for sale at April 30, 2018 and represented a strategicshift in the Company’s operations. Therefore, the assets and liabilities and the results of operations of the EES Business arereported as discontinued operations for all periods presented. Refer to Note 2—Discontinued Operations for further details. Investments in Companies Accounted for Using the Equity or Cost Method Investments in other non‑consolidated entities are accounted for using the equity method or cost basis dependingupon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financialpolicies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodicallyto recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When netlosses from an investment accounted for under the equity method exceed its carrying amount, the investment balance isreduced to zero and additional losses are not provided for as the Company is not obligated to provide additional capital. TheCompany resumes accounting for the investment under the equity method if the entity subsequently reports net income andthe Company’s share of that net income exceeds the share of net losses not recognized during the period the equity methodwas suspended. When an investment accounted for using the equity method issues its own shares, the subsequent reduction in theCompany’s proportionate interest in the investee is reflected in equity as an adjustment to paid‑in‑capital. The Companyevaluates its investments in companies accounted for by the equity or cost method for impairment when there is evidence orindicators that a decrease in value may be other than temporary.65Table of Contents In December of 2017, the Company and Softbank Corp. (“Softbank”) formed a joint venture, HAPSMobile Inc.(“HAPSMobile”). As the Company has the ability to exercise significant influence over the operating and financial policiesof HAPSMobile, the Company’s investment is accounted as an equity method investment. The Company has presented itsproportion of HAPSMobile’s net loss in “Equity method investment loss, net of tax” in the consolidated statement ofoperations. The carrying value of the investment in HAPSMobile was recorded in “Other assets, long-term.” Refer to Note 8 –Equity Method Investments for further details. Segments Operating segments are defined as components of an enterprise about which separate financial information isavailable that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resourcesand in assessing performance. The Company’s CODM, who is the Chief Executive Officer, makes operating decisions,assesses performance and makes resource allocation decisions, including the focus of research and development (“R&D”), ona consolidated basis for the Company’s continuing operations. Accordingly, the Company operates its business as a singlereportable segment. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles inthe United States requires management to make estimates and assumptions. These estimates and assumptions affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made bymanagement include, but are not limited to, valuation of: inventory, available‑for‑sale securities, deferred tax assets andliabilities, useful lives of property, plant and equipment, medical and dental liabilities, warranty liabilities, long-termincentive plan liabilities and estimates of anticipated contract costs and transaction price utilized in the revenue recognitionprocess. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Equity method lossesassociated with the Company’s investment in Altoy for the fiscal year ended 2017 have been reclassified from other income(expense), net to equity method investment loss, net of tax on the consolidated statement of operations. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the time ofpurchase to be cash equivalents. The Company’s cash equivalents are comprised of money market funds, certificates ofdeposit of major financial institutions, and U.S. Treasury bills. Investments The Company’s investments are accounted for as held‑to‑maturity and available‑for‑sale and reported at amortizedcost and fair value, respectively. Unrealized gains and losses are excluded from earnings and reported as a separate component of stockholders’equity, net of deferred income taxes for available-for-sale investments. Gains and losses realized on the disposition of investment securities are determined on the specific identificationbasis and credited or charged to income. Premium and discount on investments are amortized and accreted using the interestmethod and charged or credited to investment income. Management determines the appropriate classification of securities at the time of purchase and re‑evaluates suchdesignation as of each balance sheet date.66Table of Contents Investments are considered to be impaired when a decline in fair value is judged to be other‑than‑temporary. On aquarterly basis, the Company considers available quantitative and qualitative evidence in evaluating potential impairmentof its investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, generalmarket conditions, the duration and extent to which the fair value is less than cost, and its intent and ability to hold theinvestment to maturity. The Company also considers potential adverse conditions related to the financial health of the issuerbased on rating agency actions. Once a decline in fair value is determined to be other‑than‑temporary, an impairment chargeis recorded in earnings and a new cost basis in the investment is established. Fair Values of Financial Instruments Fair values of cash and cash equivalents, accounts receivable, unbilled receivables, retentions and accounts payableapproximate cost due to the short period of time to maturity. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash,cash equivalents, municipal bonds, U.S. government securities, U.S. government-guaranteed agency securities, U.S.Government sponsored agency debt securities, highly rated commercial paper, highly rated corporate bonds, and accountsreceivable. The Company currently invests the majority of its cash in municipal bonds, U.S. government securities, U.S.government-guaranteed agency securities, U.S. Government sponsored agency debt securities and highly rated corporatebonds. The Company’s revenue and accounts receivable are with a limited number of corporations and governmentalentities. In the aggregate, 58%, 58% and 65% of the Company’s revenue came from agencies of the U.S. government for theyears ended April 30, 2019, 2018 and 2017, respectively. These agencies accounted for 26% and 49% of the accountsreceivable balances at April 30, 2019 and 2018, respectively. One such agency, the U.S. Army, accounted for 28%, 19% and20% of the Company’s consolidated revenue for the years ended April 30, 2019, 2018 and 2017, respectively. The Companyperforms ongoing credit evaluations of its commercial customers and maintains an allowance for potential losses. Accounts Receivable, Unbilled Receivables and Retentions Accounts receivable represents primarily U.S. government and Foreign government, and to a lesser extentcommercial receivables, net of allowances for doubtful accounts. Unbilled receivables represent costs in excess of billings onincomplete contracts and, where applicable, accrued profit related to government long‑term contracts on which revenue hasbeen recognized, but for which the customer has not yet been billed. Unbilled receivables are considered contract assets. Retentions represent amounts withheld by customers until contract completion. At April 30, 2019 and 2018, theretention balances were $1,102,000 and $1,411,000, respectively. The Company determines the allowance for doubtfulaccounts based on historical customer experience and other currently available evidence. When a specific account is deemeduncollectible, the account is written off against the allowance. The allowance for doubtful accounts reflects the Company’sbest estimate of probable losses inherent in the accounts receivable balance; such losses have historically been withinmanagement’s expectations. An account is deemed past due based on contractual terms rather than on how recently paymentshave been received. Inventories Inventories are stated at the lower of cost (using the weighted average costing method) or net realizable value.Inventory write‑offs and write‑down provisions are provided to cover risks arising from slow‑moving items or technologicalobsolescence and for market prices lower than cost. The Company periodically evaluates the quantities on hand relative tocurrent and historical selling prices and historical and projected sales volume. Based on this evaluation, provisions are madeto write inventory down to its net realizable value. 67Table of ContentsLong‑Lived Assets Property and equipment are carried at cost. Depreciation of property and equipment, including amortization ofleasehold improvements, are provided using the straight‑line method over the following estimated useful lives: Machinery and equipment 2 - 7 years Computer equipment and software 2 - 5 years Furniture and fixtures 3 - 7 years Leasehold improvements Lesser of useful life or term of lease The Company finances the purchase of certain IT equipment and perpetual software licenses with capital leasearrangements. The assets and liabilities under capital leases are recorded at the lesser of the present value of aggregate futureminimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease. Assetsunder capital leases are depreciated using the straight-line method over the lesser of the estimated useful life of the asset orthe term of the lease. Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments toproperty and equipment are capitalized at cost. When the Company disposes of assets, the applicable costs and accumulateddepreciation and amortization thereon are removed from the accounts and any resulting gain or loss is included in selling,general and administrative (“SG&A”) expense in the period incurred. The Company reviews the recoverability of its long‑lived assets whenever events or changes in circumstancesindicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon,among other things, assumptions about expected future operating performance, and may differ from actual cash flows. If thesum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets willbe written down to the estimated fair value in the period in which the determination is made. During the three months endedApril 30, 2019, the Company recorded an impairment loss of $4,398,000 related to the long-lived assets of its commercialUAS Quantix solution. Refer to Note 7 – Property and equipment, net. Intangibles Assets — Acquired in Business Combinations The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as abusiness combination and allocates the purchase price of the acquired business to the respective net tangible and intangibleassets. Acquired intangible assets include customer relationships and trade names. The Company determines the appropriateuseful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses.Intangible assets are amortized over their estimated useful lives using the straight-line method which approximates thepattern in which the economic benefits are consumed. The Company monitors conditions related to these assets to determine whether events and circumstances warrant arevision to the remaining amortization period. The Company tests its intangible assets with finite lives for potentialimpairment whenever management concludes events or changes in circumstances indicate that the carrying amount may notbe recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance on either an asset'suseful life or carrying value involve significant judgment. Product Warranty The Company accrues an estimate of its exposure to warranty claims based upon both current and historical productsales data and warranty costs incurred. Product warranty reserves are recorded in other current liabilities. 68Table of ContentsAccrued Sales Commissions As of April 30, 2019 and 2018, the Company accrued sales commissions in other current liabilities of $1,301,000and $1,293,000, respectively. Self‑Insurance Liability The Company is self-insured for employee medical claims, subject to individual and aggregate stop loss policies.The Company estimates a liability for claims filed and incurred but not reported based upon recent claims experience and ananalysis of the average period of time between the occurrence of a claim and the time it is reported to and paid by theCompany. As of April 30, 2019 and 2018, the Company estimated and recorded a self-insurance liability in wages andrelated accruals of approximately $965,000 and $1,003,000, respectively. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement andincome tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The provision forincome taxes reflects the taxes to be paid for the period and the change during the period in the deferred income tax assetsand liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount of future taxbenefit that is more likely than not to be realized. For uncertain tax positions, the Company determines whether it is “morelikely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any partof the benefit can be recorded in the financial statements. For those tax positions where it is “not more likely than not” that atax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are alsorecorded. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significantchanges to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to21% effective for tax years beginning after December 31, 2017, repeal of the corporate alternative minimum tax, repeal of thededuction for domestic production activities, and limitation on the deductibility of certain executive compensation. In accordance with U.S. GAAP as determined by ASC 740, Income Taxes, the Company is required to record theeffects of tax law changes in the period enacted. The Company remeasured its existing deferred tax assets and liabilities atthe rate the Company expects to be in effect when those deferred taxes will be realized and recorded a one-time deferred taxexpense of approximately $3,300,000 during the year ended April 30, 2018. The Company followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which providesadditional clarification regarding the application of ASC Topic 740 in situations where the Company does not have thenecessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income taxeffects of the Tax Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement periodbeginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained,prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstancesshould the measurement period extend beyond one year from the enactment date. The measurement period under SAB 118 closed during the quarter ended January 31, 2019. AV has finalized itsaccounting for the impact of the Tax Act during the quarter ended January 31, 2019 and reached conclusions on the previousprovisional estimates. AV has concluded that its foreign subsidiaries are in a cumulative earnings and profits deficit andtherefore has confirmed that it will not have an income tax payable as a result of the one-time deemed repatriation tax. Inrelation to the one-time deferred tax remeasurement, AV has concluded that the impact recorded at the date of enactment isappropriate and no changes to the provision estimate of this item. 69Table of ContentsCustomer Advances and Amounts in Excess of Cost Incurred The Company receives advances, performance‑based payments and progress payments from customers that mayexceed costs incurred on certain contracts, including contracts with agencies of the U.S. government resulting in contractliabilities. These advances are classified as advances from customers and will be offset against billings. Revenue Recognition The Company’s revenue is generated pursuant to written contractual arrangements to design, develop, manufactureand/or modify complex products, and to provide related engineering, technical and other services according to thespecifications of the customers. These contracts may be firm fixed price (“FFP”), cost plus fixed fee (“CPFF”), or time andmaterials (“T&M”). The Company considers all such contracts to be within the scope of ASC Topic 606, Revenue fromContracts with Customers (“ASC 606”). Performance Obligations A performance obligation is a promise in a contract to transfer distinct goods or services to a customer, and it is theunit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and revenue isrecognized when each performance obligation under the terms of a contract is satisfied. Revenue is measured at the amountof consideration the Company expects to receive in exchange for transferring goods or providing services. For contracts withmultiple performance obligations, the Company allocates the contract’s transaction price to each performance obligationusing its observable standalone selling price for products and services. When the standalone selling price is not directlyobservable, the Company uses its best estimate of the standalone selling price of each distinct good or service in the contractusing the cost plus reasonable margin approach. This approach estimates the Company’s expected costs of satisfying theperformance obligation and then adds an appropriate margin for that distinct good or service. Contract modifications are routine in the performance of the Company’s contracts. In most instances, contractmodifications are for additional goods and/or services that are distinct and, therefore, accounted for as new contracts. The Company’s performance obligations are satisfied over time or at a point in time. Performance obligations aresatisfied over time if the customer receives the benefits as the Company performs, if the customer controls the asset as it isbeing developed or produced, or if the product being produced for the customer has no alternative use and the Company hasa contractual right to payment for the Company’s costs incurred to date plus a reasonable margin. The contractual right topayment is generally supported by termination for convenience clauses that allow the customer to unilaterally terminate thecontract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work inprocess. Revenue for TMS product deliveries and Customer-Funded R&D contracts is recognized over time as costs areincurred. Contract services revenue is composed of revenue recognized on contracts for the provision of services, includingrepairs and maintenance, training, engineering design, development and prototyping activities, and technical supportservices. Contract services revenue is recognized over time as services are rendered. Typically, revenue is recognized overtime using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress.Training services are recognized over time using an output method based on days of training completed. For performance obligations satisfied over time, revenue is generally recognized using costs incurred to date relativeto total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with,and thereby best depict, transfer of control to the customer. Contract costs include labor, materials, subcontractors’ costs,other direct costs, and indirect costs applicable on government and commercial contracts. For performance obligations which are not satisfied over time per the aforementioned criteria above, revenue isrecognized at the point in time in which each performance obligation is fully satisfied. The Company’s small UAS productsales revenue is composed of revenue recognized on contracts for the delivery of small UAS systems and spare parts. Revenueis recognized at the point in time when control transfers to the customer, which generally occurs when title and risk of losshave passed to the customer.70Table of Contents On April 30, 2019, the Company had approximately $164,326,000 of remaining performance obligations undercontracts with its customers, which the Company also refers to as backlog. The Company currently expects to recognizeapproximately 92% of the remaining performance obligations as revenue in fiscal 2020, an additional 7% in fiscal 2021, andthe balance thereafter. The Company collects sales, value add, and other taxes concurrent with revenue producing activities, which areexcluded from revenue when they are both imposed on a specific transaction and collected from a customer. Contract Estimates Accounting for contracts and programs primarily with a duration of less than six months involves the use of varioustechniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the total expectedcosts to complete the contract and recognizes revenue based on the percentage of costs incurred at period end. Typically,revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measureprogress toward satisfying the Company’s performance obligations. Incurred costs represent work performed, whichcorresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials,subcontractors’ costs, other direct costs, and indirect costs applicable on government and commercial contracts. Contract estimates are based on various assumptions to project the outcome of future events that may span severalyears. These assumptions include labor productivity and availability, the complexity of the work to be performed, the costand availability of materials, the performance of subcontractors, and the availability and timing of funding from thecustomer. The nature of the Company’s contracts gives rise to several types of variable consideration, including penalty feesand incentive awards generally for late delivery and early delivery, respectively. The Company generally estimates suchvariable consideration as the most likely amount. In addition, the Company includes the estimated variable consideration tothe extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur whenthe related uncertainty is resolved. These estimates are based on historical award experience, anticipated performance and theCompany’s best judgment at the time. Because of the certainty in estimating these amounts, they are included in thetransaction price of the Company’s contracts and the associated remaining performance obligations. As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts,the Company regularly reviews and updates its contract-related estimates. Changes in cumulative revenue estimates, due tochanges in the estimated transaction price or cost estimates, are recorded using a cumulative catch-up adjustment in theperiod identified for contracts with performance obligations recognized over time. If at any time the estimate of contractprofitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter it is identified. The impact of adjustments in contract estimates on the Company’s operating earnings can be reflected in eitheroperating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates on revenue related toperformance obligations satisfied or partially satisfied in previous periods was not significant for the years ended April 30,2019, 2018 or 2017. No adjustment on any one contract was material to the Company’s consolidated financial statements forthe years ended April 30, 2019 or 2017. During the year ended April 30, 2018, the Company revised its estimates of the totalexpected costs to complete a TMS variant contract. The aggregate impact of these adjustments in contract estimates onrevenue related to performance obligations satisfied or partially satisfied in previous periods was a decrease of approximately$1,255,000. 71Table of ContentsRevenue by Category The following tables present the Company’s revenue disaggregated by major product line, contract type, customercategory and geographic location (in thousands): Year Ended April 30, April 30, April 30,Revenue by major product line/program 2019 2018 2017Small UAS $183,157 $167,534 $145,760TMS 65,087 63,406 81,182HAPS 55,407 29,593 3Other 10,623 7,891 6,160Total revenue $314,274 $268,424 $233,105 Year Ended April 30, April 30, April 30,Revenue by contract type 2019 2018 2017FFP $224,090 $212,976 $177,506CPFF 89,485 55,203 54,052T&M 699 245 1,547Total revenue $314,274 $268,424 $233,105 Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more riskwith FFP contracts. However, these types of contracts generally offer additional profits when the Company completes thework for less than originally estimated. CPFF contracts generally subject the Company to lower risk. Accordingly, theassociated base fees are usually lower than fees on FFP contracts. Under T&M contracts, the Company’s profit may vary ifactual labor hour rates vary significantly from the negotiated rates. Year Ended April 30, April 30, April 30,Revenue by customer category 2019 2018 2017U.S. government: $182,586 $156,996 $151,595Non-U.S. government 131,688 111,428 81,510Total revenue $314,274 $268,424 $233,105 Year Ended April 30, April 30, April 30,Revenue by geographic location 2019 2018 2017Domestic $151,124 $142,158 $149,698International 163,150 126,266 83,407Total revenue $314,274 $268,424 $233,105 Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilledreceivables, and customer advances and deposits on the consolidated balance sheet. In the Company’s services contracts,amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, which isgenerally monthly, or upon the achievement of contractual milestones. Generally, billing occurs subsequent to72Table of Contentsrevenue recognition, resulting in contract assets recorded in “Unbilled receivables and retentions” on the consolidatedbalance sheet. However, the Company sometimes receives advances or deposits from its customers before revenue isrecognized, resulting in contract liabilities recorded in “Customer advances” on the consolidated balance sheet. Contractliabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-yearperiod or are used to ensure the customer meets contractual requirements. These assets and liabilities are reported on theconsolidated balance sheet on a contract-by-contract basis at the end of each reporting period. For the Company’s productrevenue, the Company generally receives cash payments subsequent to satisfying the performance obligation via delivery ofthe product, resulting in billed accounts receivable. Changes in the contract asset and liability balances during the yearsended April 30, 2019 or 2018 were not materially impacted by any other factors. For the Company’s contracts, there are nosignificant gaps between the receipt of payment and the transfer of the associated goods and services to the customer formaterial amounts of consideration. Revenue recognized for the years ended April 30, 2019, 2018, and 2017 that was included in contract liabilitybalances at the beginning of each year were $1,587,000, $977,000 and $483,000, respectively. Stock‑Based Compensation Stock‑based compensation is measured at the grant date based on the fair value of the award and is recognized asexpense over the requisite service period, which is generally the vesting period of the respective award. No compensationcost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited. Long‑Term Incentive Awards For long‑term incentive awards outstanding as of April 30, 2019, the awards include time-based awards which vestequally over three years and performance-based awards which vest based on the achievement of a target payout established atthe beginning of each performance period. The actual payout at the end of the performance period is calculated based uponthe Company’s achievement of such targets. Payouts are made in restricted stock units which become immediately vestedupon issuance. At each reporting period, the Company reassesses the probability of achieving the performance targets. Theestimation of whether the performance targets will be achieved requires judgment, and, to the extent actual results or updatedestimates differ from the Company’s current estimates, the cumulative effect on current and prior periods of those changeswill be recorded in the period estimates are revised. Research and Development Internally funded research and development costs (“IRAD”), sponsored by the Company relate to both U.S.government products and services and those for commercial and foreign customers. IRAD costs for the Company arerecoverable and allocable under government contracts in accordance with U.S. government procurement regulations. Customer‑funded research and development costs are incurred pursuant to contracts (revenue arrangements) toperform research and development activities according to customer specifications. These costs are direct contract costs andare expensed to cost of sales when the corresponding revenue is recognized, which is generally as the research anddevelopment services are performed. Revenue from customer‑funded research and development was approximately$76,407,000, $52,489,000 and $43,329,000 for the years ended April 30, 2019, 2018 and 2017, respectively. The relatedcost of sales for customer‑funded research and development totaled approximately $54,824,000, $36,855,000 and$29,527,000 for the years ended April 30, 2019, 2018 and 2017, respectively. In January 2017, the Company executed a cost sharing Other Transaction Agreement type contract funded by the USFederal Government to perform certain system design, development and functional testing activities specific to a newprototype UAS on a best-efforts basis. The total estimated costs of the project are approximately $21,933,000, of which theCompany is responsible for funding $11,225,000. The remaining $10,708,000 will be reimbursed to the Company as theactivities are performed. The term of the agreement is through June 2020. The Company has73Table of Contentsdetermined that the contract meets the criteria of ASC 912-730-05 Contractors – Federal Government and, therefore, allreimbursements are recorded as an offset to research and development expense in the consolidated statements ofoperations. Reimbursements under the contract were $5,936,000, $4,188,000 and $233,000 for the fiscal years ended April30, 2019, 2018 and 2017, respectively. Lease Accounting The Company accounts for its leases and subsequent amendments as operating leases or capital leases for financialreporting purposes. Certain operating leases contain rent escalation clauses, which are recorded on a straight‑line basis overthe initial term of the lease with the difference between the rent paid and the straight‑line rent recorded as a deferred rentliability. Lease incentives received from landlords are recorded as deferred rent liabilities and are amortized on a straight‑linebasis over the lease term as a reduction to rent expense. Deferred rent liabilities were approximately $1,173,000 and$1,536,000 as of April 30, 2019 and 2018, respectively. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses included in SG&A expenses were approximately$897,000, $526,000 and $227,000 for the years ended April 30, 2019, 2018 and 2017, respectively. Foreign Currency Transactions Foreign currency transaction gains and losses are charged or credited to earnings as incurred. For the fiscal yearsended April 30, 2019, 2018 and 2017, foreign currency transaction gains and losses that are included in other income(expense) in the accompanying statements of operations were $(38,000), $87,000, and $(284,000), respectively. Earnings Per Share Basic earnings per share are computed using the weighted‑average number of common shares outstanding andexcludes any anti‑dilutive effects of options, restricted stock and restricted stock units. The dilutive effect of potentialcommon shares outstanding is included in diluted earnings per share. The reconciliation of diluted to basic shares is as follows: Year Ended April 30, 2019 2018 2017 Continuing operations attributable to AeroVironment $41,912,000 $21,750,000 $17,701,000 Discontinued operations, net of tax 5,526,000 (3,887,000) (4,601,000) Net income attributable to AeroVironment $47,438,000 $17,863,000 $13,100,000 Denominator for basic earnings per share: Weighted average common shares 23,663,410 23,471,241 23,059,045 Dilutive effect of employee stock options, restricted stock andrestricted stock units 408,303 342,531 248,693 Denominator for diluted earnings per share 24,071,713 23,813,772 23,307,738 During the years ended April 30, 2019, 2018 and 2017, certain options, shares of restricted stock and restricted stockunits were not included in the computation of diluted earnings per share because their inclusion would have beenanti‑dilutive. The number of options, restricted stock and restricted stock units which met this anti‑dilutive criterion wasapproximately 18,000, 22,000 and 86,000 for the years ended April 30, 2019, 2018 and 2017, respectively.74Table of Contents Recently Adopted Accounting Standards In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows—Classification of Certain Cash Receiptsand Cash Payments (Topic 230). This ASU adds and clarifies guidance on the classification of certain cash receipts andpayments in the statement of cash flows. The Company’s adoption of ASU No. 2017-01 effective May 1, 2018 did not have amaterial impact on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations—Clarifying the definition of a business(Topic 805). This ASU clarifies the definition of a business with the objective of providing a more robust framework toevaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company’sadoption of ASU No. 2017-01 effective May 1, 2018 did not have a material impact on its consolidated financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). This ASU reducesthe diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change in terms orconditions of a share-based payment award. The Company’s adoption of ASU No. 2017-09 effective May 1, 2018 did nothave a material impact on its consolidated financial statements. In the first quarter of its fiscal 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers(Topic 606), using the full retrospective method. Topic 606 requires revenue to be recognized when promised goods orservices are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled inexchange for those goods or services. Revenue for small UAS product contracts with both the U.S. government and foreign governments under the newstandard will be recognized at the point in time when the transfer of control passes to the customer, which is generally whentitle and risk of loss transfer. Revenue for Tactical Missile Systems (“TMS”) contracts will now be recognized under the newstandard over time as costs are incurred. Under previous U.S. GAAP, revenue was generally recognized when deliveries of therelated TMS products were made. The new standard accelerates the timing of when the revenue is recognized; however, itdoes not change the total amount of revenue recognized on these contracts. The new standard does not affect revenuerecognition for the Company’s Customer-Funded Research and Development (“R&D”) contracts. The Company continues torecognize revenue for these contracts over time as costs are incurred. The adoption of Topic 606 resulted in a cumulativeadjustment to increase retained earnings by $500,000 at May 1, 2016 relating to both the Company’s continuing anddiscontinued operations. For the Company’s continuing operations, the adoption of Topic 606 resulted in a cumulativeadjustment to increase retained earnings by $564,000 at May 1, 2016. The Company applied the standard’s practical expedient that permits the omission of prior-period information aboutthe Company’s remaining performance obligations, the practical expedient that permits the Company to recognize theincremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset the entityotherwise would have recognized is one year or less, and the practical expedient that permits the Company to notretrospectively restate contracts which were modified prior to the Company’s initial date of adoption, or May 1, 2016.Instead the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfiedperformance obligations, determining the transaction price, and allocating the transaction price. No other practicalexpedients were applied. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires the lessee to recognize theassets and liabilities for the rights and obligations created by leases. The guidance is effective for fiscal years beginning afterDecember 15, 2018 and interim periods therein, with early adoption permitted. The Company currently does not hold a largenumber of leases that are classified as operating leases under the existing lease standard, with the only significant leasesbeing its various property leases.75Table of ContentsThe Company plans to adopt Topic 842 using the required modified retrospective approach with the election torecognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As part ofadoption, the Company plans to elect the package of practical expedients which allows us to not reassess existing or expiredcontracts for existence of a lease, lease classification, or amortization of previously capitalized initial direct leasing cost.Additionally, the Company also plans to elect the short-term lease exception to not record right-of-use assets and leaseliabilities for leases with a term less than 12 months, the hindsight practical expedient to utilize latest information indetermining lease term, and the practical expedient to not separate lease and non-lease components for most asset classes.The Company is evaluating the potential impact of this adoption on its consolidated financial statements.In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).This ASU is intended to replace the incurred loss impairment methodology under GAAP with a methodology that reflectsusing a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments, andrequires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. Theguidance is effective for fiscal years beginning after December 15, 2019 and the interim periods therein, with early adoptionpermitted. Entities are required to apply the amendments in this update using a modified retrospective approach through acumulative-effect adjustment to retained earnings as of the effective date. The Company is evaluating the potential impact ofthis adoption on its consolidated financial statements.In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated OtherComprehensive Income (Topic 220). This ASU permits, but does not require, the Company to reclassify the disproportionateincome tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on items within AOCI to retained earnings. Theguidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoptionpermitted. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirementsfor Fair Value Measurement (Topic 820). This ASU removes or modifies current disclosures while adding certain newdisclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periodstherein, with early adoption permitted for the removed or modified disclosures. The removed and modified disclosures can beadopted retrospectively, and the added disclosures should be adopted prospectively. The Company is evaluating thepotential impact of this adoption on its consolidated financial statements.In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in aCloud Computing Arrangement That Is a Service Contract (Topic 350-40). This ASU allows for capitalization ofimplementation costs associated with certain cloud computing arrangements. The guidance is effective for fiscal yearsbeginning after December 15, 2019 and interim periods therein, with early adoption permitted. The Company is evaluatingthe potential impact of this adoption on its consolidated financial statements.76Table of Contents2. Discontinued Operations On June 29, 2018, the Company completed the sale of the EES Business to Webasto. In accordance with the terms ofthe Purchase Agreement, as amended by a Side Letter Agreement executed at the closing, the Company received cashconsideration of $31,994,000 upon closing, which resulted in a gain of $11,420,000 which has been recorded in “Gain onsale of business, net of tax” in the consolidated statements of operations. During year ended April 30, 2019, the Companyrecorded a reduction to the gain resulting from a working capital adjustment of $486,000. In addition, the Company hasdisputed $1,085,000 of Webasto’s working capital adjustment claim, which is being submitted to an independent accountingfirm for resolution pursuant to the terms of Purchase Agreement. No amounts have been recorded in the consolidatedfinancial statements related to the additional working capital dispute as the Company has assessed the likelihood of a loss tobe less than probable. The Company is entitled to receive additional cash consideration of $6,500,000 (the “Holdback”) upon tenderingconsents to assignment of two remaining customer contracts to Webasto. The Holdback was not recorded in the Company’sconsolidated financial statements as the amount was not realized or realizable as of April 30, 2019. The Company’ssatisfaction of the requirements for the payment of the Holdback is currently in dispute. On February 22, 2019, Webasto filed a lawsuit alleging several claims against the Company for breach of contract,indemnity, and bad faith, including allegations regarding inaccuracy of certain diligence disclosures, failure to providecertain consents to contract assignments and related to the previously announced recall. Webasto seeks to recover the costsof the recall and other damages totaling a minimum of $6,500,000 in addition to attorneys’ fees, costs, and punitive damages.The Company believes that the allegations are generally meritless and intends to mount a vigorous defense. During the three months ended October 27, 2018, Webasto filed a recall report with the National Highway TrafficSafety Administration that named certain of the Company’s EES products as subject to the recall. The Company iscontinuing to assess the facts giving rise to the recall. Under the terms of the Purchase Agreement, the Company may beresponsible for certain costs of such recall of named products the Company manufactured, sold or serviced prior to theclosing of the sale of the EES Business. Concurrent with the execution of the Purchase Agreement, the Company entered into a transition services agreement(the “TSA”) to provide certain general and administrative services to Webasto for a defined period. Income from performingservices under the TSA was $2,758,000 and has been recorded in “Other income, net” in the consolidated statements ofoperations for the year ended April 30, 2019, respectively. 77Table of ContentsThe Company determined that the EES Business met the criteria for classification as an asset held for sale as of April30, 2018 and represents a strategic shift in in the Company’s operations. Therefore, the assets and liabilities and the results ofoperations of the EES Business are reported as discontinued operations for all periods presented. The table below presents thestatements of operations data for the EES Business (in thousands). Year Ended April 30, 2019 2018 2017Net sales $4,256 $38,411 $36,201Cost of sales 5,097 33,384 29,983Gross margin (841) 5,027 6,218Selling, general and administrative 1,515 7,825 8,895Research and development 1,072 3,526 4,577Other income, net 1 (27) 7Loss from discontinued operations before income taxes (3,427) (6,351) (7,247)Benefit for income taxes (463) (2,464) (2,646)Net loss from discontinued operations $(2,964) $(3,887) $(4,601)Gain on sale of business, net of tax expense of $2,444 for the year ended April30, 2019 8,490 — —Net income (loss) from discontinued operations $5,526 $(3,887) $(4,601) The major classes of assets and liabilities included in discontinued operations related to the EES Business arepresented in the table below. April 30, 2019 2018Carrying amount of assets classified as discontinued operations Current assets: Accounts receivable, net of allowance for doubtful accounts of $139 at April 30, 2018 $ — $6,889Inventories, net — 15,494Prepaid expenses and other current assets — 185Property and equipment, net — 3,100Total current assets classified as discontinued operations — 25,668Property and equipment, net — —Total non-current assets classified as discontinued operations — —Total assets classified as discontinued operations $ — $25,668Carrying amount of liabilities classified as discontinued operations Current liabilities: Accounts payable $ — $5,121Wages and related accruals — 1,946Customer advances — 1,028Other current liabilities — 1,199Total current liabilities — 9,294Total liabilities classified as discontinued operations $ — $9,29478Table of Contents 3. Investments Investments consist of the following: April 30, 2019 2018 (In thousands)Short-term investments: Held-to-maturity securities: Municipal securities $5,332 $35,344U.S. government securities 63,205 31,620Corporate bonds 81,950 46,685Total held-to-maturity and short-term investments $150,487 $113,649Long-term investments: Held-to-maturity securities: Municipal securities $ — $2,046U.S. government securities 7,404 27,356Corporate bonds 1,982 9,112Total held-to-maturity investments 9,386 38,514Available-for-sale securities: Auction rate securities — 2,142Total available-for-sale investments — 2,142Total long-term investments $9,386 $40,656 Held‑To‑Maturity Securities As of April 30, 2019 and 2018, the balance of held‑to‑maturity securities consisted of state and local governmentmunicipal securities, U.S. government securities, U.S. government agency securities, and corporate bonds. Interest earnedfrom these investments is recorded in interest income. The amortized cost, gross unrealized losses, and estimated fair value of the held‑to‑maturity investments as ofApril 30, are as follows (in thousands): April 30, 2019 April 30, 2018 Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value Municipal securities $5,332 $ 2 $(1) $5,333 $37,390 $ 9 $(36) $37,363 U.S. governmentsecurities 70,609 78 (52) 70,635 58,976 — (367) 58,609 Corporate bonds 83,932 20 (5) 83,947 55,797 2 (71) 55,728 Total held-to-maturityinvestments $159,873 $100 $(58) $159,915 $152,163 $11 $(474) $151,700 79Table of ContentsThe amortized cost and fair value of the Company’s held‑to‑maturity securities by contractual maturity at April 30,2019, are as follows: Cost Fair Value Due within one year $150,487 $150,498 Due after one year through five years 9,386 9,417 Total $159,873 $159,915 Available‑For‑Sale Securities Auction Rate Securities As of April 30, 2018, the balance of available-for-sale auction rate securities consisted of two investment gradeauction rate municipal bonds with maturities ranging from 1 to 16 years. These investments have characteristics similar toshort term investments, because at predetermined intervals, generally ranging from 30 to 35 days, there is a new auctionprocess at which the interest rates for these securities are reset to current interest rates. At the end of such period, theCompany chooses whether to roll over its holdings or redeem the investments for cash. A market maker facilitates theredemption of the securities and the underlying issuers are not required to redeem the investment within 365 days. Interestearned from these investments is recorded in interest income. During the three months ended July 28, 2018, the remaining investment grade auction rate municipal bonds wereredeemed at par value. The amortized cost, gross unrealized losses, and estimated fair value of the available‑for‑sale auction rate securitiesare as follows (in thousands): April 30, 2019 2018 Auction rate securities Amortized cost $ - $2,250 Gross unrealized losses - (108) Fair value $ - $2,142 4. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in theprincipal or most advantageous market for the asset or liability in an orderly transaction between market participants on themeasurement date. The fair value hierarchy contains three levels as follows: ·Level 1—Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities inactive markets that are accessible as of the measurement date. ·Level 2—Inputs to the valuation include quoted prices in either markets that are not active, or in active marketsfor similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derivedprincipally from or corroborated by observable market data. ·Level 3—Inputs to the valuation that are unobservable inputs for the asset or liability. The Company did not have any financial assets measured at fair value on a recurring basis at April 30, 2019 as theCompany’s remaining auction rate securities were redeemed during the three months ended July 28, 2018 at par80Table of Contentsvalue. The following table provides a reconciliation between the beginning and ending balances of items measured at fairvalue on a recurring basis that used significant unobservable inputs (Level 3) (in thousands): Fair Value Measurements Using Significant Unobservable Inputs Description (Level 3) Balance at May 1, 2018 $2,142 Transfers to Level 3 — Total gains (realized or unrealized) Included in earnings — Included in other comprehensive income 108 Settlements (2,250) Balance at April 30, 2019 $ — The amount of total gains or (losses) for the period included inearnings attributable to the change in unrealized gains or losses relating toassets still held at April 30, 2019 $ — The auction rate securities were valued using a discounted cash flow model. The analysis considered, among otheritems, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing ofexpected future cash flows, and the estimated date upon which the security is expected to have a successful auction. 5. Inventories, net Inventories consist of the following: April 30, 2019 2018 Raw materials $16,792 $12,020 Work in process 19,162 14,780 Finished goods 25,926 14,578 Inventories, gross 61,880 41,378 Reserve for inventory excess and obsolescence (7,824) (3,953) Inventories, net $54,056 $37,425 81Table of Contents 6. Intangibles Intangibles are included in other assets on the balance sheet. The components of intangibles are as follows: April 30, April 30, 2019 2018 (In thousands) Licenses $1,006 $818 Customer relationships 733 733 Trademarks and tradenames 28 28 Other 3 3 Intangibles, gross 1,770 1,582 Less accumulated amortization (1,311) (954) Intangibles, net $459 $628 The Company tests identifiable intangible assets and goodwill for impairment in the fourth quarter of each fiscalyear unless there are interim indicators that suggest that it is more likely than not that either the identifiable intangible assetsor goodwill may be impaired. Due to the political situation within Turkey and the increased uncertainty in the relationsbetween the U.S. and Turkey, the Company significantly lowered its cash flow expectations for its Altoy operations. As aresult of the decline in the Company’s cash flow forecast, the Company performed an interim assessment of impairment ofAltoy’s long-lived assets, excluding goodwill during the three months ended October 28, 2017. Based on the analysis, theCompany determined that the fair value of Altoy had declined below its carrying value, excluding goodwill. As a result, theCompany performed an additional analysis to determine the amount of the impairment loss and recorded an impairment losstotaling $899,000 during the three months ended October 28, 2017, which is included in selling, general and administrativeexpense on the consolidated statements of operations. The fair value of the Altoy asset group was determined based on adiscounted cash flow model reflective of the revised cash flow estimates. The weighted average amortization period at April 30, 2019 and 2018 was one year and three years, respectively.Amortization expense for the years ended April 30, 2019, 2018 and 2017 was $357,000, $296,000 and $139,000,respectively. The customer relationships, trademarks and tradenames, and other intangible assets were recognized in conjunctionwith the Company’s acquisition of a controlling interest in its Altoy joint venture on February 1, 2017. Refer to Note 19 -Business Combinations for further details. Estimated amortization expense for the next five years is as follows: Year ending April 30, (In thousands) 2020 $360 2021 98 2022 1 2023 — 2024 — $459 82Table of Contents 7. Property and Equipment, net Property and equipment, net consist of the following: April 30, 2019 2018 (In thousands) Leasehold improvements $12,324 $10,541 Machinery and equipment 40,432 40,377 Furniture and fixtures 2,145 2,094 Computer equipment and software 35,056 31,895 Construction in process 2,411 3,359 Property and equipment, gross 92,368 88,266 Less accumulated depreciation and amortization (75,463) (69,047) Property and equipment, net $16,905 $19,219 During the three months ended April 30, 2019, the Company determined that the continued less than forecastedsales of its Quantix commercial UAS solution, which launched during the fourth quarter of fiscal year 2018, was an indicatorthat the long-lived assets of this asset group may not be recoverable. As a result, the company performed an analysis andconcluded that the projected undiscounted cash flows were less than the carrying value of the asset group (Step 1). As aresult, the Company performed additional analysis to determine the amount of the impairment loss (Step 2) and recorded animpairment loss totaling $4,398,000 related to the long-lived assets of the commercial UAS Quantix solution, which isincluded in selling, general and administrative expense on the consolidated statements of operations. The fair value of theasset group was determined based on a discounted cash flow model reflective of the Company’s revised cash flow estimates. Depreciation expense for the years ended April 30, 2019, 2018 and 2017 was $7,311,000, $5,676,000 and$4,939,000, respectively. At April 30, 2019 and 2018, property and equipment includes computer equipment and softwareunder capital leases with a cost basis of $1,836,000 and $1,836,000 and accumulated depreciation of $1,822,000 and$1,687,000, respectively. Depreciation of computer equipment and software under capital leases was $135,000 and$201,000 for the fiscal years ended April 30, 2019 and 2018 respectively. 8. Investments in Companies Accounted for Using the Equity Method In December of 2017, the Company and Softbank formed a joint venture, HAPSMobile. HAPSMobile is a Japanesecorporation that is 10% owned by the Company and 90% owned by SoftBank as of April 30, 2019 and is governed by a JointVenture Agreement (the “JVA”). The Company purchased a 5% stake in HAPSMobile for 210,000,000 yen ($1,860,000)effective as of December 27, 2017; 150,000,000 yen ($1,407,000) on April 17, 2018; and 209,500,000 yen ($1,926,000) onJanuary 29, 2019 to maintain its 5% ownership stake. On February 9, 2019, the Company elected to purchase 632,800,000yen ($5,671,000) of additional shares of HAPSMobile to increase the Company’s ownership in the joint venture from 5% to10%, and on May 10, 2019, the Company purchased 500,000,000 JPY ($4,569,000) of additional shares of HAPSMobile Inc.to maintain its 10% ownership stake which subsequently was diluted to approximately 5%. As the Company has the ability to exercise significant influence over the operating and financial policies ofHAPSMobile, the Company’s investment is accounted as an equity method investment. At April 30, 2019 and 2018, theCompany recorded its ownership percentage of the net loss of HAPSMobile, or $3,944,000 and $1,283,000, respectively, in“Equity method investment loss, net of tax” in the consolidated statements of income. At April 30, 2019 and 2018, thecarrying value of the investment in HAPSMobile was $5,612,000 and $2,020,000, respectively, and was recorded in “Otherassets, long-term.” 83Table of ContentsIn March of 2014, the Company purchased 49% of the outstanding common stock of Altoy, a Turkish corporationfounded in February 2014. During the year ended April 30, 2017, the Company recorded 49% of the net loss of Altoy, or$119,000 in “Equity method investment loss, net of tax” in the consolidated statements of income. On February 1, 2017, the Company acquired an additional 36% interest in Altoy, increasing the Company’s totalownership interest to 85%, for total cash consideration of $625,000. As a result of the Company obtaining a controllinginterest in Altoy, Altoy has been consolidated into the consolidated financial statements of the Company as of the date of theacquisition. Refer to Note 19 - Business Acquisitions. 9. Warranty Reserves Warranty reserve activity is summarized as follows: April 30, 2019 2018 (In thousands) Beginning balance $2,090 $1,947 Warranty expense 211 1,884 Changes in estimates related to pre-existing warranties 491 — Warranty costs settled (1,088) (1,741) Ending balance $1,704 $2,090 During the fiscal year ended April 30, 2019, the Company revised its estimates based on the results of additionalengineering studies and recorded incremental warranty reserve charges totaling $491,000 related to the estimated costs torepair a component of certain small UAS that were delivered in prior periods. At April 30, 2019, there were $251,000remaining estimated warranty costs related to the repair of the impacted small UAS. As of April 30, 2019, a total of $240,000of costs related to this warranty have been incurred. 10. Employee Savings Plan The Company has an employee 401(k) savings plan covering all eligible employees. The Company expensedapproximately $3,961,000, $2,953,000 and $2,603,000 in contributions to the plan for the years ended April 30, 2019, 2018and 2017, respectively. 11. Severance Charges During the fiscal year ended April 30, 2017, the Company recorded severance costs totaling $1,262,000. Of thistotal, approximately $850,000 was due to two officers who left the Company during the fiscal year ended April 30, 2017. Theremaining severance costs were due to certain strategic headcount reductions consisting entirely of severance payments. Ofthe total, approximately $555,000 was recorded to cost of sales and $707,000 was recorded to SG&A. Of the total,approximately $127,000 was in accrued wages and related accruals at April 30, 2017. The Company did not have significantseverance charges during the fiscal years ended April 30, 2019 or 2018. 12. Stock‑Based Compensation For the years ended April 30, 2019, 2018 and 2017, the Company recorded stock‑based compensation expense ofapproximately $6,985,000, $4,956,000 and $3,392,000, respectively. On January 14, 2007, the stockholders of the Company approved the 2006 Equity Incentive Plan, or 2006 Plan,effective January 21, 2007, for officers, directors, key employees and consultants. On September 29, 2011, the stockholdersof the Company approved an amendment and restatement of the 2006 Plan, or Restated 2006 Plan. Under the Restated 2006Plan, incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation right awards,performance share awards, performance stock unit awards, dividend equivalents awards, stock payment84Table of Contentsawards, deferred stock awards, restricted stock unit awards, other stock‑based awards, performance bonus awards orperformance‑based awards may be granted at the discretion of the compensation committee, which consists of outsidedirectors. A maximum of 4,884,157 shares of stock may be issued pursuant to awards under the Restated 2006 Plan. Themaximum number of shares of common stock with respect to one or more awards that may be granted to any one participantduring any twelve month period is 2,000,000. A maximum of $5,000,000 may be paid in cash to any one participant as aperformance‑based award during any twelve month period. The exercise price for any incentive stock option shall not be lessthan 100% of the fair market value on the date of grant. Vesting of awards is established at the time of grant. The Company had an equity incentive plan, or 2002 Plan, for officers, directors and key employees. Under the 2002Plan, incentive stock options or nonqualified stock options were granted, as determined by the administrator at the time ofgrant. Stock purchase rights were also granted under the 2002 Plan. Options under the 2002 Plan were granted at their fairmarket value (as determined by the board of directors). The options became exercisable at various times over a five-yearperiod from the grant date. The 2002 Plan was terminated on the effective date of the 2006 Plan. Awards outstanding underthe 2002 Plan remain outstanding and exercisable; no additional awards may be made under the 2002 Plan. The Company had a 1992 nonqualified stock option plan, or 1992 Plan, for certain officers and key employees.Options under the 1992 Plan were granted at their fair market value (as determined by the board of directors) at the date ofgrant and became exercisable at various times over a five-year period from the grant date. The 1992 Plan expired in August2002. No options were granted during the fiscal years ended April 30, 2019, 2018 and 2017. The fair value of stockoptions granted previously was estimated at the grant date using the Black‑Scholes option pricing model. Assumptionsincluded in the Black-Scholes option pricing model included the expected term of stock options, the expected volatility, therisk free interest rate, and the expected dividend yield. The expected term of stock options represents the weighted averageperiod the Company expects the stock options to remain outstanding, based on the Company’s historical exercise andpost‑vesting cancellation experience and the remaining contractual life of its outstanding options. The expected volatility isbased on historical volatility for the Company’s stock. The risk free interest rate is based on the implied yield on a U.S.Treasury zero‑coupon bond with a remaining term that approximates the expected term of the option. The expected dividendyield of zero reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cashdividends in the foreseeable future. 85Table of ContentsInformation related to the stock option plans at April 30, 2019, 2018 and 2017, and for the years then ended is asfollows: Restated 2006 Plan 2002 Plan 1992 Plan Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at April 30, 2016 678,799 24.46 13,824 11.79 68,604 0.59 Options granted — — — — — — Options exercised (167,310) 22.32 (9,601) 11.79 (25,189) 0.59 Options canceled (64,865) 26.76 (4,223) 11.79 — — Outstanding at April 30, 2017 446,624 24.93 — — 43,415 0.59 Options granted — — — — — — Options exercised (107,598) 23.80 — — (25,113) 0.59 Options canceled — — — — — — Outstanding at April 30, 2018 339,026 25.29 — — 18,302 0.59 Options granted — — — — — — Options exercised (2,000) 32.19 — — (4,000) 0.59 Options canceled — — — — — — Outstanding at April 30, 2019 337,026 25.25 — — 14,302 0.59 Options exercisable at April 30, 2019 297,516 $24.94 — $ — 14,302 $0.59 The total intrinsic value of all options exercised during the years ended April 30, 2019, 2018 and 2017 wasapproximately $371,000, $2,407,000, and $1,747,000, respectively. The intrinsic value of all options outstanding at April30, 2019 and 2018 was $15,569,000 and $10,890,000, respectively. The intrinsic value of all exercisable options at April 30,2019 and 2018 was $13,950,000 and $8,587,000, respectively. A summary of the status of the Company’s non‑vested stock options as of April 30, 2019 and the year then ended isas follows: Weighted Average Grant Date Non-vested Options Options Fair Value Non-vested at April 30, 201883,014$10.97Granted — —Expired — —Canceled — —Vested(43,504)11.03Non-vested at April 30, 201939,510$10.90 As of April 30, 2019, there was approximately $6,214,000 of total unrecognized compensation cost related tonon‑vested share‑based compensation awards granted under the equity plans. That cost is expected to be recognized over anapproximately two‑year period or a weighted average period of approximately 1.9 years. 86Table of ContentsNo options were granted during the fiscal years ended April 30, 2019, 2018 and 2017. The total fair value of sharesvesting during the years ended April 30, 2019, 2018 and 2017 was $4,756,000, $3,328,000 and $2,942,000, respectively. Proceeds from all option exercises under all stock option plans for the years ended April 30, 2019, 2018 and 2017were approximately $67,000, $2,576,000 and $3,863,000, respectively. The tax benefit realized from stock‑basedcompensation during the years ended April 30, 2019, 2018 and 2017 was approximately $0, $0, and $0, respectively. The following tabulation summarizes certain information concerning outstanding and exercisable options atApril 30, 2019: Options Outstanding Weighted Average Options Exercisable Remaining Weighted Weighted As of Contractual Average As of Average April 30, Life In Exercise April 30, Exercise Range of Exercise Prices 2019 Years Price 2019 Price $0.59-19.16 68,302 3.36 $14.56 68,302 $14.56 19.17-26.24 58,500 3.86 20.54 58,500 20.54 26.25-26.99 80,000 6.15 26.70 48,000 26.70 27.00-27.99 50,000 4.56 27.27 50,000 27.27 28.00-31.27 94,526 3.68 29.85 87,016 29.73 $0.59-31.27 351,328 4.34 $24.24 311,818 $23.82 The remaining weighted average contractual life of exercisable options at April 30, 2019 was 4.13 years. Information related to the Company’s restricted stock awards at April 30, 2019 and for the year then ended is asfollows: Restated 2006 Plan Weighted Average Grant Date Shares Fair Value Unvested stock at April 30, 2018 341,911 $31.13 Stock granted 57,476 74.05 Stock vested (163,839) 29.03 Stock canceled (9,389) 36.19 Unvested stock at April 30, 2019 226,159 $43.35 13. Long‑Term Incentive Awards During the three months ended July 28, 2018, the Company granted awards under its amended and restated 2006Equity Incentive Plan (the “Restated 2006 Plan”) to key employees (“Fiscal 2019 LTIP”). Awards under the Fiscal 2019 LTIPconsist of: (i) time-based restricted stock awards which vest in equal tranches in July 2019, July 2020 and July 2021, and (ii)performance-based restricted stock units (“PRSUs”) which vest based on the Company’s achievement of revenue andoperating income targets for the three-year period ending April 30, 2021. At the award date, target achievement levels foreach of the financial performance metrics were established for the PRSUs, at which levels the PRSUs would vest at 100% foreach such metric. Threshold achievement levels for which the PRSUs would vest at 50% for each such metric and maximumachievement levels for which such awards would vest at 200% for each such metric87Table of Contentswere also established. The actual payout for the PRSUs at the end of the performance period will be calculated based uponthe Company’s achievement of the established revenue and operating income targets for the performance period. Settlementof the PRSUs will be made in fully vested shares of common stock. During the fiscal year ended April 30, 2019, the Companyrecorded $572,000 of compensation expense related to the Fiscal 2019 LTIP. At April 30, 2019, the maximum compensationexpense that may be recorded for the performance-based portion of the Fiscal 2019 LTIP is $3,033,000. During the three months ended July 29, 2017, the Company granted awards under the Restated 2006 Plan to keyemployees (“Fiscal 2018 LTIP”). Awards under the Fiscal 2018 LTIP consist of: (i) time-based restricted stock awards whichvest in equal tranches in July 2018, July 2019 and July 2020, and (ii) performance-based restricted stock units (“PRSUs”)which vest based on the Company’s achievement of revenue and operating income targets for the three-year period endingApril 30, 2020. At the award date, target achievement levels for each of the financial performance metrics were established forthe PRSUs, at which levels the PRSUs would vest at 100% for each such metric. Threshold achievement levels for which thePRSUs would vest at 50% for each such metric and maximum achievement levels for which such awards would vest at 200%for each such metric were also established. The actual payout for the PRSUs at the end of the performance period will becalculated based upon the Company’s achievement of the established revenue and operating income targets for theperformance period. Settlement of the PRSUs will be made in fully vested shares of common stock. During the fiscal yearsended April 30, 2019 and 2018, the Company recorded $588,000 and $269,000 of compensation expense related to theFiscal 2018 LTIP, respectively. During the fiscal year ended April 30, 2017, the Company did not record compensationexpense related to the Fiscal 2018 LTIP. At April 30, 2019, the maximum compensation expense that may be recorded for theperformance-based portion of the Fiscal 2018 LTIP is $2,275,000. During the three months ended July 29, 2017, the Company also granted awards under the Restated 2006 Plan tokey employees (“Fiscal 2017 LTIP”). Awards under the Fiscal 2017 LTIP consist of: (i) time-based restricted stock awardswhich vest in equal tranches in July 2017, July 2018 and July 2019, and (ii) PRSUs which vest based on the Company’sachievement of revenue and operating income targets for the three-year period ending April 30, 2019. At the award date,target achievement levels for each of the financial performance metrics were established for the PRSUs, at which levels thePRSUs would vest at 100% for each such metric. Threshold achievement levels for which the PRSUs would vest at 50% foreach such metric and maximum achievement levels for which such awards would vest at 200% for each such metric were alsoestablished. The actual payout for the PRSUs at the end of the performance period will be calculated based upon theCompany’s achievement of the established revenue and operating income targets for the performance period. Settlement ofthe PRSUs will be made in fully-vested shares of common stock. During the fiscal years ended April 30, 2019 and 2018, theCompany recorded $301,000 and $159,000 of compensation expense related to the Fiscal 2017 LTIP, respectively. Duringthe fiscal year ended April 30, 2017, the Company did not record compensation expense related to the Fiscal 2017 LTIP.During the first quarter of fiscal 2019, the Company expects to issue a total of 14,814 fully-vested shares of common stock tosettle the Fiscal 2017 LTIP. At April 30, 2019 and 2018, the Company recorded cumulative stock-based compensation expense from these long-term incentive awards of $1,889,000 and $428,000, respectively. At each reporting period, the Company reassesses theprobability of achieving the performance targets. The estimation of whether the performance targets will be achieved requiresjudgment, and, to the extent actual results or updated estimates differ from the Company’s current estimates, the cumulativeeffect on current and prior periods of those changes will be recorded in the period estimates are revised. 88Table of Contents14. Income Taxes The components of income before income taxes are as follows (in thousands): Year Ended April 30, 2019 2018 2017 Domestic $50,644 $32,651 $22,642 Foreign (166) (34) (86) Income from continuing operations before income taxes 50,478 32,617 22,556 Equity method investment loss (3,944) (1,283) (119) Total income from continuing operations before income taxes $46,534 $31,334 $22,437 The Company expects any foreign earnings to be reinvested in such foreign jurisdictions and, therefore, no deferredtax liabilities for U.S. income taxes on undistributed earnings are recorded. The foreign subsidiaries do not have anyundistributed earnings. A reconciliation of income tax expense computed using the U.S. federal statutory rates to actual income tax expense(benefit) is as follows: Year Ended April 30, 2019 2018 2017 U.S. federal statutory income tax rate 21.0% 30.4% 34.0%State and local income taxes, net of federal benefit (2.2) (2.2) (1.7) R&D and other tax credits (8.1) (7.0) (10.8) Valuation allowance 3.7 4.9 3.8 Foreign rate differential — 0.1 — Return to provision adjustments (0.3) (0.1) (0.3) Permanent items 0.8 (2.7) (2.3) Foreign derived intangible income (3.7) — — Excess benefit of stock options (3.1) (4.4) (1.0) Tax Act — 10.4 — Other 1.1 0.6 (0.6) Effective income tax rate 9.2% 30.0% 21.1% 89Table of ContentsThe components of the provision (benefit) for income taxes are as follows (in thousands): Year Ended April 30, 2019 2018 2017 Current: Federal $1,953 $6,010 $4,336 State 228 900 243 Foreign — — — 2,181 6,910 4,579 Deferred: Federal 1,945 3,272 (66) State 551 (330) 280 Foreign (36) (52) (35) 2,460 2,890 179 Total income tax expense (benefit) $4,641 $9,800 $4,758 Significant components of the Company’s deferred income tax assets and liabilities are as follows (in thousands): April 30, 2019 2018 Deferred income tax assets: Accrued expenses $5,206 $5,771 Allowances, reserves, and other 2,729 2,100 Unrealized loss on securities — 25 Net operating loss and credit carry-forwards 13,208 12,361 Intangibles basis 125 94 Total deferred income tax assets 21,268 20,351 Deferred income tax liabilities: Fixed asset basis (425) (682) Revenue recognition (2,909) 326 Total deferred income tax liabilities (3,334) (356) Valuation allowance (11,278) (8,568) Net deferred tax assets $6,656 $11,427 At April 30, 2019 and 2018 the Company recorded a valuation allowance of $11,278,000 and $8,568,000,respectively, against state R&D credits as the Company is currently generating more tax credits than it will utilize in futureyears and against the outside basis difference in an equity method investee. The valuation allowance increased by$2,710,000 and $3,152,000 for April 30, 2019 and April 30, 2018, respectively. At April 30, 2019 the Company had state credit carryforwards of $23,832,000 that do not expire and federal taxcredit carryforwards of $4,727,000 that expire in 2039. At April 30, 2019, the Company had a state and foreign net operating loss carryforward of approximately$10,000 and $205,000, respectively. The state net operating loss carryforwards carry forward indefinitely. $73,000 of theforeign loss carryforwards expire in fiscal 2020. 90Table of ContentsAt April 30, 2019 and 2018, the Company had approximately $12,593,000 and $11,170,000, respectively, ofunrecognized tax benefits all of which would impact the Company’s effective tax rate if recognized. The Company estimatesthat $224,000 of its unrecognized tax benefits will decrease in the next twelve months due to statute of limitation expiration. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the yearsended April 30, 2019 and 2018 (in thousands): April 30, 2019 2018 Balance as of May 1 $11,170 $9,856 Increases related to prior year tax positions 216 228 Decreases related to prior year tax positions — — Increases related to current year tax positions 1,756 1,347 Decreases related to lapsing of statute of limitations (549) (261) Balance as of April 30 $12,593 $11,170 The Company records interest and penalties on uncertain tax positions to income tax expense. As of April 30, 2019and 2018, the Company had accrued approximately $18,000 and $16,000, respectively, of interest and penalties related touncertain tax positions. The Company is currently under audit by various state jurisdictions but does not anticipate anymaterial adjustments from these examinations. The tax years 2016 to 2017 remain open to examination by the IRS for federalincome taxes. The tax years 2011 to 2017 remain open for major state taxing jurisdictions. During the fiscal year ended April 30, 2019, the Company recorded a reversal of a $549,000 reserve, including therelated interest, for uncertain tax positions due to the lapse of prior year statue. On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to the InternalRevenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax yearsbeginning after December 31, 2017, repeal of the corporate alternative minimum tax, repeal of the deduction for domesticproduction activities, a deduction for certain Foreign Derived Intangible Income (“FDII”), and limitation on the deductibilityof certain executive compensation. In accordance with ASC 740, Income Taxes, the Company is required to record the effects of tax law changes in theperiod enacted. As the Company has an April 30 fiscal year end, its U.S. federal corporate income tax rate was blended infiscal 2018, resulting in a statutory federal rate of approximately 30.4% (8 months at 35% and 4 months at 21%), and 21% forsubsequent fiscal years. The Company remeasured its existing deferred tax assets and liabilities at the rate the Companyexpected to be in effect when those deferred taxes will be realized and recorded a one-time deferred tax expense ofapproximately $3,300,000 during the fiscal year ended April 30, 2018. The Company followed the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which providedadditional clarification regarding the application of ASC Topic 740 in situations where the Company does not have thenecessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income taxeffects of the Tax Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement periodbeginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained,prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstancesshould the measurement period extend beyond one year from the enactment date. The measurement period under SAB 118 closed during the year ended April 30, 2019. The Company has finalizedits accounting for the impact of the Tax Act during and reached the following conclusions on the previous provisionalestimates. The Company has concluded it will be eligible to claim the FDII deduction and has reflected a rate benefit in theprovision for income taxes. The Company expects the IRS will be issuing additional guidance that could ultimately91Table of Contentsimpact the size of the benefit. In addition, the Company has concluded that its foreign subsidiaries are in a cumulativeearnings and profits deficit and, therefore, has confirmed that it will not have an income tax payable as a result of the one-time deemed repatriation tax. 15. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows (in thousands): TotalAccumulated Other Available-for-Sale Foreign Currency Comprehensive Securities TranslationAdjustments Loss Total accumulated other comprehensive loss balance as of April 30,2018 $(57) $36 $(21) Changes in foreign currency translation adjustments, net of $0 taxes — (34) (34) Unrealized gains, net of $51 of taxes 57 — 57 Total accumulated other comprehensive loss balance as of April 30,2019 $ — $ 2 $ 2 16. Changes in Accounting Estimates During the years ended April 30, 2019, 2018 and 2017, the Company revised its estimates at completion of variousfixed-price contracts recognized using the over time method, which resulted in cumulative catch up adjustments during theyear in which the change in estimate occurred. The change in estimate was a result of the Company changing the total costsrequired to complete the contracts due to having more accurate cost information as work progressed in subsequent periods onthe various contracts. The changes in estimates resulted in cumulative catch-up adjustments to revenue for the years endedApril 30, 2019 and 2017 were not material. During the year ended April 30, 2018, the Company revised its estimates of thetotal expected costs to complete a TMS variant contract. The aggregate impact of these adjustments in contract estimates onrevenue related to performance obligations satisfied or partially satisfied in previous periods was a decrease of approximately$1,255,000. 17. Related Party Transactions Pursuant to a consulting agreement, the Company paid a board member approximately $55,000, $48,000 and$80,000 for fiscal years ended April 30, 2019, 2018 and 2017, respectively, for consulting services independent of his boardservice. Concurrent with the formation of HAPSMobile, the Company executed a Design and Development Agreement (the“DDA”) with HAPSMobile. Under the DDA and related efforts, the Company will use its best efforts, up to a maximum valueof $133,360,000, to design and build prototype solar powered high altitude aircraft and ground control stations forHAPSMobile and conduct low altitude and high altitude flight tests of the prototype aircraft. The Company recorded revenue under the DDA and preliminary design agreements between the Company andSoftBank of $55,407,000 and $29,594,000 for the fiscal years ended April 30, 2019 and 2018, respectively. At April 30,2019 and 2018, the Company had unbilled related party receivables from HAPSMobile of $9,028,000 and $3,145,000recorded in “Unbilled receivables and retentions” on the consolidated balance sheet, respectively. As of April 30, 2019, theCompany owned a 10% stake in accordance with the JVA which was diluted to approximately 5% during the first fiscalquarter of fiscal year 2020. Refer to Note 8 – Equity Method Investments for further details. 18. Commitments and Contingencies Commitments The Company’s operations are conducted in leased facilities. The Company finances the purchase of certain ITequipment and perpetual software licenses under capital lease arrangements. As of April 30, 2019, the Company has no92Table of Contentsfuture commitments related to capital lease arrangements as final payments were made during fiscal year 2019. Following is asummary of non‑cancelable operating commitments: April 30, 2019 (In thousands) Operatingleases2020 $5,2982021 3,5272022 2,7232023 1,5542024 953Thereafter — $14,055 Rental expense under operating leases was approximately $4,609,000, $4,011,000 and $3,849,000 for the yearsended April 30, 2019, 2018 and 2017, respectively. Contingencies The Company is subject to legal proceedings and claims which arise out of the ordinary course of its business.Although adverse decisions or settlements may occur, the Company, in consultation with legal counsel, believes that thefinal disposition of such matters will not have a material adverse effect on the consolidated financial position, results ofoperations or cash flows of the Company. At April 30, 2019 and 2018, the Company had outstanding letters of credit totaling $7,079,000 and $6,389,000,respectively. Contract Cost Audits Payments to the Company on government cost reimbursable contracts are based on provisional, or estimatedindirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits resultin the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. Thefinal rates, if different from the provisional rates, may create an additional receivable or liability for the Company. For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if theDCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under FederalAcquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallowsuch costs. Historically, the Company has not experienced material disallowed costs as a result of government audits.However, the Company can provide no assurance that the DCAA or other government audits will not result in materialdisallowances for incurred costs in the future. The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable governmentcontracts to be recorded at actual rates unless collectability is not reasonably assured. During the fiscal year ended April 30,2017, the Company settled rates for its incurred cost claims with the DCAA for fiscal years 2011 through 2014 withoutpayment of any consideration. During the fiscal year ended April 30, 2019, the Company settled rates for its incurred costclaims with the DCAA for fiscal years 2016 and 2017 without payment of any consideration. At April 30, 2019 and 2018, theCompany had $93,000 and $77,000 reserved for open incurred cost claim audits, respectively. The Company is also currently undergoing an escheat examination by the state of Delaware. The amount of anypotential loss is currently not estimable, and therefore, no reserve has been recorded. 93Table of Contents19. Business Acquisitions On February 1, 2017, the Company completed the acquisition of 36% of the common shares of Altoy for cashconsideration of $625,000, which increased its interest from 49% to 85% and provided the Company with control overAltoy. As a result, Altoy became a consolidated subsidiary of the Company on the date of the acquisition. Altoy aims tomarket and distribute small UAS in Turkey. The Company previously accounted for its 49% interest in Altoy as an equitymethod investment. As a result of the acquisition, the Company is expected to expand the sales of its small UAS and relatedservices in Turkey.The following table summarizes the consideration transferred to acquire Altoy and the amounts of identified assetsacquired and liabilities assumed at the acquisition date, as well as the fair value of the noncontrolling interest in Altoy at theacquisition date (in thousands): Customer relationships $1,600 Goodwill 122 Trademark and trade names 60 Deferred tax liability (332) Other assets and liabilities assumed 286 Total net identified assets acquired $1,736 Fair value of consideration transferred: Cash $625 Fair value of the Company's investment in Altoy prior to the acquisition 851 Fair value of the noncontrolling interest in Altoy 260 Total $1,736 As a result of the Company obtaining control over Altoy, the Company’s previously held 49% interest wasremeasured to fair value, resulting in a gain of $584,000 which has been recognized in “other income (loss), net” on theconsolidated statement of income. The fair value of the noncontrolling interest of $260,000 and the fair value of the previously held equity interest of$851,000 in Altoy, immediately prior to the acquisition, were estimated by applying an income approach. These fair valuemeasurements of the noncontrolling interest and the previously held equity interest are based on significant inputs notobservable in the market, and thus represent Level 3 measurements. The goodwill is attributable to the workforce of Altoy and expected future customers in the Turkeymarket. Goodwill is not tax deductible for tax purposes. All of the goodwill was assigned to the Company’s UAS segment. The Company tests identifiable intangible assets and goodwill for impairment in the fourth quarter of each fiscalyear unless there are interim indicators that suggest that it is more likely than not that either the identifiable intangible assetsor goodwill may be impaired. Due to the current political situation within Turkey and the increased uncertainty in therelations between the U.S. and Turkey, the Company significantly lowered its cash flow expectations for its Altoy operations.As a result of the decline in the Company’s cash flow forecast, the Company performed an interim assessment of impairmentof Altoy’s long-lived assets, excluding goodwill during the three months ended October 28, 2017. Based on the analysis, theCompany determined that the fair value of Altoy had declined below its carrying value, excluding goodwill. As a result, theCompany performed additional analysis to determine the amount of the impairment loss and recorded an impairment losstotaling $899,000 during the three months ended October 28, 2017, which is included in selling, general and administrativeexpense on the consolidated statements of operations. The fair value of the Altoy asset group was determined based on adiscounted cash flow model reflective of the revised cash flow estimates. 94Table of ContentsSupplemental Pro Forma Information (unaudited) Altoy contributed revenues of $0 and a net loss of $122,000 to the Company for the period from February 1, 2017 toApril 30, 2017. The following unaudited pro forma summary presents consolidated information of the Company as if thebusiness combination had occurred on May 1, 2015 (in thousands): Fiscal yearended April 30, 2017 2016 Revenue $229,287 $233,941 Net income from continuing operations $15,808 $15,595 Net income attributable to AeroVironment $15,888 $15,666 The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the businesscombination included in the reported pro forma revenue and earnings. These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting theresults of Altoy to reflect the additional amortization that would have been charged assuming the fair value adjustments tointangible assets had been applied from May 1, 2015, with the consequential tax effects. The Company incurred approximately $74,000 of acquisition-related costs. These expenses are included in selling,general and administrative expense on the Company’s consolidated income statement for the fiscal year ended April 30,2017. The unaudited pro forma supplemental information is based on estimates and assumptions which the Companybelieves are reasonable and are not necessarily indicative of the results that have been realized had the acquisitions beenconsolidated in the tables above as of May 1, 2015. 20. Geographic Information Sales to non‑U.S. customers accounted for 52%, 47% and 36% of revenue for each of the fiscal years ended April 30,2019, 2018 and 2017, respectively. 95Table of Contents21. Impact of Adoption of New Accounting Standards During the year ended April 30, 2019, the Company adopted ASU No. 2014-09, Revenue from Contracts withCustomers (Topic 606). The impact to the Company’s balance sheet as a result of adopting the standard was as follows (inthousands). Effect of the April 30,2018 Adoption of April 30,2018 As Reported ASC Topic606 As Adjusted Assets Current assets: Cash and cash equivalents $143,517 $ — $143,517 Short-term investments 113,649 — 113,649 Accounts receivable, net of allowance for doubtful accounts of $1,080 at April 30, 2018 56,813 — 56,813 Unbilled receivables and retentions (inclusive of related party unbilled receivables of$3,145 at April 30, 2018) 13,076 3,796 16,872 Inventories, net 38,640 (1,215) 37,425 Prepaid expenses and other current assets 5,103 — 5,103 Current assets of discontinued operations 28,349 (2,681) 25,668 Total current assets 399,147 (100) 399,047 Long-term investments 40,656 — 40,656 Property and equipment, net 19,219 — 19,219 Deferred income taxes 11,168 326 11,494 Other assets 2,721 281 3,002 Total assets $472,911 $507 $473,418 Liabilities and stockholders’ equity Current liabilities: Accounts payable $21,340 $ — $21,340 Wages and related accruals 16,851 — 16,851 Income taxes payable 4,085 — 4,085 Customer advances 2,145 1,419 3,564 Other current liabilities 6,892 62 6,954 Current liabilities of discontinued operations 9,184 110 9,294 Total current liabilities 60,497 1,591 62,088 Deferred rent 1,536 — 1,536 Other non-current liabilities 622 — 622 Deferred tax liability 67 — 67 Liability for uncertain tax positions 49 — 49 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value: Authorized shares—10,000,000; none issued or outstanding at April 30, 2018 — — — Common stock, $0.0001 par value: Authorized shares—100,000,000 Issued and outstanding shares—23,908,736 at April 30, 2018 2 — 2 Additional paid-in capital 170,139 — 170,139 Accumulated other comprehensive loss (21) — (21) Retained earnings 239,997 (1,084) 238,913 Total AeroVironment stockholders’ equity 410,117 (1,084) 409,033 Noncontrolling interest 23 — 23 Total equity 410,140 (1,084) 409,056 Total liabilities and stockholders’ equity $472,911 $507 $473,418 96Table of ContentsThe tables below presents the impact of adoption on the Company’s statement of operations for the fiscal years ended April30, 2018 and 2017 (in thousands except share and per share data). Year Ended April 30, 2018 As Reported ASC Topic606 Impact As AdjustedRevenue: Product sales $195,330 $(3,618) $191,712Contract services (inclusive of related party revenue of $29,594 for the year endedApril 30, 2018) 75,722 990 76,712 271,052 (2,628) 268,424Cost of sales: Product sales 111,990 (2,597) 109,393Contract services 50,174 1,172 51,346 162,164 (1,425) 160,739Gross margin: Product sales 83,340 (1,021) 82,319Contract services 25,548 (182) 25,366 108,888 (1,203) 107,685Selling, general and administrative 50,826 — 50,826Research and development 26,433 — 26,433Loss (income) from continuing operations 31,629 (1,203) 30,426Other income (expense): Interest income, net 2,240 — 2,240Other expense, net (49) — (49)Income from continuing operations before income taxes 33,820 (1,203) 32,617Provision for income taxes 10,177 (377) 9,800Equity method investment loss, net of tax (1,283) — (1,283)Net (loss) income from continuing operations 22,360 (826) 21,534Discontinued operations: Gain on sale of business, net of tax — — —Income (loss) from discontinued operations, net of tax (2,508) (1,379) (3,887)Net income (loss) from discontinued operations (2,508) (1,379) (3,887)Net (loss) income 19,852 (2,205) 17,647Net loss attributable to noncontrolling interest 216 — 216Net (loss) income attributable to AeroVironment $20,068 $(2,205) $17,863Net (loss) income per share attributable to AeroVironment—Basic Continuing operations $0.97 $(0.03) $0.93Discontinued operations (0.11) (0.06) (0.17)Net loss per share attributable to AeroVironment—Basic $0.86 $(0.09) $0.76Net (loss) income per share attributable to AeroVironment—Diluted Continuing operations $0.95 $(0.03) $0.91Discontinued operations (0.11) (0.06) (0.16)Net (loss) per share attributable to AeroVironment—Diluted $0.84 $(0.09) $0.75Weighted-average shares outstanding: Basic 23,471,241 23,471,241 23,471,241Diluted 23,813,772 23,813,772 23,813,772 97Table of Contents Year Ended April 30, 2017 As Reported ASC Topic606 Impact As Adjusted Revenue: Product sales $159,630 $(706) $158,924 Contract services 69,310 4,871 74,181 228,940 4,165 233,105 Cost of sales: Product sales 88,963 76 89,039 Contract services 44,792 2,401 47,193 133,755 2,477 136,232 Gross margin: Product sales 70,667 (782) 69,885 Contract services 24,518 2,470 26,988 95,185 1,688 96,873 Selling, general and administrative 47,642 — 47,642 Research and development 28,465 — 28,465 Loss (income) from continuing operations 19,078 1,688 20,766 Other income (expense): Interest income, net 1,618 — 1,618 Other expense, net 172 — 172 Income from continuing operations before income taxes 20,868 1,688 22,556 Provision for income taxes 4,138 620 4,758 Equity method investment loss, net of tax (119) — (119) Net (loss) income from continuing operations 16,611 1,068 17,679 Discontinued operations: Gain on sale of business, net of tax — — — Income (loss) from discontinued operations, net of tax (4,154) (447) (4,601) Net income (loss) from discontinued operations (4,154) (447) (4,601) Net (loss) income 12,457 621 13,078 Net loss attributable to noncontrolling interest 22 — 22 Net (loss) income attributable to AeroVironment $12,479 $621 $13,100 Net (loss) income per share attributable to AeroVironment—Basic Continuing operations $0.72 $0.05 $0.77 Discontinued operations (0.18) (0.02) (0.20) Net loss per share attributable to AeroVironment—Basic $0.54 $0.03 $0.57 Net (loss) income per share attributable to AeroVironment—Diluted Continuing operations $0.72 $0.05 $0.76 Discontinued operations (0.18) (0.02) (0.20) Net (loss) per share attributable to AeroVironment—Diluted $0.54 $0.03 $0.56 Weighted-average shares outstanding: Basic 23,059,045 23,059,045 23,059,045 Diluted 23,307,738 23,307,738 23,307,738 98Table of ContentsThe tables below presents the impact of adoption on the Company’s statement of comprehensive (loss) income for the fiscalyears ended April 30, 2018 and 2017 (in thousands). Year Ended April 30, 2018 As Reported ASC Topic 606Impact As AdjustedNet (loss) income $19,852 $(2,205) $17,647Other comprehensive income: Change in foreign currency translation adjustments 36 — 36Unrealized gain on investments, net of deferred tax expense of$25 and $43 for the fiscal years ended 2018 and 2017 70 — 70Total comprehensive (loss) income 19,958 (2,205) $17,753Net loss attributable to noncontrolling interest 216 — 216Comprehensive (loss) income attributable to AeroVironment $20,174 $(2,205) $17,969 Year Ended April 30, 2017 As Reported ASC Topic 606Impact As AdjustedNet (loss) income $12,457 $621 $13,078Other comprehensive income: Change in foreign currency translation adjustments — — —Unrealized gain on investments, net of deferred tax expense of$25 and $43 for the fiscal years ended 2018 and 2017 74 — 74Total comprehensive (loss) income 12,531 621 $13,152Net loss attributable to noncontrolling interest 22 — 22Comprehensive (loss) income attributable to AeroVironment $12,553 $621 $13,174 99Table of ContentsThe table below presents the impact of adoption on the Company’s statement of cash flows for the fiscal years ended April30, 2018 and 2017 (in thousands). Year Ended April 30, 2018 As Reported ASC Topic606 Impact As AdjustedOperating activities Net income (loss) $19,852 $(2,205) $17,647Gain on sale of business, net of tax — — —Loss from discontinued operations, net of tax 2,508 1,379 3,887Net income from continuing operations 22,360 (826) 21,534Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 5,982 — 5,982Loss from equity method investments 1,283 — 1,283Impairment of long-lived assets 255 — 255Provision for doubtful accounts 977 — 977Impairment of intangible assets and goodwill 1,021 — 1,021Gains on foreign currency transactions (87) — (87)Deferred income taxes 3,835 (982) 2,853Gain on business acquisition — — —Stock-based compensation 4,956 — 4,956Loss on disposition of property and equipment 20 — 20Amortization of held-to-maturity investments 1,424 — 1,424Changes in operating assets and liabilities: Accounts receivable 11,211 (141) 11,070Unbilled receivables and retentions 903 1,350 2,253Inventories 2,268 (1,076) 1,192Income tax receivable — — —Prepaid expenses and other assets 419 (280) 139Accounts payable 5,736 — 5,736Other liabilities 7,873 1,351 9,224Net cash provided by (used in) operating activities of continuing operations 70,436 (604) 69,832Investing activities Acquisition of property and equipment (9,563) — (9,563)Equity method investments (3,267) — (3,267)Business acquisitions, net of tax — — —Proceeds from sale of business — — —Redemptions of held-to-maturity investments 227,663 — 227,663Purchases of held-to-maturity investments (221,680) — (221,680)Redemptions of available-for-sale investments 450 — 450Net cash provided by investing activities from continuing operations (6,397) — (6,397)Financing activities Principal payments of capital lease obligations (288) — (288)Tax withholding payment related to net settlement of equity awards (397) — (397)Exercise of stock options 2,705 — 2,705Net cash provided by financing activities from continuing operations 2,020 — 2,020Discontinued operations Operating activities of discontinued operations (1,227) 604 (623)Investing activities of discontinued operations (1,219) — (1,219)Financing activities of discontinued operations — — —Net cash (used in) provided by discontinued operations (2,446) 604 (1,842)Net increase in cash and cash equivalents 63,613 — 63,613Cash and cash equivalents at beginning of period 79,904 — 79,904Cash and cash equivalents at end of period $143,517 $ — $143,517Supplemental disclosures of cash flow information Cash paid, net during the period for: Income taxes $1,813 — $1,813Non-cash activities Unrealized gain on investments, net of deferred tax expense of $25 and $43 $70 — $70Reclassification from share-based liability compensation to equity $384 — $384Change in foreign currency translation adjustments $36 — $36Acquisitions of property and equipment included in accounts payable $379 — $379 100Table of Contents Year Ended April 30, 2017 As Reported ASC Topic606 Impact As AdjustedOperating activities Net income (loss) $12,457 $621 $13,078Gain on sale of business, net of tax — — —Loss from discontinued operations, net of tax 4,154 447 4,601Net income from continuing operations 16,611 1,068 17,679Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 5,054 — 5,054Loss from equity method investments 119 — 119Impairment of long-lived assets 46 — 46Provision for doubtful accounts 48 — 48Impairment of intangible assets and goodwill — — —Gains on foreign currency transactions 284 — 284Deferred income taxes (52) 361 309Gain on business acquisition (584) — (584)Stock-based compensation 3,392 — 3,392Loss on disposition of property and equipment 44 — 44Amortization of held-to-maturity investments 2,382 — 2,382Changes in operating assets and liabilities: Accounts receivable (19,608) (112) (19,720)Unbilled receivables and retentions 4,667 (4,052) 615Inventories (19,225) 2,409 (16,816)Income tax receivable — — —Prepaid expenses and other assets (1,484) — (1,484)Accounts payable 545 — 545Other liabilities (233) 67 (166)Net cash provided by (used in) operating activities of continuing operations (7,994) (259) (8,253)Investing activities Acquisition of property and equipment (9,017) — (9,017)Equity method investments — — —Business acquisitions, net of tax (430) — (430)Proceeds from sale of business — — —Redemptions of held-to-maturity investments 121,522 — 121,522Purchases of held-to-maturity investments (148,991) — (148,991)Redemptions of available-for-sale investments 400 — 400Net cash provided by investing activities from continuing operations (36,516) — (36,516)Financing activities Principal payments of capital lease obligations (390) — (390)Tax withholding payment related to net settlement of equity awards (5) — (5)Exercise of stock options 3,865 — 3,865Net cash provided by financing activities from continuing operations 3,470 — 3,470Discontinued operations Operating activities of discontinued operations (2,505) 259 (2,246)Investing activities of discontinued operations (838) — (838)Financing activities of discontinued operations — — —Net cash (used in) provided by discontinued operations (3,343) 259 (3,084)Net increase in cash and cash equivalents (44,383) — (44,383)Cash and cash equivalents at beginning of period 124,287 — 124,287Cash and cash equivalents at end of period $79,904 $ — $79,904Supplemental disclosures of cash flow information Cash paid, net during the period for: Income taxes $1,804 — $1,804Non-cash activities Unrealized gain on investments, net of deferred tax expense of $25 and $43 $74 — $74Reclassification from share-based liability compensation to equity $307 — $307Change in foreign currency translation adjustments $ — — $ —Acquisitions of property and equipment included in accounts payable $724 — $724 101Table of Contents22. Subsequent Events On June 10, 2019, the Company purchased 100% of the issued and outstanding member units of Pulse Aerospace,LLC (“Pulse”) pursuant to the terms of a Unit Purchase Agreement (the “Pulse Purchase Agreement”). The Company’sacquisition of Pulse’s Vertical Takeoff and Landing (VTOL) product family strengthens AeroVironment’s leading family offixed-wing small unmanned aircraft systems and increases the mission capabilities of AeroVironment’s family of systems. Pursuant to the Pulse Purchase Agreement, at closing, the Company paid $20,650,000 in cash, less closingindebtedness and transaction costs as defined in the Pulse Purchase Agreement, less a $250,000 retention to cover any post-closing indemnification claims, and less a $1,250,000 holdback amount, with the retention and holdback to be released tothe member unit holders of Pulse Aerospace, less any amounts paid or reserved, 18 months after the closing of thetransactions in accordance with the terms of the Pulse Purchase Agreement. The closing cash consideration included thepayoff of the outstanding indebtedness of Pulse Aerospace as of the closing date. In addition to the consideration paid atclosing, the Sellers may receive up to a maximum of $5,000,000 in additional cash consideration, which amount has beenplaced into escrow, if specific research and development milestones are achieved by December 10, 2021. The Companyfinanced the acquisition entirely from available cash on hand. Due to the timing of the acquisition, the purchase accounting for the business combination is incomplete at the timeof this filing. As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the majorclasses of assets acquired and liabilities assumed, pre-acquisition contingencies and goodwill. In addition, the Company isunable to provide pro forma revenues and earnings of the combined entity. All required disclosures will be included in theCompany's Quarterly Report on Form 10-Q for the quarter ended July 27, 2019. 23. Quarterly Results of Operations (Unaudited) The following tables present selected unaudited consolidated financial data for each of the eight quarters in thetwo‑year period ended April 30, 2019. In the Company’s opinion, this unaudited information has been prepared on the samebasis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary fora fair statement of the financial information for the period presented. The Company’s fiscal year ends on April 30. Due to thefixed year end date of April 30, the first and fourth quarters each consist of approximately 13 weeks. The second and thirdquarters each consist of exactly 13 weeks. The first three quarters end on a Saturday. Three Months Ended July 28,2018 October 27,2018 January 26,2019 April 30,2019 (In thousands except per share data) Year ended April 30, 2019 Revenue $78,043 $72,979 $75,322 $87,930 Gross margin $32,589 $28,399 $30,392 $37,023 Net income attributable to AeroVironment from continuingoperations $20,337(1)$7,047 $8,431 $6,097(2)Net income per share attributable to AeroVironment fromcontinuing operations—basic(5) $0.86(1)$0.30 $0.35 $0.26 Net income per share attributable to AeroVironment fromcontinuing operations—diluted(5) $0.85(1)$0.29 $0.35 $0.26 102Table of Contents Three Months Ended July 30, October 29, January 28, April 30, 2017 2017 2018 2018 (In thousands except per share data) Year ended April 30, 2018 Revenue $34,361 $65,801 $54,633 $113,629 Gross margin $8,698 $30,143 $18,250 $50,594 Net (loss) income attributable to AeroVironment from continuingoperations $(4,371) $7,756(3)$(647) (4)$19,012 Net (loss) income per share attributable to AeroVironment fromcontinuing operations—basic(5) $(0.19) $0.33 $(0.02) $0.80 Net (loss) income per share attributable to AeroVironment fromcontinuing operations—diluted(5) $(0.19) $0.32 $(0.02) $0.79 (1)Includes a one-time gain from a litigation settlement of $0.26 per basic and diluted share from continuing operationsattributable to AeroVironment recorded to “Other income (expense), net” in the consolidated statement of operations.(2)Includes an impairment loss of $4.4 million related to the long-lived assets of the Company’s commercial UAS Quantixsolution, recorded to selling, general and administrative expense in the consolidated statement of operations.(3)Includes an impairment loss of $1.0 million related to the Company’s intangible assets and goodwill acquired in theacquisition of a controlling interest in the Company’s Turkish Joint Venture, Altoy, recorded to selling, general andadministrative expense in the consolidated statement of operations.(4)Includes a one-time expense of $3.1 million resulting from the remeasurement of deferred tax assets and liabilitiesrelated to the Tax Cut and Jobs Act.(5)Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings pershare may not equal the total earnings per share computed for the year due to rounding. 103Table of ContentsSUPPLEMENTARY DATA SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (In thousands) Allowance for doubtful accounts for the year ended April 30: 2017 $56 $56 $— $(8) $104 2018 $104 $976 $ — $ — $1,080 2019 $1,080 $198 $ — $(237) $1,041 Warranty reserve for the year ended April 30: 2017 $3,094 $1,838 $ — $(2,985) $1,947 2018 $1,947 $1,884 $ — $(1,741) $2,090 2019 $2,090 $702 $ — $(1,088) $1,704 Reserve for inventory excess and obsolescence for the yearended April 30: 2017 $2,542 $1,115 $— $(901) $2,756 2018 $2,756 $2,758 $ — $(1,561) $3,953 2019 $3,953 $5,054 $ — $(1,183) $7,824 Reserve for self-insured medical claims for the year endedApril 30: 2017 $979 $7,037 $— $(6,883) $1,133 2018 $1,133 $9,100 $ — $(9,230) $1,003 2019 $1,003 $10,808 $ — $(10,867) $944 104Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified inthe SEC’s rules and forms, and that such information is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desiredcontrol objectives, and management is required to apply its judgment in evaluating the cost‑benefit relationship of possiblecontrols and procedures. As required by Rule 13a‑15(b) under the Exchange Act, we have carried out an evaluation, underthe supervision and with the participation of our management, including our Chief Executive Officer and our Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing,our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, ourdisclosure controls and procedures were effective and were operating at a reasonable level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting.Internal control over financial reporting is defined in Rules 13a‑15(f) and 15d‑15(f) promulgated under the Exchange Act asa process designed by, or under the supervision of, our principal executive and principal financial officers and effected byour board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that: ·Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; ·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe Company are being made only in accordance with authorizations of management and directors of theCompany; and ·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. Under the supervision and with the participation of management, including our principal executive and financialofficers, we assessed our internal control over financial reporting as of April 30, 2019, based on criteria for effective internalcontrol over financial reporting established in Internal Control—Integrated Framework, issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on this assessment, managementconcluded that the Company maintained effective internal control over financial reporting as of April 30, 2019 based on thespecified criteria. 105Table of ContentsThe effectiveness of our internal control over financial reporting as of April 30, 2019 has been audited by Ernst &Young LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting or in other factors identified in connectionwith the evaluation required by paragraph (d) of Exchange Act Rules 13a‑15 or 15d‑15 that occurred during the quarterended April 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting. Item 9B. Other Information. None. 106Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of AeroVironment, Inc. and subsidiaries Opinion on Internal Control over Financial ReportingWe have audited AeroVironment, Inc. and subsidiaries’ internal control over financial reporting as of April 30, 2019, basedon criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AeroVironment, Inc. and subsidiaries (theCompany) maintained, in all material respects, effective internal control over financial reporting as of April 30, 2019, basedon the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the consolidated balance sheets of the Company as of April 30, 2019 and 2018, the related consolidatedstatements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the periodended April 30, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our reportdated June 25, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sReport on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internalcontrol over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 107Table of ContentsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Los Angeles, CaliforniaJune 25, 2019 108Table of Contents PART III Item 10. Directors, Executive Officers, and Corporate Governance. Certain information required by Item 401 and Item 405 of Regulation S‑K will be included in the definitive proxystatement for our 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after April 30, 2019, andthat information is incorporated by reference herein. Codes of Ethics We have adopted a Code of Business Conduct and Ethics, or Code of Conduct. The Code of Conduct is posted onour website, http://investor.avinc.com. We intend to disclose on our website any amendments to, or waivers of, the Code ofConduct covering our Chief Executive Officer, Chief Financial Officer and/or Controller promptly following the date of suchamendments or waivers. A copy of the Code of Conduct may be obtained upon request, without charge, by contacting ourSecretary at (805) 520‑8350 or by writing to us at AeroVironment, Inc., Attn: Secretary, 900 Innovators Way, Simi Valley,California 93065. The information contained on or connected to our website is not incorporated by reference into thisAnnual Report and should not be considered part of this or any reported filed with the SEC. No family relationships exist among any of our executive officers or directors. There have been no material changes to the procedures by which security holders may recommend nominees to ourboard of directors. The information required by Item 407(d)(4) and (5) of Regulation S‑K will be included in the definitive proxystatement for our 2019 Annual Meeting of Stockholders, and that information is incorporated by reference herein. Item 11. Executive Compensation. The information required by Item 402 and Item 407(e)(4) and (5) of Regulation S‑K will be included in thedefinitive proxy statement for our 2019 Annual Meeting of Stockholders, and that information is incorporated by referenceherein. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by Item 201(d) and Item 403 of Regulation S‑K will be included in the definitive proxystatement for our 2019 Annual Meeting of Stockholders, and that information is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by Item 404 and Item 407(a) of Regulation S‑K will be included in the definitive proxystatement for our 2019 Annual Meeting of Stockholders, and that information is incorporated by reference herein. Item 14. Principal Accounting Fees and Services. The information required by Item 14 of Form 10-K will be included in the definitive proxy statement for our 2019Annual Meeting of Stockholders, and that information is incorporated by reference herein. 109Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a)The following are filed as part of this Annual Report: 1. Financial Statements The following consolidated financial statements are included in Item 8: ·Report of Independent Registered Public Accounting Firm ·Consolidated Balance Sheets at April 30, 2019 and 2018 ·Consolidated Statements of Income for the Years Ended April 30, 2019, 2018 and 2017 ·Consolidated Statements of Comprehensive Income for the Years Ended April 30, 2019, 2018 and 2017 ·Consolidated Statements of Stockholders’ Equity for the Years Ended April 30, 2019, 2018 and 2017 ·Consolidated Statements of Cash Flows for the Years Ended April 30, 2019, 2018 and 2017 ·Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following Schedule is included in Item 8: ·Schedule II—Valuation and Qualifying Accounts All other schedules have been omitted since the required information is not present, or not present in amountssufficient to require submission of the schedule, or because the information required is included in the consolidated financialstatements or the Notes thereto. 3. Exhibits See Item 15(b) of this report below. (b)Exhibits ExhibitNumber Exhibit3.1(1) Amended and Restated Certificate of Incorporation of AeroVironment, Inc.3.3 (2) Third Amended and Restated Bylaws of AeroVironment, Inc.4.1(3) Form of AeroVironment, Inc.’s Common Stock Certificate10.1#(4) Form of Director and Executive Officer Indemnification Agreement10.2#(3) AeroVironment, Inc. Nonqualified Stock Option Plan10.3#(3) Form of Nonqualified Stock Option Agreement pursuant to the AeroVironment, Inc. Nonqualified StockOption Plan10.4#(3) AeroVironment, Inc. Directors’ Nonqualified Stock Option Plan10.5#(3) Form of Directors’ Nonqualified Stock Option Agreement pursuant to the AeroVironment, Inc. Directors’Nonqualified Stock Option Plan10.6#(3) AeroVironment, Inc. 2002 Equity Incentive Plan10.7#(3) Form of AeroVironment, Inc. 2002 Equity Incentive Plan Stock Option Agreement110Table of ContentsExhibitNumber Exhibit10.8#(3) AeroVironment, Inc. 2006 Equity Incentive Plan10.9#(5) AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated effective September 29, 201110.10#(6) AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated effective September 30, 201610.11#(3) Form of Stock Option Agreement pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.12#(3) Form of Performance Based Bonus Award pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.13#(7) Form of Long‑Term Compensation Award Grant Notice and Long‑Term Compensation Award Agreementpursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.14# Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Severance PlanParticipants) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.15# Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Non-Severance PlanParticipants) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.16# Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (Non-ManagementDirectors) pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.17# Form of Performance Restricted Stock Unit Award Grant Notice and Performance Restricted Stock Unit AwardAgreement pursuant to the AeroVironment, Inc. 2006 Equity Incentive Plan10.18(8) Standard Industrial/Commercial Single‑Tenant Lease, dated February 12, 2007, between AeroVironment, Inc.and OMP Industrial Moreland, LLC, for the property located at 85 Moreland Road, Simi Valley, California,including the addendum thereto10.19(6) First Amendment to Lease Agreement dated October 10, 2011 and Second Amendment to Lease Agreementdated June 2, 2017 by and between AeroVironment, Inc. and Simi Valley-NCR, LLC for the property locatedat 85 Moreland Road, Simi Valley, California10.20(9) Standard Industrial/Commercial Single‑Tenant Lease, dated March 3, 2008, between AeroVironment, Inc. andHillside Associates III, LLC, for the property located at 900 Enchanted Way, Simi Valley, California,including the addendum thereto10.21(9) Standard Industrial/Commercial Single‑Tenant Lease, dated April 21, 2008, between AeroVironment, Inc. andHillside Associates II, LLC, for the property located at 994 Flower Glen Street, Simi Valley, California,including the addendum thereto10.22(10) First Amendment to Lease Agreement (900 Enchanted Way, Simi Valley, CA 93065) dated as of December 1,2013, by and between the Company and Hillside III LLC, and related agreements10.23(10) First Amendment to Lease Agreement (994 Flower Glen Street, Simi Valley, CA 93065) dated as ofDecember 1, 2013, by and between the Company and Hillside II LLC, and related agreements10.24(10) Lease Agreement (996 Flower Glen Street, Simi Valley, CA 93065) dated as of December 1, 2013, by andbetween the Company and Hillside II LLC, and related agreements10.25(11) Standard Multi-Tenant Office Lease — Gross, dated September 24, 2015, between AeroVironment, Inc. andMonrovia Technology Campus LLC for property at 800 Royal Oaks Dr. Monrovia, California, includingaddendums thereto10.26(21) Lease dated March 28, 2018 between AeroVironment, Inc. and Princeton Avenue Holdings, LLC for propertylocated at 14501 Princeton Avenue, Moorpark, California, including addendums thereto10.27#(3) Retiree Medical Plan10.28†(12) Award Contract, dated March 1, 2011, between AeroVironment, Inc. and United States Army ContractingCommand10.29†(13) Contract modification P00015 dated September 5, 2013 under the base contract with the US ArmyContracting Command—Redstone Arsenal (Missile) dated August 30, 201210.30†(14) Contract modification P00074 dated September 27, 2016 under the base contract with the US ArmyContracting Command — Redstone Arsenal (Missile) dated August 30, 201210.31(15) Form of Director Letter Agreement by and between AeroVironment, Inc. and each non-employee director10.32(4) Consulting Agreement by and between AeroVironment, Inc. and Charles R. Holland executed as of March 7,201610.33(4) Task Order #FY16-001 to Consulting Agreement by and between AeroVironment, Inc. and Charles R. Hollandexecuted as of March 7, 2016111Table of ContentsExhibitNumber Exhibit10.34 Amendment No. 1 dated November 28, 2016, Amendment No. 2 dated June 7, 2017, Amendment No. 3 datedApril 23, 2018, and Amendment No.4 dated April 30, 2019 to Standard Consulting Agreement andcorresponding Task Orders by and between AeroVironment, Inc. and Charles R. Holland10.35†(16) Joint Venture Agreement by and between AeroVironment, Inc. and SoftBank Corp. dated as of December 1,201710.36†(16) Design and Development Agreement by and between AeroVironment, Inc. and HAPSMobile, Inc. dated as ofDecember 27, 201710.37†(16) Intellectual Property License Agreement by and among AeroVironment, Inc., SoftBank Corp. andHAPSMobile, Inc. dated as of December 27, 2017.10.38ǂ Amendment No.1 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of March 30, 2018.10.39ǂ Amendment No.2 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of June 25, 2018.10.40ǂ Amendment No.3 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of August 28, 2018.10.41ǂ Amendment No.4 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of December 5, 2018.10.42ǂ Amendment No.5 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of March 19, 2019.10.43ǂ Amendment No.6 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of March 29, 2019. 10.44ǂ Amendment No.7 to the Design and Development Agreement by and between AeroVironment, Inc. andHAPSMobile, Inc. dated as of April 24, 2019.10.45 Amendment No. 1 to the Joint Venture Agreement by and between AeroVironment, Inc. and Softbank Corp.dated as of November 29, 2018.10.46 Amendment No. 2 to the Joint Venture Agreement by and between AeroVironment, Inc. and Softbank Corp.dated as of February 8, 2019.10.47(17) Asset Purchase Agreement by and between Webasto Charging Systems, Inc. and AeroVironment, Inc. dated asof June 1, 2018.10.48(18) Side Letter Agreement by and between Webasto Charging Systems, Inc. and AeroVironment, Inc. dated as ofJune 29, 2018.10.49(19) First Amendment to Lease dated October 26, 2018 between AeroVironment, Inc. and Princeton AvenueHoldings, LLC for property located at 14501 Princeton Avenue, Moorpark, California10.50#(20) AeroVironment, Inc. Executive Severance Plan and Summary Description, effective January 1, 201921.1 Subsidiaries of AeroVironment, Inc.23.1 Consent of Ernst & Young LLP, independent registered public accounting firm24.1 Power of Attorney (incorporated by reference to the signature page of this Annual Report)31.1 Certification Pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 193431.2 Certification Pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 193432.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑OxleyAct of 2002101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Label Linkbase Document101.PRE XBRL Taxonomy Presentation Linkbase Document(1)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10‑Q filed March 9,2007 (File No. 001‑33261). 112Table of Contents(2)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed July 1, 2015(File No. 001-33261). (3)Incorporated by reference herein to the exhibits to the Company’s Registration Statement on Form S‑1 (FileNo. 333‑137658). (4)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10 K filed on June 29,2016 (File No. 001 33261).(5)Incorporated by reference to the exhibits to the Company’s Form 8‑K filed on October 5, 2011 (File No. 001‑33261).(6)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10-K filed June 28, 2017(File No. 001-33261). (7)Incorporated by reference herein to the exhibits to the Company’s Current Report on Form 8‑K filed July 28, 2010(File No. 001‑33261). (8)Incorporated by reference herein to the exhibits on the Company’s Annual Report on Form 10‑K filed June 29, 2007(File No. 001‑33261). (9)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10‑K filed June 26, 2008(File No. 001‑33261). (10)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10‑Q filed March 5,2014 (File No. 001‑33261). (11)Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed December 9,2015 (File No. 001-33261). (12)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10‑K filed on June 21,2011 (File No. 001‑33261). (13)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10‑Q filedNovember 27, 2013 (File No. 001‑33261). (14)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10 Q filed December 7,2016 (File No. 001 33261). (15)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 9,2016 (File No. 001-33261). (16)Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed March 7,2018 (File No. 001-33261). (17)Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed September 6,2018 (File No. 001-33261).The representations and warranties contained in the Asset Purchase Agreement were made for the purposes ofallocating contractual risk between the parties and not as a means of establishing facts and are qualified byinformation in disclosure schedules that the parties exchanged in connection with the signing of the Asset PurchaseAgreement. Moreover, the representations and warranties were made only as of the date of execution of the AssetPurchase Agreement and information concerning the subject matter of the representations and warranties maychange after the date of the Asset Purchase Agreement. Only parties to the Asset Purchase113Table of ContentsAgreement have a right to enforce the agreement. Accordingly, security holders should not rely on the representations andwarranties in the Asset Purchase Agreement.All schedules (or similar attachments) have been omitted from this filing pursuant to Item 601 of Regulation S-K. TheCompany will furnish copies of any schedules to the Securities and Exchange Commission upon request. (18)Incorporated by reference herein to the exhibits to the Company's Quarterly Report on Form 10-Q filed September 6,2018 (File No. 001-33261). (19)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed November30, 2018 (File No. 001-33261). (20)Incorporated by reference herein to the exhibits to the Company’s Quarterly Report on Form 10-Q filed March 7,2018 (File No. 001-33261).(21)Incorporated by reference herein to the exhibits to the Company’s Annual Report on Form 10‑K filed on June 27,2018 (File No. 001‑33261) †Confidential treatment has been granted for portions of this exhibit. ǂPursuant to Item 601(b)(2) of Regulation S-K, certain immaterial provisions of the agreement that would likely causecompetitive harm to the Company if publicly disclosed have been redacted or omitted. #Indicates management contract or compensatory plan. (c)Not applicable. 114Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEROVIRONMENT, INC. Date: June 25, 2019 /s/ Wahid Nawabi By:Wahid Nawabi Its:Chief Executive Officer and President (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below herebyconstitutes and appoints Wahid Nawabi and Teresa Covington, each of them acting individually, as his attorney‑in‑fact, eachwith full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report onForm 10‑K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securitiesand Exchange Commission, granting unto said attorneys‑ in‑fact, and each of them, full power and authority to do andperform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents andpurposes as he might or could do in person, hereby ratifying and confirming our signatures as they may be signed by our saidattorney‑in‑fact and any and all amendments to this Annual Report on Form 10‑K. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Wahid Nawabi President, Chief June 25, 2019Wahid Nawabi Executive Officer and Director (Principal Executive Officer) /s/ Teresa P. Covington Senior Vice President and June 25, 2019Teresa P. Covington Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Timothy E. Conver Chairman June 25, 2019Timothy E. Conver /s/ Edward R. Muller Director June 25, 2019Edward R. Muller /s/ Arnold L. Fishman Director June 25, 2019Arnold L. Fishman /s/ Stephen F. Page Director June 25, 2019Stephen F. Page /s/ Charles R. Holland Director June 25, 2019Charles R. Holland /s/ Catharine Merigold Director June 25, 2019Catharine Merigold /s/ Charles Thomas Burbage Director June 25, 2019Charles Thomas Burbage 115Exhibit 10.14FORM OF RSA – SEVERANCE PLAN PARTICIPANTSAEROVIRONMENT, INC.2006 EQUITY INCENTIVE PLAN,RESTRICTED STOCK AWARD GRANT NOTICE ANDRESTRICTED STOCK AWARD AGREEMENTAeroVironment, Inc., a Delaware corporation (the “Company”), pursuant to its Amended and Restated2006 Equity Incentive Plan (as amended and restated to date, the “Plan”), hereby grants to the individual listedbelow (“Participant”), the right to the number of shares of the Company’s Stock set forth below (the“Shares”). This Restricted Stock award is subject to all of the terms and conditions as set forth herein and in theRestricted Stock Award Agreement attached hereto as Exhibit A (the “Restricted Stock Agreement”) and thePlan, which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Planshall have the same defined meanings in this Grant Notice and the Restricted Stock Agreement. Participant: Grant Date: Vesting Commencement Date: Total Number of Shares ofRestricted Stock: Vesting Schedule:Subject to the accelerated vesting provided in Section 4.13 of the RestrictedStock Agreement, restrictions shall lapse with respect to 1/3 of the Shareson each annual anniversary of the Vesting Commencement Date so that allof the Shares shall be vested and unrestricted on the third annualanniversary of the Vesting Commencement Date. ELECTRONIC ACCEPTANCE OF AWARD:By electronically accepting this Restricted Stock Agreement by clicking on the Accept button box on theGrant Agreement page, Participant agrees to be bound by the terms and conditions of the Plan, the RestrictedStock Agreement and this Grant Notice. Participant has reviewed the Restricted Stock Agreement, the Plan andthis Grant Notice in their entirety, each of which are posted on https://solium.com/, and has had an opportunityto obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of thisGrant Notice, the Restricted Stock Agreement and the Plan. Participant further acknowledges that he or she hasbeen provided with a copy of the prospectus for the Plan. Participant hereby agrees to accept as binding,conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan,this Grant Notice or the Restricted Stock Agreement. FORM OF RSA – SEVERANCE PLAN PARTICIPANTSEXHIBIT ATO RESTRICTED STOCK AWARD GRANT NOTICERESTRICTED STOCK AWARD AGREEMENTPursuant to the Restricted Stock Award Grant Notice (“Grant Notice”) to which this Restricted Stock AwardAgreement (this “Agreement”) is attached, AeroVironment, Inc., a Delaware corporation (the “Company”), has grantedto Participant the right to purchase the number of shares of Restricted Stock under the Company’s 2006 EquityIncentive Plan, amended and restated as of September 30, 2016 (the “Plan”) indicated in the Grant Notice.ARTICLE IGENERAL1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified inthe Plan and the Grant Notice.1.2 Incorporation of Terms of Plan. The Shares are subject to the terms and conditions of the Plan whichare incorporated herein by reference.ARTICLE IIGRANT OF RESTRICTED STOCK2.1 Grant of Restricted Stock. Effective as of the Grant Date set forth in the Grant Notice (the “GrantDate”), upon the terms and conditions set forth in the Plan and this Agreement, the Company irrevocably grants toParticipant the number of shares of Stock set forth in the Grant Notice (the “Shares”), in consideration of Participant’semployment with or service to the Company or any Subsidiary thereof on or before the Grant Date, for which theCommittee has determined Participant has not been fully compensated, and the Committee has determined that thebenefit received by the Company as a result of such employment or service has a value that exceeds the aggregate parvalue of the Shares, which Shares, when issued in accordance with the terms hereof, shall be fully paid andnonassessable.2.2 Issuance of Shares. On the Grant Date, the Company shall issue the Shares to Participant and shall (a)cause a stock certificate or certificates representing the Shares to be registered in the name of Participant, or (b) causesuch Shares to be issued in uncertificated form, with such Shares recorded in the name of Holder in the books andrecords of the Company’s transfer agent, with appropriate notations regarding the restrictions imposed pursuant to thisAgreement. If a stock certificate is issued, it shall be delivered to and held in custody by the Company pursuant toSection 3.6 below and shall bear the restrictive legends required by Section 4.4 below. If the Shares are held in bookentry form, then such entry will reflect that the Shares are subject to the restrictions of this Agreement.2.3 Conditions to Issuance of Stock Certificates. The Shares, or any portion thereof, may be eitherpreviously authorized but unissued shares or issued shares which have then been reacquired by the Company. SuchShares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any Shares prior tofulfillment of all of the following conditions:(a) The admission of such Shares to listing on all stock exchanges on which such Stock is thenlisted; andA-1FORM OF RSA – SEVERANCE PLAN PARTICIPANTS(b) The completion of any registration or other qualification of such shares under any state orfederal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmentalregulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and(c) The obtaining of any approval or other clearance from any state or federal governmentalagency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and(d) The receipt by the Company of full payment for such shares, including payment of all amountswhich, under federal, state, local or foreign tax law, the Company (or other employer corporation) is required towithhold upon issuance of such Shares; and(e) The lapse of such reasonable period of time following the Grant Date as the Committee mayfrom time to time establish for reasons of administrative convenience.2.4 Rights as Stockholder. Except as otherwise provided herein, upon issuance of the Shares by theCompany, Participant shall have all the rights of a stockholder with respect to the Shares, subject to the restrictionsherein, including the right to vote the Shares and to receive all dividends or other distributions paid or made withrespect to the Shares; provided, however, that any and all cash dividends paid on such Shares and any and all shares ofStock, capital stock or other securities received by or distributed to Participant with respect to the Shares as a result ofany stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change inthe capital structure of the Company shall also be subject to the Forfeiture Restriction (as defined in Section 3.1 below)and the restrictions on transfer in Section 3.4 below until such restrictions on the underlying Shares lapse or areremoved pursuant to this Agreement and shall be held by the Company pursuant to Section 3.6 pending the removal ofsuch restrictions.2.5 Consideration to the Company. In consideration of the issuance of the Shares by the Company,Participant agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in the Plan or thisAgreement shall confer upon Participant any right to (a) continue in the employ of the Company or any Subsidiary orshall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which are hereby expresslyreserved, to discharge Participant, if Participant is an Employee, or (b) continue to provide services to the Company orany Subsidiary or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which arehereby expressly reserved, to terminate the services of Participant, if Participant is a consultant, at any time for anyreason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written or electronicagreement between the Company, a Subsidiary and Participant, or (c) continue to serve as a member of the Board orshall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to dischargeParticipant in accordance with the Company’s Bylaws.ARTICLE IIIRESTRICTIONS ON SHARES3.1 Forfeiture Restriction. Subject to the provisions of Sections 3.2 and 4.13 below, if Participant has aTermination of Service (as defined below), all of the Unreleased Shares (as defined below) shall thereupon be forfeitedimmediately and without any further action of the Company (the “Forfeiture Restriction”). Upon the occurrence ofsuch a forfeiture, the Company shall become the legal and beneficial owner of the Unreleased Shares and all rights andinterests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name thenumber of Unreleased SharesA-2FORM OF RSA – SEVERANCE PLAN PARTICIPANTSbeing forfeited by Participant. In the event any of the Shares are forfeited pursuant to this Section 3.1, any dividends orother distributions paid on such Shares and held by the Company shall be retained by the Company. Participant herebyauthorizes and directs the Secretary of the Company, or such other person designated by the Committee, to transfer theUnreleased Shares which have been forfeited pursuant to this Section 3.1 from Participant to the Company.3.2 Release of Shares from Forfeiture Restriction. Subject to Section 3.1 above, the Shares shall be releasedfrom the Forfeiture Restriction as indicated in the Grant Notice. Any of the Shares released from the ForfeitureRestriction shall thereupon be released from the restrictions on transfer under Section 3.4. In the event any of theShares are released from the Forfeiture Restriction, any dividends or other distributions paid on such Shares and held bythe Company pursuant to Section 2.4 shall be promptly paid by the Company to Participant. As soon asadministratively practicable following the release of any Shares from the Forfeiture Restriction, the Company shall, asapplicable, either deliver to Participant the certificate or certificates representing such Shares in the Company’spossession belonging to Participant, or, if the Shares are held in uncertificated form, then the Company shall remove thenotations on any such Shares. Participant (or the beneficiary or personal representative of Participant in the event ofParticipant’s death or incapacity, as the case may be) shall deliver to the Company any representations or otherdocuments or assurances as the Company or its representatives deem necessary or advisable in connection with anysuch delivery.3.3 Unreleased Shares. Any of the Shares which, from time to time, have not yet been released from theForfeiture Restriction are referred to herein as “Unreleased Shares.”3.4 Restrictions on Transfer.(a) Subject to forfeiture to the Company pursuant to Section 3.1 and Section 3.4(b), no UnreleasedShares or any dividends or other distributions thereon or any interest or right therein or part thereof, shall be liable forthe debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to sale or otherdisposition by Participant or his or her successors in interest by transfer, alienation, anticipation, pledge, encumbrance,assignment or any other means whether such sale or other disposition be voluntary or involuntary or by operation oflaw by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy),and any attempted sale or other disposition thereof shall be null and void and of no effect.(b) Notwithstanding any other provision in this Agreement, with the consent of the Committee, theUnreleased Shares may be transferred to certain persons or entities related to the Participant, including but not limited tomembers of the Participant’s family, charitable institutions or trusts or other entities whose beneficiaries or beneficialowners are members of the Participant’s family or to such other persons or entities as may be expressly approved by theCommittee (each a “Permitted Transferee”), pursuant to such conditions and procedures as the Committee mayrequire. Any permitted transfer will be subject to the condition that the Committee receive evidence satisfactory to itthat the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with theParticipant’s Termination of Service with the Company or a Subsidiary to assume a position with a governmental,charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue ofsecurities.3.5 Definition of Termination of Service. For purposes of this Agreement, “Termination of Service” meansthe time when the service relationship (whether as an Employee, member of the Board or a consultant) betweenParticipant and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but notby way of limitation, a termination by resignation, discharge, death or Disability; but excluding (a) a termination wherethere is a simultaneous reemployment or continuingA-3FORM OF RSA – SEVERANCE PLAN PARTICIPANTSemployment or consultancy of Participant by the Company or any Subsidiary or a “parent corporation” of the Company(within the meaning of Section 424 of the Code), (b) at the discretion of the Committee, a termination which results in atemporary severance of the employee-employer relationship, and (c) a termination which is followed by thesimultaneous establishment of a consulting relationship by the Company or a Subsidiary with a former Employee. TheCommittee, in its absolute discretion, shall determine the effect of all matters and questions relating to Termination ofService for the purposes of this Agreement, and all questions of whether a particular leave of absence for a Participantwho is an Employee of the Company or any of its Subsidiaries constitutes a Termination of Service. Notwithstandingany other provision of the Plan or this Agreement, the Company or any Subsidiary has an absolute and unrestrictedright to terminate Participant’s employment and/or consultancy at any time for any reason whatsoever, with or withoutcause, except to the extent expressly provided otherwise in a written or electronic agreement between the Company or aSubsidiary and Participant.3.6 Escrow. The Secretary of the Company, or such other escrow holder as the Committee may appoint,may retain physical custody of the certificates, if any, representing the Shares (and any dividends or other distributionspaid on such Shares) until all of the restrictions imposed pursuant to this Agreement lapse or shall have beenremoved. In such event, Participant shall not retain physical custody of any certificates representing Unreleased Shares(as defined above) issued to Participant (or any dividends or other distributions paid on such Shares). Participant, byacceptance of this Award, shall be deemed to appoint, and does so appoint, the Company and each of its authorizedrepresentatives as Participant’s attorney(s)-in-fact to effect any transfer of forfeited Unreleased Shares (and anydividends or other distributions paid on such Shares) to the Company as may be required pursuant to the Plan or thisAgreement, and to execute such representations or other documents or assurances as the Company or suchrepresentatives deem necessary or advisable in connection with any such transfer. The Company, or its designee, shallnot be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in goodfaith and in the exercise of its judgment.ARTICLE IVOTHER PROVISIONS4.1 Adjustment for Stock Split. In the event of any stock dividend, stock split, reverse stock split,recapitalization, combination, reclassification, or similar change in the capital structure of the Company, the Committeeshall make appropriate and equitable adjustments in the Unreleased Shares subject to the Forfeiture Restriction and thenumber of Shares, consistent with any adjustment under Section 11.1 of the Plan. The provisions of this Agreementshall apply, to the full extent set forth herein with respect to the Shares, to any and all shares of capital stock or othersecurities or other property or cash which may be issued in respect of, in exchange for, or in substitution of the Shares,and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and thelike occurring after the date hereof.4.2 Taxes.(a) Participant has reviewed with Participant’s own tax advisors the federal, state, local and foreigntax consequences of this investment and the transactions contemplated by the Grant Notice and thisAgreement. Participant is relying solely on such advisors and not on any statements or representations of the Companyor any of its agents. Participant understands that Participant (and not the Company) shall be responsible forParticipant’s tax liability that may arise as a result of this investment or the transactions contemplated by thisAgreement. Participant understands that Participant will recognize ordinary income for federal income tax purposesunder Section 83 of the Code as and when the Forfeiture Restriction lapses. Participant understands that Participantmay elect to be taxed for federal income taxA-4FORM OF RSA – SEVERANCE PLAN PARTICIPANTSpurposes at the time the Shares are purchased by Participant rather than as and when the Forfeiture Restriction lapses byfiling an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days from thedate of purchase.PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY AND NOT THECOMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), AND THE COMPANY AND ITSREPRESENTATIVES SHALL HAVE NO OBLIGATION OR AUTHORITY TO MAKE THIS FILING ONPARTICIPANT’S BEHALF.(b) Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled torequire payment (which payment may be made in cash, by deduction from other compensation payable to Participant orin any form of consideration permitted by the Plan) of any sums required by federal, state or local tax law to bewithheld with respect to the issuance, lapsing of restrictions on or sale of the Shares. The Company shall not beobligated to deliver any new certificate representing vested Shares to Participant or Participant’s beneficiary or legalrepresentative unless and until Participant or Participant’s beneficiary or legal representative, as applicable, shall havepaid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income ofParticipant resulting from the issuance, lapsing of restrictions on or sale of the Shares.4.3 Administration. The Committee shall have the power to interpret the Plan and this Agreement and toadopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and tointerpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by theCommittee in good faith shall be final and binding upon Participant, the Company and all other interested persons. Nomember of the Committee shall be personally liable for any action, determination or interpretation made in good faithwith respect to the Plan, this Agreement or the Shares. In its absolute discretion, the Board may at any time and fromtime to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.4.4 Restrictive Legends and Stop-Transfer Orders.(a) Any share certificate(s) evidencing the Shares issued hereunder shall be endorsed with thefollowing legend and any other legends that may be required by state or federal securities laws:THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE UNDER, ANDMAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS AND CONDITIONS OF ARESTRICTED STOCK AWARD AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, ACOPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.(b) Participant agrees that, in order to ensure compliance with the restrictions referred to herein, theCompany may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Companytransfers its own securities, it may make appropriate notations to the same effect in its own records.(c) The Company shall not be required: (i) to transfer on its books any Shares that have been soldor otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat as owner of such Sharesor to accord the right to vote or pay dividends to any purchaser or other transferee to whom such shares shall have beenso transferred.4.5 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressedto the Company in care of the Secretary of the Company at the address given beneath theA-5FORM OF RSA – SEVERANCE PLAN PARTICIPANTSsignature of an authorized officer of the Company on the Grant Notice, and any notice to be given to Participant shallbe addressed to Participant at the address given beneath Participant’s signature on the Grant Notice. By a notice givenpursuant to this Section 4.5, either party may hereafter designate a different address for notices to be given to thatparty. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receiptrequested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by theUnited States Postal Service.4.6 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretationor construction of this Agreement.4.7 Construction. This Agreement shall be administered, interpreted and enforced under the laws of theState of Delaware without regard to conflicts of laws thereof. Should any provision of this Agreement be determined bya court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remainenforceable.4.8 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to theextent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rulespromulgated by the Securities and Exchange Commission thereunder, and state securities laws andregulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Shares are to beissued, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicablelaw, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules andregulations.4.9 Amendments. This Agreement may not be modified, amended or terminated except by an instrumentsigned or electronically accepted by Participant and by a duly authorized representative of the Company.4.10 Successors and Assigns. The Company may assign any of its rights under this Agreement to single ormultiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subjectto the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs,executors, administrators, successors and assigns.4.11 Entire Agreement. The Plan, the Grant Notice and this Agreement constitute the entire agreement of theparties and supersede in their entirety all prior undertakings and agreements of the Company and Participant withrespect to the subject matter hereof.4.12 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver anydocuments related to current or future participation in the Plan by electronic means. Participant hereby consents toreceive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronicsystem established and maintained by the Company or a third party designated by the Company.4.13 Change in Control.(a) In the event Participant has a Qualifying Termination (as defined below) prior to the occurrence of a Changein Control (as defined below), the Unreleased Shares shall cease vesting but shall remain outstanding for a period equalto three (3) months after the date of the Termination of Service (such period, the “Post Termination Period”). If aChange in Control occurs within such Post Termination Period, the Unreleased Shares will vest and be released fromany forfeiture or repurchase restrictions effective as of the date of such Change in Control. If a Change in Control doesnot occur within the Post Termination Period, the Unreleased Shares shall be cancelled and forfeited by Participant.A-6FORM OF RSA – SEVERANCE PLAN PARTICIPANTS(b) In the event Participant has a Qualifying Termination (as defined below) within eighteen (18) monthsfollowing a Change in Control, then all of the Unreleased Shares will vest and be released from any forfeiture orrepurchase restrictions effective as of the effective date of Participant's Full Release, as described below. In the event ofParticipant's Qualifying Termination under the circumstances described in this Section 4.13(b), the Unreleased Sharesshall remain outstanding for a period of thirty (30) days after Participant's Termination of Service in order to providetime for the Full Release (as defined below) to be executed and become effective.(c) In order to be eligible for the accelerated vesting described in this Section 4.13, Participant mustprovide the Company with a Full Release (as defined in the Severance Plan (as defined below)) in a form satisfactory tothe Company and similar to the agreement set forth in Exhibit B to the Severance Plan (with such changes as may bereasonably required to such form to help ensure its enforceability in light of any changes in applicable law) pursuant towhich Participant fully and completely releases the Company and its affiliates and other related parties from all claimsthat Participant may have against the Company (other than any claims that may arise or have arisen under thisAgreement or this Award or that cannot be released under applicable law). The Full Release must become effective inaccordance with its terms prior to the date that is thirty (30) days following the date of Participant's Termination ofService (including the expiration of any revocation period thereunder without Participant's revocation of the FullRelease). In the event the Full Release does not become effective in accordance with its terms prior to the date that isthirty (30) days following the date of Participant's Termination of Service (including the expiration of any revocationperiod thereunder without Participant's revocation of the Full Release), the Unreleased Shares shall be cancelled andforfeited by Participant.(d) Defined terms used in this Section 4.13 without definition, including Change in Control, Full Releaseand Qualifying Termination, shall have the meanings given to such terms in that certain AeroVironment, Inc. ExecutiveSeverance Plan effective January 1, 2019, as amended from time to timeA-7Exhibit 10.15FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSAEROVIRONMENT, INC.2006 EQUITY INCENTIVE PLAN,RESTRICTED STOCK AWARD GRANT NOTICE ANDRESTRICTED STOCK AWARD AGREEMENTAeroVironment, Inc., a Delaware corporation (the “Company”), pursuant to its Amended and Restated 2006 EquityIncentive Plan (as amended and restated to date, the “Plan”), hereby grants to the individual listed below (“Participant”),the right to the number of shares of the Company’s Stock set forth below (the “Shares”). This Restricted Stock award issubject to all of the terms and conditions as set forth herein and in the Restricted Stock Award Agreement attached hereto asExhibit A (the “Restricted Stock Agreement”) and the Plan, which are incorporated herein by reference. Unless otherwisedefined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the RestrictedStock Agreement. Participant: Grant Date: Vesting Commencement Date: Total Number of Shares ofRestricted Stock: Vesting Schedule:Subject to the accelerated vesting provided in Section 4.13 of the Restricted StockAgreement, restrictions shall lapse with respect to 1/3 of the Shares on each annualanniversary of the Vesting Commencement Date so that all of the Shares shall be vestedand unrestricted on the third annual anniversary of the Vesting Commencement Date. ELECTRONIC ACCEPTANCE OF AWARD:By electronically accepting this Restricted Stock Agreement by clicking on the Accept button box on the GrantAgreement page, Participant agrees to be bound by the terms and conditions of the Plan, the Restricted Stock Agreementand this Grant Notice. Participant has reviewed the Restricted Stock Agreement, the Plan and this Grant Notice in theirentirety, each of which are posted on https://solium.com/, and has had an opportunity to obtain the advice of counsel priorto executing this Grant Notice and fully understands all provisions of this Grant Notice, the Restricted Stock Agreement andthe Plan. Participant further acknowledges that he or she has been provided with a copy of the prospectus for thePlan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committeeupon any questions arising under the Plan, this Grant Notice or the Restricted Stock Agreement. FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSEXHIBIT ATO RESTRICTED STOCK AWARD GRANT NOTICERESTRICTED STOCK AWARD AGREEMENTPursuant to the Restricted Stock Award Grant Notice (“Grant Notice”) to which this Restricted StockAward Agreement (this “Agreement”) is attached, AeroVironment, Inc., a Delaware corporation (the“Company”), has granted to Participant the right to purchase the number of shares of Restricted Stock under theCompany’s 2006 Equity Incentive Plan, amended and restated as of September 30, 2016 (the “Plan”) indicatedin the Grant Notice.ARTICLE IGENERAL1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meaningsspecified in the Plan and the Grant Notice.1.2 Incorporation of Terms of Plan. The Shares are subject to the terms and conditions of the Planwhich are incorporated herein by reference.ARTICLE IIGRANT OF RESTRICTED STOCK2.1 Grant of Restricted Stock. Effective as of the Grant Date set forth in the Grant Notice (the“Grant Date”), upon the terms and conditions set forth in the Plan and this Agreement, the Companyirrevocably grants to Participant the number of shares of Stock set forth in the Grant Notice (the “Shares”), inconsideration of Participant’s employment with or service to the Company or any Subsidiary thereof on orbefore the Grant Date, for which the Committee has determined Participant has not been fully compensated, andthe Committee has determined that the benefit received by the Company as a result of such employment orservice has a value that exceeds the aggregate par value of the Shares, which Shares, when issued inaccordance with the terms hereof, shall be fully paid and nonassessable.2.2 Issuance of Shares. On the Grant Date, the Company shall issue the Shares to Participant andshall (a) cause a stock certificate or certificates representing the Shares to be registered in the name ofParticipant, or (b) cause such Shares to be issued in uncertificated form, with such Shares recorded in the nameof Holder in the books and records of the Company’s transfer agent, with appropriate notations regarding therestrictions imposed pursuant to this Agreement. If a stock certificate is issued, it shall be delivered to and heldin custody by the Company pursuant to Section 3.6 below and shall bear the restrictive legends required bySection 4.4 below. If the Shares are held in book entry form, then such entry will reflect that the Shares aresubject to the restrictions of this Agreement.2.3 Conditions to Issuance of Stock Certificates. The Shares, or any portion thereof, may be eitherpreviously authorized but unissued shares or issued shares which have then been reacquired by theCompany. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue ordeliver any Shares prior to fulfillment of all of the following conditions:(a) The admission of such Shares to listing on all stock exchanges on which such Stock isthen listed; andA-1FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTS(b) The completion of any registration or other qualification of such shares under any stateor federal law or under rulings or regulations of the Securities and Exchange Commission or of any othergovernmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary oradvisable; and(c) The obtaining of any approval or other clearance from any state or federalgovernmental agency which the Committee shall, in its absolute discretion, determine to be necessary oradvisable; and(d) The receipt by the Company of full payment for such shares, including payment of allamounts which, under federal, state, local or foreign tax law, the Company (or other employer corporation) isrequired to withhold upon issuance of such Shares; and(e) The lapse of such reasonable period of time following the Grant Date as the Committeemay from time to time establish for reasons of administrative convenience.2.4 Rights as Stockholder. Except as otherwise provided herein, upon issuance of the Shares by theCompany, Participant shall have all the rights of a stockholder with respect to the Shares, subject to therestrictions herein, including the right to vote the Shares and to receive all dividends or other distributions paidor made with respect to the Shares; provided, however, that any and all cash dividends paid on such Shares andany and all shares of Stock, capital stock or other securities received by or distributed to Participant with respectto the Shares as a result of any stock dividend, stock split, reverse stock split, recapitalization, combination,reclassification, or similar change in the capital structure of the Company shall also be subject to the ForfeitureRestriction (as defined in Section 3.1 below) and the restrictions on transfer in Section 3.4 below until suchrestrictions on the underlying Shares lapse or are removed pursuant to this Agreement and shall be held by theCompany pursuant to Section 3.6 pending the removal of such restrictions.2.5 Consideration to the Company. In consideration of the issuance of the Shares by the Company,Participant agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in thePlan or this Agreement shall confer upon Participant any right to (a) continue in the employ of the Company orany Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries,which are hereby expressly reserved, to discharge Participant, if Participant is an Employee, or (b) continue toprovide services to the Company or any Subsidiary or shall interfere with or restrict in any way the rights of theCompany or its Subsidiaries, which are hereby expressly reserved, to terminate the services of Participant, ifParticipant is a consultant, at any time for any reason whatsoever, with or without cause, except to the extentexpressly provided otherwise in a written or electronic agreement between the Company, a Subsidiary andParticipant, or (c) continue to serve as a member of the Board or shall interfere with or restrict in any way therights of the Company, which are hereby expressly reserved, to discharge Participant in accordance with theCompany’s Bylaws.ARTICLE IIIRESTRICTIONS ON SHARES3.1 Forfeiture Restriction. Subject to the provisions of Sections 3.2 and 4.13 below, if Participanthas a Termination of Service (as defined below), all of the Unreleased Shares (as defined below) shallthereupon be forfeited immediately and without any further action of the Company (the “ForfeitureRestriction”). Upon the occurrence of such a forfeiture, the Company shall become the legal and beneficialowner of the Unreleased Shares and all rights and interests therein or relating thereto, and the Company shallhave the right to retain and transfer to its own name the number of Unreleased SharesA-2FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSbeing forfeited by Participant. In the event any of the Shares are forfeited pursuant to this Section 3.1, anydividends or other distributions paid on such Shares and held by the Company shall be retained by theCompany. Participant hereby authorizes and directs the Secretary of the Company, or such other persondesignated by the Committee, to transfer the Unreleased Shares which have been forfeited pursuant to thisSection 3.1 from Participant to the Company.3.2 Release of Shares from Forfeiture Restriction. Subject to Section 3.1 above, the Shares shall bereleased from the Forfeiture Restriction as indicated in the Grant Notice. Any of the Shares released from theForfeiture Restriction shall thereupon be released from the restrictions on transfer under Section 3.4. In theevent any of the Shares are released from the Forfeiture Restriction, any dividends or other distributions paid onsuch Shares and held by the Company pursuant to Section 2.4 shall be promptly paid by the Company toParticipant. As soon as administratively practicable following the release of any Shares from the ForfeitureRestriction, the Company shall, as applicable, either deliver to Participant the certificate or certificatesrepresenting such Shares in the Company’s possession belonging to Participant, or, if the Shares are held inuncertificated form, then the Company shall remove the notations on any such Shares. Participant (or thebeneficiary or personal representative of Participant in the event of Participant’s death or incapacity, as the casemay be) shall deliver to the Company any representations or other documents or assurances as the Company orits representatives deem necessary or advisable in connection with any such delivery.3.3 Unreleased Shares. Any of the Shares which, from time to time, have not yet been releasedfrom the Forfeiture Restriction are referred to herein as “Unreleased Shares.”3.4 Restrictions on Transfer.(a) Subject to forfeiture to the Company pursuant to Section 3.1 and Section 3.4(b), noUnreleased Shares or any dividends or other distributions thereon or any interest or right therein or part thereof,shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shallbe subject to sale or other disposition by Participant or his or her successors in interest by transfer, alienation,anticipation, pledge, encumbrance, assignment or any other means whether such sale or other disposition bevoluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legalor equitable proceedings (including bankruptcy), and any attempted sale or other disposition thereof shall benull and void and of no effect.(b) Notwithstanding any other provision in this Agreement, with the consent of theCommittee, the Unreleased Shares may be transferred to certain persons or entities related to the Participant,including but not limited to members of the Participant’s family, charitable institutions or trusts or other entitieswhose beneficiaries or beneficial owners are members of the Participant’s family or to such other persons orentities as may be expressly approved by the Committee (each a “Permitted Transferee”), pursuant to suchconditions and procedures as the Committee may require. Any permitted transfer will be subject to thecondition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/ortax planning purposes (or to a “blind trust” in connection with the Participant’s Termination of Service with theCompany or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.3.5 Definition of Termination of Service. For purposes of this Agreement, “Termination ofService” means the time when the service relationship (whether as an Employee, member of the Board or aconsultant) between Participant and the Company or any Subsidiary is terminated for any reason, with orwithout cause, including, but not by way of limitation, a termination by resignation, discharge, death orDisability; but excluding (a) a termination where there is a simultaneous reemployment or continuingA-3FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSemployment or consultancy of Participant by the Company or any Subsidiary or a “parent corporation” of theCompany (within the meaning of Section 424 of the Code), (b) at the discretion of the Committee, a terminationwhich results in a temporary severance of the employee-employer relationship, and (c) a termination which isfollowed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with aformer Employee. The Committee, in its absolute discretion, shall determine the effect of all matters andquestions relating to Termination of Service for the purposes of this Agreement, and all questions of whether aparticular leave of absence for a Participant who is an Employee of the Company or any of its Subsidiariesconstitutes a Termination of Service. Notwithstanding any other provision of the Plan or this Agreement, theCompany or any Subsidiary has an absolute and unrestricted right to terminate Participant’s employment and/orconsultancy at any time for any reason whatsoever, with or without cause, except to the extent expresslyprovided otherwise in a written or electronic agreement between the Company or a Subsidiary and Participant.3.6 Escrow. The Secretary of the Company, or such other escrow holder as the Committee mayappoint, may retain physical custody of the certificates, if any, representing the Shares (and any dividends orother distributions paid on such Shares) until all of the restrictions imposed pursuant to this Agreement lapse orshall have been removed. In such event, Participant shall not retain physical custody of any certificatesrepresenting Unreleased Shares (as defined above) issued to Participant (or any dividends or other distributionspaid on such Shares). Participant, by acceptance of this Award, shall be deemed to appoint, and does soappoint, the Company and each of its authorized representatives as Participant’s attorney(s)-in-fact to effect anytransfer of forfeited Unreleased Shares (and any dividends or other distributions paid on such Shares) to theCompany as may be required pursuant to the Plan or this Agreement, and to execute such representations orother documents or assurances as the Company or such representatives deem necessary or advisable inconnection with any such transfer. The Company, or its designee, shall not be liable for any act it may do oromit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of itsjudgment.ARTICLE IVOTHER PROVISIONS4.1 Adjustment for Stock Split. In the event of any stock dividend, stock split, reverse stock split,recapitalization, combination, reclassification, or similar change in the capital structure of the Company, theCommittee shall make appropriate and equitable adjustments in the Unreleased Shares subject to the ForfeitureRestriction and the number of Shares, consistent with any adjustment under Section 11.1 of the Plan. Theprovisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any andall shares of capital stock or other securities or other property or cash which may be issued in respect of, inexchange for, or in substitution of the Shares, and shall be appropriately adjusted for any stock dividends,splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.4.2 Taxes.(a) Participant has reviewed with Participant’s own tax advisors the federal, state, local andforeign tax consequences of this investment and the transactions contemplated by the Grant Notice and thisAgreement. Participant is relying solely on such advisors and not on any statements or representations of theCompany or any of its agents. Participant understands that Participant (and not the Company) shall beresponsible for Participant’s tax liability that may arise as a result of this investment or the transactionscontemplated by this Agreement. Participant understands that Participant will recognize ordinary income forfederal income tax purposes under Section 83 of the Code as and when the Forfeiture Restrictionlapses. Participant understands that Participant may elect to be taxed for federal income taxA-4FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSpurposes at the time the Shares are purchased by Participant rather than as and when the Forfeiture Restrictionlapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30)days from the date of purchase.PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY ANDNOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), AND THE COMPANYAND ITS REPRESENTATIVES SHALL HAVE NO OBLIGATION OR AUTHORITY TO MAKE THIS FILINGON PARTICIPANT’S BEHALF.(b) Notwithstanding anything to the contrary in this Agreement, the Company shall beentitled to require payment (which payment may be made in cash, by deduction from other compensationpayable to Participant or in any form of consideration permitted by the Plan) of any sums required by federal,state or local tax law to be withheld with respect to the issuance, lapsing of restrictions on or sale of theShares. The Company shall not be obligated to deliver any new certificate representing vested Shares toParticipant or Participant’s beneficiary or legal representative unless and until Participant or Participant’sbeneficiary or legal representative, as applicable, shall have paid or otherwise satisfied in full the amount of allfederal, state and local taxes applicable to the taxable income of Participant resulting from the issuance, lapsingof restrictions on or sale of the Shares.4.3 Administration. The Committee shall have the power to interpret the Plan and this Agreementand to adopt such rules for the administration, interpretation and application of the Plan as are consistenttherewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations anddeterminations made by the Committee in good faith shall be final and binding upon Participant, the Companyand all other interested persons. No member of the Committee shall be personally liable for any action,determination or interpretation made in good faith with respect to the Plan, this Agreement or the Shares. In itsabsolute discretion, the Board may at any time and from time to time exercise any and all rights and duties ofthe Committee under the Plan and this Agreement.4.4 Restrictive Legends and Stop-Transfer Orders.(a) Any share certificate(s) evidencing the Shares issued hereunder shall be endorsed withthe following legend and any other legends that may be required by state or federal securities laws:THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE UNDER,AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS AND CONDITIONSOF A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE COMPANY AND THESTOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.(b) Participant agrees that, in order to ensure compliance with the restrictions referred toherein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, ifthe Company transfers its own securities, it may make appropriate notations to the same effect in its ownrecords.(c) The Company shall not be required: (i) to transfer on its books any Shares that havebeen sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat asowner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee towhom such shares shall have been so transferred.4.5 Notices. Any notice to be given under the terms of this Agreement to the Company shall beaddressed to the Company in care of the Secretary of the Company at the address given beneath theA-5FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSsignature of an authorized officer of the Company on the Grant Notice, and any notice to be given to Participantshall be addressed to Participant at the address given beneath Participant’s signature on the Grant Notice. By anotice given pursuant to this Section 4.5, either party may hereafter designate a different address for notices tobe given to that party. Any notice shall be deemed duly given when sent via email or when sent by certifiedmail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post officeregularly maintained by the United States Postal Service.4.6 Titles. Titles are provided herein for convenience only and are not to serve as a basis forinterpretation or construction of this Agreement.4.7 Construction. This Agreement shall be administered, interpreted and enforced under the lawsof the State of Delaware without regard to conflicts of laws thereof. Should any provision of this Agreement bedetermined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remaineffective and shall remain enforceable.4.8 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conformto the extent necessary with all provisions of the Securities Act and the Exchange Act and any and allregulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securitieslaws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and theShares are to be issued, only in such a manner as to conform to such laws, rules and regulations. To the extentpermitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary toconform to such laws, rules and regulations.4.9 Amendments. This Agreement may not be modified, amended or terminated except by aninstrument signed or electronically accepted by Participant and by a duly authorized representative of theCompany.4.10 Successors and Assigns. The Company may assign any of its rights under this Agreement tosingle or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of theCompany. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding uponParticipant and his or her heirs, executors, administrators, successors and assigns.4.11 Entire Agreement. The Plan, the Grant Notice and this Agreement constitute the entireagreement of the parties and supersede in their entirety all prior undertakings and agreements of the Companyand Participant with respect to the subject matter hereof.4.12 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide todeliver any documents related to current or future participation in the Plan by electronic means. Participanthereby consents to receive such documents by electronic delivery and agrees to participate in the Plan throughan on-line or electronic system established and maintained by the Company or a third party designated by theCompany.4.13 Change in Control.(a) In the event that Participant has a Qualifying Termination(as defined below) withineighteen (18) months following a Change in Control (as defined below), then all of the Unreleased Shares willvest and be released from any forfeiture or repurchase restrictions effective as of the effective date ofParticipant's “Full Release,” as described below. In order to be eligible for the accelerated vesting described inthis Section 4.13(a), Participant must provide the Company with a full release in a form satisfactory to theCompany pursuant to which Participant fully and completely releases the Company and its affiliates and otherrelated parties from all claims that Participant may have against the Company (other than anyA-6FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSclaims that may arise or have arisen under this Agreement or this Award or that cannot be released underapplicable law) (the “Full Release”). The Full Release must become effective in accordance with its terms priorto the date that is thirty (30) days following the date of Participant's Termination of Service (including theexpiration of any revocation period thereunder without Participant's revocation of the Full Release).. In theevent of Participant's Qualifying Termination under the circumstances described in this Section 4.13(a), theUnreleased Shares shall remain outstanding for a period of thirty (30) days after Participant's Termination ofService in order to provide time for the Full Release to be executed and become effective. In the event the FullRelease does not become effective in accordance with its terms prior to the date that is thirty (30) daysfollowing the date of Participant's Termination of Service (including the expiration of any revocation periodthereunder without Participant's revocation of the Full Release), the Unreleased Shares shall be cancelled andforfeited by Participant.(b) The following terms shall have the meanings given below when used in thisSection 4.13:“Beneficial Owner” has the meaning as used in Rule 13d-3 promulgated under the Exchange Act. Theterms “Beneficially Owned” and “Beneficial Ownership” each have a correlative meaning.“Cause” will be defined as that term is defined in Participant's offer letter or other applicableemployment agreement. If there is no such definition, “Cause” means, as determined by the Company in itssole discretion: (a) being convicted for committing an act of fraud, embezzlement, theft, or other actconstituting a felony (other than traffic related offenses or as a result of vicarious liability), (b) willfullyengaging in illegal conduct or gross misconduct that would (i) adversely affect the business or the reputation ofthe Company or any of its affiliates with their respective current or prospective customers, suppliers, lenders, orother third parties with whom such entity does or might do business or (ii) expose the Company or any of itsaffiliates to a risk of civil or criminal legal damages, liabilities, or penalties; however, no act or failure to act onParticipant's part will be considered “willful” unless done or omitted to be done by Participant not in good faithand without reasonable belief that Participant's action or omission was in the best interest of the Company; or(c) failing to perform Participant's duties in a reasonably satisfactory manner after the receipt of a notice fromthe Company detailing such failure if the failure is incapable of cure, and if the failure is capable of cure, uponthe failure to cure such failure within thirty (30) days of such notice or upon its recurrence.“Change in Control” of the Company means, and will be deemed to have occurred upon, any of thefollowing events:(a) The acquisition by any Person of Beneficial Ownership of thirty percent (30%) or more of theoutstanding voting power; provided, however, that the following acquisitions shall not constitute a Change inControl for purposes of this subparagraph (a): (i) any acquisition directly from the Company; (ii) anyacquisition by the Company or any of its Subsidiaries; (iii) any acquisition by any employee benefit plan (orrelated trust) sponsored or maintained by the Company or any of its Subsidiaries; or (iv) any acquisition by anyPerson pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subparagraph (c) below; or(b) Individuals who at the beginning of any two-year period constitute the Board (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board; provided, however, that anyindividual who becomes a director of the Company during such two-year period and whose election, or whosenomination for election by the Company’s stockholders, to the Board was either (i) approved by a vote of atleast a majority of the directors then comprising the Incumbent Board or (ii) recommended by a nominatingcommittee comprised entirely of directors who are then Incumbent Board members shall be considered asthough such individual were a member of the Incumbent Board, butA-7FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSexcluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either anactual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgatedunder the Exchange Act), other actual or threatened solicitation of proxies or consents or an actual or threatenedtender offer; or(c) Consummation of a reorganization, merger, or consolidation or sale or other disposition of allor substantially all of the assets of the Company (a “Business Combination”), in each case unless followingsuch Business Combination, (i) all or substantially all of the Persons who were the Beneficial Owners,respectively, of the outstanding shares and outstanding voting securities immediately prior to such BusinessCombination own, directly or indirectly, more than fifty percent (50%) of the combined voting power of thethen outstanding voting securities entitled to vote generally in the election of directors of the Company, as thecase may be, of the entity resulting from the Business Combination (including, without limitation, an entitywhich as a result of such transaction owns the Company or all or substantially all of the Company’s assets eitherdirectly or through one or more subsidiaries) in substantially the same proportions as their ownership,immediately prior to such Business Combination, of the outstanding voting securities (provided, however, thatfor purposes of this clause (i) any shares of common stock or voting securities of such resulting entity receivedby such Beneficial Owners in such Business Combination other than as the result of such Beneficial Owners’ownership of outstanding shares or outstanding voting securities immediately prior to such BusinessCombination will not be considered to be owned by such Beneficial Owners for the purposes of calculatingtheir percentage of ownership of the outstanding common stock and voting power of the resulting entity);(ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (orrelated trust) of the Company or such entity resulting from the Business Combination) beneficially owns,directly or indirectly, thirty percent (30%) or more of the combined voting power of the then outstanding votingsecurities of such entity resulting from the Business Combination unless such Person owned thirty percent(30%) or more of the outstanding shares or outstanding voting securities immediately prior to the BusinessCombination; and (iii) at least a majority of the members of the board of directors of the entity resulting fromsuch Business Combination were members of the Board at the time of the execution of the initial agreement orthe action of the Board, providing for such Business Combination; or(d) Approval by the Company’s stockholders of a complete liquidation or dissolution of theCompany.For purposes of clause (c), any Person who acquires outstanding voting securities of the entity resultingfrom the Business Combination by virtue of ownership, prior to such Business Combination, of outstandingvoting securities of both the Company and the entity or entities with which the Company is combined shall betreated as two Persons after the Business Combination, who shall be treated as owning outstanding votingsecurities of the entity resulting from the Business Combination by virtue of ownership, prior to such BusinessCombination of, respectively, outstanding voting securities of the Company, and of the entity or entities withwhich the Company is combined.“Disability” will be defined as that term is defined in Participant's offer letter or other applicableemployment agreement. If there is no such definition, “Disability” means an incapacity that has resulted inParticipant's qualification to receive long-term disability benefits under the Company’s long term disability planor, if Participant is not covered by the Company’s long term disability plan, incapacity that results in adetermination by the Social Security Administration that Participant is entitled to a Social Security disabilitybenefit.“Good Reason” will be defined as that term is defined in Participant's offer letter or other applicableemployment agreement. If there is no such definition, “Good Reason” means the occurrence of any of thefollowing events without Participant's written consent: (a)(i) (i) any material adverse change in Participant'sauthority, duties, or responsibilities (including reporting responsibilities) from Participant's authority,A-8FORM OF RSA – NON-SEVERANCE PLAN PARTICIPANTSduties, and responsibilities as in effect at any time within three months preceding the date of the Change inControl or at any time thereafter, or (ii) if Participant is an executive officer of the Company a significantportion of whose responsibilities relate to the Company’s status as a public company, Participant's failure tocontinue to serve as an executive officer of a public company, in each case except in connection with thetermination of Participant's employment for Disability, for Cause, as a result of Participant's death, or byParticipant other than for Good Reason; (b) the imposition of a requirement that Participant be based at anyplace outside a 60-mile radius from Participant's principal place of employment immediately prior to theChange in Control except for reasonably required travel on Company business that is not materially greater infrequency or duration than prior to the Change in Control; or (d) any material breach by the Company of anyprovision of this Agreement or any employment agreement with Participant. In order to terminate for GoodReason, Participant must (a) reasonably determine in good faith that a Good Reason condition has occurred; (b)notify the Company in writing of the occurrence of the condition within ninety (90) days; (c) cooperate in goodfaith with the Company’s efforts, for a period of not less than thirty (30) days following such notice, to remedythe condition (after which time the condition still exists); and (d) terminate employment within sixty (60) daysafter that remedy period.“Person” has the meaning as defined in Section 3(a)(9) of the Exchange Act, and used inSection 13(d) or 14(d) of the Exchange Act, and will include any “group” as such term is used in suchsections.“Subsidiary” means any corporation with respect to which another specified corporation has thepower under ordinary circumstances to vote or direct the voting of sufficient securities to elect amajority of the directors.A-9Exhibit 10.16FORM OF RSA – NON-MANAGEMENT DIRECTORSAEROVIRONMENT, INC.2006 EQUITY INCENTIVE PLAN,RESTRICTED STOCK AWARD GRANT NOTICE ANDRESTRICTED STOCK AWARD AGREEMENTAeroVironment, Inc., a Delaware corporation (the “Company”), pursuant to its Amended andRestated 2006 Equity Incentive Plan (as amended and restated to date, the “Plan”), hereby grants to theindividual listed below (“Participant”), the right to the number of shares of the Company’s Stock set forthbelow (the “Shares”). This Restricted Stock award is subject to all of the terms and conditions as set forthherein and in the Restricted Stock Award Agreement attached hereto as Exhibit A (the “Restricted StockAgreement”) and the Plan, which are incorporated herein by reference. Unless otherwise defined herein, theterms defined in the Plan shall have the same defined meanings in this Grant Notice and the RestrictedStock Agreement. Participant: Grant Date: Vesting Commencement Date: Total Number of Shares ofRestricted Stock: Vesting Schedule:Subject to the accelerated vesting provided in Section 4.13 of theRestricted Stock Agreement, restrictions shall lapse with respect to 1/3 ofthe Shares on each annual anniversary of the Vesting CommencementDate so that all of the Shares shall be vested and unrestricted on the thirdannual anniversary of the Vesting Commencement Date. ELECTRONIC ACCEPTANCE OF AWARD:By electronically accepting this Restricted Stock Agreement by clicking on the Accept button boxon the Grant Agreement page, Participant agrees to be bound by the terms and conditions of the Plan, theRestricted Stock Agreement and this Grant Notice. Participant has reviewed the Restricted Stock Agreement,the Plan and this Grant Notice in their entirety, each of which are posted on https://solium.com/, and has hadan opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands allprovisions of this Grant Notice, the Restricted Stock Agreement and the Plan. Participant furtheracknowledges that he or she has been provided with a copy of the prospectus for the Plan. Participanthereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committeeupon any questions arising under the Plan, this Grant Notice or the Restricted Stock Agreement. FORM OF RSA – NON-MANAGEMENT DIRECTORSEXHIBIT ATO RESTRICTED STOCK AWARD GRANT NOTICERESTRICTED STOCK AWARD AGREEMENTPursuant to the Restricted Stock Award Grant Notice (“Grant Notice”) to which this Restricted StockAward Agreement (this “Agreement”) is attached, AeroVironment, Inc., a Delaware corporation (the“Company”), has granted to Participant the right to purchase the number of shares of Restricted Stock under theCompany’s 2006 Equity Incentive Plan, amended and restated as of September 30, 2016 (the “Plan”) indicatedin the Grant Notice.ARTICLE IGENERAL1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meaningsspecified in the Plan and the Grant Notice.1.2 Incorporation of Terms of Plan. The Shares are subject to the terms and conditions of the Planwhich are incorporated herein by reference.ARTICLE IIGRANT OF RESTRICTED STOCK2.1 Grant of Restricted Stock. Effective as of the Grant Date set forth in the Grant Notice (the“Grant Date”), upon the terms and conditions set forth in the Plan and this Agreement, the Companyirrevocably grants to Participant the number of shares of Stock set forth in the Grant Notice (the “Shares”), inconsideration of Participant’s employment with or service to the Company or any Subsidiary thereof on orbefore the Grant Date, for which the Committee has determined Participant has not been fully compensated, andthe Committee has determined that the benefit received by the Company as a result of such employment orservice has a value that exceeds the aggregate par value of the Shares, which Shares, when issued inaccordance with the terms hereof, shall be fully paid and nonassessable.2.2 Issuance of Shares. On the Grant Date, the Company shall issue the Shares to Participant andshall (a) cause a stock certificate or certificates representing the Shares to be registered in the name ofParticipant, or (b) cause such Shares to be issued in uncertificated form, with such Shares recorded in the nameof Holder in the books and records of the Company’s transfer agent, with appropriate notations regarding therestrictions imposed pursuant to this Agreement. If a stock certificate is issued, it shall be delivered to and heldin custody by the Company pursuant to Section 3.6 below and shall bear the restrictive legends required bySection 4.4 below. If the Shares are held in book entry form, then such entry will reflect that the Shares aresubject to the restrictions of this Agreement.2.3 Conditions to Issuance of Stock Certificates. The Shares, or any portion thereof, may be eitherpreviously authorized but unissued shares or issued shares which have then been reacquired by theCompany. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue ordeliver any Shares prior to fulfillment of all of the following conditions:(a) The admission of such Shares to listing on all stock exchanges on which such Stock isthen listed; andA-1FORM OF RSA – NON-MANAGEMENT DIRECTORS(b) The completion of any registration or other qualification of such shares under any stateor federal law or under rulings or regulations of the Securities and Exchange Commission or of any othergovernmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary oradvisable; and(c) The obtaining of any approval or other clearance from any state or federalgovernmental agency which the Committee shall, in its absolute discretion, determine to be necessary oradvisable; and(d) The receipt by the Company of full payment for such shares, including payment of allamounts which, under federal, state, local or foreign tax law, the Company (or other employer corporation) isrequired to withhold upon issuance of such Shares; and(e) The lapse of such reasonable period of time following the Grant Date as the Committeemay from time to time establish for reasons of administrative convenience.2.4 Rights as Stockholder. Except as otherwise provided herein, upon issuance of the Shares by theCompany, Participant shall have all the rights of a stockholder with respect to the Shares, subject to therestrictions herein, including the right to vote the Shares and to receive all dividends or other distributions paidor made with respect to the Shares; provided, however, that any and all cash dividends paid on such Shares andany and all shares of Stock, capital stock or other securities received by or distributed to Participant with respectto the Shares as a result of any stock dividend, stock split, reverse stock split, recapitalization, combination,reclassification, or similar change in the capital structure of the Company shall also be subject to the ForfeitureRestriction (as defined in Section 3.1 below) and the restrictions on transfer in Section 3.4 below until suchrestrictions on the underlying Shares lapse or are removed pursuant to this Agreement and shall be held by theCompany pursuant to Section 3.6 pending the removal of such restrictions.2.5 Consideration to the Company. In consideration of the issuance of the Shares by the Company,Participant agrees to render faithful and efficient services to the Company or any Subsidiary. Nothing in thePlan or this Agreement shall confer upon Participant any right to (a) continue in the employ of the Company orany Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries,which are hereby expressly reserved, to discharge Participant, if Participant is an Employee, or (b) continue toprovide services to the Company or any Subsidiary or shall interfere with or restrict in any way the rights of theCompany or its Subsidiaries, which are hereby expressly reserved, to terminate the services of Participant, ifParticipant is a consultant, at any time for any reason whatsoever, with or without cause, except to the extentexpressly provided otherwise in a written or electronic agreement between the Company, a Subsidiary andParticipant, or (c) continue to serve as a member of the Board or shall interfere with or restrict in any way therights of the Company, which are hereby expressly reserved, to discharge Participant in accordance with theCompany’s Bylaws.ARTICLE IIIRESTRICTIONS ON SHARES3.1 Forfeiture Restriction. Subject to the provisions of Sections 3.2 and 4.13 below, if Participanthas a Termination of Service (as defined below), all of the Unreleased Shares (as defined below) shallthereupon be forfeited immediately and without any further action of the Company (the “ForfeitureRestriction”). Upon the occurrence of such a forfeiture, the Company shall become the legal and beneficialowner of the Unreleased Shares and all rights and interests therein or relating thereto, and the Company shallhave the right to retain and transfer to its own name the number of Unreleased SharesA-2FORM OF RSA – NON-MANAGEMENT DIRECTORSbeing forfeited by Participant. In the event any of the Shares are forfeited pursuant to this Section 3.1, anydividends or other distributions paid on such Shares and held by the Company shall be retained by theCompany. Participant hereby authorizes and directs the Secretary of the Company, or such other persondesignated by the Committee, to transfer the Unreleased Shares which have been forfeited pursuant to thisSection 3.1 from Participant to the Company.3.2 Release of Shares from Forfeiture Restriction. Subject to Section 3.1 above, the Shares shall bereleased from the Forfeiture Restriction as indicated in the Grant Notice. Any of the Shares released from theForfeiture Restriction shall thereupon be released from the restrictions on transfer under Section 3.4. In theevent any of the Shares are released from the Forfeiture Restriction, any dividends or other distributions paid onsuch Shares and held by the Company pursuant to Section 2.4 shall be promptly paid by the Company toParticipant. As soon as administratively practicable following the release of any Shares from the ForfeitureRestriction, the Company shall, as applicable, either deliver to Participant the certificate or certificatesrepresenting such Shares in the Company’s possession belonging to Participant, or, if the Shares are held inuncertificated form, then the Company shall remove the notations on any such Shares. Participant (or thebeneficiary or personal representative of Participant in the event of Participant’s death or incapacity, as the casemay be) shall deliver to the Company any representations or other documents or assurances as the Company orits representatives deem necessary or advisable in connection with any such delivery.3.3 Unreleased Shares. Any of the Shares which, from time to time, have not yet been releasedfrom the Forfeiture Restriction are referred to herein as “Unreleased Shares.”3.4 Restrictions on Transfer.(a) Subject to forfeiture to the Company pursuant to Section 3.1 and Section 3.4(b), noUnreleased Shares or any dividends or other distributions thereon or any interest or right therein or part thereof,shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shallbe subject to sale or other disposition by Participant or his or her successors in interest by transfer, alienation,anticipation, pledge, encumbrance, assignment or any other means whether such sale or other disposition bevoluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legalor equitable proceedings (including bankruptcy), and any attempted sale or other disposition thereof shall benull and void and of no effect.(b) Notwithstanding any other provision in this Agreement, with the consent of theCommittee, the Unreleased Shares may be transferred to certain persons or entities related to the Participant,including but not limited to members of the Participant’s family, charitable institutions or trusts or other entitieswhose beneficiaries or beneficial owners are members of the Participant’s family or to such other persons orentities as may be expressly approved by the Committee (each a “Permitted Transferee”), pursuant to suchconditions and procedures as the Committee may require. Any permitted transfer will be subject to thecondition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/ortax planning purposes (or to a “blind trust” in connection with the Participant’s Termination of Service with theCompany or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities.3.5 Definition of Termination of Service. For purposes of this Agreement, “Termination ofService” means the time when the service relationship (whether as an Employee, member of the Board or aconsultant) between Participant and the Company or any Subsidiary is terminated for any reason, with orwithout cause, including, but not by way of limitation, a termination by resignation, discharge, death orDisability; but excluding (a) a termination where there is a simultaneous reemployment or continuingA-3FORM OF RSA – NON-MANAGEMENT DIRECTORSemployment or consultancy of Participant by the Company or any Subsidiary or a “parent corporation” of theCompany (within the meaning of Section 424 of the Code), (b) at the discretion of the Committee, a terminationwhich results in a temporary severance of the employee-employer relationship, and (c) a termination which isfollowed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with aformer Employee. The Committee, in its absolute discretion, shall determine the effect of all matters andquestions relating to Termination of Service for the purposes of this Agreement, and all questions of whether aparticular leave of absence for a Participant who is an Employee of the Company or any of its Subsidiariesconstitutes a Termination of Service. Notwithstanding any other provision of the Plan or this Agreement, theCompany or any Subsidiary has an absolute and unrestricted right to terminate Participant’s employment and/orconsultancy at any time for any reason whatsoever, with or without cause, except to the extent expresslyprovided otherwise in a written or electronic agreement between the Company or a Subsidiary and Participant.3.6 Escrow. The Secretary of the Company, or such other escrow holder as the Committee mayappoint, may retain physical custody of the certificates, if any, representing the Shares (and any dividends orother distributions paid on such Shares) until all of the restrictions imposed pursuant to this Agreement lapse orshall have been removed. In such event, Participant shall not retain physical custody of any certificatesrepresenting Unreleased Shares (as defined above) issued to Participant (or any dividends or other distributionspaid on such Shares). Participant, by acceptance of this Award, shall be deemed to appoint, and does soappoint, the Company and each of its authorized representatives as Participant’s attorney(s)-in-fact to effect anytransfer of forfeited Unreleased Shares (and any dividends or other distributions paid on such Shares) to theCompany as may be required pursuant to the Plan or this Agreement, and to execute such representations orother documents or assurances as the Company or such representatives deem necessary or advisable inconnection with any such transfer. The Company, or its designee, shall not be liable for any act it may do oromit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of itsjudgment.ARTICLE IVOTHER PROVISIONS4.1 Adjustment for Stock Split. In the event of any stock dividend, stock split, reverse stock split,recapitalization, combination, reclassification, or similar change in the capital structure of the Company, theCommittee shall make appropriate and equitable adjustments in the Unreleased Shares subject to the ForfeitureRestriction and the number of Shares, consistent with any adjustment under Section 11.1 of the Plan. Theprovisions of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any andall shares of capital stock or other securities or other property or cash which may be issued in respect of, inexchange for, or in substitution of the Shares, and shall be appropriately adjusted for any stock dividends,splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.4.2 Taxes.(a) Participant has reviewed with Participant’s own tax advisors the federal, state, local andforeign tax consequences of this investment and the transactions contemplated by the Grant Notice and thisAgreement. Participant is relying solely on such advisors and not on any statements or representations of theCompany or any of its agents. Participant understands that Participant (and not the Company) shall beresponsible for Participant’s tax liability that may arise as a result of this investment or the transactionscontemplated by this Agreement. Participant understands that Participant will recognize ordinary income forfederal income tax purposes under Section 83 of the Code as and when the Forfeiture Restrictionlapses. Participant understands that Participant may elect to be taxed for federal income taxA-4FORM OF RSA – NON-MANAGEMENT DIRECTORSpurposes at the time the Shares are purchased by Participant rather than as and when the Forfeiture Restrictionlapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30)days from the date of purchase.PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY ANDNOT THE COMPANY’S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), AND THE COMPANYAND ITS REPRESENTATIVES SHALL HAVE NO OBLIGATION OR AUTHORITY TO MAKE THIS FILINGON PARTICIPANT’S BEHALF.(b) Notwithstanding anything to the contrary in this Agreement, the Company shall beentitled to require payment (which payment may be made in cash, by deduction from other compensationpayable to Participant or in any form of consideration permitted by the Plan) of any sums required by federal,state or local tax law to be withheld with respect to the issuance, lapsing of restrictions on or sale of theShares. The Company shall not be obligated to deliver any new certificate representing vested Shares toParticipant or Participant’s beneficiary or legal representative unless and until Participant or Participant’sbeneficiary or legal representative, as applicable, shall have paid or otherwise satisfied in full the amount of allfederal, state and local taxes applicable to the taxable income of Participant resulting from the issuance, lapsingof restrictions on or sale of the Shares.4.3 Administration. The Committee shall have the power to interpret the Plan and this Agreementand to adopt such rules for the administration, interpretation and application of the Plan as are consistenttherewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations anddeterminations made by the Committee in good faith shall be final and binding upon Participant, the Companyand all other interested persons. No member of the Committee shall be personally liable for any action,determination or interpretation made in good faith with respect to the Plan, this Agreement or the Shares. In itsabsolute discretion, the Board may at any time and from time to time exercise any and all rights and duties ofthe Committee under the Plan and this Agreement.4.4 Restrictive Legends and Stop-Transfer Orders.(a) Any share certificate(s) evidencing the Shares issued hereunder shall be endorsed withthe following legend and any other legends that may be required by state or federal securities laws:THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE UNDER,AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS AND CONDITIONSOF A RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE COMPANY AND THESTOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.(b) Participant agrees that, in order to ensure compliance with the restrictions referred toherein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, ifthe Company transfers its own securities, it may make appropriate notations to the same effect in its ownrecords.(c) The Company shall not be required: (i) to transfer on its books any Shares that havebeen sold or otherwise transferred in violation of any of the provisions of this Agreement, or (ii) to treat asowner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee towhom such shares shall have been so transferred.4.5 Notices. Any notice to be given under the terms of this Agreement to the Company shall beaddressed to the Company in care of the Secretary of the Company at the address given beneath theA-5FORM OF RSA – NON-MANAGEMENT DIRECTORSsignature of an authorized officer of the Company on the Grant Notice, and any notice to be given to Participantshall be addressed to Participant at the address given beneath Participant’s signature on the Grant Notice. By anotice given pursuant to this Section 4.5, either party may hereafter designate a different address for notices tobe given to that party. Any notice shall be deemed duly given when sent via email or when sent by certifiedmail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post officeregularly maintained by the United States Postal Service.4.6 Titles. Titles are provided herein for convenience only and are not to serve as a basis forinterpretation or construction of this Agreement.4.7 Construction. This Agreement shall be administered, interpreted and enforced under the lawsof the State of Delaware without regard to conflicts of laws thereof. Should any provision of this Agreement bedetermined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remaineffective and shall remain enforceable.4.8 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conformto the extent necessary with all provisions of the Securities Act and the Exchange Act and any and allregulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securitieslaws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and theShares are to be issued, only in such a manner as to conform to such laws, rules and regulations. To the extentpermitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary toconform to such laws, rules and regulations.4.9 Amendments. This Agreement may not be modified, amended or terminated except by aninstrument signed or electronically accepted by Participant and by a duly authorized representative of theCompany.4.10 Successors and Assigns. The Company may assign any of its rights under this Agreement tosingle or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of theCompany. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding uponParticipant and his or her heirs, executors, administrators, successors and assigns.4.11 Entire Agreement. The Plan, the Grant Notice and this Agreement constitute the entireagreement of the parties and supersede in their entirety all prior undertakings and agreements of the Companyand Participant with respect to the subject matter hereof.4.12 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide todeliver any documents related to current or future participation in the Plan by electronic means. Participanthereby consents to receive such documents by electronic delivery and agrees to participate in the Plan throughan on-line or electronic system established and maintained by the Company or a third party designated by theCompany.4.13 Change in Control.(a) Upon a Change in Control (as defined below), all of the Unreleased Shares will vest andbe released from any forfeiture or repurchase restrictions effective as of the date of the Change in Control.(b) The following terms shall have the meanings given below when used in this Section4.13.A-6FORM OF RSA – NON-MANAGEMENT DIRECTORS“Change in Control” of the Company means, and will be deemed to have occurred upon, any of thefollowing events:(a) The acquisition by any Person of Beneficial Ownership of thirty percent (30%) or more of theoutstanding voting power; provided, however, that the following acquisitions shall not constitute a Change inControl for purposes of this subparagraph (a): (i) any acquisition directly from the Company; (ii) anyacquisition by the Company or any of its Subsidiaries; (iii) any acquisition by any employee benefit plan (orrelated trust) sponsored or maintained by the Company or any of its Subsidiaries; or (iv) any acquisition by anyPerson pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subparagraph (c) below; or(b) Individuals who at the beginning of any two-year period constitute the Board (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board; provided, however, that anyindividual who becomes a director of the Company during such two-year period and whose election, or whosenomination for election by the Company’s stockholders, to the Board was either (i) approved by a vote of atleast a majority of the directors then comprising the Incumbent Board or (ii) recommended by a nominatingcommittee comprised entirely of directors who are then Incumbent Board members shall be considered asthough such individual were a member of the Incumbent Board, but excluding, for this purpose, any suchindividual whose initial assumption of office occurs as a result of either an actual or threatened election contest(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act), other actualor threatened solicitation of proxies or consents or an actual or threatened tender offer; or(c) Consummation of a reorganization, merger, or consolidation or sale or other disposition of allor substantially all of the assets of the Company (a “Business Combination”), in each case unless followingsuch Business Combination, (i) all or substantially all of the Persons who were the Beneficial Owners,respectively, of the outstanding shares and outstanding voting securities immediately prior to such BusinessCombination own, directly or indirectly, more than fifty percent (50%) of the combined voting power of thethen outstanding voting securities entitled to vote generally in the election of directors of the Company, as thecase may be, of the entity resulting from the Business Combination (including, without limitation, an entitywhich as a result of such transaction owns the Company or all or substantially all of the Company’s assets eitherdirectly or through one or more subsidiaries) in substantially the same proportions as their ownership,immediately prior to such Business Combination, of the outstanding voting securities (provided, however, thatfor purposes of this clause (i) any shares of common stock or voting securities of such resulting entity receivedby such Beneficial Owners in such Business Combination other than as the result of such Beneficial Owners’ownership of outstanding shares or outstanding voting securities immediately prior to such BusinessCombination will not be considered to be owned by such Beneficial Owners for the purposes of calculatingtheir percentage of ownership of the outstanding common stock and voting power of the resulting entity);(ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (orrelated trust) of the Company or such entity resulting from the Business Combination) beneficially owns,directly or indirectly, thirty percent (30%) or more of the combined voting power of the then outstanding votingsecurities of such entity resulting from the Business Combination unless such Person owned thirty percent(30%) or more of the outstanding shares or outstanding voting securities immediately prior to the BusinessCombination; and (iii) at least a majority of the members of the board of directors of the entity resulting fromsuch Business Combination were members of the Board at the time of the execution of the initial agreement orthe action of the Board, providing for such Business Combination; or(d) Approval by the Company’s stockholders of a complete liquidation or dissolution of theCompany.A-7FORM OF RSA – NON-MANAGEMENT DIRECTORSFor purposes of clause (c), any Person who acquires outstanding voting securities of the entity resultingfrom the Business Combination by virtue of ownership, prior to such Business Combination, of outstandingvoting securities of both the Company and the entity or entities with which the Company is combined shall betreated as two Persons after the Business Combination, who shall be treated as owning outstanding votingsecurities of the entity resulting from the Business Combination by virtue of ownership, prior to such BusinessCombination of, respectively, outstanding voting securities of the Company, and of the entity or entities withwhich the Company is combined.“Beneficial Owner” has the meaning as used in Rule 13d-3 promulgated under the Exchange Act.The terms “Beneficially Owned” and “Beneficial Ownership” each have a correlative meaning.“Person” has the meaning as defined in Section 3(a)(9) of the Exchange Act and used inSection 13(d) or 14(d) of the Exchange Act and will include any “group” as such term is used in suchsections.“Subsidiary” means any corporation with respect to which another specified corporation has thepower under ordinary circumstances to vote or direct the voting of sufficient securities to elect amajority of the directors.A-8Exhibit 10.17FORM OF PERFORMANCE RSU AWARDAEROVIRONMENT, INC.2006 EQUITY INCENTIVE PLANPERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE ANDPERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENTAeroVironment, Inc., a Delaware corporation (the “Company”), pursuant to its Amended and Restated 2006Equity Incentive Plan (as amended and restated to date, the “Plan”), hereby grants to the individual listed below(“Participant”), an award of performance-based restricted stock units (“Restricted Stock Units” or “RSUs”) with respectto the number of shares of the Company’s Stock listed below (the “Shares”). This award for Restricted Stock Units (this“RSU Award”) is subject to all of the terms and conditions as set forth herein and in the Restricted Stock Unit AwardAgreement attached hereto as Exhibit A (the “Restricted Stock Unit Agreement”) and the Plan, each of which areincorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the samedefined meanings in this Grant Notice and the Restricted Stock Unit Agreement. Participant: Grant Date: Target Number of RSUs: Maximum Number of RSUs: Distribution Schedule:Subject to the terms of the Restricted Stock Unit Agreement, the RSUs shall be distributablein accordance with Section 2.1(c) of the Restricted Stock Unit Agreement. Vesting Schedule:Subject to the terms of the Restricted Stock Unit Agreement, the RSU Award shall vest inaccordance with the provisions of Exhibit B to this Grant Notice. By accepting this Grant Notice and Restricted Stock Unit Agreement and signing below, Participant agrees to bebound by the terms and conditions of the Plan, the Restricted Stock Unit Agreement and this Grant Notice. Participanthas reviewed the Restricted Stock Unit Agreement, the Plan and this Grant Notice in their entirety, each of which havebeen provided to Participant, and has had an opportunity to obtain the advice of counsel prior to executing this GrantNotice and fully understands all provisions of this Grant Notice, the Restricted Stock Unit Agreement and the Plan.Participant further acknowledges that he or she has been provided with a copy of the prospectus for the Plan. Participanthereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon anyquestions arising under the Plan, this Grant Notice or the Restricted Stock Unit Agreement.PARTICIPANT: NAME: FORM OF PERFORMANCE RSU AWARDEXHIBIT ATO PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICEPERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENTPursuant to the Performance Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which thisPerformance Restricted Stock Unit Award Agreement (this “Agreement”) is attached, the Company has granted toParticipant the right to receive the number of RSUs set forth in the Grant Notice, subject to all of the terms andconditions set forth in this Agreement, the Grant Notice and the Plan.ARTICLE I.GENERAL1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified inthe Plan and the Grant Notice.1.2 Incorporation of Terms of Plan. The RSU Award is subject to the terms and conditions of the Planwhich are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement,the terms of the Plan shall control.ARTICLE II.AWARD OF RESTRICTED STOCK UNITS2.1 Award of Restricted Stock Units.(a) Award. In consideration of Participant’s continued employment with the Company or anySubsidiary thereof and for other good and valuable consideration, the Company hereby grants to Participant the right toreceive the number of RSUs set forth in the Grant Notice, subject to all of the terms and conditions set forth in thisAgreement, the Grant Notice and the Plan. Prior to actual issuance of any Shares, the RSUs and the RSU Awardrepresent an unsecured obligation of the Company, payable only from the general assets of the Company.(b) Vesting. The RSUs subject to the RSU Award shall vest in accordance with the VestingSchedule set forth on Exhibit B to the Grant Notice. Unless and until the RSUs have vested in accordance with thevesting schedule set forth in the Grant Notice, Participant will have no right to any distribution with respect to suchRSUs. Except as provided in Exhibit B to the Grant Notice, in the event of Participant’s Termination of Service prior tothe vesting of all of the RSUs, any unvested RSUs will terminate automatically without any further action by theCompany and be forfeited without further notice and at no cost to the Company.(c) Distribution.(i) Shares of Stock shall be distributed to Participant (or in the event of Participant’s death,to his or her estate) with respect to such Participant’s vested RSUs (A) in the event the vesting event specified in theVesting Schedule is the occurrence of a Change in Control, on the date of (or immediately prior to) the date of suchChange in Control, (B) in the event the vesting event specified in the Vesting Schedule is the date of Participant'sQualifying Termination within eighteen (18) months following a Change in Control (with such terms as defined in theVesting Schedule), within thirtyA-1FORM OF PERFORMANCE RSU AWARD(30) days following such termination date, and (C) in the event the vesting event specified in the Vesting Schedule isthe Certification Date occurring as a result of the Measurement Date occurring on April 30, 2022, on or following theCertification Date but no later than July 15, 2022, subject to the terms and provisions of the Plan and this Agreement.(ii) Unless otherwise determined by the Committee, all distributions shall be made by theCompany in the form of whole shares of Stock. In lieu of any fractional Share, the Company shall make a cash paymentto Participant equal to the Fair Market Value of such fractional Share on the date the RSUs are settled pursuant to thisSection 2.1.(iii) Except as described in this Section 2.1(c), neither the time nor form of distribution ofStock with respect to the RSUs may be changed, except as may be permitted by the Committee in accordance with thePlan and Section 409A of the Code and the Treasury Regulations thereunder.(d) Generally. Shares issued under the RSU Award shall be issued to Participant or Participant’sbeneficiaries, as the case may be, at the sole discretion of the Committee, in either (i) uncertificated form, with theShares recorded in the name of Participant in the books and records of the Company’s transfer agent with appropriatenotations regarding the restrictions on transfer imposed pursuant to this Agreement; or (ii) certificate form.2.2 Tax Withholding. Notwithstanding any other provision of this Agreement:(a) The Company and its Subsidiaries have the authority to deduct or withhold, or requireParticipant to remit to the Company or the applicable Subsidiary, an amount sufficient to satisfy applicable federal,state, local and foreign taxes (including Participant’s social security, Medicare and any other employment taxobligation) required by law to be withheld with respect to any taxable event arising from the receipt of the Shares uponsettlement of the RSUs. Participant may satisfy the tax withholding obligation in one or more of the forms specifiedbelow, subject to section 10.2 of the Plan:(i) by cash or check made payable to the Company or the Subsidiary with respect towhich the tax withholding obligation arises;(ii) by the deduction of such amount from other compensation payable toParticipant;(iii) with the consent of the Committee, by requesting that the Company withhold a netnumber of vested Shares otherwise issuable pursuant to the RSUs having a then current Fair Market Value notexceeding the amount necessary to satisfy the withholding obligation of the Company and its Subsidiaries based on theminimum applicable statutory withholding rates for federal, state, local and foreign income tax and payroll taxpurposes;(iv) with the consent of the Committee, by tendering vested shares of Stock having a thencurrent Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Companyand its Subsidiaries based on the minimum applicable statutory withholding rates for federal, state, local and foreignincome tax and payroll tax purposes;(v) with the consent of the Committee, through the delivery of a notice that Participant hasplaced a market sell order with a broker acceptable to the Company with respect to the Shares issuable pursuant to theRSUs then vesting, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to theCompany or the Subsidiary with respect to whichA-2FORM OF PERFORMANCE RSU AWARDthe withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds isthen made to the Company or the applicable Subsidiary at such time as may be required by the Committee, but in anyevent not later than the settlement of such sale; or(vi) in any combination of the foregoing.(b) Unless Participant elects to provide timely payment of all sums required pursuant to Section2.2(a), the Company and its Subsidiaries shall have the right, but not the obligation, to treat such failure as an electionby Participant to satisfy all or any portion of Participant’s required payment obligation pursuant to Section 2.2(a)(ii) orSection 2.2(a)(iii) above, or any combination of the foregoing as the Company or its Subsidiaries may determine to beappropriate. If Participant is subject to Section 16 of the Exchange Act at the time the tax withholding obligation arises,the prior approval of the Committee shall be required for any election by the Company to satisfy all or any portion ofParticipant’s required payment obligation pursuant to Section 2.2(a)(iii) above pursuant to this Section 2.2(b).(c) The Company shall not be obligated to deliver any certificate representing Shares issuable withrespect to the RSUs to Participant or his legal representative unless and until Participant or his legal representative shallhave paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect tothe taxable income of Participant resulting from the grant of the RSUs, the distribution of the Shares issuable withrespect thereto, or any other taxable event related to the RSUs.2.3 Conditions to Issuance of Shares. The Company shall not be required to issue or deliver any Sharesissuable upon the vesting of the RSUs prior to the fulfillment of all of the conditions set forth in Section 10.7 of the Planand the receipt by the Company of full payment of any applicable withholding tax in any manner permitted underSection 2.2 above.2.4 Forfeiture and Claw-back Provisions. Participant acknowledges that this RSU Award is subject to theprovisions of Section 10.9 of the Plan.ARTICLE III.OTHER PROVISIONS3.1 RSU Award and Interests Not Transferable. This RSU Award and the rights and privileges conferredhereby, including the RSUs awarded hereunder, shall not be liable for the debts, contracts or engagements of Participantor his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge,encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation oflaw by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy),and any attempted disposition thereof shall be null and void and of no effect.3.2 Rights as Stockholder. Neither Participant nor any person claiming under or through Participant shallhave any of the rights or privileges of a stockholder of the Company in respect of any Shares issuable hereunder unlessand until certificates representing such Shares (which may be in uncertificated form) will have been issued and recordedon the books and records of the Company or its transfer agents or registrars, and delivered to Participant (includingthrough electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant shallhave all the rights of a stockholder of the Company, including with respect to the right to vote the Shares and the rightto receive any cash or share dividends or other distributions paid to or made with respect to the Shares.A-3FORM OF PERFORMANCE RSU AWARD3.3 Adjustments. The Participant acknowledges that the RSU Award, including the vesting of the RSUAward and the number of Shares subject to the RSU Award, is subject to adjustment upon the occurrence of certainevents as provided in Article 11 of the Plan.3.4 Not a Contract of Employment or other Service Relationship. Nothing in this Agreement or in the Planshall confer upon Participant any right to continue to serve as an Employee or other service provider of the Company orany of its affiliates. Participant understands and agrees that this RSU Award does not alter the at-will nature of his or heremployment relationship with the Company and is not a promise of continued employment for the vesting period of theRSU Award or any portion of it.3.5 Administration. The Committee shall have the power to interpret the Plan and this Agreement and toadopt such rules for the administration, interpretation and application of the Plan as are consistenttherewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations anddeterminations made by the Committee in good faith shall be final and binding upon Participant, the Company and allother interested persons. No member of the Committee shall be personally liable for any action, determination orinterpretation made in good faith with respect to the Plan, this Agreement or the Shares.3.6 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed tothe Company in care of the Secretary of the Company at the Company’s principal executive offices, and any notice tobe given to Participant shall be addressed to Participant at the most recent address in the Company’s personnel records.By a notice given pursuant to this Section 3.6, either party may hereafter designate a different address for notices to begiven to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (returnreceipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained bythe United States Postal Service.3.7 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretationor construction of this Agreement.3.8 Construction. This Agreement shall be administered, interpreted and enforced under the laws of the Stateof California without regard to conflicts of laws thereof. Should any provision of this Agreement be determined by acourt of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remainenforceable.3.9 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to theextent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rulespromulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations.Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Shares are to be issued, only insuch a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Planand this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.3.10 Amendments. Except as provided in the Plan, this Agreement may not be modified, amended orterminated except by an instrument in writing, signed by Participant and by a duly authorized representative of theCompany.3.11 Successors and Assigns. The Company may assign any of its rights under this Agreement to single ormultiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subjectto the restrictions on transfer herein set forth, this Agreement shall be binding upon Participant and his or her heirs,executors, administrators, successors and assigns.A-4FORM OF PERFORMANCE RSU AWARD3.12 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits hereto)constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of theCompany and Participant with respect to the subject matter hereof.3.13 Section 409A.(a) Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, the Plan,this Agreement and the Grant Notice shall be interpreted in accordance with, and incorporate the terms and conditionsrequired by, Section 409A of the Code (together with any Department of Treasury regulations and other interpretiveguidance issued thereunder, including without limitation any such regulations or other guidance that may be issuedafter the date hereof, “Section 409A”). The Committee may, in its discretion, adopt such amendments to the Plan, thisAgreement or the Grant Notice or adopt other policies and procedures (including amendments, policies andprocedures with retroactive effect), or take any other actions, as the Committee determines are necessary orappropriate to comply with the requirements of Section 409A.(b) This Agreement is not intended to provide for any deferral of compensation subject to Section409A of the Code, and, accordingly, the Shares issuable pursuant to the RSUs hereunder shall be distributed toParticipant no later than the later of: (i) the fifteenth (15) day of the third month following Participant’s first taxableyear in which such RSUs are no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15) day of thethird month following the first taxable year of the Company in which such RSUs are no longer subject to substantialrisk of forfeiture, as determined in accordance with Section 409A and any Treasury Regulations and other guidanceissued thereunder.(c) For purposes of Section 409A of the Code (including, without limitation, for purposes ofTreasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Participant may be eligible to receive under thisAgreement shall be treated as a separate and distinct payment.3.14 Tax Representations. Participant has reviewed with Participant’s own tax advisors the federal, state,local and foreign tax consequences of this investment and the transactions contemplated by the Grant Notice and thisAgreement. Participant is relying solely on such advisors and not on any statements or representations of the Companyor any of its agents. Participant understands that Participant (and not the Company) shall be responsible for Participant’sown tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.3.15 Electronic Delivery and Acceptance. The Company may, in its sole discretion, deliver any documentsrelated to the Grant Notice, this Agreement, the Plan or the RSUs by electronic means or request the Participant’sconsent to participate in the Plan or accept the RSUs by electronic means. The Participant hereby consents to receive allapplicable documentation by electronic delivery and to participate in the Plan through an on-line (and/or voiceactivated) system established and maintained by the Company or a third party vendor designated by the Company.3.16 Confidentiality. Except with the approval of the Committee, Participant shall not disclose to anyperson, and shall preserve the confidentiality of, the performance vesting terms set forth in this Agreement. Theforegoing restrictions on disclosure shall not apply to disclosures required by law or disclosures to the Participant’sprofessional advisors.3.17 Broker-Assisted Sales.A-5ththFORM OF PERFORMANCE RSU AWARD(a) In the event of any broker-assisted sale of Shares in connection with the payment ofwithholding taxes as provided in Section 2.2(a)(iii) or Section 2.2(a)(v) or Section 2.2(b): (i) any Shares to be soldthrough a broker-assisted sale will be sold on the day the tax withholding obligation arises, or as soon thereafter aspracticable; (ii) such Shares may be sold as part of a block trade with other participants in the Plan in which allparticipants receive an average price; (iii) the Participant will be responsible for all broker’s fees and other costs ofsale, and the Participant agrees to indemnify and hold the Company and its Subsidiaries harmless from any losses,costs, damages, or expenses relating to any such sale; (iv) to the extent the proceeds of such sale exceed the applicabletax withholding obligation, the Company agrees to pay such excess in cash to the Participant as soon as reasonablypracticable; (v) the Participant acknowledges that the Company or its designee is under no obligation to arrange forsuch sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicabletax withholding obligation; and (vi) in the event the proceeds of such sale are insufficient to satisfy the applicable taxwithholding obligation, the Participant agrees to pay immediately upon demand to the Company or its Subsidiarieswith respect to which the withholding obligation arises, an amount sufficient to satisfy any remaining portion of theCompany’s or the applicable Subsidiary’s withholding obligation.(b) In the event any tax withholding obligation arising in connection with the RSUs will besatisfied under Section 2.2(a)(iii) or Section 2.2(b) above, then, unless the Participant is subject to Section 16 of theExchange Act at the time the tax withholding obligation arises (in which case the prior approval of the Committeeshall be required for any election by the Company pursuant to this Section 3.17(b)), the Company may elect to instructany brokerage firm determined acceptable to the Company for such purpose to sell on Participant's behalf a wholenumber of Shares from those Shares that are issuable upon settlement of the RSUs as the Company determines to beappropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds ofsuch sale to the Company or the Subsidiary with respect to which the withholding obligation arises. Participant'sacceptance of the RSU Award constitutes the Participant's instruction and authorization to the Company and suchbrokerage firm to complete the transactions described in this Section 3.17(b), including the transactions described inthe previous sentence, as applicable. A-6Exhibit 10.34 AMENDMENT NO. 01 TOSTANDARD CONSULTING AGREEMENT AeroVironment, Inc., (“AV” or “Party”) and General Charles R. Holland, USAF, Retired (“Consultant" or "Party"), collectivelyreferred to as the “Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 01, 2016("Agreement"), which provides for the Consultant to render certain specified Services to AV during the Term of the Agreement.The Parties have agreed to amend the Agreement as follows: 1. First paragraph of the Agreement is modified to update AV's corporate address and also update Consultant's address. Theamended first paragraph reads as follows: “THIS AGREEMENT is executed and made effective as of January 01, 2016 (the“Effective Date”) between AeroVironment, Inc., a Delaware corporation, and its subsidiaries, with offices at 800 Royal OaksDrive, Suite 210, Monrovia, CA 91016-6347 (hereinafter referred to as "AV" or Party) and General Charles R. Holland, USAF,Retired, with offices at , Phone: , E-mail: mailto: (hereinafter referred to as“consultant" or “Party"). AV and the Consultant will be collectively referred to as “the Parties.” 2. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to June 30, 2017. The amendedSection 2 reads as follows: "Services will be performed between the Effective Date and June 30, 2017 ("Expiration Date'').This Agreement may be extended for additional periods by mutual written agreement between the Parties prior to theExpiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement, thisAgreement will expire and automatically terminate as of the Expiration Date.” 3. Section 19, "Notice,'' of the Agreement is modified to update AV’s corporate address and also update Consultant’s address.The amended Section 19 reads as follows: “Any notice between the parties hereto required or permitted to be given underthis Agreement shall be sufficient if in writing and sent by registered or certified mail, postage prepaid, or other expressdelivery service, to the respective addresses set forth below or at such other address as either of the parties may from timeto time designate in accordance with the provisions of this Section 19. AeroVironment:John Burkholder Senior Counsel 800 Royal Oaks Drive, Suite 210 Monrovia, CA 91016-6347 Telephone: +626-357-9983 ext 4588 Facsimile: +626-359-1894 E-Mail: burkholder@avinc.com Consultant:General Charles R. Holland, USAF Retired AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and effect.If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment, the terms ofthis current Amendment shall control. IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of January 01, 2017 AEROVIRONMENT, INC. Signature: /s/ Wahid Nawabi Printed Name: Wahid Nawabi Title: President and CEO Date: 11/23/2016 CONSULTANT:General Charles R. Holland, USAF, Retired Signature: /s/ Charles R. Holland Printed Name: Charles R. Holland Title: Consultant Date: 11/24/16 AEROVIRONMENT PROPRIETARY INFORMATIONPage 2 STANDARD CONSULTING AGREEMENTEffective Date: January 1, 2016 Consultant: General Charles R. Holland, USAF, Retired TASK ORDER # FY17-001Project No. 9000.6435.0100.000 A. Effort and/or Services to be provided by Consultant: Consultant will provide marketing support for unmanned air vehicle systems. This includes: 1. Scheduling meetings with key executives from the U.S. Department of Defense.2. On-going consulting services on AV capture activities.3. Facilitate and provide assistance scheduling meetings with key participants at various industry conferences.4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager. In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted todisclose any export-controlled data or furnish any defense services to non-US persons, unless authorized inadvance by the US Department of State or Department of Commerce. The Consultant is not permitted to accessany US or other government classified information in the course of performance of work under this Task Order andConsulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved suchaccess in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and Handling ofClassified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has completed allnecessary training. B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is: WahidNawabi C. Target Performance Period: January 1, 2017 through June 30, 2017 D. Rates: Authorized Days: As required and authorized by AV Task ManagerRate: $4,000.00 per dayMonthly Retainer: $4,000.00Total Not To Exceed Cost: $24,000.00 (excluding expenses) E. Expenses: Maximum authorized expenses: AV will reimburse Consultant for any AV related business travel expenses(transportation, lodging, meals, etc.) during “Target Performance Period” defined under Section C above,provided all travel expenses are pre-approved in writing by the AV Task Manager. Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travelprocedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above thoseamounts shown here are to be incurred without the prior written approval of the AV Task Manager. AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 F. SUBMITTING INVOICES: This practice will support efficient processing and payment. 1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No. andinclude the name of the AV Task Manager on all invoices.2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,each invoice should also be accompanied by a progress statement.3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mailto acp@avinc.com, and also reference the correct Task Order Number and your organization’s name in thesubject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,CA 91107. AeroVironment, Inc.General Charles R. Holland, USAF, Retired /s/ Wahid Nawabi/s/ Charles R. HollandSignatureSignature Wahid NawabiCharles R. HollandName (Print)Name (Print) President and CEOConsultantTitleTitle 11/23/201611/24/16DateDate AEROVIRONMENT PROPRIETARY INFORMATIONPage 2 AMENDMENT NO. 02 TOSTANDARD CONSULTING AGREEMENT AeroVironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016 (“Agreement”),which provides for the Consultant to render certain specified services to AV during the Term of the Agreement. The Parties haveagreed to amend the Agreement as follows: 1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2018. The amendedSection 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2018 (“Expiration Date”).This Agreement may be extended for additional periods by mutual written agreement between the Parties prior to theExpiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement, thisAgreement will expire and automatically terminate as of the Expiration Date.” All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and effect.If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment, the terms ofthis current Amendment shall control. IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of July 1, 2017 AEROVIRONMENT, INC. Signature: /s/ Wahid Nawabi Printed Name: Wahid Nawabi Title: President and CEO Date: 6/7/2017 CONSULTANT: General Charles R. Holland, USAF, Retired Signature: /s/ Charles R. Holland Printed Name: Charles R. Holland Title: Consultant Date: 6/7/17 AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 STANDARD CONSULTING AGREEMENTEffective Date: January 1, 2016 Consultant: General Charles R. Holland, USAF, Retired TASK ORDER # FY18-001Project No. 0100.COR A. Effort and/or Services to be provided by Consultant: Consultant will provide marketing support for unmanned air vehicle systems. This includes: 1. Scheduling meetings with key executives from the U.S. Department of Defense.2. On-going consulting services on AV capture activities.3. Facilitate and provide assistance scheduling meetings with key participants at various industry conferences.4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager. In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted todisclose any export-controlled data or furnish any defense services to non-US persons, unless authorized inadvance by the US Department of State or Department of Commerce. The Consultant is not permitted to accessany US or other government classified information in the course of performance of work under this Task Order andConsulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved suchaccess in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and Handling ofClassified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has completed allnecessary training. B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is: WahidNawabi C. Target Performance Period: July 1, 2017 through April 30, 2018 D. Rates: Authorized Days: As required and authorized by AV Task ManagerRate: $4,000.00 per dayMonthly Retainer: $4,000.00Total Not To Exceed Cost: $24,000.00 (excluding expenses) E. Expenses: Maximum authorized expenses: AV will reimburse Consultant for any AV related business travel expenses(transportation, lodging, meals, etc.) during “Target Performance Period” defined under Section C above,provided all travel expenses are pre-approved in writing by the AV Task Manager. Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travelprocedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above thoseamounts shown here are to be incurred without the prior written approval of the AV Task Manager. AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 F. SUBMITTING INVOICES: This practice will support efficient processing and payment. 1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No. andinclude the name of the AV Task Manager on all invoices.2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,each invoice should also be accompanied by a progress statement.3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail toacp@avinc.com, and also reference the correct Task Order Number and your organization’s name in thesubject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,CA 91107. AeroVironment, Inc.General Charles R. Holland, USAF, Retired /s/ Wahid Nawabi/s/ Charles R. HollandSignatureSignature President and CEO Title 6/6/20176/5/17DateDate AEROVIRONMENT PROPRIETARY INFORMATIONPage 2 AMENDMENT NO. 03 TOSTANDARD CONSULTING AGREEMENT Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016 (“Agreement”),which provides for the Consultant to render certain specified services to AV during the Term of the Agreement. The Parties haveagreed to amend the Agreement as follows: 1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2019. The amendedSection 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2019 (“Expiration Date”).This Agreement may be extended for additional periods by mutual written agreement between the Parties prior to theExpiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement, thisAgreement will expire and automatically terminate as of the Expiration Date.” All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and effect.If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment, the terms ofthis current Amendment shall control. IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of May 1, 2018. AEROVIRONMENT, INC. Signature:/s/ Wahid Nawabi Printed Name:Wahid Nawabi Title:President and CEO Date:4/23/2018 CONSULTANT: General Charles R. Holland, USAF, Retired Signature:/s/ Charles R. Holland Printed Name:Charles R. Holland Date:4/23/2018 AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 STANDARD CONSULTING AGREEMENTEffective Date: January 1, 2016 Consultant: General Charles R. Holland TASK ORDER # FY19-001Project No.0100 COR A. Effort and/or Services to be provided by Consultant: Consultant will assist with the following services: Consultant will provide marketing support for unmanned air vehicle systems. This includes: 1. Scheduling meetings with key executives from the U.S. Department of Defense. 2. On-going consulting services on AV capture activities. 3. Facilitate and provide assistance scheduling meetings with key participants at various industry conferences. 4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager. In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permitted todisclose any export-controlled data or furnish any defense services to non-US persons, unless authorized inadvance by the US Department of State or Department of Commerce. The Consultant is not permitted to accessany US or other government classified information in the course of performance of work under this Task Order andConsulting Agreement, unless the following actions have occurred: (1) AV Security Officer has approved suchaccess in advance; (2) the Parties have executed the “Consultant Certificate Regarding Access to and Handling ofClassified Information” (Attachment E to the Consulting Agreement); and (3) and the Consultant has completed allnecessary training. B. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is: WahidNawabi C. Target Performance Period: May 1, 2018 through April 30, 2019 AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 F. Rates: Authorized Days: As required and authorized by AV Task Manager Monthly Retainer: $4,000.00Total Not To Exceed Cost: $48,000.00 (plus any expenses incurred as approved by Task Manager) E. Expenses: Maximum authorized expenses: NoneAV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals, etc.)during “Target Performance Period” defined under Section C above, provided all travel expenses are pre-approved in writing by the AV Task Manager. Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travelprocedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above those amounts shown here are to be incurred without the prior writtenapproval of the AV Task Manager. F. SUBMITTING INVOICES: This practice will support efficient processing and payment. 1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No. andinclude the name of the AV Task Manager on all invoices. 2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,each invoice should also be accompanied by a progress statement. 3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail toacp@avinc.com, and also reference the correct Task Order Number and your organization’s name in thesubject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,CA 91107. AEROVIRONMENT, INC. Charles R. Holland, USAF Retired /s/ Wahid Nawabi /s/ Charles R. HollandSignature Signature Wahid Nawabi Charles R. HollandName (Print) Name (Print) President and CEO Title 4/23/2018 4/23/2018Date Date AEROVIRONMENT PROPRIETARY INFORMATIONPage 2 AMENDMENT NO. 04 TOSTANDARD CONSULTING AGREEMENT Aerovironment, Inc. (“AV or Party”) and General Charles R. Holland, USAF, Retired (“Consultant or Party”), collectively the“Parties,” previously entered into a Standard Consulting Agreement with an Effective Date of January 1, 2016 (“Agreement”),which provides for the Consultant to render certain specified services to AV during the Term of the Agreement. The Parties haveagreed to amend the Agreement as follows: 1. Section 2, “Term,” of the Agreement is modified to extend the Term of the Agreement to April 30, 2020. The amendedSection 2 reads as follows: “Services will be performed between the Effective Date and April 30, 2020 (“ExpirationDate”). This Agreement may be extended for additional periods by mutual written agreement between the Parties prior tothe Expiration Date of the initial term or any extension thereof. If the Parties do not execute such a written agreement,this Agreement will expire and automatically terminate as of the Expiration Date.” All other terms of the Agreement and any other terms of previous Amendments to the Agreement remain in full force and effect.If there is a conflict between the terms of this Amendment and those of the Agreement or any previous Amendment, the terms ofthis current Amendment shall control. IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of May 1, 2019. AEROVIRONMENT, INC. Signature:/s/ Wahid Nawabi Printed Name:Wahid Nawabi Title:President and CEO Date:4/30/2019 CONSULTANT: GENERAL CHARLES R. HOLLAND, USAF, RETIRED Signature:/s/ Charles R. Holland Printed Name:Charles R. Holland Date:4/30/2019 AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 STANDARD CONSULTING AGREEMENTEffective Date: January 1, 2016 Consultant: Charles R. Holland TASK ORDER # FY20-001Project and/or Charge No.0100 COR D. Effort and/or Services to be provided by Consultant: Consultant will assist with the following services: Consultant will provide marketing support for unmanned air vehicle systems. This includes: 1. Scheduling meetings with key executives from the U.S. Department of Defense. 2. On-going consulting services on AV capture activities. 3. Facilitate and provide assistance scheduling meetings with key participants at various industryconferences. 4. Provide industry advice on ad-hoc basis as requested by the AV Task Manager. In performance of the work under this Task Order and Consultant Agreement, the Consultant is not permittedto disclose any export-controlled data or furnish any defense services to non-US persons, unless authorized inadvance by the US Department of State or Department of Commerce. The Consultant is not permitted toaccess any US or other government classified information in the course of performance of work under thisTask Order and Consulting Agreement, unless the following actions have occurred: (1) AV Security Officerhas approved such access in advance; (2) the Parties have executed the “Consultant Certificate RegardingAccess to and Handling of Classified Information” (Attachment E to the Consulting Agreement); and (3) and theConsultant has completed all necessary training. E. Unless otherwise designated in writing by AV with notice to Consultant, the AV Task Manager is: WahidNawabi F. Target Performance Period: May 1, 2019 through December 1, 2019 AEROVIRONMENT PROPRIETARY INFORMATIONPage 1 G. Rates: Authorized Days: As required and authorized by AV Task Manager Monthly Retainer: $4,000.00 Total Not To Exceed Cost: $48,000.00 (plus any expenses incurred as approved by Task Manager) H. Expenses: Maximum authorized expenses: NoneAV will reimburse Consultant for any AV related business travel expenses (transportation, lodging, meals, etc.)during “Target Performance Period” defined under Section C above, provided all travel expenses are pre-approved in writing by the AV Task Manager. Travel and/or miscellaneous expenses shall be reimbursed in accordance with current AV standard travelprocedures; receipts shall accompany invoices of $25 or more. No labor or expense costs above those amounts shown here are to be incurred without the prior writtenapproval of the AV Task Manager. I. SUBMITTING INVOICES: This practice will support efficient processing and payment. 1. INVOICES: Reference shall be made to the correct Task Order No. and Project No. and/or Charge No. andinclude the name of the AV Task Manager on all invoices. 2. PROGRESS STATEMENT: To stay in compliance with the Federal Acquisition Regulation (FAR), Part 31,each invoice should also be accompanied by a progress statement. 3. INVOICES SHALL BE SENT TO: Accounts Payable Group, AeroVironment, Inc., via e-mail toacp@avinc.com, and also reference the correct Task Order Number and your organization’s name in thesubject line of the email, with courtesy copy to AV Task Manager, or by mail to P.O. Box 5031, Monrovia,CA 91107. AeroVironment, Inc. Charles R. Holland, USAF Retired /s/ Wahid Nawabi /s/ Charles R. HollandSignature Signature Wahid Nawabi Charles R. HollandName (Print) Name (Print) President and CEO Title 4/30/2019 4/30/2019Date Date AEROVIRONMENT PROPRIETARY INFORMATIONPage 2Exhibit 10.38CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVEHARM TO THE REGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEENOMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENTWILL BE FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.AMENDMENT NO.1 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.1 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below (“Amendment Effective Date”) by and between HAPS Mobile Inc. (“HAPSMobile”) andAeroVironment, Inc. (“AV”) to amend the Design and Development Agreement (Step2) (the “DDA”) made as ofDecember 27, 2017 between HAPSMobile and AV..BackgroundThe Parties wished to raise certain technical specification changes to Attachment A and D to the DDA, and relatedchanges Attachment F to the DDA (“Changes”) following the Change Control procedures set forth in Article 2.4 of andAttachment G to the DDA and such Change Control procedures were successfully completed on February 15, 2018.Therefore, to formalize and reflect the Changes, the Parties hereby agree with the amendments to the DDA as follows:Amendment1. Section 1.1 “Aircraft Deliverables” (subsection of Section 1. ”Hardware Deliverables”) of Attachment A(DELIVERABLES) to the DDA is hereby deleted in its entirety and replaced with the following clause:1.1 Aircraft Deliverables DeliverablesNameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDateHawk30 Prototype[***][***][***][***][***]Hawk30 Prototype[***][***][***][***][***] The [***] Implementation plan is as follows:Hawk30 Prototype [***] will have [***] of [***] device set manufactured by [***]Hawk30 Prototype [***] will have [***] of [***] device set manufactured by [***] and [***] device setmanufactured by [***].[***]*1. [***].2. Sections [***] and [***] [***] (Subsection of [***] – Section [***]. [***] – [***]) of Attachment [***]([***]) to the DDA is hereby deleted in its entirety and replaced with the following clause:[***]. [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. [***].[***].[***].[***].3. Section 1. “Payment for Work Step2” (Subsection of “PRICING & PAYMENT SCHEDULE”) of Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA is herebydeleted in its entirety and replaced with the following clause:1. Payment for Work Step2The total amount of Design and Development Fees payable for Step 2 is Not-to-Exceed USD $75,789,302based on Best Efforts (the “Initial Contract Value”). The Initial Contract Value may be modified by the Partiesas a result of Change Control or by any other amendment to the Agreement (the current contract value at anytime under this Agreement shall be the “Contract Value”). The Parties agree to account for payment of USD$5,988,678 already made by SoftBank to AV as payment for the consideration of Step 2 Bridge Contract aspartial payment for commencing Step 2. HAPSMobile shall pay to AV the remaining balance of USD$69,800,624 in accordance with Exhibit A to this Attachment F Project Funds Status Report through a combinedMilestone & Monthly Invoice approach as detailed further in this Attachment F. Each Milestone payment shallbe payable after completion of the applicable Milestone according to Completion criteria on AttachmentH. HAPSMobile agrees to issue (3) three separate Orders to AV for authorization of Work. The Orders shall beissued as follows: initial Order [***]; second Order [***]; and the third Order [***]. Each Order will be issuedpursuant to the terms and conditions of this Agreement including the attachments thereto. Work performedunder the Orders will be in support of the entire Statement of Work, up to the value funded on the Order.4. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA. Hereby the Parties expressly confirm that no change applies to the Project Milestoneset forth in ATTACHMENT I despite of the Changes. Capitalized terms, unless otherwise defined herein, shallhave the meaning set forth in the DDA. This Amendment may only be modified or amended by a writtendocument executed by the parties hereto.2[***] Information has been omitted pursuant to Item 601(b)(2). IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below.SIGNED for and on behalf ofSIGNED for and on behalf ofHAPSMobile Inc.AeroVironment, Inc. By:../s/ Junichi Miyakawa................................By:./s/ Jon Self.....................................……Name:Junichi MiyakawaName:Jon SelfTitle:Preisdent and CEOTitle:VP HAPS ProgramsDate: Date: 3[***] Information has been omitted pursuant to Item 601(b)(2).Exhibit 10.39 CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THEREGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES ANDEXCHANGE COMMISSION UPON REQUEST.AMENDMENT NO.2 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.2 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below (“Amendment Effective Date”) by and between HAPS Mobile Inc. (“HAPSMobile”) andAeroVironment, Inc. (“AV”) to amend the Design and Development Agreement (Step2) (the “DDA”) made as ofDecember 27, 2017, and amended by Amendment No.1 as of March 30, 2018, between HAPSMobile and AV.. Background The Parties wished to raise a change of schedule for [***] on Attachment H to the DDA (the “Change”) following theChange Control procedures set forth in Article 2.4 and 3.4 of, and Attachment G to the DDA and agreed to classify theChange as Class II Change and no cost impacting Control. Therefore, to formalize and reflect the Changes, the Partieshereby agree with the amendments to the DDA as follows: Amendment 1. Table entry line number 2 and 3 (not counting the header line) of Section 2. ”Document Deliverables” ofAttachment A (DELIVERABLES) to the DDA is hereby amended as follows: Update ComponentEngineeringTechnical Data Package2.2[***][***]Fab & Test First WingPanelTechnical Data Package. Recordedmeasurement data aerodynamic test data.2.2.3.1[***][***] 2. Section 2 [***] Mile Stone Date of Attachment H (PROJECT MILESTONE) to the DDA is hereby amended asfollows: [***][***][***] 3. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA and the amendment No.1 to DDA. Hereby the Parties expressly confirm that no changeapplies to the Incurred Cost forth in ATTACHMENT F despite of the Change. Capitalized terms, unless otherwisedefined herein, shall have the meaning set forth in the DDA or the amendment No.1. This Amendment may only bemodified or amended by a written document executed by the parties hereto. [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below. SIGNED for and on behalf of SIGNED for and on behalf of HAPSMobile Inc. AeroVironment, Inc. By:/s/ Yoshihito Shimazaki By: /s/ Jon B Self Name: Yoshihito Shimazaki Name: Jon B Self Title: Board of Director Title:VP HAPS Programs Date:Jun 26, 2018 Date:7/3/2018 2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Exhibit 10.40 CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THEREGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES ANDEXCHANGE COMMISSION UPON REQUEST.AMENDMENT NO. 3 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No. 3 to the Design and Development Agreement (Step2) (“Amendment No.3”) is entered into as ofthe date of last signature below by and between HAPS Mobile Inc. (“HAPSMobile”) and AeroVironment, Inc. (“AV”)to amend the Design and Development Agreement (Step2) made as of December 27, 2017 (as amended by theAmendment No. 1 as of March 30, 2018 and the Amendment No. 2 as of June 25, 2018 between HAPSMobile andAV) (the “DDA”). Background The Parties wished to raise certain technical specification changes to Attachment A to the DDA (the “Change”)following the Change Control procedures set forth in Article 2.4 of, Attachment G to, and Article 3.4 of the DDA andagreed to classify the Change as Class I Change. The Parties agreed and acknowledged that the Change will have nocost/schedule impact. Therefore, to formalize and reflect the Changes, the Parties hereby agree with the amendments tothe DDA as follows: Amendment 1. Section 1.1 “Aircraft Deliverables” (subsection of Section 1. ”Hardware Deliverables”) of Attachment A(DELIVERABLES) to the DDA is hereby deleted in its entirety and replaced with the following clause: 1.1 Aircraft Deliverables DeliverablesNameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDateHawk30 Prototype [***][***][***][***][***]Hawk30 Prototype [***][***][***][***][***] The current [***] implementation plan is as follows: Hawk30 Prototype [***] will have [***] of [***] module manufactured by [***] with removal of [***]. [***] willhave the appropriate [***] installed for a [***] so that [***] module manufactured by [***].Hawk30 Prototype [***] will have [***] of [***]module manufactured by [***] with removal of [***]. [***] willthen have the [***] modules ([***]) installed [***]. The remaining [***] modules [***].[***]*1. [***]. 2. Table entry line number 5 (without counting the header line) of Section 2. ”Document Deliverables” ofAttachment A (DELIVERABLES) to the DDA is hereby amended as follows: [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Integrated TestReports Acceptance test reports for aircraft &Ground Control Station.2.3.2.2[***][***] 3. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA. Hereby the Parties expressly confirm that no change applies to the Project Milestone set forthin ATTACHMENT I despite of the Changes. Capitalized terms, unless otherwise defined herein, shall have the meaningset forth in the DDA. This Amendment No.3 may only be modified or amended by a written document executed by theparties hereto. IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment No.3 on the date(s) below. SIGNED for and on behalf ofSIGNED for and on behalf ofHAPSMobile Inc.AeroVironment, Inc. By: ../s/ Yoshihito Shimazaki...............................By: ../s/ Jon B Self...............................………..Name: Yoshihito ShimazakiName: Jon B SelfTitle: Board of Director, Senior Vice PresidentTitle:VP HAPS ProgramsDate: 2018/08/28Date: 2018/09/05 2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Exhibit 10.41 CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THEREGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES ANDEXCHANGE COMMISSION UPON REQUEST.AMENDMENT NO.4 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.4 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below by and between HAPS Mobile Inc. and AeroVironment, Inc. to amend the Design andDevelopment Agreement (Step2) made as of December 27, 2017 (as amended by the Amendment No.1 as of March 30,2018, the Amendment No.2 as of June 25, 2018, and the Amendment No.3 as of August 28, 2018 betweenHAPSMobile and AV) (the “DDA”). Background The Parties wished to raise a change of schedule related to [***] in Attachment A and H to the DDA (the “Change”)following the Change Control procedures set forth in Article 2.4 and 3.4 of, and Attachment G to the DDA, agreed toclassify the Change as Class I Change and that there will be no cost related to the Change. Therefore, to formalize andreflect the Changes, the Parties hereby agree with the amendments to the DDA as follows: Amendment 1. Table entry line number 5 (not counting the header line) of Section 2 of Attachment A (DELIVERABLES) to theDDA (“Integrated Test Reports”) is hereby amended as follows: Integrated TestReportsAcceptance test reports for aircraft &Ground Control Station.2.3.2.2[***][***] 2. “Date” of Section 4 [***] of Attachment H (PROJECT MILESTONE) to the DDA is hereby amended as follows: [***][***][***] 3. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA. Hereby the Parties expressly confirm that no change applies to the Incurred Cost set forth inATTACHMENT F despite of the Change. Capitalized terms, unless otherwise defined herein, shall have the meaning setforth in the DDA. This Amendment may only be modified or amended by a written document executed by the partieshereto. [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below. SIGNED for and on behalf ofSIGNED for and on behalf ofHAPSMobile Inc.AeroVironment, Inc. By: ../s/ Yoshihito Shimazaki.........……………..By: ../s/ Jon B Self...................………………..Name: Yoshihito ShimazakiName: Jon B SelfTitle: Board of Director, Senior Vice PresidentTitle:VP HAPS ProgramsDate:11/30/2018Date:12/5/18 2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Exhibit 10.42CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANTIF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATIONS-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION UPONREQUEST.AMENDMENT NO.5 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.5 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below by and between HAPS Mobile Inc. (“HAPSMobile”) and AeroVironment, Inc. (“AV”) toamend the Design and Development Agreement (Step2) made as of December 27, 2017 (as amended by theAmendment No.1 as of March 30, 2018, the Amendment No.2 as of June 25, 2018, the Amendment No.3 as of August28, 2018, and the Amendment No.4 as of December 5, 2018 between HAPSMobile and AV) (the “DDA”).BackgroundThe Parties agree to amend the total Fees of Design and Development for Step 2 due to the occurrence of severalchange of design and development work for [***] and related functionality as set forth herein (the “Change”), and toupgrade the Project management process and methodology as set forth herein (the “Program ManagementImprovement”) in accordance with the modification process of the Agreement set forth in Section 1.5 “Excess IncurredCosts,”of Attachment F to the DDA, and Article 13, “Amendments,” of the body of DDA.Therefore, to formalize and reflect both the Changes and Program Management Improvement, the Parties hereby agreewith the amendments to the DDA as follows:Amendment1. Article 1.31 (Subarticle of “1. DEFINITION”) of the body of DDA (definition of the term “Quarterly StatusReport”) is hereby deleted in its entirety and replaced with the following clause:1.31 “Monthly (was Quarterly) Status Report” means the report to be provided by AV to HAPSMobile on amonthly basis during the term of the Agreement in accordance with Article 3.3 below.2. Article 3.3 and 3.6 (Subarticles of “3. DELIVERABLES & MILESTONES”) of the body of DDA are hereby deletedin its entirety and each replaced with the following clauses:3.3 Notification of Delays. During the term of the Agreement, AV shall provide to HAPSMobile a Monthly (wasQuarterly) Status Report per Attachment F, Exhibit B on its performance under the Statement of Work andcompletion of the Deliverables and Milestones on a monthly basis. If AV has reason to believe that it will notbe able to complete a Deliverable or Milestone on or before its applicable Estimated Completion Date, or that itwill not to be able to complete the Agreement in commercially reasonable manner within the funded costamount as defined in Section 1. “Payment for Work Step 2” of Attachment F (and amended herein) quoted as“the remaining balance”, it shall notify HAPSMobile in the Monthly (was Quarterly) Status Report of:(a) The cause of the delay or cost increase;(b) The expected period of delay or the total amount of cost overrun;(c) The steps proposed to be taken by AV to minimise the delay or the cost overrun impact; and(d) The impact of the delay or cost overrun as related to any projected increase of expected Incurred Costs.3.6 AV will provide all necessary records to reasonably demonstrate the stock location of the Materials andlogistic or manufacturing status of the Materials on a quarterly basis. AV will [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.track and report on the inventory status of Material and assemblies of the Materials on a monthly (wasquarterly) basis.3. Article 7.4 (Subarticles of “7. PRICE AND PAYMENT”) of the body of DDA is hereby deleted in its entirety andreplaced with the following clauses:7.4 AV will provide updates on the potential for cost increases or decreases for the completion of the Scope ofAgreement in the Monthly (was Quarterly) Status Report as identified in Attachment F.4. The following bullet point is hereby newly inserted after the 7 bullet point of “Approach” Section ofSection1.1.1 “Project Management & Technical Leadership” (Subsection of “1. PROGRAM MANAGEMENT &SYSTEMS ENGINEERINGPRICING”) of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30Prototype Program) to the DDA:· [***];(i) [***](ii) [***](iii) [***](iv) [***]· [***]:Ø [***]Ø [***]Ø [***]Reporting Process diagram[***]5. “Task Output” section of Section1.1.1 “[***]” ([***]”) of Attachment C (AeroVironment Statement of Work(SOW) for Hawk30 Prototype Program) to the DDA is hereby deleted in its entirety and replaced with the followingclause:Task Output:· [***]· [***]6. Section 1. “Payment for Work Step2” (Subsection of “PRICING & PAYMENT SCHEDULE”) of Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (as amended by the Amendment No.1) ishereby deleted in its entirety and replaced with the following clause:1. Payment for Work Step2The total amount of Design and Development Fees payable for Step 2 is Not-to-Exceed USD $93,015,608 based onBest Efforts (the “Initial Contract Value”). The Initial Contract Value may be modified by the Parties as a result ofChange Control or by any other amendment to the Agreement (the current contract value at any time under thisAgreement shall be the “Contract Value”). The Parties agree to account for payment of USD $5,988,678 alreadymade by SoftBank to AV as payment for the consideration of Step 2 Bridge Contract as partial payment forcommencing Step 2. HAPSMobile shall pay to AV the remaining balance of USD $87,026,930, consists from$69,800,624 as Initial Contract Value and incremental amount by Amendment No.1, and $17,226,306 asincremental funding subject to EAC adjustment activity done on [***], in accordance with Exhibit A to thisAttachment F Project Funds Status Report accompanied by a combined Milestone & Monthly Invoice approach asdetailed further in this2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.thAttachment F. Each Milestone payment shall be payable after completion of the applicable Milestone according toCompletion criteria on Attachment H.HAPSMobile agrees to issue four (4) separate Orders to AV for authorization of Work. The Orders shall be issued asfollows: initial Order [***]; second Order [***]; the third Order [***]; and the fourth Order [***]. Each Order willbe issued pursuant to the terms and conditions of this Agreement including the attachments thereto. Workperformed under the Orders will be in support of the entire Statement of Work, up to the value funded on the Order.7. Section 1.1 “Milestone Target Budget Value & Forecast Revisions” (Subsection of “PRICING & PAYMENTSCHEDULE”) of Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (asamended by the Amendment No.1) is hereby deleted in its entirety and replaced with the following clause:1.1 Milestone Target Budget Values & Forecast RevisionsExhibit A (Project Funds Status Report) to this Attachment F assigns Initial Target Budget values for each of the 8Milestones identified in Attachment H.AV will provide updates and revisions to the Initial Target Budget values for each Milestone and revised andupdated forecasts for such Milestones to HAPSMobile on a monthly basis. Milestone values are subject to ChangeControl based on updated forecasts of program resource requirements to complete the Work required under thisAgreement, including the SOW(Attachment C). Milestone values will be based on the AV labor projected spendplan forecasted for each AV fiscal month.8. Section 1.5 “Excess Incurred Costs” (Subsection of “PRICING & PAYMENT SCHEDULE”) of Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (as amended by the Amendment No.1) ishereby deleted in its entirety and replaced with the following clause:1.5 Excess Incurred CostsIn the event that AV identifies a projected increase in Incurred Costs by AV for the performance of its obligationsunder the Agreement as identified in the Monthly (was Quarterly) Status Report, in excess of the initial total amountof the Order as identified in Article 2.3, HAPSMobile may,(1) agree to authorize AV to incur the excess costs and provide a modification to increase the Contract Value,provided however that both Parties shall follow the Change Control set forth in Article 2.4 of the Agreement orAmendment of Agreement set forth in Article 13. Should HAPSMobile authorize additional spending, all of AV’sIncurred Costs must be paid to AV with the applicable [***]% fee;(2) agree in accordance with the Change Control or Amendment of Agreement to reduce the Scope of Agreementso that AV’s performance of the Scope of Agreement will be projected to fall within the amount of the then currentContract Value; or(3) Terminate the Agreement for convenience as contemplated by Article 12.3 of the Agreement and pay AV allTermination Liability as defined in paragraph 1.7 of this attachment.9. Section 1.6 “Unutilized Consideration” (Subsection of “PRICING & PAYMENT SCHEDULE”) of Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (as amended by the Amendment No.1) ishereby deleted in its entirety and replaced with the following clause:1.6 Unutilized ConsiderationIn the event of a projected cost underrun as identified in a Monthly (was Quarterly) Status Report, any amountsfrom the Order which remain after completion of the Scope of Agreement may be reimbursed or, if authorized byHAPSMobile separately and specifically, utilized for AV’s risk reduction or additional scope to be defined throughwritten mutual agreement subject to the terms3[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.of this Agreement. To avoid confusion, the total amount as identified in paragraph 1 of this Attachment and anyportion thereof, to the extent that it is utilized, must be utilized only for matters or items within the Scope ofAgreement and any additional scope as agreed. Incurred Costs shall be inclusive of any applicable consumption,value added tax or any other applicable sales/use tax. For the avoidance of doubt, the Incurred Costs shall beexclusive of any and all import duties.10. Table entry line number 2 “Exhibit B – Quarterly Status Report (Example)” after Section 3.1 “Change Control& Agreement Amendments Payment Schedule”, and corresponding Exhibit front page header are both herebyamended as “Exhibit B – Monthly Status Report (Example)”.11. “Exhibit A to Attachment F – Project Funds Status Report” of Attachment F (INVOICE AND INCURRED COSTSDOCUMENTATION) to the DDA (as amended by the Amendment No.1) is hereby deleted in its entirety andreplaced with the following clause: 4[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.1. Estimate at Completion on Dec.10,2017 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[__] = [***]2. Estimate at Completion on Dec.10,2018 2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[__] = [***]IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below. SIGNED for and on behalf of SIGNED for and on behalf of HAPSMobile Inc. AeroVironment, Inc. By:/s/ Akihiko Asami By:/s/ Trace Stevenson Name: Akihiko Asami, on behalf of Junichi Miyakawa Name: Trace SevensonTitle: President and CEO Title: Deputy General Manager and Vice PresidentEmerging BusinessDate: March 1, 2019 Date: March 19, 2019 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Exhibit 10.43 CERTAIN IMMATERIAL PROVISIONS[***] Information has been omitted pursuant to Item 601(b)(2) of RegulationS-K OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IFPUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THESECURITIES AND EXCHANGE COMMISSION UPON REQUEST. AMENDMENT NO.6 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.6 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below by and between HAPS Mobile Inc. and AeroVironment, Inc. to amend the Design andDevelopment Agreement (Step2) made as of December 27, 2017 (as amended by the Amendment No.1 as of March 30,2018, the Amendment No.2 as of June 25, 2018, the Amendment No.3 as of August 28, 2018, the Amendment No.4 asof December 5, 2018, and the Amendment No.5 as of March 1, 2019 between HAPSMobile and AV) (the “DDA”).BackgroundThe Parties wished to raise a change of schedule related to [***] in Attachment A and H to the DDA (the “Change”)following the Change Control procedures set forth in Article 2.4 and 3.4 of, and Attachment G to the DDA, agreed toclassify the Change as Class I Change and that there will be no cost related to the Change. Therefore, to formalize andreflect the Changes, the Parties hereby agree with the amendments to the DDA as follows:Amendment1. Table entry line number 5 (not counting the header line) of Section 2 of Attachment A (DELIVERABLES) to theDDA (“Integrated Test Reports”) is hereby amended as follows:Integrated TestReportsAcceptance test reports for aircraft & GroundControl Station.2.3.2.2[***][***] 2. “Date” of Section 4 [***] of Attachment H (PROJECT MILESTONE) to the DDA is hereby deleted in its entiretyand replaced with the following clause:1[***][***] [***] Milestone Objective:[***] [***]· [***]· [***][***]· [***] 5[***][***] [***] Milestone Objective:[***] Completion Criteria· [***]· [***]· [***][***]· [***]· [***]· [***] 3. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA. Hereby the Parties expressly confirm that no change applies to the Incurred Cost set forth inATTACHMENT F despite of the Change. Capitalized terms, unless1[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVEHARM TO THE REGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEENOMITTED PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENTWILL BE FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST. otherwise defined herein, shall have the meaning set forth in the DDA. This Amendment may only be modified oramended by a written document executed by the parties hereto.IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below.SIGNED for and on behalf of SIGNED for and on behalf of HAPSMobile Inc. AeroVironment, Inc. By:/s/ Junichi Miyakawa By:/s/ Wahid Nawabi Name: Junichi Miyakawa Name: Wahid NawabiTitle: Board of Director, Senior Vice President Title: CEODate: 3/29/2019 2[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-KExhibit 10.44 CERTAIN IMMATERIAL PROVISIONS OF THIS DOCUMENT THAT WOULD LIKELY CAUSE COMPETITIVE HARM TO THEREGISTRANT IF PUBLICLY DISCLOSED (INDICATED BY AN ASTERISK [***]) HAVE BEEN OMITTED PURSUANT TO ITEM601(b)(2) OF REGULATION S-K. A COPY OF THE UNREDACTED DOCUMENT WILL BE FURNISHED TO THE SECURITIES ANDEXCHANGE COMMISSION UPON REQUEST. AMENDMENT NO.7 TOTHE DESIGN AND DEVELOPMENT AGREEMENT (STEP 2)This Amendment No.7 to the Design and Development Agreement (Step2) (“Amendment”) is entered into as of thedate of last signature below by and between HAPSMobile Inc. (“HAPSMobile”) and AeroVironment, Inc. (“AV”) toamend the Design and Development Agreement (Step2) originally executed as of December 27, 2017 (as amended byAmendment No.1 as of March 30, 2018, Amendment No.2 as of June 25, 2018, Amendment No.3 as of August 28,2018, Amendment No.4 as of December 5, 2018, Amendment No.5 as of March 19, 2019, and Amendment No.6 as ofMarch 29, 2019, between HAPSMobile and AV) (the “DDA”).BackgroundThe Parties hereby agree to amend the total fees of Design and Development for Step 2 due to the material changes ofthe project schedule and the Statement of Work as set forth herein (the “Change”).Therefore, to formalize and reflect both the Changes and Program Management Improvement, the Parties hereby agreewith the amendments to the DDA as follows:Amendments1. The following new defined term is hereby inserted after subarticle 1.38 “Work Product” of Section “1.DEFINITIONS” in the DDA body:1.39 “Project” means collectively all Work to carry out the detailed design and development work for the SolarHAPS which comprises DDA Step 2 of the business relationship between AV and HAPSMobile.2. Section 1.1.1 (Subsection of “1.1 [***]”) of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30Prototype Program) to the DDA (as amended by the Amendment No.5) is hereby deleted in its entirety and replacedwith the following clauses:1.1.1 [***]Objective: [***].Approach: [***]:·[***]·[***]·[***]·[***]·[***]·[***]·[***]1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.·[***];(i)[***](ii)[***](iii)[***](iv)[***]·[***]:Ø[***]Ø[***]Ø[***] 2 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Reporting Process diagramｃ Exit Criteria: [***]Task Output:·[***]·[***]REMARK: [***].3. The following Section 1.1.6 is hereby newly inserted after Section1.1.5 “[***]” (Subsection of “1.1 [***]”) ofAttachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program) to the DDA:1.1.6[***]Objective: [***].Approach: [***].Exit Criteria: [***].Task Output:·[***]1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]4. The following Section 1.2.6 is hereby newly inserted after Section1.2.5 “[***]” (Subsection of “1.2 [***]”) ofAttachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program) to the DDA:1.2.6 [***]Objective: [***].Approach: [***]:·[***]·[***]·[***]·[***]·[***]Exit Criteria: [***].Task Output:·[***]5. Section 2.2.1 (Subsection of “[***]”) of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30Prototype Program) to the DDA is hereby deleted in its entirety and replaced with the following clauses:2.2.1 [***]Objective: [***].Approach: AeroVironment shall perform the following tasks as a part of this element:·[***]·[***]·[***]·[***]·[***]·[***]·[***]:·[***]·[***]Exit Criteria: [***].Task Output:·[***].·[***]·[***]6. Section 2.2.5 (Subsection of “2.2 [***]”) of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30Prototype Program) to the DDA is hereby deleted in its entirety and replaced with the following clauses:2 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.2.2.5 [***]Objective: [***].Approach: [***]:·[***]·[***]·[***]·[***]·[***]Exit Criteria: [***].Task Output:·[***]·[***]·[***]7. The following Section 2.2.8 is hereby newly inserted after Section 2.2.7 “[***]” (Subsection of “2.2 [***]”) ofAttachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program) to the DDA:2.2.8 [***]Objective: [***].Approach: [***]:·[***]·[***]·[***]Exit Criteria: [***].Task Output:·[***]·[***]8. Section 3.1 of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program) to the DDA is hereby deleted inits entirety and replaced with the following clauses:3.1 [***]Objective: [***].Approach: [***].[***]·[***]·[***]3 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.·[***]·[***]·[***]·[***]·[***]Exit Criteria: [***].Task Output:·[***]·[***]·[***]·[***]·[***]9. Section 3.2 of Attachment C (AeroVironment Statement of Work (SOW) for Hawk30 Prototype Program) to the DDA is hereby deleted inits entirety and replaced with the following clauses:3.2 [***]Objective: [***].Approach: [***].·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]Exit Criteria: [***].Task Output:·[***]·[***]·[***]·[***]·[***]10. Attachment A (DELIVERABLES) to the DDA is hereby deleted in its entirety and replaced with the attached newattachment herein, AttachmentA, entitled (DELIVELABLES).11. Attachment E (FLIGHT TEST) to the DDA is hereby deleted in its entirety and replaced with the attached newattachment herein, Attachment E, entitled (FLIGHT TEST).4 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.12. Attachment H (PROJECT MILESTONE) to the DDA (as amended by the Amendments No.2, and 4) is herebydeleted in its entirety and replaced with the attached new attachment herein, Attachment H, entitled (PROJECTMILESTONE).13. Attachment I (PROJECT MANAGEMENT) to the DDA is hereby deleted in its entirety and replaced with theattached new attachment herein, Attachment I, entitled (PROJECT MANAGEMENT).14. Attachment F (INVOICE AND INCURRED COSTS DOCUMENTATION) to the DDA (as amended by theAmendments No.1 and 5) is hereby deleted in its entirety and replaced with the attached new attachment herein,Attachment F, entitled (INVOICE AND INCURRED COSTS DOCUMENTATION).15. All other terms and conditions not specifically modified or amended herein remain in full force and effect asprovided for in the DDA and its Attachments, including Amendments 1 through 6. Capitalized terms, unless otherwisedefined herein, shall have the meaning set forth in the DDA. This Amendment may only be modified or amended by awritten document executed by the parties hereto.IN WITNESS WHEREOF the Parties hereto have signed and executed this Amendment on the date(s) below.SIGNED for and on behalf ofSIGNED for and on behalf ofHAPSMobile Inc.AeroVironment, Inc. By:/s/ Junichi MiyakawaBy:/s/ Trace StevensonName: Junichi MiyakawaName: Trace StevensonTitle: Board of Director, Senior Vice PresidentTitle: Vice President and Deputy GeneralDate: 4/17/2019Date: 4/24/2019 5 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.ATTACHMENT ADELIVERABLES(This Attachment A is revised in its entirety by the Amendment No. 7 to the DDA)1. Hardware Deliverables1.1 Aircraft DeliverablesDeliverablesNameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDateHawk30 Prototype[***][***]2.3.2.3[***][***]Hawk30 Prototype[***][***]2.3.2.6[***][***] *1. [***].*2. [***].1.2 Ground Control SystemDeliverablesNameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDateGround ControlStations and Misc.EquipmentGround Control Station [***] of the Hawk30Prototype [***]2.2.6[***][***]Hawk30 PrototypeOperating ManualsTechnical Data Package1.2.4.1[***][***]Hawk30 PrototypeTraining ManualsTechnical Data Package1.2.4.2[***][***] 6 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.1.3 Motor DevelopmentDeliverablesNameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDate[***][***] Project Data Memo2.2.1[***][***][***][***]2.2.1[***][***][***]Technical data package of [***]2.2.1[***][***][***][***]2.2.1[***][***] * [***].** [***].2. Document DeliverablesDeliverables NameDeliverable DescriptionRelevantWBSMilestoneNo.EstimatedCompletionDateCDR & ComponentEngineeringTechnical DataPackageTechnical Data Package.RFPs, RFIs, and RFQs.2.2[***][***]Update ComponentEngineeringTechnical Data Package2.2[***][***]Fab & Test FirstWing PanelTechnical Data Package.Recorded measurement data aerodynamic test data.2.2.3.1[***][***]Functional TestReportsAcceptance test reports for components andassemblies2.3[***][***]Initial Integrated TestReports ([***])Initial Acceptance test reports for aircraft &Ground Control Station2.3.2.3[***][***]Integrated TestReports ([***])Acceptance test reports for aircraft & GroundControl Station2.3.2.3[***][***]Integrated TestReports ([***])Acceptance test reports for aircraft2.3.2.6[***][***] 7 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[***][***] of the Hawk30 Solar Aircraft System1.1.5[***][***]Low Altitude FlightTest ReportDescriptive test report, Ships logs, maintenancereport. Recorded flight data3.1[***][***]High Altitude FlightTest ReportDescriptive test report, Ships logs, maintenancereport. Recorded flight data.3.2[***][***][***][***].[***].3.2[***][***]Long Duration FlightTest ReportDescriptive test report, Ships logs, maintenancereport.Recorded flight data (All command and telemetrystream data between the ground control station asRaw Data).3.2[***][***]Final EngineeringTechnical DataPackageTechnical Data Package.Hawk30 Solar Aircraft System controllingspecifications and requirements.Various[***][***]Logistics InstructionDocument PackageLogistics Instruction Manuals forAssembly/Disassembly, Packaging, Transporting,etc. for management purpose.VariousAllCorrespondingMilestoneCompletion Date As used in this Attachment A, and as limited by Section 4.8 in the IPLA, “Technical Data Package” means:1.[***]2.[***]3.System specifications4.System description documents5.System performance data6.[***]7.[***]. “Technical Data Package” transfer could be in various forms, for example:1.Agile database export in PDX file which will include PDF files for assembly drawings, DOC for procedures andtest plans, and EXE files for executable code.2.Specifications, descriptions, Program Data Memos, test data in a ZIP file which can include a combination ofDOC, XLS, and other data formats. 8 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Exhibit ASource Code to be Provided by AV to HAPSMobile1.Software and Firmware Tabular View1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]ATTACHMENT EFLIGHT TEST(This Attachment E is revised in its entirety by the Amendment No. 7 to the DDA)AV will perform a flight test plan which will optimize data collection efficiency during the Flight Tests. A build-up approach to the flighttest campaign will be conducted which efficiently demonstrates aircraft handling and performance at low altitude prior to transitioning tohigh altitude. Ref. PDM AV 55266-1019.Data will be collected to verify that the final aircraft configuration meets the requirements defined for FAA basis ofcertification as detailed in PDM AV55266-1020-FAA Standards Development and Coordination. The details of theflight test program pertain to the prototype version of the Hawk30 Prototype with the goal of demonstrating [***] flightendurance.Prior to the beginning of the initial Flight Test, the AV team will accomplish exhaustive build-up testing in venues such as environmentalqualification laboratories, the HAP System Integration Laboratory, and HAP flight deck and flight test control room simulationenvironments.The Ground Test and Flight Test Plan listed in PDM AV 55266-1019 list the following test elements to be successfully completed for theHawk30 Prototype flight test program.·Ground test campaign:oAircraft functional tests with motor runsoGround handlingoAirfield operations·Low altitude flight test campaign (with Flight Test Instrumentation System)oBaseline location is primarily an airfield in [***] and [***]oThis phase consists of notionally [***] on [***] and [***]oFlight Test events are planned to be executed at the rate of [***]oTest objectives include:·Basic controllability and maneuverability data·Subsystem performance (power, thermal, efficiency, etc.)·Flight data for correlation of analysis and design tools·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·High altitude and endurance test campaign (with Flight Test Instrumentation System)o[***]o[***]o[***]o[***]o[***]oTest objectives:§[***]§[***]§[***]2 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]o[***]o[***]o[***]o[***]o[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]o[***]o[***]o[***]·[***]·[***]·Payload Test CampaignoTest objectives:·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]3 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.AV will coordinate with HAPSMobile and provide a test flight schedule for Payload test. HAPSMobile will have full responsibility tooperate its Payload during the Payload test.AV will conduct airport survey, selection and perform all maintenance on the Hawk30 Prototype Aircraft system during the Flight Testprogram.The following Table E-1 sets forth the key achievement requirement per each Flight Test campaign, and in case inconsistency occurringwith other condition defined anywhere in the Agreement including Attachments, then the content defined in Table E-1 shall prevail.Table E-1 Flight Test campaign key achievement requirementFlight Test Campaign TypeLow Altitude Flight TestHigh Altitude Flight Test[***]Long Duration FlightDemonstration[***][***][***][***][***][***] [***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***][***] 4 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.ATTACHMENT HPROJECT MILESTONE(This Attachment H is revised in its entirety by the Amendment No. 7 to the DDA)#MilestoneCriteriaDate1[***][***] [***] Milestone Objective:[***] Completion Criteria[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***]·[***] 2[***][***] [***]Milestone Objective:[***] Completion Criteria·[***]·[***]·[***]·[***]·[***] 3[***][***] [***] Milestone Objective:[***] Completion Criteria[***]·[***]·[***][***]·[***]·[***] 4[***][***] 5 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. [***] Milestone Objective:[***] Completion Criteria·[***]·[***]Organize Flight Readiness Review.·[***] 5[***][***] [***] Milestone Objective:[***] Completion Criteria·[***]·[***]·[***][***]·[***]·[***]·[***]. 6[***][***] [***] Milestone Objective:[***] Completion Criteria[***]·[***]·[***]·[***]·[***]·[***]·[***] 7[***][***] [***] Milestone Objective:[***] Completion Criteria[***], to include:·[***]·[***]·[***]·[***]·[***]·[***] 8[***][***] [***] Milestone Objective:[***] 6 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Completion Criteria[***], to include:·[***]·[***]·[***]·[***]·[***] 9[***][***] [***] Milestone Objective:[***] Completion Criteria[***], for:·[***]·[***].·[***]·[***] 10[***][***] [***] Milestone Objective:[***] Completion Criteria[***]·[***] 7 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.ATTACHMENT IPROJECT MANAGEMENT(This Attachment I is revised in its entirety bythe Amendment No. 7 to the DDA)For the all Work AV shall have overall responsibility for the design, development, manufacturing, assemble,integration, testing, and implementation of the Aircrafts, in such capacity, will provide to HAPSMobile ProjectManagement work and resource in accordance with the terms herein defined.1. Project Roles & Responsibilities1.1 Project Organization. Figure I-1 below illustrates the basic organizational structure and high-level roles that will beused in the project. Detailed project roles & responsibilities are described in “ATTACHMENT C SOW”.Figure I-18 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.A List of Project key persons for AV (Key Persons List) is as follows.AV[***][***][***][***][***][***][***][***] 1.2Project Methodology. AV’s methodology for large scale complex projects will be used to ensure that all elementsof the project are appropriately considered and aligned. The major components of the design approach are:Development, design, build and test the Hawk30 Prototype Solar Stratospheric Aircraft System testing cellularconnectivity @ 20km altitude station keeping and 6-month endurance through Flight Test and engineeringanalysis.2. Project Governance2.1 Project Management. Project Management organizes and delivers the support and supervision to deliver anintegrated design capability.It includes:(1) Establishing work plans, resources and disciplines to get the project activities initiated and progressed towork towards achieving on-time delivery.(2) Directing, coordinating and monitoring the activities of the entire project to assist in achieving desiredproject outcomes.(3) Managing the integration of the various components of the project so that they support the overall businessarchitecture.The detailed scope of these activities is defined in “ATTACHMENT C SOW”.2.2 Project Management Office (PMO)PMO will execute the project management approach. In PMO, project management operations will be handled byboth HAPSMobile and AV. Project management of external projects and external systems is beyond the scope ofwork for PMO. PMO will coordinate design activities with other external systems and/or projects.2.3 Project/Organization Definition.AV defines the project organization and schedule, and HAPSMobile reviews them at the beginning of the project.Mutually agreed changes can be made.2.4 Define Project Management Processes and Training.9 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.(a)AV defines the project management processes and HAPSMobile reviews them. Mutually agreed changes canbe made.(b)AV will provide highly skilled PMO and Project Management personnel. Additional training withHAPSMobile support will be initiated as required. An official training session for each project managementarea will be scheduled for the project members. The PMO office will be responsible for arranging any follow-up session for absent/new people. HAPSMobile and AV will be responsible for follow-up activities for theirown members.2.5 Human Resource Management.(a)AV and HAPSMobile create and maintain their own resource plans respectively.(b)AV and HAPSMobile should provide enough people, based on respective resource plans, in order to completeproject deliverables in line with the schedule.(c)Resource shortage and/or personnel problems will be mutually resolved according to the Agreement.2.6 Progress Management(a)AV defines the progress management processes and HAPSMobile reviews them. Mutually agreed changes onthe format of such progress reports can be made.(b)A PMO member participates in the PMO meeting once a month or as needed and the Project operationalmeeting once a week or as needed. HAPSMobile and AV will provide and input accurate data in a timelymanner.(c)AV and HAPSMobile will undertake the following activities in cooperation:i.Collection of progress informationii.Preparing progress materialsiii.Participating in progress meeting2.7 Scope Management/Change Control ProcessOne of the key activities for Project Management will closely manage the scope so that delivery commitments andschedule milestones can be met. All scope changes will be handled through the Change Procedures described in theAgreement. The scope of events that fall under a Change request and the detailed Change request process to be usedin the project must be in accordance with the Change Procedures described in the Agreement.2.8 Issue Management Processes(a)Issue management will follow a defined process with appropriate issues escalated to PMO.(b)PMO or operational meeting issues which are HAPSMobile's responsibility should be resolved by thedesignated due dates. If HAPSMobile in-charge person cannot resolve the issue, it should be escalated to ahigher level in a timely manner so as not to jeopardize the overall project schedule, quality and cost.(c)AV and HAPSMobile will undertake the following activities in cooperation:i.Collection of issuesii.Making issue management materials2.9 Risk Management Processes(a)Risk management will follow a defined process with appropriate risks escalated to PMO.10 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.(b)PMO or operational meeting risks, which are HAPSMobile's responsibility, should be mitigated by the duedates. If HAPSMobile in-charge person cannot mitigate the risks, it should be escalated to a higher level in atimely manner so as not to impact the overall project schedule, quality and cost.(c)AV and HAPSMobile will undertake the following activities in cooperation:i.Collection of risksii.Prepare risk management materialsiii.Planning the approach for risk mitigationiv.Leading meetings/taking minutes2.10 Business Management Processes(a)Coordinate that each area/office develops the standards according to the project plan, and undertakes designs,developments, and reviews in accordance with the standards.(b)Appropriate area/office develops standards and each office undertakes compliance activities in accordancewith the business management standards.2.11 Communication Management(a)Communication management will follow a defined process, and each office member should participate andoperate meetings in line with the meeting purpose.(b)Steering Committee will be held on a monthly basis.(c)The following communication management tasks will be undertaken:(1) Steering Committeei.Preparing materialsii.Preparing and Arrangingiii.Facilitatingiv.Taking Minutes(2) Create and maintain a stakeholder list in cooperation2.12 Vendor Management.Vendor management will occur as described in the Agreement.2.13 Deliverables Management(a)PMO is responsible, at the appropriate points in the project, to track and report that all defined Deliverables aredeveloped and reviewed.(b)The Deliverables are defined in Attachment A.(c)Acceptance of Deliverables will follow the acceptance process defined in Attachment B.2.14 Support Activities(a)HAPSMobile internal activities having no direct relation to the project will not be supported.(b)AV translators, interpreters and secretaries will work only for AV under the instruction of AV.11 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.ATTACHMENT FINVOICE AND INCURRED COSTS DOCUMENTATION(This Attachment F is revised in its entirety by the Amendment No. 7 to the DDA)PRICING AND PAYMENT SCHEDULE1. Payment for Work Step21.1 Total Contract ValueThe total amount of Design and Development Fees payable for Step 2 is Not-to-Exceed USD $131,691,051 based onBest Efforts. The Contract Value may be modified by the Parties as a result of Change Control or by any otheramendment to the Agreement (the current contract value at any time under this Agreement shall be the “ContractValue”). The Parties agree to account for payment of USD $5,988,678 already made by SoftBank to AV as payment forthe consideration of Step 2 Bridge Contract as partial payment for commencing Step 2. The Parties shall pay to AV theremaining balance of USD $125,702,373, consists from USD $69,800,624 as Initial Contract Value, and incrementalamount by Amendment No.1, USD $17,226,306 as additional cost by Amendment No.5, and further additional fundingof USD $38,675,443 subject to EAC adjustment activity done on [***], in accordance with Exhibit A to thisAttachment F Project Funds Status Report accompanied by a combined Milestone & Monthly Invoice approach asdetailed further in this Attachment F. Each Milestone payment shall be payable after completion of the applicableMilestone according to Completion criteria on Attachment H.1.2 Contract Value Growing TransitionThe Initial Contract Value may be modified by the Parties as a result of Change Control or by any other amendment tothe Agreement (the current contract value at any time under this Agreement shall be the “Contract Value”). Each Partyrecognizes the total Project Cost has grown as follows;a.SoftBank and AV concluded Step 2 Bridge Contract for preliminary development activity for Step2, and paymentof USD $5,988,678 was made to AV by SoftBank;b.SoftBank, HM, and AV agree to account for payment of USD $5,988,678 already made by SoftBank to AV asdefined as above as partial payment ("Taken-Over Value”) for commencing Step 2. HAPSMobile;c.Initial contract value for DDA was USD $65,011,481 (“Initial Value”), and USD $71,000,159 in case includingTaken-Over Value;d.USD $4,789,143 was added to Initial value by the execution of the Amendment No.1 and total value was modifiedto USD $69,800,624 (“Amendment 1 Value”), and USD $75,789,302 in case including Taken-Over Value;e.USD $17,226,306 was added to Amendment 1 Value by the execution of the Amendment No.5 and total value wasmodified to USD $87,026,930, and USD $93,015.608 in case including Taken-Over Value;f.USD $38,675,443 as further incremental funding subject to EAC adjustment activity done on [***] and caused bythe [***]Project Milestones extension as defined in detail in Section V herein, SoW and12 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.technical requirement changes as defined in detail in Section Z herein; and the the contract value reaches USD$125,702,373, in case including Taken-Over Value then USD $ 131,691,051.1.3 Work Order Issuance ScheduleHAPSMobile agrees to issue five (5) scheduled separate Orders and may issue three (3) optional separate Orders(“Optional Orders”)to AV for authorization of Work. The Orders shall be issued as follows:a.initial Order [***];b.second Order [***];c.the third Order [***];d.the fourth Order [***];e.the fifth Order [***]; andf.three more optional Orders will be defined further more in detail in 5.1 herein. Each Order will be issued pursuantto the terms and conditions of this Agreement including the attachments thereto. Work performed under the Orderswill be in support of the entire Statement of Work, up to the value funded on the Order.1.4 Milestone Target Budget Values & Forecast RevisionsExhibit A (Project Funds Status Report) to this Attachment F assigns Initial Target Budget values for [***] Milestonesidentified in Attachment H.AV will provide updates and revisions to the Initial Target Budget values for each Milestone and revised and updatedforecasts for such Milestones to HAPSMobile on a monthly basis. Milestone values are subject to Change Control basedon updated forecasts of program resource requirements to complete the Work required under this Agreement, includingthe SOW(Attachment C). Milestone values will be based on the AV labor projected spend plan forecasted for each AVfiscal month.1.5 Milestone Invoicing & PaymentUpon AV’s written notification to HAPSMobile of AV’s completion of a Milestone, AV will provide an invoice for allAV labor Incurred Costs and [***]% fee. Invoices will include all program labor expenses incurred by AV up throughthe date of the Milestone acceptance, less any labor already paid for in prior Milestone invoices. Milestones completedbefore the [***] of the calendar month will be based on actuals from the prior AV fiscal month end. Milestonescompleted after the [***] of the calendar month will be invoiced upon completion of that fiscal month. [***].[***].1.6 Non-Milestone Invoicing & Payment (Monthly Invoices)Program expenses for material, subcontract and other direct costs will be invoiced by AV to HAPSMobile on a monthlybasis based on actual Incurred Cost and [***]% fee. Invoices to be submitted within 4 Business Days after eachcalendar month end. HAPSMobile agrees to pay each such invoice within the same calendar month. Invoices formaterial related Cost will be provided with applicable level of detailed description for HAPSMobile’s book keepingpurpose.13 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.1.7 CurrencyAll payments under this Agreement shall be made in United States dollars.1.8 Excess Incurred Costsa.In the event that AV identifies a projected increase in Incurred Costs by AV for the performance of its obligationsunder the Agreement as identified in the Monthly Status Report, in excess of the Not-to-Exceed Value of the Orderas identified in Article 2.3 then the Parties agree the excess of the amount and continue to proceed the Projectsubject to the process set forth in the Section 4 of this ATTACHMENT F, HAPSMobile may,(1) agree to authorize AV to incur the excess costs and provide a modification to increase the Contract Value,provided however that both Parties shall follow the Change Control set forth in Article 2.4 of the Agreement orAmendment of Agreement set forth in Article 13. Should HAPSMobile authorize additional spending, all ofAV’s Incurred Costs must be paid to AV with the applicable [***]% fee;(2)agree in accordance with the Change Control or Amendment of Agreement to reduce the Scope of Agreementso that AV’s performance of the Scope of Agreement will be projected to fall within the amount of the thencurrent Contract Value; or(3)Terminate the Agreement for convenience as contemplated by Article 12.3 of the Agreement and pay AV allTermination Liability as defined in paragraph 1.7 of this attachment.1.9 Unutilized ConsiderationIn the event of a projected cost underrun as identified in a Monthly Status Report, any amounts from the Order whichremain after completion of the Scope of Agreement may be reimbursed or, if authorized by HAPSMobile separately andspecifically, utilized for AV’s risk reduction or additional scope to be defined through written mutual agreement subjectto the terms of this Agreement. To avoid confusion, the total amount as identified in paragraph 1 of this Attachment andany portion thereof, to the extent that it is utilized, must be utilized only for matters or items within the Scope ofAgreement and any additional scope as agreed. Incurred Costs shall be inclusive of any applicable consumption, valueadded tax or any other applicable sales/use tax. For the avoidance of doubt, the Incurred Costs shall be exclusive of anyand all import duties.1.10 Termination LiabilityAV’s Termination Liability (defined as: all of AV’s Step 2 Incurred Costs incurred prior to the date of the ramp downperiod specified in Article 12.5 of the Agreement plus the applicable [***]% fee, less all payments received by AVfrom HAPSMobile under this Agreement, plus all material, subcontract, other direct costs including open commitmentsand other wind down costs outstanding as of the start of the ramp down period, plus 60 days of AV labor costs incurredduring the ramp down period) will be billed to HAPSMobile 30 days after the end of ramp down period andTermination Liability shall not exceed then current Contract Value but AV labor cost may be compensated exceedingthen current Contract Value based upon actual Work performed. Schedule delays may occur and be resolved subject toArticle 3.2 of the Agreement.2. Fee Assumptions2.1 Exclusion1.Range Fees for the High Altitude and Endurance Flight Tests shall be borne by, and be the sole responsibility of,HAPSMobile. AV and HAPSMobile will mutually consult to set up an appropriate14 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.implementation plan for High Altitude and Endurance Flight Tests minimizing such Range Fees in accordance withAttachment C and D.2. Payload Integration is based on the [***] payload only, any changes to Payload Supplier and/or integration will besubject change control process.3. Labor, shipping and other costs are not included, however is inclusive of labor for obtaining the clearance andpermission under EAR or related export regulations for delivery of [***], [***] and GCS at other than the [***]flight test location. Any changes to the final delivery location will be subject to change control process.2.2 [***] ProcessThe Parties agree to set the assumption of development process for [***] as provided below:·[***]·[***]:1.[***]1.1[***]1.2[***]2.[***].3. Change Control & Agreement Amendments Payment ScheduleHAPSMobile agrees to pay to AV all additional Incurred Costs resulting from any fee adjustments for the Workpursuant to any Change Control per Attachment G or any other amendments to the Agreement, but in any case subjectto the terms set forth in Section 1.9 in this ATTACHMENT F. After being provided with a request or providing aChange Control Proposal as provided on Attachment G or any other amendment to the Agreement. AV will provideHAPSMobile with a Change Assessment (as contemplated by Attachment G) or a similar assessment or other proposedamendments to the Agreement with estimated additional or reduced Incurred Costs plus the applicable fee for theapplicable Change Control Proposal or other proposed Agreement amendment along with the costs estimationdocumentation. In the event of a projected increase in Incurred Costs by AV in performance of the Agreement pursuantto Change Control Proposal or other proposed Agreement amendment would result in a total Contract Value thatexceeds the then-current Contract Value, HAPSMobile will agree to authorize AV to incur the excess costs (thusincreasing the Contract Value) or the Parties will agree in the Change Control (or pursuant to any other Agreementamendment) to reduce the Scope of Agreement so that AV’s performance of the Scope of Agreement will fall within thethen-current Contract Value. Any increase in Contract Value that exceeds causes the value of this Agreement to exceedthe Initial Contract Value shall require approval by HAPSMobile's board of directors.The tables below provide the basis for calculating the additional Fees applicable for Change Controls and otherAgreement amendments as a result of a Change or other Agreement amendment that may be required from time to timein accordance with relevant clauses of the Agreement.Cost ElementDescriptionLabor[***]Labor Total Cost w/[***]% Fee[***]Material Total Cost w/[***]% Fee[***]15 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Subcontract Total Cost w/[***]% Fee[***]Other Direct Costs (ODC) Total Cost w/[***]% Fee[***] 4. Fifth Work Order and Optional Order4.1 Order ScheduleThe Fifth Work Order and the following Optional Order will be organized as follows;NameCovered SoWCoveredMilestoneWO value(USD)WO duedateThe fifth Work Order[***][***][***][***]Optional Order #1[***][***][***][***]Optional Order #2[***][***][***][***] *remarkDefinitionMeaningDecision Due Date[***][***][***][***][***][***] HM shall issue the fifth Work Order as defined above, and HM may issue the Optional Order by fully HM’s optionconsidering [***] but until WO due date defined as the above.4.2 Effect of No Issuance of Optional OrderIn case HM does not issue the Optional Order before or on the due date, AV may suspend the entrance of theequivalent Milestone and covered Works until AV receives the Optional Order. In the event of Optional Work Ordersare not exercised, AV will transfer all assets to HAPSMobile.Exhibit A – Project Funds Status ReportExhibit B – Monthly Status Report (Example)Exhibit C – Milestone Invoice (Example) 16 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Exhibit A to Attachment F – Project Funds Status Report1. Estimate at Completion on Dec.10,2017 1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***] 2. Estimate at Completion on Dec.10,2018 1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***] 1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***] 3. Estimate at Completion on March 4,2019 1 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]Exhibit B to Attachment F – Monthly Status Report (Example) AeroVironment Inc.980 Enchanted WaySimi Valley, California 93065 – U.S.A.Telephone 1(805) 581-2187 – FAX 1(805) 584-69222 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Approvals: Originator Date Project Manager Date Program Manager Date 3 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Revision HistoryREVEDIT DATEAUTHORDESCRIPTIONAMM/DD/YYYY 4 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.TABLE OF CONTENTSTable of ContentsApprovals:3Revision History4Introduction6Technical Accomplishments6Schedule Update7Spend Plan9Cost Performance Report10Schedule Performance Report10Monthly Invoice11 5 [***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K. Introduction<><> Technical AccomplishmentsWhat efforts were started this period?<>Task 5Task 6Task 7Task …XWhat efforts were completed this period?<>Task 1Task 2Task 3Task 4Key Subcontract Status:Subcontractor A:Subcontractor B:Subcontractor C:6[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]Schedule UpdateIntegrated Master Schedule Update <>Milestone Status Update 7[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***] Reference to Attachment H8[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.Spend PlanSpend Plan Update9[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]Cost Performance ReportCost Performance Update Schedule Performance Report<>·Critical Path Analysis10[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]·Schedule Performance Index (if applicable)·Near term upcoming milestones (30 – 60 days )oMilestone 1 =oMilestone 2 =oMilestone X =Monthly Invoice – (Non-Labor) 11[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***] Exhibit C to Attachment F12[***] Information has been omitted pursuant to Item 601(b)(2) of Regulation S-K.[ ] = [***]Exhibit 10.45 AMENDMENT AGREEMENT This Amendment Agreement (this “Amendment”) is made and entered into as of November 29, 2018 by and betweenSoftBank Corp., a company incorporated under the laws of Japan and having its principal place of business at 1-9-1Higashi-shimbashi, Minato-ku, Tokyo, Japan (“SoftBank”) and AeroVironment, Inc., a company incorporated underthe laws of the State of Delaware and having its principal place of business at 800 Royal Oaks Drive, Suite 210,Monrovia, CA 91016, U.S.A. (“AV”). SoftBank and AV are hereinafter referred to collectively as the “Parties” andindividually as a “Party”.All Capitalized terms not otherwise defined herein shall have the same meaning as assigned to them in the OriginalAgreement (as such term is defined below). RECITALSWHEREAS:(A) SoftBank and AV entered into a Joint Venture Agreement dated as of December 1, 2017 (the “OriginalAgreement”) under which they agreed to establish a joint venture company named HAPSMobile Inc.; and(B) SoftBank and AV now desire to amend a portion of the Original Agreement as set forth in this Amendment. NOW THEREFORE, the Parties hereby agree to amend and supplement the terms of the Original Agreement asfollows: 1. Amendment to Section 4(a)(i). Section 4.4(a)(i) of the Original Agreement is deleted in its entirety and replaced as follows: (i) Composition of the Board of Directors. The board of directors of the Company (the “Board”) shallconsist of six (6) Directors, of which four (4) shall be nominated by SoftBank (collectively, the “SoftBankDirectors”) and two (2) shall be nominated by AV (the “AV Directors”). The updated SoftBank Directors shallbe Mr. Junichi Miyakawa, Mr. Ryuji Wakikawa, Mr. Yoshihito Shimazaki and Mr. Akihiko Asami. AVDirectors shall be Mr. Wahid Nawabi and Mr. Kirk Flittie. Each Shareholder agrees that, if at any time it is thenentitled to vote for the election, removal or re-election of directors to the Board, it shall vote all of its Shares thatare entitled to vote or execute proxies or written consents, as the case may be, and take all other necessaryactions (including causing the Company to call a special meeting of the Shareholders) in order to ensure that thecomposition of the Board is as set forth in this Section 4.4(a)(i) (i.e. that the Board shall consist of four (4)SoftBank nominated Directors and two (2) AV nominated Directors). 2. Effective Date. Notwithstanding the signing date, this Amendment shall be in full effect from November 29,2018. 3. Other.13.1 SoftBank and AV each agrees to cause the Company to, and to vote its respective shares in order to, fullyimplement this Amendment, including without limitation any necessary amendment to the articles ofincorporation of the Company. 3.2 Except as expressly modified by this Amendment, the Original Agreement shall remain in full force andeffect. [Signature page follows.] 2IN WITNESS WHEREOF, the Parties have executed this Amendment by their respective duly authorizedrepresentatives . This Amendment may be executed in counterparts, including by facsimile or any other electronictransmission. SoftBank Corp.. AeroVironment, Inc. By: By: /s/Junichi Miyakawa /s/ Wahid Nawabi Print Name: Junichi Miyakawa Print Name: Wahid NawabiTitle: Executive Vice President, Director & CTO Title: President and CEO Date:Nov. 29, 2018 Date:Nov. 29, 2018 3Exhibit 10.46 SECOND AMENDMENT AGREEMENT This Second Amendment Agreement (this “Amendment”) is made and entered into with effect as of February 8, 2019 by and between SoftBank Corp., a company incorporated under the laws of Japan and having its principal place ofbusiness at 1-9-1 Higashi-shimbashi, Minato-ku, Tokyo, Japan (“SoftBank”) and AeroVironment, Inc., a companyincorporated under the laws of the State of Delaware and having its principal place of business at 800 Royal OaksDrive, Suite 210, Monrovia, CA 91016, U.S.A. (“AV”). SoftBank and AV are hereinafter referred to collectively asthe “Parties” and individually as a “Party”. All Capitalized terms not otherwise defined herein shall have the same meaning as assigned to them in the OriginalAgreement (as such term is defined below). RECITALSWHEREAS: (A) SoftBank and AV entered into a Joint Venture Agreement dated December 1, 2017 (the “Original Agreement”)under which they agreed to establish a joint venture company named HAPSMobile Inc.; and(B) SoftBank and AV amended the Original Agreement by entering into an Amendment Agreement datedNovember 29, 2018; and(C) SoftBank and AV now desire to amend portions of the Original Agreement as set forth in this Amendment. NOW THEREFORE, the Parties hereby agree to amend and supplement the terms of the Original Agreement asfollows: 1. Additional Capital Contribution by AV. Sections 2.6 and 2.7 of the Original Agreement are hereby deleted in their entirety and replaced as follows: 2.6 Initial Capital Contributions by the Parties and Follow-Up Contribution by AV.(a) The Parties shall make initial cash capital contributions to establish the Company. SoftBank’sinitial contribution shall be 3,990,000,000 JPY in cash in exchange for ninety-five percent (95%) of theissued common stock of the Company and AV’s initial contribution shall be 210,000,000 JPY in cash inexchange for five percent (5%) of the issued common stock of the Company. Following the initial capitalcontributions, the Parties shall make cash capital contributions in accordance with the Capital Planattached hereto as Exhibit D. Any costs in making the capital contribution shall be incurred by therespective Parties.(b) By no later than March 7, 2019, AV shall make a follow-up cash capital contribution to theCompany of 632,800,000 JPY in cash in exchange for five percent (5%) of the issued common stock ofthe Company, which shall be in addition to the five percent (5%) issued to AV under paragraph (a) above.12.7 Share Capital. (a) Shareholdings. The Company shall initially be authorized to issue shares of capital stockconsisting of 336,000 shares of common stock (the “Shares”). All of the capital of the Company will becomposed of voting common shares of a single class. Upon completion of the capital contributionsdescribed in Sections 2.6(a) and(b) above, each Shareholder’s percentage of total share capital of theCompany will be as follows. For the avoidance of doubt, such percentage and the total number ofauthorized shares of the Company may change from time to time as the result of Transfers or newissuances of Shares by the Company pursuant to the terms of this Agreement and applicable Laws. ShareholdersNumber of SharesPercentage of Share CapitalSoftBank216,41090%AV24,04610% 2. Deletion of Section 5.3(f). Section 5.3(f) of the Original Agreement is hereby deleted in its entirety andreplaced as follows: (f) [Reserved] 3. Other.5.1 SoftBank and AV each agrees to cause the Company to, and to vote its respective shares in order to,fully implement this Amendment, including without limitation any necessary amendment to the articles ofincorporation of the Company.5.2 Except as expressly modified by this Amendment, the Original Agreement shall remain in full force andeffect. [Signature page follows]2IN WITNESS WHEREOF, the Parties have executed this Amendment by their respective duly authorizedrepresentatives. This Amendment may be executed in counterparts, including by facsimile or any other electronictransmission. SoftBank Corp. AeroVironment, Inc. By:/s/ Junichi Miyakawa By:/s/ Wahid Nawabi Name: Junichi Miyakawa Name: Wahid NawabiTitle: Representative Director & CTO Title: President and CEO Date:Feb. 20, 2019 Date:Feb. 20, 2019 3Exhibit 21.1Subsidiaries of AeroVironment, Inc.Name Jurisdiction of OrganizationSkyTower, Inc. DelawareAltoy Savunma Sanayi ve Havacilik Anonim Sirketi* TurkeyAeroVironment, Inc. AfghanistanHAPSMobile, Inc.** JapanPulse Aerospace LLC Delaware* AeroVironment, Inc. has an 85% ownership interest** AeroVironment, Inc. has a 5% ownership interest Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333 140237) pertaining tothe AeroVironment, Inc. Nonqualified Stock Option Plan, the AeroVironment, Inc. 2002 Equity Incentive Plan, and theAeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated, and Registration Statement (Form S-8 No. 333-178349) pertaining to the AeroVironment, Inc. 2006 Equity Incentive Plan, as amended and restated, of our reports datedJune 25, 2019, with respect to the consolidated financial statements and schedule of AeroVironment, Inc. and subsidiaries,and the effectiveness of internal control over financial reporting of AeroVironment, Inc. and subsidiaries, included in thisAnnual Report (Form 10-K) for the year ended April 30, 2019. /s/ Ernst & Young LLP Los Angeles, CaliforniaJune 25, 2019 Exhibit 31.1Certification of CEO Pursuant toSecurities Exchange Act Rules 13a‑14 and 15d‑14as Adopted Pursuant toSection 302 of the Sarbanes‑Oxley Act of 2002I, Wahid Nawabi, certify that:1.I have reviewed this annual report on Form 10‑K of AeroVironment, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15(d)‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.6Date: June 25, 2019 /s/ Wahid Nawabi Wahid Nawabi Chief Executive Officer and President Exhibit 31.2Certification of CFO Pursuant toSecurities Exchange Act Rules 13a‑14 and 15d‑14as Adopted Pursuant toSection 302 of the Sarbanes‑Oxley Act of 2002I, Teresa P. Covington, certify that:1.I have reviewed this annual report on Form 10‑K of AeroVironment, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15(d)‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.Date: June 25, 2019 /s/ Teresa P. Covington Teresa P. Covington Senior Vice President and Chief Financial Officer Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes‑Oxley Act of 2002, each of theundersigned officers of AeroVironment, Inc. (the “Company”) hereby certifies, to each such officer’s knowledge, that:(i)the accompanying Annual Report on Form 10‑K of the Company for the year ended April 30, 2019 (the“Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of theSecurities Exchange Act of 1934, as amended; and(ii)the information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.Date: June 25, 2019 /s/ WAHID NAWABI Wahid Nawabi Chief Executive Officer and President Date: June 25, 2019 /s/ TERESA P. COVINGTON Teresa P. Covington Senior Vice President and Chief Financial Officer CORPORATE INFORMATION EXECUTIVE MANAGEMENT TEAM BOARD OF DIRECTORS WAHID NAWABI President and Chief Executive Officer TIMOTHY E. CONVER Chairman of the Board, AeroVironment, Inc. TERESA COVINGTON Senior Vice President and Chief Financial Officer KEN K ARKLIN Senior Vice President, Operations MELISSA BROWN Vice President and General Counsel STE VEN GITLIN Chief Marketing Officer, Vice President Investor Relations SCOT T NEWBERN Vice President and Chief Technology Officer RICK PEDIGO Vice President, Sales and Business Development ALISON ROELKE Vice President, People and Culture TR ACE STE VENSON Vice President and Deputy General Manager CHARLES T. BURBAGE Independent Director Former Executive Vice President and General Manager, Joint Strike Fighter Program, Lockheed Martin Corporation ARNOLD L. FISHMAN Independent Director Chairman Emeritus, Applied VR, LLC CHARLES R. HOLL AND Independent Director General, USAF (Ret), Former Commander, U.S. Special Operations Command (2000–2003) CATHARINE MERIGOLD Independent Director Managing Partner, Vista Ventures EDWARD R. MULLER Independent Director Former Vice Chairman, NRG Energy, Inc. WAHID NAWABI Director President and Chief Executive Officer, AeroVironment, Inc. STEPHEN F. PAGE Lead Independent Director Trustee, Loyola Marymount University STOCKHOLDER INFORMATION INVESTOR REL ATIONS Steven Gitlin Chief Marketing Officer, Vice President Investor Relations To obtain free copies of this Overview and 10-K, please contact AeroVironment’s Investor Relations Department: AEROVIRONMENT, INC. Attn: Investor Relations 900 Innovators Way Simi Valley, CA 93065 Phone: 805.520.8350, ext. 4510 Email: ir@avinc.com IR website: http://investor.avinc.com www.avinc.com TRANSFER AGENT AMERICAN STOCK TR ANSFER & TRUST COMPANY, LLC 6201 15th Avenue Brooklyn, New York 11219 SHAREHOLDER SERVICES 800.937.5449 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP MARKET INFORMATION The common stock of the Company is traded on The NASDAQ Stock Market under the symbol “AVAV.” FORWARD-LOOKING STATEMENTS This document contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward- looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government funding for defense procurement and R&D programs; changes in the timing and/or amount of government spending; our ability to perform under existing contracts and obtain new contracts; risks related to our international business, including compliance with export control laws; potential need for changes in our long-term strategy in response to future developments; unexpected technical and marketing difficulties inherent in major research and product development efforts; the impact of potential security and cyber threats; changes in the supply and/or demand and/or prices for our products and services; the activities of competitors and increased competition; failure of the markets in which we operate to grow; uncertainty in the customer adoption rate of commercial use unmanned aircraft systems; failure to remain a market innovator and create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; the extensive regulatory requirements governing our contracts with the U.S. government and international customers; the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements; risk of litigation, including but not limited to pending litigation arising from the sale of our EES business; the impact of our recent acquisition of Pulse Aerospace LLC and our ability to successfully integrate it into our operations; product liability, infringement and other claims; changes in the regulatory environment; and general economic and business conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise. © 2019 AeroVironment, Inc. All rights reserved. Any and all third-party companies and organizations and their respective service and trademarks set forth herein are not affiliated with, endorsing, guaranteeing or sponsoring AeroVironment, or any AeroVironment affiliate’s, products or services. Any and all such third-party service and trademarks set forth herein are the intellectual property of their respective owners. 

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