Sarah Tew/CNET

Lily Robotics, creators of a much-hyped flying camera drone, is going out of business amid legal pressure to refund some $34 million in sales back to its customers.

The San Francisco-based company's co-founders Antoine Balaresque and Henry Bradlow wrote in a blog post Thursday they have been unable to find more financing to produce its initial drone release.

"We have been racing against a clock of ever-diminishing funds," they said. "Over the past few months, we have tried to secure financing in order to unlock our manufacturing line and ship our first units -- but have been unable to do this. As a result, we are deeply saddened to say that we are planning to wind down the company and offer refunds to customers."

Lily's shuttering comes almost two years after the company began touting its point-and-shoot quadcopter drone, complete with a built-in camera, to widespread fanfare. The company initially promised to begin shipping the $1,000 drones to customers in February 2016.

But Lily kept pushing back its release date and ignoring numerous customer demands for refunds, according to San Francisco District Attorney George Gascón's office. Prosecutors say they warned Lily on Wednesday -- one day before the company announced it was going out of business -- legal action would be taken against them after a months-long investigation.

On Thursday, prosecutors filed a civil law enforcement action and temporary restraining order in San Francisco Superior Court, demanding Lily repay about $34 million to 60,000 customers who preordered the drones.

Prosecutors accuse the company of false advertising. This includes misleading customers with a promotional video whose images were not taken by a Lily drone but instead a much more expensive camera drone requiring two people to operate instead of one, according to court documents.

"It does not matter if a company is established, or if it is a startup," Gascón said in a statement. "Everyone in the market must follow the rules. By protecting consumers, we protect confidence in our system of commerce."

A spokeswoman for Lily late Thursday said the company has been issuing refunds in a timely manner. She also said an announcement about the company shutting down had been the works for weeks prior to the district attorney's court filing, adding that employees were aware about the situation.

The spokeswoman also declined to comment about the legal claims against Lily filed by the district attorney's office.

Attorneys for the company and prosecutors are scheduled to meet in court on Jan. 18.

First published Jan. 12, 6:40 p.m. PT.

Update, 10:30 p.m.: Adds comments from a Lily spokeswoman.