Executive Summary / Key Takeaways

• Draganfly is strategically positioned as a North American drone manufacturer, offering a comprehensive, multi-mission, and payload-agnostic product line tailored for critical defense, public safety, and commercial sectors.
• The company demonstrated significant financial momentum in Q2 2025, with revenue increasing 37% quarter-over-quarter to $2.155 million, and substantially strengthened its balance sheet to approximately $68 million in cash through recent financings, providing robust capital for scaling operations.
• Key operational successes, including the Commander 3XL's 100% success rate at the U.S. Army SMEX25 event and selection for a U.S. Southern border pilot program, highlight Draganfly's differentiated technology and proven capabilities in demanding environments.
• Management anticipates 2025 as a "breakout year," driven by a sales funnel exceeding $100 million in large contracts, with a clear target of $35 million to $40 million in revenue for achieving profitability by 2026.
• Draganfly distinguishes itself by focusing on interoperable, multi-mission drones and North American manufacturing, strategically avoiding the highly competitive and lower-margin small surveillance drone market dominated by foreign manufacturers.

The Dawn of the Drone Era and Draganfly's Foundational Strength

The global landscape is undergoing a profound transformation, with unmanned aerial systems (UAS) emerging as an indispensable tool across defense, public safety, and commercial sectors. Draganfly Inc., founded in 1998 in Saskatoon, Canada, stands as a pioneer in this burgeoning industry, boasting over 27 years of experience in developing cutting-edge drone solutions. This extensive history has forged a company with a unique full-range product lineup and a strategic vision to meet the escalating demand for secure, high-performance drone technology.

The imperative for drones has been starkly revealed by global conflicts, driving nations to significantly increase defense budgets and modernize their forces. Canada and European nations, in particular, are boosting spending for NATO, creating a fertile ground for domestic manufacturers. Concurrently, a growing mandate to remove foreign-made drones, especially those from China, is reshaping procurement policies across military, law enforcement, and even commercial organizations. This geopolitical shift, coupled with the advent of "Drone as First Responder" (DFR) initiatives, positions Draganfly at the forefront of a rapidly expanding market. The company's overarching strategy centers on offering a comprehensive suite of multi-mission, payload-agnostic drones, supported by North American manufacturing and deep customer integration, to capitalize on these powerful market drivers.

In the competitive landscape, Draganfly occupies a niche as a versatile provider, though it operates alongside larger, more established players such as AeroVironment (AVAV), Teledyne FLIR (TDY), Parrot (PARRO), and Elbit Systems (ESLT). While these competitors often boast greater market share and financial scale, Draganfly differentiates itself through its emphasis on customization, service integration, and a unique product breadth. Its vulnerabilities, primarily related to its smaller scale and potentially higher operational costs compared to larger rivals, are mitigated by its strategic focus on high-value, specialized applications and a commitment to robust, secure supply chains. High research and development requirements, coupled with stringent regulatory approvals, act as significant barriers to entry in this industry, favoring established players like Draganfly who possess the necessary expertise and certifications.

Technological Prowess: The Engine of Differentiation

Draganfly's core technological advantage lies in its modular drone platforms, which are built around common flight control software, universal mounts, and a payload-agnostic design. This interoperability is a critical differentiator, allowing customers to utilize the same controllers and flight systems across Draganfly's diverse fleet, from small FPV drones to heavy-lift variants, thereby significantly reducing training requirements and operational complexity.

The company's product line showcases tangible and quantifiable benefits:

• The Commander 3XL UAV System, a medium-lift drone, boasts a flight time of over 45 minutes and a payload capacity of up to 25 pounds. Its robustness was demonstrated by achieving a 100% success rate at the U.S. Army SMEX25 event when integrated with TB2 Aerospace's DROPS system. A hybrid (gas) variant extends its flight capability to 2.5 hours, enhancing its utility for extended missions.
• For the U.S. Southern border pilot program in Cochise County, Draganfly developed a specialized hybrid border drone based on its Heavy Lift platform. This drone offers an impressive flight time of up to 7 hours and can carry over 100 pounds of payload, operating effectively at altitudes exceeding 11,000 feet in extreme temperatures. It is expected to achieve TRL 9 (operationally ready) by November, serving as a showcase for other border agencies.
• The APEX Drone, a "large Category 1" ISR (Intelligence, Surveillance, and Reconnaissance) drone, offers a 6.6-pound payload capacity and is designed to fit into a backpack. It features optional NVIDIA chips for edge computing and AI capabilities, enabling real-time processing and advanced navigation in GPS-denied environments.
• The Heavy Lift Drone is capable of carrying substantial payloads of up to 67 pounds (30 kg), making it ideal for forward operating base logistics and medical supply delivery.
• The Flex FPV System, an NDAA-compliant drone, was designed directly from insights gained in the Ukraine conflict. Its unique design allows for adaptable mission profiles using a single power system with three different sizes of arms and blades.

Beyond hardware, Draganfly is at the forefront of AI integration, particularly in its demining initiatives. The company is developing what it believes to be the "most advanced AI system for demining," utilizing hyperspectral, ground-penetrating radar, magnetometers, and RGB sensors to map anomalies for accurate and rapid demining operations. This is further bolstered by a teaming agreement with Autonome Labs to deploy demining mesh blankets using Draganfly's heavy-lift drones.

For investors, these technological differentiators translate into a robust competitive moat. The versatility and multi-mission capabilities of Draganfly's drones allow for broader market penetration and stronger customer relationships, particularly in specialized, high-value segments where performance and reliability are paramount. The company's payload-agnostic approach fosters channel partnerships and enables customers to transition existing (non-Chinese) sensor investments to Draganfly platforms, addressing a critical market need. This technological leadership is expected to drive higher average selling prices, lower operational costs for customers, and ultimately, better margins and sustained growth for Draganfly.

Operational Momentum and Strategic Partnerships

Draganfly's strategic initiatives and operational achievements underscore its commitment to growth and market leadership. The company significantly expanded its U.S. manufacturing footprint in Q1 2025 with a new facility in Tampa, Florida, dedicated to supporting U.S. military and public safety orders. This expansion, alongside increased production capacity brought online in Q4 2024, directly contributed to a 76% year-over-year revenue increase in that quarter, demonstrating the company's ability to scale.

Strategic partnerships are a cornerstone of Draganfly's business model. The company secured an exclusive multi-year agreement with SafeLane, the world's largest demining and unexploded ordnance removal organization, for aerial surveys. A teaming agreement with Autonome Labs further enhances its demining capabilities, enabling UAV-based deployment of demining mesh. Draganfly was also selected as Balko’s preferred UAS provider, integrating its drones with Balko's LIDAR systems for faster and more cost-effective solutions. Collaborations with TB2 Aerospace for the DROPS system and Volatus for geospatial and bathymetric LIDAR applications highlight the company's role as an enabler for advanced payload technologies. Notably, a Fortune 50 telecommunications company purchased multiple Draganfly Heavy Lift Drone systems for emergency response and disaster recovery, and a Fortune 50 oil and gas company adopted Draganfly's drone-in-a-box solution using the APEX Drone and Nightingale Security, representing an opportunity for "tens of thousands of sites."

The company's Public Safety Advisory Board, chaired by Paul Goldenberg and including Peter Lambrinakos, provides invaluable expertise and access to top agencies, driving "tremendous traction" in the small, rural, campus, tribal, and private security segments. Draganfly is also pioneering medical drone delivery pilot programs with Mass Brigham General in Boston, having secured FAA waivers for operations over moving vehicles in congested airspace. Its wildfire management business, which generated approximately $400,000 last year, is projected to double, further diversifying its revenue streams.

Financial Performance: A Turn Towards Growth

Draganfly's recent financial performance reflects a positive trajectory, signaling a potential inflection point for the company. In Q2 2025, the company reported revenue of $2.155 million, marking a robust 37% increase quarter-over-quarter and a 22% rise year-over-year. This growth was primarily fueled by product sales, which reached $1.9 million, complemented by $213,000 from drone services.

Gross profit for Q2 2025 stood at $504,000, representing a 9.3% year-over-year increase, with a gross margin of approximately 24%. When adjusted for a one-time non-cash inventory write-down, the gross margin for Q2 2025 was 24.4%, an improvement from 17.5% in Q1 2025, primarily due to a favorable product mix. While the comprehensive loss for Q2 2025 was $4.7 million, it marked an improvement from a $7.1 million loss in Q2 2024. More broadly, the company successfully reduced its full-year comprehensive loss from $23 million in 2023 to $15 million in 2024, demonstrating effective cost management.

Liquidity has been significantly bolstered. As of June 30, 2025, Draganfly's cash balance exceeded $22 million, which subsequently surged to approximately $68 million following a $13.75 million public offering, an additional $3.6 million in capital, $8 million in warrant exercises, and a $25 million registered direct offering in July 2025. Total assets increased from $10.2 million at the end of 2024 to $28.4 million in Q2 2025, with working capital reaching $22.4 million.

This robust balance sheet, characterized by minimal debt, provides a "big insurance policy" for large customers, instilling confidence in Draganfly's ability to execute on substantial contracts.

Outlook and Risks: Charting the Future

Draganfly management, while not providing formal financial guidance, has articulated a clear and optimistic outlook for the company's future. They project needing approximately $35 million to $40 million in revenue to achieve profitability, with a "very good shot" at reaching this milestone in 2026. Management anticipates 2025 to be an "incredibly strong year, if not the breakout year," driven by "signature sales, both in terms of size and quality of customer." The sales funnel currently stands "well over $100 million" in large, complex contracts, with expectations for "very, very sizable announcements" within the next one to two quarters. This optimism is predicated on the industry reaching a tipping point and Draganfly's established capacity to fulfill orders for potentially hundreds of drones.

However, the path forward is not without risks. Delays in Blue/Green List certifications, while not currently hindering sales due to available waivers, highlight the complexities of regulatory processes. Scaling production quickly in a demanding industry remains a challenge, requiring meticulous evaluation of contract manufacturing capabilities. The drone industry is also undergoing significant consolidation, with many companies struggling to survive the "trough of doom" between initial innovation and widespread adoption. Draganfly aims to be one of the few North American survivors in this environment. Furthermore, supply chain security is an evolving concern, with geopolitical disruptions necessitating a shift towards North American or NATO-based components, a trend Draganfly is actively addressing through its dual manufacturing footprint and strategic sourcing.

Conclusion

Draganfly Inc. stands at a pivotal juncture, poised to capitalize on the accelerating demand for advanced drone solutions. Its rich history, coupled with a strategic focus on a comprehensive, multi-mission, and technologically differentiated product line, positions it as a formidable player in the North American market. The company's recent financial strengthening, marked by significant revenue growth and a robust cash balance, provides the necessary foundation to execute on its ambitious growth plans.

With a sales funnel exceeding $100 million and a clear path to profitability by 2026, Draganfly is leveraging its technological leadership in areas like AI-driven demining and extended-flight border surveillance to secure "signature sales" in critical defense and public safety sectors. While challenges such as regulatory delays and scaling complexities persist, Draganfly's strategic partnerships, North American manufacturing, and commitment to continuous innovation underscore its resilience. As the drone industry enters an era of "explosive growth," Draganfly's full-spectrum approach and operational agility make it a compelling investment opportunity for those seeking exposure to the future of unmanned systems.