DPRO

New Business & Partnerships

• Signed an exclusive deal with IACLEA (International Association of Campus Law Enforcement Administrators, covering 3,000 member campuses) to provide drone and counter-drone training, and will roll out a phased launch starting with 3 pilot campuses in Q3 2026, before full opening in Q2 2027 to align with institutional budget cycles.
• Signed a deal with the Small and Rural Police Association, targeting the underserved segment that makes up 80% of U.S. police forces, avoiding direct competition with larger incumbents focused on urban markets.
• Partnered with ACSL to bring NDAA-compliant drones to the Canadian (exclusive) and U.S. markets, integrating a shared interchangeable camera system across Dragonfly and ACSL product lines to create a unique strategic differentiator.
• Completed the strategic acquisition of Skip Dynamics, founded by two former U.S. Navy engineers who originally designed FPV drones for the Marine Corps, adding critical expertise, government contacts, and modular fixed-wing drone technology.

Product & Program Milestones

• Awarded a DEVCOM contract to develop an ultra-light, ultra-mobile counter-drone system with both kinetic and RF effector capabilities and advanced tracking software; management estimates this opportunity could generate hundreds of millions of dollars in future revenue.
• The Dragonfly Flex FPV drone was selected by two additional U.S. Department of Defense Special Forces units, and is already being used in live operational ISR missions, valued for its modular payload and blade/arm switching capability that supports variable mission profiles without extra equipment.
• Dragonfly maintains a fully integrated modular product line covering six drone platforms, serving military units from squad to brigade level, with capabilities including the Heavylift/Outrider drone that supports up to 7-hour flight time with a 67-kilogram payload.

Strategic Positioning

• The company pursues a pragmatic, measured go-to-market strategy, avoiding head-to-head competition with large, well-funded urban drone incumbents, and instead focusing on underserved campus, rural public safety, and long-range defense market segments.
• The acquisition of Skip Dynamics positions Dragonfly to enter the growing medium and long-range strike drone market, addressing demand for long-range fixed-wing drones for potential Pacific theater operations, and is a candidate for the 100 nautical mile Lucas defense program.
• Dragonfly was one of six Canadian defense executives invited to attend the 2026 NATO summit in Turkey, gaining direct access to world leaders and opening new international market opportunities, supported by the Canadian government for export expansion.
• Canada has emerged as a larger, more material revenue source than originally planned, driven by significant defense budgets for coastline and Arctic sovereignty requirements, where Dragonfly has built specialized marine and Arctic drone capabilities.

Management reaffirmed a measured, gradual ramp of new revenue streams, driven by the increasingly stringent specification and qualification requirements for defense and public safety customers that have delayed near-term revenue growth to position the company for larger long-term demand. The phased rollout of the IACLEA public safety partnership is planned to open full commercial sales in Q2 2027, after pilot testing and reference development. Management expects to stand up large new U.S. production facilities and add associated personnel before the end of 2026 to meet growing U.S. demand. Dragonfly plans to launch additional new products driven by customer demand across military and public safety segments in coming quarters, and expects to begin ramping up international sales capabilities following the NATO summit engagement. The DEVCOM counter-drone contract and Skip Dynamics fixed-wing program are expected to generate sizable new orders in the medium term, with the DEVCOM opportunity estimated to reach hundreds of millions of dollars in total revenue over multiple years.

Total Q2 2026 revenue was $2.664 million, a 26% year-over-year increase from $2.1 million in Q2 2025, and a 15.2% quarter-over-quarter increase from $2.3 million in Q1 2026. Product sales accounted for $2.6 million of total revenue (97.6% revenue contribution), while drone services contributed $100,000 (2.4% revenue contribution). Gross profit was $533.1 thousand (20% gross margin); excluding a one-time $43.7 thousand non-cash inventory write-down, gross profit would have been $576.8 thousand with a 21.7% gross margin. Total comprehensive loss for the quarter was $11.8 million, compared to a $4.7 million loss in Q2 2025. The increase in loss is primarily driven by higher administrative costs, R&D spending, share-based compensation, professional fees, travel, and wages as the company scales, plus a one-time $8.9 million non-cash fair value loss on derivative liabilities. As of quarter-end, total assets were $154 million, working capital surplus was $144 million, shareholder equity was $148.9 million, and cash balance was $131.9 million, with minimal outstanding debt.

Increasingly stringent and dynamically changing customer specification and qualification requirements for integrated drone systems have caused delays in near-term revenue ramp, as customers request iterative design adjustments after order placement. The measured, phased rollout of new market segments means full revenue contribution from new partnerships will not materialize until 2027 at the earliest. Scaling the business has led to meaningful increases in operating expenses (R&D, administrative, wages, etc.), leading to a larger quarterly comprehensive loss than in prior periods. The counter-drone and UAS markets are rapidly evolving, with changing adversary tactics and use cases that require continuous product development to meet shifting customer needs.

Q: What is Dragonfly's counter-UAS strategy? Will capabilities come from in-house development or partnerships? / A: Dragonfly has 12+ years of counter-drone experience, and is developing in-house proprietary counter-drone capabilities led by the DEVCOM contract for an ultra-mobile modular system that supports multiple effector types (kinetic, RF, etc). The company does not rush to be first to market, instead prioritizing tested, effective products that meet rapidly evolving use cases. Dragonfly also partners with established counter-drone companies as channel partners and is open to additional partnerships, acquisitions, or joint ventures to deliver the best capabilities to customers.

Q: What opportunities came from Dragonfly's participation in the NATO summit? / A: The NATO summit opened significant new long-term international opportunities for Dragonfly. As a Canadian-domiciled company with U.S. manufacturing and majority U.S. shareholders, Dragonfly has unique access to NATO member markets, plus Latin American, Asian, and Eastern European markets, with strong government support from Canada for export expansion. The company will now ramp up its international business capabilities to pursue these opportunities.

Q: Will Canada become an important revenue source for Dragonfly, and can we expect upcoming contract announcements? / A: Yes, Canada has become a much more material revenue source than originally planned, driven by large defense budgets for coastline security and Arctic sovereignty, where Dragonfly has built specialized expertise. The company will continue to prioritize the U.S. market, and is on track to open large new U.S. production facilities before the end of 2026 to meet U.S. demand. Contract announcements for Canadian business are expected in the future.

Q: What impact has the Skip Dynamics acquisition had to date? / A: The acquisition's primary goal was talent and technology acquisition, not immediate revenue growth, so near-term revenue impact is not yet visible. The acquisition adds critical engineering expertise, government connections, and innovative thermoplastic manufacturing technology that reduces fixed-wing drone weight, cost, and improves scalability, which has already been applied to other Dragonfly product lines. Management expects sizable new orders will come from the acquisition's product lines in the future.