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TICKERS: FLT; TAKOF

Drone Firm Envisions Disruptive and Profitable 'Railway in the Sky'
Contributed Opinion

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Peter Epstein Peter Epstein of Epstein Research interviews Drone Delivery Canada's new CEO Michael Zahra, who describes how he is commercializing the company's technology platform.

I started writing about Drone Delivery Canada Corp. (FLT:TSX.V; TAKOF:OTCQB) two years ago. For nearly six years, the company has been 100% focused on safety, transparency and working collaboratively with Canadian and international regulators, and other interested parties. That operational prudence has more than paid off.

Back in September 2017, I imagined the company would be facing meaningful competitive threats by now. That's why I was anxious to learn when operations would start; I wanted DDC to maximize its first mover advantage. Yet, here we are two years later and still no noteworthy competition at DDC's advanced stage of development.

DDC has gained widespread trust, and the support of key regulatory bodies. In addition, management has proven its business model with a tremendous stamp of approval from Air Canada (AC:TSE; $12 billion market cap, $6 billion in cash). All of this while maintaining its first-mover advantage, expanding its sights to international markets, maintaining a strong balance sheet and hiring world-class talent.

Speaking of world-class talent, I had a long conversation, and have exchanged numerous e-mails with, the new CEO of Drone Delivery Canada, Michael Zahra. I found him to be smart, articulate, engaging, enthusiastic and forward-thinking.

Michael knows a lot about the evolving drone logistics industry, not just about DDC. Mr. Zahra and his team are looking out years, not months. They see very dramatic changes underway that will be favorable for DDC and expect to remain at the leading edge of this paradigm shift.

The following interview of Michael Zahra was conducted over the 10-day period ended July 31. Please see bios of management members, and the board and advisory board.

ER: Please give us the latest snapshot of Drone Delivery Canada.

MZ: Drone Delivery Canada is truly unique; we have proven technology and have obtained key regulatory approvals. We are the only drone logistics company with fully integrated systems. Not just flying drones, but tracking, monitoring and scheduling them. DDC will be able to control hundreds, and eventually thousands, of drones at once from a single location.

From first responders to far north remote communities to large retail, commercial and industrial companies, to government agencies. . .we have nothing but blue-sky opportunity ahead.

Our recent partnership with Air Canada Cargo is the ultimate vote of confidence. With Air Canada by our side, it's time to commercialize and monetize our technology, and that's exactly what we're doing. We expect to have first commercial revenue later this year and become cash flow positive at the end of next year.

ER: Great. I want to hear about DDC's commercialization efforts, but first, can you tell us about your team?

MZ: Interesting that you ask. We just hosted a group of institutional investors and they were quite impressed that we are building a full team to support commercialization. Not just engineering and research and development (R&D), but an human resources department, controller, sales and marketing, occupational health and safety, environment officer, project manager, etc.

They were equally impressed with the caliber of people we have and their backgrounds—hardware, software, electrical and mechanical engineers, data scientists, etc., from companies such as DHL, Bombardier, Thales, Rockwell Collins, Vector Aerospace, NASA, the FAA, Transport Canada, Canadian Air Force and Army, military fighter pilots, commercial airline pilots, financial services, logistics and distribution, construction, medical, and others.

For the boards (fiduciary governance and advisory boards), we have an equally impressive cross-section of high caliber people from similar industries. . .readers can review their bios on our website. I believe we have 18 senior executives profiled on our website. I invite readers to take a few moments to check it out.

ER: How is Drone Delivery Canada going to generate revenue and cash flow?

MZ: My primary responsibility as CEO is to monetize our technology in a way that brings about rapid, but prudent and profitable growth. At this year's annual general meeting on July 17 I gave an example, for illustrative purposes only; we have not given any financial guidance. One way we expect to generate revenue, as soon as this year, is what we are calling Enterprise Logistics.

Consider a large retailer shipping packages on dedicated routes developed by DDC between depots, warehouses and stores. Our largest drone, the Condor, already can accommodate dozens of packages. If the retailer used a 'route,' a railway in the sky, to ship five packages for $10 each, eight times per day, 250 days a year, that alone would be $100,000 a year in revenue.

We will be able to fly on weekends and at night, so eight times per day, 250 days a year could prove conservative on well-established routes. Some routes will move cargo in both directions, and multiple drones could serve a single route. We have built an operations control center that has capacity to manage 1,500 routes, with room for expansion. Each operator will sit in front of a control screen and monitor up to 50 routes.

Fifteen thousand routes multiplied by $100,000 per year = $150,000,000 per year. Yet, that would be just 1% of the 150,000 potential routes contemplated in our press release with Air Canada. Again, please let me reiterate, this is not revenue guidance. I can't tell you how long it might take to reach 1,500 routes, or the capacity utilization of a route.

ER: What industry sectors (besides retail) could DDC potentially disrupt?

MZ: Good question. Our team has been looking at this question for years. They, and more recently me, have had countless conversations with prospective users of our drone logistics services. One example is providing delivery services to far north remote communities. Residents of up to 1,000 small Canadian communities are poorly served or, if served at all, are done so at very high monetary cost.

Getting essential goods to these communities quickly and cost effectively and enabling them to ship retail products in the other direction, is a win–win for everyone. We have an agreement with the Moose Cree First Nations community that's expected (over time) to generate up to$2.5 million per year. We hope to enlist 200 more remote communities over the next five years.

Another vertical worth mentioning is the emergency first responders sector. We recently announced a successful first phase of our 'AED on the Fly' pilot program with Peel Region Paramedics. In a number of simulated 911 emergency calls, our drones reached their destinations ahead of paramedics 100% of the time.

We also successfully transported critical supplies like blood, where temperature control is crucial. In addition to saving lives, this important work makes our drones more readily accepted and understood. Assisting first responders is a natural fit to introducing the many benefits of drone delivery to towns and cities across the country.

ER: What about sectors like metals and mining, forestry, oil and gas, ship to shore logistics, financial services. . .?

MZ: We are actively pursuing those sectors as well, and have had a very positive response from prospective customers. We hope to replace or augment truck, helicopter, airplane and boat deliveries with lower cost, faster and/or more frequent, safe, reliable service. If the items needing transport are of high human value, like blood, medical supplies or pharmaceuticals, or of high dollar value, such as mined diamonds, cash, or critical documents, we expect we will have strong pricing power. That will allow us to price other delivery services cheaper.

Our system is designed around a philosophy of being very secure and controlled, so where cargo is sensitive and time is of the essence, our solution is ideal. The intersection of easier access to difficult destinations and critical timing is the sweet spot for drone logistics, and that's where we have tremendous expertise.

ER: Congratulations on your partnership with Air Canada. Please tell us about this major company milestone.

MZ: Thank you. Yes, we view the Air Canada agreement as transformational to the industry and a true vote of confidence in our team and technology platform. Air Canada Cargo will promote, market and sell our drone delivery logistics as a premium service offering across Canada. Their marketing and sales platforms will soon be actively involved in the effort. We expect early adopter revenue from this segment in the fourth quarter.

Air Canada will greatly assist us in becoming Canada's first nationwide drone delivery network with our recently patented, fully integrated solution. We are thrilled to have this game-changing agreement under our belt and we know that Air Canada is very serious about this industry. They are currently building a dedicated drone logistics sales and marketing team. This agreement has a ten-year term. We are very excited about the future we are building together.

ER: Can you talk about your drone portfolio's capabilities? Will ongoing advancements in drone technology make a difference in profitability?

MZ: We have three high-tech, extremely safe and capable drones in our portfolio. Drones are assembled in-house, from best-in-class technology. All of the intellectual property is ours and we have a patent for our system and other patents pending. Our largest drone looks like a small helicopter and is gasoline powered. The Condor model can travel at speeds up to 120 kilometers per hour (kph)/75 miles per hour (mph), with a range of 200 kilometers (km)/124 miles. Maximum payload is 180 kilograms (kg)/400 pounds (lbs). These specifications are perfectly suited to a range of bulk commercial cargo and industrial applications globally.

Our other two models, the Sparrow and the Robin, are medium-size electric drones to be used for shorter trips and lighter packages. Their payloads range from 5.0–11.5 kg/11–25 lbs. The Sparrow and Robin can travel about 30–35 km/18.6–21.8 miles.

You ask a good question about advancements in drone technology. The cost per unit of performance is declining rapidly. There are hundreds, maybe even thousands of companies, industry groups and university teams working on all aspects of drone components. Yes, we directly benefit from every third-party technological breakthrough, at zero cost to us. [This includes] the materials used in the drones (making them lighter, stronger, cheaper, longer lasting); batteries and fuel cells used to power drones (lighter, more energy dense; cheaper); and airframe advancements that offer greater environmental resistance, range and payload capabilities. . .the list goes on and on. Reduced component costs and increased capacity will lower operating costs.

ER: Is there anything else we need to talk about?

MZ: No, I think we covered a lot ground. I encourage readers to look at our latest press releases and check on our website for videos. We talked about commercial revenue later this year, and the importance of the Air Canada agreement. I should reiterate that Air Canada really puts our technology at the forefront of the drone logistics industry. Not just in Canada, but globally.

ER: Thanks so much, Michael. You're passionate about your new role as CEO of Drone Delivery Canada. Shareholders will benefit from your enthusiasm & work ethic. Prospective shareholders should take a closer look at DDC.

Disclosures: The content of this interview is for information and illustrative purposes only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Drone Delivery Canada, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker / dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. Shares of Drone Delivery Canada are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned no shares, warrants or options in Drone Delivery Canada, and the Company was not a current advertiser on [ER]. However, Drone Delivery Canada was a former advertiser (in 2017-2018, but not in 2019), and the company might advertise again on [ER]. Readers should consider [ER] biased in favor of the company.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts, financial calculations, etc., or for the completeness of this interview or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company. [ER] is not an expert in any company, industry sector or investment topic.

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