DroneShield Investor Update & Quarterly Cash Flow Report

DroneShield Ltd (ASX:DRO) (“DroneShield” or the “Company”) is pleased to provide the following update on its activities during the three-month period ended 31 March 2017.

Key Developments

DroneShield made significant progress in the quarter to March 31, 2017. The key developments included the following.

As governments and civil infrastructure operators continued to become increasingly aware of drone threats, and commenced budget allocations to countering these threats, DroneShield achieved gross cash receipts of $881k for the quarter. That is 7-fold higher than gross cash receipts in the previous quarter, and greater than the Company’s gross cash receipts (excluding IPO proceeds and pre-IPO fundraising) for the entire 2016.
DroneShield ended the quarter with approximately $3.1m in cash, only $375k lower than the December 31, 2016 quarter.

The Company launched WideAlert, a wide angle short-range (up to 200 m) acoustic drone detection product.

In response to market requirements, DroneShield commenced work on DroneSentry, an integrated drone detection and countermeasure system focusing on detecting and defeating swarms of drones.

Underscoring the reliability of DroneShield’s detection products in complex environments, DroneShield will be deploying its detection system at Boston Marathon on 17 April 2017, for the third consecutive year.

Following a detailed evaluation process, Swiss Police deployed DroneGun, the Company’s tactical handheld drone jammer, at the World Economic Forum in Davos, a pre-eminent gathering of world economic, political and cultural leaders, which included the then US Secretary of State John Kerry and President Xi Jinping of China.

The Defence Ministry of a Middle Eastern country acquired a DroneGun test unit and is understood to be conducting testing of the product.

The Company made its first sale of WideAlert for use in a European NATO country. That sale was also the Company’s first sale for use by a European security integrator.
Shortly after the end of the quarter, the Company made its first sale of WideAlert to an Asian integrator.

During the quarter and the first half of April, the Company attended, or its products were exhibited,
at a range of industry trade shows and investment conferences. These attendances included:

a presentation by the Company’s CEO and Managing Director Oleg Vornik at the 38th Annual Cowen Aerospace/Defense and Industrials Conference in New York,

the American Correctional Association conference in San Antonio, Texas,

the Japan Self-Defence Force Exhibition, an invitation-only event conducted by Japan Ground Self-Defense Force,
ISC West – the largest security conference in the US, and the International Defence and Exhibition Conference in Abu Dhabi, United Arab Emirates.

Against the backdrop of nearly daily barrage of news about drone threats, it was announced that the United States allocated budgetary funds to drone security. DroneShield expects that such allocations will continue and that a number of governments around the world will follow the lead of the United States in allocating funds to drone defence in their budgets. Consequently, DroneShield substantially increased its governmental engagement globally during the quarter.

DroneShield conducted or scheduled to be conducted a number of demonstrations of its product to a range of governmental agencies in a number of countries. Among others, approximately ten Australian federal and state agencies attended a demonstration of the products in Canberra late in the quarter.

DroneShield and its distributors commenced their participation in a number of government procurement processes, the outcome of which is expected be determined in calendar year 2017.

The press continued its extensive coverage of DroneShield. Among many press reports on
DroneShield were the following:

DroneShield taking down drones safely using new technology (CBS, 8 April)
Terrorist drone threat: US unprepared for growing danger, experts say (Fox News, 6 April)
Anti-drone tech comes of age at ISC West 2017 (SecurityInfoWatch, 6 April)
Companies Developing Technology to Counter Weaponized Drones (Fox News, 5 April)
Droneshield announces a sale of acoustic drone detection systems to European security integrator (Reuters, 22 March)
‘Drone Gun’ Protects World Leaders at Davos and Will Secure Sky Above Boston Marathon Against Errant Drones (Inc., 24 January)

The Company employed William H. Taggart as its Head of Business Development. Mr. Taggart was previously a Director at Colt’s Manufacturing Company and Director (Military and Law Enforcement) at Trijicon, Inc. where he was responsible for all domestic military/government programs and all global commercial and military efforts. During his tenure at Trijicon, Mr. Taggart grew his division from one to 17 personnel while establishing offices in four foreign countries. During Mr. Taggart’s tenure, Trijicon’s annual sales increased from US$17M to US$130M.
Prior to his commercial career, Mr. Taggart has served in the U.S. Marine Corps for 26 years across Infantry, Reconnaissance, Signal Intelligence and Defense Acquisition billets.

DroneShield’s board expertise in the industry was underscored by the fact that, following the election of Donald J. Trump as the fortyfifth President of the United States of America, Dr. Samantha Ravich, DroneShield’s director, participated in the residential transition as a member of the Presidential Transition Team.

DroneShield was one of the winners of the Westpac Businesses of Tomorrow Award, a high profile award with over 2,000 entrants this year.
DroneShield’s in-house and distributor salesforce continued to progress a large number of opportunities, with several orders in advanced stages.

Environment
The overall global demand for drone detection and mitigation products continued to increase during the quarter, against the backdrop of nearly daily barrage of news about drone threats. Dozens of high profile incidents and concerns took place during the course of the quarter and subsequent to its end. One can read about some of these at https://www.droneshield.com/press-coverage and https://twitter.com/DroneShield. Examples of recent relevant incidents and concerns, public statements by officials, and media coverage about relevant issues included the following.

On 15 March 2017, the Australian Transport Safety Bureau released a report titled “Safety Of Remotely Piloted Aircraft Systems (drones)”. The press reported that this report stated that between 2012 and 2016, there were about 180 incidents of drones being too close to aircraft and illustrated the recent growth in this problem by stating that more than 60 per cent of all reported encounters —108 incidents — happened in 2016. The report was also reported to have stated that statistical models forecast a 75 per cent rise in the number of near encounters in 2017 and that most incidents happened in capital cities and almost all were above the allowed altitude for drones of 400ft (122m).

Similarly, the United States Federal Aviation Administration stated that between February 2016 and 2016, pilots, air traffic control, law enforcement and members of the public reported
possibly spotting 1,274 drones flying near air traffic control facilities — up from 874 during the same in 2015. That’s 400 more reported sightings, which is about a 45 percent increase from the amount of reported sightings in 2015.

By way of example, in late March, Australian aviation authorities were reported to be investigating claims a drone came dangerously close to a Singapore Airlines Airbus 350 plane as it flew above the Swan River in Perth.
Another complaint was made by a Virgin pilot, after a drone reportedly came within 100 metres of the pilot’s aircraft as it approached Canberra.

ISIS continued to utilise off-the shelf drones as time bombs in both Iraq and Syria, escalating these tactics in areas in which they had come under attack by the coalition forces. These attacks are reported to have prompted the U.S. military to step up its assessment of anti-drone technologies.
On 13 February 2017, the high profile intelligence analytics firm Stratfor, in its report on drone terror threats, under the heading Preparing for the Inevitable stated that it was only a matter of time before an Islamic State supporter attempted a drone attack in the West.

The shortcomings of the defense systems previously utilized by the Western militaries, against the growing drone threat, were illustrated by General David Perkins, the head of the United States Army Training and Doctrine Command, who told the audience at an Association of the United States Army event, that one of the US allies had successfully used a US$3.4 million Patriot missile to destroy a quadcopter drone estimated to cost $200.
The Office of the United States Secretary of Defense was reported as having stated on March 22, 2017 that the upcoming budget proposal for fiscal year 2018 would include “significant” increases for counter-drone technology.