Executive Summary / Key Takeaways

• ZenaTech is rapidly expanding its AI-powered Drone as a Service (DaaS) business through strategic acquisitions and organic growth, targeting diverse commercial and government markets.
• The company is a technology solution provider specializing in AI drones, DaaS, Enterprise SaaS, and Quantum Computing solutions, with a significant focus on the US defense sector, benefiting from favorable policy directives and substantial government spending.
• Recent financial performance shows explosive revenue growth, with a 500% year-over-year increase in Q2 2025 revenue, driven by DaaS and enterprise SaaS, alongside a substantial increase in cash reserves.
• ZenaTech's technological differentiation lies in its integrated AI drone solutions and pioneering quantum computing prototype, aiming for disruptive speed and precision in data analysis for both commercial and defense applications.
• While demonstrating strong growth momentum and strategic vision, ZenaTech faces the challenge of achieving profitability amidst aggressive expansion and significant R&D investments, requiring careful monitoring of operational efficiency and market penetration.

Setting the Scene: ZenaTech's Vision in the AI-Powered Drone Era

ZenaTech, Inc. (NASDAQ:ZENA) is emerging as a dynamic player at the confluence of several transformative technologies: AI (Artificial Intelligence) drones, Drone as a Service (DaaS), Enterprise SaaS, and Quantum Computing solutions. Incorporated in 2017 as ZenaDrone, Inc., the company rebranded to ZenaTech, Inc. in October 2020, signaling its broader technological ambitions. Based in Vancouver, Canada, ZenaTech's foundational business encompasses developing cloud-based enterprise software for diverse sectors, including medical records, automated facility management, safety and compliance, field service management, and public safety. Concurrently, the company is deeply involved in the manufacturing, sale, and distribution of advanced drones.

The company's overarching strategy is characterized by an aggressive expansion of its DaaS business through a series of strategic acquisitions, coupled with a relentless pursuit of technological innovation in AI and quantum computing. This strategy is significantly bolstered by a strong focus on the burgeoning US defense sector, which is currently experiencing historic investment. Broad industry trends underscore ZenaTech's market positioning; the global agricultural drone market is projected to grow to $24 billion by 2032, while the market for public safety and emergency response drones represents a $5.5 billion opportunity. Furthermore, the US government's "One Big Beautiful Bill" allocates $33 billion in direct spending for advanced drones and autonomous systems, and the proposed 2026 defense budget includes $892.6 billion for defense and national security, which could further boost drone spending. The quantum computing market, though nascent, is anticipated to become a $1.3 trillion opportunity by 2035. Favorable US policy directives, such as the "One Big Beautiful Bill" and recent Executive Orders, are actively fast-tracking the deployment of US-made drones for defense, creating a fertile ground for companies like ZenaTech.

Technological Edge: AI, Drones, and the Quantum Frontier

ZenaTech's competitive differentiation is deeply rooted in its integrated AI-powered drone solutions and its pioneering advancements in quantum computing. The company's ZenaDrone subsidiary develops a range of drones, including the IQ Square for outdoor applications and the IQ Nano for indoor use, each designed with specific, high-value functionalities.

The IQ Nano drone exemplifies ZenaTech's focus on precision and efficiency, offering "precision navigation in complex warehouse environments for rapid stock-taking and real-time data integration". A new proprietary camera, developed by its Spider Vision Sensors subsidiary, further enhances this capability, enabling "faster and more precise collection of data including multiple bar codes simultaneously scanned by multiple drones in a drone swarm". For outdoor applications, the IQ Square drone is undergoing operational testing for public safety and emergency response, covering critical areas such as security, crowd control, law enforcement surveillance, and search and rescue. Additionally, the ZenaDrone 1000 has received FAA Part 137 approval for commercial agricultural operations, allowing for aerial spraying of pesticides, herbicides, fungicides, fertilizers, and seeds.

Beyond its current drone offerings, ZenaTech is making significant strides in advanced R&D. The company successfully developed its first quantum computing prototype, a "framework for the rapid analysis and processing of large datasets for its AI drone solutions". CEO Shaun Passley, Ph.D., articulated the vision, stating, "We’re not just building smarter drones, we’re building a quantum-intelligent edge where data becomes decisions in an instant, whether it’s a battlefield or a farm field". This framework was initially tested with weather forecasting algorithms as part of the "Clear Sky" project, demonstrating its capacity for "real time analysis of massive amounts of data that can be captured through AI drone sensors while in the air". Further solidifying this commitment, ZenaTech unveiled a new Quantum Computing Division in August 2025, dedicated to R&D initiatives that "harness the next generation of computing power to solve very complex challenges in modern defense and autonomous drone systems". Complementing this, the Zena AI, Inc. subsidiary was launched as an AI Development Center specifically for US Department of Defense and Homeland Security applications, aligning with the White House's AI Action Plan. The company also plans to file a patent and accelerate the deployment of Counter-Unmanned Aircraft System (Counter-UAS) technology on its ZenaDrone 1000 platform.

For investors, these technological advancements are crucial to ZenaTech's long-term competitive moat. The integration of AI and quantum computing promises to significantly enhance drone performance, leading to more efficient DaaS offerings, potentially higher margins, and a stronger market position in critical defense and commercial sectors. The ability to process vast datasets rapidly with quantum computing could unlock entirely new applications and revenue streams, particularly in complex domains like advanced weather forecasting and wildfire prevention.

Strategic Expansion and Competitive Landscape

ZenaTech's growth strategy is heavily reliant on the aggressive expansion of its DaaS business, primarily through a series of strategic acquisitions. The company has completed numerous acquisitions in 2025, significantly broadening its geographic and service footprint. Notable acquisitions include A&J Land Surveyor Inc. in Florida, marking its tenth DaaS acquisition and expanding its reach into aviation, utility, and infrastructure markets. Other key acquisitions include Lescure Engineers Inc. in California, providing entry into precision agriculture and viticulture; Cardinal Civil Resources in Virginia, its eighth and largest DaaS acquisition, which brought major customers like the US Department of Transportation; and additional land surveying firms in North Carolina, Colorado, and Washington. These strategic moves allow ZenaTech to tap into substantial markets, such as the $36 billion US surveying and mapping market.

Internationally, ZenaTech is also establishing a global presence. The company opened a new European Headquarters in Dublin, Ireland, to serve the rapidly growing UK and European markets, which are expanding at an annual rate of 28.6%. Additionally, an office in Dubai has been established, initially focusing on drone-powered exterior building cleaning services, a segment of the global drone cleaning market projected to reach $13 billion by 2030.

A significant strategic pillar for ZenaTech is its dedicated focus on the US defense and government sectors. The company has launched DaaS offerings specifically tailored for these agencies, supported by partnerships with specialized consultancies like Eagle Point Funding to secure defense contracts. ZenaDrone's IQ Square and IQ Nano drones are undergoing Green UAS certification, a critical step to being added to pre-approved procurement lists for the US Department of Defense and other government buyers. To support this defense-centric strategy, ZenaTech is expanding its Phoenix, Arizona facility to triple its square footage for full US drone manufacturing, assembly, and testing, a move accelerated by US policy directives that prioritize domestic production and streamline procurement processes. Furthermore, a new component manufacturing facility in Taiwan, operated by its Spider Vision Sensors subsidiary, is expected to be operational by year-end 2025, ensuring a stable, NDAA-compliant supply chain for its US defense-destined drones.

ZenaTech operates within a highly competitive landscape, facing both larger, established technology giants and specialized drone manufacturers. Key competitors include Trimble Inc. (TRMB), Oracle Corporation (ORCL), Microsoft Corporation (MSFT), and AeroVironment, Inc. (AVAV). While these rivals often possess greater scale, more diversified revenue streams, and robust profitability, ZenaTech differentiates itself through its integrated AI drone solutions and pioneering quantum computing initiatives. For instance, ZenaTech's integrated hardware-software ecosystem for drone-enabled monitoring offers a unique value proposition compared to Trimble's more standardized platforms in agriculture and field management. In enterprise software, ZenaTech's niche-focused cloud solutions for medical records and public safety could offer more tailored, cost-effective options than Oracle's broader enterprise-grade offerings. Against Microsoft's vast cloud ecosystem, ZenaTech's specialized drone applications provide a distinct edge in real-time monitoring for specific industrial and defense use cases. Compared to AeroVironment's hardware-centric approach, ZenaTech's integrated DaaS provides more seamless data integration and broader software applications.

However, ZenaTech's smaller scale and significant R&D investments mean it currently lags in overall profitability and cash flow generation compared to its larger rivals. The company's operating margin of -225.04% and net profit margin of -338.84% (TTM) highlight the substantial investment phase the company is in. Its strategic acquisitions and focus on high-growth, specialized niches are designed to build market share and eventually improve financial performance, but this requires careful execution to overcome the scale advantages of its competitors.

Financial Performance and Liquidity

ZenaTech's recent financial performance showcases explosive revenue growth, indicative of its aggressive expansion strategy. The company reported a remarkable increase of over 500% in year-over-year revenue for the second quarter of 2025, and an over 250% revenue increase for the first six months of the year compared to the same period last year. This exceptional growth was primarily driven by the strong performance of its DaaS segment and steady expansion in its enterprise SaaS division. ZenaTech achieved its highest-ever quarterly revenue of $2.24 million in Q2 2025. For the full year 2024, annual revenue stood at $1.96 million, an increase from $1.83 million in 2023. Despite this robust top-line growth, ZenaTech remains unprofitable, reflecting its intensive investment phase in acquisitions, R&D, and market expansion. The company reported an annual net income of -$4.48 million in 2024, which further widened to a TTM net income of -$14.84 million.

While the TTM gross profit margin is a healthy 79.79%, the deeply negative operating margin of -225.04% and net profit margin of -338.84% underscore the significant operating expenses relative to its current revenue base.

In terms of liquidity, ZenaTech has seen a substantial improvement in its cash reserves, which jumped to $10.29 million as of June 30, 2025, from $3.75 million at the end of 2024. This enhanced liquidity is critical for funding its ongoing acquisition strategy and substantial R&D initiatives.

However, the company's annual operating cash flow was -$9.87 million in 2024, and its TTM free cash flow stands at -$10.26 million, indicating that current operations are highly cash-intensive. The current ratio of 6.78 suggests strong short-term liquidity, providing a buffer for operational needs, but a TTM debt-to-equity ratio of 59.09% indicates a notable reliance on debt financing to fuel its rapid growth.

Outlook and Risks

ZenaTech's forward-looking strategy is firmly anchored in the continued expansion of its DaaS offerings, with a particular emphasis on the lucrative US defense and government sectors, and the ongoing development of its technological advancements in AI and quantum computing. The company anticipates significant benefits from the substantial US defense spending allocated to drones and autonomous systems. The establishment of a new component manufacturing facility in Taiwan, expected to be operational by year-end 2025, is a strategic move to ensure a stable, NDAA-compliant supply chain for its defense drones. Management plans to highlight these advancements in DaaS and its US defense business at upcoming investor conferences.

CEO Shaun Passley's vision for a "quantum-intelligent edge" where data translates into instant decisions underscores the long-term potential of their quantum computing framework. This technological roadmap, combined with strategic acquisitions, aims to solidify ZenaTech's position in high-growth markets.

However, several key risks warrant investor attention:

• Profitability Challenges: The most immediate challenge is achieving sustainable profitability. The current negative operating and net margins indicate that ZenaTech is in an aggressive investment phase, and the path to consistent earnings remains critical.
• Intense Competition: The drone, SaaS, and quantum computing markets are characterized by fierce competition. Larger, well-capitalized players with extensive resources could potentially outpace ZenaTech in market share capture or accelerate their own technological developments.
• Regulatory Environment: The drone industry is subject to evolving regulatory frameworks, including FAA approvals and rules for Beyond Visual Line of Sight (BVLOS) operations. While recent US policy directives have been favorable, any adverse changes could impact ZenaTech's operational capabilities and market access.
• Acquisition Integration Risk: The rapid pace of acquisitions introduces inherent integration risks, including potential challenges in seamlessly combining diverse operations, technologies, and corporate cultures, which could impact efficiency and financial performance.
• Quantum Computing Commercialization: Quantum computing is an emerging field facing "considerable risks". The successful commercialization and widespread adoption of this advanced technology are not guaranteed and will require significant, sustained investment and overcoming complex technical hurdles.

Conclusion

ZenaTech stands at a pivotal juncture, strategically positioned at the convergence of AI-powered drones, Drone as a Service, enterprise SaaS, and the nascent but potentially revolutionary field of quantum computing. The company's narrative is one of ambitious expansion and technological pioneering, particularly within the rapidly growing US defense market and diverse commercial applications. The recent explosive revenue growth, driven by a proactive acquisition strategy and innovative drone solutions, underscores its potential to carve out a significant presence in these dynamic industries.

While ZenaTech's current unprofitability and substantial cash burn reflect its intensive investment phase, the strategic alignment with favorable government policies and its pioneering efforts in quantum-enhanced AI for drones present a compelling long-term investment thesis. The company's ability to seamlessly integrate advanced hardware with sophisticated software, coupled with a clear vision for quantum computing's role in real-time data analysis, positions ZenaTech as a potentially disruptive force. Investors should closely monitor the company's progress in improving operational efficiency, the successful integration of its numerous acquisitions, and the continued development and commercialization of its advanced technological offerings as it strives to translate its innovative edge into sustainable profitability and market leadership.