UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended

December 31, 2023

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report . . . . . . . . . . . . . . .

 

For the transition period from ________________ to ___________

 

Commission file number:

001-40688

 

Draganfly Inc.

(Exact name of Registrant as specified in its charter)

 

N/A

(Translation of Registrant’s name into English)

 

British Columbia, Canada

(Jurisdiction of Incorporation or Organization)

 

235 103rd St E., Saskatoon, SK, S7N 1Y8, Canada

(Address of Principal Executive Offices)

 

Paul Sun, Chief Financial Officer

Telephone: 800.979.9794

E-mail: paul.sun@draganfly.com

235 103rd St E, Saskatoon, SK, S7N 1Y8, Canada

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares		DPRO		The Nasdaq Stock Market LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to section 15(d) of the Act

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

49,229,563 Common Shares

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐Yes ☒No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐Yes ☒No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒Yes ☐No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

☒Yes ☐No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐		Accelerated filer ☐		Non-accelerated filer ☒
				Emerging growth company ☒

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

 

†The term “new or revised financial accounting standard” refers to any updated issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial ‎statements of the registrant included in the filing reflect the correction of an error to previously issued financial ‎statements. ☐‎

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of ‎incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery ‎period pursuant to §240.10D-1(b). ☐‎

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP

☐

International Financial Reporting Standards as issued by the International Accounting Standards Board

☒

Other

☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐Yes ☒No

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court

☒Yes ☐No

 

 

 

TABLE OF CONTENTS

 

Table of Contents			i
General Matters			ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			iii
Part I			1
	Item 1.	Identity of Directors, Senior Management and Advisors	1
	Item 2.	Offer Statistics and Expected TimeTable	1
	Item 3.	Key Information	1
	Item 4.	Information on the Company	16
	Item 4A.	Unresolved Staff Comments	35
	Item 5.	Operating and Financial Review and Prospects	35
	Item 6.	Directors, Senior Management and Employees	35
	Item 7.	Major Shareholders and Related Party Transactions	50
	Item 8.	Financial Information	51
	Item 9.	The Offer and Listing.	51
	Item 10.	Additional Information	52
	Item 11.	Quantitative and Qualitative Disclosures About Market Risk	59
	Item 12.	Description of Securities Other than Equity Securities	60
PART II			61
	Item 13.	Defaults, Dividend Arrearages and Delinquencies	61
	Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	61
	Item 15.	Controls and Procedures	62
	Item 16.	[Reserved]	62
	Item 16A.	Audit Committee Financial Expert	63
	Item 16B.	Code of Ethics	63
	Item 16C.	Principal Accountant Fees and Services	63
	Item 16D.	Exemptions from the Listing Standards for Audit Committees	64
	Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	64
	Item 16F.	Change in Registrant’s Certifying Accountant	64
	Item 16G.	Corporate Governance	64
	Item 16H.	Mine Safety Disclosure	64
	Item 16I.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	64
	Item 16J.	Insider Trading Policies	65
	Item 16K.	Cybersecurity	65
PART III			66
	Item 17:	Financial Statements	66
	Item 18:	Financial Statements	67
	Item 19.	Exhibits	68

 

 

GENERAL MATTERS

 

Unless otherwise noted or the context indicates otherwise “we”, “us”, “our”, the “Company” or “Draganfly” refer to Draganfly Inc. and its subsidiaries.

 

Unless otherwise indicated, financial information in this Annual Report on Form 20-F (this “Annual Report”) has been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Unless otherwise noted herein, all references to “$,” “C$,” “Canadian dollars,” or “dollars” are to the currency of Canada and “US$,” “United States dollars,” or “U.S. dollars” are to the currency of the United States.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and as such, we have elected to comply with certain reduced U.S. public company reporting requirements.

 

The Company prepares and reports its consolidated financial statements in accordance with IFRS. However, this Annual Report may make reference to certain non-IFRS measures including key ‎‎performance indicators used by management. These measures are not recognized measures under IFRS ‎‎and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable ‎‎to similar measures presented by other companies. Rather, these measures are provided as additional ‎‎information to complement those IFRS measures by providing further understanding of the Company’s ‎results of ‎operations from management’s perspective. Accordingly, these measures should not be ‎considered in ‎isolation nor as a substitute for analysis of the Company’s financial information reported ‎under IFRS.

 

The ‎Company uses non-IFRS measures including “gross profit,” “gross margin” and “working capital” ‎which may be calculated ‎differently by other companies. These non-IFRS measures and metrics are used ‎to provide investors with ‎supplemental measures of the Company’s operating performance and liquidity ‎and thus highlight trends in the Company’s ‎business that may not otherwise be apparent when relying ‎solely on IFRS measures. Management believes that gross profit, defined as revenue less operating expenses, is a useful supplemental measure of operations. Gross profit helps provide an understanding on the level of costs needed to create revenue. Gross margin illustrates the gross profit as a percentage of revenue. Management believes that working capital, defined as current assets less current liabilities, is an indicator of the Corporation’s liquidity and its ability to meet its current obligations. The Company also ‎believes that securities analysts, investors and other ‎interested parties frequently use non-IFRS measures ‎in the evaluation of companies in similar industries. ‎Management also uses non-IFRS measures and ‎metrics in order to facilitate operating performance ‎comparisons from period to period, to prepare ‎annual operating budgets and forecasts and to determine ‎components of executive compensation. For ‎ reconciliations of these non-IFRS measures ‎to the relevant reported measures, please ‎‎see ‎the “Results of Operations – Cost of Goods Sold / Gross Margin” for a discussion of gross profit and gross margin, and for a discussion of working capital, “Selected Financial Information” sections of the Company’s Management’s Discussion and Analysis for the year ended December 31, 2023, attached to this Annual Report on Form 20-F in Exhibit ‎15.1.

 

 

Unless otherwise indicated, the Company has obtained the market and industry data contained in this Annual Report ‎from its internal research, management’s estimates and third-party public information and other industry ‎publications. While the Company believes such internal research, management’s estimates and third-‎party public information is reliable, such internal research and management’s estimates have not been ‎verified by any independent sources and the Company has not verified any third party public ‎information. While the Company is not aware of any misstatements regarding the market and industry ‎data contained in this Annual Report, such data involves risks and uncertainties and are subject to change based on ‎various factors, including those described under “Cautionary Statement Regarding Forward-Looking ‎Information and Statements” and “Item 3.D. Risk Factors”.‎

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking by their nature and are based on certain of the assumptions noted below:

 

	●	the intentions, plans and future actions of the Company;
	●	statements relating to the business and future activities of the ‎Company;
	●	anticipated developments in operations of the Company;
	●	market position, ability to compete and future ‎financial or operating performance of the Company;
	●	the timing and amount of funding required to execute the ‎Company’s business plans;
	●	capital expenditures;
	●	the effect on the Company of any changes to existing or new ‎legislation or policy or government regulation;
	●	‎the availability of labor;
	●	‎the Company’s ability to secure necessary regulatory approvals and permits
	●	requirements for additional capital;
	●	goals, strategies and future ‎growth and the success of the Company’s products;
	●	the adequacy of financial resources;
	●	expectations regarding revenues, ‎expenses and anticipated cash needs‎;
	●	volatility in the Company’s securities and the continued listing of the Company’s securities on Nasdaq; ‎and
	●	general market conditions and macroeconomic trends driven by pandemics and/or geopolitical conflicts, including supply chain disruptions, market volatility, inflation, interests rates, and labor challenges, among other factors.

 

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, those factors identified under the Risk Factors listed below in Item 3.D. of this Annual Report. Furthermore, unless otherwise stated, the forward-looking statements contained in this Annual Report are made as of the date hereof, and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes or otherwise, except as required by law.

 

 

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

 

Not required.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not required.

 

ITEM 3.

KEY INFORMATION

 

3.A.

 

[Reserved]

 

3.B.	Capitalization and Indebtedness

 

Not required.

 

3.C.	Reasons for the Offer and Use Of Proceeds

 

Not required.

 

3.D.	Risk Factors

 

An investment in the Company’s common shares, without par value, (the “Common Shares”) is highly speculative and involves significant risks. In addition to the other ‎information contained in this Annual Report and the documents incorporated by ‎reference herein and therein, you should review and carefully consider the risks described herein. The risks described herein are not the only risk factors facing us and should not be ‎considered exhaustive. Additional risks and uncertainties not currently known to us, or that we currently ‎consider immaterial, may also materially and adversely affect our business, operations and condition, financial ‎or otherwise.‎

 

Risks Related to the Company, its Business and Industry

 

The Company has a history of losses.

 

The Company has incurred net losses since its inception. The Company cannot assure that it can ‎become profitable or avoid net losses in the future or that there will be any earnings or revenues in any ‎future quarterly or other periods. The Company expects that its operating expenses will increase as it ‎grows its business, including expending substantial resources for research, development and marketing. ‎As a result, any decrease or delay in generating revenues could result in material operating losses.‎

 

A shareholder’s holding in the Company may be diluted if the Company issues additional Common ‎Shares or other securities in the future.‎

 

‎The Company may issue additional Common Shares or other securities in the future, which may dilute a ‎‎shareholder’s holding in the Company. ‎The Company’s articles permit the issuance of an unlimited ‎‎number of Common Shares, and shareholders have no pre-emptive rights in connection with further ‎‎issuances of any securities. The directors of the Company have the discretion to ‎determine if an ‎‎issuance of Common Shares or other securities is warranted, the price at which any such securities are ‎‎issued and the other ‎terms of issue of Common Shares or securities. In addition, the Company may ‎‎issue additional Common Shares upon the exercise of incentive stock options to ‎acquire Common ‎‎Shares under its share compensation plan or upon the exercise or conversion of other outstanding ‎convertible securities of the Company, which will result in further dilution to shareholders. In addition, ‎the ‎issuance of Common Shares or other securities in any potential ‎future acquisitions, if any, may also ‎‎result in further dilution to shareholder interests.‎‎

 

 

The Company expects to incur substantial research and development costs and devote significant resources to ‎identifying and commercializing new products and services, which could significantly reduce its profitability and ‎may never result in revenue to the Company.‎

 

‎The Company’s future growth depends on penetrating new markets, adapting existing products to new ‎applications, ‎and introducing new products and services that achieve market acceptance. The Company ‎plans to incur ‎substantial research and development costs as part of its efforts to design, develop and ‎commercialize new ‎products and services and enhance its existing products. The Company believes that ‎there are significant opportunities in a number of business areas. Because the Company accounts for ‎research and development costs as ‎operating expenses, these expenditures will adversely affect its ‎earnings in the future. Further, the Company’s ‎research and development programs may not produce ‎successful results, and its new products and services may not ‎achieve market acceptance, create any ‎additional revenue or become profitable, which could materially harm the ‎Company’s business, ‎prospects, financial results and liquidity.‎

 

Shortfalls in available external research and development funding could adversely affect the Company.‎

 

‎The Company depends on its research and development activities to develop the core technologies ‎used in its UAV ‎products and for the development of the Company’s future products. A portion of the ‎Company’s research and ‎development activities can depend on funding by commercial companies and ‎the Canadian government. Canadian ‎government and commercial spending levels can be impacted by a ‎number of variables, including general ‎economic conditions, specific companies’ financial performance ‎and competition for Canadian government ‎funding with other Canadian government-sponsored programs ‎in the budget formulation and appropriation ‎processes. Moreover, the Canadian, federal and provincial ‎governments provide energy rebates and incentives to ‎commercial companies, which directly impact the ‎amount of research and development that companies ‎appropriate for energy systems. To the extent that ‎these energy rebates and incentives are reduced or eliminated, ‎company funding for research and ‎development could be reduced. Any reductions in available research and ‎development funding could ‎harm the Company’s business, financial condition and operating results.‎

 

The Company’s adoption of new business models could fail to produce any financial returns.‎

 

‎Forecasting the Company’s revenues and profitability for new business models is inherently uncertain ‎and ‎volatile. The Company’s actual revenues and profits for its business models may be significantly ‎less ‎than the Company’s forecasts. Additionally, the new business models could fail for one or more of ‎the ‎Company’s products and/or services, resulting in the loss of Company’s investment in the ‎development and ‎infrastructure needed to support the new business models, and the opportunity cost of ‎diverting management and ‎financial resources away from more successful businesses.‎

 

The Company will be affected by operational risks and may not be adequately insured for certain risks.‎

 

‎ The Company will be affected by a number of operational risks and the Company may not be adequately ‎insured ‎for certain risks, including: labour disputes; catastrophic accidents; fires; blockades or other ‎acts of social activism; ‎changes in the regulatory environment; impact of non-compliance with laws and ‎regulations; natural phenomena, ‎such as inclement weather conditions, floods, earthquakes and ground ‎movements. There is no assurance that the ‎foregoing risks and hazards will not result in damage to, or ‎destruction of, the Company’s technologies, personal ‎injury or death, environmental damage, adverse ‎impacts on the Company’s operation, costs, monetary losses, ‎potential legal liability and adverse ‎governmental action, any of which could have an adverse impact on the ‎Company’s future cash flows, ‎earnings and financial condition. Also, the Company may be subject to or affected ‎by liability or sustain ‎loss for certain risks and hazards against which the Company cannot insure or which the ‎Company may ‎elect not to insure because of the cost. This lack of insurance coverage could have an adverse ‎impact ‎on the Company’s future cash flows, earnings, results of operations and financial condition.‎

 

The Company operates in evolving markets, which makes it difficult to evaluate the Company’s business and ‎future prospects.‎

 

‎The Company’s unmanned aerial vehicles (“UAVs”) are sold in rapidly evolving markets. The commercial UAV market is in early stages of ‎customer adoption. Accordingly, the Company’s business and future prospects may be difficult to evaluate. The ‎Company cannot accurately predict the extent to which demand for its products and services will increase, if at all. ‎The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could ‎impact the Company’s ability to do the following:‎

 

●

generate sufficient revenue to reach and maintain profitability;‎

 

 

	●	acquire and maintain market share;‎
	●	achieve or manage growth in operations;‎
	●	develop and renew contracts;‎
	●	attract and retain additional engineers and other highly-qualified personnel;‎
	●	successfully develop and commercially market new products;‎
	●	adapt to new or changing policies and spending priorities of governments and government agencies; and
	●	access additional capital when required and on reasonable terms.‎

 

If the Company fails to address these and other challenges, risks and uncertainties successfully, its business, results ‎of operations and financial condition would be materially harmed.‎

 

The Company operates in a competitive market.

 

The Company faces competition and new competitors will continue to emerge throughout the world. ‎Services offered by the Company’s competitors may take a larger share of consumer spending than ‎anticipated, which could cause revenue generated from the Company’s products and services to fall ‎below expectations. It is expected that competition in these markets will intensify.

 

‎If competitors of the Company develop and market more successful products or services, offer ‎competitive products or services at lower price points, or if the Company does not produce consistently ‎high-quality and well-received products and services, revenues, margins, and profitability of the ‎Company will decline.‎

 

‎The Company’s ability to compete effectively will depend on, among other things, the Company’s pricing ‎of services and equipment, quality of customer service, development of new and enhanced products ‎and services in response to customer demands and changing technology, reach and quality of sales and ‎distribution channels and capital resources. Competition could lead to a reduction in the rate at which the ‎Company adds new customers, a decrease in the size of the Company’s market share and a decline in ‎its customers. Examples include but are not limited to competition from other companies in the UAV ‎industry.‎

 

In addition, the Company could face increased competition should there be an award of additional ‎licenses in jurisdictions in which the Company operates in.‎

 

The markets in which the Company competes are characterized by rapid technological change, which requires ‎the Company to develop new products and product enhancements and could render the Company’s existing ‎products obsolete. ‎

 

‎Continuing technological changes in the market for the Company’s products could make its products ‎less ‎competitive or obsolete, either generally or for particular applications. The Company’s future ‎success will depend ‎upon its ability to develop and introduce a variety of new capabilities and ‎enhancements to its existing product and ‎service offerings, as well as introduce a variety of new product ‎offerings, to address the changing needs of the ‎markets in which it offers products. Delays in ‎introducing new products and enhancements, the failure to choose ‎correctly among technical alternatives ‎or the failure to offer innovative products or enhancements at competitive ‎prices may cause existing and ‎potential customers to purchase the Company’s competitors’ products.‎

 

If the Company is unable to devote adequate resources to develop new products or cannot otherwise ‎successfully ‎develop new products or enhancements that meet customer requirements on a timely basis, ‎its products could lose ‎market share, its revenue and profits could decline, and the Company could ‎experience operating losses.‎

 

 

Failure to obtain necessary regulatory approvals from Transport Canada or other governmental agencies, or ‎limitations put on the use of small UAV in response to public privacy concerns, may prevent the Company from ‎expanding sales of its small UAV to non-military customers in Canada.‎

 

‎Transport Canada is responsible for establishing, managing, and developing safety and security ‎standards and regulations for civil aviation in Canada, and includes unmanned civil aviation ‎‎(drones). Civil operations include law enforcement, scientific research, or use by private sector ‎companies for commercial purposes. The Canadian Aviation Regulations (“CARs”) govern civil ‎aviation safety and security in Canada, and by extension govern operation of drones in Canada ‎to an acceptable level of safety.‎

 

While Transport Canada has been a leader in the development of regulations for the commercial ‎use of remotely piloted aircraft systems (“RPAS”) and continues to move forward rapidly with its regulatory development, it has ‎acknowledged the challenge of regulations keeping pace with the rapid development in ‎technology and the growing demand for commercial RPAS use, particularly in the beyond visual ‎line-of-sight environment. In 2012, the Canadian Aviation Regulation Advisory Council UAS ‎working group released its Phase 2 report which outlined a proposed set of revision to the CARs ‎to permit beyond visual line of sight operations. This report was the basis for the recently released Notice of Proposed Amendment (“NPA”) by Transport Canada on lower ‎risk beyond visual line-of-sight.‎

 

Failure to obtain necessary regulatory approvals from Transport Canada or other governmental ‎agencies, including the granting of certain Special Flight Operations Certificates (“SFOCs”), or limitations put on the use of RPAS in ‎response to public safety concerns, may prevent the Company from testing or operating its ‎aircraft and/or expanding its sales which could have an adverse impact on the Company’s ‎business, prospects, results of operations and financial condition.‎

 

There are risks associated with the regulatory regime and permitting requirements of the Company’s business.‎

 

‎A significant portion of the Company’s business is based on the operation of RPAS. The operation of ‎‎RPAS poses a risk or hazard to airspace users as well as personnel on the ground. As ‎the RPAS ‎‎industry is rapidly developing, the regulatory environment for RPAS is constantly evolving to keep pace. ‎‎‎As such, whenever a policy change with respect to operating regulations occurs, there is a risk that the ‎‎Company ‎could find itself to be in non-compliance with these new regulations. While the Company ‎‎endeavours to take all ‎necessary action to reduce the risks associated with the operations of RPAS and ‎‎to remain well-informed and up-‎to-date on any addendums and changes to the applicable regulations, ‎‎there is no assurance that an incident ‎involving an RPAS or the Company’s non-compliance would not ‎‎create a significant current or future liability for ‎the company.‎

 

The regulation of RPAS operations within the Canadian Domestic Airspace (“CDA”) is still evolving and is expected ‎to continue to change ‎with the proliferation of RPAS, advancements in technology, and standardization within the ‎industry. ‎Changes to the regulatory regime may be disruptive and result in the Company needing to adopt ‎‎significant changes in its operations and policies, which may be costly and time-consuming, and may ‎materially ‎adversely affect the Company’s ability to manufacture and make delivery of its products and ‎services in a timely ‎fashion.‎

 

The Company’s business and research and development activities are subject to oversight by Transport ‎‎Canada, the federal ‎institution responsible for transportation policies and programs, including the rules in ‎‎the CARs. Currently, Transport Canada requires that any non-recreational operators of RPAS have a ‎‎‎SFOC. The Company’s ability to develop, test, demonstrate, and sell products and ‎services depends on ‎‎its ability to acquire and maintain a valid SFOC.‎

 

‎In addition, there exists public concern regarding the privacy implications of Canadian commercial and ‎‎law ‎enforcement use of small UAV. This concern has included calls to develop explicit written policies ‎‎and procedures ‎establishing UAV usage limitations. There is no assurance that the response from ‎‎regulatory agencies, customers and ‎privacy advocates to these concerns will not delay or restrict the ‎‎adoption of small UAV by prospective non-military customers‎.‎

 

The Company may be subject to the risks associated with future acquisitions.

 

As part of the Company’s overall business strategy, the Company may pursue select strategic ‎acquisitions that would provide additional product or service offerings, additional industry expertise, and ‎a stronger industry presence in both existing and new jurisdictions. Any such future acquisitions, if ‎completed, may expose the Company to additional potential risks, including risks associated with: (a) ‎the integration of new operations, services and personnel; (b) unforeseen or hidden liabilities; (c) the ‎diversion of resources from the Company’s existing business and technology; (d) potential inability to ‎generate sufficient revenue to offset new costs; (e) the expenses of acquisitions; or (f) the potential loss ‎of or harm to relationships with both employees and existing users resulting from its integration of new ‎businesses. In addition, any proposed acquisitions may be subject to regulatory approval.‎

 

 

The Company’s inability to retain management and key employees could impair the future success of the Company.

 

The Company’s future success depends substantially on the continued services of its executive officers ‎and its key development personnel. If one or more of its executive officers or key development ‎personnel were unable or unwilling to continue in their present positions, the Company might not be able ‎to replace them easily or at all. In addition, if any of its executive officers or key employees joins a ‎competitor or forms a competing company, the Company may lose experience, know-how, key ‎professionals and staff members as well as business partners. These executive officers and key ‎employees could develop drone technologies that could compete with and take customers and market ‎share away from the Company.‎

 

The Company faces uncertainty and adverse changes in the economy.‎

‎

Adverse changes in the economy could negatively impact the Company’s business. Future economic ‎distress may ‎result in a decrease in demand for the Company’s products, which could have a material ‎adverse impact on the ‎Company’s operating results and financial condition. Uncertainty and adverse ‎changes in the economy could also ‎increase costs associated with developing and publishing products, ‎increase the cost and decrease the availability of ‎sources of financing, and increase the Company’s ‎exposure to material losses from bad debts, any of which could ‎have a material adverse impact on the ‎financial condition and operating results of the Company.‎

 

The Company is subject to certain market-based financial risks associated with its operations.

 

The Company could be subject to interest rate risks, which is the risk that the value of a financial ‎instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks ‎from interest rate fluctuations, the Company manages exposure through its normal operating and ‎financing activities, however market fluctuations could increase the costs at which the Company can ‎access capital and its ability to obtain financing and the Company’s cash balances carry a floating rate ‎of interest. In addition, the Company engages in transactions in currencies other than its functional ‎currency. Depending on the timing of these transactions and the applicable currency exchange rates, ‎conversions to the Company’s functional currency may positively or negatively impact the Company.‎

 

Negative macroeconomic and geopolitical trends could affect demand for the Company’s products and its ability ‎to access sources of ‎capital.‎

 

‎ ‎There can be no assurance that the Company’s business and corresponding financial performance will not be ‎adversely affected by general negative economic or consumer trends or events, including pandemics, public health ‎crises, weather catastrophes, acts of terrorism, war, and political instability. In particular, global economic markets ‎have seen extensive volatility over the past few years owing to the outbreak of the COVID-19 pandemic, the war ‎between Russia and Ukraine, and the war between Israel and Hamas, the closing of certain financial institutions by ‎regulators in March 2023, and political instability. These events have created, and may continue to create, ‎significant disruption of the global economy, supply chains and distribution channels, and financial and labor ‎markets. If such conditions continue, recur or worsen, this may have a material adverse effect on the Company’s ‎business, financial condition and results of operations as consumer demand and its ability to access capital on ‎favorable terms, or at all, could be negatively impacted as a result of such conditions and consequences. ‎Furthermore, such economic conditions have produced downward pressure on share prices and on the availability ‎of credit for financial institutions and corporations while also driving up interest rates, further complicating ‎borrowing and lending activities. If current levels of market disruption and volatility continue or increase, the ‎Company might experience reductions in business activity, increases in funding costs, decreases in asset values, ‎additional write-downs and impairment charges and lower profitability.‎

 

 

The Company may be subject to the risks associated with foreign operations in other countries.

 

The Company’s primary revenues are expected to be achieved in Canada and the US. However, the ‎Company may expand to markets outside of North America and become subject to risks normally ‎associated with conducting business in other countries. As a result of such expansion, the Company ‎may be subject to the legal, political, social and regulatory requirements and economic conditions of ‎foreign jurisdictions. The Company cannot predict government positions on such matters as foreign ‎investment, intellectual property rights or taxation. A change in government positions on these issues ‎could adversely affect the Company’s business.‎

 

If the Company expands its business to foreign markets, it will need to respond to rapid changes in ‎market conditions, including differing legal, regulatory, economic, social and political conditions in these ‎countries. If the Company is not able to develop and implement policies and strategies that are effective ‎in each location in which it does business, then the Company’s business, prospects, results of ‎operations and financial condition could be materially and adversely affected.‎

 

There are tax risks the Company may be subject to in carrying on business in Canada.

 

The Company is a resident of Canada for purposes of the Income ‎Tax Act (Canada) (the “Tax Act”). Since the ‎Company ‎is operating in a new and developing industry there is a risk that ‎foreign governments may look to ‎‎increase their tax revenues or levy additional taxes to level the playing ‎field for perceived disadvantages ‎to ‎traditional brick and mortar businesses. There is no guarantee that ‎governments will not impose such ‎additional ‎adverse taxes in the future‎.‎

 

If critical components or raw materials used to manufacture the Company’s products become scarce or ‎unavailable, then the Company may incur delays in manufacturing and delivery of its products, which could ‎damage its business.‎

 

‎The Company obtains hardware components, various subsystems and systems from a limited group of ‎suppliers. ‎The Company does not have long-term agreements with any of these suppliers that obligate it ‎to continue to sell ‎components, subsystems, systems or products to the Company. The Company’s ‎reliance on these suppliers ‎involves significant risks and uncertainties, including whether its suppliers will ‎provide an adequate supply of ‎required components, subsystems, or systems of sufficient quality, will ‎increase prices for the components, ‎subsystems or systems and will perform their obligations on a ‎timely basis.‎

 

‎The global supply chain has experienced significant disruptions recently, caused by the COVID-19 ‎pandemic and ‎by geopolitical conflict, including the wars in Ukraine and Gaza, and the possibility of widening conflict in the ‎Middle East. These disruptions have impacted a ‎variety of products and goods and have had various downstream ‎effects, making it more difficult to ‎reliably and timely source and supply goods and has also resulted in shortages of ‎labor and equipment. ‎The macroeconomic impacts of the COVID-19 pandemic and global conflicts, including the ‎disruption of global shipping lanes in the Middle East, have contributed to ‎inflationary pressure, rising interest rates, ‎and increased market volatility, adding additional pricing uncertainty. These ‎conditions, if not mitigated or ‎remedied in a timely manner, could delay or preclude delivery of raw ‎materials needed to manufacture the ‎Company’s products or delivery of its products to customers, ‎particularly in international markets. If the ‎Company ‎is unable to obtain components from third-party ‎suppliers in the quantities and of the quality that it ‎requires, on a ‎timely basis and at acceptable prices, ‎then it may not be able to deliver its products on a timely or ‎cost-effective ‎basis to its customers, or at ‎all, which could cause customers to terminate their contracts with the Company, ‎‎increase the Company’s ‎costs and seriously harm its business, results of operations and financial condition. ‎‎Moreover, if any of ‎the Company’s suppliers become financially unstable, then it may have to find new suppliers. ‎‎It may take ‎several months to locate alternative suppliers, if required, or to redesign the Company’s products to ‎‎‎accommodate components from different suppliers. The Company may experience significant delays in ‎‎‎manufacturing and shipping its products to customers and incur additional development, manufacturing ‎and other ‎‎costs to establish alternative sources of supply if the Company loses any of these sources or ‎is required to redesign ‎‎its products. The Company cannot predict if it will be able to obtain replacement ‎components within the time ‎‎frames that it requires at an affordable cost, if at all.‎

 

 

Natural outdoor elements such as wind and precipitation may have a material adverse effect on the ‎use and effectiveness of the Company’s products.

 

The Company’s business will involve the operation and flying of UAVs, a technology-based product ‎‎used outside. As such, the business is subject to various risks inherent in a technology-based ‎‎businesses operated in outdoor conditions, including faulty parts, breakdowns and crashes. Although ‎‎the Company anticipates the use of its UAVs in good climactic conditions and that adequate flying ‎‎conditions will be monitored by trained personnel, there can be no assurance that unpredictable natural ‎‎outdoor elements, which could be exacerbated due to risks associated with climate change, will not have a material adverse effect on the use and effectiveness of its products.‎

 

The Company’s products may be subject to recall or return.

 

Manufacturers and distributors of products are sometimes subject to the recall or return of their products ‎‎‎for a variety of reasons, including product defects, safety concerns, packaging issues and inadequate ‎‎or inaccurate ‎labeling disclosure. If any of the Company’s equipment were to be recalled due to an ‎‎alleged product ‎defect, safety concern or for any other reason, the Company could be required to incur ‎‎unexpected expenses of the recall ‎and any legal proceedings that might arise in connection with the ‎‎recall. The Company may lose a significant ‎amount of sales and may not be able to replace those sales ‎‎at an acceptable margin or at all. In ‎addition, a product recall may require significant management time ‎‎and attention. Additionally, product recalls may lead to ‎increased scrutiny of the Company’s operations ‎‎by Transport Canada or other regulatory agencies, requiring ‎further management time and attention and ‎‎potential legal fees, costs and other expenses.‎‎

 

‎‎If the Company releases defective products or services, its operating results could suffer.‎

 

‎Products and services designed and released by the Company involve extremely complex software ‎‎programs and ‎are difficult to develop and distribute. While the Company has quality controls in place to ‎‎detect and prevent defects in its ‎products and services before they are released, these quality controls ‎‎are subject to human error, ‎overriding, and reasonable resource constraints. Therefore, these quality ‎‎controls and preventative measures may ‎not be effective in detecting and preventing defects in the ‎‎Company’s products and services before they have been released into ‎the marketplace. In such an ‎‎event, the Company could be required, or decide voluntarily, to suspend the availability of the product or ‎‎services, which could significantly harm its business and operating results‎.‎

 

‎The Company’s products and services are complex and could have unknown defects or errors, which may give ‎rise to legal claims against the Company, diminish its brand or divert its resources from other purposes.‎

 

The Company’s UAVs rely on complex avionics, sensors, user-friendly interfaces and tightly integrated, ‎‎electromechanical designs to accomplish their missions. Despite testing, the Company’s products have ‎contained ‎defects and errors and may in the future contain defects, errors or performance problems ‎when first introduced, ‎when new versions or enhancements are released, or even after these products ‎have been used by the Company’s ‎customers for a period of time. These problems could result in ‎expensive and time-consuming design modifications ‎or warranty charges, delays in the introduction of ‎new products or enhancements, significant increases in the ‎Company’s service and maintenance costs, ‎exposure to liability for damages, damaged customer relationships and ‎harm to the Company’s ‎reputation, any of which could materially harm the Company’s results of operations and ‎ability to achieve ‎market acceptance. In addition, increased development and warranty costs could be substantial ‎and ‎could significantly reduce the Company’s operating margins.‎

 

‎The existence of any defects, errors, or failures in the Company’s products or the misuse of the ‎Company’s ‎products could also lead to product returns, recalls, or liability claims or lawsuits against it. A defect, error or ‎failure in one of the ‎Company’s UAV could result in injury, death or property damage and significantly ‎damage the Company’s ‎reputation and support for its UAV in general. The Company anticipates this risk ‎will grow as its UAV begins to be ‎used in Canadian domestic airspace and urban areas. The Company’s ‎UAV test systems also have the potential to ‎cause injury, death or property damage in the event that ‎they are misused, malfunction or fail to operate properly ‎due to unknown defects or errors.‎ Although the ‎Company maintains insurance policies, it cannot provide any assurance that this insurance will be ‎‎adequate to protect the Company from all material judgments and expenses related to potential future ‎claims or ‎that these levels of insurance will be available in the future at economical prices or at all. A ‎successful product ‎liability claim could result in substantial cost to us. Even if the Company is fully ‎insured as it relates to a particular claim, the ‎claim could nevertheless diminish the Company’s brand and ‎divert management’s attention and resources, which ‎could have a negative impact on the Company’s ‎business, financial condition and results of operations.‎

 

 

The Company could be prohibited from shipping its products to certain countries if it is unable to obtain ‎Canadian government authorization regarding the export of its products, or if current or future export laws limit ‎or otherwise restrict the Company’s business.‎

 

The Company must comply with Canadian federal and provincial laws regulating the export of its ‎products. In ‎some cases, explicit authorization from the Canadian government is needed to export its ‎products. The export ‎regulations and the governing policies applicable to the Company’s business are ‎subject to change. The Company ‎cannot provide assurance that such export authorizations will be ‎available for its products in the future. ‎Compliance with these laws has not significantly limited the ‎Company’s operations or sales in the recent past, but ‎could significantly limit them in the future. Non-‎compliance with applicable export regulations could potentially ‎expose the Company to fines, penalties ‎and sanctions. If the Company cannot obtain required government ‎approvals under applicable ‎regulations, the Company may not be able to sell its products in certain international ‎jurisdictions, which ‎could adversely affect the Company’s financial condition and results of operations.‎

 

Negative consumer perception regarding the Company’s products‎ could have a material adverse effect on the demand for the Company’s ‎products and the business, results of operations, financial condition and cash flows of the Company.

 

The Company believes the UAV industry is highly dependent upon consumer perception regarding the ‎‎safety, efficacy, and quality of the UAV used. Consumer perception of these products can be ‎‎significantly influenced by scientific research or findings, regulatory investigations, litigation, media ‎attention, ‎and other publicity regarding the use of UAV. There can be no assurance that future scientific ‎research, ‎findings, regulatory proceedings, litigation, media attention, or other research findings or ‎publicity will be ‎favourable to the UAV market. Future research reports, findings, regulatory proceedings, ‎litigation, media ‎attention or other publicity that are perceived as less favourable than, or that question, ‎earlier research ‎reports, findings or publicity could have a material adverse effect on the demand for the ‎Company’s ‎products and the business, results of operations, financial condition and cash flows of the ‎Company. The ‎dependence upon consumer perceptions means that adverse scientific research reports, ‎findings, ‎regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or ‎with merit, ‎could have a material adverse effect on the Company, the demand for the Company’s ‎products, and the ‎business, results of operations, financial condition and cash flows of the Company. ‎Further, adverse ‎publicity reports or other media attention regarding the safety, the efficacy, and quality ‎of UAV based surveys in general, or the Company’s products specifically, ‎could have a material adverse ‎effect.‎

 

If the Company fails ‎‎to successfully promote its product brand, this could have a material adverse ‎effect on the Company’s business, prospects, ‎‎financial condition and results of operations‎.

 

The Company believes that brand recognition is an important factor to its success. If the Company fails ‎‎‎to promote its brands successfully, or if the expenses of doing so are disproportionate to any increased ‎‎‎net sales it achieves, it would have a material adverse effect on the Company’s business, prospects, ‎‎‎financial condition and results of operations. This will depend largely on the Company’s ability to ‎‎‎maintain trust, be a technology leader, and continue to provide high-quality and secure technologies, ‎‎‎products and services. Any negative publicity about the Company or its industry, the quality and ‎reliability of the Company’s technologies, products and services, the Company’s risk management ‎‎‎processes, changes to the Company’s technologies, products and services, its ability to effectively ‎‎‎manage and resolve customer complaints, its privacy and security practices, litigation, regulatory ‎activity, and the experience of sellers and buyers with the Company’s products or services, could ‎adversely affect the Company’s reputation and the confidence in and use of the ‎‎Company’s ‎technologies, products and services. Harm to the Company’s brand can arise from ‎‎many sources, ‎including; failure by the Company or its partners to satisfy expectations of service and quality; ‎inadequate protection of sensitive information; compliance failures and claims; litigation and ‎‎other ‎claims; employee misconduct; and misconduct by the Company’s partners, service ‎‎providers, or other ‎counterparties. If the Company does not successfully maintain a strong and trusted brand, its business ‎could be materially and adversely affected.‎ ‎

 

 

The Company may be subject to electronic communication security risks.

 

A significant potential vulnerability of electronic communications is the security of transmission of ‎confidential ‎information over public networks. Cyberattacks could result in unauthorized access to the ‎Company’s computer ‎systems or its third-party IT service provider’s systems and, if successful, ‎misappropriate personal or confidential ‎information. Anyone who is able to circumvent the Company’s ‎security measures could misappropriate proprietary ‎information or cause interruptions in its operations. ‎The Company may be required to expend capital and other ‎resources to protect against such security ‎breaches or to alleviate problems caused by such breaches.‎

 

‎The last few years have seen an increase in the volume and sophistication ‎of targeted cyber-attacks. A failure of ‎the Company’s IT ‎infrastructure could severely limit the Company’s ability ‎to conduct ordinary operations or ‎expose the ‎Company to liability. To date, the Company’s systems have functioned capably, and it has not ‎‎experienced a material impact to its ‎operations as a result of an IT infrastructure issue. Data security breaches ‎suffered by well-known companies and institutions have attracted a substantial amount of media attention, ‎prompting new foreign, federal, provincial and state laws and legislative proposals addressing data privacy and ‎security. As a result, the Company may become subject to more extensive requirements to protect the customer ‎information that it processes in connection with the purchase of its products, resulting in increased compliance ‎costs.‎

 

While the Company has taken measures to protect against cyberattacks, even the most well-protected IT networks, ‎systems and facilities remain potentially vulnerable because ‎the techniques used in attempted security breaches are ‎continually evolving and generally are not ‎recognized until launched against a target or, in some cases, are designed ‎not to be detected and, in ‎fact, may not be detected. Any such compromise of the Company’s or its third party’s IT ‎service ‎providers’ data security and access, public disclosure, or loss of personal or confidential business ‎‎information, could result in legal claims and proceedings, liability under laws to protect privacy of ‎personal ‎information, and regulatory penalties, and could disrupt the Company’s operations, require significant ‎‎management attention and resources to remedy any damages that result, and damage its reputation and ‎customers ‎willingness to transact business with us, any of which could adversely affect our business.‎ ‎

 

The Company’s business could be adversely affected if its consumer protection and data privacy practices are not ‎perceived as adequate or there are breaches of its security measures or unintended disclosures of its consumer data.‎

 

‎The rate of privacy law-making is accelerating globally and interpretation and application of consumer ‎protection ‎and data privacy laws in Canada, the United States, Europe and elsewhere are often uncertain, ‎contradictory and in ‎flux. As business practices are being challenged by regulators, private litigants, and ‎consumer protection agencies ‎around the world, it is possible that these laws may be interpreted and ‎applied in a manner that is inconsistent with ‎the Company’s data and/or consumer protection practices. If ‎so, this could result in increased litigation government ‎or court-imposed fines, judgments or orders ‎requiring that the Company change its practices, which could have an ‎adverse effect on its business and ‎reputation. Complying with these various laws could cause the Company to incur ‎substantial costs or ‎require it to change its business practices in a manner adverse to its business.‎

 

The Company relies on its business partners, and they may be given access to sensitive and proprietary ‎information in order to provide services and support to the Company’s teams.‎

 

‎The Company relies on various business partners, including third-party service providers, vendors, ‎licensing partners, ‎development partners, and licensees, among others, in some areas of the Company’s ‎business. In some cases, these ‎third parties are given access to sensitive and proprietary information in ‎order to provide services and support to the ‎Company’s teams. These third parties may misappropriate ‎the Company’s information and engage in ‎unauthorized use of it. The failure of these third parties to ‎provide adequate services and technologies, or the failure ‎of the third parties to adequately maintain or ‎update their services and technologies, could result in a disruption to ‎the Company’s business ‎operations. Further, disruptions in the financial markets and economic downturns may ‎adversely affect ‎the Company’s business partners and they may not be able to continue honoring their obligations ‎to the ‎Company. Alternative arrangements and services may not be available to the Company on commercially ‎‎reasonable terms or the Company may experience business interruptions upon a transition to an ‎alternative partner ‎or vendor. If the Company loses one or more significant business partners, the ‎Company’s business could be ‎harmed.‎

 

 

If the Company fails to protect, or incurs significant costs in defending, its intellectual property and other ‎proprietary rights, the Company’s business, financial condition, and results of operations could be materially ‎harmed.‎

 

‎The Company’s success depends, in large part, on its ability to protect its intellectual property and other ‎proprietary ‎rights. The Company relies primarily on patents, trademarks, copyrights, trade secrets and ‎unfair competition laws, ‎as well as license agreements and other contractual provisions, to protect the ‎Company’s intellectual property and ‎other proprietary rights. However, a portion of the Company’s ‎technology is not patented, and the Company may ‎be unable or may not seek to obtain patent ‎protection for this technology. Moreover, existing Canadian legal ‎standards relating to the validity, ‎enforceability and scope of protection of intellectual property rights offer only ‎limited protection, may ‎not provide the Company with any competitive advantages, and may be challenged by ‎third parties. The ‎laws of countries other than Canada may be even less protective of intellectual property rights. ‎‎Accordingly, despite its efforts, the Company may be unable to prevent third parties from infringing ‎upon or ‎misappropriating its intellectual property or otherwise gaining access to the Company’s ‎technology. Unauthorized ‎third parties may try to copy or reverse engineer the Company’s products or ‎portions of its products or otherwise ‎obtain and use the Company’s intellectual property. Moreover, ‎many of the Company’s employees have access to ‎the Company’s trade secrets and other intellectual ‎property. If one or more of these employees leave to work for ‎one of the Company’s competitors, then ‎they may disseminate this proprietary information, which may as a result ‎damage the Company’s ‎competitive position. If the Company fails to protect its intellectual property and other ‎proprietary rights, ‎then the Company’s business, results of operations or financial condition could be materially ‎harmed. ‎From time to time, the Company may have to initiate lawsuits to protect its intellectual property and other ‎‎proprietary rights. Pursuing these claims is time consuming and expensive and could adversely impact ‎the ‎Company’s results of operations.‎

 

‎In addition, affirmatively defending the Company’s intellectual property rights and investigating whether ‎the ‎Company is pursuing a product or service development that may violate the rights of others may ‎entail significant ‎expense. Any of the Company’s intellectual property rights may be challenged by others ‎or invalidated through ‎administrative processes or litigation. If the Company resorts to legal proceedings ‎to enforce its intellectual property ‎rights or to determine the validity and scope of the intellectual property ‎or other proprietary rights of others, then the ‎proceedings could result in significant expense to the ‎Company and divert the attention and efforts of the ‎Company’s management and technical employees, ‎even if the Company prevails.‎

 

Obtaining and maintaining the Company’s patent protection depends on compliance with various procedural, document ‎submission, fee payment, and other requirements imposed by governmental patent agencies, and its patent ‎protection could be reduced or eliminated for non-compliance with these requirements.‎

 

‎The Canadian Intellectual ‎Property Office (“CIPO”), the United States Patent and ‎Trademark Office (“USPTO”) and various foreign national or international patent agencies ‎require compliance with a number of procedural, documentary, fee payment, and other similar provisions during ‎the patent application process. Periodic maintenance fees on any issued patent are due to be paid to the CIPO, the USPTO and ‎various foreign national or international patent agencies in several stages over the lifetime of the patent. While an ‎inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the ‎applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or ‎patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance ‎events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file ‎national and regional stage patent applications based on the Company’s international patent application, failure to respond to ‎official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit ‎formal documents. If the Company fails to maintain the patents and patent applications covering its product candidates, its ‎competitors might be able to enter the market, which would have a material adverse effect on the Company’s business. ‎

 

While a patent may be granted by a national patent office, there is no guarantee that the granted patent ‎is valid. ‎Options exist to challenge the validity of a patent which, depending upon the jurisdiction, may ‎include re-‎examination, opposition proceedings before the patent office, and/or invalidation proceedings ‎before the relevant ‎court. Patent validity may also be the subject of a counterclaim to an allegation of ‎patent infringement.‎

 

Pending patent applications may be challenged by third parties in protest or similar proceedings. Third ‎parties can ‎typically submit prior art material to patentability for review by the patent examiner. Regarding ‎Patent Cooperation ‎Treaty applications, a positive opinion regarding patentability issued by the ‎International Searching Authority does ‎not guarantee allowance of a national application derived from the ‎Patent Cooperation Treaty application. The ‎coverage claimed in a patent application can be significantly ‎reduced before the patent is issued, and the patent’s ‎scope can be modified after issuance. It is also ‎possible that the scope of claims granted may vary from jurisdiction ‎to jurisdiction.‎

 

 

The grant of a patent does not have any bearing on whether the invention described in the patent ‎application would ‎infringe the rights of earlier filed patents. It is possible to both obtain patent protection ‎for an invention and yet still ‎infringe the rights of an earlier granted patent.‎

 

The Company may be sued by third parties for alleged infringement of their proprietary rights, which could be ‎costly, time-consuming and limit the Company’s ability to use certain technologies in the future.‎

 

‎The Company may become subject to claims that its technologies infringe upon the intellectual property ‎or other ‎proprietary rights of third parties. Any claims, with or without merit, could be time-consuming ‎and expensive, and ‎could divert the Company’s management’s attention away from the execution of its ‎business plan. Moreover, any ‎settlement or adverse judgment resulting from these claims could require ‎the Company to pay substantial amounts ‎or obtain a license to continue to use the disputed technology, ‎or otherwise restrict or prohibit the Company’s use of ‎the technology. The Company cannot assure that it ‎would be able to obtain a license from the third party asserting ‎the claim on commercially reasonable ‎terms, if at all, that the Company would be able to develop alternative ‎technology on a timely basis, if at ‎all, or that the Company would be able to obtain a license to use a suitable ‎alternative technology to ‎permit the Company to continue offering, and the Company’s customers to continue ‎using, the ‎Company’s affected product. An adverse determination also could prevent the Company from offering ‎‎its products to others. Infringement claims asserted against the Company may have a material adverse ‎effect on its ‎business, results of operations or financial condition.‎

 

‎The Company may not be able to protect its intellectual property rights throughout the world.‎

 

‎Filing, prosecuting, and defending patents on all of the Company’s product candidates throughout the world would be ‎prohibitively expensive. Therefore, the Company has filed applications and/or obtained patents only in key markets ‎including the United States and Canada. Competitors may use the Company’s technologies in jurisdictions where it has not ‎obtained patent protection to develop their own products and their products may compete with products of the Company.‎‎

‎

‎If the Company is required to write down goodwill and other intangible assets, the Company’s financial ‎condition and results could be negatively affected. ‎

‎

Goodwill impairment arises when there is deterioration in the capabilities of acquired assets to generate ‎cash flows, ‎and the fair value of the goodwill dips below its book value. The Company is required to ‎review its goodwill for ‎impairment at least annually. Events that may trigger goodwill impairment include ‎deterioration in economic ‎conditions, increased competition, loss of key personnel, and regulatory ‎action. Should any of these occur, an impairment of ‎goodwill relating to the acquisition of Dronelogics ‎Systems Inc. could have a negative effect on the assets of the ‎Company.‎

 

From time to time, the Company may become involved in legal proceedings, which could adversely affect the ‎Company.‎

 

‎The Company may, from time to time in the future, become subject to legal proceedings, claims, ‎litigation and ‎government investigations or inquiries, which could be expensive, lengthy, and disruptive ‎to normal business ‎operations. In addition, the outcome of any legal proceedings, claims, litigation, ‎investigations or inquiries may be ‎difficult to predict and could have a material adverse effect on the ‎Company’s business, operating results, or ‎financial condition.‎

 

 

The Company’s directors and officers may have conflicts of interest in conducting their duties.

 

Because directors and officers of the Company are or may become directors or officers of other ‎‎reporting companies or have significant shareholdings in other technology companies, the directors and ‎‎officers of the Company may have conflicts of interest in conducting their duties. The Company and its ‎‎directors and officers will attempt to minimize such conflicts. In the event that such a conflict of interest ‎‎arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from ‎‎voting for or against a particular matter in which the director has the conflict. In appropriate cases, the ‎‎Company will establish a special committee of independent directors to review a particular matter in ‎‎which several directors, or officers, may have a conflict. In determining whether or not the Company will ‎‎participate in a particular program and the interest therein to be acquired by it, the directors will primarily ‎‎consider the potential benefits to the Company, the degree of risk to which the Company may be ‎‎exposed and its financial position at that time. Other than as indicated, the Company has no other ‎‎procedures or mechanisms to deal with conflicts of interest.‎

 

‎The Company’s Articles ‎provide that the Company must indemnify a director or former director against all judgments, ‎penalties ‎or fines to which such person is or may be liable by reason of such person being or having ‎been a director of the ‎Company and the executive officers and directors may also have rights to ‎indemnification from the Company, ‎including ‎pursuant to directors’ and officers’ liability insurance ‎policies, that will survive termination of their ‎‎agreements‎.‎

 

Changes in accounting standards and subjective assumptions, estimates and judgments by ‎management ‎related to ‎complex accounting matters could significantly affect the Company’s ‎reported financial results ‎or financial condition.‎

 

Changes in accounting standards and subjective assumptions, estimates and judgments by ‎management ‎related to ‎complex accounting matters could significantly affect the Company’s ‎reported financial results ‎or financial condition.‎

‎Generally accepted accounting principles and related accounting pronouncements, implementation ‎‎guidelines and ‎interpretations with regard to a wide range of matters that are relevant to the Company’s ‎‎business, including but not limited to ‎revenue recognition, impairment of goodwill and intangible assets, ‎‎inventory, income taxes and litigation, are highly ‎complex and involve many subjective assumptions, ‎‎estimates and judgments. Changes in these rules or their ‎interpretation or changes in underlying ‎‎assumptions, estimates or judgments could significantly change the Company’s reported ‎financial ‎‎performance or financial condition in accordance with generally accepted accounting principles.‎

 

Risks Related to the Company’s Common Shares

 

The market price of the Common Shares is highly volatile.‎

 

The market price of the Common Shares is highly volatile and has been subject to wide fluctuations ‎in response to a number of factors that are beyond the Company’s control, including but not limited ‎to‎

 

	●	revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of ‎the investment community;‎
	●	actual or anticipated changes or fluctuations in its results of operations;‎
	●	announcements by us or the Company’s competitors of new products or new or terminated significant contracts, ‎commercial relationships or capital commitments;‎
	●	rumors and market speculation involving it or other companies in its industry;‎
	●	changes in its executive management team or the composition of the board of directors of the Company (the “Board”);‎
	●	fluctuations in the share prices of other companies in the technology and emerging growth sectors;‎
	●	general market conditions and macroeconomic trends driven by factors outside the Company’s control, such as pandemics, geopolitical conflicts, supply chain disruptions, market volatility, inflation, rising interest rates, political instability, and labor challenges, among other factors;
	●	actual or anticipated developments in its business or its competitors’ businesses or the competitive ‎landscape generally;‎

 

 

	●	litigation involving us, the Company’s industry or both, or investigations by regulators into its operations or those of ‎competitors;‎
	●	announced or completed acquisitions of businesses or technologies by the Company or its competitors;‎
	●	new laws or regulations or new interpretations of existing laws or regulations applicable to its ‎business;‎
	●	shareholder activism and related publicity;‎
	●	foreign exchange rates; and
	●	other risk factors as set out in this Annual Report and in the documents incorporated by ‎reference into this Annual Report.‎

 

If the market price of the Company’s Common Shares drops significantly, shareholders could institute securities class action ‎lawsuits against it, regardless of the merits of such claims. Such a lawsuit could cause it to incur substantial ‎costs and could divert the time and attention of management and other resources from the Company’s business, which ‎could harm its business, results of operations and financial condition.‎

 

There is no guarantee that an active trading market for the Company’s Common Shares will be maintained on ‎the CSE and/or Nasdaq. Investors may not be able to sell their Common Shares quickly or at the ‎latest market price if the trading in our Common Shares is not active.‎

 

The Company’s Common Shares are currently listed on the Canadian Stock Exchange (“CSE”), the Nasdaq Stock Market, LLC (“Nasdaq”), and the Frankfurt Stock Exchange, ‎however, it shareholders may be unable to sell significant quantities of Common Shares into the public ‎‎trading markets without a significant reduction in the price of their Common Shares, or at all and there ‎can be no guarantee that an active trading market for the Common Shares ‎may be maintained. There can ‎be no assurance that ‎there will be sufficient liquidity of its Common Shares on the trading market, and ‎that we will continue to meet ‎the listing requirements of the CSE, Nasdaq or any other public listing ‎exchange.‎

 

Failure to meet Nasdaq’s continued listing requirements could result in the delisting of the Company’s Common Shares, negatively impact the price of the Company’s Common Shares and negatively impact its ability to raise additional capital.

 

If the Company fails to satisfy the continued listing requirements of the Nasdaq, such as corporate governance requirements or the minimum closing bid price requirement, the exchange may take steps to delist the Company’s Common Shares. Such a delisting would likely have a negative effect on the price of the Company’s Common Shares and would impair shareholders’ ability to sell or purchase its Common Shares when they wish to do so.

 

As previously disclosed, on September 22, 2023, the Company received a letter from the Listing Qualifications ‎Department of Nasdaq notifying the Company of its noncompliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid ‎Price Rule”) by failing to maintain a minimum bid price for the Company’s common shares of at least $1.00 per ‎share for 30 consecutive business days. The Company was allowed an initial 180-day grace period, or until March ‎‎20, 2024, (the “Bid Price Compliance Period”), to regain compliance with the Bid Price Rule. To regain compliance ‎with the Bid Price Rule the closing bid price of the Company’s common shares needed to be at least $1.00 per share ‎for a minimum of ten consecutive business days during the Bid Price Compliance Period.

 

On March 21, 2024, the Company received notification that it had failed to regain compliance with the Bid Price ‎Rule and is not eligible for a second 180 day compliance period because of its failure to comply with the $5 million ‎minimum stockholders’ equity initial listing requirement for the period ended September 30, 2023. Unless the ‎Company timely requests a hearing before an independent Nasdaq Hearings Panel (the “Nasdaq Panel”), the ‎Company’s securities will be subject to delisting. Accordingly, the Company will request a hearing before the ‎Nasdaq Panel. The hearing request will automatically stay any suspension or delisting action pending the hearing ‎and the expiration of any additional extension period granted by the Nasdaq Panel following the hearing. In that ‎regard, pursuant to the Nasdaq Listing Bid Price Rules, the Nasdaq Panel has the discretion to grant an additional ‎extension period that can expire as late as September 17, 2024. At the hearing, the Company will be asked to ‎provide a plan to regain compliance to the Nasdaq Panel. The Company intends to present a plan to regain ‎compliance with the Bid Price Rule and request the continued listing of its common shares on Nasdaq pending such ‎compliance. However, there can be no assurance that the Nasdaq Panel will grant the Company’s request or that ‎the Company will ultimately regain compliance with all applicable requirements for continued listing on Nasdaq.‎

 

 

Future issuances of equity securities by us or sales by the Company’s existing shareholders may cause the price ‎of its Common Shares to fall.‎

 

The market price of the Company’s Common Shares could decline as a result of issuances of securities or sales by its ‎existing shareholders in the market, including by its directors, executive officers and significant ‎shareholders, or ‎the perception that these sales could occur. Sales of the Company’s Common Shares by ‎shareholders might also make it ‎more difficult for it to sell Common Shares at a time and price that it ‎deems appropriate. The Company also expects to ‎issue Common Shares in the future. Future issuances of Common ‎Shares, or the perception that such issuances ‎are likely to occur, could affect the prevailing trading ‎prices of the Common Shares.‎

 

We may never pay dividends over the foreseeable future.‎

 

Investors should not rely on an investment in the Company’s Common Shares to provide dividend ‎income. The ‎Company does not anticipate that it will pay any cash dividends to holders of its Common ‎Shares in the ‎foreseeable future. Instead, the Company plans to retain any earnings to maintain and expand ‎its ‎operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting ‎‎the amount of dividends that may be declared or paid on its Common Shares. Accordingly, investors ‎must ‎rely on sales of their Common Shares after price appreciation, which may never occur, as the only ‎way to ‎realize any return on their investment. As a result, investors seeking cash dividends should not ‎purchase the ‎Company’s Common Shares.‎

 

United States investors may not be able to obtain enforcement of civil liabilities against us.

‎

The Company is incorporated under the laws of British Columbia, Canada, and its principal executive offices are located in Canada. Most of the Company’s directors and officers and most of the experts named in this Annual Report reside outside of the United States and all or a substantial portion of the Company’s assets and the assets of these persons are located outside the United States. Consequently, it may not be possible for an investor to effect service of process within the United States on the Company or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in United States courts based upon the civil liability provisions of United States federal securities laws or other laws of the United States against those persons or the Company. There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon United States federal securities laws and as to the enforceability in Canadian courts of judgments of United States courts obtained in actions based upon the civil liability provisions of the United States federal securities laws. Therefore, it may not be possible to enforce those actions against the Company, certain of the Company’s directors and officers or the experts named in this Annual Report.

 

We are an emerging growth company and intend to take advantage of reduced disclosure requirements ‎applicable to emerging growth companies, which could make the Company’s Common Shares less attractive to ‎investors.

 

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth ‎company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross ‎revenue of $1.07 billion or more; (ii) December 31, 2026 (the last day of the fiscal year ending after the fifth ‎anniversary of the date of the completion of the first sales of its common equity pursuant to an effective ‎registration statement under the Securities Act); (iii) ‎the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-‎year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the ‎market value of the Company’s Common Shares held by non-affiliates exceeds $700 million as of the last business day of ‎its most recently completed second fiscal quarter after we have been a reporting company in the United States ‎for at least 12 months. For so long as we remain an emerging growth company, we are permitted to and intend to ‎rely upon exemptions from certain disclosure requirements that are applicable to other public companies that ‎are not emerging growth companies. These exemptions include not being required to comply with the auditor ‎attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act (2002), as amended (the “Sarbanes-Oxley Act”).‎

 

 

We may take advantage of some, but not all, of the available exemptions available to emerging growth ‎companies. ‎We cannot predict whether investors will find the Company’s Common Shares less attractive if it relies on these ‎‎exemptions. If some investors find the Company’s Common Shares less attractive as a result, there may be a less ‎active ‎trading market for its Common Shares and the price of its Common Shares may be more volatile. ‎

 

We will incur increased costs as a result of operating as a public company in the United States ‎and the ‎Company’s management will be required to devote substantial time to new compliance initiatives.‎

 

As a U.S. public company, particularly if or when we are no longer an “emerging growth company” as ‎defined ‎‎under the JOBS Act, we incur significant legal, accounting and other expenses, in addition to ‎those we ‎incur as a ‎Canadian public company, that we did not incur prior to being listed on Nasdaq. In ‎‎addition, the Sarbanes-Oxley ‎Act, and rules implemented by the SEC and Nasdaq impose various other ‎‎requirements on public companies, and ‎the Company spends time and resources to ensure compliance with its ‎‎reporting obligations in both Canada and the ‎United States.‎

 

For example, pursuant to Section 404, we are required to furnish a report by our management on our ‎internal ‎control over financial reporting (“ICFR”), which, if or when we are no longer an emerging growth ‎company, must ‎be accompanied by an attestation report on ICFR issued by our independent registered ‎public accounting firm. ‎To achieve compliance with Section 404, we must document and evaluate our ‎ICFR, ‎which is both costly and challenging. In this regard, we must dedicate internal resources, ‎potentially engage outside consultants and adopt a detailed work plan to assess and document the ‎‎adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through ‎testing that ‎controls are functioning as documented and implement a continuous reporting and ‎improvement process for ‎ICFR. Despite our efforts, there is a risk that neither we nor our independent ‎registered public accounting firm will ‎be able to conclude that our ICFR is effective as required by ‎Section 404. This ‎could result in a determination that there are one or more material weaknesses in our ‎ICFR, which could cause an ‎adverse reaction in the financial markets due to a loss of confidence in the ‎reliability of our consolidated ‎financial statements.‎

 

In addition, becoming a public company in the United States has increased legal and financial ‎compliance as well ‎as regulatory costs, such as additional Nasdaq fees, and has made some of our ‎public company obligations ‎more time consuming. We invest resources to comply with evolving laws, ‎regulations and standards in ‎both Canada and the United States, and this investment results in increased ‎general and administrative ‎expenses and increased diversion of management’s time and attention from ‎revenue-generating activities to ‎compliance activities. If our efforts to comply with public company laws, ‎regulations and standards in the ‎United States are insufficient, regulatory authorities may initiate legal ‎proceedings against us and our business ‎may be harmed.‎

 

Being a public company in the United States and complying with applicable rules and ‎regulations also ‎makes it more expensive for us to obtain sufficient levels of director and officer liability insurance ‎‎coverage. This factor may also make it more difficult for us to attract and retain qualified executive ‎officers and ‎members of our Board of Directors.‎

 

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. ‎issuer, which may limit the information publicly available to the Company’s U.S. shareholders.‎

 

We currently qualify as a “foreign private issuer” under applicable U.S. federal securities laws and, therefore, are ‎not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. As a result, we do ‎not file the same reports that a U.S. domestic issuer ‎would file with the SEC, although we are required to file ‎with or furnish to the SEC the continuous ‎disclosure documents that we are required to file in Canada under ‎Canadian securities laws. In addition, ‎the Company’s officers, directors and principal shareholders are exempt from the ‎reporting and “short swing” profit ‎recovery provisions of Section 16 of the Exchange Act. Therefore, the Company’s ‎shareholders may not know on as ‎timely a basis when its officers, directors and principal shareholders purchase ‎or sell our securities as ‎the reporting periods under the corresponding Canadian insider reporting requirements are ‎longer. In ‎addition, as a foreign private issuer, the Company is exempt from the proxy rules under the Exchange Act. The Company is ‎also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material ‎non-‎public information. While the Company expects to comply with the corresponding requirements relating to proxy ‎statements ‎and disclosure of material non-public information under Canadian securities laws, these ‎requirements differ from ‎those under the Exchange Act and Regulation FD and shareholders should not ‎expect to receive in every case the ‎same information at the same time as such information is provided ‎by U.S. domestic issuers.

‎ 

 

In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate ‎governance ‎practices, except to the extent that such laws would be contrary to U.S. federal securities ‎laws and Nasdaq ‎listing rules and provided that we disclose the requirements we are not following and ‎describe the Canadian ‎practices we follow instead. We rely on this exemption in part. As a result, the Company’s ‎shareholders may not have ‎the same protections afforded to shareholders of U.S. domestic issuers that ‎are subject to all U.S. corporate ‎governance requirements.

 

At some point in the future, we may cease to be a foreign private issuer. If we cease to ‎qualify, we will ‎be subject to the same reporting requirements and corporate governance requirements as a U.S. ‎‎domestic issuer, which may increase the Company’s costs of being a public company in the ‎United States.‎

 

ITEM 4.

INFORMATION ON THE COMPANY

 

4.A.	History and Development of the Company

 

Name, Address and Incorporation

 

The Company was incorporated as Drone Acquisition Corp. (“DAC”) under the Business Corporations Act (British Columbia) (the “BCBCA”) on June 1, 2018 ‎for the purpose of reorganizing and recapitalizing the business of Draganfly Innovations Inc. (“Former Draganfly”). Effective July 17, 2019, the Company amended its articles to ‎remove various classes of ‎authorized but unissued preferred shares and replace them with only one class of preferred ‎shares (the “Preferred Shares”). Effective August 15, 2019, the Company changed its name to “Draganfly Inc.” On ‎August 22, 2019, the Company amended its articles to re-designate its Class A Common Shares as ‎Common ‎Shares‎.‎

 

The Company’s head office is located at 235 103rd St E, Saskatoon, SK, S7N 1Y8, Canada. The Company’s telephone number is (800) 979-9794. The Company’s registered office is located at Suite 2700, 1133 Melville Street, Vancouver, British ‎Columbia V6E 4E5. ‎ The Company’s registered agent in the United States is C T Corporation System, 1015 15th Street N.W., Suite 1000, Washington, D.C., 20005 and its telephone number is (202) 572-3133.

 

General Development of the Business of the Company

 

Founded in 1998, we believe that Former Draganfly is recognized as one of the first commercial multi-rotor manufacturers and has a legacy for its innovation and superior customer service. Zenon Dragan is the founder of Former Draganfly and is a recognized leading expert on UAV.

 

Former Draganfly introduced its first systems in 1999 and since evolved and shaped the UAV industry. The Company’s aircraft are widely used by public safety agencies worldwide and we believe that we were one of the first UAV to receive a FAA (Federal Aviation Administration) Certificate of ‎‎Authorization in the fall of 2009 with the Mesa County Colorado Sheriff’s Office. In 2013, the Royal Canadian Mounted Police flew one of the Company’s drones to locate and save the life of an accident victim.

 

We believe that Draganfly aircraft have achieved many industry firsts, including:

 

	●	one of the first public safety UAV to shoot aerial photos documenting a manned aircraft accident in an urban area;
	●	one of the first UAV operated by a public safety organization flown at night to locate and save a life;
	●	one of the first UAV helicopter to be granted a county wide U.S. FAA Certificate of ‎‎Authorization;
	●	named as a test platform at one of the U.S. FAA’s certified test sites;
	●	one of the first to have a drone included in the Smithsonian National Air and Space Museum; and
	●	four of the first six compliance certifications for its products issued by Transport ‎Canada.

 

 

Three Year History

 

A detailed description on the significant developments of the business of the Company over the last three completed financial years is set out below.

 

Financial year ended December 31, 2021

 

On January 6, 2021, the Company announced the awarding of a new patent for a vertical take-off and landing cargo delivery drone with variable center of gravity.

 

On January 21, 2021, the Company announced that it had been selected to provide engineering and development services for a drone-based air support defense system for Integrated Launcher Solutions Inc. (“ILS”). The Company entered into a memorandum of understanding with ILS with the objective to create the terms and conditions surrounding a project management and development agreement for the production of ILS’s multi-launching air support defense system. The development of the system has not yet been completed.

 

On March 2, 2021, the Company announced that it will be the exclusive supplier of drones to Woz ED’s drone program across its ‎national K-12 curriculum with the expected deployment of approximately 3000 drones in ‎‎2021‎. The Company entered into a memorandum of understanding with Woz ED with the objective to create the terms and conditions surrounding a business agreement. The memorandum of understanding automatically terminated after 60 days.

 

On March 9, 2021, the Company announced that it completed the final closing of the Regulation A+ Offering. The Company issued 32,443,457 units at price of US$0.47 per unit for gross proceeds in the amount of approximately US$15.3 million in the final closing. Each unit is comprised of one Common Share and one Common Share purchase warrant, with each warrant entitling the holder to acquire one Common Share at a price of US$0.71 per Common Share for a period of two years from the date of issuance. The Common Shares and Warrants issued in connection with the offering were subject to a nine month hold period.

 

On March 9, 2021, the Company also announced that it entered into an asset purchase agreement with Vital Intelligence Inc. (“Vital”) to purchase all the assets of Vital (the “Vital Asset Acquisition”) in consideration for: (a) a cash payment of $500,000 with $50,000 paid upon execution of the asset purchase agreement, $200,000 to be paid at closing and $250,000 to be paid on the six-month anniversary date of closing; and (b) 6,000,000 units of the Company with each unit being comprised of one Common Share and one common share purchase warrant. The units were subsequently consolidated on a 5:1 basis, resulting in 1,200,000 units outstanding. Each warrant will entitle the holder to acquire one Common Share for a period of 24 months following closing at an exercise price of $2.67 per Common Share and the Company will be able to accelerate the expiry date of the warrants after one year in the event the underlying common shares have a value of at least 30% greater than the exercise price of the warrants. The units will be held in escrow following closing with 300,000 units being released at closing and the remainder to be released upon the Company reaching certain revenue milestones received from the purchased assets. The Company completed the Vital Asset Acquisition on March 25, 2021. The revenue milestone targets attributable to the purchased assets under the ‎Vital Asset Acquisition have not been met, and accordingly, the Company is in the process of cancelling the 900,000 shares issuable pursuant to the units issued in connection with the Vital Asset Acquisition.

 

On March 23, 2021, the Company announced that it signed a services deal to deploy EagleEye™ AI flight services with Windfall Geotek Inc. Windfall Geotek Inc. contractually agreed to have Draganfly provide $1,000,000 in flight services over the course of the next year with $500,000 already directly funded and allocated as of the date of the agreement.

 

 

On May 13, 2021, the Company announced that it entered into a definitive agreement with Coldchain Technology Services LLC (“Coldchain”) to develop, deploy and operate solutions for the delivery of medical supplies, medicine, and vaccines. The definitive agreement provides for phase one of a planned five-phase roll-out for the comprehensive development, deployment, and operation of a medical drone delivery service as well as the development of a solution for the timely delivery of medical supplies, medicine, and vaccines. Phase one will also include working with various regulatory bodies, including the FAA, to obtain licenses and approvals for initial non-commercial beta test delivery routes. Phase one has a value of US$125,000, to be executed over a maximum of 10 months and the parties have agreed to negotiate an extension to the definitive agreement for phase two prior to the expiry of phase one. Under phase two, Coldchain will commit to purchasing no less than US$625,000 in equipment and services from Draganfly.

 

On May 19, 2021, the Company announced that it signed a contract with ILS for the development, prototyping, and eventual production of a non-lethal 40 mm ‎multi-‎launching systems that can be mounted and deployed from drones, drone systems, robots, ‎robotic systems, and other stationary platforms or similar systems. As part of the contract, Draganfly provided ILS with strategic vendor financing of US$150,000 to assist in the development of the project and in consideration ILS granted Draganfly a worldwide royalty equal to 8% of the gross revenue received from the project for a period of five years from earlier of the repayment date or maturity date of the loan. The loan is secured against the intellectual property related to the project.

 

On July 22, 2021, the Company announced the expected listing of its Common Shares on the Nasdaq, subject to meeting the final listing requirements of Nasdaq.

 

On July 29, 2021, in connection with the proposed listing of its Common Shares on Nasdaq, the Company consolidated its Common Shares on a basis of one new Common Share for every five then issued and outstanding Common Shares under a new CSE stock symbol “DPRO”.

 

On July 29, 2021, the Company announced that its application to list its Common Shares on the Nasdaq was approved by The Nasdaq Stock Market LLC and the Common Shares began trading on July 30, 2021 under the symbol “DPRO”.

 

On August 3, 2021, the Company announced that it completed an underwritten public offering in the United States (the “US Offering”) of 5,000,000 Common Shares at a price of US$4.00 per Common Share, for total gross proceeds of approximately US$20,000,000, before deducting underwriting discounts and expenses of the US Offering.

 

On August 12, 2021, the Company announced that it launched its new, North American designed and built, Draganflyer Commander2 drone system. The Draganflyer Commander2 is a small Unmanned Aerial System (sUAS) and replaced the Company’s Commander platform launched in 2015.

 

On September 9, 2021, the Company announced that Julie Myers Wood was appointed to the Board and that Justin Hannewyk resigned from the Board.

 

On September 15, 2021, the Company announced that the over-allotment option granted to the underwriters in connection with the US Offering was exercised in respect of 95,966 Common Shares. The exercise of the over-allotment at US$4.00 per Common Share produced additional gross proceeds of US$383,864, bringing the aggregate gross proceeds to Draganfly under the US Offering to US$20,383,864, before deducting underwriting discounts and expenses of the US Offering.

 

On September 22, 2021, the Company announced that it entered into an exclusive manufacturing agreement with Valqari LLC (“Valqari”) to produce Valqari’s Drone Delivery Stations. As per the manufacturing agreement, Draganfly will be the exclusive manufacturer of Valqari’s Drone Delivery Stations. Valqari will be ordering at least $400,000 of manufacturing services during the initial phase of the agreement.

 

On October 12, 2021, the Company announced that it signed a minimum $9 million manufacturing agreement with Digital Dream Labs, Inc. (“DDL”) to design and develop an AI consumer companion robot drone. As per the terms of the agreement, Draganfly will be the exclusive manufacturer and assembler of the drone. DDL will order at least 50,000 units annually with delivery starting in 2022. The drone will be integrated into DDL’s existing product family, including support, sales and distribution channels used for its other consumer robots. Draganfly has also been granted a right of first refusal to become the exclusive manufacturer and assembler of subsequent drone or UAV-based robots to be added to DDL’s product portfolio. The parties have entered into a binding letter agreement reflecting the above terms and will use commercially reasonable efforts to enter into a definitive agreement. The binding letter agreement will govern the relationship between DDL and Draganfly and there can be no assurance that a definitive agreement will be completed or entered into amongst the parties.

 

 

Financial year ended December 31, 2022

 

On March 22, 2022, the Company announced that it had received an order for the Company’s Medical ‎Response and Search and Rescue Drones from Coldchain for immediate deployment with Revived ‎Soldiers Ukraine. Draganfly provided an immediate combined total of 10 North American-made Medical ‎Response and Search and Rescue Drones. In addition, Draganfly donated three drone systems to ‎Revived Soldiers Ukraine. The total initial order size (subject to conditions) is up to 200 units.‎

 

On May 9, 2022, the Company announced that John M. Mitnick was appointed as Chairman of the Board, ‎effective April 27, 2022.‎

 

On May 9, 2022, the Company announced that Cameron Chell, Chief Executive Officer of the Company, ‎was appointed as President of the Company, effective April 27, 2022.‎

 

On May 9, 2022, the Company announced that Scott Larson would be stepping down as Interim ‎President and appointed as Lead Director effective April 27, 2022.‎

 

On May 9, 2022, the Company announced that Paul Mullen, Vice President of Draganfly’s Vital ‎Intelligence Group, was appointed as Chief Operating Officer of the Company, effective March 1, 2022 .‎

 

One June 1, 2022, the Company announced the launch of its new North American-made Heavy Lift and ‎Commander 3 XL Drones. The Heavy Lift is capable of automated missions and manual flight operations ‎with a payload capacity of 67 pounds. The Commander 3 XL is a high-endurance, weather-resistant, ‎multirotor UAV that is designed for easy assemble and rapid deployment.‎

 

One June 7, 2022, the Company announced the launch of its new North American-made Long-range Light ‎Detection and Ranging (“LiDAR”) system. The LiDAR system provides accurate distance measurements ‎and improved resolution over conventional photogrammetry methods.‎

 

One June 21, 2022, the Company announced that Alabama State University (ASU) was offering the ‎Draganfly Drone Technology Course through ASU’s Division of Continuing Education. The program ‎provides an introduction to unmanned aerial vehicles (UAVs) and explores advanced topics including ‎regulations, airspace operations, and navigation.‎

 

On August 1, 2022, the Company announced that Deborah R. Greenberg, was appointed as Chief Legal ‎Officer of the Company, effective July 4, 2022. Her role was subsequently expanded to include the ‎Human Resources and Information Technology functions as the Chief Legal and Corporate Services ‎Officer, effective December 1, 2022.‎

 

On November 17, 2022, the Company announced DEF-C, a Ukrainian company involved in the civil and ‎‎defense sectors, had selected the Company as an exclusive provider of drones and related services.‎

 

On November 18, 2022, the Company announced the fulfillment of an additional order of 30 ‎reconnaissance drones through its channel partner DEF-C, along with continued support from DroneAid. ‎Draganfly’s drone technology is being deployed to provide valuable intelligence, surveillance, and ‎reconnaissance information. On December 7, 2022, the Company announced the launch of the Draganfly ‎UAS A.I.R. Space flight facility dedicated to the advancement of Unmanned Aircraft Systems program Adoption, Innovation & ‎Research. The facility will provide a control site for the design, validation and optimization of standard ‎operating procedures, sensor selection and data collection techniques.‎

 

 

Financial year ended December 31, 2023

 

On January 31, 2023, the Company announced Remote Sensing Instruments, a Geospatial ‎Technology company in India working in the field of Remote Sensing and Geographic Information ‎System, entered into a strategic agreement with the Company for the development of manufacturing, ‎distribution, and sales of Draganfly products in India.‎

 

On January 31, 2023, the Company entered into an equity distribution agreement with Maxim ‎Group LLC ‎‎dated January 31, 2023, pursuant to which the Company could, from time ‎to time, distribute in an ‎‎‎”at-the-‎market offering” up to US$15 million in common ‎shares of the ‎Company (the ‎‎”ATM Shares”) in the ‎United States only, on Nasdaq.‎ The Company ‎distributed 650,729 ATM Shares under the Offering at an average price of ‎‎$2.69 per share for net ‎proceeds of $1,526,810.‎

 

On February 23, 2023, the Company announced that it entered into a distribution agreement with ‎AeroCine Ventures, Inc. d/b/a Vermeer. Pursuant to the distribution agreement, Vermeer will distribute ‎Draganfly’s products that incude the Vermeer VPS (visual positioning ‎system) payload with Draganfly’s Commander 3XL. ‎

 

On March 7, 2023, Draganfly announced that it entered into a business development and partnership ‎agreement with SkyeBrowse Inc. (“SkyeBrowse”), whereby SkyeBrowse will integrate its reality capture ‎platform with Draganfly public safety drones. As per the agreement, the Company will provide consulting ‎and marketing services to SkyeBrowse for two years. ‎‎

 

On March 31, 2023, the Company announced the closing of a firm commitment underwritten public offering with gross proceeds to the Company expected to be US$8.0 million, before deducting underwriting discounts and other estimated expenses payable by the Company. The offering consisted of 8,000,000 common shares at a price to the public of US$1.00 per share.

 

On April 11, 2023, the Company announced that it entered into a strategic cooperation and product ‎integration agreement with CODAN Communications (“CODAN”), to supply its UAV platform for ‎integration with CODAN’s technology and communications solutions. Under the terms of the agreement, ‎CODAN and the Company agree to combine their respective capabilities in a joint effort to integrate their ‎product and services capabilities in order to submit joint proposals and enter into contracts with potential ‎customers. ‎

 

On April 19, 2023, Draganfly announced it entered into a referral agreement with AgileMesh, Inc. ‎‎(“AgileMesh”) whereby AgileMesh will add the Company’s UAV Platform to its wireless surveillance ‎product line and refer potential customers to Draganfly. As per the agreement, AgileMesh will receive ‎commissions based on the aggregate amount of revenue recognized by the Company from customers ‎that are introduced to Draganfly by AgileMesh. ‎

 

On June 21, 2023, the Company announced it had entered into an agreement with HEAL-Corp, a Non-Government Organization (“NGO”), and the Ukrainian National Academy of Internal Affairs (the “National Academy”) regarding the development of a training program on the use of drones and their countermeasure systems. Working in conjunction with the National Academy, Draganfly will implement a designed curriculum to be used within the training program. Recently, HEAL-Corp delivered Trauma Resuscitation and Evacuation Casualty Care training to the Ministry of Internal Affairs.

 

On August 3, 2023, Draganfly announced its new manufacturing facility in Saskatoon, Saskatchewan is scheduled to come online in Q3. This expansion is part of Draganfly’s commitment to meeting the increasing market potential for products and solutions. The Saskatoon facility is specifically designed to accommodate a growing demand for UAV systems and components, including those engineered for the Heavy Lift, Commander 3 XL, and the Company’s newest product, the Precision Delivery System.

 

On August 23, 2023, the Company announced it will be providing drone pilot crews and drone technology to a Canadian Provincial Government to assist with firefighting mitigation, preparedness, response, and recovery efforts. Draganfly’s advanced drone technology and highly trained personnel will aid emergency services in their mission to protect lives, property, infrastructure, and ecosystems.

 

On September 7, 2023, Draganfly announced that Tim Dunnigan was appointed to Draganfly’s Advisory Board to help lead Company’s initiatives for the new Pentagon Replicator program, a Department of Defence initiative announced in August 2023. The program aims to rapidly expand domestic sUAS production & innovation for military applications.

 

 

On September 12, 2023, the Company announced it was awarded a contract to provide its Vital Intelligence technology to a state corrections agency to its facilities enhance security and efficiency for the benefit of the community, the staff, and the inmates.

 

On September 22, 2023, the Nasdaq notified the Company that the closing price of its Common Shares for the 30 ‎consecutive business day period from August 10, 2023 to September 21, 2023 did not meet the Minimum Bid Price ‎Requirement of Nasdaq’s rules. The notice has no immediate effect on the listing of the Common Shares, and the ‎Common Shares continued trade on the Nasdaq under the symbol “DPRO”. Pursuant to Nasdaq Listing Rule ‎‎5810(c)(3)(A), the Company was given 180 calendar days (or until March 20, 2024) to regain compliance with the ‎Minimum Bid Price Requirement, unless Nasdaq were to grant the Company, upon request, an additional 180 ‎calendar day extension to meet such requirements. To regain compliance, the Common Shares must have a closing ‎bid price of US$1.00 for a minimum of 10 consecutive business days. If the Company does not regain compliance ‎with the Minimum Bid Price Requirement (including through the implementation of a reverse share split or another ‎means) by March 20, 2024, the Common Shares may subject to delisting.

 

On September 27, 2023, the Company announced its new manufacturing and production facility in Saskatoon, Saskatchewan, had officially opened.

 

On October 30, 2023, Draganfly announced that it had closed its underwritten offering for gross proceeds of approximately US$3.5 million (the “October Public Offering”), before deducting underwriting discounts and offering expenses. Pursuant to the Offering, the Company issued 4,800,000 units of the Company (the “Units”) at a price of US$0.55 per Unit and 1,600,000 pre-funded units of the Company the (“Pre-Funded Units”) at a price of US$0.5499.

 

January 1, 2024 to the Effective Date

 

On February 26, 2024, the Company announced that it completed an underwritten share placement of 11,200,000 units (the “February Units”) with each February Unit consisting of one common share and one warrant to purchase one common share and 2,200,000 units (the “February Pre-Funded Units”) consisting of one pre-funded warrant to purchase one common share and one warrant to purchase one common share (the “February Public Offering”). Each February Unit was sold at a price of US$0.27 with each February Pre-Funded Unit being sold at a price of US$0.2699 for gross proceeds of approximately US$3.6 million. The pre-funded warrants have an exercise price of US$0.0001 and were exercised on the date of issue. The remaining warrants have an exercise price of US$0.36 and are exercisable immediately with a term of 5 years. As part of the February Public Offering, 670,000 warrants were issued to the underwriter with an exercise price of US$0.3375 USD and will have a term of 3 years.

 

On March 13, 2024, the Company announced that Knightscope, Inc. had selected Draganfly to jointly develop an autonomous security solution that combines Draganfly drones with Knightscope Autonomous Security Robots (ASRs), emergency communications devices & Knightscope Security Operations Center (KSOC) user interface & remote monitoring platform.

 

As previously disclosed, on September 22, 2023, the Company received a letter from the Listing Qualifications ‎Department of Nasdaq notifying the Company of its noncompliance with Nasdaq Listing Rule 5550(a)(2) (the “Bid ‎Price Rule”) by failing to maintain a minimum bid price for the Company’s common shares of at least $1.00 per ‎share for 30 consecutive business days. The Company was allowed an initial 180-day grace period, or until March ‎‎20, 2024, (the “Bid Price Compliance Period”), to regain compliance with the Bid Price Rule. To regain compliance ‎with the Bid Price Rule the closing bid price of the Company’s common shares needed to be at least $1.00 per share ‎for a minimum of ten consecutive business days during the Bid Price Compliance Period.

 

‎On March 21, 2024, the Company received notification that it had failed to regain compliance with the Bid Price ‎Rule and is not eligible for a second 180 day compliance period because of its failure to comply with the $5 million ‎minimum stockholders’ equity initial listing requirement for the period ended September 30, 2023. Unless the ‎Company timely requests a hearing before the Nasdaq Panel, the Company’s securities will be subject to delisting. ‎Accordingly, the Company will request a hearing before the Nasdaq Panel. The hearing request will automatically ‎stay any suspension or delisting action pending the hearing and the expiration of any additional extension period ‎granted by the Nasdaq Panel following the hearing. In that regard, pursuant to the Nasdaq Listing Bid Price Rules, ‎the Nasdaq Panel has the discretion to grant an additional extension period that can expire as late as September 17, ‎‎2024. At the hearing, the Company will be asked to provide a plan to regain compliance to the Nasdaq Panel. The ‎Company intends to present a plan to regain compliance with the Bid Price Rule and request the continued listing of ‎its common shares on Nasdaq pending such compliance. However, there can be no assurance that the Nasdaq ‎Panel will grant the Company’s request or that the Company will ultimately regain compliance with all applicable ‎requirements for continued listing on Nasdaq.‎

 

Significant Acquisitions During 2023

 

Draganfly did not complete any significant acquisitions during its most recently completed financial year for which disclosure is required under Part 8 of National Instrument 51-102 — Continuous Disclosure Obligations of the Canadian Securities Administrators.

 

Market for Securities

 

Trading Price and Volume of Common Shares

 

The Common Shares are listed and posted for trading on the CSE and Nasdaq under the symbol “DPRO”. The ‎following table sets forth the price range (high and low prices) in Canadian dollars of the Common ‎Shares and volume traded on the CSE, for the periods indicated ‎(as reported by the CSE)‎‎.

 

 

Period		High (C$)				Low (C$)				Volume
2023
January			3.00				1.00				1,971,827
February			3.25				2.13				1,877,541
March			3.30				1.42				1,549,495
April			1.82				1.03				1,136,064
May			1.46				1.04				430,076
June			2.00				1.15				945,413
July(1)			1.70				1.29				390,332
August			1.42				1.05				304,315
September			1.25				1.00				278,217
October			1.12				0.78				347,737
November			0.96				0.67				316,381
December			0.81				0.57				647,771
2024
January			‎0.69‎				0.47				‎612,188‎
February			0.64				0.19				4,550,499
March 1 - 25			0.29				0.20				1,515,704

 

The ‎following table sets forth the price range (high and low prices) in United States dollars of the Common ‎Shares and volume traded on the Nasdaq, for the periods indicated ‎(as reported by the Nasdaq)‎‎.

 

Period		High ($)				Low ($)				Volume
2023
January			2.28				0.73				13,716,956
February			2.47				1.56				14,658,876
March			2.45				1.06				11,127,171
April			1.34				0.76				12,336,681
May			1.07				0.76				4,093,398
June			1.48				0.83				8,128,820
July(1)			1.27				0.96				4,645,529
August			1.06				0.78				5,368,500
September			0.92				0.75				3,709,700
October			‎0.80‎				0.55				3,999,639
November			0.59				0.51				4,087,691
December			0.60				0.42				6,829,532
2024
January			‎0.50				‎0.34‎				‎‎4,574,668‎‎
February			0.47				0.13				36,962,400
March 1 - 25			0.20				0.15				18,028,400

 

Prior Sales

 

The following tables summarize the issuances of unlisted securities for the year ended December 31, ‎‎2023 and issuances subsequent to December 31, 2023 and as of the date of this report: ‎

 

 

Warrants

 

Date of Issuance		Number of Warrants Issued				Exercise Price
October 30, 2023			‎6,400,000‎	(1)		US$	0.6123
October 30, 2023			1,600,000	(2)		US$	0.0001
October 30, 2023			320,000	(3)		US$	0.6875
February 26, 2024			11,200,000	(4)		US$	0.36
February 26, 2024			‎2,200,000‎	(5)		US$	0.0001
February 26, 2024			670,000	(6)		US$	0.3375

 

Notes:

 

(1)	Pursuant to the October Public Offering, 6,400,000 Common Share purchase Warrants were issued (the “October Warrants”). Each October Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.6123, subject to adjustment, until October 30, 2028.
(2)	Pursuant to the October Public Offering, 1,600,000 pre-funded warrants were issued (the “October Pre-Funded Warrants”). Each October Pre-Funded Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.0001.
(3)	‎Pursuant to the October Public Offering, 320,000 underwriter warrants were issued (the “October Underwriter Warrants”). Each October Underwriter Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.6875 until October 30, 2026.‎
(4)	Pursuant to the February Public Offering, 11,200,000 Common Share purchase Warrants were issued (the “February Warrants”). Each February Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.36, subject to adjustment, until February 26, 2029.
(5)	Pursuant to the February Public Offering, 2,200,000 pre-funded warrants were issued (the “February Pre-Funded Warrants”). Each February Pre-Funded Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.0001.
(6)	Pursuant to the February Public Offering, 670,000 underwriter warrants were issued (the “February Underwriter Warrants”). Each February Underwriter Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$0.3375 until February 26, 2027.‎

 

Stock Options

 

Date of Grant		Number of Stock Options Granted				Exercise Price
November 9, 2023			30,000	(1)		C$	0.6260

 

Note:

 

(1)	Each stock option is exercisable into one Common Share by November 9, 2033.

 

Restricted Share Units

 

The Company granted restricted share units (“RSUs”) pursuant to its share compensation plan exercisable for an aggregate of 1,685,316 Common Shares.

 

Date of Grant		Number of RSUs Granted				Grant Date Fair Value
May 29, 2023			1,685,316			C$	1.13

 

Escrowed Securities

 

The following table summarizes the Company’s securities that remain in escrow or subject to restrictions ‎‎on transfer as of the date hereof:

 

Designation of Class‎		Number of securities held in ‎ escrow or that are subject to ‎ contractual restriction on transfer				Percentage of Class
October Underwriter Warrants			320,000	(1)			100	%
February Underwriter Warrants			670,000	(2)			100	%

 

 

Notes:

 

(1)

Pursuant to the October Public Offering, 320,000 October Underwriter Warrants were issued and are subject to a contractual restriction on exercising such that these warrants may only be exercised after April 30, 2024, and may not be transferred, other than pursuant to exceptions under FINRA Rule 5110(e)(2) for a period of 180 days from the commencement of sales made under the October Public Offering.

(2)

Pursuant to the February Public Offering, 670,000 February Underwriter Warrants were issued and are subject to a contractual restriction on exercising such that these warrants may only be exercised after August 21, 2024, and may not be transferred, other than pursuant to exceptions under FINRA Rule 5110(e)(2) for a period of 180 days from the commencement of sales made under the February Public Offering.

 

Dividends

 

The Company has not declared or paid a dividend. Other than the requirements of the BCBCA, there are ‎‎no restrictions on the Company that would prevent it from paying a dividend. However, as of March 27, 2024, the Board intends to retain any future earnings (when available) for ‎reinvestment in ‎the Company’s business, and therefore, it has no current intention to declare or pay ‎dividends on the ‎Common Shares in the foreseeable future. Any future determination to pay dividends ‎on the Common ‎Shares will be at the sole discretion of the Board of Directors after considering a variety ‎of factors and ‎conditions existing from time to time including its earnings, financial condition and other ‎relevant factors.

 

Legal Proceedings and Regulatory Actions

 

Draganfly is not, and has not been at any time within the most recently completed financial year, a party ‎to any legal proceedings, nor is or was Draganfly’s property the subject of any legal proceedings, known ‎or contemplated, that involves a claim for damages exclusive of interest and costs that met or exceeded ‎‎10% of the Company’s current assets.‎

 

Further, there have not been any (a) penalties or sanctions imposed against the Company by a court ‎relating to securities legislation or by a securities regulatory authority during the year ended December ‎‎31, 2023, (b) any other penalties or sanctions imposed by a court or regulatory body against the ‎Company that would likely be considered important to a reasonable investor in making an investment ‎decision, or (c) settlement agreements entered into by the Company before a court relating to securities ‎legislation or with a securities regulatory authority during the year ended December 31, 2023‎.

 

Interests of Management and Others in Material Transactions

 

Other than as set forth herein, or as previously disclosed, the Company is not aware of any material ‎interests, ‎direct or indirect, by way of beneficial ownership of securities or otherwise, of any director or ‎executive officer ‎or any shareholder holding more than 10% of the Common Shares or any associate or ‎affiliate of any of the ‎foregoing in any transaction within the three most recently completed financial ‎years or during the current ‎financial year or any proposed or ongoing transaction of the Company which ‎has or will materially affect the ‎Company.

 

Auditor, Transfer Agent and Registrar

 

The auditors of the Company are Dale Matheson Carr-Hilton Labonte LLP, Chartered Professional ‎Accountants, 1500-1700, 1140 W Pender Street, Vancouver, BC V6E 4G1.‎

 

Endeavor Trust Corporation is the transfer agent and registrar for the Common Shares at its principal ‎office in Vancouver, British Columbia‎.

 

Interests of Experts

 

There is no person or company whose profession or business gives authority to a statement made by ‎such person or company and who is named as having prepared or certified a statement, report or ‎valuation described or included in a filing, or referred to in a filing, made under NI 51-102 by the ‎Company during, or related to, the Company’s most recently completed financial year other than Dale ‎Matheson Carr-Hilton Labonte LLP, the Company’s auditors.‎

 

 

Dale Matheson Carr-Hilton Labonte LLP are the auditors of the Company and have confirmed that they ‎are independent with respect to the Company within the meaning of the relevant rules and related ‎interpretations prescribed by the relevant bodies in Canada and any applicable legislation or regulations.‎

 

Denis Silva, a director of the Company, is a lawyer at DLA Piper (Canada) LLP, which law firm provides ‎legal services to the Company. As of the date hereof, the associates and partners of DLA Piper ‎‎(Canada) LLP, as a group, beneficially own, directly or indirectly, less than 1% of the outstanding ‎Common Shares. ‎

 

Additional Information

 

Additional information about the Company is available on SEDAR+ at www.sedarplus.ca and on our website at www.draganfly.com. We do not incorporate the contents of our website or of www.sedar.com into this Annual Report. Information on our website does not constitute part of this Annual Report. In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC which can be viewed as www.sec.gov.

 

Additional information, including directors’ and officers’ remuneration and indebtedness, principal ‎holders of ‎Draganfly’s securities and securities authorized for issuance under equity compensation ‎plans, where applicable, ‎will be contained in ‎Draganfly’s information circular for the next annual meeting ‎of shareholders that involves the ‎election of directors and additional information as provided in ‎‎Draganfly’s comparative financial statements for its ‎most recently completed financial year. Draganfly ‎will provide this information to any person, upon request made ‎to the Chief Financial Officer of ‎‎Draganfly at 235 103rd St E, Saskatoon, SK, S7N 1Y8, Canada. The ‎documents will also be ‎located on SEDAR+ at www.sedarplus.ca.‎

 

Additional financial information is provided in the Company’s comparative financial statements and ‎‎management’s discussion and analysis for the period ended December 31, 2023, which are also ‎available on ‎SEDAR+.‎

 

4.B.	Business Overview

 

General

 

The Company is an award-winning, manufacturer, contract engineering, and product ‎development ‎company within the UAV space, serving the public safety, agriculture, industrial ‎inspections, and mapping and surveying ‎markets. The Company is driven by passion, ingenuity, and the ‎need to provide efficient solutions and first-class ‎services to its customers around the world with the ‎goal of saving time, money, and lives. ‎

 

The business of the Company is conducted through three wholly-owned subsidiaries: (a) Draganfly ‎Innovations Inc.; (b) ‎Draganfly Innovations USA Inc.; and (c) Dronelogics Systems Inc.‎

 

The business of Draganfly Innovations and Draganfly Innovations USA is the provision of engineering ‎services and ‎manufacture of commercial UAV, RPAS, and ‎‎UVS (unmanned vehicle system) and software, serving the public safety, ‎agriculture, industrial inspections, and ‎mapping and surveying markets. ‎

 

‎Dronelogics is a solutions integrator for custom robotics, hardware and software that provides a wide ‎scope of ‎services including sales, training, rentals, maintenance, flying and data processing services. ‎

 

Drone Industry Overview

 

Drones or UAV have rapidly evolved from a military origin to commercial and civil government ‎‎applications from security to farming. The increased automation of drones provides additional value to ‎‎existing workflows, triggering more widespread adoption. A global shift to sustainable and eco-friendly ‎‎options has further increased demand for drone usage.‎

 

 

Drone applications are being utilized in multiple industries on a global basis. The Company believes that defense will remain the ‎‎largest market over the foreseeable future. However, the mobile phone industry created an affordable ‎‎technology stack for drones. The ability to carry a camera enabled many people to utilize the platforms ‎‎for media production and beyond. That demand initiated in the consumer market and has migrated along ‎‎with technological advancements into the growth of commercial drone industry.‎

 

The major segments of the drone market are drone hardware, software and services. Drone hardware are ‎‎the physical goods, including drone platforms, aerial mobility platforms and components and systems. ‎‎The software segment includes flight planning, navigation and computer vision, unmanned traffic ‎‎management (“UTM”), fleet operations, ecosystems, networks and software development kits (“SDKs”). ‎Drone ‎services include the provision of flight operations, data analysis and hardware repair and mainte‎nance. Drone service providers ‎‎(“DSPs”) include system integrators, pilot training providers, retailers ‎and marketplaces, coalitions and ‎organizations, drone test sites, insurance providers and universi-‎ty/educational facilities. The commercial drone industry has been growing rapidly in recent years, with ‎drones becoming increasingly popular for a wide range of applications. From capturing aerial footage to ‎conducting inspections of infrastructure, drones offer a cost-effective and efficient solution to a range ‎of tasks. According to Teal Group, the global market for commercial drones is expected to reach $18.88 ‎billion by 2030, with strong demand coming from industries such as agriculture, construction, and logis‎tics. ‎

 

One of the biggest drivers of growth in the commercial drone industry is the availability of advanced ‎technologies such as Artificial Intelligence (“AI”), machine learning, and computer vision. These technolo‎gies enable drones to perform a wide range of tasks that were previously difficult or impossible, such as ‎automated inspections and precision agriculture. Additionally, the development of high-quality, light-‎weight sensors and cameras has made it possible to capture high-resolution images and video footage, ‎in challenging environments.‎

 

Drone application methods are being used by a variety of industries today. There are approximately ‎‎eight methods that are garnering the most attention: mapping, surveying, inspection, ‎‎filming/photography, dispensing/spraying, warehousing, monitoring/detection, and delivery. These ‎‎applications are being used today by the civil government, educational facilities, agricultural, ‎‎construction, health care, real estate, energy, transportation, insurance, security, and scientific industries.

 

Products and Services

 

The Company can provide its customers with an entire suite of products and services that include: quad-‎copters, ‎‎‎fixed wing ‎aircrafts, ground based robots, handheld controllers, flight training, and software ‎used for tracking, live ‎‎‎streaming, ‎and data collection. In addition, Draganfly has launched a ‎health/telehealth platform that is a set of ‎technologies ‎that remotely detects a number of biometrics ,such as heart rate, oxygen saturation and blood ‎pressure. The Company is also offering ‎sanitary spraying services to indoor and outdoor public ‎gathering spaces ‎such as sport stadiums and ‎fields to provide additional protection against the spread of contagions, such as COVID-‎‎19. ‎ ‎

 

The Company generates revenues across the following categories

 

		Revenues
		Fiscal year ended December 31,
Category of Activity		2023				2022				2021
Product Sales		$	‎5,287,093‎			$	5,550,432			$	5,103,399
Provision of Services		$	‎1,267,749‎			$	2,054,627			$	1,950,466

 

The Company did not derive significant revenue from any customers that exceed 10% ‎of total revenues for ‎the year ended December 31, 2023, or December 31, 2022.

 

 

Draganfly Products

 

‎‎Manufactured Solutions

 

‎The Company is among the longest-running manufacturers of multirotor drones in the world. Draganfly’s ‎drones include the following:‎

 

●	Draganfly Commander 3XL - The Commander 3 XL Drone is a modular platform capable of carrying payloads of more than 20 pounds making it the ideal choice for industry leaders across a variety of major markets including public safety and agriculture. The Commander 3 XL Drone’s fuselage consists of a simple rectangular tube. Each component of the drone has been specifically designed to ensure the airframe can pack down into a transportable case.
●	Draganfly Heavy Lift Drone - The Draganfly Heavy Lift Drone is a versatile, multi-rotor unmanned aerial vehicle (UAV), designed to enhance deliveries and flight times. Compatible with a variety of interchangeable payloads, this heavy-duty drone can carry more and fly longer. The DHL Drone can be configured to carry up to 67 pounds.
●	Draganflyer Commander2 ‎– The Draganflyer Commander2 is a multi-mission, high-endurance, electric sUAS that ‎combines the signature design elements of our past Draganflyer systems with the most advanced features ‎to date. The Commander2 can be used for numerous applications across many industries including ‎agriculture, public safety, and aerial 3D modeling. Paired with powerful MAVLink-based flight planning ‎software, the Draganflyer Commander2 supports both fully- and semi-automated missions, as well as ‎manual flight operations with a pilot in the loop for a high level of system control to handle any ‎operational task‎.
●	Draganfly Medical Response – The Draganfly Medical Response Drone is an integrated solution that features a Draganfy Drone combined with a cold-chain logistics enclosure. This solution is able to provide first responders with visual oversight of a scene and ensures the timely delivery of temperature-sensitive medical supplies including blood, vaccines and test samples to dangerous or hard-to-reach areas.
●	Draganfly Long Range LiDAR - Draganfly’s Long Range LiDAR (DLR- LiDAR) system provides accurate distance measurements and improved resolution over conventional photogrammetry methods. The cutting-edge sensor technology can be mounted on UAV, airplanes, and helicopters for those professionals requiring precision imagery.
●	Tango2 – a high endurance, dual battery, sUAS capable of carrying a wide array of payload systems. The aircraft utilizes the Draganfly intelligent power management system to extend flight time while increasing safety. This sUAS is ideal for agricultural monitoring and research, mapping, surveying, environmental monitoring, and search and rescue.

 

Universal Control System

 

The Draganfly Universal Control System is a complete, handheld ground control system that is built to ‎‎integrate ‎with other software and hardware systems. The Draganfly Universal Control System is designed ‎‎to provide precise ‎control over sUAS helicopters, fixed-wing, and ground-based robots. Draganfly ‎‎software provides sophisticated ‎flight planning, automated takeoff, grid following, waypoints, landing, ‎‎data collection, and video downlink.‎

 

Software

 

The Draganfly Surveyor drone flight planning software is an intuitive, easy to use, application that ‎‎enables ‎customers to quickly plan, fly, and process meaningful data. Based on the project, camera type, ‎‎optics, and ‎altitude, the drone software determines the appropriate camera shutter interval, aircraft ‎‎speed, and flight plan to ‎capture the optimum required photo overlap to generate 2D and 3D maps and ‎‎models. The Draganfly Surveyor ‎directly integrates with Pix4Dmapper for survey-grade results and can ‎‎be used alongside other third-party ‎photogrammetry programs.‎

 

 

Vital Intelligence

 

The Draganfly Vital Intelligence platform is a touchless health ‎assessment system that leverages ‎proprietary machine-vision methods to measure biometrics such as heart rate, oxygen saturation and ‎blood pressure. Vital ‎Intelligence is a data platform that turns an existing camera into a touchless ‎ ‎detection system. Draganfly integrates this technology into a ‎variety of ‎platforms and camera systems – ‎both on the ground and in the air – to support use cases such as visitor intake and other general health ‎and wellness applications.‎

 

Draganfly Services

 

Custom Engineering

 

Draganfly is a contract engineering partner for government agencies, enterprise organizations, academic ‎institutions, ‎and businesses of all sizes. The Draganfly team’s truest capabilities are actualized during the ‎engineering process as ‎hardware designers, software designers, engineers, project managers, and ‎vertical-specific experts come together to ‎build custom drone solutions for its partners. Draganfly’s end-‎to-end engineering services include‎:

 

	●	Hardware design: Component, product, and system design;
	●	Software design: Custom software and interface design;
	●	Development: Including integration with third party platforms, PixX4D, Pixhawk, Ardupilot, DJI ‎and ‎more‎;
	●	Modeling: 3D design and modeling of mechanical components;
	●	ITAR ‎(International Traffic in Arms Regulations) equipment management: Approved handling and integration ‎of ITAR, and Controlled Goods ‎technologies‎; and
	●	Support: Testing, training, documentation, and repairs.

 

Training

 

Draganfly offers custom-designed training packages that are tailored to specific operations and use ‎‎cases. The ‎Company also offers basic training for new UAV owners, and advanced classes for users ‎‎who understand the ‎fundamentals and are looking for new ways to increase flight efficiency or comply ‎‎with federal regulations‎.‎

 

Flight Services

 

Draganfly has a team of qualified pilots that conduct flights on behalf of its customers. The team ‎‎specializes in ‎working with emergency services including police, fire, and search and rescue personnel. ‎‎Draganfly also supports ‎industrial applications, utility and power companies, environmental and ‎‎agricultural entities and others‎.

‎

Geographic Information Systems (GIS) Data Services

 

Draganfly has a team of qualified GIS Data Specialists and Surveyors that support the delivery of ‎services to clients in various markets. These services include the creation and maintenance of data sets ‎of spatial analysis. ‎

 

Spraying Services

 

Draganfly operates, in partnership with a leader in natural and organic disinfectants, to ‎administer a sanitization spraying service in large public venues by misting a surface spray across the ‎entire venue in four to six hours.‎

 

Principal Markets

 

Draganfly has more than 20 years of experience designing and manufacturing professional drones for ‎military, public safety, energy, agriculture, and insurance. Draganfly has sold products and services to a number of countries but predominantly focuses on the North American market given its geographical ‎location.‎

 

 

Military and Government

 

Military and government contractors have partnered with Draganfly to improve personnel and ‎infrastructure ‎‎safety. Draganfly works with partners to design and manufacture custom airframes, design ‎and develop ‎payloads, ‎and manage complex flight operations. Draganfly team members hold advanced ‎pilot ‎certificates and are ‎approved to fly in controlled airspace and at airports. Since the Company’s ‎‎development team is cleared by ‎Canada’s Controlled Goods Program, the team is permitted to handle ‎‎ITAR equipment and technologies, and the ‎Company’s facilities are built to protect those technologies ‎‎and ensure they are only handled by approved ‎personnel.‎

 

Public Safety

 

In 2013, the Royal Canadian Mounted Police flew one of the Company’s drones to locate and save the ‎life of an ‎accident victim, which we believe was one of the first times a public safety organization used a ‎UAV to save a life. ‎Years later, the Company is still using drone technology to keep the public ‎safe. Draganfly works with its ‎partners to identify ‎unknowns, such as substances, spills, packages, and ‎chemicals while not putting human lives at ‎risk‎. ‎Draganfly builds aerial and ground systems with custom ‎payloads and sensors to scan scenes, survey ‎public ‎events, locate objects, and clear debris faster and ‎more safely than on-the-ground manpower. The ‎Company also ‎empowers its partners to maximize ‎existing infrastructures via custom application programming interface integrations ‎that ensure Draganfly’s ‎technology enhances their ‎safety systems‎.

 

Environmental and Energy

 

Draganfly offers a suite of commercial UAV solutions for energy companies and those servicing the ‎‎energy market, ‎like surveyors and consultants. Draganfly equips energy companies with the hardware ‎‎and software they need to ‎optimize existing operations, improve safety, and respond after a natural ‎‎disaster. Partners can use Draganfly ‎hardware and 3D modeling software to remotely inspect sites that ‎‎would put human lives at risk. They also conduct ‎environmental monitoring with Draganfly’s sample ‎‎collection solutions, assessing water and ground pollution, gas ‎composition, infrastructure, and other ‎‎environments.‎

 

Agriculture

 

Draganfly works with its partners to collect high-quality data, using multi- and hyper-spectral imaging, 3D ‎modeling, and a suite of sophisticated sensor technology that assesses environmental factors. Seed ‎companies use Draganfly technology to optimize growth season, measuring seed trial results throughout ‎the research and development process. Farmers can use Draganfly flight and data collection services to ‎monitor hectares of land year-round, assessing factors like fertilizer efficiency, weed production, and ‎more. ‎

 

Operations

 

Canadian Operations

 

Draganfly Innovation Inc.’s products are manufactured at its machine shop within its leased head office ‎based in Saskatoon, Saskatchewan, Canada. Draganfly Innovations Inc. operates the fully operational ‎facility located at 235 103rd St E, Saskatoon, SK, S7N 1Y8, Canada. This facility is to be used only for ‎the purposes of Draganfly Innovations Inc. operating its business of design, development, production, ‎distribution, sale and/or licensing of drones or robots, or such other use as permitted by the landlord ‎from time to time. ‎

 

Dronelogics Systems Inc.’s products and services are provided through its leased space located at Unit 319, 2999 ‎Underhill Avenue, ‎Burnaby, British Columbia‎. ‎

 

‎United States Operations

 

‎The Company, through its wholly-owned subsidiary, Draganfly Innovations USA Inc., has an ‎office in ‎Palm Beach ‎Gardens, Florida that currently stores some inventory for operations in the ‎United States‎. ‎

 

 

The Company has derived its revenues across the following primary geographic market segments for the last three fiscal years:

 

		Revenues
		Fiscal year ended December 31,
Region		2023				2022				2021
Canada		$	‎6,162,672‎			$	6,919,038			$	4,982,373
United States		$	‎392,170‎			$	686,021			$	2,071,492

 

Competitive Conditions

 

Although Draganfly is acknowledged as a drone industry pioneer that we believe was the first to develop ‎the ‎commercial multi rotor ‎helicopter, there ‎are now many drone hardware companies in the world. As ‎technology ‎has ‎improved ‎and costs for hardware and software have come down, the line between ‎consumer and commercial ‎‎‎drones has blurred, enabling the rise of Prosumer drones. A Prosumer drone ‎is a drone is designed to satisfy elements of professional and consumer segments, often featuring ‎integrated sensors designed to deliver a combination of performance and value with little ability to ‎customize the drone for the required use-case. Historically, Draganfly has serviced early adopters in the ‎public safety industry. At ‎this stage of ‎‎the commercial drone adoption curve, the average public safety ‎organization (local, ‎regional, and even federal law ‎‎enforcement, for example), has been introduced to ‎drones through the adoption of Consumer and Prosumer platforms. Hence, these ‎organizations tend to ‎use lower cost drones ‎‎that have become quite sophisticated that can accomplish ‎most of their use ‎cases. The dominant companies in the ‎industry are Chinese drone manufacturers that ‎are reputed to ‎comprise a substantial portion of the consumer and now commercial ‎drone ‎market. The majority of foreign manufactured ‎‎drones are geared towards broad applications involving the masses. Draganfly ‎has ‎moved away from ‎‎competing directly with these companies and in some cases sells these products through its subsidiary, ‎‎Dronelogics Systems Inc., or ‎has chosen to serve niche markets outside of where the foreign ‎manufactured drones tends to ‎be. ‎There are also ‎some organizations that tend to be US based that ‎either prefer or are mandated to not use ‎foreign ‎drones such as ‎those produced by China. Some of ‎these organizations are sensitive to their work ‎being exposed to that ‎of overseas ‎governments which has ‎at least for the time being, created a niche ‎market for players such as ‎Draganfly. The ‎combined shift ‎away from foreign made drones (national security issues) and regulatory improvements by the FAA ‎in ‎respect of drone usage is driving industry demand. As Draganfly has evolved to move with the industry ‎trends, ‎the ‎Company now uses some third party hardware and software as part ‎of some of its ‎customization and engineering services work. ‎Draganfly ‎has also moved into innovative engineering ‎‎procurement which is very specialized. As the drone industry matures, ‎this may bring more competitors ‎to this space or ‎the ‎Company’s customers may choose to develop the in-house ‎expertise to do the work ‎that they currently ‎‎outsource to Draganfly. However, it is the Company’s view that there ‎will be a growing ‎customer base ‎that will ‎require specialized drone hardware, software and service solutions outside of ‎the capabilities of the consumer & prosumer drone platforms that only a handful of companies can do.‎

The market remains highly competitive. Private equity continues to actively capitalize drone start-ups ‎.

 

Regulatory Framework

 

A new regulatory framework relating to the use of drones in Canada was published by Transport ‎Canada ‎‎in ‎January 2019 and came into effect on June 1, 2019. The changes, published in the ‎Canadian Aviation ‎‎Regulations ‎‎(“CARs”), Part IX, introduce new rules based on the weight of the RPA and the intended ‎‎operation. This framework ‎creates three broad ‎categories of RPAS: (i) small RPAS in limited (low risk) ‎‎operations (“Small RPAS Basic”); (ii) ‎‎small RPAS in advanced (complex) operations (“Small RPAS ‎‎Advanced”); and (iii) all other RPA ‎operations that ‎fall outside (i) and (ii) above. These regulations focus ‎‎on foundational issues ‎such as aircraft marking and ‎registration, pilot knowledge and certification, ‎‎airworthiness of the ‎aircraft, and flight rules.‎

 

‎Small RPAS Basic are defined as RPAS weighing between 250 grams and 25 kilograms and operated in ‎‎rural ‎and ‎unpopulated areas. These RPAS will require identification markings, including name, address ‎‎‎and contact ‎information of the owner and pilot of the RPA. Pilots must be at least 14 years of ‎age and ‎‎must hold a valid Basic ‎RPA licence that is specific to small drones. Additional ‎restrictions are imposed ‎‎that include that the RPA cannot ‎operate: (i) within approximately 30 meters of ‎people or open-air ‎‎assemblies of people, (ii) above 400 feet, (iii) ‎within approximately 1.85 kilometers of ‎heliports or (iv) ‎‎within approximately 5.5 kilometers of airports. These ‎regulations require the RPA to ‎always be operated ‎‎within visual line-of-sight.‎

‎ 

Small RPAS Advanced are defined as RPAS weighing between 250 grams and 25 kilograms and ‎‎operated in ‎urban ‎and/or populated areas. These RPAS will require identification, marking and ‎‎registration ‎with Transport Canada as ‎well as meeting specified design standards acceptable to ‎‎Transport ‎Canada. The RPA will be assigned a unique ‎identification/registration number issued by ‎‎Transport ‎Canada. Pilots must be at least 16 years of age and must ‎hold a valid Advanced RPAS license ‎‎‎that is specific to small drones. Approval for operation must be granted by Air ‎Traffic Control ‎when ‎‎operating in controlled airspace or near controlled aerodromes. A set of flight rules must be ‎‎followed at ‎‎all times for these more complex operations. Restrictions, including distances from ‎people, are ‎‎‎determined based on the safety certification of the RPA being operated. The RPA ‎must always be ‎‎operated within ‎visual line-of-sight.‎

 

 

The current legislation utilizes a similar Special Flight Operations Certificate (“SFOC”) application ‎‎‎process, as the ‎previous regulations, to approve any operations that do not fit within the ‎regulatory ‎‎regime set out above, such as ‎operating beyond visual-line-of-sight. For those wishing ‎to operate ‎‎outside of the regulatory framework set out in ‎CARs, part IX, there will be a variety of ‎SFOC application ‎‎processes tailored to the nature and use of the RPA. The ‎more complex and ‎riskier the proposed ‎‎operation, the more thorough and detailed the SFOC application process.‎

 

‎Those operators requiring an SFOC must apply to the Transport Canada Civil Aviation Regional ‎Office at ‎‎least 30 ‎working days prior to the date of the proposed RPAS operation. Transport ‎Canada has wide ‎‎discretion in reviewing ‎and approving SFOC applications; however, to date the ‎Company has never been ‎‎refused an SFOC for which it has ‎applied. The purpose of the SFOC ‎application review is to ensure that ‎‎the proposed operation is safe and associated ‎risks have ‎been adequately mitigated by the Company.‎

 

Draganfly operates in accordance with Part IX - Remotely Piloted Aircraft Systems, of Transport Canada’s Canadian Aviation Regulations and Standards, which is periodically updated and governs the safety assurance and operations of Remotely Piloted Aircraft Systems with Canada.

 

The Company is currently fully compliant with all current regulatory requirements and has applied ‎for, and ‎‎received ‎Transport Canada approval for several SFOCs.‎

 

Seasonality

 

In terms of financial performance, the fourth quarter tends to be the weakest quarter for the Company due to the Company’s customers closing down for a few weeks for the holiday season coupled with poorer weather conditions for flying drones and performing drone services.

 

Components

 

The Company obtains hardware components, various subsystems and systems, and raw materials from ‎a limited group of suppliers. The Company does not have long-term agreements with any of these ‎suppliers that obligate such suppliers to continue to sell components, subsystems, systems or products ‎to the Company. The Company’s reliance on these suppliers involves significant risks and uncertainties, ‎including whether suppliers will provide an adequate supply of required raw materials, components, ‎subsystems, or systems of sufficient quality, will increase prices for the raw materials, components, ‎subsystems or systems, and will perform their obligations on a timely basis. See “‎Item 3.D.‎ Risk Factors”.‎

 

Intangible Properties

 

Intangibles such as patents, software, specific technology know-how, and applications expertise all have ‎a significant effect on the Company’s business. At present, drone delivery technology cannot be ‎purchased as an off-the-shelf solution; therefore, the Company has been focused on developing ‎proprietary technology which meets or exceeds anticipated Canadian government requirements. By virtue ‎of being the first commercial ‎UAV company in the industry, the Company’s subsidiary, Draganfly ‎Innovations, holds commercial patents. ‎

 

As at the Effective Date, the Company has the following patents and patents pending in the application ‎stage in its portfolio and intends to continue to expand and grow its intellectual property portfolio: ‎

 

Title

Country

Application No.

Issue Date

Patent No.

Status

Multi Rotor UAV With Compact Folding Rotor Arms

Canada

2,917,434

4/23/2019

2,917,434

Issued

Vehicle with Aerial and Ground Mobility

Canada

2,787,279

10/22/2013

2,787,279

Issued

Vertical Takeoff and Landing Unmanned Aircraft System

Canada

2,935,793

1/15/2021

2,935,793

Issued

Wheel with Folding Segments

Canada

2,787,075

10/29/2013

2,787,075

Issued

Action Camera System for Unmanned Aerial Vehicle

United States

15/707,752

1/22/2019

10,187,580

Issued

Action Camera System for Unmanned Aerial Vehicle

United States

14/533,995

9/19/2017

9,769,387

Issued

 

 

Title

Country

Application No.

Issue Date

Patent No.

Status

Cascade Recognition for Personal Tracking via Unmanned Aerial Vehicle (UAV)

United States

14/642,370

7/18/2017

9,710,709

Issued

Cascade Recognition for Personal Tracking via Unmanned Aerial Vehicle (UAV)

United States

15/651,672

2/13/2018

9,892,322

Issued

Cascade Recognition for Personal Tracking via Unmanned Aerial Vehicle (UAV)

United States

15/894,292

10/8/2019

10,438,062

Issued

Dual Rotor Helicopter with Tilted Rotational Axes

United States

12/458,608

11/8/2011

8,052,081

Issued

Helicopter with Folding Rotor Arms

United States

13/200,825

10/23/2012

8,292,215

Issued

Multi Rotor UAV With Compact Folding Rotor Arms

United States

14/994,080

7/31/2018

10,035,581

Issued

Pixel Based Image Tracking System For Unmanned Aerial Vehicle (UAV) Action Camera System

United States

15/256,193

10/10/2017

9,785,147

Issued

Pixel Based Image Tracking System for Unmanned Aerial Vehicle (UAV) Action Camera System

United States

14/825,956

9/13/2016

9,442,485

Issued

Real Time Noise Reduction System for Dynamic Motor Frequencies Aboard an Unmanned Aerial Vehicle (UAV)

United States

14/642,496

11/8/2016

9,489,937

Issued

System and Method for Adaptive Y Axis Power Usage and Non Linear Battery Usage for Unmanned Aerial Vehicle Equipped with Action Camera System

United States

14/825,914

12/6/2016

9,511,878

Issued

Tandem Wing Aircraft System with Shrouded Propeller

United States

15/584,815

8/13/2019

10,377,488

Issued

Vehicle with Aerial and Ground Mobility

United States

14/641,468

3/21/2017

9,598,171

Issued

Vehicle with Aerial and Ground Mobility

United States

13/846,074

3/31/2015

8,991,740

Issued

Vertical Take Off And Landing (VTOL) Aircraft Having Variable Center Of Gravity

United States

15/706,158

10/20/2020

10,807,707

Issued

Vertical Takeoff and Landing Unmanned Aircraft System

United States

15/164,718

8/28/2018

10,059,442

Issued

Visually Intelligent Camera Device with Peripheral Control Outputs

United States

14/939,369

8/6/2019

10,375,359

Issued

Wheel with Folding Segments

United States

13/739,419

6/17/2014

8,753,155

Issued

 

 

The Company also has the following registered trademarks and pending ‎applications‎:‎

 

Description		Name/Title		Official No.		Governmental Entity
Trademark Application (Status: Filed)		DRAGANFLY		1,972,336		CIPO
Registered Trademark		DRAGANFLYER EXPLORE		TMA1,025,742		CIPO
Registered Trademark		DRAGANFLYER APEX		TMA1,025,624		CIPO
Registered Trademark		DRAGANFLYER COMMANDER		TMA1,008,809		CIPO
Registered Trademark		DRAGANFUEL		TMA997,118		CIPO
Registered Trademark		DRAGANFLY INNOVATIONS		TMA908,564		CIPO
Registered Trademark		DRAGANFLYER		TMA906,939		CIPO
Registered Trademark		DRAGANFLY & DESIGN		TMA905,935		CIPO
Registered Trademark		DRAGANFLY		TMA1,071,582		CIPO
Registered Trademark		DRAGANFLY		TMA1,069,670		CIPO
Registered Trademark		DRAGANFLYER GUARDIAN		TMA904,883		CIPO
Registered Trademark		DRAGANVIEW		TMA886,217		CIPO
Registered Trademark		DRAGANFLYER APEX		6248237		USPTO
Registered Trademark		DRAGANFLY		6373176		USPTO
Registered Trademark		DRAGANFLYER COMMANDER		5760146		USPTO
Registered Trademark		DRAGANFUEL		5563360		USPTO
Registered Trademark		DRAGANFLY INNOVATIONS		5130969		USPTO
Registered Trademark		DRAGANFLYER		4920316		USPTO
Registered Trademark		DRAGANFLY & Design		5130970		USPTO
Registered Trademark		DRAGANFLYER GUARDIAN		4995725		USPTO
Registered Trademark		DRAGANVIEW		4920317		USPTO
Trademark Application1		DRAGANFLY		88488410		USPTO

 

Note

 

1 The US application is suspended pending registration of the Canadian mark.

 

Market Opportunity

 

Drones have rapidly evolved from their military origin to commercial and civil government applications from ‎security to farming. The Company believes that an increased automation of drones provides additional value to existing workflows, triggering ‎more widespread adoption, while a global shift to sustainable and eco-friendly options has further increased demand for ‎drone usage. ‎According to Drone Industry Insights, the commercial and private drone market could grow from $22.5 billion in ‎‎2020 to $42.8 billion in 2025, representing compound annual growth rate (“CAGR”) of 13.8%.1

 

Drone application methods are being used by a variety of industries today. The most active segments are mapping, ‎surveying, inspection, filming/photography, dispensing/spraying, warehousing, monitoring/detection, and delivery. ‎These applications are being used today by the civil government, educational facilities, agricultural, construction, ‎health care, real estate, energy, transportation, insurance, security, and scientific industries for public safety, data ‎collection and profit. According to the Drone Industry Insights, the fastest growing drone application method will be ‎delivery and is forecasted at 28.6% CAGR over the next five years and it is widely believed over 100,000 new jobs will ‎be created in the drone market by 2025.2 However, regulatory hurdles and intense industry scrutiny need to be ‎addressed.‎

 

Our existing products are configured to meet the needs of multiple industries. We continue to add new customers in ‎different market verticals. We are actively designing and developing new products and services to meet increased ‎customer demands.‎

 

Growth Strategy

 

Draganfly markets its products and services as a drone solution platform that enables customer to do things not ‎easily done before and to collect data not easily available before. Draganfly provides solutions to our customers ‎utilizing drones and adjunct technologies. Sensors, software, AI and more all make up this ability to provide ‎solutions that only a company with end-to-end capabilities can provide. Draganfly grows by dealing with the ‎decision makers in organizations who generally have budget control and/or profit and loss responsibility. Draganfly will ‎continue to develop specific solutions and IP for industry verticals by working directly with customers. Draganfly ‎will also pursue an acquisition strategy focused on adding additional capabilities to its platform that strengthen its ‎value proposition of being able to provide new and total solutions that other drone companies cannot. Draganfly is focused on growth through developing new products, expanding its customer base, and pursuing accretive acquisition opportunities, both within and outside North America, in new markets that complement its existing portfolio.

 

1 See Global Drone Market Report 2020-2025

2 See Global Drone Market Report 2020-2025

 

 

Sales and Marketing

 

Draganfly plans to expand it sales and market capabilities in three key areas. First, Draganfly intends to implement a sales force that has the ability ‎to build relationships and sell specifically designed solutions into industry verticals. This sales force will be ‎specialized into segments that sell either direct or into a channel dependent on the specific product or service ‎solution being provided. Draganfly plans to expand business development personnel that can work with specific industries to envision ‎and develop new product lines and services not yet contemplated by our customers. Second, Draganfly plans to drive greater market ‎awareness of the Draganfly brand via public relations ‎Third, Draganfly plans targeted marketing and advertising via tradeshows/conferences which are virtual or physical as well as target digital advertising campaigns used to generate inbound inquires for specific products, services or ‎solution opportunities.

 

Customers

 

Key customers are customers looking to gain strategic advantage in particular markets via the use of drones and ‎drone technology. These are often large organization with a specific problem that they are currently solving in an ‎expensive manner which usually means the use of teams of people or expensive personnel. By designing solution ‎and providing everything from design to manufacturing to sensor development and even giving recognition on ‎patents of IP development (not with commercial interest) to providing the services and housing the data we develop ‎customer relationships that are very “sticky”. ‎

 

Specialized Skill and Knowledge

 

There is a specialized skill required for the development, operations, maintenance, sales and marketing ‎of the Company’s technology. The Company’s current staff possesses the necessary skills and ‎knowledge required for the Company’s business; however, additional employees may be added to staff ‎as needed. All operational staff hold the appropriate licenses and certificate as mandated by Transport ‎Canada.‎

 

Changes to Contracts

 

No aspect of Draganfly’s business is anticipated to ‎be affected in the current financial year by renegotiation or termination of any contract.

 

Capital Expenditures

 

During the years ended December 31, 2023, 2022 and 2021, we did not undertake any capital expenditures.

 

4.C.	Organizational Structure

 

We have three wholly-owned subsidiaries. The following chart shows the Company’s subsidiaries:‎

 

 

4.D.	Property, Plant and Equipment

 

Draganfly Innovation Inc.’s products are manufactured at its machine shop within its leased head office ‎located at ‎‎‎235 103rd St E, Saskatoon, SK, S7N 1Y8, Canada (approximately 6,631 square feet in size).‎

 

Dronelogics Services Inc.’s services are provided through its leased space located at Unit 319, 2999 Underhill ‎‎Avenue, ‎Burnaby, British Columbia (approximately 2,752 square feet in size). ‎‎

 

 

The Company, through its wholly-owned subsidiary, Draganfly Innovations USA Inc., has a leased ‎office at 3910 ‎RCA Boulevard, Suite 1015, Palm Beach Gardens, Florida where inventory is stored (approximately 1,600 square ‎feet in size).‎

 

See also “‎Item 4.B.‎ Business Overview Operations – Operations”.

 

ITEM 4A.

UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The management’s discussion and analysis of the Company for the year ended December 31, 2023 is included in this Annual Report in Exhibit 15.1, which is incorporated herein by reference.

 

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

6.A	Directors and Senior Management

 

The following table sets forth the name, office held, age, and functions and areas of experience in the Company of each of our directors and senior management:

 

Name and Municipality of Residence		Age		Position Held and Date Appointed		Principal Occupation within the past five years
Cameron Chell Bowen Island, British Columbia, Canada		55		Chief Executive Officer, Chairman and a Director (August 14, 2019)		Chairman and Chief Executive Officer of the Company since ‎August ‎‎2019; President, Chairman and co-founder of ‎CurrencyWorks Inc. from ‎November 2017 to present; Chief ‎Executive Officer and co-founder of ‎Business Instincts Group ‎Inc‎., a Calgary-based Venture Creation Firm, ‎from 2009 to ‎‎2021; co-founder of BitRail, LLC from May 2019 to May ‎‎‎2020; co-creator and Chairman of KODAKOne from May ‎‎2017 to May ‎‎2020; director of Health Outcomes Worldwide ‎from June 2017 to ‎February 2021; and Chairman of TruTrace ‎Technologies Inc. from April ‎‎2017 to September 2020‎.
Scott Larson(3)(4) Burnaby, British Columbia, Canada		49		President (July 3, 2020-May 9, 2022) and a Director (August 14, 2019)		President of the Company from July 3, 2020 to May 9, 2022; former Chief ‎Executive ‎Officer of Kater Technologies, a Vancouver-based ‎mobility as a service ‎‎(MaaS) company building out an ‎integrated intermodal transportation ‎‎platform incorporating ‎public transportation, buses, taxis and ride hailing ‎vehicles into ‎a single service, from January 2019 to March 2020; former ‎‎Chief Executive Officer of ‎Helios Wire, a satellite company ‎building out a ‎space-enabled IoT/M2M network‎, from 2016 to ‎‎2019; and former Chief ‎Executive Officer and founder of ‎UrtheCast ‎Corp. from 2010 to 2015‎.
Olen Aasen(1)(2)(3)(4) Vancouver, British Columbia, Canada		41		Director (August 14, 2019)		Practicing lawyer since 2007.‎

 

 

Andrew Hill Card Jr. (2) Jaffrey, New Hampshire, United States		76		Director (November 7, 2019)		Chairman of the National Endowment for Democracy (NED), ‎a non-‎profit organization ‎dedicated to the growth and ‎strengthening of ‎democratic institutions around the world, ‎from January 2018 to January ‎‎2021; Interim Chief Executive ‎Officer of the George & Barbara Bush ‎Foundation from June ‎‎2020 to December 2020; and President of ‎Franklin Pierce ‎University in New Hampshire from January 2015 to ‎August ‎‎2016‎.
John M. Mitnick(1)(2) McLean, Virginia, United States		61		Director (June 18, 2020)		Chairman of the Company’s Board of Directors since ‎April 2022; member of the Company’s Board of ‎Directors since June 2020; consultant to the Company ‎from November 2019 to June 2020; Executive Vice ‎President, General Counsel, and Secretary of ‎Valaurum, Inc., since August 2022; member of the ‎Board of Directors of Valaurum, Inc., ‎March 2016 ‎to ‎February ‎‎2018 and since October ‎‎2019; Advisor to ‎Carbon ‎Neutral Royalty Ltd. ‎from ‎February 2022 to ‎present; General ‎Counsel of the U.S. ‎Department ‎of ‎Homeland Security from ‎February ‎‎2018 to September ‎‎2019; and ‎Senior Vice President, ‎‎General Counsel, ‎and Secretary of The Heritage ‎‎Foundation ‎from ‎March 2014 to February 2018.‎‎ ‎
Denis Silva(3) Vancouver, British Columbia, Canada		44		Director (August 14, 2019)		Corporate and securities partner with the law firm DLA Piper (Canada) ‎LLP since July 2020; and ‎partner at the law firm Gowling WLG (Canada) LLP from 2015 to 2020.
Julie Myers Wood(1)(4) McLean, Virginia, United States		54		Director (September 9, 2021)		Chief Executive Officer of Guidepost Solutions LLC since ‎May 2014; ‎Chief Executive Officer of ICS Consulting LLC; ‎and has held several ‎high level positions within the U.S. ‎government including at the ‎Departments of Justice, Homeland ‎Security, Treasury, and Commerce, ‎as well as at the White ‎House.
Paul Sun Oakville, Ontario, Canada		52		Chief Financial Officer and Corporate Secretary (August 14, 2019)		Chief Financial Officer of the Company since August 2019; Chief Financial Officer of Former ‎Draganfly since July 2015; and Managing Director, ‎Institutional Equity Sales at Beacon Securities Limited‎ from January 2013 to December 2014.
Paul Mullen Burnaby, British Columbia, Canada		41		Chief Operating Officer (March 1, 2022)		Chief Operating Officer of the company since March 1, 2022; Vice ‎President since April 13, 2021. Vice President (2019-2021) Monark ‎Ventures. Various Roles including Manager Sales, Technical Service ‎Delivery & Operations at Shaw Cablesystems G.P. from 2001-2018. ‎
Deborah Greenberg Montreal, Quebec, Canada		58		Chief Legal and ‎Corporate Services ‎Officer and ‎Corporate ‎Secretary (July 4, ‎‎2022)‎		Chief Legal Officer of the Company since July 4, 2022; Chief Legal and ‎Corporate Services Officer of the Company since December 1, 2022; ‎Chief Legal Officer (2017-2019) and Chief Information Officer (2019-‎‎2021) at Canada Mortgage and Housing Corporation; Various roles ‎including General Counsel at Aimia from 2007-2017.‎

 

Notes:‎

 

(1)	Member of the Audit Committee.
(2)	Member of the Nominating and Corporate Governance Committee.
(3)	Member of the Compensation Committee.
(4)	Member of the ATM Committee.

 

 

The directors listed above will hold office until the next annual meeting of the Company or until their ‎successors are elected or appointed. ‎There are no family relationships among our directors and executive officers. There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of our directors or executive officers was selected.

 

As at March 7, 2024, the directors and senior officers of Draganfly, as a group, beneficially own or ‎control, directly or indirectly, 1,213,132 Common Shares or 2.39% of the issued and outstanding Common ‎Shares.‎

 

Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

To the knowledge of management, no director or executive officer as at the date hereof, is or was within ‎‎10 years before the date hereof, a director, chief executive officer or chief financial officer of any ‎company (including Draganfly), that (a) was subject to an order that was issued while the director or ‎executive officer was acting in the capacity as director, chief executive officer or chief financial officer, ‎or (b) was subject to an order that was issued after the director or executive officer ceased to be a ‎director, chief executive officer or chief financial officer and which resulted from an event that occurred ‎while that person was acting in the capacity as director, chief executive officer or chief financial officer. ‎For the purposes hereof, “order” means (a) a cease trade order, (b) an order similar to a cease trade ‎order, or (c) an order that denied the relevant company access to any exemption under securities ‎legislation, that was in effect for a period of more than 30 consecutive days.‎

 

To the knowledge of management, other than as disclosed herein, no director or executive officer of ‎Draganfly, or a shareholder holding a sufficient number of securities of Draganfly to affect materially the ‎control of the company (a) is, as at the date hereof, or has been within the 10 years before the date ‎hereof, a director or executive officer of any company (including Draganfly) that, while that person was ‎acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, ‎made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted ‎any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or ‎trustee appointed to hold its assets, or (b) has, within the 10 years before the date hereof, become ‎bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject ‎to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver ‎manager or trustee appointed to hold the assets of the director, executive officer or shareholder.‎

 

By Order of the Supreme Court of Newfoundland and Labrador dated June 17, 2020, Deloitte ‎Restructuring Inc. ‎was appointed as the receiver and manager of all current and future assets, ‎undertakings, and properties of the ‎Kami Mine Limited Partnership, Kami General Partner Limited, and ‎Alderon Iron Ore Corp. The receivership was ‎initiated by a secured creditor of the Kami Mine Limited ‎Partnership after its failure to refinance the secured debt ‎due to the COVID-19 pandemic. Mr. Aasen was ‎Corporate Secretary of Alderon Iron Ore Corp. and Secretary and ‎Director of Kami General Partner ‎Limited until April 28, 2020.‎

 

Penalties or Sanctions

 

Other than as disclosed herein‎, no director, executive officer or shareholder holding a sufficient number ‎of securities of Draganfly to materially affect the control of the Company has been subject to: (i) any ‎penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory ‎authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other ‎penalties or sanctions imposed by a court or regulatory body that would likely be considered important ‎to a reasonable investor in making an investment decision.‎

 

 

Pursuant to a settlement agreement (the “Settlement Agreement”) dated November 6, 1998 that Cameron ‎Chell, Chief Executive Officer, Chairman and a director of the Company, signed with the Alberta Stock ‎Exchange (the “ASE”), Mr. Chell agreed to the following sanctions: ‎

 

	●	prohibition against ASE Approval (as defined in the General By-law of the ASE) in any capacity for a ‎period of five years commencing November 6, 1998; ‎
	●	a fine in the sum of $25,000; ‎
	●	strict supervision for a period of two years following re-registration in any capacity; and ‎
	●	close supervision for a period of one year following the period of strict supervision described ‎above.‎

 

The matters respecting the Settlement Agreement are as set forth in an ASE Notice to Members dated ‎November 12, 1998, which provides that: ‎

 

	●	representations were made by the promoter of a company to one of Mr. Chell’s clients that he would ‎only be permitted to purchase securities in the initial public offering of that company if he would ‎agree to purchase additional securities in the secondary market following the listing on the ASE ‎and, in or around March or April, 1996, Mr. Chell disclosed confidential information to the ‎promoter of that company concerning a client’s account with respect to a cheque returned NSF ‎to Mr. Chell’s employer;‎
	●	the investment objectives for two of Mr. Chell’s clients were amended without prior knowledge or ‎consent of such clients and purchases and sales of securities were subsequently executed in the ‎accounts of such clients which were unsuitable for the clients given the stated investment ‎objectives for the accounts prior to the amendment of such investment objectives; ‎
	●	Mr. Chell executed a total of 21 transactions in the accounts of two of Mr. Chell’s clients without prior ‎knowledge or authorization of such clients;‎
	●	the signature on the new client account form for one of Mr. Chell’s clients, which purported to be that ‎of the client was not in fact the signature of the client nor did such client have any knowledge of ‎any changes made to the investment objectives for his account(s); ‎
	●	on or about June 10, 1996, the address for the account of one of Mr. Chell’s clients was changed to ‎Mr. Chell’s local post office box address without such client’s knowledge and while the client ‎was resident in Ontario. As a result, during the period of June 10 to and including September, ‎‎1996, the client did not receive any trade confirmations or accounts statements with respect to ‎her accounts with Mr. Chell;‎
	●	on or about March 19, 1996, Mr. Chell permitted one of his clients to acquire approximately 4% of ‎the total initial public offering by a company, contrary to the rules of the ASE; ‎
	●	on or about October 19, 1996, Mr. Chell purchased securities of a company in the account of one of ‎his clients without disclosing the involvement of his brother as president of that company; ‎
	●	on or about June 23, 1996, the private placement questionnaire and undertaking completed in ‎connection with the purchase by one of Mr. Chell’s clients and filed with the ASE disclosed that ‎Mr. Chell’s client was a resident of Alberta when in fact such client was a resident of Ontario. Mr. ‎Chell knew or ought to have known that it contained a misstatement of fact in that regard; ‎
	●	during the period of the summer, 1996 to and including May 1997, Mr. Chell’s day to day involvement ‎as the president and chairman of Coffee.Com Interactive Café Corp. (“Coffee.Com”) as well as ‎being a shareholder was not disclosed to Mr. Chell’s employer;‎
	●	further, Mr. Chell purchased securities offerings via private placement by Coffee.Com for certain of ‎his clients without fully disclosing his involvement with that company to such clients; ‎

 

 

	●	on or about March 18 and June 19, 1996, Mr. Chell executed purchase of securities for Ontario ‎residents. At the time of such purchases, Mr. Chell knew or ought to have known that he was not ‎registered in the province of Ontario; ‎
	●	during the summer of 1996, Mr. Chell represented to the ASE that certain purchasers of securities ‎offered via private placement were close friends and business associates when he knew or ‎ought to have known that such representations were untrue; and ‎
	●	during the period of June 19, 1996 and to and including May 1, 1997, Mr. Chell failed to obtain the ‎prior approval of his employer for advertisements and sales literature distributed by Mr. Chell ‎regarding Coffee.Com.‎

 

Conflicts of Interest

 

There are potential conflicts of interest to which the directors and officers of Draganfly will be subject to ‎in connection with the operations of Draganfly. In particular, certain of the directors and officers of ‎Draganfly are involved in managerial or director positions with other companies whose operations may, ‎from time to time, be in direct competition with those of Draganfly or with entities which may, from time ‎to time, provide financing to, or make equity investments in, competitors of Draganfly. ‎

 

In accordance with the applicable corporate and securities legislation, directors who have a material ‎interest or any person who is a party to a material contract or a proposed material contract with ‎Draganfly are required, subject to certain exceptions, to disclose that interest and generally abstain from ‎voting on any resolution to approve the contract. In addition, the directors are required to act honestly ‎and in good faith with a view to the best interests of Draganfly. Certain of the directors and each of the ‎executive officers of Draganfly have either other employment or other business or time restrictions ‎placed on them and accordingly, these directors of Draganfly will only be able to devote part of their ‎time to the affairs of Draganfly. To the extent that conflicts of interest arise, such conflicts will be ‎resolved in accordance with the provisions of the applicable corporate law.‎

 

6.B.	Compensation

 

Summary Compensation Table

 

For the year ended December 31, 2023 our directors and executive officers received compensation for services, as follows:

 

																Non-Equity Incentive Plan Compensation (C$)
Name and Principal Position		Year			Salary ($)				Share- Based Awards ($)(1)(2)				Option- Based Awards ($)(3)(4)			Annual Incentive Plans(5)			Long- Term Incentive Plans			Pension Value ($)			All Other Compen- sation ($)(6)				Total Compen- sation ($)
Cameron Chell(8) Chairman, CEO and Director		2023				557,083				287,020			Nil			Nil			Nil			Nil				Nil				844,103
Paul Sun CFO		2023				321,496				144,640			Nil			Nil			Nil			Nil				Nil				466,136
Scott Larson(8) President and Director		2023				205,732				49,720			Nil			Nil			Nil			Nil				70,129	(7)			368,475
Olen Aasen Director		2023				Nil				49,720			Nil			Nil			Nil			Nil				80,071	(7)			129,791
Denis Silva Director		2023				Nil				49,720			Nil			Nil			Nil			Nil				60,110	(7)			109,830
Andrew Hill Card, Jr Director		2023				Nil				49,720			Nil			Nil			Nil			Nil				60,476	(7)			110,197
John M. Mitnick Director		2023				Nil				49,720			Nil			Nil			Nil			Nil				90,715	(7)			140,435
Julie Myers Wood Director		2023				Nil				49,720			Nil			Nil			Nil			Nil				60,477	(7)			110,197
Paul Mullen COO		2023				362,361				135,600			Nil			Nil			Nil			Nil				Nil				497,961
Deborah Greenberg Chief Legal and Corporate Services Officer		2023				361,538				162,720			Nil			Nil			Nil			Nil				Nil				524,258

 

 

Notes:‎

 

(1)	‎”Share-Based Award” means an award under an equity incentive plan of equity-based instruments that do not ‎have option-like features, including, for greater certainty, common shares, restricted shares, restricted share ‎units, deferred share units, phantom shares, phantom share units, common share equivalent units and stock.‎
(2)	Based on the number of restricted share units (“RSUs”) granted multiplied by the market price of the underlying Common Shares on the ‎grant date. This methodology was chosen in order to be consistent with industry.
(3)	‎”Option-Based Award” means an award under an equity incentive plan of options, including, for greater certainty, ‎share options, share appreciation rights and similar instruments that have option-like features.‎ See also “Item ‎6.E. Share Ownership”.
(4)	This does not represent cash paid to the individual. This figure is based on the grant date fair value of such stock options of the Company (“Options”). The grant date fair value was determined in accordance with IFRS. This methodology was chosen in order to be consistent with the accounting fair value used by the Company in its financial statements and since the Black-Scholes option pricing model is a commonly used methodology for valuing options which provides an objective and reasonable estimate of fair value. The key assumptions of this valuation include current market price of the stock, exercise price of the option, option term, risk-free interest rate, dividend yield of stock and volatility of stock return. Calculating the value of stock options using the Black-Scholes option pricing model is very different from a simple “in-the-money” value calculation. In fact, stock options that are well out-of-the-money can still have a significant “grant date fair value” based on a Black-Scholes option pricing model, especially where, as in the case of the Company, the price of the share underlying the option is highly volatile. Accordingly, caution must be exercised in comparing grant date fair value amounts with cash compensation or an in-the-money option value calculation.‎
(5)	‎Represents annual cash bonus awards that are declared and paid annually. The Company does not have a formal ‎bonus plan and the amount of bonuses paid is not set in relation to any formula or specific criteria but is ‎a result of a subjective determination by the Compensation Committee and the Board. As of March 27, 2024, the annual cash bonus awards for the executive officers of the Company for the year ended December ‎‎31, 2023 have not been determined or approved by the Board.‎
(6)	This amount represents the aggregate amount of perquisites paid to the ‎individual.
(7)	This amount represents director’s fees paid to such director.
(8)	Mr. Chell did not receive any additional compensation for serving as director of the Corporation. Mr. Chell and Mr. Larson did receive consulting fees in connection with their roles as Officers of the Company, included above in the Salary amount.

 

6.C.	Board Practices

 

All of our directors are elected at the annual general meeting of our shareholders and each holds such office until his or her successor is elected or appointed, unless his or her office is earlier vacated by way of the director’s resignation or death or under any of the relevant provisions of our Articles or the BCBCA.

 

Employment, Consulting and Directors’ Service Contracts

 

The Company is not a party to any contract, agreement, plan or arrangement that provides for ‎‎payments to a director or executive officer at, following or in connection with any termination (whether ‎‎voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company, its ‎‎subsidiaries or affiliates or a change in a director or executive officer responsibilities, other than as ‎‎described below.‎

 

 

The Company’s consulting agreement, as amended, (the “Chell Consulting Agreement”) with 1502372 ‎Alberta Ltd. (the “Consultant”) and Cameron Chell requires the Company to pay monthly fees of ‎C$35,416.67 (amounting to C$425,000 annually) for the provision by of executive services by the Consultant ‎to the Company, and in this regard, has Cameron Chell hold the position of President and Chief Executive ‎Officer of the Company and contains the following provisions: (a) where termination notice is given by the ‎Company, other than for certain specified reasons as set out in the Chell Consulting Agreement, the ‎Company shall give the Consultant at least 60 days’ advance notice in writing; and (b) where termination is ‎given by the Consultant, the Consultant shall give the Company 60 days’ advance notice in writing. If the ‎Chell Consulting Agreement is terminated pursuant to either (a) or (b) above, then the Consultant will be ‎entitled to the fees earned to the effective date of termination and any expenses incurred on behalf of the ‎Company prior to the effective date of termination which are otherwise reimbursable by the Company ‎pursuant to the terms of the Chell Consulting Agreement. The Consultant is also entitled a bonus as ‎determined by the Compensation Committee equal to 100% of the Consultant annual fees. The Consultant is ‎a private company controlled by Cameron Chell. During the year ended December 31, 2021, the Company ‎and the Consultant entered into an amending agreement to the Chell Consulting Agreement to increase the ‎monthly fees from US$14,166.67 (amounting to US$170,000 annually) to C$35,416.67 (amounting to ‎C$425,000 annually). During the year ended December 31, 2022 the Company and the Consultant entered ‎into an additional amending agreement appointing Mr. Chell as President of the Company and expanding ‎the scope of the services to reflect this new role. ‎

 

The Company’s consulting agreement, (the “Larson Consulting Agreement”) with Scott Larson, which supersedes and replaces all previous agreements between Mr. Larson and the Company, requires the ‎Company pay (a) an hourly fee of $350, plus applicable taxes, and (b) as determined by the Company, an ‎annual success fee, for corporate development, operational and financial related services. The Larson ‎Consulting Agreement may be terminated by Mr. Larson upon giving the Company sixty (60) days advance ‎notice in writing, or by the Company by giving Mr. Larson four (4) months advance notice in writing or pay in ‎lieu thereof.

 

The Company’s employment agreement, as amended, (the “Sun Agreement”) with Paul Sun requires the ‎Company pay (a) an annual base salary of C$220,000 and (b) as determined by the Company’s ‎Compensation Committee, an annual bonus of up to the base salary, for the provision of executive services ‎as Chief Financial Officer to the Company. If the Sun Agreement is terminated by the Company without just ‎cause, Mr. Sun will be entitled to remuneration in the amount equal the base salary and Mr. Sun’s last bonus ‎earned divided by 12 and multiplied by six. Mr. Sun is also entitled to receive a lump sum payment equal to ‎‎18 months of his base salary and average bonus upon a change of control of the Company. During the year ‎ended December 31, 2021, the Company and Mr. Sun entered into an amending agreement to the Sun ‎Agreement to increase the annual base salary from C$150,000 to C$220,000. During the year ended ‎December 31, 2022, the Company and Mr. Sun entered into an additional amending agreement to the Sun ‎Agreement to increase the annual base salary from C$220,000 to C$250,000 and awarded Mr. Sun a ‎discretionary performance bonus determined by the Compensation Committee with regard to certain ‎milestones and achievements.‎ During the year ended ‎December 31, 2023, the Company and Mr. Sun entered into an additional amending ‎agreement to the Sun ‎Agreement to increase the annual base salary from C$250,000 to C$267,000 and awarded ‎Mr. Sun a ‎discretionary performance bonus determined by the Compensation Committee with regard to certain ‎‎milestones and achievements.‎

 

The Company’s employment agreement, as amended, (the “Mullen Agreement”) with Paul Mullen requires ‎the Company to pay (a) an annual base salary of C$210,000 and (b) as determined by the Company’s ‎Compensation Committee, an annual bonus, for the provision of executive services as Chief Operating ‎Officer to the Company. If the Company terminates the Mullen Agreement without cause, Mr. Mullen is ‎entitled to severance equaling to the his annual salary earned to the date of cessation of employment, all ‎earned but unpaid bonus payment, any outstanding vacation and reimbursement of final expenses, and an ‎additional lump sum payment equaling to three (3) months salary. If Mr. Mullen is terminated without cause ‎within twelve (12) months of a change of control, then Mr. Mullen is entitled to a lump sum payment equal to ‎twelve (12) months of his annual salary and average performance bonus.‎ During the year ended ‎December 31, 2023, the Company and Mr. Mullen entered into an amending agreement to ‎the Mullen ‎Agreement to increase the annual base salary from C$210,000 to C$250,000 and awarded Mr. Mullen ‎a ‎discretionary performance bonus determined by the Compensation Committee with regard to certain ‎milestones ‎and achievements.‎

 

 

The Company’s employment agreement, as amended, (the “Greenberg Agreement”) with Deborah ‎Greenberg requires the Company to pay (a) an annual base salary of C$275,000 and (b) as determined by ‎the Company’s Compensation Committee, an annual bonus, for the provision of executive services as Chief ‎Legal and Corporate Services Officer to the Company. If the Greenberg Agreement is terminated by the ‎Company without just cause, Ms. Greenberg will be entitled to remuneration in the amount equal the base ‎salary and Ms. Greenberg’s last bonus payable on a pro-rata basis. Mrs. Greenberg is also entitled to ‎receive a lump sum payment equal to 18 months of her base salary and the greater of her targeted annual ‎performance bonus multiplied by a factor of 1.5 or the average performance bonus paid to her over the two ‎year period to the change of control of the Company. During the year ended ‎December 31, 2023, the Company and Ms. Greenberg entered into an amending agreement ‎to the Greenberg ‎Agreement to increase the annual base salary from C$275,000 to C$300,000 and awarded Ms. ‎Greenberg a ‎discretionary performance bonus determined by the Compensation Committee with regard to certain ‎‎milestones and achievements.‎

 

Audit Committee

 

The Audit Committee is a committee of the Board to which the Board delegates its responsibility for oversight of the financial reporting process. The Audit Committee is also responsible for managing, on behalf of our shareholders, the relationship between the Company and the external auditor.

 

Pursuant to National Instrument 52-110 – Audit Committees of the Canadian Securities Administrators‎ (“NI 52-110”), the Company is required to disclose certain information with respect to its Audit Committee, as summarized below.

 

Audit Committee Terms of Reference

 

The Company must, pursuant to NI 52-110, have a written charter which sets out the duties and ‎responsibilities of its Audit Committee. The terms of reference of the Audit Committee are attached ‎hereto as Exhibit 15.2.‎

 

Audit Committee Composition

 

The following are the members of the Audit Committee:‎

 

Olen Aasen(1)		Independent(2)		Financially Literate(2)
Julie Myers Wood		Independent(2)		Financially Literate(2)
John M. ‎Mitnick		Independent(2)		Financially Literate(2)

 

Notes:

 

	(1)	Chairman of the Audit Committee.
	(2)	As defined by NI 52-110.

 

Relevant Education and Experience

 

All members of the Audit Committee have been either directly involved in the preparation of the financial statements, filing of quarterly and annual financial statements, dealing with auditors, or as a member of the Audit Committee. All members have the ability to read, analyze and understand the complexities surrounding the issuance of financial statements.

 

Olen Aasen

 

Mr. Aasen is a corporate and securities lawyer with more than 17 years of experience in corporate, ‎securities ‎and regulatory matters. He has been the Corporate Secretary, General Counsel or Vice ‎President, Legal at ‎various Canadian and U.S. listed companies. Mr. Aasen obtained a J.D. from the ‎University of British ‎Columbia in 2006 and was called to the British Columbia Bar in 2007. Mr. Aasen was ‎also appointed to the ‎‎2016 Legal 500 GC Powerlist for Canada‎.‎

 

 

Julie Myers Wood

 

Ms. Myers was appointed by President Bush to serve as Assistant Secretary of Homeland Security for Immigration and Customs Enforcement (ICE). Previously, Ms. Myers worked for the Office of Independent Counsel under Kenneth Starr and was appointed Assistant Secretary for Export Enforcement at the Department of Commerce. She currently is CEO for Guidepost Solutions, LLC, a leading investigative and compliance consulting firm where she leads a global team of investigators, experienced security and technology consultants, and compliance and monitoring experts across a multitude of industries including government and public service agencies.

 

John M. ‎Mitnick

 

Mr. Mitnick is an American attorney with 34 years of experience serving at the highest levels of government and the private sector. From February 2018 until September 2019, he served as the General Counsel of the U.S. Department of Homeland Security (DHS), having been confirmed for that position unanimously by the U.S. Senate. From March 2014 to February 2018, he served as Senior Vice President, General Counsel, and Secretary of The Heritage Foundation, an influential think tank, and from November 2007 to April 2013, he served as Vice President, General Counsel, and Secretary of a Raytheon division with more than US$3 billion in annual sales, more than 9,000 employees, and business operations in more than 40 countries and on all continents. Mr. Mitnick has also served on the Board of Directors of Valaurum, Inc., a private mint, from March 2016 to February 2018 and since October 2019. He received his Juris Doctor degree from the University of Virginia School of Law and a Bachelor of Arts degree in Jurisprudence from the University of Oxford. He also holds a Bachelor of Arts degree in History and Political Science (summa cum laude) from Emory University.

 

Reliance on Certain Exemptions

 

At no time since the commencement of the Company’s financial year ended December 31, 2023, has the ‎Company relied on any exemption from NI 52-110, including Section 2.4 of NI 52-110 (De Minimis Non-‎Audit Services), or an exemption granted under Part 8 of NI 52-110.‎

 

The Company has relied upon the exemption provided by section 6.1 of NI 52-110 which exempts ‎venture issuers from the requirement to comply with the restrictions on the composition of its Audit ‎Committee‎.

 

Audit Committee Oversight

 

At no time since the commencement of the Company’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board.

 

Pre-Approval Policies and Procedures

 

The Audit Committee is authorized by the Board to review the performance of the Company’s external ‎auditors and approve in advance provision of services other than auditing and to consider the ‎independence of the external auditors, including reviewing the range of services provided in the context ‎of all consulting services bought by the Company. The Audit Committee is authorized to approve any ‎non-audit services or additional work which the Chairman of the Audit Committee deems as necessary ‎who will notify the other members of the Audit Committee of such non-audit or additional work‎.

 

External Auditor Service Fees

 

See “Item 16C. Principal Accountant Fees and Services”‎.

 

Compensation Committee

 

The Compensation Committee is responsible for ensuring that the Company has appropriate procedures for ‎reviewing executive compensation and making recommendations to the Board with respect to the ‎compensation of the Company’s executive officers. The Compensation Committee seeks to ensure that ‎total compensation paid to all executive officers is fair and reasonable and is consistent with the ‎Company’s compensation philosophy.

‎

 

The Compensation Committee is also responsible for recommending compensation for the directors, as well ‎as stock option (“Option”) grants, and restricted share unit (“RSU”) grants to the directors, officers, ‎employees and consultants pursuant to the Company’s share compensation plans. The Share ‎Compensation Plan (as defined below) assists the Company in employee retention and cash preservation, ‎while encouraging Common Share ownership and entrepreneurship on the part of the Company’s NEOs.

 

The Compensation Committee consists of Scott Larson (Chair), Olen Aasen and Denis Silva, all of whom ‎were affirmatively determined by the Board to be independent (outside, non-management) directors, other ‎than Scott Larson, the former President of the Company. The Board is satisfied that the composition of the ‎Compensation Committee ensures an objective process for determining compensation. Each member of the ‎Committee has direct experience relevant to their responsibilities on the Committee, including acting as ‎officers and directors of other publicly traded companies so that they are familiar with remuneration for ‎companies within the Company’s peer group.‎

 

6.D.

Employees

 

As at December 31, 2023, the Company had fifty four employees (fifty employees located in Canada and four employees located in the U.S.) and two full-‎time and two part-time consultants whose ‎services were, and continue to be, used on a regular basis for day-‎to-day operations.

 

6.E.	Share Ownership

 

The following table sets out the number of Common Shares, Options and RSUs owned or over which control or direction is exercised by each our directors and executive officers and, where known after reasonable enquiry, by their respective associates or affiliates as at February 15, 2024.

 

Name and position

Number and Percentage of Common Shares(1)

Type of ‎compensation security

Number of‎ compensation‎ securities‎

Date of issue or grant

Issue, ‎conversion or exercise price ($)

Expiry Date(2)

Cameron Chell Chairman, CEO and Director

168,216 (0.33%)

Options RSUs RSUs

50,000 13,334(3) 169,334

October 30, 2019 September 3, 2021 May 29, 2023

2.50 3.87 1.13

October 30, 2029 September 3, 2024 March 20, 2025

Paul Sun CFO

235,851 (0.46%)

Options RSUs RSUs

33,333 10,000 85,334

October 30, 2019 September 3, 2021 May 29, 2023

2.50 3.87 1.13

October 30, 2029 September 3, 2024 March 20, 2025

Scott Larson President and Director

49,986 (0.10%)

Options Options RSUs RSUs

50,000 100,000 23,334 29,334

October 30, 2019 July 3, 2020 September 3, 2021 May 29, 2023

2.50 3.20 3.87 1.13

October 30, 2029 July 3, 2025 September 3, 2024 March 20, 2025

Olen Aasen Director

39,173 (0.08%)

Options RSUs

16,667 29,334

October 30, 2019 May 29, 2023

2.50 1.13

October 30, 2029 March 20, 2025

Denis Silva Director

85,208 (0.17%)

Options RSUs

16,667 29,334

October 30, 2019 May 29, 2023

2.50 1.13

October 30, 2029 March 20, 2025

Andrew Hill Card, Jr Director

167,189 (0.33%)

Options RSUs

50,000 29,334

October 30, 2019 May 29, 2023

2.50 1.13

October 30, 2029 March 20, 2025

John M. Mitnick Director

170,601 (0.34%)

Options RSUs

50,000 29,334

November 19, 2019 May 29, 2023

2.50 1.13

November 19, 2029 March 20, 2025

Julie Myers Wood Director

83,275 (0.16%)

Options Options RSUs RSUs

30,000 25,826 8,609 29,334

April 30, 2020 September 9, 2021 September 9, 2021 May 29, 2023

3.85 4.84 4.84 1.13

April 30, 2030 September 9, 2026 September 9, 2024 March 20, 2025

Paul Mullen COO

102,072 (0.20%)

Options RSUs RSUs

10,000 3,334 80,000

April 27, 2021 April 27, 2021 May 29, 2023

10.15 10.15 1.13

April 27, 2031 April 30, 2024 March 20, 2025

Deborah Greenberg Chief Legal and Corporate Services Officer

111,561 (0.22%)

RSUs

96,000

May 29, 2023

1.13

March 20, 2025

 

 

Notes:

 

	(1)	Percentages based on 50,893,221 Common Shares issued and outstanding as of ‎February 15, 2024. The numbers of shares in this column are derived from Canada’s System for Electronic Disclosure by Insiders (“SEDI”).‎
	(2)	In connection with the RSUs, the dates represent the last vesting dates.
	(3)	This number represents the balance of unvested RSUs issued to 1502372 Alberta Ltd., a corporation wholly owned by Cameron Chell.

 

Share Compensation Plan

 

The Board has previously adopted the Share Compensation Plan that provides for the granting of Options and RSUs on such terms and conditions as prescribed by the Share Compensation Plan. The Share Compensation Plan is a “rolling” plan, pursuant to which the maximum number of Common Shares issuable under the Share Compensation Plan and any other share compensation arrangement of the Company including the RSUs that may be awarded under the Share Compensation Plan, is 20% of the Common Shares then issued and outstanding. The Share Compensation Plan was adopted effective August 19, 2019 and amended effective April 14, 2021.

 

The Share Compensation Plan provides participants (each, a “Participant”), who may include participants who are citizens or residents of the United States (each, a “US Participant”), with the opportunity, through RSUs and Options, to acquire an ownership interest in the Company. The RSUs will rise and fall in value based on the value of the Common Shares. Unlike the Options, the RSUs will not require the payment of any monetary consideration to the Company. Instead, each RSU represents a right to receive one Common Share following the attainment of vesting criteria determined at the time of the award. See “Restricted Share Units – Vesting Provisions” below. The Options, on the other hand, are rights to acquire Common Shares upon payment of monetary consideration (i.e., the exercise price), subject also to vesting criteria determined at the time of the grant. See “Options – Vesting Provisions” below.

 

Purpose of the Share Compensation Plan

 

The stated purpose of the Share Compensation Plan is to advance the interests of the Company and its subsidiaries, and its shareholders by: (a) ensuring that the interests of Participants are aligned with the success of the Company and its subsidiaries; (b) encouraging stock ownership by such persons; and (c) providing compensation opportunities to attract, retain and motivate such persons.

 

Eligible Persons

 

The following people are eligible to participate in the Share Compensation Plan: any officer or employee of the Company or any officer or employee of any subsidiary of the Company and, solely for purposes of the grant of Options, any director of the Company or any director of any subsidiary of the Company, and any Consultant (defined under the Share Compensation Plan as an individual (other than an employee or a director of the Company) or a corporation that is not a U.S. Person that: (a) is engaged to provide on an ongoing bona fide basis, consulting, technical, management or other services to the Company or to an affiliate of the Company, other than services provided in relation to an offer or sale of securities of the Company in a capital raising transaction, or services that promote or maintain a market for the Company’s securities; (b) provides the services under a written contract between the Company or the affiliate and the individual or the Company, as the case may be; (c) in the reasonable opinion of the Company, spends or will spend a significant amount of time and attention on the affairs and business of the Company or an affiliate of the Company; and (d) has a relationship with the Company or an affiliate of the Company that enables the individual to be knowledgeable about the business and affairs of the Company.

 

 

Administration of the Share Compensation Plan

 

The Share Compensation Plan is administered by the Board or such other persons as may be designated by the Board (the “Administrators”) based on the recommendation of the Board or the compensation committee of the Board, if applicable. The Administrators determine the eligibility of persons to participate in the Share Compensation Plan, when RSUs and Options will be awarded or granted, the number of RSUs and Options to be awarded or granted, the vesting criteria for each award of RSUs and grant of Options and all other terms and conditions of each award and grant, in each case in accordance with applicable securities laws and the requirements of the CSE and the Nasdaq.

 

Restrictions on the Award of RSUs and Grant of Options

 

The awards of RSUs and grants of Options under the Share Compensation Plan is subject to a number of restrictions:

 

	(a)	the total number of Common Shares issuable to insiders under the Share Compensation Plan and any other share compensation arrangements of the Company cannot exceed 20% of the Common Shares then outstanding; and
	(b)	the aggregate sales price (meaning the sum of all cash, property, notes, cancellation of debt, or other consideration received or to be received by the Company for the sale of the securities) or amount of Common Shares issued during any consecutive 12 month period will not exceed the greatest of the following: (i) US$1,000,000; (ii) 15% of the total assets of the Company, measured at the Company’s most recent balance sheet date; or (iii) 15% of the outstanding amount of the Common Shares, measured at the Company’s most recent balance sheet date.

 

In the event of any declaration by the Company of any stock dividend payable in securities (other than a dividend which may be paid in cash or in securities at the option of the holder of Common Shares), or any subdivision or consolidation of the Common Shares, reclassification or conversion of the Common Shares, or any combination or exchange of securities, merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin off involving the Company, distribution (other than normal course cash dividends) of Company assets to holders of Common Shares, or any other corporate transaction or event involving the Company or the Common Shares, the Administrators may in their sole discretion make such changes or adjustments, if any, as the Administrators consider fair or equitable to reflect such change or event including, without limitation, adjusting the number of Options and RSUs outstanding under the Share Compensation Plan, the type and number of securities or other property to be received upon exercise or redemption thereof, and the exercise price of Options outstanding under the Share Compensation Plan, provided that the value of any Option or RSU immediately after such an adjustment shall not exceed the value of such Option or RSU prior thereto.

 

Restricted Share Units

 

The total number of Common Shares that may be issued on exercise of Options and RSUs, together with any other share compensation arrangements of the Company, shall not exceed 20% of the number of issued and outstanding Common Shares from time to time.

 

Mechanics for RSUs

 

RSUs awarded to Participants under the Share Compensation Plan are credited to an account that is established on their behalf and maintained in accordance with the Share Compensation Plan. After the relevant date of vesting of any RSUs awarded under the Share Compensation Plan, a Participant shall be entitled to receive and the Company shall issue or pay (at its discretion): (i) a lump sum payment in cash equal to the number of vested RSUs recorded in the Participant’s account multiplied by the volume weighted average price of the Common Shares traded on the CSE for the five (5) consecutive trading days prior to the payout date; (ii) the number of Common Shares required to be issued to a Participant upon the vesting of such Participant’s RSUs in the Participant’s account will be, duly issued as fully paid and non assessable shares and such Participant shall be registered on the books of the Company as the holder of the appropriate number of Common Shares; or (iii) any combination of thereof.

 

 

Vesting Provisions

 

The Share Compensation Plan provides that: (i) at the time of the award of RSUs, the Administrators will determine the vesting criteria applicable to the awarded RSUs; (ii) vesting of RSUs may include criteria such as performance vesting; (iii) each RSU shall be subject to vesting in accordance with the terms set out in an agreement evidencing the award of the RSU attached as Exhibit A to the Share Compensation Plan (or in such form as the Administrators may approve from time to time) (each an “RSU Agreement”); and (iv) all vesting and issuances or payments in respect of an RSU shall be completed no later than December 15 of the third calendar year commencing after the award date for such RSU.

 

It is the current intention that RSUs may be awarded with both time-based vesting provisions as a component of the Company’s annual incentive compensation program, and performance based vesting provisions as a component of the Company’s long term incentive compensation program.

 

Under the Share Compensation Plan, should the date of vesting of an RSU fall within a blackout period or within nine business days following the expiration of a blackout period, the date of vesting will be automatically extended to the tenth business day after the end of the blackout period.

 

Termination, Retirement and Other Cessation of Employment in connection with RSUs

 

A person participating in the Share Compensation Plan will cease to be eligible to participate in the following circumstances: (i) receipt of any notice of termination of employment or service (whether voluntary or involuntary and whether with or without cause); (ii) retirement; and (iii) any cessation of employment or service for any reason whatsoever, including disability and death (an “Event of Termination”). In such circumstances, any vested RSUs will be issued (and with respect to each RSU of a US Participant, such RSU will be settled and shares issued as soon as practicable following the date of vesting of such RSU as set forth in the applicable RSU Agreement, but in all cases within 60 days following such date of vesting; and unless otherwise determined by the Administrators in their discretion, any unvested RSUs will be automatically forfeited and cancelled (and with respect to any RSU of a US Participant, if the Administrators determine, in their discretion, to waive vesting conditions applicable to an RSU that is unvested at the time of an Event of Termination, such RSU shall not be forfeited or cancelled, but instead will be deemed to be vested and settled and shares delivered following the date of vesting date of such RSU as set forth in the applicable RSU Agreement). Notwithstanding the above, if a person retires in accordance with the Company’s retirement policy at such time, the pro rata portion of any unvested performance based RSUs will not be forfeited or cancelled and instead shall be eligible to become vested in accordance with the vesting conditions set forth in the applicable RSU Agreement after such retirement (as if retirement had not occurred), but only if the performance vesting criteria, if any, have been met on the applicable date. For greater certainty, if a person is terminated for just cause, all unvested RSUs will be forfeited and cancelled.

 

Options

 

The total number of Common Shares that may be issued on exercise of Options and RSUs, together with any other share compensation arrangements of the Company, shall not exceed 20% of the number of issued and outstanding Common Shares from time to time.

 

Mechanics for Options

 

Each Option granted pursuant to the Share Compensation Plan will entitle the holder thereof to the issuance of one Common Share upon achievement of the vesting criteria and payment of the applicable exercise price. Options granted under the Share Compensation Plan will be exercisable for Common Shares issued from treasury once the vesting criteria established by the Administrators at the time of the grant have been satisfied. However, the Company will continue to retain the flexibility through the amendment provisions in the Share Compensation Plan to satisfy its obligation to issue Common Shares by making a lump sum cash payment of equivalent value (i.e., pursuant to a cashless exercise), provided there is a full deduction of the number of underlying Common Shares from the Share Compensation Plan’s reserve.

 

 

Vesting Provisions

 

The Share Compensation Plan provides that the Administrators may determine when any Option will become exercisable and may determine that Options shall be exercisable in instalments or pursuant to a vesting schedule. The Option agreement will disclose any vesting conditions prescribed by the Administrators.

 

Termination, Retirement and Other Cessation of Employment in connection with Options

 

A person participating in the Share Compensation Plan will cease to be eligible to participate where there is an Event of Termination. In such circumstances, unless otherwise determined by the Administrators in their discretion, any unvested Options will be automatically cancelled, terminated and not available for exercise and any vested Options may be exercised only before the earlier of: (i) the termination of the Option; and (ii) six months after the date of the Event of Termination. If a person is terminated for just cause, all Options (whether or not then exercisable) will be automatically cancelled.

 

Other Terms

 

The Administrators will determine the exercise price and term/expiration date of each Option, provided that the exercise price in respect of that Option shall not be less than the Market Price on the date of grant. “Market Price” is defined in the Share Compensation Plan, as of any date, the closing price of the Common Shares on the CSE for the last market trading day prior to the date of grant of the Option or if the Common Shares are not listed on a stock exchange, the Market Price shall be determined in good faith by the Administrators.

 

No Option shall be exercisable after ten years from the date the Option is granted. Under the Share Compensation Plan, should the term of an Option expire on a date that falls within a blackout period or within nine business days following the expiration of a blackout period, such expiration date will be automatically extended to the tenth business day after the end of the blackout period.

 

Unless otherwise determined by the Board, in the event of a change of control, any surviving or acquiring corporation shall assume any Option outstanding under the Share Compensation Plan on substantially the same economic terms and conditions or substitute or replace similar options for those Options outstanding under the Share Compensation Plan on substantially the same economic terms and conditions.

 

Transferability

 

RSUs awarded and Options granted under the Share Compensation Plan or any rights of a Participant cannot be transferred, assigned, charged, pledged or hypothecated, or otherwise alienated, whether by operation of law or otherwise.

 

Reorganization and Change of Control Adjustments

 

In the event of any declaration by the Company of any stock dividend payable in securities (other than a dividend which may be paid in cash or in securities at the option of the holder of Common Shares), or any subdivision or consolidation of Common Shares, reclassification or conversion of the Common Shares, or any combination or exchange of securities, merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin off involving the Company, distribution (other than normal course cash dividends) of Company assets to holders of Common Shares, or any other corporate transaction or event involving the Company or the Common Shares, the Administrators may make such changes or adjustments, if any, as they consider fair or equitable, to reflect such change or event including adjusting the number of Options and RSUs outstanding under the Share Compensation Plan, the type and number of securities or other property to be received upon exercise or redemption thereof, and the exercise price of Options outstanding under the Share Compensation Plan, provided that the value of any Option or RSU immediately after such an adjustment shall not exceed the value of such Option or RSU prior thereto.

 

 

Amendment Provisions in the Share Compensation Plan

 

The Board may amend the Share Compensation Plan or any RSU or Option at any time without the consent of any Participant provided that such amendment shall:

 

	(a)	not adversely alter or impair any RSU previously awarded or any Option previously granted, except as permitted by the adjustment provisions of the Share Compensation Plan and with respect to RSUs and Options of US Participants;
	(b)	be subject to any regulatory approvals including, where required, the approval of the CSE or the Nasdaq; and
	(c)	be subject to shareholder approval, where required, by the requirements of the CSE or the Nasdaq, provided that shareholder approval shall not be required for the following amendments:

 

	(i)	amendments of a “housekeeping nature”, including any amendment to the Share Compensation Plan or ‎a RSU or Option that is necessary to comply with ‎applicable laws, tax or accounting provisions or the requirements of any ‎regulatory authority or Exchange and any amendment to the Share Compensation Plan or a ‎RSU or Option to correct or rectify any ambiguity, ‎defective provision, error or omission therein, including any amendment to ‎any definitions therein;‎
	(ii)	amendments that are necessary or desirable for RUS or ‎Options to qualify for favourable treatment under any applicable tax law;‎
	(iii)	a change to the vesting provisions of any RSU or any Option ‎‎(including any alteration, extension or acceleration thereof);‎
	(iv)	a change to the termination provisions of any Option or RSU ‎‎(for example, relating to termination of employment, resignation, ‎retirement or death) that does not entail an extension beyond the original ‎expiration date;‎

 

	(v)	the introduction of features to the Share Compensation Plan that would permit the Company to, ‎instead of issuing Common Shares from treasury upon the vesting of the ‎RSUs, retain a broker and make payments for the benefit ‎of Participants to such broker who would purchase Common Shares in ‎the open market for such Participants; ‎
	(vi)	the amendment of the Share Compensation Plan as it relates to making lump sum payments to ‎Participants upon the vesting of the RSUs;‎ and
	(vii)	the amendment of the cashless exercise feature set out in the Share Compensation Plan.

 

(d)

‎be subject to disinterested shareholder approval in the event of any reduction in ‎the exercise price of any Option granted under the Share Compensation Plan to an insider Participant‎.

 

For greater certainty, shareholder approval will be required in circumstances where an amendment to the Share Compensation Plan would:

 

	(a)	increase the fixed maximum percentage of issued and outstanding Common Shares issuable under the Share Compensation Plan, other than by virtue of the adjustment provisions in the Share Compensation Plan, or change from a fixed maximum percentage of issued and outstanding Common Shares to a fixed maximum number of Common Shares;
	(b)	increase the limits referred to above under “Restrictions on the Award of RSUs and Grant of Options”;
	(c)	reduce the exercise price of any Option (including any cancellation of an Option for the purpose of reissuance of a new Option at a lower exercise price to the same person);

 

 

	(d)	extend the term of any Option beyond the original term (except if such period is being extend by virtue of a blackout period); or
	(e)	amend the amendment provisions in Section 6.4 of the Share Compensation Plan.

 

6.F.	Action to Recover Erroneously Awarded Compensation

 

Not Applicable.

 

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

7.A.	Major Shareholders

 

To the knowledge of the Board and executive officers of the Company, other than as disclosed below, as at March 27, 2024 no persons or ‎companies beneficially own, directly or indirectly or exercise control or direction over shares carrying 5% or ‎more of the voting rights attached to all outstanding shares of the Company‎. No holder of common shares has different voting rights from any other holders of common shares.

 

Armistice Capital, LLC and Steven Boyd (collectively “Armistice”) reported on a Schedule 13-G, filed with the SEC on February 14, 2024, that they were the beneficial owner of 4,938,978 shares, representing 9.99% of the Company’s common shares.

 

7.B.	Related Party Transactions

 

Key management personnel include those persons having authority and responsibility for planning, directing and ‎controlling the activities of the Company as a whole. The Company has determined that key management personnel ‎consist of members of the Company’s Board of Directors and corporate officers.‎

 

On August 1, 2019, the Company entered in a business services agreement (the “Agreement”) with Business Instincts Group (“BIG”), a company that Cameron Chell, CEO and director has a material interest in that he previously controlled, to provide: corporate development and governance, strategic facilitation and management, general business services, office space, corporate business development video content, website redesign and management, and online visibility management at fees set out in the Agreement. For the year ended December 31, 2023, the company incurred fees of $429,766 (December 31, 2022 - $442,485) which are included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $3,780 (December 31, 2022 - $30,804).

 

On October 1, 2019, the Company entered into an independent consultant agreement (“Consultant Agreement”) with 1502372 Alberta Ltd, a company controlled by Cameron Chell, CEO and director, to provide executive consulting services to the Company and all fees are set in the Consultant Agreement. For the year ended December 31, 2023, the Company incurred fees of $592,500 (December 31, 2022 - $566,487) included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $35,417 (December 31, 2022 - $nil).

 

On July 3, 2020, the Company entered into an executive consultant agreement (“Executive Agreement”) with Scott Larson, a director of the Company, to provide executive consulting services, as President, to the Company. On May 9, 2022, Scott Larson ceased to be President of the Company and entered into an agreement to provide executive consulting services to the Company and all fees are set in the consulting agreement. For the year ended December 31, 2023, the Company incurred fees of $215,019 (December 31, 2022 - $383,288) included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $9,287 (December 31, 2022 - $20,745).

 

Trade payables and accrued liabilities

 

As at December 31, 2023, the Company had $nil (December 31, 2022 - $nil) receivable from related parties ‎outstanding that were included in accounts receivable and $190,664 (December 31, 2022 - $51,549) payable to related ‎parties that was included in accounts payable. The balances outstanding are unsecured, non-interest bearing and due on ‎demand.‎

 

 

Key management compensation

 

Key management includes the Company’s directors and members of the executive management team. ‎Compensation awarded to key management for the years ended December 31, 2023, 2022, and 2021 included:‎

 

For the year ended December 31		2023 ($)				2022 ($)				2021 ($)
Director fees			‎600,933‎				‎522,349‎				370,094
Management fees paid to a company ‎controlled by CEO and director			‎592,500‎				‎566,487‎				290,225
Management fees paid to a company ‎controlled by the President and ‎director			-				-				205,691
Management fees paid to a company that the CEO holds an economic interest in			‎429,766‎				‎442,485‎				315,643
Management fees paid to a company controlled by a director			‎215,019‎				‎383,288‎				-
Salaries			979,154‎				‎843,917‎				722,068
Share-based payments			‎1,109,232‎				‎2,106,906‎				2,475,949
Totals			3,926,604				4,865,432				4,379,670

 

7.C.	Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.

FINANCIAL INFORMATION

 

The audited consolidated financial statements for the years ended December 31, 2023 and 2022 can be found under “Item 18. Financial Statements”.

 

8.B.	Significant Changes

 

We are not aware of any significant change that has occurred since December 31, 2023, the date of the audited consolidated financial statements included in this Annual Report, and that has not been disclosed elsewhere in this Annual Report.

 

ITEM 9.

THE OFFER AND LISTING.

 

9.A.	Offer and Listing Details

 

The Common Shares are listed and posted for trading on the CSE under the trading symbol “DPRO”, on ‎the Nasdaq under the symbol “DPRO”, and on the Frankfurt Stock Exchange under the trading symbol “3U8A”.

 

9.B.	Plan of Distribution

 

Not applicable.

 

9.C.

Markets

 

A discussion of all stock exchanges and other regulated markets on which our securities are listed is provided under “Item 9.A. Offer and Listing Details.”

 

9.D.	Selling Shareholders

 

Not applicable.

 

 

9.E.

Dilution

 

Not applicable.

 

9.F.	Expenses of the Issue

 

Not applicable.

 

ITEM 10.

ADDITIONAL INFORMATION

 

10.A.

Share Capital

 

Not applicable.

 

10.B.

Memorandum and Articles of Association

 

The Company was incorporated under the laws of the Province of British Columbia, Canada and was assigned the number BC1166724. The Company is governed by the BCBCA.

 

Our Articles do not contain a description of our objects and purposes.

 

Our Articles do not restrict a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested, vote compensation to themselves or any other members of their body in the absence of an independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of the Company in order to serve as directors.

 

Our authorized share capital consists of an unlimited number of Common Shares of which 63,393,221 were ‎issued and ‎outstanding as of ‎‎March 26, 2024 and an unlimited number of Preferred Shares, issuable in ‎series, none of which were issued and ‎outstanding as of ‎‎March 26, 2024.

 

Each Common Share entitles the holder ‎to receive notice of and attend all meetings of the shareholders. ‎Each Common Share carries ‎the right to one vote. The ‎holders of Common Shares are entitled to receive ‎any dividends declared by the Company in respect of the ‎Common ‎Shares at such time and in such ‎amount as may be determined by the Board, in its discretion. In the event of the ‎‎liquidation, dissolution, or ‎winding up of the Company, whether voluntary or involuntary, holders of Common Shares ‎are also ‎entitled ‎to participate, rateably, in the distribution of the assets of the Company, subject to the rights of the ‎holders ‎of any other class ‎of shares ranking in priority to the Common Shares. ‎‎

 

The Preferred Shares may be issuable in series ‎and the directors may, from time to time before the issue of ‎any Preferred Shares of ‎any particular series, define and ‎attach special rights, privileges, restrictions, and ‎conditions to the Preferred Shares of any series, ‎including voting rights, ‎entitlement to dividends, and ‎redemption, conversion, and exchange rights. In the event of the liquidation, ‎dissolution, or ‎winding up of ‎the Company, whether voluntary or involuntary, holders of Preferred Shares will rank on a parity with ‎‎‎holders of the Preferred Shares of every other series and be entitled to preference over the Common ‎Shares and over ‎any other ‎shares of the Company ranking junior to the Preferred Shares.‎

 

The provisions in our Articles attaching to the Common Shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the Common Shares present in person or by proxy at any such meeting of holders.

 

Our Articles provide for our directors to hold office until the expiry of his or her term (which is stipulated to be immediately before the next election or appointment of directors at an annual general meeting of our shareholders) or until his or her successor is elected or appointed, unless their respective office is earlier vacated in accordance with our Articles or with the provisions of the BCBCA. A director appointed or elected to fill a vacancy on the Board holds office for the unexpired term of their predecessor.

 

 

An annual meeting of shareholders must be held at such time in each year that is not later than 15 months after the last preceding annual meeting and at such place as the Board may from time to time determine. The holders of not less than five percent of the issued Common Shares that carry the right to vote at a meeting may requisition our Board to call a meeting of shareholders for the purposes stated in the requisition. The quorum for the transaction of business at any meeting of shareholders is two persons who are, or represented by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to vote at the meeting. In addition to those persons who are entitled to vote at a meeting of shareholders, the only other persons entitled to be present at the meeting are the directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited to be present at the meeting by the directors or by the chair of the meeting and any persons entitled or required under the BCBCA or our Articles to be present at the meeting; but if any of those persons does attend the meeting, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.

 

Except as provided in the Investment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or the Province of British Columbia, or in our charter documents.

 

Our Articles do not contain provisions that would have an effect of delaying, deferring or preventing a change in control of the Company. Our Articles do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our company.

 

Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.

 

Our Articles are not significantly different from the requirements of the BCBCA and the conditions imposed by our Articles governing changes in capital are not more stringent than what is required by the BCBCA.

 

10.C.

Material Contracts

 

There are no material contracts entered into by Draganfly within the two most recently completed financial ‎years, or ‎before the two most recently completed financial years but which are still in effect, other than ‎contracts entered into ‎in the ordinary course of business.

 

10.D.

Exchange Controls

 

There are currently no government laws, decrees, regulations or other legislation of Canada or the United States that restrict the export or import of capital (including the availability of cash and cash equivalents) or that affect the remittance of dividends, distributions, interest or other payments to non-residents of Canada or the United States holding our Common Shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See “Taxation” below.

 

10.E.

Taxation

 

Certain U.S. Federal Income Tax Considerations

 

The following discussion describes the material U.S. federal income tax consequences relating to the ownership and disposition of Common Shares by U.S. Holders (as defined below). This discussion applies to U.S. Holders that hold Common Shares as capital assets (generally, property held for investment). This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, banks, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities or government organizations, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold Common Shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment, persons required to accelerate the recognition of any item of gross income with respect to the Common Shares as a result of such income being recognized on an applicable financial statement, persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through attribution 10% or more of the voting power or value of our shares, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities (or arrangements treated as a partnership for U.S. federal income tax purposes), and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences.

 

 

As used in this discussion, the term “U.S. Holder” means a beneficial owner of Common Shares that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.

 

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences relating to an investment in the Common Shares will depend in part upon the status and activities of such entity or arrangement and the particular partner. Any such entity or arrangement should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of Common Shares.

 

U.S. Holders should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of Common Shares, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.

 

Passive Foreign Investment Company Consequences

 

In general, a corporation organized outside the United States will be treated as a PFIC, for any taxable year in which either (1) at least 75% of its gross income is “passive income”, or (2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.

 

Based on the current and expected composition of our income and the value of our assets, we believe that we were ‎not a PFIC United States federal income tax purposes for the for the taxable year ended December 31, 2023 and ‎we expect that we will not be a PFIC for the current taxable year. Nevertheless, because our PFIC status must be ‎determined annually with respect to each taxable year and will depend on the composition and character of our ‎assets and income, including our use of proceeds from an offering of Common Shares, and the value of our assets ‎‎(which may be determined, in part, by reference to the market value of Common Shares, which may be volatile) ‎over the course of such taxable year, we may be a PFIC in any taxable year. The determination of whether we will ‎be or become a PFIC may also depend, in part, on how, and how quickly, we use our liquid assets and the cash ‎raised in an offering of Common Shares. If we determine not to deploy significant amounts of cash for active ‎purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of ‎the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, ‎there can be no assurance that we will not be a PFIC for any future taxable year. In addition, it is possible that the ‎U.S. Internal Revenue Service may challenge our classification of certain income and assets as non-passive, which ‎may result in us being or becoming a PFIC in the current or subsequent years.‎

 

 

If we are a PFIC in any taxable year during which a U.S. Holder owns Common Shares, the U.S. Holder could be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the Common Shares, and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of the Common Shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for Common Shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.

 

If we are a PFIC for any year during which a U.S. Holder holds Common Shares, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds the Common Shares, unless (i) we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the Common Shares or for the period immediately preceding our cessation in meeting the tests described above the Common Shares were subject to a mark-to-market election or (ii) the U.S. Holder makes a timely and effective “qualified electing fund” election (“QEF Election”) with respect to all taxable years during such U.S. Holder’s holding period in which the we are a PFIC. If the election is made, the U.S. Holder will be deemed to sell the Common Shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s Common Shares would not be treated as shares of a PFIC unless we subsequently become a PFIC.

 

If we are a PFIC for any taxable year during which a U.S. Holder holds Common Shares and one of our non-U.S. corporate subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to our non-U.S. subsidiaries.

 

If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on Common Shares if such U.S. Holder makes a valid “mark-to-market” election for our Common Shares. A mark-to-market election is available to a U.S. Holder only for “marketable stock”. Our Common Shares will be marketable stock as long as they remain listed on the Nasdaq and are regularly traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take into account, as ordinary income each year, the excess of the fair market value of Common Shares held at the end of such taxable year over the adjusted tax basis of such Common Shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such Common Shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in Common Shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of Common Shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss.

 

A mark-to-market election will not apply to Common Shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any non-U.S. subsidiaries that we may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier PFICs that we may organize or acquire in the future notwithstanding the U.S. Holder’s mark-to-market election for the Common Shares.

 

 

A U.S. Holder who makes a QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings for any year in which were are a PFIC, whether or not we distribute any amounts to our shareholders. However, U.S. holders should be aware that there can be no assurance that we will satisfy the record keeping requirements that apply to a QEF, or that we will supply U.S. holders with information that such U.S. holders require to report under the QEF election rules, in the event that the Company is a PFIC and a U.S. holder wishes to make a QEF election.

 

Each U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.

 

The U.S. federal income tax rules relating to PFICs are very complex. U.S. Holders are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of Common Shares, the consequences to them of an investment in a PFIC, any elections available with respect to the Common Shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of Common Shares of a PFIC.

 

Distributions on the Common Shares

 

Subject to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution with respect to Common Shares generally will be required to include the gross amount of such distribution (before reduction for any Canadian withholding taxes withheld therefrom) in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s Common Shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s Common Shares, the remainder will be taxed as capital gain. Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported to them as dividends. Distributions on Common Shares that are treated as dividends generally will constitute income from sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Such dividends will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations.

 

Dividends paid by a “qualified foreign corporation” are eligible for taxation in the case of non-corporate U.S. Holders at a reduced long-term capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain requirements are met. Each non-corporate U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances.

 

A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in which the ‎dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) ‎if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury ‎of the United States determines is satisfactory for purposes of this provision and which includes an exchange of ‎information provision, or (b) with respect to any dividend it pays on Common Shares that are readily tradable on ‎an established securities market in the United States. We believe that we qualify as a resident of Canada for ‎purposes of, and are eligible for the benefits of, the U.S.-Canada Treaty, which the IRS has determined is ‎satisfactory for purposes of the qualified dividend rules and that it includes an exchange of information provision, ‎although there can be no assurance in this regard. Further, our Common Shares will generally be considered to be ‎readily tradable on an established securities market in the United States if they remain listed on the Nasdaq, as we ‎intend the Common Shares to be. Therefore, subject to the discussion above under “—Passive Foreign Investment ‎Company Consequences”, if the U.S. Treaty is applicable, or if the Common Shares are readily tradable on an ‎established securities market in the United States, dividends paid on Common Shares will generally be “qualified ‎dividend income” in the hands of non-corporate U.S. Holders, provided that certain conditions are met, including ‎conditions relating to holding period and the absence of certain risk reduction transactions.‎

 

 

Sale, Exchange or Other Disposition of Common Shares

 

Subject to the discussion above under “— Passive Foreign Investment Company Consequences,” a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of Common Shares in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the Common Shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the Common Shares were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder from the sale or other disposition of Common Shares will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.

 

Medicare Tax

 

Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% Medicare tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of Common Shares. If you are a U.S. person that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of this Medicare tax to your income and gains in respect of your investment in Common Shares.

 

Information Reporting and Backup Withholding

 

U.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in Common Shares, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Passive Foreign Investment Company Consequences”, each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying more than US$100,000 for Common Shares may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting.

 

Dividends on and proceeds from the sale or other disposition of Common Shares may be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder (1) fails to provide an accurate U.S. taxpayer identification number or otherwise establish a basis for exemption, or (2) is described in certain other categories of persons. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.

 

U.S. Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules.

 

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.‎

 

 

Certain Canadian Federal Income Tax Considerations for United States Residents

 

The following is, at the date of this Annual Report, a summary of certain Canadian federal income tax considerations generally applicable to the holding and disposition of Common Shares acquired by a holder who, at all relevant times, (a) for the purposes of the Tax Act (i) is not resident, or deemed to be resident, in Canada, (ii) deals at “arm’s length” with the Company, and is not “affiliated” with the Company (each as defined in the Tax Act), (iii) acquires and holds Common Shares as capital property, (iv) does not use or hold Common Shares in the course of carrying on, or otherwise in connection with, a business carried on or deemed to be carried on in Canada, and (v) is not an insurer that carries on an insurance business in Canada and elsewhere or “authorized foreign bank” (as defined in the Tax Act), or other holder of special status, and (b) for the purposes of the Canada-U.S. Tax Convention (1980) (the “Tax Treaty”), is a resident of the United States, has never been a resident of Canada, does not have and has not had, at any time, a “permanent establishment” (as defined in the Tax Treaty) of any kind in Canada, and otherwise qualifies for the full benefits of the Tax Treaty. Holders who meet all the criteria in clauses (a) and (b) above are referred to herein as “United States Holders”, and this summary only addresses such United States Holders.

 

This summary does not deal with special situations, such as the particular circumstances of traders or dealers, tax exempt entities, insurers or financial institutions, or other holders of special status or in special circumstances. Such holders, and all other holders who do not meet the criteria in clauses (a) and (b) above, should consult their own tax advisors.

 

This summary is based on the current provisions of the Tax Act, the regulations thereunder (the “Regulations”), the current provisions of the Tax Treaty (each as in force as of the date of this Annual Report) and the Company’s understanding of the administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof  (the “Proposed Amendments”) and assumes that such Proposed Amendments will be enacted in the form proposed. However, such Proposed Amendments might not be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policies or assessing practices, whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada, which may differ significantly from those discussed in this summary.

 

For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares must generally be expressed in Canadian dollars. Amounts denominated in United States currency generally must be converted into Canadian dollars using a rate of exchange that is acceptable to the CRA.

 

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular United States Holder, and no representation with respect to the Canadian federal income tax consequences to any particular United States Holder or prospective United States Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, all United States Holders should consult with their own tax advisors for advice with respect to their own particular circumstances.

 

Withholding Tax on Dividends

 

Amounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends on Common Shares to a United States Holder will be subject to Canadian withholding tax. Under the Tax Act, the rate of withholding is 25% of the gross amount of the dividend.

 

Under the Tax Treaty, the rate of withholding on any such dividend beneficially owned by a United States Holder is ‎generally reduced to 15%, and may further be reduced to 5% if the United States Holder is a company entitled to ‎full benefits under the Tax Treaty that owns, directly or indirectly, at least 10% of the voting stock of the Company.‎

 

Dispositions of Common Shares

 

A United States Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on ‎the disposition or deemed disposition of a Common Share, nor will a capital loss arising therefrom be recognized ‎under the Tax Act, unless such Common Share constitutes “taxable Canadian property” (as defined in the Tax Act) ‎of the United States Holder at the time of disposition and the United States Holder is not entitled to relief under the ‎Tax Treaty.‎

 

 

Provided the Common Shares are listed on a “designated stock exchange” (as defined in the Tax Act) (which currently includes the Nasdaq and CSE) and are so listed at the time of disposition, the Common Shares generally will not constitute “taxable Canadian property” of a United States Holder at that time unless, at any time during the 60-month period immediately preceding the disposition, the following two conditions are met concurrently: (i) 25% or more of the issued shares of any class or series of shares of the Company were owned by or belonged to one or any combination of (a) the United States Holder, (b) persons with whom the United States Holder did not deal at “arm’s length” (within the meaning of the Tax Act), or (c) partnerships in which the United States Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships; and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of (a) real or immovable property situated in Canada, (b) “Canadian resource properties” (as defined in the Tax Act), (c) “timber resource properties” (as defined in the Tax Act), or (d) options in respect of, interests in, or, for civil law purposes, a right in, the foregoing property, whether or not such property exists. Notwithstanding the foregoing, a Common Share may be deemed to be “taxable Canadian property” in certain other circumstances. United States Holders should consult their own tax advisors as to whether their Common Shares will constitute “taxable Canadian property”.

 

United States Holders who may hold Common Shares as “taxable Canadian property” should consult their own tax advisors with respect to the application of Canadian capital gains taxation, any potential relief under the Tax Treaty, and special compliance procedures under the Tax Act, none of which are described in this summary.

 

SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CANADIAN OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY NON-U.S., STATE OR LOCAL TAXES.

 

10.F.

Dividends and Paying Agents

 

Not applicable.

 

10.G.

Statement by Experts

 

Not applicable.

 

10.H.

Documents on Display

 

Documents concerning our company referred to in this Annual Report may be viewed by appointment during normal business hours at our registered and records office at Suite 2700, 1133 Melville Street, Vancouver, British ‎Columbia V6E 4E5.

 

10.I.

Subsidiary Information

 

Not applicable.

 

10.J.

Annual Report to Security Holders

 

The Company will prove this Annual Report to securityholders, as applicable, in electronic format in accordance with the EDGAR Filer Manual.

 

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

Credit Risk

 

Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual obligations. The Company is subject to credit risk on its cash and receivables. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. The Company performs credit evaluations of its customers. Receivables are shown net of any provision made for impairment of the receivables. Due to this factor, the Company believes that no additional credit risk, beyond amounts provided for collection loss, is inherent in receivables.

 

 

Credit and liquidity risk associated with cash and the marketable security is managed by ensuring assets are placed with major financial institutions with strong investment grade ratings.

 

Credit risk on trade and other receivables reflects the risk that the Company may be unable to recover them. Trade and other receivables that are greater than 30 days are considered past due. The table below sets out the status of trade and other receivables, no allowance for doubtful accounts has been recorded as at December 31, 2023 and December 31, 2022.

 

		December 31, 2023				December 31, 2022
0 – 30 days		$	271,622			$	1,020,091
31 – 60 days			109,928				116,378
61 – 90 days			64,259				343,364
91 + days			203,803				609,132
		$	649,612			$	2,088,965

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a ‎planning and budgeting process in place to help determine the funds required to support the Company’s normal operating ‎requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business ‎requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents. ‎Historically, the Company’s sole source of funding has been the issuance of equity securities for cash, primarily through ‎private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access ‎to significant equity funding.‎

 

Interest Rate Risk

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposure through its normal operating and financing activities. The Company is exposed to minimal interest rate risk on its cash balances as they carry a floating rate of interest. We do not currently hedge our interest rate risk.

 

Foreign Currency Risk

 

We are also exposed to market risk related to change in foreign currency exchange rates. Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company does engage in significant transactions and activities in currencies other than its functional currency, the Canadian dollar. Such transactions are primarily denominated in the U.S. dollar. Transactions in foreign currencies are translated into Canadian dollars at rates of exchange at the time of such transactions Depending on the timing of the transactions and the applicable currency exchange rates such conversions may positively or negatively impact the Company. We do not currently hedge our foreign exchange rate risk.

 

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

12.A.

Debt Securities

 

Not applicable.

 

12.B.

Warrants and Rights

 

Not applicable.

 

12.C.

Other Securities

 

Not applicable.

 

12.D.

American Depositary Shares

 

Not applicable.

 

 

PART II

 

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

Not applicable.

 

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable.

 

14.E.

Use of Proceeds

 

The effective date of the registration statement on Form F-10 (File No. 333-258074) for the Company’s initial underwritten public offering of securities in the United States was July 29, 2021 (defined herein as the “US Offering”). The offering of 5,000,000 Common Shares at a price of U.S.$4.00 per share closed on August 3, 2021 for gross proceeds of U.S.$20,000,000, before deducting underwriting discounts and offering expenses of approximately U.S.$2,400,000 for total net proceeds to the Company from the offering of U.S.$17,600,000. ThinkEquity, a division of Fordham Financial Management, Inc. (“ThinkEquity”), was the sole book-running manager for the offering.

 

In addition, ThinkEquity was granted a 45-day over-allotment option following the closing date to purchase up to an additional 750,000 shares. On September 15, 2021, the Company announced the exercise of 95,966 of the over-allotment shares at a price of U.S.$4.00 per share for additional gross proceeds of U.S.$383,864, bringing the aggregate gross proceeds of the US Offering to U.S.$20,383,864 before deducting underwriting discounts and offering expenses. After deducting underwriting discounts and offering expenses of U.S.$2,400,000, the total net proceeds to the Company from the US Offering were approximately U.S.$17,983,864. None of the net proceeds of the US Offering were paid directly or indirectly to any director or officer of ours or to their associates, persons owning 10% or more of any class of our equity securities, or to any of our affiliates.

 

The Company has fully used the net proceeds of the US Offering. The proceeds that the Company has used have been used for general corporate purposes, including funding ongoing operations, growth initiatives, and working capital. There has been no material change in the use of proceeds from our initial public offering from that described in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on July 30, 2021 (the “Supplement”). The Company used the net proceeds of the offering, together with existing cash, for general corporate purposes, including to fund ongoing operations, to fund growth initiatives and/or for working capital requirements including the continuing development and marketing of the Company’s core products, potential acquisitions and research and development, as set out in the Supplement.

 

 

ITEM 15.

CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

At the end of the period covered by this Annual Report, an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and Rule 15d-15(e)‎ under the Exchange Act) was carried out by the Company’s principal executive officer (the “CEO”) and principal financial officer (the “CFO”). Based upon that evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Annual Report, the design and operation of the Company’s disclosure controls and procedures are effective to ensure that (i) information required to be disclosed in reports that the Company files or submits to regulatory authorities is recorded, processed, summarized and reported within the time periods specified by regulation, and (ii) is accumulated and communicated to management, including the Company’s CEO and CFO, to allow timely decisions regarding required disclosure.

 

It should be noted that while the Company’s CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

Management Report on Internal Control Over Financial Reporting & Auditor Attestation

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended) and has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

In designing and evaluating the Company’s internal control over financial reporting, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its reasonable judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.

 

Attestation Report of Independent Auditor

 

In accordance with the JOBS Act enacted on April 5, 2012, the Company qualifies as an “emerging growth company,” which entitles the Company to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. Specifically, the JOBS Act defers the requirement to have the Company’s independent auditor assess the Company’s internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act. As such, the Company is exempted from the requirement to include an auditor attestation report in this Annual Report for so long as the Company remains an EGC, which may be for as long as five years following its initial registration in the United States.

 

Changes in Internal Control over Financial Reporting

 

During the year ended December 31, 2023, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 16.

[RESERVED]

 

 

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

 

The Company’s Audit Committee, which consists exclusively of independent directors within the meaning of NI 52-110 and the Nasdaq listing requirements, is comprised of Olen Aasen, Julie Myers Wood and John M. ‎Mitnick. Olen Aasen is the Chair of the Audit Committee. The Board of Directors has determined that Julie Myers Wood, Olen Aasen, and John M. ‎Mitnick each meet the independence requirements for directors, including the heightened independence standards for members of the audit committee under Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and NI 52-110. The Board has determined that Olen Aasen is “financially literate” within the meaning of NI 52-110 and the Nasdaq listing requirements and an “audit committee financial expert” as defined by Rule 10A-3 under the Exchange Act. For a description of the education and experience of each member of the Audit Committee, see “Item 6A. Directors, Senior Management and Employees.”

 

ITEM 16B.

CODE OF ETHICS

 

The Company has adopted a Code of Business Conduct and Ethics applicable to all of its directors, officers and employees, including its CEO and CFO, which is a “code of ethics” as defined in section 406(c) of the Sarbanes-Oxley Act. The Code of Business Conduct and Ethics sets out the fundamental values and standards of behavior that the Company expects from our directors, officers and employees with respect to all aspects of its business.

 

If the Company grants any waiver of the Code of Business Conduct and Ethics, whether explicit or implicit, to a director or executive officer, it will disclose the nature of such waiver on its website to the extent required by, and in accordance with, the rules and regulations of the SEC.

 

The full text of the Code of Business Conduct and Ethics is posted on the Company’s website at www.draganfly.com and the System for Electronic Document Analysis and Retrieval+ (SEDAR+) profile at www.sedarplus.ca. The information on or accessible through the website is not part of and is not incorporated by reference into this Annual Report, and the inclusion of the website address in this Annual Report is only for reference.

 

The Audit Committee is responsible for reviewing and evaluating the Code of Business Conduct and Ethics periodically and will recommend any necessary or appropriate changes thereto to the Board for consideration. The Audit Committee will also assist the Board of Directors with the monitoring of compliance with the Code of Business Conduct and Ethics.

 

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table sets forth information regarding the amount billed and accrued to the Company by Dale Matheson Carr-Hilton Labonte LLP, for the fiscal years ended December 31, 2023 ad 2022:

 

		Year Ended December 31,
Services		2023				2022
Audit Fees(1)		$	235,000			$	250,000
Audit-Related Fees(2)		$	83,000			$	63,900
Tax Fees(3)		$	12,600			$	11,000
Other Fees(4)		$	-			$	-

 

Notes:

 

	(1)	“Audit fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for the audit of the Company’s annual financial statements and the review of its comparative interim financial statements.
	(2)	“Audit-related fees” means the aggregate fees billed for professional services rendered by the Company’s principal accounting firm for the assurance and related services, which mainly included the audit and review of financial statements and are not reported under “Audit fees” above.
	(3)	“Tax fees” means the aggregate fees billed for professional services rendered by the Company’s principal accounting firm for tax compliance, tax advice and tax planning.
	(4)	“Other fees” means the aggregate fees incurred in each of the fiscal years listed for the professional tax services rendered by the Company’s principal accounting firm other than services reported under “Audit fees,” “Audit-related fees” and “Tax fees.”

 

The policy of the Company’s Audit Committee is to pre-approve all audit and non-audit services provided by Dale Matheson Carr-Hilton Labonte LLP, its independent registered public accounting firm, including audit services, audit-related services, tax services, and other services as described above.

 

 

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not Applicable.

 

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

Not Applicable.

 

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

Not applicable.

 

ITEM 16G.

CORPORATE GOVERNANCE

 

The Company is a foreign private issuer and its Common Shares are listed on the Nasdaq Capital Market. Rule 5615(a)(3) of the rules of the Nasdaq Stock Market LLC Rules (the “Nasdaq Rules”) permits a foreign private issuer to follow its home country practices in lieu of certain requirements of the 5600 Series of the Nasdaq Rules, which set forth corporate governance requirements. In order to claim such an exemption, the Company must disclose the significant differences between its corporate governance practices and those required to be followed by U.S. domestic issuers under the Nasdaq Rules. Set forth below is a brief summary of such differences.

 

Quorum Requirement

 

Nasdaq Rule 5620(c) requires that each company that is not a limited partnership shall provide for a quorum as specified in its by-laws for any meeting of holders of common stock; provided, however, that in no case shall such quorum be less than 33 1/3% of the outstanding shares of the company’s common voting stock. The Company does not presently follow this Nasdaq Rule. Instead, and in accordance with the Nasdaq exemption, the Company complies with the BCBCA which does not require a quorum of no less than 33 1/3% of the outstanding shares of the Company’s common voting shares and provides that the quorum for the transaction of business at a meeting of shareholders is the quorum established by the Company’s Articles, which is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.

 

Independent Compensation Committee

 

Nasdaq Rule 5605(d)(2) requires that listed companies have a compensation committee comprised entirely of independent directors. The Company does not have a compensation committee comprised entirely of independent directors. Under Canadian securities laws, National Policy 58-201 only recommends that a compensation committee be composed entirely of independent directors. The rules of the CSE likewise do not require an entirely independent compensation committee.

 

ITEM 16H.

MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 16I.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

 

ITEM 16J.

INSIDER TRADING POLICIES

 

Not Applicable.

 

ITEM 16K.

CYBERSECURITY

 

Draganfly conducts annual IT general controls (ITGC) audits through a third-party firm to evaluate internal risks to key business systems. Any significant deficiencies identified are promptly addressed and documented. Additionally, to mitigate external risks, Draganfly has enlisted the services of an Extended Detection and Response (XDR) provider for continuous 24/7 monitoring, threat hunting, incident response, and vulnerability management.

 

The XDR platform aggregates data from various sources including network scanners, endpoint agents, and cloud APIs. This data undergoes rigorous analysis leveraging machine-learning-powered threat intelligence and human expertise to swiftly identify and address cybersecurity threats in real-time. Any unusual findings are promptly communicated to the Systems Administrator via ticketing. In instances of critical alerts posing a material risk to the company, affected systems are immediately quarantined at the kernel level, isolating them from network communication until remedial actions can be taken.

 

Furthermore, Draganfly conducts quarterly reviews of the XDR provider services overseen by the Systems Administrator. To mitigate the risk of the XDR provider compromising Draganfly’s systems, an air-gap approach is implemented, ensuring that the provider cannot directly intervene in Draganfly’s systems except to quarantine systems, a capability that can be terminated by the Systems Administrator at any time.

 

In addition to our robust cybersecurity measures, Draganfly prioritizes employee awareness and readiness to counter emerging threats. Regular cybersecurity training is conducted to educate our staff on recognizing and mitigating social engineering attacks. These sessions emphasize the importance of vigilance and critical thinking when encountering suspicious emails, phone calls, or other forms of communication aimed at deceiving individuals into divulging sensitive information or compromising security protocols.

 

As of the current reporting period, Draganfly has not experienced any cybersecurity incidents. However, we recognize that social engineering attacks pose a significant threat to our business operations and financial condition. While we remain vigilant and have implemented robust security measures to mitigate such risks, we acknowledge that social engineering attacks have the potential to compromise our systems and disrupt our operations.

 

The full Board receives a quarterly report and dashboard which sets out our security stance (whether there have been any incidents), and our phish-prone percentage as we believe that is our highest risk factor.

 

Management receives the same quarterly report and as the team meets weekly, any concerns or decisions ‎relating to security are brought forward by the Chief Legal and Corporate Services Officer. Should there be ‎any specific issues or incidents, the Chief Legal and Corporate Services Officer would report them ‎immediately to the Chair of the Board and the chair of the Audit Committee.‎

 

 

PART III

 

ITEM 17:

FINANCIAL STATEMENTS

 

Refer to Item 18. Financial Statements.

 

 

ITEM 18:

FINANCIAL STATEMENTS

 

Financial Statements Filed as Part of this Annual Report:

 

Audited Annual Financial Statements as at December 31, 2023 and 2022:

 

Independent Auditor’s Report of Dale Matheson Carr-Hilton Labonte LLP‎, dated March 27, 2024;	F-2
Consolidated Statements of Financial Position for the years ended December 31, 2023 and 2022;	F-3
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022;	F-4
Consolidated Statements of Changes in Shareholder Equity (Deficiency) for the years ended December 31, 2023 and 2022;	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022;	F-6
Notes to the Consolidated Financial Statements	F-7

 

 

ITEM 19.

EXHIBITS

 

The following Exhibits are being filed as part of this Annual Report, or are incorporated by reference where indicated:

 

Exhibit Number		Description
1.1		Certificate of Incorporation dated June 1, 2018 (incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-40688) filed with the SEC on April 4, 2022)
1.2		Articles dated June 1, 2018 (incorporated herein by reference to the Company’s Registration Statement on Form S-8 (Registration Number 333-259459) filed with the SEC on September 10, 2021)
1.3		Certificate of Change of Name dated August 15, 2019 ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎40688) filed with the SEC on April 4, 2022)
1.4		Notice of Articles dated June 1, 2018 (incorporated herein by reference to the Company’s Registration Statement on Form S-8 (Registration Number 333-259459) filed with the SEC on September 10, 2021)
2.1		Specimen Option Agreement of the Company ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎40688) filed with the SEC on April 4, 2022)‎
2.2		Specimen Restricted Share Unit Agreement of the Company ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎‎40688) filed with the SEC on April 4, 2022)‎
2.3		Specimen Warrant Certificate of the Company ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎‎‎40688) filed with the SEC on April 4, 2022)‎
2.4		Specimen Warrant Certificate of the Company ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎‎‎‎40688) filed with the SEC on April 4, 2022)‎
2.5		Specimen Warrant Certificate of the Company ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎‎‎‎‎40688) filed with the SEC on April 4, 2022)‎
4.1		Business Services Agreement between the Company and Business Instincts ‎Group Inc. dated August 1, 2019 ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. 001-‎‎‎40688) filed with the SEC on April 4, 2022)‎
4.2#		Share Compensation Plan dated August 9, 2019, as amended April 14, 2021 (incorporated herein by reference to the Company’s Registration Statement on Form S-8 (Registration Number 333-259459) filed with the SEC on September 10, 2021)
4.3#		Consultant Agreement ‎with 1502372 Alberta Ltd., dated October 1, 2019 ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. ‎‎001-‎‎40688) filed with the SEC on April 4, 2022)‎
4.4*#		Independent Consultant Agreement Amending Agreement with 1502372 Alberta Ltd. dated April 1, 2022
4.5*#		Independent Consulting Agreement with Scott Larson dated April 1, 2022
4.6#		Employment Agreement with Paul Sun dated November, 2020 ‎ ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. ‎‎001-‎‎40688) filed with the SEC on April 4, 2022)‎‎‎
4.7#		Amending Agreement with Paul Sun, dated September 3, 2021 ‎ ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. ‎‎001-‎‎40688) filed with the SEC on April 4, 2022)‎‎‎
4.8*#		Employment Agreement Amending Agreement with Paul Sun dated April 1, 2022
4.9*#		Employment Agreement Amendment with Paul Sun dated April 21, 2023
4.10*#		Employment Agreement with Paul Mullen dated April 12, 2021
4.11*#		Employment Agreement Amending Agreement with Paul Mullen dated April 1, 2022
4.12*#		Employment Agreement Amendment with Paul Mullen dated April 1, 2023
4.13*#		Employment Agreement with Deborah Greenberg dated June 3, 2022
4.14*#		Employment Agreement Amendment with Deborah Greenberg dated April 1, 2023
8.1*		Subsidiaries of the Company
11.1		Code of Business Conduct and Ethics ‎ ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. ‎‎001-‎‎40688) filed with the SEC on April 4, 2022)‎‎‎
12.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2†		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*		Management’s Discussion and Analysis for the fiscal year ended December 31, 2023
15.2		Audit Committee Charter ‎ ‎(incorporated herein by reference to the Company’s Annual Report on Form 20-F (File No. ‎‎001-‎‎40688) filed with the SEC on April 4, 2022)‎‎‎
15.3*		Consent of independent registered public accounting firm (Dale Matheson Carr-Hilton Labonte LLP)
97*		Compensation Clawback Policy
101*		The following materials from the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2023, formatted in eXtensible Business Reporting Language (XBRL):

		(i) Consolidated Balance Sheets as of December 31, 2023 and 2022;
		(ii) Consolidated Statements of Operations for the years ended December 31, 2023 and 2022;
		(iii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022;
		(iv) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022;
		(v) Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022; and
		(vi) Notes to Consolidated Financial Statements

104*

Cover Page Interactive Data File (formatted as Inline eXtensible Business Reporting Language (iXBRL) and contained in Exhibit 101)

 

* Filed herewith.

‎† Furnished herewith

‎# Indicates management contract or compensatory plan.‎

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

	DRAGANFLY INC.
		/s/ Paul Sun
	By:	Paul Sun
	Title:	Chief Financial Officer

 

Date: March 27, 2024

 

 

 

Draganfly Inc.

 

Consolidated Financial Statements

 

Years Ended December 31, 2023 and 2022

 

(Expressed in Canadian Dollars)

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of directors of Draganfly Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Draganfly Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ DMCL

 

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED PROFESSIONAL ACCOUNTANTS

 

We have served as the Company’s auditor since 2018

Vancouver, Canada (PCAOB ID 1173)

March 27, 2024

 

 

 

Draganfly Inc.

Consolidated Statements of Financial Position

Expressed in Canadian Dollars

 

						December 31,				December 31,
As at		Notes				2023				2022
ASSETS
Current Assets
Cash and cash equivalents			4			$	3,093,612			$	7,894,781
Receivables			5				649,612				2,088,965
Inventory			6				1,596,536				1,055,942
Notes receivable			7				-				169,300
Prepaids			8				1,342,215				2,307,724
Total current assets							6,681,975				13,516,712
Non-current Assets
Equipment			10				680,801				404,691
Intangible assets			11				56,426				179,801
Investments			9				189,403				192,583
Right of use assets			12				721,687				344,746
TOTAL ASSETS						$	8,330,292			$	14,638,533
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Trade payables and accrued liabilities			14,20			$	2,638,981			$	2,816,676
Customer deposits							104,715				194,758
Deferred income			15				12,112				63,690
Loans payable			16				85,058				81,512
Derivative liability			17				4,196,125				57,314
Lease liabilities			13				362,001				133,962
Total current liabilities							7,398,992				3,347,912
Non-current Liabilities
Loans payable			16				-				5,059
Deferred income			15				95,562				-
Lease liabilities			13				428,022				244,681
TOTAL LIABILITIES							7,922,576				3,597,652
SHAREHOLDERS’ EQUITY
Share capital			17				97,070,976				83,600,089
Reserves – share-based payments			17				6,870,139				7,264,340
Accumulated deficit							(103,588,356	)			(79,976,546	)
Accumulated other comprehensive income (loss)							54,957				152,998
TOTAL SHAREHOLDERS’ EQUITY							407,716				11,040,881
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY						$	8,330,292			$	14,638,533

 

Nature and Continuance of Operations and Going Concern (Note 1)

Subsequent Events (Note 23)

 

Approved and authorized for issuance by the Board of Directors on March 27, 2024.

 

“Scott Larson”

“Cameron Chell”

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Draganfly Inc.

Consolidated Statements of Comprehensive Loss

Expressed in Canadian Dollars

 

						For the years ended December 31,
		Note				2023				2022				2021
REVENUE
Sales of goods			18			$	5,287,093			$	5,550,432			$	5,103,399
Provision of services			18				1,267,749				2,054,627				1,950,466
TOTAL REVENUE							6,554,842				7,605,059				7,053,865
COST OF SALES			6				(4,490,728	)			(6,814,384	)			(4,410,777	)
GROSS PROFIT							2,064,114				790,675				2,643,088
OPERATING EXPENSES
Amortization			11				35,960				179,482				135,966
Depreciation			10,12				510,677				593,277				175,098
Director fees			20				600,933				522,349				370,094
Insurance							1,825,137				3,722,237				2,962,767
Office and miscellaneous			19				6,303,879				5,397,961				6,455,998
Professional fees			20				4,145,586				6,821,583				4,445,949
Research and development							1,554,823				651,302				510,895
Share-based payments			17				2,021,664				3,311,024				3,952,595
Travel							704,994				396,388				143,904
Wages and salaries			20				6,976,792				6,105,020				2,768,010
Total operating expenses							(24,680,445	)			(27,700,623	)			(21,921,276	)
OTHER INCOME (EXPENSE)
Change in fair value of derivative liability			17				211,110				5,502,688				8,149,812
Finance and other costs							83,280				44,345				5,074
Foreign exchange gain							(249,563	)			745,102				362,448
Loss on disposal of assets			10				(944	)			(10,755	)			-
Loss on write-off of notes receivable			7				(101,351	)			(309,385	)			(891,471	)
Government income							5,232				2,446				24,148
Write down of deposit			8				-				(228,572	)			-
Loss on impairment of goodwill and intangibles			11				-				(6,454,914	)			(4,579,763	)
Other income (expense)			17				(943,243	)			(35,371	)			4,968
NET LOSS FOR THE YEAR							(23,611,810	)			(27,654,364	)			(16,202,972	)
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may be reclassified to profit or loss
Foreign exchange translation							(94,861	)			447,542				136,475
Items that will not be reclassified to profit or loss
Change in fair value of equity investments at FVOCI			9				(3,180	)			(98,483	)			(332,640	)
COMPREHENSIVE LOSS FOR THE YEAR							(23,709,851	)			(27,305,305	)			(16,399,137	)
Net loss per share
Basic & diluted						$	(0.56	)		$	(0.82	)		$	(0.59	)
Weighted average number of common shares outstanding - basic & diluted							42,192,384				33,556,969				27,787,348

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Draganfly Inc.

Consolidated Statements of Changes in Shareholders’ Equity

Expressed in Canadian Dollars

 

		Number of Shares				Share Capital				Reserves – Share-Based Payments				Accumulated Deficit				Change in Fair Value of Investments at FVTOCI				Exchange Differences on Translation of Foreign Operations				Total Shareholders’ Equity
																		Accumulated Other Comprehensive Income (Loss)
		Number of Shares				Share Capital				Reserves – Share-Based Payments				Accumulated Deficit				Change in Fair Value of Investments at FVTOCI				Exchange Differences on Translation of Foreign Operations				Total Shareholders’ Equity
Balance at December 31, 2020			17,218,695			$	36,943,304			$	3,024,007			$	(36,119,210	)		$	-			$	104			$	3,848,205
Shares issued in the acquisitions of Vital			1,200,000				2,303,999				1,241,250				-				-				-				3,545,249
Shares issued for financing			11,584,657				36,092,187				-				-				-				-				36,092,187
Share issue costs			-				(4,678,821	)			864,060				-				-				-				(3,814,761	)
Shares issued for exercise of RSU’s			448,660				1,752,052				(1,752,052	)			-				-				-				-
Shares issued for exercise of warrants			1,939,534				4,929,790				-				-				-				-				4,929,790
Shares issued for exercise of stock options			405,499				1,937,866				(923,743	)			-				-				-				1,014,123
Shares issued in lieu of cash			371,901				1,757,988				-				-				-				-				1,757,988
Share-based payments			-				-				3,952,595				-				-				-				3,952,595
Net loss			-				-				-				(16,202,972	)			-				-				(16,202,972	)
Change in fair value of equity investments at FVOCI			-				-				-				-				(332,640	)			-				(332,640	)
Translation of foreign operations			-				-				-				-				-				136,475				136,475
Balance at December 31, 2021			33,168,946			$	81,038,365			$	6,406,117			$	(52,322,182	)		$	(332,640	)		$	136,579			$	34,926,239
Shares issued for the exercise of stock options			12,500				51,875				(25,000	)			-				-				-				26,875
Shares issued for the exercise of warrants			16,538				87,170				-				-				-				-				87,170
Shares issued for the exercise of RSUs			1,072,595				2,427,801				(2,427,801	)			-				-				-				-
Shares issue costs			-				(5,122	)			-				-				-				-				(5,122	)
Share-based payments			-				-				3,311,024				-				-				-				3,311,024
Net loss			-				-				-				(27,654,364	)			-				-				(27,654,364	)
Change in fair value of equity investments at FVOCI			-				-				-				-				(98,483	)			-				(98,483	)
Translation of foreign operations			-				-				-				-				-				447,542				447,542
Balance at December 31, 2022			34,270,579			$	83,600,089			$	7,264,340			$	(79,976,546	)		$	(431,123	)		$	584,121			$	11,040,881
Balance			34,270,579			$	83,600,089			$	7,264,340			$	(79,976,546	)		$	(431,123	)		$	584,121			$	11,040,881
Shares issued for financing – ATM (“At-the-market”)			650,729				1,748,946				-				-				-				-				1,748,946
Share issue costs			-				(222,136	)			-				-				-				-				(222,136	)
Shares issued for financing			12,800,000				11,376,230				-				-				-				-				11,376,230
Share issue costs			-				(2,072,886	)			224,868				-				-				-				(1,848,018	)
Shares issued for the exercise of RSUs			1,508,255				2,640,733				(2,640,733	)			-				-				-				-
Share-based payments			-				-				2,021,664				-				-				-				2,021,664
Net loss			-				-				-				(23,611,810	)			-				-				(23,611,810	)
Change in fair value of equity investments at FVOCI			-				-				-				-				(3,180	)			-				(3,180	)
Translation of foreign operations			-				-				-				-				-				(94,861	)			(94,861	)
Balance as of December 31, 2023			49,229,563			$	97,070,976			$	6,870,139			$	(103,588,356	)		$	(434,303	)		$	489,260			$	407,716
Balance			49,229,563			$	97,070,976			$	6,870,139			$	(103,588,356	)		$	(434,303	)		$	489,260			$	407,716

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Draganfly Inc.

Consolidated Statements of Cash Flows

Expressed in Canadian Dollars

 

		For the years ended December 31,
		2023				2022				2021
OPERATING ACTIVITIES
Net loss for the year		$	(23,611,810	)		$	(27,654,364	)		$	(16,202,972	)
Adjustments for:
Amortization			35,960				179,482				135,966
Depreciation			510,677				593,277				175,098
Bad debt			216,238				-				-
Change in fair value of derivative liability			(211,110	)			(5,502,688	)			(8,149,812	)
Write down of inventory			331,671				1,976,514				-
Impairment of notes receivable			101,351				309,385				891,471
Impairment of goodwill and intangibles			87,415				6,454,914				4,579,763
Write down of deposit			-				228,572				-
Finance and other costs			4,355,156				(34,427	)			(926	)
(Gain) loss on sale of assets			18,426				-				(24,148	)
Share-based payments			2,021,664				3,311,024				3,952,595
Adjustments for profit loss			(16,144,362	)			(20,138,311	)			(14,642,965	)
Net changes in non-cash working capital items:
Receivables			1,223,112				(681,838	)			(596,336	)
Inventory			(872,265	)			(150,241	)			(2,157,203	)
Prepaids			965,509				2,958,581				(3,401,868	)
Trade payables and accrued liabilities			(170,782	)			1,661,697				(1,044,133	)
Customer deposits			(90,043	)			22,624				(213,315	)
Deferred income			43,984				(21,543	)			51,186
Cash used in operating activities			(15,044,847	)			(16,349,031	)			(22,004,634	)
INVESTING ACTIVITIES
Cash paid for acquisition, net of cash received			-				-				(466,643	)
Purchase of equipment			(490,391	)			(79,713	)			(212,579	)
Disposal of equipment			46,976				10,755				-
Purchase of intangible assets			-				(4,684	)			-
Purchase of investments			-				-				(623,706	)
Repayment (Issuance) of notes receivable			63,838				842,297				(2,002,678	)
Cash provided by (used in) investing activities			(379,577	)			768,655				(3,305,606	)
FINANCING ACTIVITIES
Proceeds from issuance of common shares for financing			13,125,176				-				44,255,651
Share issue costs			(2,070,154	)			(5,122	)			(3,814,762	)
Proceeds from issuance of common shares for warrants exercised			-				87,170				4,929,790
Proceeds from issuance of common shares for stock options exercised			-				26,875				1,014,123
Proceeds from issuance of loans			-				-				60,000
Repayment of loans			(6,747	)			(6,746	)			(48,747	)
Repayment of lease liabilities			(330,159	)			(150,275	)			(128,996	)
Cash provided by (used in) financing activities			10,718,116				(48,098	)			46,267,059
Effects of exchange rate changes on cash			(94,861	)			447,542				136,478
Change in cash			(4,706,308	)			(15,628,474	)			20,956,819
Cash and cash equivalents, beginning of year			7,894,781				23,075,713				1,982,416
Cash and cash equivalents, end of year		$	3,093,612			$	7,894,781			$	23,075,713
The following are included in cash flow from operating activities:
Interest paid in cash		$	57,041			$	51,338			$	31,010

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

1. NATURE AND CONTINUANCE OF OPERATIONS AND GOING CONCERN

 

Draganfly Inc. (the “Company”) was incorporated on June 1, 2018 under the Business Corporations Act (British Columbia). The Company creates quality, cutting-edge unmanned and remote data collection and analysis platforms and systems that are designed to revolutionize the way companies do business. The Company’s shares trade on the Canadian Securities Exchange (the “CSE”), on the Nasdaq Capital Market (the “Nasdaq”) under the symbol “DPRO” and on the Frankfurt Stock Exchange under the symbol “3U8A”. The Company’s head office is located at 235 103rd St. E, Saskatoon, SK, S7N 1Y8 and its registered office is located at 2800 – 666 Burrard Street, Vancouver, BC, V6C 2Z7.

 

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. To date, the Company has not been profitable and has an accumulated deficit of $103,588,356. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing and or achieve profitable operations in the future. These factors raise substantial doubt over the Company’s ability to continue as a going concern. These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. These adjustments could be material.

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION

 

Statement of Compliance

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Reporting Interpretation Committee (“IFRIC”). The material accounting policy information set out below was consistently applied to all years presented unless otherwise noted.

 

These consolidated financial statements were authorized for issue by the Board of Directors on March 27, 2024.

 

Basis of consolidation

 

Each subsidiary is fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continues to be consolidated until the date when such control ceases.

 

The consolidated financial statements include the accounts and results of operations of the Company and its wholly owned subsidiaries listed in the following table:

SCHEDULE OF WHOLLY OWNED SUBSIDIARIES 

Name of Subsidiary		Place of Incorporation		Ownership Interest
Draganfly Innovations Inc. (DII)		Canada			100	%
Draganfly Innovations USA, Inc. (DI USA)		US			100	%
Dronelogics Systems Inc. (“Dronelogics”)		Canada			100	%

 

All intercompany balances and transactions were eliminated on consolidation.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Foreign currency translation

 

Transactions in foreign currencies are translated into the functional currency at rates of exchange at the time of such transactions. Monetary assets and liabilities are translated at the reporting period rate of exchange. Non-monetary assets and liabilities are translated at historical exchange rates. Gains and losses resulting from foreign exchange adjustments are included in profit or loss.

 

The functional currencies of the parent company and each subsidiary are as follows:

 

Draganfly Inc.		Canadian Dollar
Draganfly Innovations Inc.		Canadian Dollar
Draganfly Innovations USA, Inc.		US Dollar
Dronelogics Systems Inc.		Canadian Dollar

 

Financial statements of subsidiaries for which the functional currency is not the Canadian dollar are translated into Canadian dollars as follows: all asset and liability accounts are translated at the year-end exchange rate and all revenue and expense accounts and cash flow statement items are translated at average exchange rates for the year. The resulting translation gains and losses are recorded as exchange differences on translation of foreign operations in other comprehensive loss.

 

Share-based payments

 

The Company may grant stock options or restricted share units (“RSU’s”) to its directors, officers, employees and consultants. The Company records share-based compensation related to stock options using the Black-Scholes Option Pricing Model.

 

The RSU’s granted entitle an employee, director or officer to either the issuance of common shares or cash payments payable upon vesting with terms determined by the Company’s Board of Directors at the time of the grant. If on the grant date it is determined there is an obligation to settle in cash, the RSU’s are accounted for as liabilities, with the fair value remeasured at the end of each reporting period and on the settlement date. Changes in fair value are recognized in profit and loss. Expense is recognized over the vesting period.

 

The Company has a present obligation to settle in cash if the choice of settlement in shares has no commercial substance, or the Company has a past practice or a stated policy of setting in cash, or generally settles in cash whenever the counterparty asks for cash settlement. If no such obligation exists, RSUs are accounted for as equity settled share-based payments and are valued using the share price on grant date. Upon settlement:

 

a)	If the Company elects to settle in cash, the cash payment is accounted for as the repurchase of an equity interest (i.e. as a deduction from equity), except as noted in (c) below.
b)	If the Company elects to settle by issuing shares, the value of RSUs initially recognized in reserves is reclassified to share capital, except as noted in (c) below.
c)	If the Company elects the settlement alternative with the higher fair value, as at the date of settlement, the Company recognizes an additional expense for the excess value given (i.e. the difference between the cash paid and the fair value of shares that would otherwise have been issued, or the difference between the fair value of the shares and the amount of cash that would otherwise have been paid, whichever is applicable).

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

The aggregate sales price or amount of common shares issued during any consecutive 12-month period will not exceed the greatest of the following: (i) USD $1,000,000; (ii) 15% of the total assets of the Company, measured at the Company’s most recent balance sheet date; or (iii) 15% of the outstanding amount of the common shares of the Company, measured at the Company’s most recent balance sheet date. At the election of the Board of Directors, upon each vesting date, participants receive (a) the issuance of common shares from treasury equal to the number of RSUs vesting, or (b) a cash payment equal to the number of vested RSUs multiplied by the fair market value of a common share, calculated as the closing price of the common shares on the CSE for the trading day immediately preceding such payment date; or (c) a combination of (a) and (b).

 

In conjunction with private placements or brokered financings, the Company may issue compensatory warrants to agents as consideration for services provided. Awards of grants are accounted for in accordance with the fair value method of accounting and result in an increase in share issue costs and a credit to warrants within shareholders’ equity when warrants are issued.

 

Loss per share

 

Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the year.

 

Diluted income per share is calculated by dividing the profit attributable to common shareholders of the parent by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on the conversion of all the dilutive potential common shares into common shares. The Company had 8,574,798 warrants, 897,158 options and 1,112,967 RSU’s that would be potentially dilutive if the Company were not in a loss position and were to calculate diluted income per share.

 

Financial Instruments

 

Financial instruments are accounted for in accordance with IFRS 9 Financial Instruments: Classification and Measurement. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

Financial assets/liabilities		Classification
Cash and cash equivalents		Fair value through profit or loss
Receivables		Amortized cost
Notes receivable		Fair value through profit or loss
Investments		Fair value through other comprehensive income
Trade payables		Amortized cost
Customer deposits		Amortized cost
Loans payable		Amortized cost
Derivative liability		Fair value through profit or loss

 

a)	Financial assets

 

Classification and measurement

 

The Company classifies its financial assets in the following categories: at fair value through profit or loss (“FVTPL”), at fair value through other comprehensive income (“FVTOCI”) or at amortized cost. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

The classification of debt instruments is driven by the business model for managing the financial assets and their contractual cash flow characteristics. Debt instruments are measured at amortized cost if the business model is to hold the instrument for collection of contractual cash flows and those cash flows are solely principal and interest. If the cash flows are not solely principal and interest, it is classified as FVTPL. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payments of principal and interest.

 

Equity instruments that are held for trading (including all equity derivative instruments) are classified as FVTPL, for other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument by-instrument basis) to designate them as at FVTOCI.

 

Financial assets at FVTPL

 

Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are recorded to profit or loss. Realized and unrealized gains and losses arising from changes in the fair value of financial assets held at FVTPL are included in the profit or loss in the period in which they arise. Derivatives are also categorized as FVTPL unless they are designated as hedges.

 

Financial assets at FVTOCI

 

Financial assets carried at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment.

 

Financial assets at amortized cost

 

Financial assets at amortized cost are initially recognized at fair value and subsequently carried at amortized cost less any impairment. They are classified as current assets or non-current assets based on their maturity date.

 

Impairment of financial assets at amortized cost

 

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the loss allowance is measured for the financial asset at an amount equal to twelve month expected credit losses. For trade receivables the Company applies the simplified approach to providing for expected credit losses, which allows the use of a lifetime expected loss provision.

 

Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized.

 

Derecognition of financial assets

 

Financial assets are derecognized when the risks and rewards of ownership have been transferred. Gains and losses on derecognition of financial assets classified as FVTPL or amortized cost are recorded to profit or loss. Gains or losses on financial assets classified as FVTOCI remain within accumulated other comprehensive loss.

 

b)	Financial liabilities

 

The Company classifies its financial liabilities into one of two categories as follows:

 

FVTPL - This category comprises derivatives and financial liabilities incurred principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss.

 

Other financial liabilities - This category consists of liabilities carried at amortized cost using the effective interest method. Trade payables, customer deposits and loans payable are included in this category.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Derecognition of financial liabilities

 

Financial liabilities are derecognized when its contractual obligations are discharged, cancelled, or expire. The Company also derecognizes a financial liability when the terms of the liability are modified such that the terms and/or cash flows of the modified instrument are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. Gains and losses on derecognition are recognized in profit or loss.

 

Impairment of non-financial assets

 

The carrying amounts of the non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If indicators exist, then the asset’s recoverable amount is estimated. The recoverable amounts of the following types of intangible assets are measured annually, whether or not there is any indication that it may be impaired:

 

	●	an intangible asset with an indefinite useful life; and
	●	an intangible asset not yet available for use;

 

The recoverable amount of an asset or cash-generating unit (“CGU”) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

 

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

 

In respect of assets other than goodwill and intangible assets that have indefinite useful lives, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed in a subsequent period when there has been an increase in the recoverable amount of a previously impaired asset or CGU. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

Income taxes

 

Current income tax

 

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.

 

Current income taxes relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Deferred income tax

 

Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

Inventory

 

Inventory consists of raw materials and finished goods for manufacturing of multi-rotor helicopters, industrial areal video systems, civilian small unmanned aerial systems or vehicles, health monitoring equipment, and wireless video systems. Inventory is initially valued at cost and subsequently at the lower of cost and net realizable value. Cost is determined using the first-in-first-out method. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of purchase include the purchase price, import duties and non-recoverable taxes and transport, handling and other costs directly attributable to the acquisition of finished goods, materials or services. The costs of conversion include direct materials and labour costs and a systematic allocation of fixed and variable overheads incurred in converting materials into finished goods. The Company reviews inventory for obsolete and slow-moving goods and any such inventory is written-down to net realizable value.

 

Revenue recognition

 

Revenue comprises the fair value of consideration received or receivable for the sale of goods and consulting services in the ordinary course of the Company’s business. Revenue is shown net of return allowances and discounts.

 

Sales of goods

 

The Company manufactures and sells a range of multi-rotor helicopters, industrial aerial video systems, and civilian small unmanned aerial systems or vehicles. Sales are recognized at a point-in-time when control of the products has transferred. The control transfer for Dronelogics Systems Inc. (“Dronelogics”) and Draganfly Innovations USA, Inc. is when the products are shipped to the customer and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. At this point revenue is recognized. For Draganfly Innovations Inc. transfer occurs for sales outside of North America when shipped and for sales within North America on delivery which occurs in proximity to shipping. Revenue is recognized when the transfer of control has occurred.

 

Revenue from these sales is recognized based on the price specified in the contract, net of the estimated discounts and returns. Accumulated experience is used to estimate and provide for the discounts and returns, using the expected value method, and revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. To date, returns have not been significant. No element of financing is deemed present as the sales are made with a credit term of 30 days, which is consistent with market practice.

 

Some contracts include multiple performance obligations, such as the sale of hardware and support or maintenance. Where support or maintenance is performed by another party and does not include an integration service it is accounted for as a separate performance obligation. In this case, the transaction price will be allocated to each performance obligation based on stand-alone selling price. Where the stand-alone selling price is not directly observable, the price is estimated based on expect cost plus margin. Where the support or maintenance is provided by the Company, the contract is analyzed to identify the performance obligations and transaction price. The price is then allocated across the obligations identified in the contract. Revenue is recognized when the Company satisfies a performance obligation.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Services

 

The Company provides consulting, custom engineering, drones as a service, and investigating and solving on a project-by-project basis under fixed-price and variable price contracts. Revenue from providing services is recognized over time as the services are rendered.

 

The Company provides rental of equipment which is measured based on rates through contracts or other written agreements with customers. Revenue is recognized in the period when services are performed and only when there is reasonable assurance that the revenue will be collected.

 

Deferred Income

 

A payment received is included as deferred revenue when products have yet be shipped to the customers as of the period end or there are unfulfilled obligations related to the revenue received. The amount to be recognized within twelve months following the year-end date is classified as current.

 

Cost of Goods Sold

 

Cost of sales includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight costs, as well as provisions for reserves related to product shrinkage, or lower of cost and net realizable value adjustments as required.

 

Intangible Assets and Goodwill

 

An intangible asset is an identifiable asset without physical substance. An asset is identifiable if it is separable, or arises from contractual or legal rights, regardless of whether those rights are transferrable or separable from the Company or from other rights and obligations. Intangible assets include intellectual property, which consists of patent and trademark applications, brands and software.

 

Intangible assets acquired externally are measured at cost less accumulated amortization and impairment losses. The cost of a group of intangible assets acquired is allocated to the individual intangible assets based on their relative fair values. The cost of intangible assets acquired externally comprises its purchase price and any directly attributable cost of preparing the asset for its intended use. Research and development costs incurred subsequent to the acquisition of externally acquired intangible assets and on internally generated intangible assets are accounted for as research and development costs.

 

Intangible assets with finite useful lives are amortized on a straight-line basis over the expected life of each intellectual property to write off the cost of the assets from the date they are available for use.

 SCHEDULE OF INTANGIBLE ASSETS WITH FINITE USEFUL LIVES

Class of intangible asset		Useful live
Customer relationship		5 years
Brand		5 years
Software		5 years
Patents		5 years

 

Goodwill represents the excess of the value of the consideration transferred over the fair value of the net identifiable assets and liabilities acquired in a business combination. Goodwill is allocated to the cash generating unit to which it relates.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Equipment

 

Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the consolidated statement of comprehensive loss during the financial period in which they are incurred.

 

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated statement of comprehensive loss.

 

Depreciation is generally calculated on a declining balance method to write off the cost of the assets to their residual values over their estimated useful lives. Depreciation for leasehold improvements is fully expensed over the expected term of the lease. The depreciation rates applicable to each category of equipment are as follows:

 SCHEDULE OF CLASS OF EQUIPMENT

Class of equipment		Depreciation rate
Computer equipment		30%
Furniture and equipment		20%
Leasehold improvements		Expected lease term
Vehicles		30%

 

Research and development expenditures

 

Expenditures on research are expensed as incurred. Research activities include formulation, design, evaluation and final selection of possible alternatives, products, processes, systems or services. Development expenditures are expensed as incurred unless the Company can demonstrate all of the following:

 

	(i)	the technical feasibility of completing the intangible asset so that it will be available for use or sale;
	(ii)	its intention to complete the intangible asset and use or sell it;
	(iii)	its ability to use or sell the intangible asset;
	(iv)	how the intangible asset will generate probable future economic benefits. The Company can also demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
	(v)	the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
	(vi)	its ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

2. MATERIAL ACCOUNTING POLICY INFORMATION AND BASIS OF PREPARATION (CONT’D)

 

Government Assistance

 

Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the period that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, the cost of the asset is reduced by the amount of the grant and the grant is recognized as income in equal amounts over the expected useful life of the asset.

 

Leases

 

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the commencement date, the lease liability is recognized at the present value of the future lease payments and discounted using the interest rate implicit in the lease or the Company’s incremental borrowing rate. A corresponding right-of-use (“ROU”) asset is recognized at the amount of the lease liability, adjusted for any lease incentives received and initial direct costs incurred. Over the term of the lease, financing expense is recognized on the lease liability using the effective interest rate method and charged to net income, lease payments are applied against the lease liability and depreciation on the ROU asset is recorded by class of underlying asset.

 

The lease term is the non-cancellable period of a lease plus periods covered by an optional lease extension option if it is reasonably certain that the Company will exercise the option to extend. Conversely, periods covered by an option to terminate are included if the Company does not expect to end the lease during that time frame. Leases with a term of less than twelve months or leases for underlying low value assets are recognized as an expense in net income on a straight-line basis over the lease term.

 

A lease modification is accounted for as a separate lease if it materially changes the scope of the lease. For a modification that is not a separate lease, on the effective date of the lease modification, the Company will remeasure the lease liability and corresponding ROU asset using the interest rate implicit in the lease or the Company’s incremental borrowing rate. Any variance between the remeasured ROU asset and lease liability will be recognized as a gain or loss in net income to reflect the change in scope.

 

New accounting standards issued not yet effective

 

Accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.

 

3. MANAGEMENT JUDGEMENT AND ASSUMPTIONS

 

Significant estimates and assumptions

 

The preparation of consolidated financial statements in accordance with IFRS requires the Company to make estimates and assumptions about reported amounts at the date of the consolidated financial statements and in the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

3. MANAGEMENT JUDGEMENT AND ASSUMPTIONS (CONT’D)

 

Share-based payments

 

The cost of share-based payment transactions with directors, officers and employees are measured by reference to the fair value of the equity instruments. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, risk-free interest rate, expected forfeiture rate and dividend yield.

 

Income taxes

 

Provisions for income taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these income tax provisions at the end of each reporting period. However, it is possible that at some future date an additional liability could result from audits by tax authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. Deferred tax assets are recognized when it is determined that the Company is likely to recognize their recovery from the generation of taxable income.

 

Inventory

 

Inventory is valued at the lower of cost and net realizable value. Net realizable value is determined with reference to the estimated selling price less costs to sell. The Company estimates selling price based upon assumptions about future demand and current and anticipated retail market conditions. The future realization of these inventories may be affected by future technology or other market- driven changes that may reduce future selling prices.

 

Investments in Private companies

 

Where the fair value of investments in private companies recorded on the consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgment is required to establish fair value and this value may not be indicative of the eventual recoverable value.

 

Expected credit losses on trade receivables and notes receivable

 

When determining expected credit losses (“ECLs”), the Company considers the historic credit losses observed by the Company, customer-specific payment history and economic conditions. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL’s, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience, informed credit assessment and forward-looking information.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

3. MANAGEMENT JUDGEMENT AND ASSUMPTIONS (CONT’D)

 

Useful lives of equipment and intangible assets

 

Estimates of the useful lives of equipment and intangible assets are based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence, and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the equipment would increase the recorded expenses and decrease the non-current assets.

 

Significant judgments

 

The preparation of consolidated financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments applied to the Company’s consolidated financial statements include:

 

	−	The assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;
	−	the classification of financial instruments;
	−	the assessment of revenue recognition using the five-step approach under IFRS 15; and
	−	the determination of the functional currency of each entity in the group.

 

4. CASH AND CASH EQUIVALENTS

 SCHEDULE OF CASH AND CASH EQUIVALENTS

		December 31, 2023				December 31, 2022
Cash held in banks		$	3,093,612			$	7,500,607
Guaranteed investment certificates			-				394,174
Cash and cash equivalents		$	3,093,612			$	7,894,781

 

On March 27, 2022 the Company renewed a GIC for $142,852 for 1 year at a rate of 1.00% per annum. On August 23, 2022 the Company redeemed the renewed GIC for $143,436 and purchased a new GIC for $143,436 for 1 year at a rate of 4.5% per annum.

 

On May 30, 2022 the Company renewed the GIC for $140,493 for 1 year at a rate of 0.75% per annum. On August 23, 2022 the Company redeemed the renewed GIC for $140,738 and purchased a new GIC for $140,738 for 1 year at a rate of 4.5% per annum.

 

All GIC’s were required to be maintained and renewed upon maturity until such time as the associated credit cards were cancelled. These credit cards were cancelled and all related GIC’s were not renewed during the year ended December 31, 2023.

 

5. RECEIVABLES

SCHEDULE OF AMOUNTS RECEIVABLE 

		December 31, 2023				December 31, 2022
Trade accounts receivable		$	610,443			$	1,343,795
Taxes receivable			39,169				745,170
Trade and other receivables		$	649,612			$	2,088,965

 

During the year ended December 31, 2023 the Company recorded a provision for doubtful accounts of $216,238 (2022 - $nil).

 

The Company applies a direct customer analysis approach to measure expected credit losses. The Company assesses collectability of receivables of each customer on an individual basis using quantitative and qualitative information available to management. The historical loss rates are adjusted to reflect the current and forward-looking information on economic factors affecting the ability of the customers to make regular monthly payments on the receivables.

 

Receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include business closure and/or the failure to make monthly contractual payments.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

6. INVENTORY

SCHEDULE OF INVENTORIES 

		December 31, 2023				December 31, 2022
Finished goods		$	904,858			$	542,934
Parts			691,678				513,008
Inventories		$	1,596,536			$	1,055,942

 

During the year ended December 31, 2023, $3,738,980 (2022 - $6,048,348; 2021 – $3,420,713) of inventory was recognized in cost of sales including an allowance for obsolete and slow-moving inventory of $331,671 (2022 - $1,976,514; 2021 - $nil).

 

Cost of sales consist of the following:

SCHEDULE OF COST OF SALES 

		December 31, 2023				December 31, 2022				December 31, 2021
Inventory		$	3,738,980			$	6,048,348			$	3,420,713
Consulting and services			549,448				730,170				679,345
Other			202,300				35,866				310,719
Cost of sales		$	4,490,728			$	6,814,384			$	4,410,777

 

7. NOTES RECEIVABLE

 DISCLOSURE OF NOTES RECEIVABLE 

		Maturity Date		Rate				Principal				Interest				Accretion				(Impairment)/Recovery				Repayments				Balance December 31, 2023
Note 1(1)		2023-12-15			0	%		$	190,396			$	-			$	-			$	(101,351	)		$	(63,838	)		$	-
Note 2(1)		2024-09-22			5	%			1,003,682				-				-				-				-				-
Total								$	1,194,078			$	-			$	-			$	(101,351	)		$	(63,838	)		$	-

 

		Maturity Date		Rate				Principal				Interest				Accretion				(Impairment)/Recovery				Repayments				Balance December 31, 2022
Note 1(1)		2023-03-31			0	%		$	190,396			$	-			$	12,764			$	-			$	(33,860	)		$	169,300
Note 2(1)		2024-09-22			5	%			1,003,682				48,992				27,971				(1,080,645	)			-				-
Note 3		2022-04-26			8	%			-				37,177				-				771,260				(808,437	)			-
Total								$	1,194,078			$	86,169			$	40,735			$	(309,385	)		$	(842,297	)		$	169,300

 

(1)	These notes are denominated in US dollars and are converted to Canadian dollars at the reporting date.

Note 1 was issued on April 4, 2021, is non-interest bearing and is secured by intellectual property. This note is measured at fair value through profit or loss with an initial maturity date of October 31, 2022. During the year ended December 31, 2022 the parties agreed on an amended maturity date of January 31, 2023. During the year ended December 31, 2023 the parties agreed to extend the maturity date to December 15, 2023. As the borrower has not repaid the loan it was impaired to $nil.

 

Note 2 was issued on September 9, 2021, bears interest at 5%, is unsecured, and contains a conversion feature upon sale of the recipient. This note is measured at fair value through profit or loss. Management has determined that it is unlikely that the loan will be repaid and the loan was impaired to $nil during the year ended December 31, 2022.

 

Note 3 was issued on November 17, 2021 bearing interest at 8% and was due April 26, 2022. At December 31, 2021, management determined that it was unlikely that the loan would be repaid and the loan was written down to $nil. During the year ended December 31, 2022, the parties agreed on a repayment plan, with the loan and interest being repaid in the amount of $808,437.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

8. PREPAIDS

 SCHEDULE OF PREPAID EXPENSES AND DEPOSITS

		December 31, 2023				December 31, 2022
Insurance		$	838,445			$	1,148,455
Prepaid interest			810				1,889
Prepaid marketing services			71,539				733,417
Prepaid rent			21,768				12,485
Prepaid subscriptions			48,007				29,194
Deposits(1)			361,646				382,284
Prepaid expenses and deposits		$	1,342,215			$	2,307,724

 

(1)	A deposit in the amount of $228,572 related to the purchase of inventory related to the Vital Intelligence Inc. acquisition was written off during the year ended December 31, 2022 as there was uncertainty related to whether the Company would recover the value.

 

9. INVESTMENTS

 

SCHEDULE OF INVESTMENTS

Balance at December 30, 2021			291,066
Change in fair value			(98,483	)
Balance at December 31, 2022			192,583
Change in fair value			(3,180	)
Balance at December 31, 2023		$	189,403

 

Fair value of investments is comprised of:

SCHEDULE OF FAIR VALUE OF INVESTMENT 

Public company shares		$	57,143
Private company shares			132,260
Balance at December 31, 2023		$	189,403
Public company shares		$	57,143
Private company shares			135,440
Balance at December 31, 2022		$	192,583

 

The Company holds 1,428,571 common shares (2022 – 1,428,571) and nil (2022 – 1,428,571) warrants of Windfall Geotek Inc. a publicly traded company. At December 31, 2023 the fair value of the shares was based on the quoted price of $0.04 (2022 - $0.04). As of the issue date of these consolidated financial statements the quoted price of the shares was $0.03. The warrants expired on March 17, 2023. The fair values of the warrants as of December 31, 2022 were estimated using the Black-Scholes Option Pricing Model with the following assumptions:

SCHEDULE OF WEIGHTED AVERAGE ASSUMPTION FOR FAIR VALUES WARRANTS

		December 31, 2022
Risk free interest rate			4.07	%
Expected volatility			116.00	%
Expected life			0.21 years
Expected dividend yield			0	%

 

On October 27, 2021, the Company purchased 50,000 common shares of a private company for USD$100,000. In determining the fair value of the investment (classified at level 3 in the fair value hierarchy), the Company considers if observable market data exists on a quarterly basis to value the investment. Since inception, the Company has not had any adjustments to the fair value of the investment based on observable market data.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

10. EQUIPMENT

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT 

		Computer Equipment				Furniture and Equipment				Leasehold Improvements				Software				Vehicles				Total
		Computer Equipment				Furniture and Equipment				Leasehold Improvements				Software				Vehicles				Total
Cost
Balance at December 31, 2021		$	54,110			$	342,472			$	4,352			$	29,967			$	36,033			$	466,934
Additions			60,240				528,080				-				-				-				588,320
Disposals			(18,688	)			(36,099	)			(4,352	)			(29,967	)			-				(89,106	)
Balance at December 31, 2022		$	95,662			$	834,453			$	-			$	-			$	36,033			$	966,148
Property, plant and equipment, beginning balance		$	95,662			$	834,453			$	-			$	-			$	36,033			$	966,148
Additions			58,611				320,941				86,530				-				24,310				490,394
Disposals			(21,000	)			(115,204	)			-				-				-				(136,204	)
Balance at December 31, 2023		$	133,273			$	1,040,192			$	86,530			$	-			$	60,343			$	1,320,338
Property, plant and equipment, ending balance		$	133,273			$	1,040,192			$	86,530			$	-			$	60,343			$	1,320,338
Accumulated depreciation
Balance at December 31, 2021		$	25,291			$	102,277			$	4,352			$	24,737			$	13,234			$	169,891
Charge for the year			32,627				433,855				-				-				3,435				469,917
Disposals			(15,920	)			(33,342	)			(4,352	)			(24,737	)			-				(78,351	)
Balance at December 31, 2022		$	41,998			$	502,790			$	-			$	-			$	16,669			$	561,457
Accumulated depreciation Property, plant and equipment, beginning balance		$	41,998			$	502,790			$	-			$	-			$	16,669			$	561,457
Charge for the year			22,762				112,361				6,790				-				12,497				154,410
Disposals			(6,582	)			(69,748	)			-				-				-				(76,330	)
Balance at December 31, 2023		$	58,178			$	545,403			$	6,790			$	-			$	29,166			$	639,537
Accumulated depreciation Property, plant and equipment, ending balance		$	58,178			$	545,403			$	6,790			$	-			$	29,166			$	639,537
Net book value:
December 31, 2022		$	53,664			$	331,663			$	-			$	-			$	19,364			$	404,691
December 31, 2023		$	75,095			$	494,789			$	79,740			$	-			$	31,177			$	680,801
Property, plant and equipment		$	75,095			$	494,789			$	79,740			$	-			$	31,177			$	680,801

 

During the year ended December 31, 2022 $508,607 of inventory that was used for rental services was transferred to equipment.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

11. INTANGIBLE ASSETS AND GOODWILL

SCHEDULE OF INTELLECTUAL PROPERTY 

		Patents				Customer Relationships				Brand				Software				Goodwill				Total
Cost
Balance at December 31, 2021		$	41,931			$	197,000			$	23,000			$	552,000			$	5,940,409			$	6,754,340
Cost, beginning balance		$	41,931			$	197,000			$	23,000			$	552,000			$	5,940,409			$	6,754,340
Additions			-				-				-				4,684				-				4,684
Foreign exchange translation			-				-				1,571				29,576				257,782				288,929
Impairment			-				-				(24,571	)			(462,577	)			(6,198,191	)			(6,685,339	)
Balance at December 31, 2022		$	41,931			$	197,000			$	-			$	123,683			$	-			$	362,614
Impairment			-				(87,415	)			-				-				-				(87,415	)
Balance at December 31, 2023		$	41,931			$	109,585			$	-			$	123,683			$	-			$	275,199
Cost, ending balance		$	41,931			$	109,585			$	-			$	123,683			$	-			$	275,199
Accumulated amortization
Balance at December 31, 2021		$	41,931			$	60,414			$	3,450			$	114,235			$	-			$	220,030
Charge for the year			-				27,317				4,719				147,446				-				179,482
Foreign exchange translation			-				-				431				13,295				-				13,726
Impairment			-				-				(8,600	)			(221,825	)			-				(230,425	)
Balance at December 31, 2022			41,931				87,731				-				53,151				-				182,813
Charge for the year			-				21,854				-				14,106				-				35,960
Balance at December 31, 2023		$	41,931			$	109,585			$	-			$	67,257			$	-			$	218,773
Net book value:
December 31, 2022		$	-			$	109,269			$	-			$	70,532			$	-			$	179,801
December 31, 2023		$	-			$	-			$	-			$	56,426			$	-			$	56,426
Net book value		$	-			$	-			$	-			$	56,426			$	-			$	56426

 

Goodwill

 

On December 31, 2022 the Company performed its annual goodwill impairment test on Vital and Dronelogics. The Company determined the recoverable amount based on a value in use calculation using the following key assumptions:

 

	●	5 year post tax cash flow projections expected to be generated based on a financial forecast with a terminal growth rate of 2% (2021 – 2%).
	●	Budgeted cash flows calculated using a weighted average revenue EBITDA margin of 6.5% (2021 – 14%) for Dronelogics and 0% (2021 – 42%) for Vital Intelligence Inc. (“Vital”) respectively were estimated by management based on the past performance and future growth prospects as well as observed trends among comparable companies.
	●	Cash flows were discounted at the weighted average cost of capital of 19% (2021 – 17%) for Dronelogics and 29% (2021 – 24%) for Vital based on peer group averages and adjusted for the Company’s risk factors.

 

Based on the annual goodwill impairment test, the Company determined that the goodwill for Dronelogics and Vital required impairment, as such the Company recorded an impairment charge of $2,166,563 (2021 – nil) for Dronelogics and $4,031,628 (2021 - $4,579,763) for Vital. In addition to the goodwill, the Company deemed that the brand and software for Vital required impairment, as such the Company recorded an impairment charge of $15,971 and $240,752 respectively.

 

The most sensitive inputs to the value in use model are the growth and discount rates. All else being equal:

 

●

A 10% reduction in the Value in use for the discounted cash flow model would result in a reduction of $104,248 for Dronelogics (2021 – $597,100) and $Nil for Vital (2021 - $570,133).

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

12. RIGHT OF USE ASSETS

SCHEDULE OF RIGHT OF USE ASSETS 

		Total
Cost
Balance at December 31, 2021 and 2022		$	683,117
Additions			740,355
Lease adjustment			-
Balance at December 31, 2023		$	1,423,472
Accumulated depreciation
Balance at December 31, 2021		$	215,011
Charge for the year			123,360
Balance at December 31, 2022		$	338,371
Charge for the year			363,086
Foreign exchange			328
Balance at December 31, 2023		$	701,785
Net book value:
December 31, 2022		$	344,746
December 31, 2023		$	721,687

 

The consolidated statement of financial position shows the following amounts related to leases:

SCHEDULE OF RIGHT OF USE ASSETS RELATED TO LEASES

		December 31, 2023				December 31, 2022
Buildings		$	721,687			$	342,361
Vehicles			-				2,385
Right of use assets		$	721,687			$	344,746

 

Additions to the right of the assets during the 2023 financial year were $740,355 (2022 - $nil).

 

13. LEASE LIABILITES

 

The Company leases certain assets under lease agreements. The lease liabilities consist of leases of facilities and vehicles with terms ranging from one to five years. The leases are calculated using incremental borrowing rates ranging from 11.7% to 13.3%.

 

SCHEDULE OF OPERATING LEASE LIABILITIES

		Total
Balance at December 31, 2021		$	489,123
Interest expense			39,795
Lease payments			(150,275	)
Balance at December 31, 2022			378,643
Interest expense			96,423
Additions			734,903
Lease payments			(423,410	)
Foreign exchange			3,464
Balance at December 31, 2023		$	790,023

 

Which consists of:
		December 31, 2023				December 31, 2022
Current lease liability		$	362,001			$	133,962
Non-current lease liability			428,022				244,681
Ending balance		$	790,023			$	378,643

 

SCHEDULE OF OPERATING MATURITY ANALYSIS

Maturity analysis		December 31, 2023				December 31, 2022
Less than one year		$	429,948			$	147,340
One to three years			355,879				209,078
Four to five years			141,519				83,850
Total undiscounted lease liabilities			927,346				440,268
Amount representing interest			(137,323	)			(61,625	)
Lease liability		$	790,023			$	378,643

 

Variable lease payments of $43,542 (2022 - $22,539) have been recognized in profit and loss.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

14. TRADE PAYABLES AND ACCRUED LIABILITIES

 SCHEDULE OF TRADE PAYABLES AND ACCRUED LIABILITIES

		December 31, 2023				December 31, 2022
Trade accounts payable		$	1,259,623			$	751,422
Accrued liabilities			1,345,649				2,031,545
Government grant payable			33,709				33,709
Trade payables and accrued liabilities		$	2,638,981			$	2,816,676

 

15. DEFERRED INCOME

 

At times, the Company may take payment in advance for services to be rendered. These amounts are held and recognized as services are rendered.

 SCHEDULE OF DEFERRED INCOME

		December 31, 2023				December 31, 2022
Deferred, revenue beginning		$	63,690			$	5,233
Revenue recognized			(64,816	)			(4,939	)
Unearned revenues received			108,800				63,396
Deferred income gross		$	107,674			$	63,690
Current portion		$	12,112			$	63,690
Long term portion			95,562				-
Deferred Income net		$	107,674			$	63,690

 

Deferred revenue of $12,112 as of December 31, 2023 is expected to be recognized as revenue within one year. The remaining is related to a long-term support and maintenance arrangement and will be recognized according to the terms of that arrangement over the next 5 years.

 

16. LOANS PAYABLE

SCHEDULE OF LOANS PAYABLE 

		December 31, 2023				December 31, 2022
Opening balance		$	86,571			$	93,317
Issuance of loans payable			-				-
Fair value adjustment			-				(4,891	)
Repayment of loans payable			(6,747	)			(6,746	)
Accretion expense			5,234				4,891
Ending balance		$	85,058			$	86,571

 

SCHEDULE OF LOANS

		Start Date		Maturity Date		Rate				Carrying Value December 31, 2023				Carrying Value December 31, 2022
CEBA		2020-05-19		2024-03-28			0	%		$	40,000			$	37,383
CEBA		2021-04-23		2024-03-28			0	%			40,000				37,383
Vehicle loan		2019-08-30		2024-09-11			6.99	%			5,058				11,805
Total										$	85,058			$	86,571

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

16. LOANS PAYABLE (CONT’D)

 

On May 19, 2020, Dronelogics received a $40,000 CEBA loan. This loan is currently interest-free and 25% of the loan, up to $10,000, is forgivable if the loan is repaid on or before January 18, 2024. If the loan is not repaid by that date, the loan can be converted to a three-year term loan at an interest rate of 5%. On December 4, 2020, the Government of Canada allowed for an expansion of the CEBA loan by $20,000, of which, an additional $10,000 is forgivable if the entire loan is repaid on or before January 18, 2024. The repayment date was extended by the Government of Canada so the amount is now due March 28, 2024.

 

On April 23, 2021, Draganfly Innovations Inc. received a $60,000 CEBA loan. This loan is currently interest free and up to $20,000 is forgivable if the loan is repaid on or before January 18, 2024. The repayment date was extended by the Government of Canada so the amount is now due March 28, 2024.

 

The CEBA loans are unsecured, and the vehicle loan is secured by the vehicle.

 

17. SHARE CAPITAL

 

Authorized share capital

 

Unlimited number of common shares without par value.

 

Issued share capital

 

During the year ended December 31, 2023,

 

	●	The Company issued 1,508,255 common shares for the vesting of restricted share units.
	●	The Company issued 8,000,000 common shares in a financing for $10,856,166 with share issuance costs of $1,953,032 for net proceeds of $8,903,134.
	●	The Company issued 650,729 common shares in an ATM (“At – the - market”) financing for $1,748,946 with share issuance costs of $222,136 for net proceeds of $1,526,810.
	●	The Company issued 4,800,000 common shares in a financing for proceeds of $4,858,995 with share issuance costs of $889,623 for net proceeds of $3,969,372. Of the total share issuance costs $793,979 were expensed in other income (expense).

 

During the year ended December 31, 2022,

 

	●	The Company issued 16,538 common shares for the exercise of warrants for $87,170.
	●	The Company issued 12,500 common shares for the exercise of stock options for $26,875.
	●	The Company issued 1,072,595 common shares for the vesting of restricted share units.

 

Stock Options

 

The Company has adopted an incentive share compensation plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the CSE requirements, grant to directors, officers, employees, and technical consultants to the Company, non-transferable stock options to purchase common shares. The total number of common shares reserved and available for grant and issuance pursuant to this plan shall not exceed 20% (in the aggregate) of the issued and outstanding common shares from time to time. The number of options awarded and underlying vesting conditions are determined by the Board of Directors in its discretion.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

17. SHARE CAPITAL (CONT’D)

 

As at December 31, 2023, the Company had the following options outstanding and exercisable:

 SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

Grant Date		Expiry Date		Exercise Price				Remaining Contractual Life (years)				Number of Options Outstanding				Number of Options Exercisable
October 30, 2019		October 30, 2029		$	2.50				5.84				278,332				278,332
November 19, 2019		November 19, 2029		$	2.50				5.89				50,000				50,000
April 30, 2020		April 30, 2030		$	2.50				6.33				85,000				85,000
April 30, 2020		April 30, 2030		$	3.85				6.33				110,000				110,000
July 3, 2020		July 3, 2025		$	3.20				1.51				100,000				100,000
November 24, 2020		November 24, 2030		$	2.50				6.90				32,000				32,000
February 2, 2021		February 2, 2031		$	13.20				7.10				30,000				30,000
March 8, 2021		March 8, 2026		$	13.90				2.19				10,000				10,000
April 27, 2021		April 27, 2031		$	10.15				7.33				146,000				97,326
September 9, 2021		September 9, 2026		$	4.84				2.69				25,826				17,217
November 9, 2023		November 9, 2033		$	0.626				9.87				30,000				10,000
													897,158				819,875

 

SCHEDULE OF STOCK OPTIONS OUTSTANDING

		Number of Options				Weighted Average Exercise Price
Outstanding, December 31, 2021			1,035,991			$	4.60
Exercised			(12,500	)			2.15
Forfeited			(146,334	)			4.77
Outstanding, December 31, 2022			877,157			$	4.60
Forfeited			(9,999	)			3.77
Issued			30,000				0.63
Outstanding, December 31, 2023			897,158			$	4.48

 

During the year ended December 31, 2023,

 

●

The Company granted 30,000 options to an advisor to the board. Each option is exercisable at $0.626 per share for 10 years.

 

No options were granted by the Company for the year ended December 31, 2022

 

During the year ended December 31, 2023, the Company recorded $151,174 (2022- $502,837) in stock-based compensation in relation to the vesting of stock options. The fair values of stock options granted were estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

 SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS

Year ended December 31,		December 31, 2023				December 31, 2022
Risk free interest rate			4.58	%			-
Expected volatility			115.1	%			-
Expected life			10				-
Expected dividend yield			0	%			-
Exercise price		$	0.63			$	-

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

17. SHARE CAPITAL (CONT’D)

 

Restricted Share Units

 

The Company has adopted an incentive share compensation plan, which provides that the Board of Directors of the Company in its discretion and in accordance with the Exchange requirements, grant to directors, officers, employees and technical consultants to the Company, restricted stock units (RSUs). RSUs will have a 3-year vesting period following the award date. The total number of common shares reserved and available for grant and issuance pursuant to this plan, and the total number of Restricted Share Units that may be awarded pursuant to this plan, shall not exceed 20% (in the aggregate) of the issued and outstanding common shares from time to time.

 

As at December 31, 2023, the Company had the following RSUs outstanding:

 SUMMARY OF CHANGES IN RESTRICTED STOCK UNITS

		Number of RSU’s
Outstanding, December 31, 2021			514,832
Vested			(1,072,595	)
Issued			1,820,972
Forfeited			(64,334	)
Outstanding, December 31, 2022			1,198,875
Vested			(1,508,255	)
Issued			1,685,316
Forfeited			(262,969	)
Outstanding, December 31, 2023			1,112,967

 

During the year ended December 31, 2023, 1,508,255 RSU’s fully vested according to the terms and the Company granted 1,687,014 RSUs to employees and consultants of the Company with each RSU exercisable into one common share of the Company upon the vesting conditions being met for a period of eighteen months from the grant date. In addition, 264,668 RSU’s were forfeited by employees who have left the Company.

 

During the year ended December 31, 2022, 1,072,595 RSU’s fully vested according to the terms and the Company granted 1,820,972 RSUs to employees and consultants of the Company with each RSU exercisable into one common share of the Company upon the vesting conditions being met for a period of eighteen months from the grant date. In addition, 64,334 RSU’s were forfeited by employees who have left the Company.

 

During the year ended December 31, 2023, the Company recorded share-based payment expense of $1,866,490 (2022: $2,808,187) for RSU’s, based on the fair values of RSU’s granted which are calculated using the closing price of the Company’s stock on the day prior to grant.

 

Warrants

 

During the year ended December 31, 2023, the Company issued 1,600,000 warrants for a purchase price of $0.5499USD with an exercise price of $0.0001USD per unit. The Company also issued 6,400,000 warrants at an exercise price $0.6123USD. Being in a currency that is not the Company’s functional currency these warrants are required to be recorded as a financial liability. As a financial liability, the portion of the warrants related to the future exercise price will be revalued at every reporting period to fair market value with the change in fair value being recorded in profit or loss. All of the above warrants have a 5 year term, expiring October 30, 2028 and vest immediately. 320,000 underwriter warrants were issued as part of the transaction with an exercise price of $0.6875USD and a term of 3 years. These warrants were treated as share issue costs.

 

To reach a fair value of the USD Warrants, a Black Scholes calculation is used, calculated in USD as the Company also trades on the Nasdaq. The Black Scholes value per USD Warrant is then multiplied by the number of outstanding warrants and then multiplied by the foreign exchange rate at the end of the period. At the date of issue the warrants were valued with a risk free rate of 4.8%, volatility of 115.35%, expected life of 5 years and an expected dividend yield rate of 0%. The broker warrants were valued with a risk free rate of 4.87%, volatility of 138.83%, expected life of 3 years and an expected dividend yield of 0%.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

17. SHARE CAPITAL (CONT’D)

 

Warrant Derivative Liability

 SCHEDULE OF WARRANT DERIVATIVE LIABILITY

Balance at December 31, 2021		$	4,865,772
Change in fair value of warrants outstanding			(4,865,772	)
Balance at December 31, 2022		$	-
Warrants issued			3,985,015
Change in fair value of warrants outstanding			211,110
Balance at December 31, 2023		$	4,196,125

 

Derivative liability balance at		December 31, 2023				December 31, 2022
Warrants		$	4,196,125			$	-
Contingent consideration			-				57,314
Ending balance		$	4,196,125			$	57,314

 

The contingent liability is related to an acquisition on March 22, 2021, whereby 1,200,000 warrants were issued and 900,000 were held in escrow and classified as a contingent liability that were to be released upon completion of certain milestones. The milestones were related to the recognition of revenue on the related acquisition in range of $2,000,000 to $6,000,000 which was not met. The warrants expired on March 25, 2023.

 

Details of these warrants and their fair values are as follows:

 

SCHEDULE OF WARRANT AND FAIR VALUE OUTSTANDING

Issue Date		Exercise Price				Number of Warrants Outstanding at December 31, 2023				Fair Value at December 31, 2023				Number of Warrants Outstanding at December 31, 2022				Fair Value at December 31, 2022
February 5, 2021 (1)		US$	3.55				-			$	-				1,319,675			$	-
March 5, 2021 (2)		US$	3.55				-				-				5,142,324				-
October 30, 2023 (3)		US$	0.6123				6,400,000				3,180,543				-				-
October 30, 2023 (4)		US$	0.0001				1,600,000				1,015,582				-				-
							8,000,000			$	4,196,125				6,461,999			$	-

 

	1)	The warrants expired on February 5, 2023.
	2)	The warrants expired on March 5, 2023.
	3)	The warrants expire October 30, 2028.
	4)	The warrants have no expiry date.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

17. SHARE CAPITAL (CONT’D)

 

The fair values of these warrants were estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

 

SCHEDULE OF WEIGHTED AVERAGE ASSUMPTION FOR WARRANTS

		December 31, 2023				December 31, 2022
Risk free interest rate			3.84	%			4.07	%
Expected volatility			113.78	%			91.66%-93.48	%
Expected life			4.8 years				0.10-0.18 years
Expected dividend yield			0	%			0	%

 

SUMMARY OF CHANGES IN WARRANTS

		Number of Warrants				Weighted Average Exercise Price
Outstanding, December 31, 2021			8,414,819			$	4.99
Exercised			(16,538	)			4.51
Issued			(481,484	)			4.61
Outstanding, December 31, 2022			7,916,797			$	5.08
Issued			8,320,000				0.50
Expired			(7,661,999	)			5.89
Outstanding December 31, 2023			8,574,798			$	0.63

 

As at December 31, 2023, the Company had the following warrants outstanding:

 

SCHEDULE OF WARRANTS OUTSTANDING

Date issued		Expiry date		Exercise price				Number of warrants outstanding
July 29, 2021		July 29, 2024		US$	5.00				250,000
September 14, 2021		September 14, 2024		US$	5.00				4,798
October 30, 2023		October 30, 2026		US$	0.6875				320,000
October 30, 2023		October 30, 2028		US$	0.6123				6,400,000
October 30, 2023		No expiry date		US$	0.0001				1,600,000
									8,574,798

 

The weighted average remaining contractual life of warrants outstanding as of December 31, 2023, was 4.63 years (December 31, 2022 – 0.47 years).

 

18. SEGMENTED INFORMATION

 

The Company organizes its three segments based on product lines as well as a Corporate segment. The three segments are Drones, Vital (Vital Intelligence), and Corporate. The Drones segment derives its revenue from products and services related to the sale of unmanned aerial vehicles (UAV). The Vital segment derives its revenue from the sale of products that measure vitals to help detect symptoms from large groups of people from a distance. The Corporate segment includes all costs not directly associated with the Drone and Vital segments. The Company aggregates the information for the segments by analyzing the revenue steam and allocating direct costs to that respective segment. The Corporate segment is aggregated by relying on the entity that includes corporate costs (Draganfly Inc.)

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

18. SEGMENTED INFORMATION (CONT’D)

 

The board of the Company relies on executive management which assesses the financial performance and position of the group and makes strategic decisions. Executive management, which has been identified as being the chief operating decision maker, consists of the chief executive officer, lead director, chief operating officer and chief financial officer.

 

SCHEDULE OF SEGMENTED INFORMATION

December 31, 2023		Drones				Vital				Corporate				Total
Sales of goods		$	4,905,417			$	381,676			$	-			$	5,287,093
Provision of services			1,267,749				-				-				1,267,749
Total revenue		$	6,173,166			$	381,676			$	-			$	6,554,842
Segment loss		$	14,743,176			$	(140,366	)		$	8,323,731			$	22,926,541
Finance and other costs			(80,211	)			-				(3,069	)			(83,280	)
Depreciation			499,530				-				11,148				510,677
Amortization			35,960				-				-				35,960
Impairment of goodwill and intangibles
Change in fair value of derivative liability			-				-				(211,110	)			(211,110	)
Loss (recovery) on write-off of notes receivable			-				-				101,351				101,351
Loss on write down of inventory			331,671				-				-				331,671
Write down of deposit
Net loss for the year		$	15,530,126			$	(140,366	)		$	8,222,051			$	23,611,810

 

December 31, 2022		Drones				Vital				Corporate				Total
Sales of goods		$	5,388,262			$	162,170			$	-			$	5,550,432
Provision of services			2,054,627				-				-				2,054,627
Total revenue		$	7,442,889			$	162,170			$	-			$	7,605,059
Segment loss		$	9,929,789			$	602,580			$	12,926,884			$	23,459,253
Finance and other costs			(3,529	)			-				(40,186	)			(44,345	)
Depreciation			586,185				-				-				593,277
Amortization			179,482				-				-				179,482
Impairment of goodwill and intangibles			2,166,563				4,288,351				-				6,454,914
Change in fair value of derivative liability			-				-				(5,502,688	)			(5,502,688	)
Loss on write-off of notes receivable			1,080,645				-				(771,260	)			309,385
Loss on write down of inventory			251,754				1,724,760				-				1,976,514
Write down of deposit			-				228,572				-				228,572
Net loss for the year		$	14,190,889			$	6,844,263			$	6,619,212			$	27,654,364

 

December 31, 2021		Drones				Vital				Corporate				Total
Sales of goods			4,957,134				146,265				-				5,103,399
Provision of services			1,950,466				-				-				1,950,466
Total revenue		$	6,907,600			$	146,265			$	-			$	7,053,865
Segment loss		$	7,819,739			$	257,656			$	10,498,164			$	18,575,560
Finance and other costs			16,272				-				(21,346	)			(5,074	)
Depreciation			175,098				-				-				175,098
Amortization			135,966				-				-				135,966
Impairment of goodwill and intangibles			-				4,579,763				-				4,579,763
Change in fair value of derivative liability			-				-				(8,149,812	)			(8,149,812	)
Loss on write-off of notes receivable			-				-				891,471				891,471
Net loss for the year		$	8,147,075			$	4,837,419			$	3,218,477			$	16,202,972

 

SCHEDULE OF GEOGRAPHIC REVENUE 

		2023				2022					2021
Geographic segmentation is as follows:		For the years ended December 31,
		2023				2022				2021
Non-current assets
Canada		$	1,441,701			$	1,121,821			$	3,441,872
United States			206,616				-				5,112,659
		$	1,648,317			$	1,121,821			$	8,554,531
Revenue
Canada		$	6,162,672			$	6,919,038			$	4,982,373
United States			392,170				686,021				2,071,492
Revenue		$	6,554,842			$	7,605,059			$	7,053,865

 

Geographic revenue is measured by aggregating sales based on the country and the entity where the sale was made.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

19. OFFICE AND MISCELLANEOUS

 

SCHEDULE OF OFFICE AND MISCELLANEOUS EXPENSES

			2023			2022				2021
			For the years ended December 31,
		2023				2022				2021
Advertising, Marketing, and Investor Relations		$	4,243,432			$	4,431,818			$	5,165,791
Compliance fees			193,250				152,826				432,874
Impairment of accounts receivable			216,238				-				-
Contract Work			772,003				441,798				300,975
Other			878,956				371,519				556,358
Office and Miscellaneous Expenses		$	6,303,879			$	5,397,961			$	6,455,998

 

20. RELATED PARTY TRANSACTIONS

 

On August 1, 2019, the Company entered in a business services agreement (the “Agreement”) with Business Instincts Group (“BIG”), a company that Cameron Chell, CEO and director has a material interest in that he previously controlled, to provide: corporate development and governance, strategic facilitation and management, general business services, office space, corporate business development video content, website redesign and management, and online visibility management at fees set out in the Agreement. For the year ended December 31, 2023, the Company incurred fees of $429,766 (December 31, 2022 - $442,485) which are included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $3,780 (December 31, 2022 - $30,804).

 

On October 1, 2019, the Company entered into an independent consultant agreement (“Consultant Agreement”) with 1502372 Alberta Ltd, a company controlled by Cameron Chell, CEO and director, to provide executive consulting services to the Company and all fees are set in the Consultant Agreement. For the year ended December 31, 2023, the Company incurred fees of $592,500 (December 31, 2022 - $566,487) included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $35,417 (December 31, 2022 - $nil).

 

On July 3, 2020, the Company entered into an executive consultant agreement (“Executive Agreement”) with Scott Larson, a director of the Company, to provide executive consulting services, as President, to the Company. On May 9, 2022, Scott Larson ceased to be President of the Company and entered into an agreement to provide executive consulting services to the Company and all fees are set in the consulting agreement. For the year ended December 31, 2023, the Company incurred fees of $215,019 (December 31, 2022 - $383,288) included in professional fees. As at December 31, 2023, the Company was indebted to this company in the amount of $9,287 (December 31, 2022 - $20,745).

 

Trade receivables/payables and accrued receivables/payables:

 

As at December 31, 2023, the Company had $190,664 (December 31, 2022 - $51,549) payable to related parties that was included in accounts payable. The balances outstanding are unsecured, non-interest bearing and due on demand.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

20. RELATED PARTY TRANSACTIONS (CONT’D)

 

Key management compensation

 

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. Compensation awarded to key management for the year ended December 31, 2023 and 2022 included:

 

SCHEDULE OF KEY COMPENSATION AWARDS

			For the years ended December 31,
			2023			2022				2021
Director fees		$	600,933			$	522,349			$	370,094
Salaries			979,154				843,917				722,068
Share-based payments			1,109,232				2,106,906				2,475,949
Total		$	2,689,319			$	3,473,172			$	3,568,111

 

Other related party transactions

 

SCHEDULE OF KEY MANAGEMENT TRANSACTIONS

		For the years ended December 31,
			2023			2022				2021
Management fees paid to a company controlled by CEO and director		$	592,500			$	566,487			$	290,225
Management fees paid to a company that the CEO holds an economic interest in			429,766				442,485				315,643
Management fees paid to a company controlled by a director			215,019				383,288				205,691
Management fees paid to a company, total		$	1,237,285			$	1,392,260			$	811,559

 

21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

Credit risk

 

Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual obligations.

 

The Company is subject to credit risk on its cash and receivables. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. The Company performs credit evaluations of its customers.

 

Receivables

 

Receivables primarily consist of trade receivables, accrued receivables and taxes receivable. The Company provides credit in the normal course of business in the form of payment terms and has an established process for determining terms to offer customers to mitigate credit risk. Receivables are shown net of any provision made for impairment of the receivables. Due to this factor, the Company believes that no additional credit risk, beyond amounts provided for collection loss, is inherent in receivables.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D)

 

Expected credit loss (“ECL”) analysis is performed at each reporting date using an objective approach to measure expected credit losses. The provision amounts are based on direct management interface with the customer. The calculations reflect the probability-weighted outcome, the time value of money and reasonable supportable information that is available at the reporting date abut past events, current conditions and forecasts of future economic conditions. Receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, business failure, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments over the negotiated contract period.

 

The Company’s aging of receivables was as follows:

 SCHEDULE OF AGING OF RECEIVABLES

		December 31, 2023				December 31, 2022
0 – 30 days		$	271,622			$	1,020,091
31 – 60 days			109,928				116,378
61 – 90 days			64,259				343,364
91 + days			203,803				609,132
Total receivables		$	649,612			$	2,088,965

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents. Historically, the Company’s sole source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

 

The following is an analysis of the contractual maturities of the Company’s financial liabilities at December 31, 2023:

 

 SCHEDULE OF CONTRACTUAL MATURITIES OF FINANCIAL LIABILITIES

		1 year				1 – 5 years				Total
Trade payables and accrued liabilities		$	2,638,981			$	-			$	2,638,981
Customer deposits			104,715				-				104,715
Deferred income			12,112				95,562				107,674
Loans payable			85,058				-				85,058
Derivative liability			4,196,125				-				4,196,125
Lease liability			429,948				497,398				927,346
Financial liabilities		$	7,466,939			$	592,960			$	8,059,899

 

Foreign exchange risk

 

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company does not hedge its exposure to fluctuations in foreign exchange rates.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D)

 

The following table summarizes the sensitivity of the fair value of the Company’s risk to foreign exchange rates, with all other variables held constant. Fluctuations of 10 percent in the foreign exchange rate between US dollars and Canadian dollars could have resulted in a change impacting net loss upon consolidation as follows:

 SCHEDULE OF CHANGES IN FOREIGN EXCHANGE RATES

		December 31, 2023				December 31, 2022
Foreign exchange rate		$	530,758			$	969,977

 

Fair value

 

A number of the Company’s accounting policies and disclosures require the measurement of fair values for financial assets and liabilities. The Company has established a control framework with respect to the measurement of fair values. Fair values are categorized into different levels of a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

Equity securities in investee companies and warrants are measured at fair value. The financial assets and liabilities measured at fair value by hierarchy are shown in the table below. The amounts shown are based on the amounts recognized in the consolidated statements of financial position. These financial assets are measured at fair value through profit and loss.

 

SCHEDULE OF FINANCIAL ASSETS MEASURED FAIR VALUE THROUGH PROFIT AND LOSS

December 31, 2023		Level 1				Level 2				Level 3				Total
Equity securities in investee companies		$	57,143			$	-			$	132,260			$	189,403
Notes receivables
Derivative liability			-				-				4,196,125				4,196,125
Total		$	57,413			$	-			$	4,328,385			$	4,385,528

 

December 31, 2022		Level 1				Level 2				Level 3				Total
Equity securities in investee companies		$	57,143			$	-			$	135,440			$	192,583
Notes receivable			-				-				169,300				169,300
Derivative liability			-				-				57,314				57,314
Total		$	57,143			$	-			$	362,054			$	419,197

 

The following table shows the valuation techniques used in measuring Level 3 fair values for the derivative liability as well as the significant unobservable inputs used.

 

Type		Valuation technique		Key inputs		Inter-relationship between significant inputs and fair value measurement
Warrant derivative liability		The fair value of the warrants derivative liability at initial recognition and at year end has been calculated using the Black Scholes Option Pricing Model		Key observable inputs   ●    Share price ●    Risk free interest rate ●    Dividend yield Key unobservable inputs ●    Expected volatility		The estimated fair value would increase (decrease) if:   ●     The price was higher (lower) ●     The risk-free rate was higher (lower) ●     The dividend yield was lower (higher) ●     The expected volatility was higher (lower)

 

For the fair value of the derivative liability, reasonable possible changes to the expected volatility, the most significant unobservable input would have the following effects:

 

SCHEDULE OF FAIR VALUE FOR DERIVATIVE LIABILITY

Unobservable Inputs		Change				Impact on comprehensive loss
						Year ended December 31, 2023				Year ended December 31, 2022
Volatility			20	%		$	291,149			$	-

 

Capital Management

 

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of shareholders’ equity.

 

The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its board of directors, will balance its overall capital structure through new equity issuances or by undertaking other activities as deemed appropriate under the specific circumstances. The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2022.

 

 

Draganfly Inc.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2023

Expressed in Canadian Dollars

 

22. INCOME TAXES

 

The following table reconciles the expected income taxes at the Canadian statutory income tax rates to the amounts recognized in the statements of comprehensive loss for the years ended December 31, 2023 and 2022:

 SCHEDULE OF INCOME TAX

		December 31, 2023				December 31, 2022				December 31, 2021
Loss before income taxes		$	23,611,810			$	27,654,364			$	16,202,972
Canadian statutory rates			27	%			27	%			27	%
Expected income tax recovery			6,330,400				7,338,900				4,196,600
Impact of different foreign statutory tax rates			-				-				34,900
Non-deductible items			(509,800	)			(1,214,400	)			116,400
Share issue costs			773,400				1,400				887,600
Adjustments to prior years provision versus statutory tax returns			(87,600	)			(742,400	)			376,500
Differences between prior year provision and final tax return			(153,400	)			867,500				(206,000	)
Change in deferred tax asset not recognized			(6,353,000	)			(6,251,000	)			(5,406,000	)
Income tax		$	-			$	-			$	-

 

The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:

 SCHEDULE OF DEFERRED TAXES

		December 31, 2023				December 31, 2022				December 31, 2021
Deferred income tax assets (liabilities):
Share issuance costs		$	995,000			$	568,000			$	728,000
Non-capital losses			20,377,000				14,602,000				7,043,000
Property and equipment			1,115,000				962,000				449,000
Capital gain reserve			-				-				74,000
Scientific Research and Experimental Development			365,000				367,000				291,000
Total deferred income tax assets		$	22,852,000			$	16,499,000				8,585,000
Deferred income tax not recognized			(22,852,000	)			(16,499,000	)			(8,585,000	)
Net deferred tax assets		$	-			$	-			$	-

 

The Company has non-capital loss carry forward of approximately $67,701,122 which may be carried forward to apply against future year income tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expiring in the years 2030 to 2043. The Company has non-capital loss carry forward of $8,241,878 CAD ($6,231,434 USD) which may be carried forward to apply against future year income tax for tax purposes in the United States, subject to the final determination by the tax authorities, expiring in the years 2040 to 2043.

 

23. SUBSEQUENT EVENTS

 

Warrant exercise

 

On February 6, 2024 1,600,000 pre-funded warrants were exercised for proceeds of $160 USD ($216 CAD) and an equal number of shares were issued at a value of $578,200 USD ($773,624 CAD).

 

Share issuance

 

On February 26, 2024, the Company announced that it completed an underwritten share placement of 11,200,000 units with each unit consisting of one common share and one warrant to purchase one common share and 2,200,000 units consisting of one pre-funded warrant to purchase one common share and one warrant to purchase one common share. Each unit was sold at a price of $0.27 USD for gross proceeds of $3.6 million ($4.8 million CAD). Net proceeds of $3.3 million USD ($4.4 million CAD) was received after share issue costs of $329,000 USD ($442,000 CAD). The pre-funded warrants have an exercise price of $0.0001 USD and were exercised on the date of issue. The remaining warrants have an exercise price of $0.36 USD and are exercisable immediately with a term of 5 years. As part of this transaction 670,000 warrants were issued to the underwriter with an exercise price of $0.3375 USD and will have a term of 3 years.