Exhibit 99.1
Draganfly Inc.
Condensed Consolidated Interim Financial Statements - Unaudited
For the Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Draganfly Inc.
Condensed Consolidated Interim Statements of Financial Position
Expressed in Canadian Dollars
| September 30, | December 31, | |||||||||
| As at | Notes | 2022 | 2021 | |||||||
| (unaudited) | ||||||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash and cash equivalents | 5 | $ | $ | |||||||
| Receivables | 6 | |||||||||
| Inventory | 7 | |||||||||
| Notes receivable | 8 | |||||||||
| Prepaids | 9 | |||||||||
| Non-current Assets | ||||||||||
| Goodwill | 12 | |||||||||
| Equipment | 11 | |||||||||
| Intangible assets | 12 | |||||||||
| Investments | 10 | |||||||||
| Notes receivable | 8 | |||||||||
| Right of use asset | 13 | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade payables and accrued liabilities | 15 | $ | $ | |||||||
| Customer deposits | ||||||||||
| Deferred income | ||||||||||
| Loans payable | 16 | |||||||||
| Derivative liability | 17 | |||||||||
| Lease liability | 14 | |||||||||
| Non-current Liabilities | ||||||||||
| Loans payable | 16 | |||||||||
| Lease liability | 14 | |||||||||
| TOTAL LIABILITIES | ||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||
| Share capital | 17 | |||||||||
| Reserves – share-based payments | 17 | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||||
Nature and Continuance of Operations (Note 1)
Subsequent Events (Note 22)
Approved and authorized for issuance by the Board of Directors on November 9, 2022.
| “Scott Larson” | “Cameron Chell” | |
| Director | Director |
The accompanying notes are an integral part of these consolidated interim financial statements.
Draganfly Inc.
Condensed Consolidated Interim Statements of Comprehensive Income - Unaudited
Expressed in Canadian Dollars
| For the three months ended | For the nine months ended | ||||||||||||||||||
| September 30, | September 30, 2021 | September 30, | September 30, 2021 | ||||||||||||||||
| Note | 2022 | (restated - note 3) | 2022 | (restated – note 3) | |||||||||||||||
| Revenue from sales of goods | 18 | $ | $ | $ | $ | ||||||||||||||
| Revenue from provision of services | 18 | ||||||||||||||||||
| TOTAL REVENUE | |||||||||||||||||||
| COST OF SALES | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| GROSS PROFIT | |||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||
| Amortization | 12 | $ | $ | $ | $ | ||||||||||||||
| Depreciation | 11,13 | ||||||||||||||||||
| Director fees | 20 | ||||||||||||||||||
| Insurance | |||||||||||||||||||
| Office and miscellaneous | 19 | ||||||||||||||||||
| Professional fees | 20 | ||||||||||||||||||
| Research and development | |||||||||||||||||||
| Share-based payments | 17,20 | ||||||||||||||||||
| Travel | |||||||||||||||||||
| Wages and salaries | 20 | ||||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| OTHER INCOME (EXPENSES) | |||||||||||||||||||
| Change in fair value of derivative liability | 17 | ( | ) | ||||||||||||||||
| Finance and other costs | ( | ) | |||||||||||||||||
| Foreign exchange gain (loss) | |||||||||||||||||||
| Loss on disposal of assets | 11 | ( | ) | ||||||||||||||||
| Note receivable impairment recovery | 8 | ||||||||||||||||||
| Other income (loss) | ( | ) | ( | ) | |||||||||||||||
| NET INCOME (LOSS) BEFORE TAXES | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||
| TAXES | ( | ) | |||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||
| OTHER COMPREHENSIVE LOSS | |||||||||||||||||||
| Foreign exchange translation | |||||||||||||||||||
| Change in fair value of equity investments at FVOCI | 10 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | ( | ) | ( | ) | ( | ) | |||||||||||||
| Income (Loss) per share | |||||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Weighted average number of common shares outstanding - Basic | |||||||||||||||||||
| Weighted average number of common shares outstanding - Diluted | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
Draganfly Inc.
Condensed Consolidated Interim Statements of Shareholders’ Equity - Unaudited
Expressed in Canadian Dollars
| Accumulated Other Comprehensive 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 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Shares issued for exercise of RSUs | ( | ) | ||||||||||||||||||||||||||
| Shares issued for exercise of warrants | ||||||||||||||||||||||||||||
| Shares issued for exercise of stock options | ( | ) | ||||||||||||||||||||||||||
| Shares issued in lieu of cash | ||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Change in fair value of equity investments at FVOCI | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Translation of foreign operations | - | |||||||||||||||||||||||||||
| Balance at September 30, 2021 (restated – note 3) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Shares issued for exercise of RSUs | ( | ) | ||||||||||||||||||||||||||
| Shares issued for exercise of warrants | ||||||||||||||||||||||||||||
| Shares issued for exercise of stock options | ( | ) | ||||||||||||||||||||||||||
| Shares issued in lieu of cash | ||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Change in fair value of equity investments at FVOCI | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Translation of foreign operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
Draganfly Inc.
Condensed Consolidated Interim Statements of Shareholders’ Equity - Unaudited
Expressed in Canadian Dollars
| Accumulated Other Comprehensive 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 | ||||||||||||||||||||||
| Shares issued for exercise of stock options | ( | ) | ||||||||||||||||||||||||||
| Shares issued for exercise of warrants | ||||||||||||||||||||||||||||
| Shares issued for the exercise of RSU’s | ( | ) | ||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Change in fair value of equity investments at FVOCI | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Translation of foreign operations | - | |||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
Draganfly Inc.
Condensed Consolidated Interim Statements of Cash Flows - Unaudited
Expressed in Canadian Dollars
| For the nine months ended September 30, | 2022 | 2021 | ||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments for: | ||||||||
| Amortization | ||||||||
| Depreciation | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Impairment of notes receivable | ( | ) | ||||||
| Finance and other costs | ||||||||
| Income from government assistance | ( | ) | ( | ) | ||||
| Share-based payments | ||||||||
| ( | ) | ( | ) | |||||
| Net changes in non-cash working capital items: | ||||||||
| Receivables | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaids | ( | ) | ||||||
| Right of use asset | ( | ) | ||||||
| Trade payables and accrued liabilities | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Deferred income | ( | ) | ||||||
| Loans | ( | ) | ||||||
| Lease liability | ||||||||
| Tax accrual | ( | ) | ||||||
| Funds used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Cash paid for acquisition, net of cash received | ( | ) | ||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Disposal of equipment | ||||||||
| Revaluation of equipment | ||||||||
| Development of intellectual property | ( | ) | ||||||
| Purchase of investments | ( | ) | ||||||
| Repayment (Issuance) of notes receivable | ( | ) | ||||||
| Funds used in investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common shares for financing | ||||||||
| Share issue costs | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares for warrants exercised | ||||||||
| Proceeds from issuance of common shares for stock options exercised | ||||||||
| Proceeds from issuance of common shares in lieu of cash | ||||||||
| Proceeds from issuance of loans | ||||||||
| Loans repayments | ( | ) | ( | ) | ||||
| Repayment of lease liability | ( | ) | ( | ) | ||||
| Funds provided by financing activities | ( | ) | ||||||
| Effects of exchange rate changes on cash | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Cash and cash equivalents consist of the following: | ||||||||
| Cash held in banks | $ | $ | ||||||
| Guaranteed investment certificate | ||||||||
| $ | $ | |||||||
The accompanying notes are an integral part of these consolidated interim financial statements.
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
1. NATURE AND CONTINUANCE OF OPERATIONS
Draganfly Inc. (the “Company”) was incorporated on June 1, 2018 under the Business Corporations Act (British Columbia). 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 “3U8”. The Company’s head office is located at 2108 St. George Avenue, Saskatoon, SK, S7M 0K7 and its registered office is located at 2800 – 666 Burrard Street, Vancouver, BC, V6C 2Z7.
2. BASIS OF PREPARATION
Statement of Compliance
These condensed consolidated interim 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 principal accounting policies applied in the preparation of these interim financial statements, including International Accounting Standards (“IAS”) 34 Interim Financial Reporting, are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
The notes presented in these condensed consolidated interim financial statements include only significant events and transactions occurring since the Company’s last fiscal year end and they do not include all of the information required in the Company’s most recent annual financial statements. Except as noted below, these condensed consolidated interim financial statements follow the same accounting policies and methods of application as the Company’s annual financial statements and should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2021, which were prepared in accordance with IFRS as issued by IASB. There have been no significant changes in judgement or estimates from those disclosed in the financial statements for the year ended December 31, 2021.
These consolidated financial statements were authorized for issue by the Board of Directors on November 9, 2022.
Basis of consolidation
Each subsidiary is fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue 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:
| Name of Subsidiary | Place of Incorporation | Ownership Interest | ||||
| % | ||||||
| % | ||||||
| % | ||||||
All intercompany balances and transactions were eliminated on consolidation.
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
3. RESTATEMENT TO PREVIOUS PERIODS
The comparative financial information of the Company as at September 30, 2021 has been adjusted as follows:
Vital Intelligence Inc. (“Vital”) acquisition
In the prior period financial statements as at September 30, 2021, the Company recorded the contingent consideration with respect to the Vital acquisition (note 4) as equity. Upon management’s review at December 31, 2021, management determined that the contingent consideration did not meet the criteria to recognize it as an asset and thus reclassified it as a contingent liability. This change also resulted in the removal of the contingent shares from the weighted average number of shares calculation.
As a result of the change, the following adjustments were made to the comparative financial information:
For the three months ended September 30, 2021 | Amounts before restatement | Restatement | Amounts restated | |||||||||
| Condensed consolidated interim statement of loss | ||||||||||||
| Weighted average number of shares outstanding – basic | ( | ) | ||||||||||
| Net income (loss) per share – basic | $ | $ | $ | |||||||||
| Weighted average number of shares outstanding – diluted | ( | ) | ||||||||||
| Net income (loss) per share – diluted | $ | $ | $ | |||||||||
| For the nine months ended September 30, 2021 | Amounts before restatement | Restatement | Amounts restated | |||||||||
| Condensed consolidated interim statement of loss | ||||||||||||
| Weighted average number of shares outstanding – basic & diluted | ( | ) | ||||||||||
| Net income (loss) per share – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
For the nine months ended September 30, 2021
| Condensed consolidated interim statement of changes in shareholders’ equity | $ | $ | $ | |||||||||
| Share capital | ( | ) | ||||||||||
| Equity reserve | ( | ) | ||||||||||
| Balance at September 30, 2021 | ( | ) |
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
4. VITAL ACQUISITION
On
March 25, 2021, the Company acquired the assets of Vital, a company that had developed a health/telehealth platform that could detect
a number of key underlying respiratory symptoms. The Company acquired it to diversify it’s existing product line as well as recognized
opportunities that an initial focus on COVID-19 screening set of technologies would most likely lead to other facets within the healthcare
field creating revenue growth from a new vertical, for consideration of: (a) a cash payment of $
The units of the Company are to be released from escrow, as follows:
| a) | units shall be released on the closing date (released); | |
| b) |
units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount of $ | |
| c) |
units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount of $ | |
| d) |
units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount of $ |
The shares held in escrow are classified as a derivative liability and are valued based upon the weighted average probability of achieving the milestones necessary to release the shares held in escrow, discounted for liquidity. The units will be forfeited and cancelled within two years of the closing if the Company does not meet the revenue milestones.
On
acquisition, the fair value of the derivative liability (note 17) was $
| Contingent consideration | ||||
| Fair value of contingent consideration | $ | |||
| Change in fair value of contingent consideration | ( | ) | ||
| Contingent consideration at December 31, 2021 | ||||
| Change in fair value of contingent consideration | ( | ) | ||
| Contingent consideration at September 30, 2022 (note 17) | $ | |||
The purchase price allocation (“PPA”) is as follows:
| Number of units of Draganfly Inc. | ||||
| Fair value of units | $ | |||
| Fair value of units of Draganfly Inc. | $ | |||
| Cash portion of purchase price | ||||
| Total | $ |
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
| 4. | VITAL ACQUISITION (CONT’D) |
| Identifiable intangible assets | ||||
| Brand | $ | |||
| Software | ||||
| Goodwill | ||||
| Total consideration | $ |
Significant estimates are as follows:
| ● | Number of units issued based upon a weighted average calculation for the Company achieving the revenue targets. | |
| ● | Brand
fair value based on an income approach, specifically relief from royalty methodology, using a reasonable royalty rate of | |
| ● | Software
fair value based on an income approach, specifically relief from royalty methodology, using a reasonable royalty rate of |
Furthermore, the excess of the consideration paid over the fair value of the identifiable assets acquired was recognized as goodwill.
5. CASH AND CASH EQUIVALENTS
| September 30, 2022 | December 31, 2021 | |||||||
| Cash held in banks | $ | $ | ||||||
| Guaranteed investment certificates | ||||||||
| $ | $ | |||||||
6. RECEIVABLES
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Corporate taxes receivable | ||||||||
| GST receivable | $ | |||||||
| $ | $ | |||||||
7. INVENTORY
| September 30, 2022 | December 31, 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Parts | ||||||||
| $ | $ | |||||||
During
the nine months ended September 30, 2022, $
Cost of sales consist of the following:
| September 30, 2022 | September 30, 2021 | |||||||
| Inventory | $ | $ | ||||||
| Consulting and services | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
8. NOTES RECEIVABLE
| Maturity Date | Rate | Principal | Interest | Accretion | Impairment recovery | Repayments | Balance September 30, 2022 | Balance December 31, 2021 | ||||||||||||||||||||||||||
| Note 1(1) | % | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Note 2(1) | % | |||||||||||||||||||||||||||||||||
| Note 3 | % | ( | ) | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| (1) |
| Current assets | Non-Current assets | |||||||
| Note 1 | $ | $ | ||||||
| Note 2 | ||||||||
| Note 3 | ||||||||
| $ | $ | |||||||
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. Subsequent to September 30, 2022, the parties agreed on an amended maturity date, whereby $
Note 2 was issued on September 9, 2021, bears interest at , is unsecured, and contains a conversion feature upon sale of the recipient. This note is measured at fair value through profit or loss. The fair value was determined based on the price the company paid for this convertible loan which was the investee’s most recent financing.
Note
3 was issued on November 17, 2021 pursuant to letter of intent on an acquisition that the Company is no longer pursuing. The loan is
interest bearing at and was due . At December 31, 2021, management determined that it was unlikely that either the loan
would be repaid or the Company would receive some other type of return, therefore, the loan was written down to $. During the nine
months ended September 30, 2022, the parties agreed on a repayment plan, with $
9. PREPAIDS
| September 30, 2022 | December 31, 2021 | |||||||
| Insurance | $ | $ | ||||||
| Prepaid director fees | ||||||||
| Prepaid interest | ||||||||
| Prepaid marketing services | ||||||||
| Prepaid rent | ||||||||
| Prepaid subscriptions | ||||||||
| Deposits | ||||||||
| $ | $ | |||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
10. INVESTMENTS
| Balance at December 31, 2021 | $ | |||
| Change in fair value | ( | ) | ||
| Balance at September 30, 2022 | $ |
Fair value of investments is comprised of:
| Public company shares | $ | |||
| Public company warrants | ||||
| Private company shares | ||||
| Balance at September 30, 2022 | $ |
On
March 10, 2021, the Company purchased units of a publicly listed company for $. Each unit is comprised of one common
share and one warrant.
| September 30, 2022 | March 10, 2021 | |||||||
| Risk free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life | years | years | ||||||
| Expected dividend yield | % | % | ||||||
On October 27, 2021, the Company purchased common shares of a private company for USD$.
11. EQUIPMENT
| Computer Equipment | Furniture and Equipment | Leasehold Improvements | Software | Vehicles | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Revaluation | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge for the year | ||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge for the period | ||||||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Net book value: | ||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
12. INTANGIBLE ASSETS AND GOODWILL
| Patents | Customer Relationships | Brand |
Software | Goodwill | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Intangible assets acquired in the Transaction | ||||||||||||||||||||||||
| Impairment of Goodwill | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Foreign exchange translation | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accumulated amortization | ||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Change for the year | ||||||||||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||||||
| Change for the period | ||||||||||||||||||||||||
| Foreign exchange translation | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Net book value: | ||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Brand
On
March 25, 2021, the Company acquired the assets of Vital (note 4) and assigned $
Software
On
March 25, 2021, the Company acquired the assets of Vital and assigned $
Goodwill
On
April 30, 2020, the Company acquired a
On
March 25, 2021, the Company acquired the assets of Vital, which included goodwill. Goodwill was valued at $
On December 31, 2021 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 | |
| ● | Budgeted
cash flows calculated using a weighted average revenue EBITDA margin of | |
| ● | Cash
flows were discounted at the weighted average cost of capital of |
Based
on the annual goodwill impairment test, the Company deemed that the goodwill for Vital required impairment, as such the Company recorded
an impairment of $
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
12. INTANGIBLE ASSETS AND GOODWILL (CONT’D)
The most sensitive inputs to the value in use model are the growth and discount rates. All else being equal:
| ● | A
|
Changing the above assumption would result in an impairment for Dronelogics, and would result in additional impairment for Vital.
The key assumptions used in the calculations of the recoverable amounts include sales growth per year, changes in cost of sales and capital expenditures based on internal forecasts.
13. RIGHT OF USE ASSETS
| Total | ||||
| Cost | ||||
| Balance at December 31, 2020 | $ | |||
| Additions | ||||
| Lease removal | ( | ) | ||
| Balance at December 31, 2021 | $ | |||
| Additions | ||||
| Balance at September 30, 2022 | $ | |||
| Accumulated depreciation | ||||
| Balance at December 31, 2020 | $ | |||
| Charge for the year | ||||
| Historical correction | ||||
| Balance at December 31, 2021 | $ | |||
| Charge for the period | ||||
| Balance at September 30, 2022 | $ | |||
| Net book value: | ||||
| December 31, 2021 | $ | |||
| September 30, 2022 | $ | |||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
14. LEASE LIABILITY
The
Company leases certain assets under lease agreements.
| Total | ||||
| Balance at December 31, 2020 | $ | |||
| Additions | ||||
| Interest expense | ||||
| Lease payments | ( | ) | ||
| Lease removal | ( | ) | ||
| Balance at December 31, 2021 | $ | |||
| Interest expense | ||||
| Lease payments | ( | ) | ||
| Balance at September 30, 2022 | $ | |||
Which consists of:
| September 30, 2022 | December 31, 2021 | |||||||
| Current lease liability | $ | $ | ||||||
| Non-current lease liability | ||||||||
| Ending balance | $ | $ | ||||||
| Maturity analysis | Total | |||
| Less than one year | $ | |||
| One to three years | ||||
| Four to five years | ||||
| Greater than five years | ||||
| Total undiscounted lease liabilities | ||||
| Amount representing implicit interest | ( | ) | ||
| $ | ||||
15. TRADE PAYABLES AND ACCRUED LIABILITIES
| September 30, 2022 | December 31, 2021 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Government grant payable | ||||||||
| $ | $ | |||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
16. LOANS PAYABLE
| September 30, 2022 | December 31, 2021 | |||||||
| Opening balance | $ | $ | ||||||
| Issuance of loans payable | ||||||||
| Fair value adjustment | ( | ) | ( | ) | ||||
| Repayment of loans payable | ( | ) | ( | ) | ||||
| Accretion expense | ||||||||
| Ending balance | $ | $ | ||||||
| Start Date | Maturity Date | Rate | Carrying Value September 30, 2022 | Carrying Value December 31, 2021 | ||||||||||||
| CEBA | % | $ | $ | |||||||||||||
| CEBA | % | |||||||||||||||
| Vehicle loan | % | |||||||||||||||
| Total | $ | $ | ||||||||||||||
On
May 19, 2020, Dronelogics received a $
On
April 23, 2021, Draganfly Innovations Inc. received a $
The CEBA loans are unsecured and the vehicle loan is secured by the vehicle.
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital
During the nine months ended September 30, 2022,
| ● | The
Company issued common shares for the exercise of warrants for $ | |
| ● | The
Company issued common shares for the exercise of stock options for $ | |
| ● | The Company issued common shares for the vesting of restricted share units. |
During the year ended December 31, 2021,
| ● | The
Company issued common shares for the exercise of warrants for $ | |
| ● | The Company issued common shares for the vesting of Restricted Share Units. | |
| ● | The
Company issued common shares for the exercise of stock options for $ | |
| ● | The Company issued common shares in lieu of cash. | |
| ● | The
Company issued units for the Regulation A+ financing in the United States for proceeds of $ | |
| ● | The Company issued units for the acquisition of Vital Intelligence. . | |
| ● | The
Company issued common shares in a private placement for $ | |
| ● | The
Company issued common shares for the exercise of warrants for $ | |
| ● | The Company issued common shares for the vesting of Restricted Share Units. | |
| ● | The
Company issued common shares for the exercise of stock options for $ | |
| ● | The Company issued common shares in lieu of cash. |
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.
| Grant Date | Expiry Date | Exercise Price | Remaining Contractual Life (years) | Number of Options Outstanding | Number of Options Exercisable | |||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
17. SHARE CAPITAL (CONT’D)
Stock options (cont’d)
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Forfeited | ( | ) | ||||||
| Granted | ||||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding, September 30, 2022 | $ | |||||||
No options were granted by the Company for the nine months ended September 30, 2022
During the year ended December 31, 2021,
| ● | The Company granted options to an employee. Each option is exercisable at $ per share for years. | |
| ● | The Company granted options to a consultant. Each option is exercisable at $ per share for years. | |
| ● | The Company granted options to employees and a consultant. Each option is exercisable at $ per share for years. | |
| ● | The Company granted options to an employee. Each option is exercisable at $ per share for years. |
During the nine months ended September 30, 2022, the Company recorded $ (2021- $) in stock-based compensation for stock options, based on the fair values of stock options granted which were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
| Nine months ended September 30, | 2022 | 2021 | ||||||
| Risk free interest rate | % | %- | % | |||||
| Expected volatility | % | %- | % | |||||
| Expected life | ||||||||
| Expected dividend yield | % | % | ||||||
| Exercise price | $ | $ | - | |||||
Volatility is calculated using the historical volatility method based on a comparative company’s stock price.
Restricted Share Units
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 Exchange requirements, grant to directors, officers, employees, and technical consultants to the Company, restricted stock units (RSUs). The number of RSUs awarded and underlying vesting conditions are determined by the Board of Directors in its discretion. 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.
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
17. SHARE CAPITAL (CONT’D)
As at September 30, 2022, the Company had the following RSUs outstanding:
| Number of RSUs | ||||
| Outstanding, December 31, 2020 | ||||
| Vested | ( | ) | ||
| Issued | ||||
| Outstanding, December 31, 2021 | ||||
| Vested | ( | ) | ||
| Issued | ||||
| Forfeited | ( | ) | ||
| Outstanding, September 30, 2022 | ||||
During the nine months ended September 30, 2022, RSU’s fully vested according to the terms and the Company granted RSUs to employees and consultants of the Company with each RSU exercisable into one common share of the Company or the cash equivalent thereof upon the vesting conditions being met for a period of eighteen months from the grant date. In addition, RSU’s were forfeited by employees who have left the Company.
During the year ended December 31, 2021, RSUs fully vested according to the terms and the Company accelerated the vesting of RSUs. The Company issued RSUs to employees of the Company with each RSU exercisable into one common share of the Company or the cash equivalent thereof upon the vesting conditions being met for a period of three years from the grant date.
During the nine months ended September 30, 2022, the Company recorded share-based payment expense of $ (2021: $) in stock-based compensation for RSUs, based on the fair values of RSUs granted which were calculated using the closing price of the Company’s stock on the day prior to grant.
Warrants
During the years ended December 31, 2021 and 2020, the Company issued warrants (“USD Warrants”) with a USD exercise price. Being in a foreign currency that is not the Company’s functional currency, these USD Warrants are required to be recorded as a financial liability and not as equity. As a financial liability, these USD Warrants are revalued on a quarterly basis to fair market value with the change in fair value being recorded profit or loss. The initial fair value of these USD Warrants was parsed out from equity and recorded as a financial liability.
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 from the Bank of Canada.
Warrant Derivative Liability
| Balance at January 1, 2021 | $ | |||
| Warrant issuance | ||||
| Exercised | ( | ) | ||
| Change in fair value of warrants outstanding | ( | ) | ||
| Balance at December 31, 2021 | $ | |||
| Exercised | ( | ) | ||
| Change in fair value of warrants outstanding | ( | ) | ||
| Balance at September 30, 2022 | $ |
| Derivative liability balance at | September 30, 2022 | December 31, 2021 | ||||||
| Warrants | $ | $ | ||||||
| Contingent consideration (note 4) | ||||||||
| Ending balance | $ | $ | ||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
17. SHARE CAPITAL (CONT’D)
Warrants (cont’d)
Details of these warrants and their fair values are as follows:
| Issue Date | Exercise Price | Number of Warrants Outstanding at September 30, 2022 | Fair Value at September 30, 2022 | Number of Warrants | Fair Value at December 31, 2021 | |||||||||||||||
| US$ | $ | $ | ||||||||||||||||||
| US$ | ||||||||||||||||||||
| US$ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||
The fair values of these warrants were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
| September 30, 2022 | December 31, 2021 | |||||||
| Risk free interest rate | % | %- | % | |||||
| Expected volatility | %- | % | %- | % | ||||
| Expected life | - years | - years | ||||||
| Expected dividend yield | % | % | ||||||
Volatility is calculated using the historical volatility method.
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2020 | $ | |||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Issued | ||||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Exercised | ( | ) | ||||||
| Outstanding September 30, 2022 | $ | |||||||
| Date issued | Expiry date | Exercise price | Number of warrants outstanding | |||||||
| US$ | ||||||||||
| US$ | ||||||||||
| US$ | ||||||||||
| CDN$ | ||||||||||
| US$ | ||||||||||
| US$ | ||||||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
17. SHARE CAPITAL (CONT’D)
Warrants (cont’d)
The weighted average remaining contractual life of warrants outstanding as of September 30, 2022, was years (December 31, 2021 – years).
Of
18. REVENUE
The Company sub-classifies revenue within the following components: product revenue and services revenue. Product revenue comprises of sales of internally assembled multi-rotor helicopters, industrial aerial video systems, civilian small unmanned aerial systems or vehicles, and wireless video systems. Services revenue consists of fees charged for custom engineering, drone as a service work, and training and simulation consulting.
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Drone service | ||||||||||||||||
| Services | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Geographic revenue segmentation is as follows:
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||
| United States | ||||||||||||||||
| International | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Non-current assets for each geographic segment are as follows:
| As at September 30, 2022 | Canada | United States | ||||||
| Goodwill | $ | $ | ||||||
| Property and equipment | ||||||||
| Intangible assets | ||||||||
| Investments | ||||||||
| Notes receivable | ||||||||
| Right of use assets | ||||||||
| $ | $ | |||||||
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
19. OFFICE AND MISCELLANEOUS
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Advertising, Marketing, and Investor Relations | $ | $ | $ | $ | ||||||||||||
| Compliance fees | ||||||||||||||||
| Contract Work | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
20. 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. The services are provided by a team of up to six consultants and the costs of all charges are based on
the fees set in the Agreement and are settled on a monthly basis. The Company records these charges under Professional Fees. For the
nine months ended September 30, 2022, the company incurred fees of $
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. The costs of all
charges are based on the fees set in the Consultant Agreement and are settled on a monthly basis. The Company records these charges under
Professional Fees. For the nine months ended September 30, 2022, the Company incurred fees of $
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. The costs of all charges are based on the fees
set in the Executive Agreement and are settled on a monthly basis. The Company records these charges under Professional Fees. On May
9, 2022. Scott Larson ceased to be the President of the Company but remains a director, entered into an executive consultant agreement
to provide executive consulting services to the Company. The costs of all charges are based on the fees set in the consulting agreement
and are settled on a monthly basis. The Company records these charges under Professional Fees. For the nine months ended September 30,
2022, the Company incurred fees of $
Trade receivables/payables and accrued receivables/payables:
As
at September 30, 2022, the Company had $
Key management compensation
Key management includes the Company’s directors and members of the executive management team. Compensation awarded to key management for the nine months ended September 30, 2022 and 2021 included:
Draganfly Inc.
Notes to the Condensed Consolidated Interim Financial Statements
For Three and Nine Months Ended September 30, 2022
Expressed in Canadian Dollars (unaudited)
20. RELATED PARTY TRANSACTIONS (CONT’D)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Director fees | $ | $ | $ | $ | ||||||||||||
| Management fees paid to a company controlled by CEO and director | ||||||||||||||||
| Management fees paid to a company controlled by the President and director | ||||||||||||||||
| Management fees paid to a company controlled by a former director | ||||||||||||||||
| Salaries | ||||||||||||||||
| Share-based payments | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
21. SUPPLEMENTAL CASH FLOW DISCLOSURES
During the period ended September 30, 2022:
| - | The
Company recorded a change in fair value of investments of $ |
During the year ended December 31, 2021:
| - | The Company issued common shares in lieu of cash. | |
| - | The
Company issued units for the acquisition of Vital Intelligence. Each unit is comprised of one common share and one warrant.
| |
| - | The Company issued common shares in lieu of cash. | |
| - | The Company recorded a change in fair value of investments of $ to other comprehensive loss. |
22. SUBSEQUENT EVENT
Subsequent
to September 30, 2022, a note receivable with an original maturity date of October 21, 2022 (Note 8; Note Receivable 1) was amended to
January 21, 2023. The parties agreed on an amended maturity date, whereby $