UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT PURSUANT TO REGULATION A
For the fiscal year ended:
December 31, 2020
| Draganfly, Inc. |
| (Exact name of issuer as specified in its charter) |
British Columbia, Canada
(Jurisdiction of incorporation or organization)
N/A
(I.R.S. Employer Identification Number)
2108 St. George Avenue
Saskatoon, SK, S7M 0K7
(Address of principal executive offices)
1-306-955-9907
(Telephone number, including area code)
Units consisting of Common Shares, no par value, Warrants and Common Shares underlying the Warrants
(Title of each class of securities issued pursuant to Regulation A)
PART II
INFORMATION TO BE INCLUDED IN REPORT
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Annual Report on Form 1-K that are forward-looking statements within the meaning of the federal securities laws. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” and similar expressions or statements regarding future periods are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this Annual Report or in the information incorporated by reference into this Annual Report.
The forward-looking statements included in this Annual Report on Form 1-K are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, taking into account the information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes, and our actual results and performance could differ materially from those set forth in any forward-looking statements. The cautionary statements set forth in this Annual Report on Form 1-K identify important factors which you should consider in evaluating our forward-looking statements. These factors include, without limitation:
| ● | The success of our products and product candidates will require significant capital resources and years of development efforts; |
| ● | The results of product testing and investigation activities; |
| ● | Our ability to obtain regulatory approval and market acceptance of our products; | |
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| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | Our lack of operating history on which to judge our business prospects and management; |
| ● | Our ability to raise capital and the availability of future financing; and |
| ● | Our ability to manage our research, development, expansion, growth and operating expenses. |
You are cautioned not to place undue reliance on any forward-looking statements included in this Annual Report. All forward-looking statements are made as of the date of this Annual Report on Form 1-K, and the risk that actual results will differ materially from the expectations expressed in this Annual Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.
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| Item 1. | Business |
Overview
| GENERAL DEVELOPMENT OF THE BUSINESS OF THE COMPANY |
Founded in 1998, Former Draganfly is recognized as one of the first commercial multi-rotor manufacturers and has a legacy for its innovation and superior customer service.
Former Draganfly introduced its first systems in 1999 and since evolved and shaped the Unmanned Aerial Vehicle (“UAV”) industry. The company's aircraft are widely used by public safety agencies worldwide and were one of the first UAV to receive a FAA Certificate of Authorization the fall of 2009 with the Mesa County Colorado Sheriff's Office. In 2012, the Royal Canadian Mounted Police flew one of the company's drones to locate and save the life of an accident victim. Draganfly aircraft have achieved many industry firsts, including:
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| · | first public safety UAV to shoot aerial photos documenting a manned aircraft accident in an urban area; |
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| · | first UAV operated by a public safety organization flown at night to locate and save a life; |
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| · | first UAV helicopter to be granted a county wide U.S. FAA Certificate of Authorization; |
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| · | named as a test platform at one of the U.S. FAA's certified test sites; and |
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| · | 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, 2018
The Company was incorporated under the British Columbia Business Corporation Act (the “BCBCA”) on June 1, 2018 for the purpose of reorganizing and recapitalizing the business of Former Draganfly.
Prior to Closing of the Going Public Transaction (as defined herein), the Company had not conducted any material business since incorporation other than pursuing interests under a letter of intent with Former Draganfly and entering into the Combination Agreement (as defined herein). The sole business of the Company from the date of its incorporation until executing the Combination Agreement was to identify and evaluate opportunities for the acquisition of an interest in suitable drone businesses and, once identified and evaluated, to negotiate an acquisition subject to applicable corporate and securities laws, so as to complete a transaction. Until the completion of the Going Public Transaction, the Company did not have a business, business operations or any material assets other than cash.
Financial year ended December 31, 2019
On August 15, 2019, DAC, its wholly-owned subsidiary 1187607 B.C. Ltd. ("Subco") and Former Draganfly completed a business combination transaction (the "Going Public Transaction") pursuant to a business combination agreement dated January 31, 2019 among the Company, Subco and Former Draganfly (the "Combination Agreement") whereby: (i) Former Draganfly completed settlement of certain overdue debt in the aggregate of $2,779,726; (ii) Former Draganfly continued to British Columbia (being the corporate law jurisdiction of the Company and Subco; (iii) Subco amalgamated (the "Amalgamation") with Former Draganfly to form the amalgamated wholly-owned subsidiary of the Company, Draganfly Innovations Inc.; and (iv) the Company changed its name to "Draganfly Inc."
| 3 |
Under the Amalgamation, holders of common shares of Former Draganfly ("Former Draganfly Shares") (other than dissenting shareholders) received 1.794 Common Shares for each Former Draganfly Share held by such Former Draganfly shareholder. Consequently, the Company owns 100% of Draganfly Innovations and the Former Draganfly shareholders became shareholders of the Company.
The Company completed a non-brokered private placement offering on May 22, 2019 and August 6, 2019 (the "Subscription Receipt Offering") of securities raising aggregate gross proceeds of $7,025,749.50 through the issuance of 14,051,499 subscription receipts of the Company ("Subscription Receipts") at a price of $0.50 per Subscription Receipt. The Subscription Receipt Offering was required in order to satisfy closing conditions of the Going Public Transaction. Each subscription receipt automatically converted, without payment of additional consideration and without any further action on the part of the holder, into one unit of the Company upon the completion of the Going Public Transaction and the listing of the Common Shares on the CSE. Each unit consisted of one Common Share and one transferable Common Share purchase warrant. Each warrant entitled the holder to purchase one Common Share at a price of $0.50 for a period 12 months following the issuance of the warrants.
The Company completed the listing of its Common Shares for trading on the CSE under the symbol "DFLY" on November 5, 2019.
The Board and the Company's senior management were reconstituted in conjunction with the completion of the Going Public Transaction to consists of four directors, Cameron Chell, Denis Silva, Scott Larson and Olen Aasen, and Cameron Chell as Chairman and CEO and Paul Sun as CFO and Corporate Secretary.
On November 7, 2019, the Company announced that Andrew Hill Card Jr. was appointed to the Board.
On November 15, 2019, the Company completed the listing of its Common Shares for trading on the Frankfurt Stock Exchange under the trading symbol "3U8".
Financial year ended December 31, 2020
On January 9, 2020, the Company completed the listing of its Common Shares for trading on the OTCQB Venture Market of the OTC Markets under the symbol "DFLYF".
On March 26, 2020, the Company announced that it had been selected as the exclusive global systems integrator for a project with Vital Intelligence Inc., a healthcare data services and deep learning company, in conjunction with the University of South Australia using technology developed with help from the Australian Department of Defence Science and Technology Group.
On April 30, 2020, the Company completed the acquisition of all of the shares of Dronelogics Systems Inc. for a purchase price of $2,000,0000 paid by way of a cash payment of $500,000 and 3,225,438 Common Shares at a deemed price of $0.50 per Common Share. In connection with the acquisition, Justin Hannewyk, President of Dronelogics, was appointed to the Board.
On June 18, 2020, the Company announced that John M. Mitnick was appointed to the Board.
On July 3, 2020, the Company announced that Scott Larson, a director of the Company, was appointed President of the Company.
On July 6, 2020, Draganfly completed a non-brokered private placement of 961,538 Common Shares at a price of $0.52 per Common Share for gross proceeds of $500,000.
On July 16, 2020, Draganfly completed a shares for debt transaction for payment of a third party strategic vendor's invoices. Draganfly issued an aggregate of 555,409 Common Shares at a deemed price of $0.55 per Common Share to settle $305,475.03 of outstanding debt.
| 4 |
On November 10, 2020, the Company announced that its wholly-owned subsidiary Dronelogics, entered into lease agreements with the wholly-owned subsidiaries of Global UAV Technologies, Pioneer Arial Surveys Ltd. and High Eye Aerial Imaging Inc. (the "Global UAV Subsidiaries"), pursuant to which Dronelogics will lease all of the assets of the Global UAV Subsidiaries with an exclusive option to purchase the assets at any time during the term of the lease agreements. Pursuant to the lease agreements, Dronelogics paid an initial deposit of $50,000 upon signing and will pay four quarterly lease payments to each of the Global UAV Subsidiaries for an aggregate amount of $31,500 per quarter (for a total amount of $126,000 during the term of the lease agreements). In the event the Company exercises the option, it is required to pay the remainder of the lease payments outstanding as well as $220,000 in Common Shares based on a 30-day volume weighted average price per Common Share following the execution of the lease agreements, for aggregate consideration of $396,000. On January 28, 2021, the Company notified the Global UAV Subsidiaries that it would be terminating the lease agreements and no longer pursuing this transaction.
On December 2, 2020, the Company announced that it had completed an initial closing of its Regulation A+ offering of units of the Company (the "Regulation A+ Offering"). The Company issued 2,556,496 units at price of US$0.47 per unit for gross proceeds in the amount of US$1,201,553 in the first 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 until November 30, 2022. The Common Shares and Warrants issued in connection with the offering are subject to a nine month hold period which will expire on August 30, 2021.
Our Products and Services
General
The Company is an award-winning, industry-leading 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: (i) Draganfly Innovations Inc.; (ii) Draganfly Innovations USA Inc.; and (ii) Dronelogics Systems Inc.
The business of Draganfly Innovations and Draganfly Innovations USA is the provision of engineering services and manufacture of commercial UAV, Remotely Piloted Aircraft Systems, and Unmanned Vehicle Systems 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.
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, hand held controllers, flight training, and software used for tracking, live streaming, and data collection.
The bulk of engineering service work is for one large US based customer that subcontracts to Draganfly. The customer's clients tend to be the U.S. government and military.
| 5 |
Draganfly Products
Quadcopters and Multirotors
The Company is the longest-running manufacturer of quadcopters and multirotor drones in the world. Draganfly's quadcopters and multirotor drones include the following:
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| · | Draganflyer Commander – a high-endurance, electric, autonomous quadcopter drone built on Draganfly's patented carbon fiber folding airframe with interchangeable payloads for a variety of missions requiring high resolution imagery, including surveying, 3D mapping, industrial inspection, search and rescue, and high-endurance public safety applications. |
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| · | Draganflyer X4-P – semi-autonomous quadcopter with 18-minute flight time ideal for medium projects. |
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| · | Quantix™ Mapper – exclusive to Draganfly through its partnership with AeroVironment, it is a fully-automated drone that is designed for mapping. |
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| · | Tango2 – a high endurance, dual battery, small Unmanned Aircraft System (“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
Draganfly operates in partnership with Vital Intelligence Inc. to install standalone and airborne health assessment systems at locations such as universities, hotels, casinos, family entertainment complexes, shopping centers, and other high-traffic locations. These systems effectively measure social distancing and visitors' vital signs like temperature, cough, and respiratory rate to identify high-risk visitors. Vital Intelligence is a data platform that turns an existing camera into a touchless symptom detection system, measuring vital signs and social distancing. Draganfly integrates this technology into a variety of platforms and camera systems – both on the ground and in the air – to assess people coming into and traveling throughout a facility.
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:
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| · | Hardware design: Component, product, and system design. |
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| · | Software design: Custom software and interface design. |
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| · | Development: Including integration with third party platforms, PixX4D, Pixhawk, Ardupilot, DJI and more. |
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| · | Modeling: 3D design and modeling of mechanical components. |
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| · | ITAR equipment management: Approved handling and integration of ITAR, and Controlled Goods technologies. |
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| · | 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, up to 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.
Varigard Spraying Services
Draganfly operates in partnership with Varigard LLC, 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.
Competition
Although Draganfly is acknowledged as the pioneer that first developed 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. 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), are quite budget conscious. Hence, these organizations tend to use lower cost drones that have become quite sophisticated that can accomplish most of their use cases. The dominant company in the industry is DJI, the Chinese drone company that is reputed to own over 70% of the consumer and now commercial drone market. The majority of DJI's drones are geared towards broad applications involving the masses. Draganfly has moved away from competing directly with DJI and has chosen to serve niche markets outside of where DJI 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 DJI. 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. As Draganfly has evolved to move with the industry trends, the Company now uses DJI drones as part of some of its customization and engineering services work. Draganfly has also moved into innovative engineering procurement which is very specialized and is currently not aware of any Canadian and US companies focusing on this industry or its existing customers. 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 very specialized work that only a handful of companies can do.
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Legal Proceedings
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, 2020, (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, 2020.
Employees
As at December 31, 2020 and as of the Effective Date, the Company had 22 employees and three full-time and part-time consultants whose services were, and continue to be, used on a regular basis for day-to-day operations.
Corporate Information
The Company was incorporated as Drone Acquisition Corp. ("DAC") under 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 2108 St. George Avenue, Saskatoon, Saskatchewan S7M 0K7, and the registered office is located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2Z7.
Intercorporate Relationships
The following chart shows the Company's subsidiaries as at the Effective Date:
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and related notes appearing at the end of this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed elsewhere in this Annual Report.
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Operating Results
Results of Operations for the Year Ended December 31, 2020 and the Year Ended December 31, 2019
2020 Highlights
| · | 2020 Total Revenues at $4,363,511 with product revenue of $3,087,223 |
2020 was another milestone year for Draganfly. The Company successfully closed and integrated its Dronelogics Systems Inc acquisition which provided the bulk of the product revenue sales. Given the Company’s main custom engineering customer effectively shut this portion of their business in Q1/20, services revenues were offset by other drone services work. Although, the Company’s OEM products are still well regarded in the industry, the commercial UAV space as a whole has been impacted by lower priced consumer drones that can now offer similar functionality. With its recent acquisition, the Company can now offer these lower priced drones for more traditional and less niche type work. The Company believes there is still an opportunity for engineering procurement and product sales for those customers that either choose not to buy foreign-made UAVs or are restricted from doing so due to information security concerns. 2020 revenues were up 216% year over year coming in at $4,363,511 versus $1,380,427 in the previous year. $645,756 represents custom engineering services work, $630,532 represents drone services work while the balance of revenue is from hardware sales.
| · | Gross Margins decrease Due to Shift in Business Mix |
With the Company now offering more products than services, the gross margins decreased 52.1%. The Company’s total gross margin for 2020 was 40.3% vs 84.1% in 2019. Custom Engineering services tends to have a much higher gross margin over manufacturing or non-OEM product sales given lower material costs.
| · | Company Diversified its product and services offering with acquisition |
Given the Company’s impressive history and deep engineering talent, a natural evolution was to outsource in-house capabilities to customers. Doing this leverages the Company’s core skill set of innovation that tends to lead to future projects, bringing in more consistent revenue. With its recent acquisition, the Company has increased its scope of products and services to include non-OEM products and drone as a service type work. This has proved beneficial during the current pandemic as not all services are impacted the same way so having a larger breadth of products and services, in part mitigates some risk for the Company.
| · | Company broadens its services to include health vertical in the face of global pandemic |
Through its partnership with Vital Intelligence and Varigard, the Company recently added health monitoring and prevention to its product and service offering. Securing some key clients in this business line was key to proving out this new vertical. These clients were important for validation of this relatively new technology, but more importantly demonstrates the Company’s ability to evolve and offer products and services that have global applicability.
Revenues
| For the year ended December 31, |
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| Product sales |
| $ | 3,087,223 |
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| $ | 248,939 |
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| 630,532 |
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| Consulting services |
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| 645,756 |
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| 1,131,488 |
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| Total revenue |
| $ | 4,363,511 |
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| $ | 1,380,427 |
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Total revenue for the year ended December 31, 2020 increased by $2,983,084 or 216.1% as compared to 2019. The increase in revenue is largely due to the Company’s acquisition of Dronelogics Systems Inc. and the retail sales and services business that they brought partially offset by a decrease in Custom Engineering services due to the downturn caused by COVID-19.
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Draganfly Innovations Inc.’s ("Draganfly Innovations") primary custom engineering customer is domiciled in the US and was shut down and reduced a number of its projects. As a result, there was no contribution ($0) from this customer after March, 2020. However, services in 2020 is currently made up of custom engineering (product development) and drone services work. Although the custom engineering part of this business line was impacted, it was somewhat offset by drone services work that came from Dronelogics Systems Inc. ("Dronelogics").
Early in 2020, Draganfly signed an acquisition agreement with Dronelogics Systems Inc. At the time, the Company had forecast a combined proforma revenue of $6 - $7 million for fiscal 2020. However, the acquisition did not officially close until April 30, 2020. Had the Company had the full benefit of the acquisition, revenue would have been approximately $5 million. As noted in our COVID-19 disclosure, the pandemic did negatively impact the business which can be attributed to most of the shortfall of the original projections.
As at April 30, 2020, the Issuer completed its acquisition of Dronelogics. Therefore, the December 31, 2020 results include 8 months of Dronelogics and 12 months of Draganfly Innovations. As at December 31, 2020, $645,756 represents custom engineering services work, $630,532 represents drone services work and $3,087,223 represents products sales. While for the twelve-month period ended December 31, 2019, $1,131,488 came from Custom Engineering Service work, no contribution from drone services work, and $248,939 coming from product sales. Accordingly, year over year, drone service revenue and product sales increased due to the acquisition of Dronelogics and custom engineering service revenue decreased due to the customer cutting back work due to the COVID-19 pandemic.
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| Item 3. | Directors and Officers |
Directors, Executive Officers and Significant Employees
The table below sets forth our directors and executive officers of as of the date of this Annual Report.
| Name |
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| Age |
| Term of Office |
| Approximate hours per week |
| Officers: |
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| Name |
| Position |
| Age |
| Term of Office |
| Approximate hours per week for part-time employees |
| Executive Officers: |
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| Cameron Chell |
| Chairman, CEO, and Director |
| 53 |
| Aug 14, 2019 – Present |
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| Paul Sun |
| CFO and Corporate Secretary |
| 49 |
| August 14, 2019 – Present |
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| John Bagocius |
| SVP Sales |
| 49 |
| July 14, 2020 - Present |
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| Scott Larson |
| Interim President |
| 49 |
| July 3, 2020 - Present |
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| Directors: |
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| Scott Larson |
| Director |
| 49 |
| August 14, 2019 – Present |
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| Olen Aasen |
| Director |
| 38 |
| August 14, 2019 – Present |
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| Denis Silva |
| Director |
| 41 |
| August 14, 2019 – Present |
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| Andrew Hill Card, Jr. |
| Director |
| 74 |
| November 7, 2019 – Present |
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| Justin Hannewyk |
| Director |
| 36 |
| April 30, 2020 – Present |
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| John M. Mitnick |
| Director |
| 59 |
| June 18, 2020 – Present |
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| DIRECTORS AND OFFICERS |
As at the date hereof, the Board is comprised of seven individuals. The following table sets forth the names and municipalities of residence of the current directors and executive officers of the Company, their respective positions and offices with the Company and the date first appointed or elected as a director and/or officer and their principal occupation(s) within the past five years.
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Name, Occupation and Security Holding
| Name | Position Held | Principal Occupation within the past five years |
| Cameron Chell
| Chief Executive Officer, Chairman and a Director
| Chairman and Chief Executive Officer of the Company since August 2019; Chief Executive Officer and co-founder of Business Instincts Group Inc., a Calgary-based Venture Creation Firm, since 2009; co-founder of Cold Bore Technologies Inc. from February 2013 to present; Chairman and founder of TraxOne Inc. from September 2016 to present; a director and an advisor to KodakCoin from May 2017 to present; Chairman and co-founder of CurrencyWorks Inc. from November 2017 to present; and director and co-founder of Slyce Inc. from January 2012 to January 2017.
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| Scott Larson(1)(2)
| President (July 3, 2020) and a Director
| President of the Company since July 2020; 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.
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| Olen Aasen(1)(2)
| Director | General Counsel at King & Bay West Management Corp. since February 2011; VP Legal of Canada Jetlines Ltd. since March 2017; and Corporate Secretary of Alderon Iron Ore Corp. from September 2012 to April 2020.
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| Andrew Hill Card Jr.
| Director
| Interim Chief Executive Officer of the George & Barbara Bush Foundation since June 2020; Chairman of the National Endowment for Democracy (NED), a non-profit organization dedicated to the growth and strengthening of democratic institutions around the world, since January 2018; and President of Franklin Pierce University in New Hampshire from January 2015 through July 2016.
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| Justin Hannewyk
| Director
| President of Dronelogics, a wholly-owned subsidiary of the Company, since 2009; President of Candrone from January 2009 to present; and an independent consultant to enterprise clients with respect to the integration of drones for over 10 years.
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| John M. Mitnick
| Director | Member of Board of Directors of Valaurum, Inc., March 2016 to February 2018 and since October 2019; 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.
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| Denis Silva(1)(2)
| Director
| 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.
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| Paul Sun
| Chief Financial Officer and Corporate Secretary
| 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.
|
| John Bagocius
| Senior Vice President, Sales (July 14, 2020)
| Senior Vice President, Sales of the Company since July 2020; VP of Sales for the Public Safety & Commercial UAS groups for FLIR Systems from January 2019 to March 2020; VP of Sales, North America Public Safety & Commercial UAS Solutions for Aeryon Labs Inc. from June 2017 until December 2018; and various leadership positions in Sales, Product Management, and Business Development for Crossmatch Technologies from June 2000 to June 2017. |
Notes:
(1) Member of the Audit Committee.
(2) Member of the Nominating and Corporate Governance 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 is no arrangement or understanding between the persons described above and any other person pursuant to which the person was selected to his or her office or position.
| 12 |
Certain Relationships
On Aug 1, 2019, the Company entered in a business services agreement (the “BIG Agreement”) with Business Instincts Group (“BIG”), a company controlled by Cameron Chell, CEO and director, 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 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 Office and Miscellaneous. For the year ended December 31, 2020, the company incurred fees of $177,000 compared to $80,000 in 2019. As at December 31, 2020, the Company was indebted to this company in the amount of $nil (December 31, 2019 - $nil).
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $525,164 compared to $9,000 in 2019. As at December 31, 2020, the Company was indebted to this company in the amount of $321,741 (December 31, 2019 - $9,450).
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $227,524. As at December 31, 2020, the Company was indebted to this company in the amount of $153,887.
During the year ended December 31, 2020 the Company had $nil (2019 - $9,681) payable to related parties outstanding that were included in accounts payable. The balances outstanding are unsecured, non-interest bearing and due on demand.
Family Relationships
N/A
| 13 |
Business Experience
Cameron Chell, CEO and Director – Mr. Chell is the CEO of the Company and CEO and Co-Founder of Business Instincts Group, Inc. Mr. Chell became an entrepreneur at age 14, and has since spent his career growing a diverse collection of high-potential ideas into revolutionary companies that have changed the way we experience the world. At 14, Mr. Chell launched his first company by building irrigation valves, but as a junior high student, he was consistently turned down by manufacturers and distributors. Undeterred, he bid on irrigation contracts instead, landing deals and building his first business. By 17, Mr. Chell had launched several other companies including a computer assembly and reseller operation. Later in life, while working as a stockbroker tasked with seeding high-tech companies, building Boards and raising capital, Mr. Chell realized he could turn his passion for creating companies into a career. He quickly left to quench his thirst for building businesses himself. From October 2007 to present, Mr. Chell served as the Chief Executive Officer of Business Instincts Group (“BIG”). As the CEO of BIG, Mr. Chell takes a very hands-on leadership position in client projects, infusing his principles of clarity, alignment and measurement into the culture of every BIG partner. That leadership was critical to the success of UrtheCast, which he co-founded, Cold Bore Technologies (Mr. Chell served as Co-Founder from February 2013 to Present), Slyce (Mr. Chell Served as Director from January 2012 to January 2017), Raptor Rig (Mr. Chell served as Director from February 2015 to Present), Draganfly (Mr. Chell Served as Director and Chief Executive Officer from May 2013 to Present) and TraxOne Inc (Mr. Chell served as Director from September 2016 to Present). Most recently, Mr. Chell has served as an advisor to KodakCoin (Mr. Chell served as a Director from May 2017 to Present), believed to be one of the first compliant cryptocurrencies developed in partnership between Business Instincts Group, WENN Digital and CurrencyWorks Inc (Mr. Chell served as Chairman from November 2017 to Present). Mr. Chell is an Olympic decathlete, a cancer survivor, and the author of Sustainable Startup, a guide for scaling small businesses and their teams. In addition to his work with BIG, Mr. Chell speaks publicly on topics including technology, culture and overcoming adversity.
Paul Sun, Chief Financial Officer and Corporate Secretary – Mr. Sun has over 20 years of business experience and has held numerous senior roles at investment banks including Scotia Capital, Desjardins, and Beacon Securities. Mr. Sun has provided financial solutions to small start-ups to billion dollar market-cap companies and has been involved in many transactions across the entire capital structure. He has also held project and operations management positions at a number of private and publicly traded companies. He officially joined Draganfly in June, 2015. He was awarded his Bachelor of Applied Science and Engineering from The University of Toronto and his Master of Business Administration from the Schulich School of Business. He holds the Professional Engineer and Certified Financial Analyst designations. Mr. Sun’s business knowledge, experience, and education has provided him with an understanding of financial reporting sufficient to enable him to act as a member of the Audit Committee.
Olen Aasen, Director – Mr. Aasen is a corporate and securities lawyer with more than 14 years of experience in corporate, securities and regulatory matters. Mr. Aasen has been Executive Vice President & General Counsel at King & Bay West Management Corp. from February 2011 to the present. King & Bay is a merchant bank that provides services to companies in the mineral resource, aviation and technology sectors. Prior to King & Bay, Mr. Aasen was an associate with Blake, Cassels & Graydon LLP from May 2007 to February 2011. 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.
| 14 |
Scott Larson, Interim President and Director – Mr. Larson brings over 20 years of combined corporate finance, technology development and entrepreneurial experience to the Board. From January 2019 to March 2020, Mr. Larson was the CEO 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. Prior to that, from 2016 to 2019, Mr. Larson was CEO and co-founder of Helios Wire, a satellite company building out a space-enabled IoT/M2M network. In 2019, Helios Wire was sold to a strategic acquirer. From 2010 to 2015, Mr. Larson was also the CEO/Co-Founder of UrtheCast. Mr. Larson helped scale the company from its inception, taking it public on the Toronto Stock Exchange, raising $200 million, and leading the company to 250 employees over five years with seven offices around the world.
John Bagocius – SVP Sales – Prior to joining the Company, Mr. Bagocius was the VP of Sales for the Public Safety & Commercial UAS groups for FLIR Systems from January 2019 to March 2020. Mr. Bagocius came to FLIR via the Aeryon Labs acquisition, where he ran the Public Safety and Commercial Drone business lines from June 2017 until December 2018. Before joining Aeryon, Mr. Bagocius served the biometrics technology field, most recently, as the Director of Sales for Crossmatch Technologies, providing biometric solutions and identity management tools to military and law enforcement agencies worldwide. Mr. Bagocius spent nearly 17 years at Crossmatch, from June 2000 to June 2017 where he held various leadership positions in Sales, Product Management, and Business Development. Mr. Bagocius has over 20 years of experience in both direct and channel sales to all levels of the government (Federal, DOD, intel, state & local) as well as the critical infrastructure industry (power generation, nuclear, DOT) and various commercial entities in the education, finance, and transportation industries. Mr. Bagocius’ experience has been based in security and technology - hardware, software, and complete solution offerings. Mr. Bagocius is a veteran of the U.S. Marine Corps, serving as a member of the prestigious White House Honor Guard performing duties at the White House, Pentagon, and Arlington National Cemetery. Mr. Bagocius also served as a member of the 13th Marine Expeditionary Unit, as part of a joint United Nations Task Force conducting operations in Africa. Mr. Bagocius is a graduate of The Florida State University and holds a Bachelors of Science degree in Information Systems Management.
Denis Silva, Director – Mr. Silva is a corporate and securities partner with 12 years of experience in corporate, securities, mining and regulatory legal experience (since 2009) and has acted for a wide variety of companies listed on Canadian and US exchanges, with a focus on technology and mining. Mr. Silva holds a BA from the University of British Columbia, MPA from Queen’s University and LLB from University of Windsor.
Andrew Hill Card, Jr., Director – Andrew H. Card, Jr. was named Interim CEO of the George & Barbara Bush Foundation in June 2020. He continues to serve as Chairman of the National Endowment for Democracy (NED), a non-profit organization dedicated to the growth and strengthening of democratic institutions around the world, a position he assumed in January 2018. Mr. Card has also held numerous positions at senior levels of government under three Presidents throughout the years, including Chief of Staff to President George W. Bush, where Mr. Card became the second longest tenured White House Chief of Staff. Mr. Card served as Deputy Chief of Staff to President George H.W. Bush, as well as U.S. Secretary of Transportation, and served President Ronald Reagan as a Deputy Assistant to the President for Intergovernmental Affairs.
Mr. Card served as President of Franklin Pierce University in New Hampshire from January 2015 through July 2016. Prior to this, Mr. Card served as Executive Director of the Office of the Provost and Vice President for Academic Affairs at Texas A&M University from August 2013 until December 2014. He served as Acting Dean of The Bush School of Government and Public Service at Texas A&M from July 2011, until Dean Ryan Crocker's return from service as the U.S. Ambassador to Afghanistan on August 1, 2013.
Mr. Card serves on the Board of Directors of public corporation Union Pacific, on the Board of Directors of the Edward M. Kennedy Institute for the United States Senate, on the Board of Directors of Draganfly, on the Business Advisory Board of BrainStorm Cell Therapeutics, and on the non-publicly traded Board for Energy Security Partners, and on a number of non-profit boards. Mr. Card previously served on the Advisory Board of the U.S. Chamber of Commerce. He is also a professional speaker represented by the Washington Speakers Bureau.
| 15 |
While Chief of Staff to President George W. Bush, Mr. Card coordinated the priorities of the Administration’s agenda, the development of policies, and appointments of Cabinet Secretaries and senior officials throughout the government. On September 11, 2001, Mr. Card is the one who whispered in President Bush’s ear while the President was sitting in a classroom in Florida, that terrorists had attacked the United States. Mr. Card then led a government-wide reorganization to best allocate resources to deal with the aftermath of 9-11 and the new terrorist environment.
Prior to his tenure as White House Chief of Staff, Mr. Card managed and ran the Republican National Convention in Philadelphia at the request of nominee Texas Governor George W. Bush. Before that, Mr. Card was Vice President-Government Relations for General Motors Corporation, one of the world’s largest automobile manufacturers. In this role Mr. Card directed the company’s international, national, state and local government affairs activities and represented GM on matters of public policy before the U.S. Congress and the Administration. From 1993 to 1998, Mr. Card was President and Chief Executive Officer of the American Automobile Manufacturers Association, the trade association whose members were Chrysler Corporation, Ford Motor Company, and General Motors Corporation. When Chrysler became part of Daimler Corporation, Mr. Card oversaw the dissolution of the nearly 100 year old trade association.
In August 1992, at the request of President Bush, Secretary Mr. Card coordinated the Administration’s disaster relief efforts in the wake of the massive Hurricane Andrew. He also directed President Bush’s transition office during the transition from the Bush Administration to the Clinton Administration. Prior to that he served as Special Assistant (1983 to 1987) and later as Deputy Assistant to the President and Director of Intergovernmental Affairs for President Ronald Reagan (1988) where he was liaison to governors, statewide elected officials, state legislators, mayors and other elected officials. From March 1987 until March 1988, Mr. Card ran the successful New Hampshire Presidential Primary Campaign for George H. W. Bush.
He is a graduate of the University of South Carolina with a B.S. in Engineering. He also attended the U.S. Merchant Marine Academy and the John F. Kennedy School of Government at Harvard University. Mr. Card served in the U.S. Navy from 1965 to 1967. Mr. Card has been the recipient of many honorary degrees and awards.
Mr. Card is a native of Holbrook, Massachusetts and got his start in politics as an elected official in Holbrook and then as Member of the Massachusetts House of Representatives from 1975-1983. He served as a Minority Whip from 1977-1983. In 1982 he was named Legislator of the Year by the National Republican Legislators Association and received the Distinguished Legislator Award from the Massachusetts Municipal Association. He was a candidate for the Republican Nomination for Governor of Massachusetts in 1982. He and his wife, The Reverend Kathleene (Bryan) Card, also from Holbrook, Massachusetts, have three children and six grandchildren.
Justin Hannewyk, Director –
Mr. Hannewyk, President of Dronelogics, is the co-founder of Dronelogics Systems and has been consulting with enterprise clients on the integration of drones for over a decade. Working closely with international companies in industries such as mining, forestry, energy and entertainment as well as advising governmental bodies, Mr. Hannewyk oversees the design and delivery of systems to meet client's needs. A progressive and forward-thinker, Mr. Hannewyk draws from industry insight to recognize customer requirements and pinpoint areas where technology can be leveraged to make better business decisions.
John M. Mitnick, Director – Mr. Mitnick is an American attorney with 32 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. In that capacity, Mr. Mitnick served as the chief legal officer of a federal security and law enforcement agency with over 240,000 employees, was responsible for providing legal advice and counsel to DHS and all of its components, and supervised over 2,500 attorneys. 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 over $3 billion in annual sales, over 9,000 employees, and business operations in over 40 countries and on all continents.
Mr. Mitnick’s recent tenure at DHS was a continuation of his homeland security public service. Beginning in November 2002, he assisted in establishing DHS and then served as Associate General Counsel for Science and Technology until August 2004, when he moved to the White House. He served in the White House Counsel’s Office as Deputy Counsel of the Homeland Security Council from August 2004 until April 2005, and then as Associate Counsel to the President, with responsibility for the entire homeland security portfolio, until October 2007. He began his legal career in 1988 at the law firm now known as Kilpatrick Townsend & Stockton LLP, where he was a partner specializing in mergers and acquisitions, strategic alliances, commercial contracts, and business start-ups.
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.
| 16 |
Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors or executive officers has, during the past ten years:
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| · | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| · | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he or she was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
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| · | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
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| · | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
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| · | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
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| · | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
We are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe will have a material adverse effect on our business, financial condition or operating results.
| 17 |
Compensation of Directors and Executive Officers
The following table represents information regarding the total compensation for the three highest paid executive officers or directors of the Company during the fiscal year ended December 31, 2020:
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|
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| Cash Compensation |
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| Other Compensation(1) |
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| Total Compensation |
| |||
| Name |
| Capacity in which compensation was received |
| ($) |
|
| ($) |
|
| ($) |
| |||
| Scott Larson |
| Interim President and Director |
| $ | 227,524.18 |
|
| $ | 361,000.00 |
|
| $ | 588,524.18 |
|
| Cameron Chell |
| Chairman, CEO and Director |
| $ | 525,163.69 |
|
| $ | - |
|
| $ | 525,163.69 |
|
| Justin Hannewyk |
| Director |
| $ | 80,000.00 |
|
| $ | 436,000.00 |
|
| $ | 516,000.00 |
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|
|
| $ |
|
|
| $ |
|
|
| $ |
|
|
_________
| (1) | Any values reported in the "Other Compensation" column, if applicable, represents the aggregate grant date fair value, computed in accordance with Accounting Standards Codification (ASC) 718 Share Based Payments, of grants of stock options to each of our named executive officers and directors. |
Director and Named Executive Officer Compensation
The following table represents information regarding the total compensation for the directors and the executive officers of the Company as of December 31, 2020 in Canadian dollars:
| Name and Capacity in which |
| Cash Compensation |
|
| Other Compensation |
|
| Total Compensation |
| |||
| Compensation was Received |
| ($) |
|
| ($)(1) |
|
| ($) |
| |||
| Cameron Chell(2) Chairman, CEO, and Director |
| $ | 525,163.69 |
|
| $ | 0 |
|
| $ | 525,163.69 |
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| Paul Sun CFO and Corporate Secretary |
| $ | 350,274.09 |
|
| $ | 0 |
|
| $ | 350,274.09 |
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| Patrick Imbasciani, Chief Operating Officer, Draganfly Innovations Inc. |
| $ | 164,140.33 |
|
| $ | 0 |
|
| $ | 164,140.33 |
|
| John Bagocius, SVP of Sales(4) |
| $ | 61,384.67 |
|
| $ | 300,999.99 |
|
| $ | 362,384.66 |
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| Scott Larson Director and Interim President |
| $ | 227,524.18 |
|
| $ | 361,000 |
|
| $ | 588,524.18 |
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| Olen Aasen Director |
| $ | 0 |
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| $ | 60,000 |
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| $ | 60,000 |
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| Denis Silva Director |
| $ | 0 |
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| $ | 60,000 |
|
| $ | 60,000 |
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| Andrew Hill Card, Jr. Director |
| $ | 0 |
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| $ | 60,000 |
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| $ | 60,000 |
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| Justin Hannewyk Director(5) |
| $ | 80,000.00 |
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| $ | 436,000 |
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| $ | 516,000.00 |
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| John Mitnick Director(6) |
| $ | 0 |
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| $ | 60,000 |
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| $ | 60,000 |
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| 18 |
_________
| (1) | Any values reported in the “Other Compensation” column, if applicable, represents the aggregate grant date fair value, computed in accordance with Accounting Standards Codification (ASC) 718 Share Based Payments, of grants of equity compensation to each of our named executive officers and directors. The equity compensation granted in the prior fiscal year ended December 31, 2020 includes stock options and RSUs and such grants are subject to vesting over time with further details in the below table entitled “Stock Options and Other Compensation Securities.” |
| (2) | Mr. Chell provides his services through the Chell Consulting Agreement. See below “Employment, Consulting, and Management Agreements”. |
| (3) | Comprised of vacation accrual and the fair value of equity compensation pursuant to footnote (1). |
| (4) | On July 14, 2020, Mr. Bagocius was hired as the Senior Vice President of Sales. Mr. Bagocius provides his services through the Bagocius Employment Agreement. See below “Employment, Consulting and Management Agreements”. |
| (5) | Mr. Hannewyk was appointed to the Board on April 30, 2020. |
| (6) | Mr. Mitnick was appointed to the Board on June 18, 2020. |
Director Compensation
Employment, Consulting, and Management Agreements
Except as disclosed herein, there were no agreements or arrangements under which compensation was provided during the most recently completed financial year or is payable in respect of services provided to the Company or any of its subsidiaries that were: (a) performed by a director or named executive officer; or (b) performed by any other party but are services typically provided by a director or a named executive officer.
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $525,164 compared to $9,000 in 2019. The year over year increase can largely be attributed to a transaction bonus relating to the sale of an asset for the benefit of the Company, a performance bonus, and an increase in annual compensation that is more commensurate with the role of CEO. As at December 31, 2020, the Company was indebted to this company in the amount of $321,741 (December 31, 2019 - $9,450). By letter agreement, effective October 1, 2020, the Company’s compensation committee increased consulting fees amounting to $170,000 annually. In addition to the increased consulting fee, Mr. Chell may be eligible for a services-based bonus in 2021, as determined by the Company in its sole discretion based on bonus target percentages outlined in the letter. Further, by separate bonus letter dated November 18, 2020, the compensation committee of the Company awarded Mr. Chell a bonus of CDN $215,000 related to the acquisition of Pixology. During the year ended December 31, 2020, CDN$75,000 of the bonus was paid.
| 19 |
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $227,524. As at December 31, 2020, the Company was indebted to this company in the amount of $153,887.
Mr. Sun has entered into an executive employment agreement (the “Sun Employment Agreement”) with the Company, dated November, 2020. Pursuant to the Sun Employment Agreement, Mr. Sun has agreed to perform certain services as Chief Financial Officer of the Company. The Sun Employment Agreement provides that Mr. Sun shall receive an annual base salary of CAD $165,000. Mr. Sun is eligible for annual cash bonuses based on the achievement by the Company of certain objectives. It further provides Mr. Sun with certain standard employment benefits, such as health insurance, paid vacation and business expense reimbursement.
Mr. Bagocius has entered into an employment agreement (the “Bagocius Employment Agreement”) with the Company, dated June 14, 2020. Pursuant to the Bagocius Employment Agreement, Mr. Bagocius has agreed to perform certain services as Chief Revenue Officer of the Company. Pursuant to resolutions of the Company’s board, Mr. Bagocius’ became the Senior Vice President, Sales of the Company and is no longer the Chief Revenue Officer. The Bagocius Employment Agreement provides that Mr. Bagocius shall receive an annual base salary of USD $140,000, which will be reviewed within 3 months based on milestones being met and contingent upon the financial strength of the Company. The Bagocius Employment Agreement grants Mr. Bagocius an issuance of 5,000 options issued and vesting within the Company’s standard share compensation plan. These options will be granted and set within 30 days per board approval. Additionally, Mr. Bagocius will receive 15 paid holiday days annually.
| Item 4. | Security Ownership of Management and Certain Securityholders |
The following table shows the beneficial ownership of our Common Shares as of the date of this Annual Report held by (i) each person known to us to be the beneficial owner of more than 10% of any class of our shares; and (ii) all directors and executive officers as a group. As of the date of this Annual Report, there were 134,944,434 shares of our common shares issued and outstanding.
Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Shares subject to options and warrants currently exercisable or which may become exercisable within 60 days of the date of this Annual Report, are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of Common Shares shown as beneficially owned by them.
The percentages below are based on fully diluted shares of our common shares as of the date of this Annual Report. Unless otherwise indicated, the business address of each person listed is c/o Draganfly Inc., 2108 St. George Avenue, Saskatoon, SK, S7M 0K7.
| 20 |
| Name and Address of Beneficial Owner |
| Amount and Nature of Beneficial Ownership |
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| Amount and Nature of Beneficial Ownership Acquirable (1) |
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| Percent of Class |
| |||
| Directors and Officers: |
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| |||
| All executive officers and directors as a group |
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| 7,863,083 |
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| 1,333,333 |
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| 6.81 | % |
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| Greater than 10% Securityholders: |
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| None. |
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________
| (1) | Includes (i) 1,250,000 of our common shares which could be issued within the next 60 days to our executive officers and directors upon exercise of vested options; and (ii) 83,333 of our common shares which could be issued within the next 60 days to our executive officers and directors upon vesting of restricted share unit grants. |
| Item 5. | Interest of Management and Others in Certain Transactions |
Transactions with Related Persons
On Aug 1, 2019, the Company entered in a business services agreement (the “BIG Agreement”) with Business Instincts Group (“BIG”), a company controlled by Cameron Chell, CEO and director, 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 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 Office and Miscellaneous. For the year ended December 31, 2020, the company incurred fees of $177,000 compared to $80,000 in 2019. As at December 31, 2020, the Company was indebted to this company in the amount of $nil (December 31, 2019 - $nil).
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our Directors will continue to approve any related party transaction.
| Item 6. | Other Information |
None.
| 21 |
| Item 7. | Financial Statements |
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| Consolidated Statements of Financial Position as of December 31, 2020 and December 31, 2019 |
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| 22 |
| Table of Contents |
Draganfly Inc. (formerly Drone Acquisition Corp.)
Consolidated Financial Statements
Years Ended December 31, 2020 and 2019
(Expressed in Canadian Dollars)
| 23 |
| Table of Contents |
To the Shareholders of Draganfly Inc. (formerly Drone Acquisition Corp.)
Opinion
We have audited the consolidated financial statements of Draganfly Inc. (formerly Drone Acquisition Corp.) (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises the information included in Management’s Discussion and Analysis.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
| 24 |
| Table of Contents |
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
|
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
|
|
|
|
|
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. |
|
|
|
|
|
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
|
|
|
|
|
| · | Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
|
|
|
|
|
| · | Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is David J. Goertz.
/s/ DMCL
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, BC
April 16, 2021
| 25 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Consolidated Statements of Financial Position Expressed in Canadian Dollars |
|
|
|
|
| December 31, |
|
| December 31, |
| ||||
| As at |
| Notes |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
| ASSETS |
|
|
|
|
|
|
|
|
| |||
| Current Assets |
|
|
|
|
|
|
|
|
| |||
| Cash |
|
| 5 |
|
| $ | 1,982,416 |
|
| $ | 2,429,375 |
|
| Accounts receivable |
|
| 6 |
|
|
| 810,791 |
|
|
| 224,695 |
|
| Inventory |
|
| 7 |
|
|
| 1,233,619 |
|
|
| 48,563 |
|
| Prepaid expenses and deposits |
|
| 8 |
|
|
| 335,022 |
|
|
| 272,630 |
|
|
|
|
|
|
|
|
| 4,361,848 |
|
|
| 2,975,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill |
|
| 4,10 |
|
|
| 2,166,563 |
|
|
| - |
|
| Equipment |
|
| 9 |
|
|
| 153,870 |
|
|
| 115,141 |
|
| Intangible assets |
|
| 10 |
|
|
| 273,867 |
|
|
| 1,385 |
|
| Right of use asset |
|
| 11 |
|
|
| 144,419 |
|
|
| 129,994 |
|
| TOTAL ASSETS |
|
|
|
|
| $ | 7,100,567 |
|
| $ | 3,221,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Trade payables and accrued liabilities |
|
| 13,22 |
|
| $ | 1,857,177 |
|
| $ | 894,357 |
|
| Customer deposits |
|
| 14 |
|
|
| 385,449 |
|
|
| - |
|
| Loans |
|
| 16 |
|
|
| 62,978 |
|
|
| - |
|
| Liability for outstanding USD warrants |
|
| 17 |
|
|
| 748,634 |
|
|
| - |
|
| Lease liability |
|
| 12 |
|
|
| 93,239 |
|
|
| 43,000 |
|
|
|
|
|
|
|
|
| 3,147,477 |
|
|
| 937,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred income |
|
| 16 |
|
|
| 5,062 |
|
|
| - |
|
| Lease liability |
|
| 12 |
|
|
| 64,885 |
|
|
| 93,073 |
|
| Loans |
|
| 16 |
|
|
| 34,938 |
|
|
| - |
|
| TOTAL LIABILITIES |
|
|
|
|
|
| 3,252,362 |
|
|
| 1,030,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| Share capital |
|
| 17 |
|
|
| 36,943,304 |
|
|
| 27,786,517 |
|
| Equity reserve |
|
| 17 |
|
|
| 3,024,007 |
|
|
| 2,508,233 |
|
| Accumulated deficit |
|
|
|
|
|
| (36,119,210 | ) |
|
| (28,103,397 | ) |
| Accumulated other comprehensive loss |
|
|
|
|
|
| 104 |
|
|
| - |
|
| TOTAL SHAREHOLDERS’ EQUITY |
|
|
|
|
|
| 3,848,205 |
|
|
| 2,191,353 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| $ | 7,100,567 |
|
| $ | 3,221,783 |
|
Nature of continuance and operations (Note 1)
Subsequent events (Note 28)
Approved and authorized for issuance by the Board of Directors on April 16, 2021.
| “Scott Larson” |
| “Cameron Chell” |
| Director |
| Director |
The accompanying notes are an integral part of these consolidated financial statements.
| 26 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Consolidated Statements of Comprehensive Loss Expressed in Canadian Dollars |
|
|
|
|
| For the years ended December 31, |
| |||||||
|
|
| Note |
|
| 2020 |
|
| 2019 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
| Revenue from sales of goods |
|
| 18 |
|
| $ | 3,087,223 |
|
| $ | 248,939 |
|
| Revenue from services |
|
| 18 |
|
|
| 1,276,288 |
|
|
| 1,131,488 |
|
| TOTAL REVENUE |
|
|
|
|
|
| 4,363,511 |
|
|
| 1,380,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales from sales of goods |
|
| 7 |
|
|
| (2,460,891 | ) |
|
| (206,783 | ) |
| Cost of sales from services |
|
|
|
|
|
| (143,020 | ) |
|
| (12,017 | ) |
| COST OF SALES |
|
|
|
|
|
| (2,603,911 | ) |
|
| (218,800 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GROSS PROFIT |
|
|
|
|
|
| 1,759,600 |
|
|
| 1,161,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization |
|
| 10 |
|
| $ | 43,518 |
|
| $ | 8,386 |
|
| Depreciation |
|
| 9,11 |
|
|
| 109,108 |
|
|
| 41,250 |
|
| Office and miscellaneous |
|
| 19 |
|
|
| 3,427,853 |
|
|
| 2,127,632 |
|
| Professional fees |
|
|
|
|
|
| 1,762,594 |
|
|
| 524,101 |
|
| Research and development |
|
|
|
|
|
| 567,999 |
|
|
| 16,883 |
|
| Share-based compensation |
|
| 17 |
|
|
| 2,668,464 |
|
|
| 761,559 |
|
| Travel |
|
|
|
|
|
| 25,617 |
|
|
| 30,896 |
|
| Wages and salaries |
|
|
|
|
|
| 1,649,329 |
|
|
| 989,083 |
|
|
|
|
|
|
|
|
| (10,254,482 | ) |
|
| (4,499,790 | ) |
| OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair value of derivative liability |
|
| 17 |
|
|
| (748,634 | ) |
|
| - |
|
| Finance and other costs |
|
| 24 |
|
|
| (23,117 | ) |
|
| (171,905 | ) |
| Foreign exchange gain (loss) |
|
|
|
|
|
| (87,104 | ) |
|
| 5,803 |
|
| Gain on disposal of assets |
|
| 9 |
|
|
| - |
|
|
| 28,651 |
|
| Net gains and losses on settlement of debt |
|
| 13,17 |
|
|
| (38,879 | ) |
|
| 198,976 |
|
| Gain on forgiveness of trades payable |
|
| 13 |
|
|
| 127,711 |
|
|
| - |
|
| Listing expense |
|
| 3 |
|
|
| - |
|
|
| (7,804,859 | ) |
| Loss on write-off loan receivable |
|
|
|
|
|
| - |
|
|
| (13,560 | ) |
| Income from government assistance |
|
| 16 |
|
|
| 21,090 |
|
|
| - |
|
| Other income |
|
| 25 |
|
|
| 1,197,465 |
|
|
| - |
|
| Scientific research and development credit |
|
|
|
|
|
| 30,537 |
|
|
| - |
|
| NET LOSS |
|
|
|
|
|
| (8,015,813 | ) |
|
| (11,095,057 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange translation |
|
|
|
|
|
| 104 |
|
|
| - |
|
| COMPREHENSIVE LOSS |
|
|
|
|
| $ | (8,015,709 | ) |
| $ | (11,095,057 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
|
|
| $ | (0.10 | ) |
| $ | (0.23 | ) |
| Diluted |
|
|
|
|
| $ | (0.10 | ) |
| $ | (0.23 | ) |
| Weighted average number of common shares outstanding – Basic |
|
|
|
|
|
| 77,092,696 |
|
|
| 47,647,977 |
|
| Weighted average number of common shares outstanding – Diluted |
|
|
|
|
|
| 77,092,696 |
|
|
| 47,647,977 |
|
The accompanying notes are an integral part of these consolidated financial statements.
| 27 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Consolidated Statements of Changes in Shareholders’ Equity Expressed in Canadian Dollars |
|
|
| Number of Shares |
|
| Share Capital |
|
| Equity Reserve |
|
| Deficit |
|
| Accumulated Other Comprehensive Income |
|
| Total Shareholders’ Equity |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Balance at December 31, 2018 |
|
| 39,346,807 |
|
| $ | 12,561,342 |
|
| $ | 882,180 |
|
| $ | (17,576,131 | ) |
| $ | - |
|
| $ | (4,132,609 | ) |
| Shares issued for settlement of notes payable |
|
| 1,291,549 |
|
|
| 645,775 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 645,775 |
|
| Shares issued as transactions fees |
|
| 2,000,000 |
|
|
| 1,000,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,000,000 |
|
| Recapitalization of Draganfly Inc. |
|
| 10,500,001 |
|
|
| 5,250,001 |
|
|
| 1,645,193 |
|
|
| - |
|
|
| - |
|
|
| 6,895,194 |
|
| Shares issued of settlement of trades payable |
|
| 45,325 |
|
|
| 22,662 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22,662 |
|
| Shares issued for settlement of convertible debentures and accrued interest |
|
| 2,118,492 |
|
|
| 1,059,246 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,059,246 |
|
| Shares issued for exercise of warrants |
|
| 316,940 |
|
|
| 221,741 |
|
|
| (212,908 | ) |
|
| - |
|
|
| - |
|
|
| 8,833 |
|
| Reclassification of unexercised conversion feature |
|
| - |
|
|
| - |
|
|
| (567,791 | ) |
|
| 567,791 |
|
|
| - |
|
|
| - |
|
| Shares and warrants issued on private placement |
|
| 14,051,499 |
|
|
| 7,025,750 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,025,750 |
|
| Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 761,559 |
|
|
| - |
|
|
| - |
|
|
| 761,559 |
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11,095,057 | ) |
|
| - |
|
|
| (11,095,057 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2019 |
|
| 69,670,613 |
|
|
| 27,786,517 |
|
|
| 2,508,233 |
|
|
| (28,103,397 | ) |
|
| - |
|
|
| 2,191,353 |
|
| Shares issued for exercise of warrants |
|
| 7,923,875 |
|
|
| 4,007,130 |
|
|
| (1,645,193 | ) |
|
| - |
|
|
| - |
|
|
| 2,361,937 |
|
| Shares issued for acquisition |
|
| 3,225,438 |
|
|
| 2,178,961 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,178,961 |
|
| Shares issued as finder’s fees |
|
| 200,000 |
|
|
| 100,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
| Shares issued for debt settlement |
|
| 555,409 |
|
|
| 344,354 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 344,354 |
|
| Shares issued for financing |
|
| 3,518,034 |
|
|
| 2,018,845 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,018,845 |
|
| Shares issued for exercise of RSUs |
|
| 999,992 |
|
|
| 507,497 |
|
|
| (507,497 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
| Share-based payments |
|
| - |
|
|
| - |
|
|
| 2,668,464 |
|
|
| - |
|
|
| - |
|
|
| 2,668,464 |
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8,015,813 | ) |
|
| - |
|
|
| (8,015,813 | ) |
| Translation of foreign operations |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 104 |
|
|
| 104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2020 |
|
| 86,093,361 |
|
|
| 36,943,304 |
|
|
| 3,024,007 |
|
|
| (36,119,210 | ) |
|
| 104 |
|
|
| 3,848,205 |
|
The purpose of the Equity Reserve is to record the fair values of equity-based financial instruments until exercised, cancelled, or forfeited.
The accompanying notes are an integral part of these consolidated financial statements.
| 28 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Consolidated Statements of Cash Flows Expressed in Canadian Dollars |
|
|
| For the years ended December 31, |
| |||||
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| OPERATING ACTIVITIES |
|
|
|
|
|
| ||
| Net loss |
| $ | (8,015,813 | ) |
| $ | (11,095,057 | ) |
| Adjustments for: |
|
|
|
|
|
|
|
|
| Amortization |
|
| 43,518 |
|
|
| 8,386 |
|
| Depreciation |
|
| 109,108 |
|
|
| 41,250 |
|
| Change in fair value of derivative liability |
|
| 748,634 |
|
|
| - |
|
| Finance and other costs |
|
| 23,117 |
|
|
| 171,905 |
|
| Net gains and losses on settlement of debt |
|
| 38,879 |
|
|
| (198,976 | ) |
| Gain on forgiveness of trades payable |
|
| (127,711 | ) |
|
| - |
|
| Gain on disposal of assets |
|
| - |
|
|
| (28,651 | ) |
| Income from government assistance |
|
| (21,090 | ) |
|
| - |
|
| Expense of non-financial asset |
|
| - |
|
|
| 15,389 |
|
| Listing expense |
|
| - |
|
|
| 7,804,859 |
|
| Share-based compensation |
|
| 2,668,464 |
|
|
| 761,559 |
|
|
|
|
| (4,532,894 | ) |
|
| (2,519,336 | ) |
| Net changes in non-cash working capital items: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| (1,481,944 | ) |
|
| (126,799 | ) |
| Inventory |
|
| (555,371 | ) |
|
| 12,622 |
|
| Prepaid expenses |
|
| 31,605 |
|
|
| (249,325 | ) |
| Trade payables and accrued liabilities |
|
| 1,261,066 |
|
|
| (1,005,121 | ) |
| Customer deposits |
|
| 139,490 |
|
|
| - |
|
| Loans |
|
| (5,062 | ) |
|
| - |
|
| Deferred income |
|
| 5,062 |
|
|
| - |
|
| Funds used in operations activities |
|
| (5,138,048 | ) |
|
| (3,887,959 | ) |
|
|
|
|
|
|
|
|
|
|
| INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
| Cash paid for acquisition, net of cash received |
|
| (457,407 | ) |
|
| 28,538 |
|
| Purchase of equipment |
|
| (23,888 | ) |
|
| (87,785 | ) |
| Disposal of equipment |
|
| - |
|
|
| 31,500 |
|
| Proceeds received from sale of investment |
|
| 997,714 |
|
|
| - |
|
| Funds provided by (used in) investing activities |
|
| 516,419 |
|
|
| (27,747 | ) |
|
|
|
|
|
|
|
|
|
|
| FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
| Proceeds from issuance of common shares for financing |
|
| 2,018,845 |
|
|
| 6,534,583 |
|
| Proceeds from issuance of common shares for warrants exercised |
|
| 2,361,937 |
|
|
| - |
|
| Repayment of convertible debentures |
|
| - |
|
|
| (486,131 | ) |
| Proceeds from issuance of notes payable |
|
| - |
|
|
| 1,137,978 |
|
| Repayment of notes payable |
|
| (60,000 | ) |
|
| (882,770 | ) |
| Proceeds from issuance of loans |
|
| 129,310 |
|
|
| - |
|
| Repayment of loans |
|
| (192,084 | ) |
|
| - |
|
| Repayment of lease liability |
|
| (83,442 | ) |
|
| (38,000 | ) |
| Funds provided by financing activities |
|
| 4,597,830 |
|
|
| 6,265,660 |
|
|
|
|
|
|
|
|
|
|
|
| Effects of exchange rate changes on cash |
|
| 104 |
|
|
| (22,366 | ) |
| Change in cash |
|
| (447,063 | ) |
|
| 2,349,954 |
|
| Cash, beginning |
|
| 2,429,375 |
|
|
| 101,787 |
|
| Cash, ending |
| $ | 1,982,416 |
|
| $ | 2,429,375 |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental cash flow disclosure (Note 26) |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
| 29 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
1. NATURE AND CONTINUANCE OF OPERATIONS
Draganfly Inc. (formerly Drone Acquisition Corp.) (the “Company”) was incorporated by articles of incorporation dated June 1, 2018 under the Business Corporations Act (British Columbia). The Company’s shares began trading on the Canadian Securities Exchange (the “CSE”) under the symbol “DFLY”.
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.
On August 15, 2019, the Company and 1187607 B.C. Ltd. (“Merger Co.”), a wholly-owned subsidiary of the Company, completed a Business Combination Agreement (the “BCA”) with Draganfly Innovations Inc. (“Draganfly Innovations”) (the “Amalgamation”). Under the Amalgamation, shareholders of Draganfly Innovations received 1.794 fully paid and non-assessable common shares in the authorized share structure of the Company for each Draganfly Innovations share. Consequently, the Company owns 100% of Draganfly Innovations and the Draganfly Innovations shareholders became shareholders of the Company. Draganfly is an operational business of developing and manufacturing multi-rotor helicopters, industrial aerial video systems and civilian small unmanned aerial systems or vehicles. Pursuant to the Amalgamation the Company changed its name to “Draganfly Inc.”.
The recent outbreak of the coronavirus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods, and social distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.
There are significant uncertainties with respect to future developments and impact to the Company related to the COVID-19 pandemic, including the duration, severity, and scope of the outbreak and the measures taken by governments and businesses to contain the pandemic. While the impact of COVID-19 is expected to be temporary, the current circumstances are dynamic and the impacts of COVID-19 on our business operations cannot be reasonably estimated at this time. At the date of these financial statements, the outbreak and the related mitigation measures have had the following impacts on the Company’s operations, among others: temporary closure of business locations, supply chain issues, and decrease in sales. The extent to which these events may impact the Company’s business activities will depend on future developments, such ass the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. With COVID-19 being an ongoing issue, the Company has prepared its employees at its Saskatchewan and British Columbia facilities to be able to work from home. The Company also applied to the various federal government relief initiatives. Although the Company’s major custom engineering customer temporarily closed that part of its business, the Company believes it will start up again. Further, the Company has entered into a distribution agreement to be the exclusive provider of one of their products which has helped offset custom engineering work from that customer. Aside from the acquisition of Dronelogics and being opportunistic on other partnerships or acquisitions, the Company expanded its products/services offered to include health/telehealth applications relating to COVID-19, as a way to deal with the impacts of COVID-19. However, these ongoing events are highly uncertain and as such, the Company cannot determine the ultimate financial impacts at this time. Any deterioration in the current situation could have an adverse impact on our business, results of operations, financial position, and cash flows in 2021.
| 30 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES 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 principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
These consolidated financial statements were authorized for issue by the Board of Directors on April 16, 2021.
Basis of preparation
The consolidated financial statements of the Company have been prepared on a historical cost basis, modified where applicable. In addition, the consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.
Certain comparative figures have been reclassified to conform to the current year’s presentation.
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 |
| |
| Draganfly Innovations Inc. |
| Canada |
|
| 100 | % |
| Draganfly Innovations USA, Inc. |
| US |
|
| 100 | % |
| Dronelogics Systems Inc. |
| Canada |
|
| 100 | % |
All intercompany balances and transactions were eliminated on consolidation.
Significant estimates and assumptions
The preparation of financial statements in accordance with IFRS requires the Company to use judgment in applying its accounting policies and 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.
| 31 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (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 of the stock option.
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. The Company estimates selling price based upon assumptions about future demand and current and anticipated retail market conditions.
Contingencies
The assessment of contingencies involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against the Company and that may result in regulatory or government actions that may negatively impact the Company’s business or operations, the Company and its legal counsel evaluate the perceived merits of the legal proceeding or unasserted claim or action as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or when assessing the impact on the carrying value of the Company’s assets. Contingent assets are not recognized in the consolidated financial statements.
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.
| 32 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
Business combinations
The definition of whether a set of assets acquired and liabilities assumed constitute a business may require the company to make certain judgements taking into account all facts and circumstances. A business is presumed to be an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or economic benefits.
Business combination versus asset acquisition
The Company considered the applicability of IFRS 3 – Business Combinations (“IFRS 3”) with respect to the Acquisition (Note 4). IFRS 3 defines a business as having a system where inputs enter a process to produce outputs. The Company has determined that the acquisition of Dronelogics Systems Inc. is a business combination and, accordingly, accounted for as such.
Other 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 in applying 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 collectability of amounts receivable; |
|
| − | the determination of whether a set of assets acquired and liabilities assumed constitute a business; and |
|
| − | the determination of the functional currency of the company. |
Foreign currency translation
The Corporation’s functional currency is the Canadian dollar and transactions in foreign currencies are translated into Canadian dollars at rates of exchange at the time of such transactions. Monetary assets and liabilities are translated at reporting period rate of exchange. Non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expenses denominated in a foreign currency are translated at the monthly average exchange rate. Gains and losses resulting from the translation adjustments are included in income.
The functional currencies for the parent company and each subsidiary are as follows:
| Draganfly Inc. | Canadian Dollar |
| Draganfly Innovations Inc. | Canadian Dollar |
| Draganfly Innovations USA, Inc. | U.S. 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 earnings 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 translating foreign operations in accumulated other comprehensive income (“AOCI”).
| 33 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
Transactions and balances:
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Share-based payments
The Company operates a stock option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using a Black–Scholes Option Pricing Model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Amounts recorded for forfeited or expired unexercised options are transferred to deficit in the year of forfeiture or expiry. Amounts recorded for forfeited unvested options are reversed in the period the forfeiture occurs.
Share-based payment expense relating to cash-settled awards, including restricted share units is accrued over the vesting period of the units based on the quoted market value of Company’s common shares. As these awards will be settled in cash, the expense and liability are adjusted each reporting period for changes in the underlying share price.
Restricted Share Units
The restricted share units (“RSUs”) entitle employees, directors, or officers to cash payments payable upon vesting based on vesting terms determined by the Company’s Board of Directors at the time of the grant. As the RSUs are redeemed and common shares are issued, the amount previously recognized in reserves is recorded as an increase in share capital.
| 34 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
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 period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.
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.
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 business model is not to hold the debt instrument, 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 expensed in the income statement. Realized and unrealized gains and losses arising from changes in the fair value of the financial asset held at FVTPL are included in the income statement in the period in which they arise. Derivatives are also categorized as FVTPL unless they are designated as hedges.
Financial assets at FVTOCI
Investments in equity instruments 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.
| 35 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
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 they mature or are sold, and substantially all the risks and rewards of ownership have been transferred. Gains and losses on derecognition of financial assets classified as FVTPL or amortized cost are recognized in the income statement. Gains or losses on financial assets classified as FVTOCI remain within accumulated other comprehensive income.
b) Financial liabilities
The Company classifies its financial liabilities into one of two categories as follows:
Fair value through profit or loss (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 are included in this category. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
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 generally recognized in profit or loss.
| 36 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
Impairment of non-financial assets
The carrying amounts of the Company’s 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; |
|
| · | an intangible asset not yet available for use; and |
|
| · | goodwill recognized in a business combination. |
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. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.
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 the statement of comprehensive loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) 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.
| 37 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
Current income tax 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.
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 li abilities 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 for manufacturing of multi-rotor helicopters, industrial areal video systems, civilian small unmanned aerial systems or vehicles, and wireless video systems. Inventory is initially valued at cost and subsequently at the lower of cost and net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the weighted average cost basis. 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, being when the products are delivered to the customer and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location or picked up by the customer, the risks of obsolescence and loss have been transferred to the customer.
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 deliverables, such as the manufacturing of hardware and support. Support is performed by another party and does not include an integration service. It is therefore accounted for as a separate performance obligation. In this case, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expect cost plus margin.
| 38 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
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 in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognized based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. This is determined based on the actual labour hours spend relative to the total expected labour hours. If contracts include the manufacturing of hardware, revenue for the hardware is recognized at a point in time when the hardware is delivered, the legal title has passed and the customer has accepted the hardware.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.
In case of fixed-price contracts, the customer pays the fixed amount based on a payment schedule. If the services rendered by the Company exceed the payment, a contract asset is recognized. If the payments exceed the services rendered, a contract liability is recognized. If the contract includes an hourly fee, revenue is recognized in the amount to which the Company has a right to invoice. Customers are invoiced on a monthly basis and consideration is payable when invoiced.
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, excess or obsolete inventory, 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.
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 declining balance method with a rate of 20% to write off the cost of the assets from the date they are available for use.
Goodwill represents the excess of the value of the consideration transferred over the fair value of the net identifiable assets and liabilities acquired. Goodwill is allocated to the cash generating unit to which it relates.
| 39 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES 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 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 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:
| Class of equipment |
| Depreciation rate |
| |
| Computer equipment |
|
| 30 | % |
| Furniture and equipment |
|
| 20 | % |
| Leasehold improvements |
| Over expected life of lease |
| |
| Software |
|
| 30 | % |
| 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. Among other things, the Company can 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.
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.
| 40 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (CONT’D)
SR&ED Investment tax credits
The Company claims federal investment tax credits as a result of incurring scientific research and experimental development (“SR&ED”) expenditures. Federal investment tax credits are recognized when the related expenditures are incurred and there is reasonable assurance of their realization. Federal investment tax credits are accounted for as a reduction of research and development expense for items of a period expense nature or as a reduction of property and equipment for items of a capital nature. Management has made a number of estimates and assumptions in determining the expenditures eligible for the federal investment tax credit claim. It is possible that the allowed amount of the federal investment tax credit claim could be materially different from the recorded amount upon assessment by Canada Revenue Agency.
The Company claims provincial investment tax credits as a result of incurring SR&ED expenditures. Provincial investment tax credits are recognized when the related expenditures are incurred and there is reasonable assurance of their realization. Management has made a number of estimates and assumptions in determining the expenditures eligible for the provincial investment tax credit claim. The provincial investment tax credits are refundable and have been recorded as a SR&ED tax credit receivable, and as a reduction in research and development expenses on the statement of comprehensive loss. It is possible that the allowed amount of the provincial investment tax credit claim could be materially different from the recorded amount upon assessment by Canada Revenue Agency and the Alberta Tax and Revenue Administration.
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 will be 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 and includes periods covered by an optional lease extension option if reasonably certain 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 will be 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.
| 41 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
3. AMALGAMATION
Prior to the Amalgamation (business combination), access to capital was limited as a private company. Through the amalgamation agreement, management would have the resources needed to raise significant capital and further have broader access to investors by being listed on a public exchange.
On January 31, 2019, the Company and Draganfly Innovations entered into the BCA providing for a three-cornered amalgamation among the Company, Draganfly Innovations, and Merger Co. As of August 15, 2019, the Amalgamation closed and the Company acquired, on a one for 1.794 basis, all of the issued and outstanding Draganfly Innovations shares (the “Draganfly Innovations Shares”) in exchange for 42,638,356 common shares of the Company.
This resulted in a reverse take-over of the Company by the shareholders of Draganfly Innovations. At the time of the Amalgamation, the Company did not constitute a business as defined under IFRS 3; therefore, the Amalgamation is accounted under IFRS 2, where the difference between the consideration given to acquire the Company and the net asset value of the Company is recorded as a listing expense to net loss. As Draganfly Innovations is deemed to be the accounting acquirer for accounting purposes, these consolidated financial statements present the historical financial information of Draganfly Innovations up to the date of the Amalgamation.
| Number of shares of Draganfly Inc. |
|
| 10,500,001 |
|
| Fair value of common shares in concurrent financing |
| $ | 0.50 |
|
| Fair value of shares of Draganfly Inc. |
| $ | 5,250,001 |
|
| Fair value of warrants |
|
| 1,645,193 |
|
| Fair value of shares issued for transaction fees |
|
| 1,000,000 |
|
| Net assets acquired |
| $ | (90,335 | ) |
| Listing expense |
| $ | 7,804,859 |
|
| Fair value of the Company acquired, net of liabilities |
|
|
| |
| Cash |
| $ | 28,538 |
|
| Accounts receivable |
|
| 4,991 |
|
| Loans receivable |
|
| 963,269 |
|
| Accounts payable and accrued liabilities |
|
| (406,463 | ) |
| Subscription receipts |
|
| (500,000 | ) |
|
|
| $ | 90,335 |
|
The fair value of 10,500,001 issued common shares of the Company was estimated to be $0.50 per share using the price of a subscription receipts financing that was completed concurrently.
Prior to the closing of the Amalgamation, Draganfly Innovations issued 2,000,000 common shares with a value of $1,000,000 as transaction fees for the Amalgamation to related parties.
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
3. AMALGAMATION (CONT’D)
The Company assumed 4,000,000 share purchase warrants exercisable at a price of $0.10 per share expiring on February 4, 2021. The fair value of share-purchase warrants was $1,645,193, estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
| Risk-free interest rate |
|
| 0.86 | % |
| Estimate life |
| 1.48 years |
| |
| Expected volatility |
|
| 100 | % |
| Expected dividend yield |
|
| 0 | % |
As at August 15, 2019, the Company received $7,025,750 in proceeds to issue subscription receipts (the “Subscription Receipts”) at a price of $0.50 per Subscription Receipt. Each Subscription Receipt was automatically converted, without payment of additional consideration and without any further action on the part of the holder, into one unit of the Company (a “Unit”) on completion of the Amalgamation and the Company becoming reporting issuer in the Province of Saskatchewan and obtaining conditional approval of a listing of the common shares on the CSE (the “Amalgamation”). Each Unit consists of one common share and one warrant. Each warrant will entitle the holder to purchase one common share at a price of $0.50 for a period of 12 months following the issuance of warrants. The proceeds of the private placement were released to the Company on November 5, 2019 (Note 17).
4. ACQUISITION
On April 30, 2020, the Company acquired all of the issued and outstanding shares of Dronelogics Systems Inc. (“Dronelogics”), excluding the cinematography division, for consideration of $500,000 cash and 3,225,438 common shares (the “Transaction”).
In connection with the Transaction, the Company paid fees of $160,000 to certain advisors consisting of $100,000 by way of 200,000 in shares at a price of $0.50 per share and as to $60,000 in cash or shares at a deemed price of $0.50 per share. At closing, the Company (i) granted 445,000 incentive stock options to certain employees of Dronelogics pursuant to the Company’s share compensation plan, exercisable at a price equal to closing price of the shares on the CSE on January 31, 2020. The options shall have a term of 10 years and vest in three equal tranches, on the first, second and third anniversaries of the date of grant, and (ii) awarded 375,000 RSUs to certain directors and officers of Dronelogics. RSUs were awarded to certain directors and officers of Dronelogics pursuant to the Company’s share compensation plan. The RSUs shall vest in three equal tranches, on the first, second and third anniversaries of the date of award.
The purchase price allocation (“PPA”) is as follows:
| Number of shares of Draganfly Inc. |
|
| 3,225,438 |
|
| Fair value of shares of Draganfly Inc. |
| $ | 2,178,960 |
|
| Cash portion of purchase price |
|
| 500,000 |
|
| Total |
| $ | 2,678,960 |
|
| 43 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
4. ACQUISITION (CONT’D)
| Tangible assets acquired |
|
|
| |
| Cash |
| $ | 42,593 |
|
| Accounts receivable |
|
| 98,852 |
|
| Inventory |
|
| 629,684 |
|
| Prepaids and deposits |
|
| 93,997 |
|
| Other current assets |
|
| 3,014 |
|
| Equipment |
|
| 54,946 |
|
| Right-of-use assets |
|
| 83,428 |
|
| Accounts payable and accrued liabilities |
|
| (222,766 | ) |
| Customer deposits |
|
| (245,959 | ) |
| Loans |
|
| (245,752 | ) |
| Other current liabilities |
|
| (8,437 | ) |
| Lease liabilities |
|
| (87,203 | ) |
|
|
|
| 196,397 |
|
|
|
|
|
|
|
| Identifiable intangible assets |
|
|
|
|
| Customer relationships |
|
| 197,000 |
|
| Website |
|
| 119,000 |
|
|
|
|
| 316,000 |
|
|
|
|
|
|
|
| Goodwill |
|
| 2,166,563 |
|
| Total consideration |
| $ | 2,678,960 |
|
The Company estimated the fair value as follows:
|
| · | Customer relationships based on an income approach, specifically multi-period excess earnings method, by identifying key customers, applying attribution rate of 15% per annum and discount rate of 18% per annum; and |
|
| · | Website based on an income approach, specifically relief from royalty methodology, using a reasonable royalty rate of 0.5% and discount rate of 17% per annum. |
Furthermore, the excess of the consideration paid over the fair value of the identifiable assets (liabilities) acquired were recognized as goodwill, which primarily consisted of the assembled workforce.
From the date of the acquisition to December 31, 2020, the acquired business contributed $2,870,481 of revenue and a net income of $458,743.
5. CASH AND CASH EQUIVALENTS
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Cash held in banks |
| $ | 1,839,871 |
|
| $ | 2,429,375 |
|
| Guaranteed investment certificate |
|
| 142,545 |
|
|
| - |
|
|
|
| $ | 1,982,416 |
|
| $ | 2,429,375 |
|
On March 27, 2020, the Company held a $142,000 guaranteed investment certificate (“GIC”) to secure its credit cards. The terms of the GIC are for 1 year at a rate of 0.50% per annum.
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
6. ACCOUNTS RECEIVABLE
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Trade accounts receivable |
| $ | 780,254 |
|
| $ | 146,194 |
|
| GST input tax credits |
|
| - |
|
|
| 54,885 |
|
| SR&ED receivable |
|
| 30,537 |
|
|
| 23,616 |
|
|
|
| $ | 810,791 |
|
| $ | 224,695 |
|
7. INVENTORY
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Finished goods |
| $ | 1,155,871 |
|
| $ | - |
|
| Parts |
|
| 77,748 |
|
|
| 48,563 |
|
|
|
| $ | 1,233,619 |
|
| $ | 48,563 |
|
During the year ended December 31, 2020, the Company recorded an allowance to value its inventory for obsolete and slow-moving inventory, recognizing an expense in cost of sales of $23,955 (2019: $nil).
During the year ended December 31, 2020, $2,257,797 (2019: $118,826) of inventory was sold and recognized in cost of sales.
8. PREPAID EXPENSES AND DEPOSITS
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Insurance |
| $ | 992 |
|
| $ | 35,703 |
|
| Prepaid marketing services |
|
| 187,826 |
|
|
| 227,459 |
|
| Prepaid rent |
|
| 3,583 |
|
|
| - |
|
| Prepaid subscriptions |
|
| 5,953 |
|
|
| 1,583 |
|
| WCB Premiums |
|
| - |
|
|
| 916 |
|
| Deposits |
|
| 136,668 |
|
|
| 6,969 |
|
|
|
| $ | 335,022 |
|
| $ | 272,630 |
|
| 45 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
9. EQUIPMENT
|
|
| Computer Equipment |
|
| Furniture and Equipment |
|
| Leasehold Improvements |
|
| Software |
|
| Vehicles |
|
| Total |
| ||||||
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Balance at January 1, 2019 |
| $ | 163,275 |
|
| $ | 181,362 |
|
| $ | - |
|
| $ | 84,340 |
|
| $ | - |
|
| $ | 428,977 |
|
| Additions |
|
| - |
|
|
| 87,785 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 87,785 |
|
| Disposals |
|
| (1,056 | ) |
|
| (31,647 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (32,703 | ) |
| Impairment |
|
| (155,219 | ) |
|
| (95,327 | ) |
|
| - |
|
|
| (54,373 | ) |
|
| - |
|
|
| (304,919 | ) |
| Balance at December 31, 2019 |
| $ | 7,000 |
|
| $ | 142,173 |
|
| $ | - |
|
| $ | 29,967 |
|
| $ | - |
|
| $ | 179,140 |
|
| Additions |
|
| 2,028 |
|
|
| 21,860 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23,888 |
|
| Net assets acquired in the Acquisition |
|
| 15,369 |
|
|
| 7,573 |
|
|
| 4,352 |
|
|
| - |
|
|
| 27,652 |
|
|
| 54,946 |
|
| Balance at December 31, 2020 |
| $ | 24,397 |
|
| $ | 171,606 |
|
| $ | 4,352 |
|
| $ | 29,967 |
|
| $ | 27,652 |
|
| $ | 257,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2019 |
| $ | 150,026 |
|
| $ | 153,999 |
|
| $ | - |
|
| $ | 69,774 |
|
| $ | - |
|
| $ | 373,799 |
|
| Charge for the year |
|
| 103 |
|
|
| 7,028 |
|
|
| - |
|
|
| 4,574 |
|
|
| - |
|
|
| 11,705 |
|
| Eliminated on disposal |
|
| (1,654 | ) |
|
| (26,770 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (28,424 | ) |
| Impairment |
|
| (141,714 | ) |
|
| (96,313 | ) |
|
| - |
|
|
| (55,054 | ) |
|
| - |
|
|
| (293,081 | ) |
| Balance at December 31, 2019 |
| $ | 6,761 |
|
| $ | 37,944 |
|
| $ | - |
|
| $ | 19,294 |
|
| $ | - |
|
| $ | 63,999 |
|
| Charge for the year |
|
| 5,631 |
|
|
| 22,019 |
|
|
| 3,220 |
|
|
| 3,202 |
|
|
| 6,033 |
|
|
| 40,105 |
|
| Balance at December 31, 2020 |
| $ | 12,392 |
|
| $ | 59,963 |
|
| $ | 3,220 |
|
| $ | 22,496 |
|
| $ | 6,033 |
|
| $ | 104,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
| $ | 239 |
|
| $ | 104,229 |
|
| $ | - |
|
| $ | 10,673 |
|
| $ | - |
|
| $ | 115,141 |
|
| December 31, 2020 |
| $ | 12,005 |
|
| $ | 111,643 |
|
| $ | 1,132 |
|
| $ | 7,471 |
|
| $ | 21,619 |
|
| $ | 153,870 |
|
During the year ended December 31, 2019, the Company sold computer equipment for a gain on disposal of assets of $28,651.
| 46 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
10. INTANGIBLE ASSETS AND GOODWILL
|
|
| Patents |
|
| Customer Relationships |
|
| Website |
|
| Goodwill |
|
| Total |
| |||||
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Balance at January 1, 2019 |
| $ | 71,805 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 71,805 |
|
| Impairment |
|
| (29,874 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29,874 | ) |
| Balance at December 31, 2019 |
|
| 41,931 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 41,931 |
|
| Intangible assets acquired in the Acquisition |
|
| - |
|
|
| 197,000 |
|
|
| 119,000 |
|
|
| 2,166,563 |
|
|
| 2,482,563 |
|
| Balance at December 31, 2020 |
| $ | 41,931 |
|
| $ | 197,000 |
|
| $ | 119,000 |
|
| $ | 2,166,563 |
|
| $ | 2,524,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2019 |
| $ | 59,896 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 59,896 |
|
| Charge for the year |
|
| 8,386 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,386 |
|
| Impairment |
|
| (27,736 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (27,736 | ) |
| Balance at December 31, 2019 |
|
| 40,546 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,546 |
|
| Charge for the year |
|
| 1,385 |
|
|
| 26,267 |
|
|
| 15,866 |
|
|
| - |
|
|
| 43,518 |
|
| Balance at December 31, 2020 |
| $ | 41,931 |
|
| $ | 26,267 |
|
| $ | 15,866 |
|
| $ | - |
|
| $ | 84,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
| $ | 1,385 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,385 |
|
| December 31, 2020 |
| $ | - |
|
| $ | 170,733 |
|
| $ | 103,134 |
|
| $ | 2,166,563 |
|
| $ | 2,440,430 |
|
Customer relationships
On April 30, 2020, the Company acquired a 100% interest in Dronelogics and assigned $197,000 to the fair value of customer relationships.
Website
On April 30, 2020, the Company acquired a 100% interest in Dronelogics and assigned $119,000 to the fair value of the website/domain name.
Goodwill
On April 30, 2020, the Company acquired a 100% interest in Dronelogics, which included goodwill. Goodwill was valued at $2,166,563.
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.
| 47 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
11. RIGHT OF USE ASSETS
The Company’s right-of-use asset relates to the lease of office space.
On December 1, 2019, the Company entered into an amendment for the lease agreement, where the lease was amended with a change in annual payments. As there was no change to the underlying asset, the modification was not accounted for as a separate lease.
|
|
| Total |
| |
| Cost |
|
|
| |
| Balance at January 1, 2019, on adoption of IFRS 16 |
| $ | 131,634 |
|
| Lease modification |
|
| 27,905 |
|
| Balance at December 31, 2019 |
| $ | 159,539 |
|
| Leases acquired in the Acquisition |
|
| 83,428 |
|
| Balance at December 31, 2020 |
| $ | 242,967 |
|
|
|
|
|
|
|
| Accumulated depreciation |
|
|
|
|
| Balance at January 1, 2019, on adoption of IFRS 16 |
| $ | - |
|
| Charge |
|
| 29,545 |
|
| Balance at December 31, 2019 |
| $ | 29,545 |
|
| Charge |
|
| 69,003 |
|
| Balance at December 31, 2020 |
| $ | 98,548 |
|
|
|
|
|
|
|
| Net book value: |
|
|
|
|
| December 31, 2019 |
| $ | 129,994 |
|
| December 31, 2020 |
| $ | 144,419 |
|
12. LEASE LIABILITY
|
|
| Total |
| |
| Balance at January 1, 2019, on adoption of IFRS 16 |
| $ | 131,634 |
|
| Interest expense |
|
| 14,534 |
|
| Lease payments |
|
| (38,000 | ) |
| Lease modification |
|
| 27,905 |
|
| Balance at December 31, 2019 |
| $ | 136,073 |
|
| Leases acquired in the Acquisition |
|
| 87,203 |
|
| Interest expense |
|
| 18,290 |
|
| Lease payments |
|
| (83,442 | ) |
| Balance at December 31, 2020 |
|
| 158,124 |
|
|
|
|
|
|
|
| Which consists of: |
|
|
|
|
| Current lease liability |
| $ | 93,239 |
|
| Non-current lease liability |
|
| 64,885 |
|
| Balance at December 31, 2020 |
| $ | 158,124 |
|
| 48 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
13. TRADES PAYABLE AND ACCRUED LIABILITIES
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Trades payable |
| $ | 813,881 |
|
| $ | 688,309 |
|
| Accrued liabilities |
|
| 512,205 |
|
|
| 162,658 |
|
| Due to related parties (Note 22) |
|
| 475,628 |
|
|
| 9,681 |
|
| Government grant payable (Note 20) |
|
| 33,709 |
|
|
| 33,709 |
|
| GST/PST Payable |
|
| 21,754 |
|
|
| - |
|
|
|
| $ | 1,857,177 |
|
| $ | 894,357 |
|
During the year ended December 31, 2020, the Company settled an outstanding debt with the issuance of 555,409 shares and recognized a $38,879 losspx on settlement of debt. During the year ended December 31, 2019, the Company settled $1,030,714 in trades payable through repayment of $512,492 and recognized a gain on settlement of debt of $518,222. During the year ended December 31, 2020, the Company recognized a gain on forgiveness of trades payable of $127,711.
14. CUSTOMER DEPOSITS
At times, the Company’s subsidiary, Dronelogics, may take a customer deposit as it orders specific items in. These amounts are held and applied against the final purchase.
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Customer deposits |
| $ | 385,449 |
|
| $ | - |
|
15. NOTES PAYABLE
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Opening balance |
| $ | - |
|
| $ | 844,304 |
|
| Issuance of notes payable |
|
| 60,000 |
|
|
| 1,137,978 |
|
| Repayment of notes payable |
|
| (60,000 | ) |
|
| (1,036,336 | ) |
| Settlement of notes payable |
|
| - |
|
|
| (62,000 | ) |
| Foreign exchange |
|
| - |
|
|
| (22,366 | ) |
| Interest accrued |
|
| - |
|
|
| 101,689 |
|
| Eliminated on consolidation |
|
| - |
|
|
| (963,269 | ) |
| Ending balance |
| $ | - |
|
| $ | - |
|
The Company had no notes payable outstanding as at December 31, 2020.
During the year ended December 31, 2019, the following new notes were executed:
|
| - | A note was entered into with a company controlled by a director of the Company, bear interest at 12% per annum and are unsecured. This note was settled during the year ended December 31, 2019. |
|
| - | Four notes were entered into between the Company and Draganfly Innovations for $930,000, were interest bearing at 10% per annum, calculated annually, and due at the earlier of 30 days from the date the Amalgamation was completed and one year from the date of the advance. Upon closing of the Amalgamation (Note 3), these were eliminated upon consolidation. |
|
| - | A note was entered into with an individual for USD$125,000, interest bearing at 18% per annum, and was unsecured. The note had a maturity date of October 29, 2019 and was repaid during the year ended December 31, 2019. This note also bore a USD$6,250 due diligence fee and a USD$6,250 closing fee that are being recognized over the life of the note as additional interest. |
| 49 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
16. LOANS
With the acquisition of Dronelogics, the Company took ownership of two loans held by the subsidiary.
|
|
| Start Date |
| Maturity Date |
| Rate |
|
| Principal |
|
| Interest |
|
| Total |
| ||||
| CEBA |
| 2020-05-19 |
| 2022-12-31 |
|
| 0 | % |
| $ | 33,848 |
|
| $ | 1,090 |
|
| $ | 34,938 |
|
| Vehicle loan |
| 2019-08-30 |
| 2024-09-11 |
|
| 6.99 | % |
|
| 21,247 |
|
|
| 4,048 |
|
|
| 25,295 |
|
| Shopify loan |
| 2020-08-05 |
|
|
|
| 7.00 | % |
|
| 35,217 |
|
|
| 2,466 |
|
|
| 37,683 |
|
| Total |
|
|
|
|
|
|
|
|
| $ | 90,312 |
|
| $ | 7,604 |
|
| $ | 97,916 |
|
On May 19, 2020, Dronelogics received a $40,000 Canada Emergency Business Account (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 December 31, 2022. 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 loan is repaid on or before December 31, 2022.
The CEBA loan is unsecured, the vehicle loan is secured by the vehicle, and the Shopify loan is secured by the Company’s accounts receivable.
| 50 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital
For the year ended December 31, 2020,
|
| - | On February 18, 2020, the Company issued 120,000 common shares for the exercise of warrants for $60,000. |
|
| - | On February 25, 2020, the Company issued 100,000 common shares for the exercise of warrants for $50,000. |
|
| - | On March 6, 2020, the Company issued 1,051,600 common shares for the exercise of warrants for $105,160. |
|
| - | On March 20, 2020, the Company issued 365,000 common shares for the exercise of warrants for $36,500. |
|
| - | On March 26, 2020, the Company issued 1,474,200 common shares for the exercise of warrants for $147,420. |
|
| - | On April 8, 2020, the Company issued 609,200 common shares for the exercise of warrants for $60,920. |
|
| - | On April 16, 2020, the Company issued 630,000 common shares for the exercise of warrants for $115,000. |
|
| - | On April 30, 2020, the Company issued 3,225,438 common shares for the acquisition of Dronelogics and an additional 200,000 common shares as finder’s fees. |
|
| - | On May 27, 2020, the Company issued 60,000 common shares for the exercise of warrants for $30,000. |
|
| - | On June 23, 2020, the Company issued 228,000 common shares for the exercise of warrants for $114,000. |
|
| - | On July 3, 2020, the company issued 961,538 common shares for cash proceeds of $500,000. |
|
| - | On July 16, 2020, the Company issued 555,409 common shares for debt settlement of $344,354 and recognized a loss of $38,879 in the statement of comprehensive loss. |
|
| - | On September 21, 2020, the Company issued 10,000 common shares for the exercise of warrants for $5,000. |
|
| - | On October 20, 2020, the Company issued 11,000 common shares for the exercise of warrants for $5,500. |
|
| - | On October 21, 2020, the Company issued 3,189,875 common shares for the exercise of warrants for $1,594,938. |
|
| - | On November 5, 2020, the Company issued 35,586 common shares for the vesting of Restricted Share Units. |
|
| - | On November 30, 2020 the Company issued 2,556,496 units for the Regulation A+ financing in the United States. Each unit is comprised of one common share and one share purchase warrant. These warrants have an exercise price of $0.71 USD per warrant, each convert to one common share, and have a life of two years, expiring on November 30, 2022. |
|
| - | On December 4, 2020, the Company issued 10,202 common shares for the vesting of Restricted Share Units. |
|
| - | On December 8, 2020, the Company issued 13,234 common shares for the vesting of Restricted Share Units. |
|
| - | On December 15, 2020, the Company issued 940,970 common shares for the vesting of Restricted Share Units. |
|
| - | On December 23, 2020, the Company issued 75,000 common shares for the exercise of warrants for $37,500. |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
For the year ended December 31, 2019,
|
| - | Prior to the closing of the Amalgamation (Note 3), Draganfly Innovations issued 719,927 (pre-consolidation) common shares to a company controlled by a director of the Company for settlement of $799,341 in accounts payable and application of $153,566 in subscription receivable. |
|
| - | Prior to the closing of the Amalgamation (Note 3), Draganfly Innovations issued 1,114,827 (pre-consolidation) common shares with a value of $1,000,000 as transaction fees for the Amalgamation to related parties. |
|
| - | On August 15, 2019, the Amalgamation (Note 3) was completed and the Company acquired, on a 1.794 for 1 basis, all issued and outstanding shares of Draganfly Innovations in exchange for 42,638,356 common shares of the Company. |
|
| - | On August 15, 2019, the Company issued 45,325 common shares for settlement of $22,662 in trades payables at a value of $0.50 per share. |
|
| - | On August 15, 2019, the Company issued 2,118,492 common shares for settlement of $740,000 in convertible debentures and interest. As a result of the settlement, the Company recognized loss on settlement of debt of $319,246 in the statement of loss and comprehensive loss. |
|
| - | On August 23, 2019, the Company issued 316,940 common shares for exercise of share purchase warrants of the Company for proceeds of $8,833. As a result of the exercise, $212,908 from reserve was reclassification to share capital. |
|
| - | On October 25, 2019, the Company issued 14,051,499 units per the private placement (Note 3). Each unit consists of one common share and one warrant. These warrants have an exercise price of $0.50 per warrant, each convert to one common share, and have a life of one year, expiring on October 25, 2020. |
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. Such options will be exercisable for a period of up to 10 years from the date of grant. 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) U.S.$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; and The number of common shares issuable pursuant to the exercise of options under the plan within a 12 month period to all eligible persons retained to provide investor relations activities (together with those common shares that are issued pursuant to any other share compensation arrangement) shall not, at any time, exceed 1% of the issued and outstanding common shares.
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
As at December 31, 2020, the Company had the following 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 |
| $ | 0.50 |
|
|
| 8.84 |
|
|
| 2,858,332 |
|
|
| 1,974,993 |
|
| November 19, 2019 |
| November 19, 2029 |
| $ | 0.50 |
|
|
| 8.89 |
|
|
| 650,000 |
|
|
| 566,666 |
|
| April 30, 2020 |
| April 30, 2030 |
| $ | 0.50 |
|
|
| 9.33 |
|
|
| 445,000 |
|
|
| 124,999 |
|
| April 30, 2020 |
| April 30, 2030 |
| $ | 0.77 |
|
|
| 9.33 |
|
|
| 600,000 |
|
|
| 200,000 |
|
| July 3, 2020 |
| July 3, 2025 |
| $ | 0.64 |
|
|
| 4.51 |
|
|
| 1,000,000 |
|
|
| 166,666 |
|
| November 24, 2020 |
| November 24, 2030 |
| $ | 0.50 |
|
|
| 9.90 |
|
|
| 165,000 |
|
|
| 55,000 |
|
| December 11, 2020 |
| December 11, 2030 |
| $ | 0.43 |
|
|
| 9.95 |
|
|
| 250,000 |
|
|
| 62,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,968,332 |
|
|
| 3,150,824 |
|
The following is a summary of the Company’s stock option activity:
|
|
| Number of Options |
|
| Weighted Average Exercise Price |
| ||
| Outstanding, December 31, 2018 |
|
| - |
|
| $ | - |
|
| Granted |
|
| 3,725,000 |
|
|
| 0.50 |
|
| Outstanding, December 31, 2019 |
|
| 3,725,000 |
|
|
| - |
|
| Forfeited |
|
| (216,668 | ) |
|
| 0.50 |
|
| Granted |
|
| 2,460,000 |
|
|
| 0.63 |
|
| Outstanding, December 31, 2020 |
|
| 5,968,332 |
|
| $ | 0.55 |
|
During the year ended December 31, 2020,
|
| - | The Company granted 445,000 options to employees. Each option is exercisable at $0.50 per share for a period of 10 years from the grant date. |
|
| - | The Company issued 600,000 options to consultants. Each option is exercisable at $0.77 per share for a period of 10 years from the grant date. |
|
| - | The Company granted 1,000,000 options to employees. Each option is exercisable at $0.64 per share for a period of 5 years from the grant date. |
|
| - | The Company granted 165,000 options to employees. Each option is exercisable at $0.50 per share for a period of 10 years from the grant date. |
|
| - | The Company granted 250,000 options to a consultant. Each option is exercisable at $0.43 per share for a period of 10 years from the grant date. |
During the year ended December 31, 2019,
|
| - | The Company granted 2,925,000 options to employees. Each option is exercisable at $0.50 per share for a period of 10 years from the grant date. |
|
| - | The Company issued 800,000 options to consultants. Each option is exercisable at $0.50 per share for a period of 10 years from the grant date. |
| 53 |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
During the year ended December 31, 2020, the Company recorded $1,724,853 (2019 – $599,701) 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:
| Year ended December 31, |
| 2020 |
|
| 2019 |
| ||
| Risk free interest rate |
| 0.43%-0.66% |
|
| 1.45%-1.46% |
| ||
| Expected volatility |
| 113.53%-119.03% |
|
|
| 100 | % | |
| Expected life |
| 5-10 years |
|
| 7.5 years |
| ||
| Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
| Exercise price |
| $ | 0.43-0.77 |
|
| $ | 0.50 |
|
Volatility is calculated using the historical volatility method.
The weighted average grant date fair value of options granted during the year ended December 31, 2020 was $0.63 per option (2019 – $0.50 per option).
Restricted share units (RSUs)
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.
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) 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).
On the grant date of RSUs, the Company determines whether it has a present obligation to settle in cash. If the Company has a present obligation to settle in cash, the RSUs are accounted for as liabilities, with the fair value remeasured at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the 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). |
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
During the year ended December 31, 2020, the Company committed to grant 1,240,000 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 three years from the grant date. The Company recorded share-based payment expense of $943,611 (2019 – $161,858) 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.
The following is a summary of the Company’s RSU activity:
|
|
| Number of RSUs |
| |
| Outstanding, December 31, 2018 |
|
| - |
|
| Granted |
|
| 3,175,000 |
|
| Outstanding, December 31, 2019 |
|
| 3,175,000 |
|
| Exercised |
|
| (999,992 | ) |
| Forfeited |
|
| (341,667 | ) |
| Granted |
|
| 1,240,000 |
|
| Outstanding, December 31, 2020 |
|
| 3,073,341 |
|
As at December 31, 2020 the Company had the following RSUs outstanding:
| Grant Date |
| Number of RSUs Outstanding |
| |
| October 30, 2019 |
|
| 1,666,674 |
|
| November 19, 2019 |
|
| 166,667 |
|
| April 30, 2020 |
|
| 375,000 |
|
| November 24, 2020 |
|
| 865,000 |
|
|
|
|
| 3,073,341 |
|
Warrants
During the year ended December 31, 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 through the Consolidated Statement of Comprehensive 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 OTCQB. 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.
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| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
Warrant Derivative Liability
|
|
| December 31, 2020 |
| |
| Balance, Beginning |
| $ | - |
|
| Change in fair value of warrants outstanding |
|
| 748,634 |
|
| Balance, Ending |
| $ | 748,634 |
|
The derivative financial liability consists of the fair value of the non-compensatory share purchase warrants that have exercise prices that differ from the functional currency of the Company and are within the scope of IAS 32 “Financial Instruments: Presentation”. Details of these warrants and their fair values are as follows:
| Issue Date |
| Exercise Price |
| Number of Warrants Outstanding at December 31, 2020 |
|
| Fair Value at December 31, 2020 |
|
| Number of Warrants Outstanding at December 31, 2019 |
|
| Fair Value at December 31, 2019 |
| ||||
| November 30, 2020 |
| US$ 0.71 |
|
| 2,556,496 |
|
| $ | 748,634 |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
| 2,556,496 |
|
| $ | 748,634 |
|
|
| - |
|
| $ | - |
|
During the year ended December 31, 2020, the Company extended the life of the November 5, 2019 warrants from expiring on November 5, 2020 to expiring on November 5, 2021. To do this, it was required that 25% of the remaining November 5, 2019 warrants needed to be exercised by October 21, 2020 and was completed.
The fair values of these warrants were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
| Year ended December 31, |
| 2020 |
|
| 2019 |
| ||
| Risk free interest rate |
| 0.20%-0.24% |
|
|
| - |
| |
| Expected volatility |
| 72.76%-74.10% |
|
|
| - |
| |
| Expected life |
| 2 years |
|
|
| - |
| |
| Expected dividend yield |
|
| 0 | % |
|
| - |
|
| Exercise price |
| $ | 0.71 |
|
| $ | - |
|
Volatility is calculated using the historical volatility method.
The following is the summary of the Company’s warrant activity:
|
|
| Number of Warrants |
|
| Exercise Price |
| ||
| Outstanding, December 31, 2018 |
|
| 770,030 |
|
| $ | 0.27 |
|
| Warrants of the Company at time of Amalgamation (Note 3) |
|
| 4,000,000 |
|
|
| 0.10 |
|
| Expired |
|
| (453,090 | ) |
|
| 0.03 |
|
| Exercised |
|
| (316,940 | ) |
|
| 0.03 |
|
| Granted |
|
| 14,051,499 |
|
|
| 0.50 |
|
| Outstanding, December 31, 2019 |
|
| 18,051,499 |
|
| $ | 0.41 |
|
| Exercised |
|
| (7,923,874 | ) |
|
| 0.30 |
|
| Forfeited |
|
| (600,000 | ) |
|
| 0.50 |
|
| Granted |
|
| 2,556,496 |
|
|
| 0.71 |
|
| Outstanding, December 31, 2020 |
|
| 12,084,121 |
|
| $ | 0.59 |
|
| 56 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
17. SHARE CAPITAL (CONT’D)
As at December 31, 2020, the Company had the following warrants outstanding:
| Issue Date |
| Expiry Date |
| Exercise Price |
| Number of Warrants Outstanding |
| |
| November 5, 2019 |
| November 5, 2021 |
| CDN$ 0.50 |
|
| 9,527,625 |
|
| November 30, 2020 |
| November 30, 2022 |
| US$ 0.71 |
|
| 2,556,496 |
|
|
|
|
|
|
|
|
| 12,084,121 |
|
The weighted average remaining contractual life of the warrants outstanding as of December 31, 2020 was 1.07 years (December 31, 2019 - 0.90 years).
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.
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Product sales |
| $ | 3,087,223 |
|
| $ | 248,939 |
|
| Drone services |
|
| 630,532 |
|
|
| - |
|
| Custom engineering services |
|
| 645,756 |
|
|
| 1,131,488 |
|
|
|
| $ | 4,363,511 |
|
| $ | 1,380,427 |
|
The Company derives significant revenues from one (2019 – one) customer, which exceeds 10% of total revenues for the year ended December 31, 2020 at $474,701 of custom engineering services revenue (2019 – $1,116,093 of custom engineering services revenue).
Consulting revenue:
On May 22, 2017, the Company executed a standard consulting agreement, whereby the Company would provide consulting, custom engineering and investigating and solving on a project-by-project basis. The Company shall be responsible for the development, design, procurement, fabrication, assembly, integration, checkout, integration and test of hardware, software, and firmware necessary to produce a complete system per each project. The consideration for the services performed are based on the labor cost incurred on an hourly basis and minimal preapproved expenditures.
Geographic revenue segmentation is as follows:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Canada |
| $ | 2,270,862 |
|
| $ | 127,118 |
|
| United States |
|
| 1,982,404 |
|
|
| 1,251,199 |
|
| International |
|
| 110,245 |
|
|
| 2,110 |
|
|
|
| $ | 4,363,511 |
|
| $ | 1,380,427 |
|
| 57 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
18. REVENUE (CONT’D)
The Company operates in an international market with four reportable operating segments.
|
|
| Draganfly Inc. |
|
| Draganfly Innovations Inc. |
|
| Draganfly Innovations USA, Inc. |
|
| Dronelogics Systems Inc. |
|
| Total |
| |||||
| Product sales |
| $ | - |
|
| $ | 169,709 |
|
| $ | 660,227 |
|
| $ | 2,257,287 |
|
| $ | 3,087,223 |
|
| Drone services |
|
| - |
|
|
| - |
|
|
| 17,338 |
|
|
| 613,194 |
|
|
| 630,532 |
|
| Custom engineering services |
|
| - |
|
|
| 645,756 |
|
|
| - |
|
|
| - |
|
|
| 645,756 |
|
|
|
|
| - |
|
|
| 815,465 |
|
|
| 677,565 |
|
|
| 2,870,481 |
|
|
| 4,363,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of sales |
|
| - |
|
|
| (339,398 | ) |
|
| (543,541 | ) |
|
| (1,720,972 | ) |
|
| (2,603,911 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
| - |
|
|
| 476,067 |
|
|
| 134,024 |
|
|
| 1,149,509 |
|
|
| 1,759,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
| 7,455,393 |
|
|
| 1,635,096 |
|
|
| 404,194 |
|
|
| 759,799 |
|
|
| 10,254,482 |
|
| Other income (expenses) |
|
| (698,174 | ) |
|
| 1,150,350 |
|
|
| (7 | ) |
|
| 26,900 |
|
|
| 479,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
| (8,153,567 | ) |
|
| (8,679 | ) |
|
| (270,177 | ) |
|
| 416,610 |
|
|
| (8,015,813 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cumulative translation differences |
|
| - |
|
|
| - |
|
|
| 104 |
|
|
| - |
|
|
| 104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income (loss) |
| $ | (8,153,567 | ) |
| $ | (8,679 | ) |
| $ | (270,073 | ) |
| $ | 416,610 |
|
| $ | (8,015,709 | ) |
The Company separated the operating segments based on the existing subsidiaries and have revenues as follows:
|
| - | Draganfly Inc.: No revenues. |
|
| - | Draganfly Innovations Inc.: Product sales revenues and revenues derived from custom integration and engineering services. |
|
| - | Draganfly Innovations USA, Inc.: Product sales revenues and revenues derived from drone and health/telehealth services. |
|
| - | Dronelogics Systems Inc.: Product sales revenues and revenues derived from rental, repair, drone as a service, and training services. |
For 2019 and 2020, all revenues are derived from external customers.
19. OFFICE AND MISCELLANEOUS
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Advertising, Marketing, and Investor Relations |
| $ | 2,601,848 |
|
| $ | 1,436,699 |
|
| Contract Work |
|
| 399,494 |
|
|
| 438,601 |
|
| Other |
|
| 426,511 |
|
|
| 252,332 |
|
|
|
| $ | 3,427,853 |
|
| $ | 2,127,632 |
|
| 58 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
20. GOVERNMENT ASSISTANCE
During the year ended December 31, 2020, the Company received $30,537 (December 31, 2019 – $nil) in government assistance for the purchase of research related to scientific research and experimental development tax credit, the entire amount is included in other income. In addition, the Company recorded $30,537 (December 31, 2019 - $nil) in SR&ED receivable for current year SR&ED claim.
In February 2016, the Company and an Alberta based government funded not-for-profit organization (the “Organization”) entered into a funding agreement, whereby the Organization would fund 50% of the total costs, up to $375,000 to the Company for the development of a new product. the Company will pay the Organization $33,709 if the Company ever sells a product that the Organization’s funding contributed to, recorded in accounts payable and accrued liabilities.
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 that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash held in bank accounts and trade receivables. The majority of cash is deposited in bank accounts held with major bank in Canada and the United States. As most of the Company’s cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies. The Company does not have any past due outstanding receivables and the expected loss rate for undue balance is estimated to be nominal.
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.
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.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of three months or less and are therefore exposed to interest rate fluctuations on renewal.
Fair value
The fair value of the Company’s financial assets and liabilities approximates the carrying amount.
| 59 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D)
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 cash, debt, and equity comprised of issued share capital, and share-based payment reserve.
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, 2018.
The breakdown of the Company’s capital is as follows:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Cash |
| $ | 1,982,416 |
|
| $ | 2,429,375 |
|
| Debt |
|
| 97,916 |
|
|
| - |
|
| Equity |
| $ | 3,848,205 |
|
| $ | 2,191,353 |
|
22. 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.
Related party transactions and balances:
On Aug 1, 2019, the Company entered in a business services agreement (the “Agreement”) with Business Instincts Group (“BIG”), a company controlled by Cameron Chell, CEO and director, 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 Office and Miscellaneous. For the year ended December 31, 2020, the company incurred fees of $177,000 compared to $80,000 in 2019. As at December 31, 2020, the Company was indebted to this company in the amount of $nil (December 31, 2019 - $nil).
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $525,164 compared to $9,000 in 2019. The year over year increase can largely be attributed to a transaction bonus relating to the sale of an asset for the benefit of the Company, a performance bonus, and an increase in annual compensation that is more commensurate with the role of CEO. As at December 31, 2020, the Company was indebted to this company in the amount of $321,741 (December 31, 2019 - $9,450).
| 60 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
22. RELATED PARTY TRANSACTIONS (CONT’D)
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 Office and Miscellaneous. For the year ended December 31, 2020, the Company incurred fees of $227,524. As at December 31, 2020, the Company was indebted to this company in the amount of $153,887.
During the year ended December 31, 2020 the Company had $475,628 (2019 - $9,681) payable to related parties outstanding that were 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 year ended December 31, 2020 and 2019 included:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Management fees paid to a company controlled by CEO and director |
| $ | 737,164 |
|
| $ | 186,000 |
|
| Management fees paid to a company controlled by president and director |
|
| 227,524 |
|
|
| - |
|
| Management fees paid to a company controlled by a former director |
|
| 165,000 |
|
|
| 195,000 |
|
| Salaries |
|
| 655,799 |
|
|
| 179,429 |
|
| Salaries paid to the former owner of the Company |
|
| 86,097 |
|
|
| 149,060 |
|
| Share-based compensation |
|
| 1,614,158 |
|
|
| 480,158 |
|
| Total |
| $ | 3,485,742 |
|
| $ | 1,189,647 |
|
23. 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, 2020 and 2019:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Loss before income taxes |
| $ | 8,015,813 |
|
| $ | 11,095,507 |
|
| Canadian statutory rates |
|
| 27 | % |
|
| 27 | % |
| Expected income tax |
|
| 2,164,000 |
|
|
| 2,996,000 |
|
| Non-deductible items |
|
| (687,000 | ) |
|
| (2,043,000 | ) |
| Adjustments to prior years provision versus statutory tax returns |
|
| 189,000 |
|
|
| (388,000 | ) |
| Differences between prior year provision and final tax return |
|
| (535,000 | ) |
|
| (18,000 | ) |
| Change in deferred tax asset not recognized |
|
| (1,131,000 | ) |
|
| (547,000 | ) |
| Income tax |
| $ | - |
|
| $ | - |
|
| 61 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
23. INCOME TAXES (CONT’D)
The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Deferred income tax assets (liabilities): |
|
|
|
|
|
| ||
| Share issuance costs |
| $ | 30,000 |
|
| $ | - |
|
| Non-capital losses |
|
| 3,656,000 |
|
|
| 2,439,000 |
|
| Property and equipment |
|
| 457,000 |
|
|
| 581,000 |
|
| Intangible assets |
|
| - |
|
|
| - |
|
| Scientific Research and Experimental Development |
|
| 57,000 |
|
|
| 49,000 |
|
| Total deferred income tax assets |
| $ | 4,200,000 |
|
| $ | 3,069,000 |
|
| Deferred income tax not recognized |
|
| (4,200,000 | ) |
|
| (3,069,000 | ) |
| Net deferred tax assets |
| $ | - |
|
| $ | - |
|
The Company has non-capital loss carry forward of approximately $13,539,000 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 2036 to 2040.
24. FINANCE AND OTHER COSTS
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Accretion and interest expense (Note 16) |
| $ | 1,090 |
|
| $ | 16,088 |
|
| Interest expense for notes payable (note 15) |
|
| - |
|
|
| 101,689 |
|
| Interest expense on lease liabilities (note 12) |
|
| 18,290 |
|
|
| 14,534 |
|
| Interest on outstanding trade payables and bank charges |
|
| 3,737 |
|
|
| 39,594 |
|
|
|
| $ | 23,117 |
|
| $ | 171,905 |
|
25. OTHER INCOME
The Company had previously written off an investment in a UK-based company. On April 27, 2020, this company was sold and the Company received $997,714 (US$709,544) and an estimated $193,808 (US$145,294) will be received by the end of October, 2021, which has been accounted for in accounts receivable.
26. SUPPLEMENTAL CASH FLOW DISCLOSURES
During the year ended December 31, 2020, the Company settled debt of $344,354 with the issuance of 555,409 common shares and recognized a gain on settlement of debt of $28,614.
During the year ended December 31, 2019:
|
| - | Settlement of $822,003 in accounts payable and application of $153,566 in subscription receivable through issuance of shares (Note 17); |
|
| - | Issuance of 200,000 common shares at $0.50 per shares as finders’ fees; |
|
| - | Settlement of $344,354 in trades payable for issuance of 555,409 common shares and recognized a loss of $38,879; and |
|
| - | Settlement of $740,000 of convertible debentures. |
| 62 |
| Table of Contents |
| Draganfly Inc. (formerly Drone Acquisition Corp.) Notes to the Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 Expressed in Canadian Dollars |
27. CANADIAN EMERGENCY WAGE SUBSIDY
In response to COVID-19, the Government of Canada announced the Canada Emergency Wage Subsidy ("CEWS") program in April 2020. CEWS provides a wage subsidy on eligible remuneration, subject to a maximum per employee, to eligible employers based on meeting certain eligibility criteria. The Company determined that it qualified for this subsidy. The Company has recognized the government grant as a reduction to expenses as it has complied with the eligibility criteria and the subsidy has been received. Included in the statement of operations and comprehensive income for the year ended December 31, 2020 is $490,748 relating to the CEWS program of which was recorded as a reduction of wages and salaries included in operating expenses. As at December 31, 2020, the Company had $37,185 included in amounts receivables for CEWS subsidies receivable.
28. SUBSEQUENT EVENTS
The following reportable events occurred subsequent to the year ended December 31, 2020:
|
| - | On February 5, 2021, the Company closed a second tranche of its Regulation A+ Offering for gross proceeds in the amount of $4,003,195 (US$3,135,838). |
|
| - | On March 9, 2021, the Company announced that it completed the final closing of its Regulation A+ Offering of units sold pursuant to the Company’s Regulation A+ offering circular (the “Offering Document”) filed with the U.S. Securities and Exchange Commission. The Company issued 25,771,465 units at the offering price set out in the Offering Document for gross proceeds in the amount of $15,504,135 (US$12,112,606) in the final closing. Each unit is comprised of one common share of the Company 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 period of two years from the date of issuance. The common shares and warrants issued in connection with the offering are subject to a nine month hold period. In total, the Company issued 35,000,000 units under its Offering Document for aggregate gross proceeds of US$16,450,000. |
|
| - | On March 9, 2021, the Company announced that it entered into an asset purchase agreement with Vital Intelligence Inc. (“Vital”) to purchase all the assets of Vital 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 of the Company and one common share purchase warrant. 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 1,500,000 units being released at closing and the remainder to be released upon the Company reaching certain revenue milestones received from the purchased assets. The acquisition closed on March 25, 2021. |
|
| - | A total of 8,907,619 warrants and options have been exercised for proceeds of $4,462,935. |
|
| - | A total of 624,998 shares have been issued for the vesting of RSUs. |
|
| - | A total of 75,000 shares have been issued to a third party for services provided. |
|
| - | A total of 740,000 RSUs have been granted. |
| 63 |
| Table of Contents |
Item 8. Exhibits
| 64 |
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer had duly caused this Annual Report on Form 1-K to be signed on its behalf by the undersigned, thereunto duly authorized, on April 30, 2021.
|
| DRAGANFLY |
| |
|
|
|
| |
|
| By: | /s/ Cameron Chell |
|
|
| Name: | Cameron Chell |
|
|
| Title: | Chief Executive Officer (Principal Executive Officer) |
|
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ Cameron Chell |
| Date: April 30, 2021 |
|
| Name: Cameron Chell Title: Chief Executive Officer and Chairman of the Board | |||
|
|
|
|
|
| /s/ Paul Sun |
| Date: April 30, 2021 |
|
| Name: Paul Sun Title: Chief Financial Officer | |||
|
|
|
|
|
| /s/ Scott Larson |
| Date: April 30, 2021 |
|
| Name: Scott Larson Title: Director | |||
|
|
| Date: April 30, 2021 |
|
| /s/ Olen Aasen |
|
| |
| Name: Olen Aasen Title: Director | |||
|
|
|
|
|
| /s/ Denis Silva | Date: April 30, 2021 |
| |
| Name: Denis Silva Title: Director |
|
|
|
|
|
|
|
|
| /s/ Andrew Hill Card, Jr. | Date: April 30, 2021 |
| |
| Name: Andrew Hill Card, Jr. |
|
|
|
| Title: Director | |||
|
|
|
|
|
| /s/ Justin Hannewyk | Date: April 30, 2021 |
| |
| Name: Justin Hannewyk Title: Director |
|
| |
|
|
|
| |
| /s/ John M. Mitnick |
| Date: April 30, 2021 |
|
| Name: John M. Mitnick Title: Director |
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| 65 |
