Draganfly Inc. [DPRO] Filings

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

OR

OR

OR

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

For the transition period from ________________ to ___________

Draganfly Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

British Columbia, Canada

(Jurisdiction of Incorporation or Organization)

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

(Address of Principal Executive Offices)

Paul Sun, Chief Financial Officer

Telephone: 800.979.9794

E-mail: paul.sun@draganfly.com

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

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

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

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

None

(Title of Class)

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

None

(Title of Class)

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

49,229,563 Common Shares

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

☐Yes ☒No

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

☐Yes ☒No

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

☒Yes ☐No

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

☒Yes ☐No

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

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

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

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

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

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

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

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

☐ Item 17 ☐ Item 18

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

☐Yes ☒No

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

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

☒Yes ☐No

Table of Contents

General Matters

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

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

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

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

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

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Part I

Not required.

Not required.

3.A.

[Reserved]

Not required.

Not required.

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

Risks Related to the Company, its Business and Industry

The Company has a history of losses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company operates in a competitive market.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company faces uncertainty and adverse changes in the economy.‎

‎

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company may be subject to electronic communication security risks.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‎

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

‎

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

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

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

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

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

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

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

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

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

Risks Related to the Company’s Common Shares

The market price of the Common Shares is highly volatile.‎

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

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

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

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

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

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

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

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

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

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

We may never pay dividends over the foreseeable future.‎

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

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

‎

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

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

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

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

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

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

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

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

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

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

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

‎ 

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

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

Name, Address and Incorporation

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

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

General Development of the Business of the Company

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

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

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

Three Year History

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

Financial year ended December 31, 2021

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial year ended December 31, 2022

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

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

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

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

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

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

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

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

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

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

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

Financial year ended December 31, 2023

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

January 1, 2024 to the Effective Date

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

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

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

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

Significant Acquisitions During 2023

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

Market for Securities

Trading Price and Volume of Common Shares

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

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

Prior Sales

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

Warrants

Notes:

Stock Options

Note:

Restricted Share Units

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

Escrowed Securities

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

Notes:

Dividends

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

Legal Proceedings and Regulatory Actions

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

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

Interests of Management and Others in Material Transactions

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

Auditor, Transfer Agent and Registrar

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

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

Interests of Experts

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

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

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

Additional Information

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

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

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

General

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

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

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

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

Drone Industry Overview

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

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

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

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

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

Products and Services

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

The Company generates revenues across the following categories

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

Draganfly Products

‎‎Manufactured Solutions

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

Universal Control System

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

Software

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

Vital Intelligence

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

Draganfly Services

Custom Engineering

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

Training

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

Flight Services

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

‎

Geographic Information Systems (GIS) Data Services

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

Spraying Services

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

Principal Markets

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

Military and Government

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

Public Safety

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

Environmental and Energy

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

Agriculture

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

Operations

Canadian Operations

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

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

‎United States Operations

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

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

Competitive Conditions

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

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

Regulatory Framework

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

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

‎ 

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

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

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

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

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

Seasonality

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

Components

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

Intangible Properties

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

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