Draganfly (DPRO) - 2025 Q2 - Quarterly Report

Condensed Consolidated Interim Financial Statements - Unaudited Condensed Consolidated Interim Statements of Financial Position - Unaudited The company's total assets significantly increased from $10.20 million at December 31, 2024, to $28.45 million at June 30, 2025, primarily driven by a substantial increase in cash and current assets, while total liabilities remained relatively stable and shareholders' equity saw a significant increase from $4.62 million to $22.99 million Key Financial Position Data | As at | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | ASSETS | | | | Cash | $22,571,059 | $6,252,409 | | Receivables | $1,129,974 | $573,390 | | Inventory | $2,576,266 | $1,532,263 | | Prepaids and Deposits | $1,324,529 | $724,513 | | TOTAL ASSETS | $28,452,735 | $10,200,088 | | LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | | | TOTAL LIABILITIES | $5,467,204 | $5,578,305 | | TOTAL SHAREHOLDERS' EQUITY (DEFICIT) | $22,985,531 | $4,621,783 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $28,452,735 | $10,200,088 | Condensed Consolidated Interim Statements of Comprehensive loss - Unaudited For the six months ended June 30, 2025, total revenue increased to $3.66 million from $3.06 million in the prior year period, and despite the revenue growth, the company reported a net loss of $8.19 million, an improvement from the $8.96 million loss in the same period of 2024, with basic and diluted net loss per share improving significantly from $(3.57) to $(1.23) Key Comprehensive Loss Data (Six Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :----------- | | Sales of goods | $3,443,396 | $2,625,298 | +31.16% | | Provision of services | $219,574 | $437,273 | -49.80% | | TOTAL REVENUE | $3,662,970 | $3,062,571 | +19.61% | | COST OF SALES | $(2,848,291) | $(2,320,886) | +22.72% | | GROSS PROFIT | $814,679 | $741,685 | +9.84% | | OPERATING EXPENSES | $(8,885,349) | $(7,926,857) | +12.09% | | OTHER INCOME (EXPENSE) | $(116,316) | $(1,770,185) | -93.43% | | NET INCOME (LOSS) | $(8,186,986) | $(8,955,357) | -8.58% | | Net Income (Loss) per share – Basic & diluted | $(1.23) | $(3.57) | -65.55% | - Operating expenses for the six months ended June 30, 2025, increased by 12.09% to $8,885,349, primarily driven by increases in employee and management expenses (+14.3%) and office and miscellaneous expenses (+87.3%), while professional fees decreased by 31.2%[5] Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Shareholders' equity significantly increased from $4.62 million at December 31, 2024, to $22.99 million at June 30, 2025, primarily driven by substantial proceeds from share issuances for financing ($22.63 million) and warrant exercises ($4.18 million), despite a net loss of $8.19 million for the period Shareholders' Equity Changes (Six Months Ended June 30, 2025) | Item | Amount (CAD$) | | :------------------------------------ | :-------------- | | Balance at December 31, 2024 | $4,621,783 | | Shares issued for financing | $22,628,469 | | Share issue costs | $(2,263,282) | | Warrants issued | $1,103,825 | | Shares issued for exercise of overallotment | $265,971 | | Share issue costs – overallotment | $(28,030) | | Shares issued for the exercise of warrants | $4,175,807 | | Shares issued for the exercise of RSUs | $0 | | Share-based payments | $664,334 | | Net loss | $(8,186,986) | | Change in fair value of equity investments at FVOCI | $14,285 | | Translation of foreign operations | $(10,645) | | Balance at June 30, 2025 | $22,985,531 | - The increase in shareholders' equity was largely due to significant financing activities, including $22,628,469 from shares issued for financing and $4,175,807 from warrant exercises[7] Condensed Consolidated Interim Statements of Cash Flows - Unaudited For the six months ended June 30, 2025, cash used in operating activities increased to $9.43 million from $6.40 million in the prior year, but cash provided by financing activities significantly increased to $25.78 million (from $8.58 million in 2024), primarily due to proceeds from common share issuances, resulting in a substantial increase in cash and cash equivalents at the end of the period to $22.57 million Key Cash Flow Data (Six Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :------------------------------------------ | :----------- | :----------- | :----------- | | Cash used in operating activities | $(9,431,522) | $(6,401,347) | +47.34% | | Cash provided by (used in) investing activities | $(19,156) | $36,336 | -152.71% | | Cash provided by (used in) financing activities | $25,779,973 | $8,578,967 | +200.50% | | Effects of exchange rate changes on cash | $(10,645) | $(17,021) | -37.46% | | Change in cash | $16,329,295 | $2,213,956 | +637.56% | | Cash and cash equivalents, end of period | $22,571,059 | $5,290,547 | +326.63% | - Proceeds from issuance of common shares for financing significantly increased to $23,998,265 in 2025 from $9,759,643 in 2024, driving the substantial increase in cash from financing activities[9] Notes to Condensed Consolidated Interim Financial Statements 1. NATURE AND CONTINUANCE OF OPERATIONS Draganfly Inc. specializes in unmanned and remote data collection and analysis platforms, has an accumulated deficit of $125.65 million, and its ability to continue as a going concern is dependent on securing additional financing or achieving profitability - Draganfly Inc. creates quality, cutting-edge unmanned and remote data collection and analysis platforms and systems[10] - The Company has an accumulated deficit of $125,652,815 and has not been profitable, raising substantial doubt about its ability to continue as a going concern without additional financing or profitable operations[11] 2. BASIS OF PREPARATION These interim financial statements are prepared in accordance with IAS 34 and include all necessary interim disclosures, but should be read in conjunction with the annual financial statements for the year ended December 31, 2024, and are authorized by the Board of Directors and consolidate wholly-owned subsidiaries - These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting"[12] - The financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiaries: Draganfly Innovations Inc. (Canada), Draganfly Innovations USA, Inc. (US), and Dronelogics Systems Inc. (Canada)[14] - Certain prior year amounts were reclassified within Operating Expenses to conform to the fiscal 2025 presentation, without impacting overall results[15] 3. MATERIAL ACCOUNTING POLICY INFORMATION, ESTIMATES, AND JUDGEMENTS The interim financial statements follow the same accounting principles and methods as the 2024 annual financial statements, and management's significant estimates and judgments, which are inherently uncertain, remained unchanged from those disclosed in the prior annual report - These condensed consolidated interim financial statements have been prepared following the same accounting principles and methods of computation as outlined in the Company's consolidated financial statements for the year ended December 31, 2024[16] - Significant estimates and judgements used in the preparation of these condensed consolidated interim financial statements remained unchanged from those disclosed in the Company's annual consolidated financial statements for the year ended December 31, 2024[17] 4. RECEIVABLES Total receivables increased from $729,590 at December 31, 2024, to $1,129,974 at June 30, 2025, primarily due to an increase in trade accounts receivable, and the provision for doubtful accounts increased by $63,256 during the six months ended June 30, 2025 Receivables Breakdown | As at | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Trade accounts receivable | $1,027,593 | $674,998 | | Sales tax receivable | $102,381 | $54,592 | | Total Receivables | $1,129,974 | $729,590 | | Current portion | $1,129,974 | $573,390 | | Long term portion | $0 | $156,200 | Provision for Doubtful Accounts | Metric | Amount (CAD$) | | :-------------------------- | :-------------- | | Balance at December 31, 2024 | $429,506 | | Increase during the period | $63,256 | | Balance at June 30, 2025 | $492,762 | - The Company applies a direct customer analysis approach to measure expected credit losses, assessing collectability on an individual basis using quantitative and qualitative information[21] 5. INVENTORY Inventory increased from $1.53 million at December 31, 2024, to $2.58 million at June 30, 2025, with finished goods and parts both showing increases, and cost of sales for the six months ended June 30, 2025, was $2.85 million, including a recovery of $28,246 for obsolete and slow-moving inventory Inventory Breakdown | As at | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | Finished goods | $1,372,229 | $954,453 | | Parts | $1,204,037 | $577,810 | | Total Inventory | $2,576,266 | $1,532,263 | Cost of Sales Components (Six Months Ended June 30) | Component | 2025 | 2024 | | :------------------ | :----------- | :----------- | | Inventory | $2,481,257 | $2,144,150 | | Consulting and services | $204,936 | $138,437 | | Other | $162,098 | $38,299 | | Total Cost of Sales | $2,848,291 | $2,320,886 | - During the six months ended June 30, 2025, a recovery of $28,246 was recognized for obsolete and slow-moving inventory, compared to a provision of $283,169 in the prior year period[23] 6. PREPAIDS AND DEPOSITS Prepaids and deposits increased from $724,513 at December 31, 2024, to $1,324,529 at June 30, 2025, primarily due to a significant increase in deposits for vendor manufacturing/supply goods Prepaids and Deposits Breakdown | As at | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | Insurance | $68,518 | $370,609 | | Prepaid other | $124,333 | $112,439 | | Deposits | $1,131,678 | $241,465 | | Total | $1,324,529 | $724,513 | - Deposits primarily consist of amounts required to be pre-paid for vendors to manufacture or supply goods[25] 7. EQUIPMENT The net book value of equipment decreased slightly from $529,542 at December 31, 2024, to $480,729 at June 30, 2025, with additions totaling $91,606 and disposals amounting to $53,389 for the six months ended June 30, 2025 Equipment Net Book Value | As at | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Net Book Value | $480,729 | $529,542 | - Additions to equipment for the six months ended June 30, 2025, totaled $91,606, while disposals amounted to $53,389[26] 8. RIGHT OF USE ASSETS Right of use assets, primarily buildings, decreased from $372,344 at December 31, 2024, to $300,980 at June 30, 2025, due to depreciation, with no additions to right of use assets during the period Right of Use Assets | As at | June 30, 2025 | December 31, 2024 | | :---------- | :------------ | :---------------- | | Buildings | $300,980 | $372,344 | | Land | $0 | $0 | | Total | $300,980 | $372,344 | - Depreciation for the six months ended June 30, 2025, was $(71,364), and no additions to right of use assets occurred during the three and six months ended June 30, 2025[27] 9. LEASE LIABILITIES Total lease liabilities decreased from $428,021 at December 31, 2024, to $352,847 at June 30, 2025, as the company leases facilities and vehicles with terms ranging from one to five years, using incremental borrowing rates between 11.7% and 13.3% Lease Liabilities Breakdown | As at | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Current lease liability | $158,250 | $154,147 | | Non-current lease liability | $194,597 | $273,874 | | Ending balance | $352,847 | $428,021 | - The Company leases facilities and vehicles with terms ranging from one to five years, calculated using incremental borrowing rates from 11.7% to 13.3%[28] Maturity Analysis of Undiscounted Lease Liabilities | Maturity Period | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Less than one year | $187,166 | $190,856 | | One to three years | $207,619 | $282,419 | | Four to five years | $7,183 | $71,836 | | Total undiscounted lease liabilities | $401,968 | $545,111 | 10. TRADE PAYABLES AND ACCRUED LIABILITIES Total trade payables and accrued liabilities increased from $2,399,187 at December 31, 2024, to $2,570,010 at June 30, 2025, primarily driven by an increase in trade accounts payable Trade Payables and Accrued Liabilities | As at | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Trade accounts payable | $1,212,942 | $609,869 | | Accrued liabilities | $1,357,068 | $1,789,318 | | Total | $2,570,010 | $2,399,187 | 11. DEFERRED INCOME Total deferred income increased from $86,681 at December 31, 2024, to $135,314 at June 30, 2025, with the current portion of deferred income, expected to be recognized within one year, being $80,106 Deferred Income Balance | As at | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Deferred, revenue beginning | $86,681 | $107,674 | | Revenue recognized | $(12,151) | $(21,852) | | Unearned revenues received | $66,555 | $1,744 | | Foreign exchange | $(5,771) | $(885) | | Total Deferred Income | $135,314 | $86,681 | | Current portion | $80,106 | $18,542 | | Long term portion | $55,208 | $68,139 | - The current portion of deferred income ($80,106) is expected to be recognized as revenue within one year, while the remaining long-term portion ($55,208) relates to support and maintenance arrangements recognized over the next 2.67 years[32] 12. SHARE CAPITAL During the six months ended June 30, 2025, the company significantly increased its issued share capital through multiple financing rounds, issuing 7,215,000 common shares for financing and 1,184,167 shares for warrant exercises, resulting in a substantial increase in share capital and warrants outstanding - The Company's authorized share capital consists of an unlimited number of common shares without par value[33] - During the six months ended June 30, 2025, the Company issued 7,215,000 common shares for financing, generating $22,628,469, and 1,184,167 shares for the exercise of warrants, generating $4,304,475[7] - Key financing activities included the issuance of 1,715,000 units on May 5, 2025, for $4,973,404, and 5,500,000 units on June 12, 2025, for $18,758,889, both consisting of common shares and warrants[35] Stock Options Stock Options Outstanding and Exercisable (June 30, 2025) | Grant Date | Expiry Date | Exercise Price | Remaining Contractual Life (years) | Number of Options Outstanding | Number of Options Exercisable | | :---------------- | :---------------- | :------------- | :--------------------------------- | :---------------------------- | :---------------------------- | | October 30, 2019 | October 30, 2029 | $62.50 | 4.57 | 10,464 | 10,464 | | April 30, 2020 | April 30, 2030 | $62.50 | 5.07 | 240 | 240 | | April 30, 2020 | April 30, 2030 | $96.25 | 5.07 | 4,400 | 4,400 | | July 3, 2020 | July 3, 2025 | $80.00 | 0.26 | 4,000 | 4,000 | | November 24, 2020 | November 24, 2030 | $62.50 | 5.64 | 1,280 | 1,280 | | February 2, 2021 | February 2, 2031 | $330.00 | 5.83 | 1,200 | 1,200 | | March 8, 2021 | March 8, 2026 | $347.50 | 0.93 | 400 | 400 | | April 27, 2021 | April 27, 2031 | $253.75 | 6.06 | 3,640 | 3,640 | | September 9, 2021 | September 9, 2026 | $121.00 | 1.44 | 1,034 | 1,034 | | November 9, 2023 | November 9, 2033 | $15.75 | 8.59 | 1,200 | 800 | | Total | | | | 27,858 | 27,458 | - No options were granted by the Company during the six months ended June 30, 2025[40] - Stock-based compensation related to the vesting of stock options for the six months ended June 30, 2025, was $2,027, a decrease from $53,379 in the prior year[40] Restricted Share Units Restricted Share Units (RSUs) Outstanding | Metric | Number of RSUs | Average Price | | :-------------------------- | :------------- | :------------ | | Outstanding, December 31, 2024 | 188,100 | $10.74 | | Vested | (79,682) | $13.10 | | Issued | 450,964 | $2.55 | | Forfeited | (1,001) | $10.78 | | Outstanding, June 30, 2025 | 558,381 | $3.86 | - The Company recorded share-based payment expense of $662,307 for RSUs during the six months ended June 30, 2025, based on the closing price of the Company's stock on the day prior to grant[41] - RSUs have a 3-year vesting period following the award date, and the total number of common shares reserved for this plan shall not exceed 15% of issued and outstanding common shares[42] Warrants Warrants Outstanding (June 30, 2025) | Issue Date | Expiry Date | Exercise Price | Number of Warrants Outstanding | | :---------------- | :---------------- | :------------- | :----------------------------- | | October 30, 2023 | October 30, 2026 | CAD$ 23.20 | 12,800 | | October 30, 2023 | October 30, 2028 | CAD$ 3.3086 | 256,000 | | February 26, 2024 | February 26, 2027 | US$ 8.44 | 26,800 | | February 26, 2024 | February 26, 2029 | US$ 4.4025 | 474,332 | | April 29, 2024 | April 29, 2029 | CAD$ 3.3086 | 540,541 | | April 29, 2024 | April 29, 2027 | CAD$ 11.06 | 27,028 | | August 21, 2024 | August 21, 2027 | CAD$ 5.12 | 33,334 | | November 19, 2024 | November 19, 2029 | CAD$ 3.3086 | 1,600,000 | | November 19, 2024 | November 19, 2027 | CAD$ 4.1357 | 80,000 | | May 5, 2025 | May 5, 2030 | CAD$ 3.9779 | 1,297,500 | | May 5, 2025 | May 5, 2028 | CAD$ 3.632 | 90,750 | | June 12, 2025 | June 12, 2030 | CAD$ 5.0768 | 5,500,000 | | June 12, 2025 | June 12, 2028 | CAD$ 4.276 | 275,000 | | Total | | | 10,214,085 | - The weighted average remaining contractual life of warrants outstanding as of June 30, 2025, was 4.60 years[51] - On August 7, 2024, the exercise price of certain warrants was amended, and warrant agreements were further amended to remove cashless exercise features and anti-dilution clauses, allowing for equity classification[45] Warrant Derivative Liability Warrant Derivative Liability | As at | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Balance at period end | $2,220,610 | $2,198,121 | | Change in fair value of warrants outstanding | $22,489 | $(1,842,618) | - Warrants denominated in a foreign currency or containing clauses that do not meet the fixed-for-fixed test are recorded as a financial liability and revalued quarterly to fair market value, with changes recorded in profit or loss[44] - The fair value of the warrant derivative liability is calculated using the Black-Scholes Option Pricing Model, with expected volatility being a key unobservable input[46][72] 13. SEGMENTED INFORMATION The company operates in two reportable segments: Drones and Corporate, and for the six months ended June 30, 2025, the Drones segment generated all of the company's $3.66 million in revenue, while both segments contributed to the overall net loss of $8.19 million - The Company operates in two reportable segments: Drones and Corporate, with the Drones segment deriving revenue from the sale of unmanned aerial vehicles (UAV) products and services[52] Revenue by Segment (Six Months Ended June 30, 2025) | Segment | Sales of goods | Provision of services | Total revenue | | :------ | :------------- | :-------------------- | :------------ | | Drones | $3,443,396 | $219,574 | $3,662,970 | | Corporate | $0 | $0 | $0 | | Total | $3,443,396 | $219,574 | $3,662,970 | Net Loss by Segment (Six Months Ended June 30, 2025) | Segment | Net loss for the period | | :-------- | :---------------------- | | Drones | $4,465,109 | | Corporate | $3,721,877 | | Total | $8,186,986 | Geographic Revenue (Six Months Ended June 30) | Country | 2025 | 2024 | | :------------ | :----------- | :----------- | | Canada | $3,655,834 | $3,053,493 | | United States | $7,136 | $9,078 | | Total | $3,662,970 | $3,062,571 | 14. OFFICE AND MISCELLANEOUS Office and miscellaneous expenses for the six months ended June 30, 2025, increased significantly to $1,879,161 from $1,003,253 in the prior year, primarily driven by increases in advertising, marketing, investor relations, compliance fees, and general office expenses Office and Miscellaneous Expenses (Six Months Ended June 30) | Expense Category | 2025 | 2024 | Change (YoY) | | :----------------------------------- | :----------- | :----------- | :----------- | | Advertising, Marketing, and Investor Relations | $546,366 | $342,758 | +59.41% | | Compliance fees | $298,953 | $138,999 | +115.10% | | Business development | $292,558 | $132,593 | +120.65% | | General freight | $196,741 | $45,592 | +331.54% | | General office | $544,543 | $343,311 | +58.61% | | Total | $1,879,161 | $1,003,253 | +87.31% | 15. OTHER EXPENSE Other expenses for the six months ended June 30, 2025, decreased significantly to $67,794 from $1,139,888 in the prior year, mainly due to the absence of share issue costs which were a major component in 2024 Other Expense (Six Months Ended June 30) | Expense Category | 2025 | 2024 | Change (YoY) | | :----------------------------- | :----------- | :----------- | :----------- | | Share issue costs | $0 | $1,194,450 | -100.00% | | Write off of accounts (payable) receivable | $71,614 | $(48,833) | N/A | | Other | $(3,820) | $(5,729) | -33.33% | | Total | $67,794 | $1,139,888 | -94.05% | 16. RELATED PARTY TRANSACTIONS The company engaged in various related party transactions, including business services and executive consulting agreements with companies controlled by or having material interest from the CEO and a director, with total key management compensation for the six months ended June 30, 2025, increasing to $1,126,657 from $817,347 in the prior year - The Company incurred fees of $165,345 for business services from Business Instincts Group (BIG), a company in which the CEO has a material interest, for the six months ended June 30, 2025[58] - Fees for executive consulting services from a company controlled by the CEO amounted to $414,419 for the six months ended June 30, 2025[59] Key Management Compensation (Six Months Ended June 30) | Compensation Type | 2025 | 2024 | Change (YoY) | | :-------------------- | :----------- | :----------- | :----------- | | Director fees | $271,838 | $243,900 | +11.45% | | Salaries | $455,256 | $269,586 | +68.88% | | Share-based payments | $399,563 | $303,861 | +31.50% | | Total | $1,126,657 | $817,347 | +37.00% | 17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT The company is exposed to credit risk on its cash and receivables, managed by using high credit quality financial institutions and direct customer analysis for expected credit losses, and fair values of financial assets and liabilities are categorized into a three-level hierarchy, with derivative liabilities measured using Level 3 techniques (Black-Scholes Option Pricing Model) - Credit risk on cash is managed by using major banks that are high credit quality financial institutions, and for receivables, the Company assesses collectability on an individual basis and applies a direct customer analysis approach to measure expected credit losses[65][66][67] - Fair values are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[68][69] Fair Value Hierarchy of Financial Assets and Liabilities | June 30, 2025 | Level 1 | Level 3 | Total | | :-------------------------- | :-------- | :---------- | :---------- | | Equity securities in investee companies | $28,571 | $0 | $28,571 | | Derivative liability | $0 | $(2,220,610) | $(2,220,610) | | Total | $28,571 | $(2,220,610) | $(2,192,039) | | December 31, 2024 | Level 1 | Level 3 | Total | | :-------------------------- | :-------- | :---------- | :---------- | | Equity securities in investee companies | $14,286 | $0 | $14,286 | | Derivative liability | $0 | $(2,198,121) | $(2,198,121) | | Total | $14,286 | $(2,198,121) | $(2,183,835) | - The fair value of the warrant derivative liability (Level 3) is calculated using the Black-Scholes Option Pricing Model, with expected volatility being a significant unobservable input[72] 18. SUBSEQUENT EVENTS Subsequent to June 30, 2025, the company closed a financing round on July 21, 2025, raising CAD$34.28 million (US$25.00 million) gross proceeds through the issuance of 4,672,895 units (common share + warrant), and additionally, 3,168,463 warrants and 388,334 broker warrants were exercised, generating total proceeds of CAD$16.25 million - On July 21, 2025, the Company closed a financing of 4,672,895 units (consisting of one common share and one warrant) for gross proceeds of CAD$34,279,247 (US$24,999,998)[73] Warrants and Broker Warrants Exercised (Subsequent to June 30, 2025) | Type | Number Exercised | Proceeds (CAD$) | | :------------------ | :--------------- | :-------------- | | Warrants | 3,168,463 | $14,580,351 | | Broker Warrants | 388,334 | $1,668,087 | | Total Exercises | 3,556,797 | $16,248,438 |