PART II – INFORMATION REQUIRED IN OFFERING CIRCULAR

An Offering Statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the Offering Statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the Offering Statement in which such Final Offering Circular was filed may be obtained.

REGULATION A OFFERING CIRCULAR UNDER THE SECURITIES ACT OF 1933

PRELIMINARY OFFERING CIRCULAR JUNE 15, 2020, SUBJECT TO COMPLETION

DRAGANFLY INC.

● Units Consisting of

● Common Share and ● Common Share Purchase Warrant

● Common Shares and ● Warrants Contained in the Units

● Common Shares Underlying the Warrants

2108 St. George Avenue,

Saskatoon, SK, S7M 0K7

1-306-955-9907

www.draganfly.com

Draganfly Inc., a company organized under the laws of British Columbia, Canada (the “Company”, “we,” or “our”), is offering up to ● units (the “Units”) consisting of ● Common Shares and ● Warrants (each as defined below) and offering up to ● Common Shares underlying the Warrants (the “Maximum Offering”) of the Company, to be sold in this offering (the “Offering”). Each Unit offered at a purchase price of US$● per Unit is comprised of ● common share in the capital of the Company, with no par value (a “Common Share”) and ● Common Share purchase warrant (each a whole warrant, a “Warrant” and collectively, the “Warrants”) to purchase ● additional Common Share (a “Warrant Share”). One Warrant is required to purchase ● additional Warrant Share at an exercise price of US$● per Warrant, subject to certain adjustments. The Warrants are exercisable immediately and terminating on the date that is the ___ year anniversary of the listing of the additional common shares sold in this offering on the Canadian Securities Exchange or other recognized securities exchange. The Units are being offered on a “best efforts” basis. The Common Shares and Warrants will be separately transferable following the termination of (i) any transfer hold periods under applicable law and (ii) the following contractual lock-up period: Our investors are required to enter into a ●-day “lock-up” from the closing date of the Offering relating to our Units, Common Shares, and Warrants purchased in the Offering. This means that, for a period of ● days following the closing date of this Offering, such persons may not, with limited exceptions, sell or agree to sell any of the Units or components thereof - the Common Shares or Warrants - or enter into any agreement or arrangement to transfer to another, in whole or in part, any of the economic consequences of ownership of the Units, Common Shares or Warrants, without the prior written consent of the Company, and pursuant to the terms of the lock-up agreements. We are selling our Shares through a Tier 2 offering pursuant to Regulation A (Regulation A+) under the Securities Act of 1933, as amended (the “Securities Act”), and we intend to sell the Units either directly to investors or through registered broker-dealers who are paid commissions. The Company has engaged Dalmore Group, LLC, a New York limited liability company and FINRA/SIPC registered broker-dealer (“Dalmore”), to provide broker-dealer services in connection with this Offering. This Offering will terminate on the earlier of (i) __________ __, 2022, (ii) the date on which the Maximum Offering is sold, or (iii) when the Board of Directors of the Company elects to terminate the Offering (in each such case, the “Termination Date”). There is no escrow established for this Offering. We will hold closings upon the receipt of investors’ subscriptions and acceptance of such subscriptions by the Company. If, on the initial closing date, we have sold less than the Maximum Offering, then we may hold one or more additional closings for additional sales, until the earlier of: (i) the sale of the Maximum Offering, or (ii) the Termination Date. There is no aggregate minimum requirement for the Offering to become effective; therefore, we reserve the right, subject to applicable securities laws, to begin applying “dollar one” of the proceeds from the Offering towards our business strategy, including, without limitation, research and development expenses, offering expenses, working capital and general corporate purposes and other uses as more specifically set forth in the “Use of Proceeds to Issuer” section of this offering circular (the “Offering Circular”). We expect to commence the sale of the Units as of the date on which the Offering Statement of which this Offering Circular is a part (the “Offering Statement”) is qualified by the United States Securities and Exchange Commission (the “SEC”).

We expect to commence the sale of the Units as of the date on which this offering circular is declared qualified by the SEC.

Investing in our Securities involves a high degree of risk. These are speculative securities. You should purchase these securities only if you can afford a complete loss of your investment. See “Risk Factors” starting on page 11 for a discussion of certain risks that you should consider in connection with an investment in our Units.

GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN TEN PERCENT (10%) OF THE GREATER OF YOUR ANNUAL INCOME OR YOUR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A+. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO WWW.INVESTOR.GOV.

This Offering Circular contains all of the representations by us concerning this Offering, and no person shall make different or broader statements than those contained herein. Investors are cautioned not to rely upon any information not expressly set forth in this Offering Circular.

Sale of our Units will commence on approximately __________ __, 2020.

The Company is following the “Offering Circular” format of disclosure under Regulation A+.

The date of this Preliminary Offering Circular is June 15, 2020, subject to completion.

TABLE OF CONTENTS

IMPORTANT INFORMATION ABOUT THIS OFFERING CIRCULAR

We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where such offers and sales are permitted. Please carefully read the information in this offering circular and any accompanying offering circular supplements, which we refer to collectively as the “Offering Circular.” You should rely only on the information contained in this Offering Circular. We have not authorized anyone to provide you with any information other than the information contained in this Offering Circular. The information contained in this Offering Circular is accurate only as of its date or as of the respective dates of any documents or other information incorporated herein by reference, regardless of the time of its delivery or of any sale or delivery of our securities. Neither the delivery of this Offering Circular nor any sale or delivery of our securities shall, under any circumstances, imply that there has been no change in our affairs since the date of this Offering Circular. This Offering Circular will be updated and made available for delivery to the extent required by the federal securities laws.

This Offering Circular is part of an offering statement (the “Offering Statement”) that we filed with the Securities and Exchange Commission (the “SEC”) using a continuous offering process. Periodically, we may provide an offering circular supplement that would add, update or change information contained in this Offering Circular. Any statement that we make in this Offering Circular will be modified or superseded by any inconsistent statement made by us in a subsequent offering circular supplement. The Offering Statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this Offering Circular. You should read this Offering Circular and the related exhibits filed with the SEC and any offering circular supplement, together with additional information contained in our annual reports, semi-annual reports and other reports and information statements that we will file periodically with the SEC. The Offering Statement and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov.

Unless otherwise indicated, data contained in this Offering Circular concerning the business of the Company are based on information from various public sources. Although we believe that these data are generally reliable, such information is inherently imprecise, and our estimates and expectations based on these data involve a number of assumptions and limitations. As a result, you are cautioned not to give undue weight to such data, estimates or expectations.

In this Offering Circular, unless the context indicates otherwise, references to the “Company,” “we,” “our,” and “us” refer to the activities of and the assets and liabilities of the business and operations of Draganfly Inc., a company organized under the laws of British Columbia, Canada, and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms, or other comparable terminology.

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.

SUMMARY

The following highlights information contained elsewhere in this Offering Circular, and it may not contain all of the information that is important to you. You should read this entire Offering Circular carefully, including the section entitled “Risk Factors,” before making an investment decision. References to “we,” “us,” “our,” “our company,” “the Company”, and “Draganfly” refers to Draganfly Inc., and its subsidiaries, a company incorporated under the Business Corporations Act (British Columbia).

Company Information

Draganfly Inc. (the “Company,” “we,” “our,” and “us”) was incorporated on June 1, 2018 under the Business Corporations Act (British Columbia) (the “BCBCA”). On August 15, 2019, the Company completed a going public transaction and on November 5, 2019 listed its common shares on the Canadian Securities Exchange (see “Description of Business – Overview”, starting on page 27). On April 30, 2020, the Company completed the acquisition of Dronelogics Systems Inc. (“Dronelogics”) by acquiring all of the shares of Dronelogics, resulting in Dronelogics becoming a wholly-owned subsidiary of the Company.

Our head office is located at 2108 St. George Avenue, Saskatoon, Saskatchewan, S7M 0K7. Our telephone number is 1-(306)-955-9907 and our website address is www.draganfly.com. The information contained therein or accessible thereby shall not be deemed to be incorporated into this Offering Circular.

Intercorporate Relationships

The Company has three wholly-owned subsidiaries:

Our Business

The Company has three wholly-owned subsidiaries, Draganfly Innovations, Draganfly Innovations USA, and Dronelogics.

The business of Draganfly Innovations and Draganfly Innovations USA is the provision of engineering services and manufacture of commercial unmanned aerial vehicles (“UAV”), remotely piloted aircraft systems (“RPAS”), and unmanned vehicle systems (“UVS”) 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.

Description of Property

Draganfly Innovations’ products are manufactured at its machine shop within its leased head office based in Saskatoon, Saskatchewan, Canada. Raw materials for the Company’s products consist of a combination of its original equipment manufacturer parts and third-party components. Draganfly Innovations USA has leased two suites within the North Carolina State University Campus that serves as a management office and place to store some inventory. Dronelogic’s services are provided through its leased space in Burnaby, British Columbia, Canada.

Intellectual Property

With 18 fundamental UAV patents in its portfolio and with six (6) more pending in the application stage, the Company will continue to expand and grow its intellectual property docket. By virtue of being the first commercial UAV company in the industry, our subsidiary, Draganfly Innovations, holds valuable commercial patents. In addition, Draganfly Innovations, Inc. is the owner of 18 registered trademarks with five (5) more trademark applications pending in both the US and Canada.

Product/Services Pipeline

We can provide our customers with an entire suite of products and services, including the following: quad-copters, fixed wing aircrafts, ground based robots, hand held controllers, flight training, and software used for tracking, live streaming and data collection.

Although we have a number of distribution partners, the majority of our product sales are sold directly to the customer. We conduct little outbound sales and marketing promotional activities as customers around the world reach out to us through our website, which is still our primary method of sales.

Draganfly Innovations is recognized as the first commercial multi-rotator manufacturer and has a legacy for its innovation and superior customer service. Draganfly Innovations USA Inc was created in January, 2020 to offer the same services as Draganfly Innovations but to expand its reach directly to the US market. 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. Dronelogics provides insights into inventory metrics, asset management, volume-metric calculation and digitizing assets, among many other applications.

Competition

Our industry is subject to rapid and intense technological and regulatory changes. We face, and will continue to face, competition in the development and marketing of our products and services from drone companies, retail and distribution companies, research institutions and academic institutions engaged in manufacturing, research and development, distribution and retail. Competition may arise from, among other things:

Risks Related to Our Business

Our business and our ability to execute our business strategy are subject to a number of risks, which are more fully described in the section titled “Risk Factors” beginning on page 11. These risks include, among others:

Our financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Since inception, we have funded operations exclusively with proceeds from bridge and equity financings. Our future viability is largely dependent upon our ability to raise additional capital to finance our operations. Our management expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. Although our management continues to pursue these plans, there is no assurance that we will be successful with this Offering or in obtaining sufficient financing on terms acceptable to us to continue to finance our operations, if at all. These circumstances raise substantial doubt on our ability to continue as a going concern, and our financial statements do not include any adjustments that might result from the outcome of these uncertainties.

REGULATION A+

We are offering our Units pursuant to rules of the SEC mandated under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). These offering rules are often referred to as “Regulation A+.” We are relying upon “Tier 2” of Regulation A+, which allows us to offer of up to $50 million in a 12-month period.

In accordance with the requirements of Tier 2 of Regulation A+, we are required to publicly file annual, semiannual, and current event reports with the SEC.

RISK FACTORS

An investment in our Units involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Offering Circular, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the price of our Common Shares could decline and you may lose all or part of your investment. See “Cautionary Statement Regarding Forward-Looking Statements” above for a discussion of forward-looking statements and the significance of such statements in the context of this Offering Circular.

Risks Related to our Business and Industry

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.

There is no assurance that resale of the Company’s Common Shares will result in a positive return for existing investors.

The Company’s common shares are currently publicly traded on the Canadian Securities Exchange and the OTCQB Venture Market of the OTC markets. There can be no assurance that the publicly-traded market price of the Common Shares will be high enough to create a positive return for the existing investors. Further, there can be no assurance that the Common Shares will be sufficiently liquid so as to permit investors to sell their position in the Company without adversely affecting the stock price. In such event, the probability of resale of the Common Shares would be diminished. As well, the continued operation of the Company will be dependent upon its ability to procure additional financing in the short term and to generate operating revenues in the longer term. There can be no assurance that any such financing can be obtained or that revenues can be generated. If the Company is unable to obtain such additional financing or generate such revenues, investors may be unable to sell their Common Shares and any investment in the Company may be lost.

The market for securities has experienced a high level of price and volume volatility and market prices are subject to wide fluctuations.

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continuing fluctuations in price will not occur. It may be anticipated that any quoted market for the Common Shares will be subject to market trends generally, notwithstanding any potential success of the Company in creating revenues, cash flows or earnings. The value of the Common Shares will be affected by such volatility.

The Company has not paid any dividends to date.

To date, the Company has not paid any dividends on its outstanding shares. Any decision to pay dividends on the shares of the Company will be made by its board of directors on the basis of its earnings, financial requirements and other conditions.

The Company has a history of losses.

The Company has incurred net losses from the inception of its business until the date of this Offering Circular. The Company cannot assure that it can become profitable or avoid net losses in the future or that there will not be any earnings or revenue declines for 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 and development and marketing. As a result, any decrease or delay in generating revenues could result in material operating losses.

Our 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 know-how, key professionals and staff members as well as 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.

A significant growth in the number of personnel would place a strain upon the Company’s management and resources.

The Company may experience a period of significant growth in the number of personnel that will place a strain upon its management systems and resources. Its future will depend in part on the ability of its officers and other key employees to implement and improve financial and management controls, reporting systems and procedures on a timely basis and to expand, train, motivate and manage the workforce. The Company’s current and planned personnel, systems, procedures and controls may be inadequate to support its future operations.

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. The Company cannot predict government positions on such things as foreign investment, intellectual property rights or taxation. A change in government positions on these issues could adversely affect the Company’s business.

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. Future acquisitions may expose it to 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 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. 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.

There is no assurance that the Company’s insurance coverage will be sufficient to cover all claims to which the Company may become subject.

Although the Company believes that the events and amounts of liability covered by its insurance policies will be reasonable, taking into account the risks relevant to its business, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Company may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Company’s financial resources, results of operations and prospects could be adversely affected.

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

The Company will be considered to have been carrying on business in Canada for purposes of the Income Tax Act (Canada). There is risk that foreign governments may look to increase their tax revenues or levy additional taxes to level the playing field for perceived disadvantages to the traditional brick and mortar business. While the Company does not foresee any adverse tax affects, there is no guarantee that governments will not impose such additional adverse taxes in the future.

The Company’s directors and officers may have a 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 a conflict 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 the approval of such participation or such terms. In appropriate cases the Company will establish a special committee of independent directors to review a 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.

Executive officers and directors may have rights to indemnification including directors’ and officers’ liability insurance that will survive consummation of their agreements.

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 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 recent COVID-19 outbreak or similar global health crises could affect our ability to access sources of capital.

The extent to which COVID-19 could impact our operations, financial condition, liquidity, results of operations, and cash flows is highly uncertain and cannot be predicted. Negative financial results, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, or a recession, could have a material adverse effect on our liquidity.

COVID-19 or similar pandemics could adversely impact our business and/or our ability to complete reporting obligations.

If a pandemic, epidemic, or outbreak of an infectious disease including the recent outbreak off respiratory illness caused by a novel coronavirus (COVID-19) or other public health crisis were to affect our facilities, staff, accountants or advisors, our business could be adversely affected. Such a pandemic can result in mandatory social distancing, travel bans, and quarantine, and this may limit access to our employees and professional advisors. These factors may hamper our efforts to comply with our filing obligations with the SEC and the Canadian Securities Exchange.

We will incur increased expenses as a result of being a recently listed public company in Canada on the Canadian Securities Exchange and also trading in the United States on the OTCQB Venture Market of the OTC markets and our current resources may not be sufficient to fulfill our public company obligations.

We expect to incur significant legal, accounting, insurance and other expenses as a result of being a recently listed Canadian public company on the Canadian Securities Exchange (CSE) in Canada and our quotation on the OTCQB in the United States, which may negatively impact our performance and could cause our results of operations and financial condition to suffer. Compliance with applicable securities laws in Canada and the rules of the Canadian Securities Exchange substantially increases our expenses, including our legal and accounting costs, and makes some activities more time consuming and costly. Reporting obligations as a public company and our anticipated growth may place a strain on our financial and management systems, processes and controls, as well as on our personnel. We also expect these laws, rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. As a result of the foregoing, we expect a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact our financial performance and could cause our results of operations and financial condition to suffer. We are responsible for establishing and maintaining adequate internal control over financial reporting, which is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of our inherent limitations and the fact that we are a new public company and are implementing new financial control and management systems, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A failure to prevent or detect errors or misstatements may result in a decline in the market price of our Common Shares and harm our ability to raise capital in the future.

If our management is unable to certify the effectiveness of our internal controls or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could harm our business and cause a decline in the price of our Common Shares. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in the market price of our Common Shares and harm our ability to raise capital. Failure to accurately report our financial performance on a timely basis could also jeopardize our listing on the Canadian Securities Exchange or any other stock exchange on which our Common Shares may be listed. Delisting of our Common Shares on any exchange would reduce the liquidity of the market for our Common Shares, which would reduce the price of and increase the volatility of the market price of our Common Shares.

We do not expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within an organization are detected. The inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be materially adversely effected, which could also cause investors to lose confidence in our reported financial information, which in turn could result in a reduction in the trading price of the Common Shares.

Our senior management team has limited experience managing a public company, and regulatory compliance may divert its attention from the day to day management of our business.

The individuals who now constitute our senior management team have relatively limited experience managing a publicly traded company and limited experience complying with the increasingly complex laws pertaining to public companies compared to senior management of other publicly traded companies. Our senior management team may not successfully or efficiently manage our transition as a recently listed public company subject to significant regulatory oversight and reporting obligations under Canadian securities laws. In particular, these new obligations will require substantial attention from our senior management and could divert their attention away from the day‑to‑day management of our business.

A shareholder’s holding in the Company may be diluted if we issue additional Common Shares in the future.

We may issue additional Common Shares in the future, which may dilute a shareholder’s holding in the Company. Our articles will permit the issuance of an unlimited number of Common Shares, and shareholders will have no pre-emptive rights in connection with such further issuances. The directors of the Company have the discretion to determine if an issuance of Common Shares is warranted, the price at which such issuance is effected and the other terms of issue of Common Shares. Also, we may issue additional Common Shares upon the exercise of options to acquire Common Shares under our option plan, which will result in further dilution to the shareholder. Potential future acquisitions may also divert Management’s attention and result in further dilution to the shareholder.

Risks Related to Our Company

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

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

Forecasting the Company’s revenues and profitability for these new business models is inherently uncertain and volatile. The Company’s actual revenues and profits for these business models may be significantly greater or less than the Company’s forecasts. Additionally, these 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 these new business models, and the opportunity cost of diverting management and financial resources away from more successful businesses.

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.

In addition, certain raw materials and components used in the manufacture of the Company’s products are periodically subject to supply shortages, and its business is subject to the risk of price increases and periodic delays in delivery. Similarly, the market for electronic components is subject to cyclical reductions in supply. 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, 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.

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.

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

Products and services designed and published 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 defects in its products and services before they are released. Nonetheless, 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 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 to or may find it necessary to voluntarily suspend the availability of the product or service, which could significantly harm its business and operating results.

The Company’s business could be adversely affected if its consumer protection and data privacy practices are not seen 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.

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.

The regulation of small UAV for commercial use in Canada is undergoing substantial change and the ultimate treatment is uncertain. Currently, the operation of UAVs with a maximum takeoff weight not exceeding 2kg., operated within visual line-of-sight are exempt from the regulations promulgated under the Aeronautics Act (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. Civil operations include law enforcement, scientific research, or use by private sector companies for commercial purposes.

UAV operations for civil or commercial purposes are only authorized to fly with a Special Flight Operations Certificate (“SFOC”) issued by Transport Canada. The Canadian Aviation Regulations (“CARs”) govern civil aviation safety and security in Canada, and by extension govern operation of UAVs in Canada to an equivalent level of safety as manned aircraft. According to section 602.41 of the CARs, “no person shall operate an unmanned air vehicle in flight except in accordance with a SFOC, or an air operator certificate.”

As the name implies, SFOCs are intended to be an authorization for flight under special cases that are specific to a geographical area and for a specific mission. An SFOC may be issued to authorize a UAV to operate for any civil purpose, including for surveillance. The information that must be contained in an application for an SFOC includes details such as: type and purpose of the operation; description of the aircraft; dates and times of the proposed flight; security plans and emergency contingency plans; and a detailed plan describing how the operation will be carried out including: altitude and routes where the operation will be carried out, the location of any obstacles, and the exact boundaries of the area for the operation.

While Transport Canada has been a world leader in the development of regulations for the commercial use of UAVs, it has acknowledged that the current regulatory regime in Canada has not kept pace with the rapid development in technology and the growing demand for commercial UAV use. In 2010, the Canadian Aviation Regulation Advisory Council (“CARAC”) established the Unmanned Aircraft System Program Design Working Group to develop new regulations to increase the safety, scope and regulatory efficiency of commercial UAV applications in Canada. In 2012, the working group released its phase 1 report which outlines the overall proposed revisions to the Canadian regulatory regime. The working group is currently in the process of drafting the revised regulations contemplated in the phase 1 report with the objective of introducing the new regulations before 2017. The new regulations are intended to be consistent with the international UAV regulatory model established by the International Commercial Aviation Organization (“ICAO”). There will likely be significant advance notice and consultation with the public before the new regulations are implemented.

There are risks associated with the regulatory regime and permitting requirements of our Business.

A significant portion of the Company’s business is based on the operation of remotely piloted aircraft systems (“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 our ability to manufacture and make delivery of our Company’s products and services in a timely fashion.

Our 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 Canadian Aviation Regulations (CARs). Currently, Transport Canada requires that any non-recreational operators of RPAS’ have a Special Flight Operations Certificate (SFOC). Our ability to develop, test, demonstrate, and sell products and services depends on the Company’s 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 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 non-military customers.

This discussion of the risks associated with the regulatory regime and permitting requirements affecting our Company does not take into account the new rules publicly announced by the Minister of Transport (Canada) on January 9, 2019, which will come into force on June 1, 2019 (the “New Rules”). The New Rules are intended to simplify the regulatory regime, including in respect of the requirement to obtain an SFOC under common operation conditions. With the new regulations, there appears to be intention to place more emphasis on Compliant Design Type aircraft as well as individual pilot certification, recurrent testing, and a monetized regulatory regime, which will require operators to pay for aircraft registration and pilot certifications. The Company does expect the new regulations to affect its need to employ and retain personnel with valid pilot certificates. The Company takes all necessary action to remain within compliance of the current and upcoming regulations.

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 existing products. The Company believes that there are significant investment opportunities in a number of business areas. Because the Company accounts for research and development as an operating expense, 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 additional revenue or become profitable, which could materially harm the Company’s business, prospects, financial results and liquidity.

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

The Company’s UAV 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 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 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 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 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.

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 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 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.

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 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.

Risks Related to Intellectual Property

If the Company fails to protect, or incur 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 our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The Canadian Intellectual Property Office (“CIPO”) 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 CIPO 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 our 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 we fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our 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 the 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.

We may not be able to protect our intellectual property rights throughout the world.

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

Risks Related to Financial Reporting

We may experience adverse effects on our reported results of operations as a result of adopting new accounting standards or interpretations.

Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in future periods.

Failure to adhere to our financial reporting obligations and other public company requirements could adversely affect the market price of our Common Shares.

Upon receiving a final receipt for the non-offering final prospectus dated October 23, 2019, we became subject to reporting and other obligations under applicable Canadian securities laws and rules of any stock exchange on which the Common Shares are then‑listed, including National Instrument 52‑109—Certification of Disclosure in Issuers’ Annual and Interim Filings. These reporting and other obligations will place significant demands on our Management, administrative, operational and accounting resources. If we are unable to accomplish any such necessary objectives in a timely and effective manner, our ability to comply with our financial reporting obligations and other rules applicable to reporting issuers could be impaired. Moreover, any failure to maintain effective internal controls could cause us to fail to satisfy our reporting obligations or result in material misstatements in our financial statements. If we cannot provide reliable financial reports or prevent fraud, its reputation and operating results could be materially adversely affected which could also cause investors to lose confidence in our reported financial information, which could result in a reduction in the trading price of the Common Shares.

We do not expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no matter how well‑designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within an organization are detected. The inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our 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 our 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 our reported financial performance or financial condition in accordance with generally accepted accounting principles.

Risks Related to the Offering

Additional funding will be required for the Company to meet its requirements and carry out its operations.

The Company will require additional financing from external sources, such as joint ventures, debt financing or equity financing, in order to meet its requirements and carry out operations. The success and the pricing of any such capital raising and/or debt financing will be dependent upon the prevailing market conditions at that time and upon the ability of a company with projects that are non‑producing to attract significant amounts of debt and/or equity. There can be no assurance that such financing will be available to the Company or, if it is, that it will be offered on acceptable terms. If additional financing is raised through the issuance of equity or convertible debt securities of the Company, this may have a depressive effect on the price of the Company’s securities and the interests of shareholders in the net assets of the Company may be diluted. Any failure by the Company to obtain required financing on acceptable terms could cause the Company to delay development of its material projects and could have a material adverse effect on the Company’s financial condition, results of operations and liquidity.

The market price of the Common Shares is subject to fluctuations.

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many technology companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. The price of the Common Shares underlying the Units is also significantly affected by short term changes in the Company’s financial condition or results of operations as reflected in its quarterly financial reports. Other factors unrelated to the Company’s performance that may have an effect on the price of its Common Shares include the following: the extent of analytical coverage available to investors concerning the Company’s business may be limited if investment banks with research capabilities do not follow the Company’s securities; lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of the Common Shares; and the market price of the Common Shares and size of the Company’s public float may limit the ability of some institutions to invest in the Company’s securities. If an active market for the Common Shares does not continue, the liquidity of an investor’s investment may be limited and the price of the Common Shares may decline. If an active market does not continue, investors may lose their entire investment in the Common Shares. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect the long‑term value of the Company.

The Company cannot provide absolute assurance on the reliability of its financial statements.

In the preparation of financial statements, management may need to rely upon assumptions, make estimates or use their best judgment in determining the financial condition of the Company. Significant accounting details are described in more detail in the notes to the Company’s annual consolidated financial statements for the year ended December 31, 2019. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported, the Company has implemented and continues to analyze its internal control systems for financial reporting. Although the Company believes its financial reporting and financial statements are prepared with reasonable safeguards to ensure reliability, it cannot provide absolute assurance in that regard.

There may be potential dilution of present and prospective shareholdings.

In order to finance future operations and development efforts, the Company may raise funds through the issue of Common Shares or the issue of securities convertible into or exercisable for Common Shares. The Company cannot predict the size of future issues of Common Shares or the issue of securities convertible into or exercisable for Common Shares or the effect, if any, that future issues and sales of the Common Shares will have on the market price of the Common Shares. Any transaction involving the issue of previously unissued shares, or securities convertible into or exercisable for shares, would result in dilution, which may be substantial, to existing holders of shares.

There have been no dividends payments on the Company’s Common Shares to date.

No dividends on the Common Shares have been paid to date. The Company currently plans to retain earnings and other cash resources, if any, for the future operation and development of its business. Payment of any future dividends, if any, will be at the discretion of the Board of Directors after taking into account many factors, including the Company’s operating results, financial condition, and current and anticipated cash needs.

The Company has discretion in the use of the net proceeds from an Offering.

The Company intends to allocate the net proceeds it will receive from the Offering as described under “Use of Proceeds” in this Offering Circular, however, the Company will have discretion in the actual application of the net proceeds. The Company may elect to allocate the net proceeds differently from that described in “Use of Proceeds” in this Offer Circular if the Company believes it would be in the Company’s best interests to do so. The Company’s investors may not agree with the manner in which the Company chooses to allocate and spend the net proceeds from the offering. The failure by the Company to apply these funds effectively could have a material adverse effect on the business of the Company.

DILUTION

The following table summarizes the differences between the total consideration and the weighted-average price per share of our Common Shares paid by, on the one hand, officers, directors, and affiliates of the Company who have acquired the Common Shares prior to the date of this Offering Statement and on, the other hand, investors participating in this Offering, before deducting estimated offering expenses, assuming that the maximum gross cash proceeds from the offering of $● are raised and that the number of Common Shares presented on the cover of the Offering Statement are sold. As at date of this Offering Circular, an aggregate of 77,506,051 of our common shares are issued and outstanding, and an aggregate of 13,641,499 Common Share Purchase Warrants issued and outstanding. In addition, there are 3,550,000 restricted share units (“RSUs”) awarded under the Company’s share compensation plan to directors, officers, employees, and consultants of the Company. Each RSU represents a right to receive one common share of the Company, following the vesting of such restricted share units over a three‑year period. As of the date of this Offering Circular, there are 4,770,000 stock options (“Options”) outstanding under the Company’s Share Compensation Plan of which 4,770,000 of our common shares will be issuable upon exercise of outstanding awards at $0.50 per share.

The Share Compensation Plan is a 20% “rolling” plan pursuant to which the number of our common shares may be issued pursuant to RSUs and Options. The total number of our common shares that may be issued on exercise of RSUs and Options, together with any other share compensation of the Company, shall not exceed 20% of the number of issued and outstanding common shares from time to time. Future awards could be granted at per share prices above or below the offering price.

Future awards could be issued at per share prices above or below the Offering Price.

PLAN OF DISTRIBUTION AND SELLING SECURITYHOLDERS

The Units are being offered pursuant to Regulation A of Section 3(b) of the Securities Act of 1933, as amended (the “Securities Act”), for Tier 2 offerings, by the management of the Company on a “best-efforts” basis directly to purchasers who satisfy the requirements set forth in Regulation A. We have the option in our sole discretion to accept less than the minimum investment. There is no aggregate minimum to be raised in order for the Offering to become effective and therefore the Offering will be conducted on a “rolling basis.” There is no arrangement for the return of funds to investors if all of the Units offered are not sold in the Offering. This means we are entitled to begin applying “dollar one” of the proceeds from the Offering towards our business strategy, research and development expenses, offering expenses (which include legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering of the Units), commissions, working capital, reimbursements, and other uses as more specifically set forth in the “Use of Proceeds to Issuer” starting on page 26.

Our Offering will expire on the first to occur of (a) the sale of all ● shares of Units offered hereby, (b) ●, 2022 or (c) when our Board of Directors (the “Board”) elects to terminate the Offering.

There is no arrangement to address the possible effect of the Offering on the price of our Units.

The Common Shares and Warrants will be separately transferable following the termination of (i) any transfer hold periods under applicable law and (ii) the following contractual lock-up period: Our investors are required to enter into a ●-day “lock-up” from the closing date of the Offering relating to our Units, Common Shares, and Warrants purchased in the Offering. This means that, for a period of ● days following the closing date of this Offering, such persons may not, with limited exceptions, sell or agree to sell any of the Units or components thereof - the Common Shares or Warrants - or enter into any agreement or arrangement to transfer to another, in whole or in part, any of the economic consequences of ownership of the Units, Common Shares or Warrants, without the prior written consent of the Company, and pursuant to the terms of the lock-up agreements.

We reserve the right to offer the shares through broker-dealers who are registered with FINRA. The Company has engaged Dalmore Group, LLC (“Dalmore”), a New York limited liability company and broker-dealer registered with the SEC and a member of FINRA, to provide broker-dealer services in connection with this Offering. Dalmore’s services include the review of investor information, including Know Your Customer data, Anti-Money Laundering and other compliance checks, and the review of subscription agreements and investor information. As compensation for these services, the Company has agreed to pay Dalmore a one-time payment for out of pocket expenses of $5,000, plus a 1% commission on the aggregate amount raised by the Company in this Offering, as described in the Broker-Dealer Agreement between the Company and Dalmore. This will only start after FINRA Corporate Finance issues a No Objection Letter for the Offering. The Company has authorized Dalmore to deduct the fee directly from Dalmore’s third party escrow or payment account. The Company has also engaged Dalmore as a consultant to provide ongoing general consulting services relating to the Offering such as coordination with third party vendors and general guidance with respect to the Offering. The Client has agreed to pay a one time consulting fee of $20,000 which will be due and payable immediately after FINRA issues a No Objection Letter and the Client receives SEC Qualification.

Generally speaking, Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer’s securities. None of our officers or directors are subject to any statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act. None of our officers or directors will be compensated in connection with his participation in the Offering by the payment of commissions or other remuneration based either directly or indirectly on transactions in our securities. None of our officers or directors are, or have been within the past 12 months, a broker or dealer, and none of them are, or have been within the past 12 months, an associated person of a broker or dealer. At the end of the Offering, our officers and directors will continue to primarily perform substantial duties for the Company or on its behalf otherwise than in connection with transactions in securities. Our officers and directors will not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on Exchange Act Rule 3a4-1(a)(4)(i) or (iii), except that for securities issued pursuant to Rule 415 under the Securities Act, the 12 months shall begin with the last sale of any security included within one Rule 415 registration.

Selling Security Holders

No securities are being sold for the account of security holders; all net proceeds of this offering will go to the Company.

USE OF PROCEEDS TO ISSUER

The maximum gross proceeds from the sale of our Units is $●. The net proceeds from the total maximum offering are expected to be approximately $●, after the payment of offering costs (including legal, accounting, printing, due diligence, marketing, selling and other costs incurred in the Offering). Our estimated offering costs of $● include a deduction of 1% of the total gross proceeds for commissions payable to Dalmore Group, LLC on all the Units being offered, which will only start after FINRA Corporate Finance issues a No Objection Letter for the Offering. The Company will also pay a one time set up fee of $5,000 and a consulting fee of $20,000 payable once FINRA issues a No Objection Letter and the Company receives SEC Qualification. The estimate of the budget for offering costs is an estimate only and the actual offering costs may differ. We expect from time to time to evaluate the acquisition of businesses, intellectual property, products and technologies for which a portion of the net proceeds may be used, although we currently are not planning or negotiating any such transactions. The following table represents management’s best estimate of the uses of the net proceeds received from the sale of Units.

We began operations in June 1, 2018 and have a very limited operating history. Our plan of operations for the next few years includes the following: (i) hiring engineers to perform more engineering service work, to complete contracts on a timelier basis, and to perform R&D for the company’s next generation of products; (ii) hiring sales/marketing employees for our product lines and engineering services work; (iii) hiring sales/marketing employees for further expansion into services (e.g. drone as a service); (iv) diversifying and expanding business lines organically and by potential acquisitions; (v) updating machinery used for manufacturing and production; (vi) continuing to patent innovative ideas for new products; (vii) developing and increasing current product offering to various niche industries that are not currently being served; and (viii) considering potential acquisition opportunities.

The amounts set forth above are our current estimates for such development activities, and we cannot be certain that actual costs will not vary from these estimates. Our management has significant flexibility and broad discretion in applying the net proceeds received in this Offering. We cannot assure you that our assumptions, expected costs and expenses and estimates will prove to be accurate or that unforeseen events, problems or delays will not occur that would require us to seek additional debt and/or equity funding, which may not be available on favorable terms, or at all. See “Risk Factors” starting on page 11 for more information regarding the risks associated with an investment in our Units.

The Company intends to use a portion of the proceeds raised in this Offering to fund the compensation payable to its Chief Executive Officer and Chief Financial Officer, as described under “Executive Compensation” below. The Company does not currently pay its directors cash compensation and does not expect to compensate them with the proceeds of the Offering.

This expected use of the net proceeds from this Offering represents our intentions based upon our current financial condition, results of operations, business plans and conditions. As of the date of this Offering Circular, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this Offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this Offering, and reserves the right to change the estimated allocation of net proceeds set forth above. Additionally, we reserve the right to use proceeds for repayment of Company indebtedness .

Although our business does not presently generate positive cash flow, we believe that if we raise the maximum amount in this Offering, that we will have sufficient capital to finance our operations for at least the next 12 months. However, if we do not sell the maximum number of Shares offered in this Offering, or if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. Further, we expect that during or after such 12-month period, we will be required to raise additional funds to finance our operations until such time that we can conduct profitable revenue-generating activities.

Pending our use of the net proceeds from this Offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, and interest bearing instruments. We may also use a portion of the net proceeds for the repayment of outstanding loans, investment in strategic partnerships and possibly the acquisition of complementary businesses, products or technologies, although we have no present commitments or agreements for any specific acquisitions or investments.

DESCRIPTION OF BUSINESS

Overview

The Company was incorporated on June 1, 2018 under the BCBCA. Effective July 17, 2019, the Company amended its articles (“Articles”) to remove various classes of authorized but unissued preferred shares and replace them with only one class of preferred shares. On August 15, 2019, the Company completed a going public transaction pursuant to an amalgamation agreement entered into among the Company, Drone Acquisition Corp. and 1187607 B.C. Ltd., 2300 (the “Amalgamation Agreement”), and changed its name to Draganfly Inc. On August 22, 2019, the Company amended the Articles to re-designate its Class A Common Shares as Common Shares. On April 30, 2020, the Company completed the acquisition of Dronelogics by acquiring all of the shares of Dronelogics, making it a wholly-owned subsidiary of the Company.

Pursuant to our Articles of Incorporation, we are authorized to issue (i) an unlimited number of shares of Common Shares and (ii) an unlimited number of shares of Preferred Shares. As of June 15, 2020, we have (i) 77,506,051 shares of Common Shares outstanding and (ii) no shares of Preferred Shares outstanding.

The Company has three wholly-owned subsidiaries, as follows:

The business of Draganfly Innovations and Draganfly Innovations USA is the provision of engineering services and manufacture of commercial UAVs, RPASs, and UVSs 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.

Inter-corporate Relationships

The following chart identifies the Company’s material wholly-owned subsidiaries, their applicable governing jurisdictions and the percentage of their voting securities which are beneficially owned, or controlled or directed, directly or indirectly, by the Company:

Company Overview and History

The Company was incorporated under the BCBCA on June 1, 2018. On August 15, 2019, the Company completed a going public transaction pursuant to the Amalgamation Agreement and changed its name to “Draganfly Inc.”

In connection with the going public transaction, the Company completed certain private placement offerings on May 22, 2019 and August 6, 2019 (pursuant to prospectus and registration exemptions in Canada, the United States, and in other jurisdictions) raising aggregate gross proceeds of CAD$7,025,749.50 through the issuance of 13,051,499 subscription receipts (the “Subscription Receipts”) at a price of CAD$0.50 per Subscription Receipt. The said private placement offering was required in order to satisfy closing conditions of the going public transaction. At closing of the going public transaction, each Subscription Receipt automatically converted, without payment of additional consideration and without any further action on the part of the holder, into one unit of the Company, subject to adjustment in certain circumstances, consisting of one (1) Common Share and one common share purchase warrant (the “2019 Warrant”). Each 2019 Warrant entitling the holder to purchase one (1) Common Share at a price of CAD$0.50 for a period of twelve (12) months following the issuance of the 2019 Warrants.

The Company completed the listing of its Common Shares for trading on the Canadian Securities Exchange under the symbol “DFLY” on November 5, 2019. The Company completed the listing of its Common Shares for trading on the OTCQB Venture Market of the OTC Markets under the symbol “DFLYF” on January 9, 2020.

Certain of our common shares held by the new directors and officers of the Company are subject to escrow (the “Escrow”) that prohibits transfer for up to a three‑year period following the Listing pursuant to the policies of the Canadian Securities Exchange. In addition, as part of the going public transaction, shareholders of Draganfly Innovations Inc. and former shareholders of the Company have agreed that certificates representing their respective Common Shares held by former shareholder of Former Draganfly will be subject to trading restrictions (the “Voluntary Restriction”) for up to a three‑year period following the Listing. Notwithstanding the Escrow and the Voluntary Restriction, the shareholders holding these Common Shares will otherwise have all of the normal rights associated with Common Shares, such as entitlement to dividends, voting powers and participation in assets upon dissolution or winding up, until they are released from escrow.

On April 30, 2020, the Company completed a share purchase transaction with the shareholders of Dronelogics (the “Dronelogics Sellers”), acquiring all of the shares of Dronelogics for cash and Common Shares, pursuant to a share purchase agreement dated January 15, 2020 between the Company and the Dronelogics Sellers (the “Share Purchase Agreement”). On closing of the Dronelogics acquisition, the Company: (i) paid the Dronelogics Sellers CAD$2.0 million, consisting of a cash payment of CAD$500,000, subject to a post-closing working capital adjustment; (ii) issued the Dronelogics Sellers 3,225,438 Common Shares in satisfaction of the balance of the purchase price and payment of certain management bonuses at a deemed price of CAD$0.50 per Common Share; (iii) appointed Mr. Justin Hannewyk, President of Dronelogics, to the Board of Directors of the Company; and (iv) issued 200,000 Common Shares to a finder in connection with the Dronelogics acquisition. The Common Shares issued under the Dronelogics acquisition are subject to resale restrictions in the form of pooling terms providing for release of such shares over a period of 24 months and a right to place in favor of the Company during the same 24-month period.

Three Year History

Historically, the main business of Draganfly Innovations Inc. was to operate as a manufacturing company offering commercial UAVs directly to its customer base across various industry verticals such as public safety, agriculture, industrial, etc. The main product offering of the Company now consists of quadcopters such as The Commander, X4, and Guardian. The Commander is the most recent and most advanced of the quadcopter line up. The Commander quadcopter is a professional quality, powerful, easy to fly aerial platform delivering high quality aerial photography and video with one of the World’s longest flight time capabilities (with a 400g payload) of 55 minutes on a single battery charge. The Commander can fly 100+ acres on a single charge – this is the coverage of some of the Company’s fixed wing competitors. The Company has also developed a fixed wing drone, called The Tango2 which has recently been available to customers. The ideal use of the Tango2 fixed wing is for search and rescue, inspection and any application that requires loitering in the air for extended time periods, covering large surface area. The Company has also designed and produced a ground based robot, The DraganScout ground based robot, which has not been commercialized as of yet but has received expressions of interest for applications within public safety and agricultural inspection. With continued R&D funding, the intention is to fully complete development of the DraganScout and make it available for sale.

Over the last 3 years, the Company has started to do engineering procurement for certain customers in an industry vertical that it does not currently serve, such as military applications (e.g., high value product delivery on the battlefield, surveillance and capture drones). The rationale is three-fold: engage in long term contracts that tend to be recurring in nature, gain exposure to an industry that the Company otherwise did not have access to, and leverage our innovation learnings into other products that can be sold in other industries.

This progression occurred due to shifts in the commercial UAV space, the area the company is known for being an industry pioneer. As businesses and other commercial users became more comfortable using UAVs, most tend to test their use case by buying lower cost consumer drones. Over time, one large company has become the dominant leader in both consumer and commercial drone sales. The phenomenon has moved the Company’s focus to niche markets which organically created engineering service work, With the Company’s strength in innovation, this shift lends very well to developing custom products for specific clients’ needs as well as integration and customization work.

The Company works with its customers to customize a product or platform from idea (R&D) to completion and testing. A work plan is created with timelines and budget which includes materials, travel, testing, and engineering time. This plan is signed off on by the customer before work begins. To date, the majority of this work is considered proprietary and secret in nature. In some cases, Draganfly effectively acts as a subcontractor to a larger military focused drone company, for example, creating new products and applications to their specifications.

We are driven by passion, ingenuity and the need to provide efficient solutions and first-class services to our customers around the world with the goal of saving time, money, and lives.

With the acquisition of Dronelogics, a drone integrator and service provider that has been in business for over 10 years, we have expanded our offerings in a complementary business and have expanded our product offering in the integration and engineering segments, expanding our total addressable market and enhancing our position as a leader in the UAV and UVS industry.

Our Business

The business of the Company is conducted through three wholly-owned subsidiaries: (i) Draganfly Innovations; (ii) Draganfly Innovations USA; and (ii) Dronelogics.

Draganfly Innovations is an award-winning, industry-leading manufacturer within the UAV and UVS space, recognized as being at the forefront of technology for over two decades. Draganfly Innovation’s business is creating quality, cutting-edge UVS and software. Draganfly Innovations provides engineering services and manufactures commercial UAVs, RPASs, and UVSs 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. The wide variety of services, products and innovations that Dronelogics provides results in a unique one-stop-shop solution for its clients which aids in higher customer retention, diversified revenue streams, repeat business and protection against market volatility.

Dronelogics’ customer base comprises well over 10,000 independent names and the company enjoys high repeat business due to its expertise, unique focus on service and broad scope of offerings.

Our Products and Services

Founded in 1998, Draganfly Innovations is recognized as the first commercial multi-rotor manufacturer and has a legacy for its innovation and superior customer service. Draganfly Innovations has sold products and services to over 50 countries. To date, Draganfly Innovations, has sold over 9,000 of its drones primarily to police forces around the world. Zenon Dragan is one of the founders of the Company and is a recognized leading expert on UAVs. Draganfly Innovations is positioning itself as an integrated solutions provider to the UAV industry.

The Company can provide its customers with an entire suite of products and services that include: quad-copters, fixed wing aircrafts, ground based robots, hand held controllers, flight training, and software used for tracking, live streaming, and data collection. The Company’s products are manufactured at its machine shop within its head office based in Saskatoon, Saskatchewan. Raw materials for the Company’s products consist of a combination of its original equipment manufacturer parts and third-party components.

Dronelogics, a complementary business to Draganfly, expands the Company’s product offering in the integration and engineering segments, thereby broadening the Company’s total addressable market and enhancing its position as a leader in the UAV and UVS industry. As a trusted drone service provider, Dronelogics provides insights into asset management, volume-metric calculation and digitizing assets, among many other applications. It 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.

Our integrated UAV system is equipped for automated take-offs and landings with altitude and return to home functions as well as in-house created survey software. The Company’s standard features combined with custom fit camera payloads ranging from third-party multi-spectral, hyper-spectral, LIDAR, thermal, and infrared allows the Company to offer a truly unique solution to clients. The Company has also partnered with companies such as Waterloo based, Dejero, who provide a live streaming solution that the Company can offer to its customers and share in monthly usage fees.

The Company’s patented high quality folding frame on its quadcopters means customers have a strong aerial platform that can easily pack into the back seat or trunk of an automobile. The easier the aircraft is to transport, the faster users can get from one job to another. When packed in its rugged transport case, the complete quadcopter system meets airline baggage size requirements. Constructed from high quality carbon fiber, the strength-to weight ratio of the aircraft is very high, coupled with a strong folding frame helps reduce damage in the event of a hard landing or hitting an obstruction.

Because the Company’s system is designed and manufactured in-house, the Company controls the quality, design, software and systems integration, delivering a helicopter system that is inherently stable. The onboard computer and 11 sensors keep the helicopter level in real-time and pointed in the right direction, so when a user “parks” the helicopter in the air using the GPS position hold function, the user can shift their attention to getting the photos they need. Even in a GPS position hold, one can reposition the aircraft, continue shooting photos and meanwhile, in real-time, the telemetry data system is monitoring aircraft battery health, heading, bearing, altitude, and both audibly and visually alerting the user to any aircraft warnings.

Although the Company has a number of distribution partners, the majority of its product sales are sold directly to the customer. The Company does very little outbound sales and marketing promotional activities with customers around the world reaching out to the Company through its website which is still its primary method of selling.

The global market for commercial applications of drone technology, currently estimated at about $2 billion, is expected to balloon to as much as $127 billion by 2020, according to a report by PricewaterhouseCoopers LLP¹. Consumer and prosumer drones are ideal for certain aerial filming applications, but enterprises looking to use drones for advanced applications will generally turn to high‑end UAV manufactures with longer flight times, better sensor capabilities and analytic functionalities. The high‑end commercial UAV market, which is defined as drones >$5,000, is one of the fastest-growing markets within the broader UAV space.

Although the higher end commercial UAV market is growing quickly, the commercial industry is shifting towards using lower cost consumer type drones for their business. As a result, the Company has started offering engineering service and customization work. All engineering, customization, and integration work takes place at its facility within its head office. In some cases, travel to customers’ locations is required to understand the scope of a project. In some cases, Draganfly uses lower cost third party off the shelf UAVs and integrates higher end sensors or customizes the UAV to handle niche applications not offered by standard UAVs. The Company takes a small margin on the third party equipment and charges for the engineering service work involved in the integration. In more complex situations, the Company will create an entirely new product for a very specific application. Given Draganfly’s core competence is its ability to innovate, engineering services is a natural evolution for the Company.

Product sales accounted for 31% of revenues in the financial year ended December 31, 2018 with the balance made up of engineering services. In the financial year ended December 31, 2019, engineering services revenues represented 82% with the balance being made up of product sales. The bulk of engineering service work is for one large US‑based customer that subcontracts to Draganfly. The customer’s clients tend to be the U.S. government and military. Although the Company does not anticipate a slowdown in government and military spending, the recent U.S. government shutdown and COVID-19 outbreak has impacted the timing of certain projects for Draganfly.

The Company has a list of ideas that could become products but given its current resources, are not actively working on anything. Following Listing, with access to research and development (“R&D”) funding and more engineering personnel, the Company continues to work on enlarging its product offering.

Draganfly Innovations introduced its first systems in 1999 and has evolved and has since shaped the UAV industry. The aircraft are widely used by public safety agencies worldwide and one of the first small Unmanned Aerial Systems (“sUAS”) to receive a Federal Aviation Administration (“FAA”) Certificate of Authorization (“COA”) in the fall of 2009 with the Mesa County Colorado Sheriff’s Office. In 2012, the Royal Canadian Mounted Police (“RCMP”) flew the X4-ES system to locate and save the life of an accident victim. The RCMP system is on permanent display at the Smithsonian National Air and Space Museum. Their aircrafts have achieved many industry firsts, including:

On April 10, 2015, the FAA issued to the Company an FAA Section 333 Exemption and Certificate of Authorization (COA) to operate commercially and conduct research in the U.S.

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¹ “Clarity from above,” PwC global report on the commercial applications of drone technology, May 2016

The exemption covers the Commander, Draganflyer X4-P, Draganflyer X4-ES, Draganflyer X6, and Draganflyer Guardian aircraft for use in aerial data collection such as mapping, agriculture, surveying, aerial photography, and inspections.

The Company had 4 of the first 6 Compliance certifications for their products issued by Transport Canada (TC). At the time, to be deemed a Compliant Drone, a company had to self-declare that their product’s capabilities meet Transport Canada’s specific safety measures. TC had to review and accept each self-declaration. All four of our then-current systems (Guardian, X4P, X4ES, and Commander) were approved so when TC announced the first 6 compliant certificates, Draganfly products made up four of them.

Competition

Although Draganfly is acknowledged as the pioneer that first developed the commercial multi rotor helicopter, there are now many drone hardware companies in the World. Draganfly has sold products and services to over 50 countries but predominantly focuses on the North American market given its geographical location. As technology has improved and costs for hardware and software have come down, the line between consumer and commercial drones has blurred. Historically, Draganfly has serviced early adopters in the public safety industry. At this stage of the commercial drone adoption curve, the average public safety organization (local, regional, and even federal law enforcement, for example), are quite budget conscious. Hence, these organizations tend to use lower cost drones that have become quite sophisticated that can accomplish most of their use cases. The obvious dominant player is DJI, the Chinese drone company that is reputed to own over 70% of the consumer and now commercial drone market. The majority of DJI’s drones are geared towards broad applications involving the masses. Draganfly has moved away from competing directly with DJI and has chosen to serve niche markets outside of where DJI tends to be. There are also some organizations that tend to be US based that either prefer or are mandated to not use foreign drones such as those produced by DJI. Some of these organizations are sensitive to their work being exposed to that of overseas governments which has at least for the time being, created a niche market for players such as Draganfly. As Draganfly has evolved to move with the industry trends, the Company now uses DJI drones as part of some of its customization and engineering services work. Draganfly has also moved into innovative engineering procurement which is very specialized and is currently not aware of any Canadian and US companies focusing on this industry or its existing customers. As the drone industry matures, this may bring more players to this space or the Company’s customers may choose to develop the in-house expertise to do the work that they currently outsource to Draganfly. However, it is the Company’s view that there will be a growing customer base that will require very specialized work that only a handful of companies can do.

It became evident to Management that funds needed to be raised to execute a sales and marketing strategy to capitalize on industry demand for its product and services.

Management determined in mid-2018 the best course of action to secure additional capital, grow its brand and expand its reach was to secure a public listing on a reputable exchange. To that end, the Company completed a go public transaction and listed on the Canadian Securities Exchange.

Compliance with Government Regulation

The operation of Remotely Piloted Aircraft Systems (“RPAS”) or UAVs within Canada for any intended application is governed by regulations developed and managed by Transport Canada. The Canadian Aviation Regulations (“CARs”) developed by Transport Canada clearly detail the rules and regulations that are directly applicable to all civil aviation operations, both manned and unmanned, within the Canadian Domestic Airspace (“CDA”). Civil aviation encompasses all applications and purposes other than those operated by military organizations. Transport Canada currently has provisions that allow exemptions and relief from specific sections of CARs for recreational operators with an additional set of restrictions and limitations. However, no business or corporation is permitted to operate an RPAS under these recreational exemptions and must adhere to the full CARs. Commercial / non-recreational operations of RPAS within CDA can only be safely and legally accomplished through the issuance of a Special Flight Operations Certificate (“SFOC”) granted by Transport Canada. An SFOC is intended to be a temporary authorization for flight operations that have clear, defined, and specific geographical areas, dates and times, intended applications, and flight profile limitations. SFOC’s are granted by Transport Canada inspectors on a case-by-case basis and must be applied for in advance of the intended flight operations. The SFOC application must include details such as the type and purpose of operations, description of the aircraft, dates and times of intended flights, security and emergency plans, and detailed standard operating procedures to explain how the flight operations will be conducted. Currently any flight operations conducted for non-recreational purposes can only be performed under the authority of an SFOC. An SFOC can be granted for operation of any RPAS make and model and can be granted to the business or organization rather than a specific individual or pilot. This allows for a company to self-certify a number of approved pilots rather than requiring individual licensing for each pilot. Transport Canada offers an advanced authorization called a Compliant SFOC, which is available only to operators of RPAS that have been recognized by Transport Canada as meeting the safety standards of a Compliant Design Type. The Compliant SFOC provides the operator with additional allowances including, but not limited to, operations in a wider geographical operating area. Failure to obtain the necessary regulatory approvals such as the granting of an SFOC or limitations put on the use of RPAS’ may prevent the company from developing, testing, and demonstrating its products and services and/or expanding its sales and services.

New RPAS came into force on June 1, 2019. The Company expected the regulations to affect its need to employ and retain personnel with valid pilot certificates. The Company takes all necessary action to ensure that it remains compliant with current and upcoming regulations.

Employees

The Company currently has 22 full-time employees and engages two (2) to three (3) contractors on a regular basis. Ideally, the Company would like to add to its engineering bench and marketing team to help build the Company’s engineering services offering. We do not currently have any pension, annuity, insurance, and profit-sharing plans, although we may choose to adopt such plans in the future.

Corporate Information

Our head office is located at 2108 St. George Avenue, Saskatoon, Saskatchewan, S7M 0K7, and our telephone number is 1-(306)-955-9907. Our website address is www.draganfly.com. The information contained therein or accessible thereby shall not be deemed to be incorporated into this Offering Circular.

DESCRIPTION OF PROPERTY

The Company’s products are manufactured at its machine shop within its leased head office based in Saskatoon, Saskatchewan. Raw materials for the Company’s products consist of a combination of its original equipment manufacturer parts and third-party components.

United States Operations

The Company, through its wholly-owned subsidiary, Draganfly Innovations USA Inc., has a management office in Raleigh, North Carolina that currently conducts business in the state of North Carolina in the United States.

Raleigh Management Office – Draganfly Innovations USA Inc. operates a management office in Raleigh, North Carolina pursuant to a Member License Agreement with HQ Raleigh, LLC (“Licensor”). Pursuant to a Lease Agreement, dated January 25, 2019, between C21, LLC (“C21”) and the State of North Carolina, C21 leases from the State of North Carolina a building located at 1017 Main Campus Drive, Raleigh, NC 27606, together with non-exclusive rights to use common areas of the building (the “Master Leased Premises”). Licensor and C21 have entered into separate agreement whereby Licensor has been granted rights to manage and operate a portion of the Master Leased Premises, including the right to grant licenses permitting use of the Master Leased Premises by third parties. Pursuant to the Member License Agreement, Licensor grants Draganfly Innovations USA a license permitting use of a portion of the Master Leased Premises, which includes Suite 2306 and Suite 2310 of the building (the “Raleigh Management Office”). Draganfly Innovations USA Inc. operates the Raleigh Management Office under a one (1) year lease, commencing on February 1, 2020. After one year, the lease will continue on a month-to-month basis until terminated by either the State of North Carolina or Draganfly Innovations USA Inc. Draganfly Innovations USA currently pays $500 for Suite 2306 and $1200 for Suite 2310 per month in rent, subject to 3% yearly increases.

Canada Operations

Draganfly Innovations’ products are manufactured at its machine shop within its leased head office based in Saskatoon, Saskatchewan, Canada. Dronelogic’s services are provided through its leased space in Burnaby, British Columbia, Canada.

Saskatoon Facility – Draganfly Innovations Inc. operates a fully operational facility located at 2108 St. George Avenue, Saskatoon, SK S7M 0K7 (The “Saskatoon Facility”). The Saskatoon 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. Draganfly Innovations Inc. operates the Saskatoon Facility under a two (2) year lease, commencing on December 1, 2019 and ending on December 1, 2021. Draganfly Innovations Inc. currently pays $43,000.00 per annum plus GST to be paid in monthly installments of $3,583.33 plus GST. The Company has the option to renew the lease for six (6) successive one (1) year periods.

Burnaby Facility – Dronelogics leases Unit 319 in a building on that certain parcel of land located at 2999 Underhill Avenue situated in Burnaby, British Columbia (the “Burnaby Facility”). Dronelogics operates the Burnaby Facility under a five (5) year lease commencing on, November 1, 2016, and expiring on October 31, 2021. Dronelogics currently pays $2,981.33 per month in rent. Subject to the terms of the lease, Dronelogics may be granted a renewal lease for a further term of five (5) years.

Intellectual Property

With 18 fundamental UAV patents in its portfolio and with six (6) more pending in the application stage, the Company will continue to expand and grow its intellectual property docket. By virtue of being the first commercial UAV company in the industry, our subsidiary, Draganfly Innovations, holds valuable commercial patents.

Below is a chart summarizing the Company’s patents:

Below is a chart summarizing Draganfly Innovation Inc.’s registered trademarks and pending applications:

We believe it is important to our success that we:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s Management’s Discussion and Analysis provides an analysis of the Company’s financial results for the financial periods December 31, 2019 and December 31, 2018 and the notes thereto.

The following Management’s Discussion and Analysis (“MD&A”) is prepared as at December 31, 2019 in accordance with National Instrument 51-102F1 and should be read together with the audited consolidated financial statements for the years ended December 31, 2019 and December 31, 2018 and the notes related thereto, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards. The financial statements are compliant and up to date with all new financial accounting standards, as noted per IFRS. The Company has elected to not delay compliance with any new or revised financial accounting standard. The Company’s fiscal year end is December 31. Additional information regarding the Company will be available through the SEDAR website at www.sedar.com. Certain information included in this MD&A may constitute forward-looking statements. Statements in this report that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements.

All dollar amounts are expressed in United States currency, unless otherwise indicated, that Canadian currency is used.

Cautionary Note Regarding Forward-Looking Statements

Certain information included in this MD&A may constitute forward-looking statements. Statements in this report that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties, which could cause actual results to vary considerably from these statements.

Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company may differ materially from those reflected in forward-looking statements due to a variety of risks, uncertainties and other factors. The Company’s forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

The Company’s forward-looking statements are based on the Company’s beliefs and assumptions which are based on information available at the time these assumptions are made. The forward-looking statements contained herein are as of the date of this listing document, and are subject to change after this date, and the Company assumes no obligation to publicly update or revise the statements to reflect new events or circumstances, except as may be required pursuant to applicable laws. Although management believes that the expectations represented by such forward-looking information or statements are reasonable, there is significant risk that the forward-looking information or statements may not be achieved, and the assumptions underlying such information or statements will not prove to be accurate.

Actual results or events could differ materially from the plans, intentions and expectations expressed or implied in any forward-looking information or statements, as a result of numerous risks, uncertainties and other factors such as those described above and in “Risks and Uncertainties” below.

Key Business Activities

2019 was another milestone year for Draganfly. The company solidified its engineering services business to not only offset a reduction in manufactured goods due to industry pricing shifts created by Chinese competition but to make this its primary business. Although, the Company’s products are still well regarded in the industry, the commercial UAV space as a whole has been impacted by lower priced consumer drones that can now offer similar functionality. The Company recognized their opportunity of engineering procurement for those customers that either choose not to buy Chinese UAVs or are restricted from doing so due to information sensitivity concerns.

Given the Company’s impressive history and deep engineering talent, a natural evolution was to outsource in-house capabilities to customers. Doing this leverages the Company’s core skill set of innovation that tends to lead to future projects, bringing in more consistent revenue.

Results of Operations for the Years Ended December 31, 2019 and December 31, 2018

Revenues

Our revenue was C$1,380,427 for the year ended December 31, 2019, compared to C$1,387,013 for the year ended December 31, 2018.

C$1,131,488 represents engineering services work while the balance of revenue is from hardware sales. Securing clients in this business line was key to its consistent revenue achieved by the Company in 2019. These clients were important for revenue and continued validation of the technology, but more importantly they demonstrate that the Company’s customized product designs have global applicability. Total revenue for the year ended December 31, 2019 decreased by $6,586 or 0.5% as compared to 2018. The decrease in revenue is due to the Company’s shrinking product sales business partially offset by the continued increase in engineering services.

Gross profit is the difference between the revenue received and the direct cost of that revenue. Gross margin is gross profit divided by revenue and is often presented as a percent. As a result of reduced product sales, the Company’s Gross Profit increased by $227,013 or 24.3%. As a percentage of sales, gross margin increased from 67.4% in 2018 to 84.1% in 2019. Again, the higher gross margins realized in 2019 was the result of a major shift to engineering service work which has a higher gross margin than the legacy manufacturing gross margin.

Research and Development Expenses

Our research and development expenses were C$16,883 for the year ended December 31, 2019, compared to C$16,158 for the year ended December 31, 2018. Research and development expenses to date consist primarily of contract research fees, manufacturing, consultant fees, preclinical studies, and study related costs.

General and Administrative Expenses

Our general and administrative expenses were C$4,450,154 for the year ended December 31, 2019, compared to C$1,477,474 for the year ended December 31, 2018. General and administrative expenses consist primarily of personnel, legal fees, and travel and office expenses. The largest contributor to the increase is marketing and investor relations expenses.

Net Loss

Our net loss was C$11,095,057 for the year ended December 31, 2019, compared to C$601,729 for the year ended December 31, 2018. The increased loss was largely the result of a listing expense resulting from the amalgamation as well as increased marketing and investor relations expenses to create awareness of the Company

Liquidity and Capital Resources

To date, we have generated negative cash flows from operating activities. All costs in connection with our formation, development, legal services and support have been funded by revenues, equity and debt placements.

The Company’s liquidity risk is on its loans, accounts payable and accrued liabilities, as it may encounter difficulty discharging its obligations. The Company attempts to mitigate this risk by managing its debt holders as well as ensuring there is capital coming into the company for its operations. As at December 31, 2019, the Company has a working capital of $2,037,906 (December 31, 2018 had a deficit of $4,353,261).

The Company considers the items included in capital to include shareholders’ equity. The Company manages its capital structure and makes adjustments to it in light of changes in economic and business conditions, financing environment and the risk characteristics of the underlying assets. The Company does not have any contracted or committed capital expenditures as of the date of these financial statements. The Company utilizes its credit card facilities from time to time to make various purchases for their operations. In order to maintain or adjust its capital structure, the Company may issue new shares, new debt, or scale back the size and nature of its operations. The Company is not subject to externally imposed capital requirements. As at December 31, 2019, shareholders’ equity was $2,191,353 and at December 31, 2018, shareholder’s deficit was $4,132,609.

Our future expenditures and capital requirements will depend on numerous factors, including the success of this Offering and the progress of our research and development efforts.

Our business does not presently generate positive cash flow. We believe that if we raise $● (the Maximum Amount) in this Offering, we will have sufficient capital to finance our operations for at least the next 12 months; however, if we do not sell the Maximum Amount or if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. We do not have any track record for self-underwritten Regulation A+ offerings, and there can be no assurance we will raise the Maximum Amount or any other amount. Further, we expect that after such 12-month period, we will be required to raise additional funds to finance our operations until such time that we can conduct profitable revenue-generating activities. However, no assurances can be made that we will be successful obtaining additional equity or debt financing, or that ultimately, we will achieve profitable operations and positive cash flow.

Going Concern

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to raise additional capital as required. During the period from January 1, 2019 through December 31, 2019, the Company incurred net losses of C$11,095,057. Initially, we intend to finance our operations through equity and debt financings.

Capital Expenditures

We do not have any contractual obligations for ongoing capital expenditures at this time.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements.

Contractual Obligations, Commitments and Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. We are not aware of any matters which result in a loss contingency.

Relaxed Ongoing Reporting Requirements

Regulation A+ provides that a filer can take advantage of an extended transition period for complying with new or revised accounting standards.

Plan of Operations

As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of shares offered for sale in this Offering Circular, we believe that the Company will have sufficient cash resources to fund its plan of operations for the next 12 months. If we are unable to do so, we may have to curtail and possibly cease some operations.

We are a UAV manufacturer, custom engineering, and UAV services company and began operations in 1998. Our plan of operations for the next few years includes: hire engineers to perform more engineering service work, to complete contracts on a timelier basis, and to perform R&D for the company’s next generation of products; hire sales/marketing people for our product lines and engineering services work; hire sales/marketing people for further expansion into services (e.g. drone as a service); diversify and expand business lines organically and by potential acquisitions; update/capex machinery used for manufacturing and production; continue to patent innovative ideas for new products; develop and increase its current product offering to various niche industries that aren’t being served now; consider potential acquisition opportunities. Provided the full offering is completed, the company should not have to raise capital within six months.

We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.

These circumstances raise substantial doubt on our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

Trend Information

Although Draganfly is acknowledged as the pioneer that first developed the commercial multi rotor helicopter, there are now many drone hardware companies in the world. As technology has improved and costs for hardware and software have come down, the line between consumer and commercial drones has blurred. Historically, Draganfly has serviced early adopters in the public safety industry. At this stage of the commercial drone adoption curve, the average public safety organization (local, regional, and even federal law enforcement, for example), are quite budget conscious. Hence, these organizations tend to use lower cost drones that have become quite sophisticated that can accomplish most of their use cases. Draganfly has moved away from competing directly with lower priced, foreign manufactured drones and has chosen to serve niche markets outside of where they tend to service. Our facility is ideal for custom engineering and niche type production where we keep limited inventory. There are also some organizations that tend to be US based that either prefer or are mandated to not use foreign drones. 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.

In light of the recent COVID-19 pandemic, there could possibly be an impact on sourcing materials that are used to manufacture our products. Additionally, COVID-19 has caused significant disruptions to the global financial markets, which could impact our ability to raise additional capital. The ultimate impact on us and our significant suppliers and manufacturers is unknown, but our operations and financial condition could suffer in the event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows. Currently, our operations remain materially unaffected by the sudden outbreak of COVID-19. Our facilities in Saskatchewan and British Columbia are large enough where employees can maintain safe distances from each other while working. Employees can also work remotely should an employee fall ill. Further, the Company adheres to rules and regulations by their governing jurisdictions to ensure the health of its employees and customers are prioritized.

As Draganfly has evolved to move with the industry trends, the Company now uses DJI drones as part of some of its customization and engineering services work. Draganfly has also moved into innovative engineering procurement which is very specialized and is currently not aware of any Canadian and US companies focusing on this industry or its existing customers. As the drone industry matures, this may bring more players to this space or the Company’s customers may choose to develop the in-house expertise to do the work that they currently outsource to Draganfly. However, it is the Company’s view that there will be a growing customer base that will require very specialized work that only a handful of companies can do.

The global market for commercial applications of drone technology, currently estimated at about $2 billion, is expected to balloon to as much as $127 billion by 2020, according to a report by PricewaterhouseCoopers LLP². Consumer and prosumer drones are ideal for certain aerial filming applications, but enterprises looking to use drones for advanced applications will generally turn to high‑end UAV manufactures with longer flight times, better sensor capabilities and analytic functionalities. The high‑end commercial UAV market, which is defined as drones >$5,000, is one of the fastest-growing markets within the broader UAV space, a space where Draganfly is positioned.

² “Clarity from above,” PwC global report on the commercial applications of drone technology, May 2016

Business Experience

Cameron Chell, CEO and Director – Mr. Chell is the CEO of the Company and CEO and Co-Founder of Business Instincts Group, Inc. Mr. Chell became an entrepreneur at age 14, and has since spent his career growing a diverse collection of high-potential ideas into revolutionary companies that have changed the way we experience the world. At 14, Mr. Cameron launched his first company by building irrigation valves, but as a junior high student, he was consistently turned down by manufacturers and distributors. Undeterred, he bid on irrigation contracts instead, landing deals and building his first business. By 17, Mr. Cameron had launched several other companies including a computer assembly and reseller operation. Later in life, while working as a stockbroker tasked with seeding high-tech companies, building Boards and raising capital, Mr. Cameron realized he could turn his passion for creating companies into a career. He quickly left to quench his thirst for building businesses himself. From October 2007 to present, Mr. Cameron served as the Chief Executive Officer of Business Instincts Group (“BIG”). As the CEO of BIG, Mr. Cameron takes a very hands-on leadership position in client projects, infusing his principles of clarity, alignment and measurement into the culture of every BIG partner. That leadership was critical to the success of UrtheCast, which he co-founded, Cold Bore Technologies (Mr. Cameron served as Co-Founder from February 2013 to Present), Slyce (Mr. Cameron Served as Director from January 2012 to January 2017), Raptor Rig (Mr. Cameron served as Director from February 2015 to Present), Draganfly (Mr. Cameron Served as Director and Chief Executive Officer from May 2013 to Present) and TraxOne Inc (Mr. Cameron served as Director from September 2016 to Present). Most recently, Mr. Cameron has served as an advisor to KodakCoin (Mr. Cameron served as a Director from May 2017 to Present), believed to be one of the first compliant cryptocurrencies developed in partnership between Business Instincts Group, WENN Digital and CurrencyWorks Inc (Mr. Cameron served as Chairman from November 2017 to Present). Mr. Cameron is an Olympic decathlete, a cancer survivor, and the author of Sustainable Startup, a guide for scaling small businesses and their teams. In addition to his work with BIG, Mr. Cameron speaks publicly on topics including technology, culture and overcoming adversity.

Paul Sun, Chief Financial Officer and Corporate Secretary – Mr. Sun has over 20 years of business experience and has held numerous senior roles at investment banks including Scotia Capital, Desjardins, and Beacon Securities. Mr. Sun has provided financial solutions to small start-ups to billion dollar market-cap companies and has been involved in many transactions across the entire capital structure. He has also held project and operations management positions at a number of private and publicly traded companies. He officially joined Draganfly in June, 2015. He was awarded his Bachelor of Applied Science and Engineering from The University of Toronto and his Master of Business Administration from the Schulich School of Business. He holds the Professional Engineer and Certified Financial Analyst designations. Mr. Sun’s business knowledge, experience, and education has provided him with an understanding of financial reporting sufficient to enable him to act as a member of the Audit Committee.

Patrick Imbasciani, Chief Operating Officer – Mr. Imbasciani is a seasoned business professional with over 20 years of experience infusing technology and building enduring relationships in domestic and international markets. In the 1990's and early 2000's, he served his country as Sergeant in the United States Marine Corps. Later, Mr. Imbasciani went on to serve the international community as Director of Health and Education Programs for the United Nations Pan American Health Organization Foundation in Washington DC. From 2014-2018, Mr. Imbasciani served as Senior Director of international Business Development for world renown drone company PrecisionHawk. Prior to joining Draganfly in 2019, Mr. Imbasciani served as the interim COO of an interstate construction company located in the southeastern US. Mr. Imbasciani brings a disciplined leadership and industry experience to Draganfly, and a wealth of proven drone experience, which he cultivated while at PrecisionHawk. While there, Mr. Imbasciani created new distribution channels to deliver UAS to enterprise and end customers in agriculture, insurance, and energy among other industries. Mr. Imbasciani expanded the company into 10 countries outside of the United States, championed and oversaw numerous new proof-of-concepts with enterprise partners including solar inspections and post catastrophe insurance reporting, and personally led emergency response efforts to collect data with drones in Ecuador, the US, and The Bahamas, following a deadly earthquake, mass floods, and Hurricanes. Today, Mr. Imbasciani has developed a sound go to market business, marketing, and operations strategy for Draganfly, and Mr. Imbasciani works tirelessly to deliver the company to profitability and scale.

Olen Aasen, Director – Mr. Aasen is a corporate and securities lawyer with more than 14 years of experience in corporate, securities and regulatory matters. Mr. Aasen has been Executive Vice President & General Counsel at King & Bay West Management Corp. from February 2011 to the present. King & Bay is a merchant bank that provides services to companies in the mineral resource, aviation and technology sectors. Prior to King & Bay, Mr. Aasen was an associate with Blake, Cassels & Graydon LLP from May 2007 to February 2011. Mr. Aasen obtained a J.D. from the University of British Columbia in 2006 and was called to the British Columbia Bar in 2007. Mr. Aasen was also appointed to the 2016 Legal 500 GC Powerlist for Canada.

Scott Larson, Director and Lead Independent Director – Mr. Larson brings over 20 years of combined corporate finance, technology development and entrepreneurial experience to the Board. From January 2019 to March 2020, Mr. Larson was the CEO of Kater Technologies, a Vancouver-based mobility as a service (MaaS) company building out an integrated intermodal transportation platform incorporating public transportation, buses, taxis and ride hailing vehicles into a single service. Prior to that, from 2016 to 2019, Mr. Larson was CEO and co-founder of Helios Wire, a satellite company building out a space-enabled IoT/M2M network. In 2019, Helios Wire was sold to a strategic acquirer. From 2010 to 2015, Mr. Larson was also the CEO/Co-Founder of UrtheCast. Mr. Larson helped scale the company from its inception, taking it public on the Toronto Stock Exchange, raising $200 million, and leading the company to 250 employees over five years with seven offices around the world.

Denis Silva, Director – Mr. Silva is a corporate and securities partner with 12 years of experience in corporate, securities, mining and regulatory legal experience (since 2009) and has acted for a wide variety of companies listed on Canadian and US exchanges, with a focus on technology and mining. Mr. Silva holds a BA from the University of British Columbia, MPA from Queen’s University and LLB from University of Windsor.

Andrew Hill Card, Jr., Director – Andrew H. Card, Jr. was named Interim CEO of the George & Barbara Bush Foundation in June 2020. He continues to serve as Chairman of the National Endowment for Democracy (NED), a non-profit organization dedicated to the growth and strengthening of democratic institutions around the world, a position he assumed in January 2018. Mr. Card has also held numerous positions at senior levels of government under three Presidents throughout the years, including Chief of Staff to President George W. Bush, where Mr. Card became the second longest tenured White House Chief of Staff. Mr. Card served as Deputy Chief of Staff to President George H.W. Bush, as well as U.S. Secretary of Transportation, and served President Ronald Reagan as a Deputy Assistant to the President for Intergovernmental Affairs.

Mr. Card served as President of Franklin Pierce University in New Hampshire from January 2015 through July 2016. Prior to this, Mr. Card served as Executive Director of the Office of the Provost and Vice President for Academic Affairs at Texas A&M University from August 2013 until December 2014. He served as Acting Dean of The Bush School of Government and Public Service at Texas A&M from July 2011, until Dean Ryan Crocker's return from service as the U.S. Ambassador to Afghanistan on August 1, 2013.

Mr. Card serves on the Board of Directors of public corporation Union Pacific, on the Board of Directors of the Edward M. Kennedy Institute for the United States Senate, on the Board of Directors of Draganfly, on the Business Advisory Board of BrainStorm Cell Therapeutics, and on the non-publicly traded Board for Energy Security Partners, and on a number of non-profit boards. Mr. Card previously served on the Advisory Board of the U.S. Chamber of Commerce. He is also a professional speaker represented by the Washington Speakers Bureau.

While Chief of Staff to President George W. Bush, Mr. Card coordinated the priorities of the Administration’s agenda, the development of policies, and appointments of Cabinet Secretaries and senior officials throughout the government. On September 11, 2001, Mr. Card is the one who whispered in President Bush’s ear while the President was sitting in a classroom in Florida, that terrorists had attacked the United States. Mr. Card then led a government-wide reorganization to best allocate resources to deal with the aftermath of 9-11 and the new terrorist environment.

Prior to his tenure as White House Chief of Staff, Mr. Card managed and ran the Republican National Convention in Philadelphia at the request of nominee Texas Governor George W. Bush. Before that, Mr. Card was Vice President-Government Relations for General Motors Corporation, one of the world’s largest automobile manufacturers. In this role Mr. Card directed the company’s international, national, state and local government affairs activities and represented GM on matters of public policy before the U.S. Congress and the Administration. From 1993 to 1998, Mr. Card was President and Chief Executive Officer of the American Automobile Manufacturers Association, the trade association whose members were Chrysler Corporation, Ford Motor Company, and General Motors Corporation. When Chrysler became part of Daimler Corporation, Mr. Card oversaw the dissolution of the nearly 100 year old trade association.

In August 1992, at the request of President Bush, Secretary Mr. Card coordinated the Administration’s disaster relief efforts in the wake of the massive Hurricane Andrew. He also directed President Bush’s transition office during the transition from the Bush Administration to the Clinton Administration. Prior to that he served as Special Assistant (1983 to 1987) and later as Deputy Assistant to the President and Director of Intergovernmental Affairs for President Ronald Reagan (1988) where he was liaison to governors, statewide elected officials, state legislators, mayors and other elected officials. From March 1987 until March 1988, Mr. Card ran the successful New Hampshire Presidential Primary Campaign for George H. W. Bush.

He is a graduate of the University of South Carolina with a B.S. in Engineering. He also attended the U.S. Merchant Marine Academy and the John F. Kennedy School of Government at Harvard University. Mr. Card served in the U.S. Navy from 1965 to 1967. Mr. Card has been the recipient of many honorary degrees and awards.

Mr. Card is a native of Holbrook, Massachusetts and got his start in politics as an elected official in Holbrook and then as Member of the Massachusetts House of Representatives from 1975-1983. He served as a Minority Whip from 1977-1983. In 1982 he was named Legislator of the Year by the National Republican Legislators Association and received the Distinguished Legislator Award from the Massachusetts Municipal Association. He was a candidate for the Republican Nomination for Governor of Massachusetts in 1982. He and his wife, The Reverend Kathleene (Bryan) Card, also from Holbrook, Massachusetts, have three children and six grandchildren.

Justin Hannewyk, Director – Mr. Hannewyk, President of Dronelogicsis, is the co-founder of Dronelogics Systems and has been consulting with enterprise clients on the integration of drones for over a decade. Working closely with international companies in industries such as mining, forestry, energy and entertainment as well as advising governmental bodies, Mr. Hannewyk oversees the design and delivery of systems to meet client's needs. A progressive and forward-thinker, Mr. Hannewyk draws from industry insight to recognize customer requirements and pinpoint areas where technology can be leveraged to make better business decisions.

John M. Mitnick, Director – Mr. Mitnick is an American attorney with 32 years of experience serving at the highest levels of government and the private sector. From February 2018 until September 2019, he served as the General Counsel of the U.S. Department of Homeland Security (DHS), having been confirmed for that position unanimously by the U.S. Senate. In that capacity, Mr. Mitnick served as the chief legal officer of a federal security and law enforcement agency with over 240,000 employees, was responsible for providing legal advice and counsel to DHS and all of its components, and supervised over 2,500 attorneys. From March 2014 to February 2018, he served as Senior Vice President, General Counsel, and Secretary of The Heritage Foundation, an influential think tank, and from November 2007 to April 2013 he served as Vice President, General Counsel, and Secretary of a Raytheon division with over $3 billion in annual sales, over 9,000 employees, and business operations in over 40 countries and on all continents.

Mr. Mitnick’s recent tenure at DHS was a continuation of his homeland security public service. Beginning in November 2002, he assisted in establishing DHS and then served as Associate General Counsel for Science and Technology until August 2004, when he moved to the White House. He served in the White House Counsel’s Office as Deputy Counsel of the Homeland Security Council from August 2004 until April 2005, and then as Associate Counsel to the President, with responsibility for the entire homeland security portfolio, until October 2007. He began his legal career in 1988 at the law firm now known as Kilpatrick Townsend & Stockton LLP, where he was a partner specializing in mergers and acquisitions, strategic alliances, commercial contracts, and business start-ups.

Mr. Mitnick has also served on the Board of Directors of Valaurum, Inc., a private mint, from March 2016 to February 2018 and since October 2019. He received his Juris Doctor degree from the University of Virginia School of Law and a Bachelor of Arts degree in Jurisprudence from the University of Oxford. He also holds a Bachelor of Arts degree in History and Political Science (summa cum laude) from Emory University.

Corporate Cease Trade Orders or Bankruptcies

Other than as disclosed herein, none of the proposed directors (or any of their personal holding companies) of the Company:

None of the proposed directors (or any of their personal holding companies) has been subject to: (a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director.

Penalties or Sanctions

Other than as provided herein, no Director or executive officer of the Company or shareholder holding sufficient securities of the Company to affect materially the control of the Company has been:

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

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

Conflicts of Interest

The directors of the Company are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interests, which they may have in any project or opportunity of the Company. If a conflict of interest arises at a meeting of the Board, any director in a conflict will disclose his interest and abstain from voting on such matter.

To the best of the Company’s knowledge, and other than as disclosed herein, there are no known existing or potential conflicts of interest among the Company, its promoters, directors and officers or other members of management of the Company or of any proposed promoter, director, officer or other member of management as a result of their outside business interests except that certain of the directors and officers serve as directors and officers of other companies, and therefore it is possible that a conflict may arise between their duties to the Company and their duties as a director or officer of such other companies.

Advance Notice Provisions

We have included certain advance notice provisions with respect to the election of our directors in our Articles (the “Advance Notice Provisions”). The Advance Notice Provisions are intended to: (i) facilitate orderly and efficient annual general meetings or, where the need arises, special meetings; (ii) ensure that all Shareholders receive adequate notice of Board nominations and sufficient information with respect to all nominees; and (iii) allow Shareholders to register an informed vote. Only persons who are nominated by Shareholders in accordance with the Advance Notice Provisions will be eligible for election as directors at any annual meeting of Shareholders, or at any special meeting of Shareholders if one of the purposes for which the special meeting was called was the election of directors.

Under the Advance Notice Provisions, a Shareholder wishing to nominate a director would be required to provide us notice, in the prescribed form, within the prescribed time periods. These time periods include, (i) in the case of an annual meeting of Shareholders (including annual and special meetings), not less than 30 nor more than 65 days prior to the date of the annual meeting of Shareholders; provided, that if the first public announcement of the date of the annual meeting of Shareholders (the “Notice Date”) is less than 50 days before the meeting date, notice must be given not later than the close of business on the 10^th day following the Notice Date; and (ii) in the case of a special meeting (which is not also an annual meeting) of Shareholders called for the purpose of electing directors (whether or not called for other purposes), not later than the close of business on the 15^th day following the Notice Date, provided that, in either instance, if notice and access (as defined in National Instrument 54-101— Communication with Beneficial Owners of Securities of a Reporting Issuer) is used for delivery of proxy related materials in respect of a meeting described above, and the Notice Date in respect of the meeting is not less than 50 days prior to the date of the applicable meeting, the notice must be received not later than the close of business on the 40th day before the applicable meeting.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Statement of Executive Compensation

For the purposes of this Offering Circular, a “Named Executive Officer”, or “NEO”, means each of the following individuals:

Based on the foregoing definitions, the Company has 3 Named Executive Officers: Cameron Chell, the Company’s CEO, Paul Sun, the Company’s CFO, and Patrick Imbasciani – Chief Operating Officer (the (“COO”). The summary compensation table below provides information for the two most recently completed financial years ended December 31, 2019 regarding compensation paid to or earned by each of the Named Executive Officers.

Stock Options and Other Compensation Securities

The following table sets out all compensation securities granted or issued to all Named Executive Officers and directors by the Company or any of its subsidiaries during the fiscal year ended December 31, 2019 for services provided or to be provided, directly or indirectly, to the Company or any of its subsidiaries:

Notes: 

Exercise of Compensation Securities by Directors and Named Executive Officers

No compensation securities were exercised by the Company’s Named Executive Officers and directors during the fiscal year ended December 31, 2019.

Director Compensation

Effective June 18, 2020, we have seven (7) directors. We currently do not pay our directors any cash compensation for their services as board members.

During the financial year ended December 31, 2019, none of the directors of the Company were paid, awarded or granted any compensation with respect to activities performed in their capacity as directors except as noted above, see “Statement of Executive Compensation – Director and Named Executive Officer Compensation, Excluding Compensation Securities”. Directors are eligible to participate in the Share Compensation Plan. Directors are also entitled to be reimbursed for expenses incurred by them in their capacity as directors.

Employment, Consulting, and Management Agreements

Except as disclosed herein, there were no agreements or arrangements under which compensation was provided during the most recently completed financial year or is payable in respect of services provided to the Company or any of its subsidiaries that were: (a) performed by a director or named executive officer; or (b) performed by any other party but are services typically provided by a director or a named executive officer.

The Company’s consulting agreement (the “Chell Consulting Agreement”) with 1502372 Alberta Ltd. (the “Consultant”) whereby the Company pays monthly fees of $10,000 ($3,000 from October 1, 2019-December 31, 2019) for the provision by of executive services by the Consultant to the Company, and in this regard, has Cameron Chell hold the position of Chairman and Chief Executive Officer contains the following provisions: (a) where termination notice is given by the Company, other than for certain specified reasons as set out in the Chell Consulting Agreement, the Company shall give the Consultant at least 60 days’ advance notice in writing; and (b) where termination is given by the Consultant, the Consultant shall give the Company 60 days’ advance notice in writing. If the Chell Consulting Agreement is terminated pursuant to either (a) or (b) above, then the Consultant will be entitled to the fees earned to the effective date of termination and any expenses incurred on behalf of the Company prior to the effective date of termination which are otherwise reimbursable by the Company pursuant to the terms of the Chell Consulting Agreement. The Consultant is a private company controlled by Cameron Chell, Chairman, Chief Executive Officer and Director of the Company.

Mr. Imbasciani has entered into an executive employment agreement (the “Imbasciani Employment Agreement”) with the Company, dated October 21, 2019. Pursuant to the Imbasciani Employment Agreement, Mr. Imbasciani has agreed to perform certain services as Chief Operating Officer of the Company. The Imbasciani Employment Agreement provides that Mr. Imbasciani shall receive an annual base salary of USD $118,800. Mr. Imbasciani is eligible for annual commissions and cash bonuses based on the achievement by the Company of certain objectives in its business plan and on sales revenue generated by Mr. Imbasciani. The executive employment agreement also grants Mr. Imbasciani an issuance of 500,000 options in the Company option pool, with vesting criteria in line with Company policy. It further provides Mr. Imbasciani with certain standard employment benefits, such as health insurance, paid vacation and business expense reimbursement. The executive employment agreement is at will and may be terminated by Mr. Imbasciani or the Company at any time for any reason with or without cause.

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

The following table shows the beneficial ownership of our Common Shares as of the date of this Offering Circular held by (i) each person known to us to be the beneficial owner of more than 10% of any class of our shares; and (ii) all directors and executive officers as a group. As of the date of this Offering Circular, there were 77,506,051 shares of our common shares issued and outstanding.

Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Shares subject to options and warrants currently exercisable or which may become exercisable within 60 days of the date of this Offering Circular, are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of Common Shares shown as beneficially owned by them.

The percentages below are based on fully diluted shares of our common shares as of the date of this Offering Circular. Unless otherwise indicated, the business address of each person listed is c/o Draganfly Inc., 2108 St. George Avenue, Saskatoon, SK, S7M 0K7.

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

Transactions with Related Persons

Except as described below and except for employment arrangements which are described under “executive compensation,” since the last complete fiscal year, there has not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser of $120,000 or 1% of the total assets at year end for the last completed fiscal year, and any of our directors, executive officers, holders of more than 5% of our common shares or any immediate family member of any of the foregoing had or will have a direct or indirect material interest.

We have also entered into indemnification agreements with each of our directors and executive officers. In general, these indemnification agreements require the Company to indemnify a director to the fullest extent permitted by law against liabilities that may arise by reason of his or her service for the Company.

Review, Approval and Ratification of Related Party Transactions

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our Directors will continue to approve any related party transaction.

On July 17, 2015, the Company issued a note payable for $600,000 CDN with the former owner of the Company in connection with the sale of all of Draganfly Innovation Inc.’s issued and outstanding shares. The note payable bears interest at 5% per annum, was due on December 1, 2015 and is secured against the intellectual property as at the effective date. During the year ended December 31, 2019, the Company repaid the balance owing of $378,770 CDN (2018 - $nil). As at December 31, 2019, $nil (2018 - $364,655 CDN) in notes payable plus accrued interest is outstanding. For the year ended December 31, 2019, the Company recognized interest expense of $15,153 CDN (2018 - $17,748).

On December 17, 2015, Business Instincts Group, Inc. ("BIG"), a company controlled by Mr. Chell, loaned $160,000 CDN evidenced by a promissory note executed by Trace Live Networks Inc. (“Trace”), a company founded, in part, by Cameron Chell in 2014. In July 2015, Trace acquired Draganfly Innovations Inc. At the beginning of 2017, Trace and Draganfly Innovations Inc. vertically amalgamated with the resulting company being named Draganfly Innovations Inc. During the year ended December 31, 2017, the balance outstanding of $160,000 CDN in favor of BIG was applied against a subscription receivable from BIG. This subscription receivable was settled in the year ended December 31, 2019.

During the year ended December 31, 2018, the Company entered into a series of ten (10) promissory notes totaling $273,500 CDN with Business Instincts Group, Inc., a company controlled by Mr. Chell. The promissory notes are interest bearing at 12% per annum, unsecured and due within 60 days from the date of advance and have been repaid in full.

Indebtedness of Directors and Executive Officers

At any time during the Company’s last completed financial year, no director, executive officer, employee, proposed management nominee for election as a director of the Company nor any associate of any such director, executive officer, or proposed management nominee of the Company or any former director, executive officer or employee of the Company or any of its subsidiaries is or has been indebted to the Company or any of its subsidiaries or is or has been indebted to another entity where such indebtedness is or has been the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries, other than routine indebtedness.

Interest of Informed Persons In Material Transactions

Other than as set forth herein and other than transactions carried out in the ordinary course of business of the Company or any of its subsidiaries, none of the directors or executive officers of the Company, a director or executive officer of a person or company that is itself an informed person or subsidiary of the Company, nor any shareholder beneficially owning, directly or indirectly, common shares of the Company, or exercising control or direction over common shares of the Company, or a combination of both, carrying more than 10% of the voting rights attached to the outstanding shares of the Company nor an associate or affiliate of any of the foregoing persons has since the commencement of the Company’s most recently completed financial year any material interest, direct or indirect, in any transactions which materially affected or would materially affect the Company or any of its subsidiaries.

The Company has entered into a Business Services Agreement with Business Instincts Group, Inc., a company controlled by Mr. Chell, providing the Company with corporate development, human resources, administrative and business services on a fee for services basis as set out in the agreement. This agreement may be terminated by either party upon provision of a 90 days’ written notice.

SECURITIES BEING OFFERED

The following is a summary of the rights of our capital shares as provided in our Articles and Notice of Articles. For more detailed information, please see our Articles and Notice of Articles which have been filed as exhibits to the Offering Statement of which this Offering Circular is a part.

General

The Company’s Notice of Articles provide that our authorized capital consists of an unlimited number of Common Shares, without par value, which do not have any special rights or restrictions.

As of the date of this Offering Circular, the Company has 77,506,051 Common Shares issued and outstanding.

Rights, Preferences and Restrictions Attaching to Our Common Shares

The BCBCA provides the following rights, privileges, restrictions and conditions attaching to our Common Shares:

The provisions in our Articles attaching to our Common Shares may be altered, amended, repealed, suspended or changed by affirmative vote of the holders of not less than two-thirds of the outstanding Common Shares.

With the exception of special resolutions (i.e. resolutions in respect of fundamental changes to our company, including: the sale of all or substantially all of our assets, a merger or other arrangement or an alteration to our authorized capital that is not allowed by resolution of the directors) that require the approval of holders of two-thirds of the outstanding Common Shares entitled to vote at a meeting, either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.

Shareholder Meetings

The BCBCA provides that: (i) a general meetings of shareholders must be held in British Columbia, or may be held at a location outside British Columbia since our Articles do not restrict our company from approving a location outside of British Columbia for the holding of the general meeting and the location for the meeting is approved by ordinary resolution, or the location for the meeting is approved in writing by the British Columbia Registrar of Companies before the meeting is held; (ii) directors must call an annual meeting of shareholders not later than 18 months after the date of incorporation and no later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the record date for that determination, provided that such date shall not precede by more than two months or by less than 21 days, if we are a public company, otherwise 10 days, the date on which the meeting is to be held; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; (v) only shareholders entitled to vote at the meeting, our directors and our auditor are entitled to be present at a meeting of shareholders; and (vi) upon the application of a director or shareholder entitled to vote at the meeting, the British Columbia Supreme Court may order a meeting to be called, held and conducted in a manner that the Court directs.

Pursuant to our Articles, the quorum for the transaction of business at a meeting of our shareholders is at least two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least five percent of the issued shares entitled to be voted at the meeting.

Fully Paid and Non-assessable

All outstanding shares of Common Shares are, and the Common Shares to be outstanding upon completion of this Offering will be, duly authorized, validly issued, fully paid and non-assessable.

Share Compensation Plan

Compensation of Directors and Executive Officers

Each of the executive officers and directors listed above is eligible to receive equity compensation at the discretion of our Board. In October 2019, the Company granted options to purchase 2,000,000 shares of Common Shares at $0.50 per share with one third (1/3) of the options vesting on the first, one third (1/3) of the options vesting on the second, and one third (1/3) of the options vesting on the third anniversary of the date of grant. In October 2019, the Company granted 2,000,000 RSUs, deliverable as to one third (1/3) on October 30, 2020, one third (1/3) deliverable on October 30, 2021, and one third (1/3) deliverable on October 30, 2022. Mr. Hannewyk was appointed to the Board effective April 30, 2020 and was granted 250,000 stock options at an exercise price of $0.50 expiring on April 30, 2030 and 250,000 RSUs at a deemed price of $0.50 expiring on April 30, 2023.

Upon completion of this Offering, our executive officers and directors will be eligible to receive equity awards under our equity incentive plans at any time at the discretion of our Board of Directors.

Share Compensation Plan and Other Incentive Plans

The Board has previously adopted the Company’s share compensation plan (the “Share Compensation Plan”), prepared in accordance with the policies of the Canadian Securities Exchange, that provides for the granting of RSUs and Options on such terms and conditions as prescribed by the Share Compensation Plan. The Share Compensation Plan is a “rolling” plan, pursuant to which the maximum number of common shares issuable under the Share Compensation Plan and any other share compensation arrangement of the Company including the RSUs that may be awarded under the Share Compensation Plan, is 20% of the common shares of the Company then issued and outstanding. The Share Compensation Plan was adopted effective August 19, 2019.

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

Purpose of the Share Compensation Plan

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

Eligible Persons

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

Administration of the Share Compensation Plan

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

Restrictions on the Award of RSUs and Grant of Options

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

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

Restricted Share Units

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

Mechanics for RSUs

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

Vesting Provisions

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

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

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

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

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

Options

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

Mechanics for Options

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

Vesting Provisions

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

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

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

Other Terms

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

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

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

Transferability

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

Reorganization and Change of Control Adjustments

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

Amendment Provisions in the Share Compensation Plan

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

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

Oversight and Description of Named Executive Officer and Director Compensation

The Board is responsible for the oversight of the Company’s strategy, policies and programs on the compensation and development of senior management and directors.

The Company’s executive compensation program is intended to provide an appropriate overall compensation package that permits the Company to attract and retain highly qualified and experienced senior executives and to encourage superior performance by the Company. The Company’s compensation policies are intended to motivate individuals to achieve and to award compensation based on corporate and individual results. The compensation of the Company’s executive officers is established based on a relatively equal weighing of each of these considerations.

Compensation for the Company’s executive officers is intended to reflect a fair evaluation of overall performance and is intended to be competitive in aggregate with levels of compensation of comparable companies. The Company’s compensation structure is primarily composed of two components: base salary and options and RSUs to purchase common shares. The Company generally strives to use long term incentives, such as the grant of stock options, as performance incentives for executive management and to provide the opportunity for overall compensation of employees, including executives, to be above industry average levels as well as to increase the alignment of interests between employees, executive management and shareholders. Executive officers and directors are eligible to be granted stock options and RSUs under the Share Compensation Plan, and previous grants of options and / or RSUs are taken into consideration when considering new grants. The Share Compensation Plan is intended to provide long term rewards linked directly to the market value of the common shares. The Company is of the view that the Share Compensation Plan is in the best interests of the Company and will assist the Company to attract, motivate and retain talented and capable board members and executive management.

The Share Compensation Plan also allows the Company to grant from time to time RSUs to non-employee directors, employees and/or consultants of the Company or its designated affiliates on such terms and conditions as prescribed by the Share Compensation Plan. As of the date of this Offering Circular, there are 3,550,000 RSUs awarded under the Company’s share compensation plan to directors, officers, employees and consultants of the Company. Each RSU represents a right to receive one common share of the Company, following the vesting of such restricted share units over a three year period. The RSUs are exercisable for three (3) years. As of the date of this Offering Circular, there are 4,770,000 stock options outstanding under the Company’s Share Compensation Plan.

The following table provides information regarding compensation plans under which equity securities of the Company are authorized for issuance in effect as of the end of the Company’s most recently completed financial year:

Note:

(1) Includes RSUs and Options granted pursuant to the Plan. See above “Share Compensation Plan and Other Incentive Plans”.

The Company does not have a pension plan benefit program nor a non-equity incentive plan in place. Therefore, there were no payments or benefits in connection with a defined benefit or a defined contribution plan and no annual incentive plan or long term incentive plan awards offered to the Named Executive Officers (as defined below) during the Company’s most recently completed financial year.

Given the current stage of development and the limited elements of executive compensation, the Board believes it has effective risk management and regulatory compliance relating to its compensation policies used in determining executive compensation. Risks related to compensation are taken into consideration as part of the general review and determination of executive compensation by the Board. Inappropriate and excessive risks by executives are mitigated by regular Board meetings during which financial and other information of the Company is reviewed, and which information includes executive compensation. Interested directors declare their interest and abstain from voting on compensation matters. No risks have been identified arising from the Company’s compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.

The Company does not permit its Named Executive Officers or directors to purchase financial instruments, including, for greater certainty, prepaid variable forward contracts, equity swaps, collars or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the Named Executive or director.

Penny Stock Regulation

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As our Common Shares immediately following this Offering may be subject to such penny stock rules, purchasers in this Offering will in all likelihood find it more difficult to sell their Common Shares in the secondary market.

Public Market

The Company is an alternative reporting company under Regulation A+, Tier 2 of the Securities Act. The Company’s Common Shares are listed on the Canadian Securities Exchange under the symbol “DFLY” and the OTCQB Venture Market of the OTC Markets under the symbol “DFLYF”.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a Regulation A+ Offering Statement on Form 1-A under the Securities Act with respect to the Units offered hereby. This Offering Circular, which constitutes a part of the Offering Statement, does not contain all of the information set forth in the Offering Statement or the exhibits and schedules filed therewith. For further information about us and the Units offered hereby, we refer you to the Offering Statement and the exhibits and schedules filed therewith. Statements contained in this Offering Circular regarding the contents of any contract or other document that is filed as an exhibit to the Offering Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Offering Statement. We are required to file periodic reports and other information with the SEC pursuant to the Regulation A, Tier 2 rules and regulation under the Securities Act. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, including us, that file electronically with the SEC. The address of this site is www.sec.gov.

PART F/S

Draganfly Inc. (formerly Drone Acquisition Corp.)

Consolidated Financial Statements

Years Ended December 31, 2019 and 2018

(Expressed in Canadian Dollars)

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Draganfly Inc. (formerly Drone Acquisition Corp.)

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Draganfly Inc. (formerly Drone Acquisition Corp.) (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 

 Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and the consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter Regarding Going Concern 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred losses and negative cash flows from operations from inception that has primarily been funded through financing activities and has stated that substantial doubt exists about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. 

/s/ DMCL

DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
 Vancouver, BC

June 10, 2020

Nature of continuance and operations (Note 1)

Contingency (Note 18)

Subsequent events (Notes 13 and 24)

Approved and authorized for issuance by the Board of Directors on June 10, 2020.

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