Exhibit 4.5


 


 


 


Management
Discussion and Analysis


For
The Three Months Ended March 31, 2021


 






     


     


    

 


	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021




 


Special Note Regarding Forward Looking Information


 


This Management
Discussion & Analysis (“MD&A”) is intended to provide readers with the information that management believes is required
to gain an understanding of the current results of Draganfly Inc. (the "Company" or “Draganfly") and to assess the
Company’s future prospects. Accordingly, certain sections of this report contain forward-looking statements that are based on current
plans and expectations. These forward-looking statements are affected by risks and uncertainties that are discussed in this document and
that could have a material impact on future prospects. Readers are cautioned that actual events and results will vary.


 


In this MD&A
we describe certain income and expense items that are unusual or non-recurring. There are terms not defined by International Financial
Reporting Standards (IFRS). Our usage of these terms may vary from the usage adopted by other companies. Specifically, Gross profit,
Gross margin and Cash flow from operations are undefined terms by IFRS. We provide this detail so that readers have a better
understanding of the significant events and transactions that have had an impact on our results.


 


Certain statements
in the MD&A, other than statements of historical fact, may include forward-looking information that involves various risks and uncertainties.
These include, without limitation, the Company’s current and planned operations in the technology sector and the expected results
of new operations and new clients. These statements are based on current expectations involving a number of risks and uncertainties related
to all aspects of the technology sector. These risks and uncertainties include, but are not restricted to, continued increased demand
for the Company’s products, the Company’s ability to maintain its technological and competitive advantages, the Company’s
ability to attract and retain key employees, the ability of the Company to take advantage of its intellectual property, the Company’s
ability to raise capital on acceptable terms when needed and the availability of key suppliers and contractors. These uncertainties may
cause actual results to differ from information contained herein. There can be no assurance that such statements will prove to be accurate.
Actual results and future events could differ materially from those anticipated in such statements. These forward-looking statements are
based on the estimates and opinions of Management on the dates they are made and are expressly qualified in their entirety by this notice.
The reader is cautioned not to rely on these forward-looking statements. The Company assumes no obligation to update forward-looking statements
should circumstances or Management’s estimates or opinions change except as required by securities laws.


 


The following MD&A is presented and dated
as of May 26, 2021 and should be read in conjunction with the unaudited consolidated financial statements and related notes for the three
months ended March 31, 2021 and the annual consolidated financial statements an related notes for the year ended December 31, 2020. The
Company's audited consolidated financial statements have been prepared on the "going concern" basis, which presumes that the
Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.


 


The operations of the Company have been primarily
funded through internally generated cashflow and private placements of equity and convertible debentures. The continued operations of
the Company are dependent on the Company's ability to generate profitable operations in the future, develop and execute a sufficient financing
plan for future operations and receive continued financial support from shareholders and other providers of finance.


 


The consolidated financial statements do not reflect
the adjustments, if any, or changes in presentation that may be necessary should the Company not be able to continue on a going concern
basis.


 


All currency amounts in the accompanying financial
statements and this management discussion and analysis are in Canadian dollars unless otherwise noted.


 


The recent outbreak of the coronavirus, also known
as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus
continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. These measures,
which include the implementation of travel bans, self-imposed quarantine periods, and social distancing, have caused material disruption
to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments
and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.


 






    2


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


There are significant uncertainties with respect
to future developments and impact to the Company related to the COVID-19 pandemic, including the duration, severity, and scope of the
outbreak and the measures taken by governments and businesses to contain the pandemic. While the impact of COVID-19 is expected to be
temporary, the current circumstances are dynamic and the impacts of COVID-19 on our business operations cannot be reasonably estimated
at this time. At the date of this MD&A, the outbreak and the related mitigation measures have had the following impacts on the Company’s
operations, among others: temporary closure of business locations, supply chain issues, and decrease in sales. The extent to which these
events may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of
the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada
and other countries to contain and treat the disease. With COVID-19 being an ongoing issue, the Company has prepared its employees at
its Saskatchewan and British Columbia facilities to be ‎able to work from home. The Company also applied to the various federal
government relief ‎initiatives. Although the Company’s major custom engineering customer temporarily closed that part of its
business, the Company believes it will start up again. Further, the Company has entered into a distribution agreement to be the ‎exclusive
provider of one of their products which has helped offset custom engineering work from that customer. Aside from the acquisition of Dronelogics
and being opportunistic ‎on other partnerships or acquisitions, the Company expanded its products/services offered to include ‎health/telehealth
applications relating to COVID-19, as a way to deal with the impacts of COVID-19. However, these ongoing events are highly uncertain and
as such, the Company cannot determine the ultimate financial impacts at this time. Any deterioration in the current situation could have
an adverse impact on our business, results of operations, financial position, and cash flows in 2021.


 


Non-GAAP Measures and Additional GAAP Measures


 


Throughout
this document, reference is made to “gross margin” and “working capital”, which are non-IFRS measures. Management
believes that gross margin, defined as revenue less operating expenses, is a useful supplemental measure of operations. Management believes
that working capital, defined as current assets less current liabilities, is an indicator of the Corporation’s liquidity and its
ability to meet its current obligations. Readers are cautioned that these non-IFRS measures may not be comparable to similar measures
used by other companies. Readers are also cautioned not to view these non-IFRS financial measures as an alternative to financial measures
calculated in accordance with International Financial Reporting Standards (“IFRS”).


 


Core Business and Strategy


 


Draganfly
creates quality, cutting-edge unmanned and remote data collection and analysis platforms and systems that are designed to revolutionize
the way companies do business. The Company is incorporated under the British Columbia Business Corporations Act and has its registered
office located at 2800 – 666 Burrard Street, Vancouver, BC, V6C 2Z75 with a head office at 2108 St. George Avenue, Saskatoon, SK,
S7M 0K7.


 


Recognized
as being at the forefront of technology for two decades, Draganfly is an award-winning, industry-leading manufacturer, contract engineering,
and product development company within the commercial UAV (unmanned aerial vehicles) space serving the public safety, agriculture, industrial
inspections, and mapping and surveying markets. More recently, the Company’s offering expanded to include the health/telehealth
field providing illness detection, social monitoring solutions, and sanitary spraying services relating to the ongoing COVID-19 pandemic.
Draganfly is a company driven by passion, ingenuity, and the need to provide efficient solutions and first-class services to its customers
around the world with the goal of saving time, money, and lives. 


 


Founded in 1998, Draganfly is recognized as the
first commercial multi-rotor manufacturer and has a legacy for its innovation and superior customer service. The company has sold products
and services to over 50 countries.


 


Draganfly 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,
software used for tracking, live streaming, and data collection. The 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. Draganfly’s standard features combined with
custom fit camera payloads ranging from multi-spectral, hyper-spectral, LIDAR, thermal, and infrared allows Draganfly to offer a truly
unique solution to clients.


 






    3


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


With 18 fundamental UAV patents in the portfolio,
Draganfly will continue to expand and grow their intellectual property portfolio.


 


In addition, Draganfly has launched a health/telehealth
platform. The initial focus is a COVID-19 screening set of technologies that remotely detect a number of key underlying respiratory symptoms,
whereas the same technology stack enables true remote telehealth features. Further, it is offering sanitary spraying services to any indoor
or outdoor public gathering space such as sports auditoriums and fields to provide an additional level of protection against the spread
of contagious viruses such as COVID-19.


 


Historically, the main business of the Company
was to operate as a manufacturing company offering commercial UAVs directly to its customer base across various industry verticals. The
Company has evolved to offer engineering procurement for certain customers in a vertical that is not currently served, such as military
applications. 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.


 


Draganfly works with its customers to customize
a product or platform from idea research and development (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.


 


With its recent acquisition of Dronelogics, the
Company has further broadened its scope to provide non-OEM products along with services that it did not typically offer before.


 


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. On
January 31, 2019, the Company and PrivCo entered into a Business Combination Agreement (the “BCA”) providing for a three-cornered
amalgamation (the “Amalgamation”) among the Company, PrivCo, and a wholly-owned subsidiary of the Company (the “Subco”).
As of August 15, 2019, the Amalgamation closed and the Company acquired all of the issued and outstanding common shares of the PrivCo
(the “PrivCo Shares”). It was a condition of closing that the Company complete a private placement of 10,000,000 units (a
 “Unit”) at a price of $0.50 per Unit, with each Unit consisting of one common share and one common share purchase warrant
(a “Warrant”). Each Warrant will be exercisable into one common share of the resulting issuer at a price of $0.50 for 12 months.
The Company completed a private placement of 14,051,499 units raising $7,025,749.50. It is a post-closing covenant of the BCA that the
resulting issuer from the Amalgamation obtains a listing for its common shares (the “Listing”) on the Canadian Securities
Exchange (the “CSE”). The Company has changed its name from Drone Acquisition Corp. to Draganfly Inc. and is the parent company
of the wholly owned subsidiary, Draganfly Innovations Inc., which is the amalgamated company with Subco.


 


Under the Amalgamation, PrivCo Shares were exchanged
for ordinary shares of the Company (“Company Shares”) on the basis of 1.794 Company Shares for each PrivCo Share held resulting
in 42,638,356 PrivCo Shares to be issued. Upon completion of the Amalgamation, holders of PrivCo warrants (“PrivCo Warrants”)
will be entitled to receive Company Shares in lieu of shares otherwise issuable prior to the effective date of the Amalgamation (the “Effective
Date”), adjusted in accordance with the terms of the various agreements and certificates representing the said warrants.


 


Following the Amalgamation and pursuant to completion
of certain conditions precedent, including receipt of all necessary director, shareholder, regulatory and Canadian Stock Exchange (CSE)
approvals, the Company was listed on the CSE on November 5, 2019. The Company incurred significant listing expenses to complete the process
but is well positioned to execute on its business plan.


 


On March 9, 2021, the Company announced
that it completed the final closing of its Regulation A+ Offering of units sold pursuant to the Company’s Regulation A+
offering circular (the “Offering Document”) filed with the U.S. Securities and Exchange Commission. The Company issued
25,771,465 units at the offering price set out in the Offering Document for gross proceeds in the ‎amount of $15,504,135
(US$12,112,606) in the final closing. Each unit is comprised of one common share of the Company ‎‎and one common share
purchase warrant, with each warrant entitling the ‎holder to acquire one common share at a price of US$0.71 per common share
for period of two years from the date of issuance. ‎The common shares and warrants issued in connection with the offering are
subject to a nine month ‎hold period.‎ In total, the Company issued 35,000,000 units under its Offering Document for
aggregate gross proceeds of US$16,450,000.


 






    4


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


The Company has recently announced its intention
to file for an up listing to the NASDAQ exchange. The rational is that companies listed on the NASDAQ have to follow stringent reporting
requirements and as a result, provide greater access to investors, especially in the United States.


 


Additional information relating to the Company
may be found at the Company’s website, www.draganfly.com.


 


2021 Q1 Highlights


 


		·	2021 Q1 Total Revenues of $1,539,736 with
Product Sales of $1,129,307



 


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 an opportunity to address this market by acquiring Dronelgogics, a company that among other
things, resells lower priced, third party drones. The first quarter of 2021 revenues increased by $1,042,679 from $497,057 in the first
quarter of 2020 to $1,539,736 with the bulk of this revenue coming from product sales. Engineering services revenue of $466 was down substantially
year over year in the first quarter of 2021 due to the continued impact from one of the Company’s Engineering Services customers
that has been affected by the pandemic. Drone services sales of $409,963 made up the balance of the revenues.


 


		·	Gross Margins were Down 62.0% in 2021 Q1 Compared
to 2020 Q1



 


Engineering services tend to have higher gross
margins than hardware sales given lower material costs. In the first quarter of 2021, the Company’s total gross margin was 33.4%
vs 88.0% in the same period in 2020.


 


		·	Company Diversified its Product and Services
Offering with Acquisition



 


Given the Company’s impressive history and
deep engineering talent, a natural evolution was to outsource in-house capabilities to customers. Doing this leverages the Company’s
core skill set of innovation that tends to lead to future projects, bringing in more consistent revenue. With its recent acquisition,
the Company has increased its scope of products and services to include non-OEM products and drone as a service type work. This has proved
beneficial during the current pandemic as not all services are impacted the same way so having a larger breadth of products and services,
in part mitigates some risk for the Company.


 


		·	Company Broadens its Services to Include Health
Vertical in the Face of Global Pandemic



 


Through its recently purchased Vital Intelligence
assets and Varigard partnership, the Company recently added health monitoring and prevention to its product and service offering. Securing
some key clients in this business line was key to proving out this new vertical. These clients were important for validation of this relatively
new technology, but more importantly demonstrates the Company’s ability to evolve and offer products and services that have global
applicability.


 


		·	Risks Related to Operations



 


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:


 


		·	generate sufficient revenue to maintain profitability;



 


		·	acquire and maintain market share;



 


		·	achieve or manage growth in operations;



 


		·	develop and renew contracts;



 






    5


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


		·	attract and retain additional engineers and other
highly qualified personnel;



 


		·	successfully develop and commercially market
new products;



 


		·	adapt to new or changing policies and spending
priorities of governments and government agencies; and



 


		·	access additional capital when required and on
reasonable terms.



 


For further and more detailed risk disclosure,
please reference Business Risks at the end of this MD&A


 


Outlook and Guidance


 


This Outlook and Guidance
contains forward-looking statements that the Company does not intend, and does not assume any obligation, to update, except as required
by law. The forward-looking information and statements may include:


 


		·	The current economic climate and its effect on
the Company’s client base business; 



 


		·	The Company’s ability to successfully acquire
new customers; 



 


		·	The Company’s ability to successfully implement
its technology;



 


		·	Management’s assumptions regarding the
sustainability of recurring revenue streams and the Company’s expected profitability; and



 


		·	Management’s outlook and guidance contains
forward looking statements of the Company’s ability to penetrate the US and international client base with its products and services
and continue its penetration in the Canadian market.



 


As the Company is now more capitalized and has
easier access to funds in the public markets, the Company will increasingly focus on some of its growth initiatives. Operationally, having
more capital will help the Company expand and diversify its engineering, drone, and health services businesses. This will require more
human resources from an oversight, sales, and engineering perspective and the Company anticipates adding additional staff to accommodate
these plans. Further, the Company will continue to focus on innovation, product development, and expanding its hardware offerings opportunistically
into niche segments of the UAV and related sectors. Finally, the Company has considered providing various other non-engineering services
and it may make more sense to buy an existing industry player than to build out this offering. With the Company being listed, it will
open up further opportunities to use its Common Shares as a currency for potential acquisitions. The Company expects to be opportunistic
with regards to any potential opportunities in the existing fiscal year and the near future.


 


Selected Financial Information 


 


The following selected financial data has been
extracted from the unaudited condensed consolidated interim financial statements, prepared in accordance with International Financial
Reporting Standards, for the periods indicated and should be read in conjunction with the unaudited condensed consolidated interim financial
statements.


 


	For the three months ended March 31,	 	2021	 	 	2020	 
	Total revenues	 	$	1,539,736	 	 	$	497,057	 
	Gross Profit (as a % of revenues)	 	 	33.4	%	 	 	88.0	%
	Net loss	 	 	(44,923,934	)	 	 	(1,104,108	)
	Net loss per share ($)	 	 	 	 	 	 	 	 
	-          Basic	 	 	(0.48	)	 	 	(0.02	)
	-          Diluted	 	 	(0.48	)	 	 	(0.02	)
	Comprehensive loss	 	 	(44,914,647	)	 	 	(1,090,294	)
	Comprehensive loss per share ($)	 	 	 	 	 	 	 	 
	-          Basic	 	 	(0.48	)	 	 	(0.02	)
	-          Diluted	 	 	(0.48	)	 	 	(0.02	)
	Change in cash and cash equivalents	 	$	19,076,220	 	 	$	(531,890	)



 


The net loss and comprehensive loss for the three
months ended March 31, 2021 include a change in fair value of derivative liability for USD warrants of $41,019,172 and would otherwise
be $3,904,762 and $3,895,475, respectively.


 






    6


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


	As at	 	March 31,
 2021
	 	 	December 31, 2020	 
	Total assets	 	$	45,055,832	 	 	$	7,100,567	 
	Working capital (deficit)	 	 	(20,834,520	)	 	 	1,214,371	 
	Total non-current liabilities	 	 	146,397	 	 	 	104,885	 
	Shareholders’ equity	 	$	381,485	 	 	$	3,848,205	 
	 	 	 	 	 	 	 	 	 
	Number of shares outstanding	 	 	134,144,435	 	 	 	72,781,413	 



 


The working capital deficit as at March 31, 2021
includes a change in fair value of derivative liability for USD warrants of $41,019,172 and would otherwise be a working capital of $20,184,652.


 


Results of Operations


 


Revenue


 


	For the three months ended March 31,	 	2021	 	 	2020	 
	Product sales	 	$	1,129,307	 	 	$	22,356	 
	Drone services	 	 	409,963	 	 	 	-	 
	Custom engineering services	 	 	466	 	 	 	474,701	 
	Total revenue	 	$	1,539,736	 	 	$	497,057	 



 


Total revenue for the three months ended March
31, 2021 increased by $1,042,679 or 209.8% as compared to the same period in 2020. The increase in revenue is largely due to the Company’s
acquisition of Dronelogics Systems Inc. and the retail sales and services business that they brought partially offset by a decrease in
Custom Engineering services due to the downturn caused by COVID-19. Product sales increased 4,951.5% or $1,106,951 in the first quarter
of 2021 as compared to the same period in 2020 primarily due to third party product sales generated from Dronelogics.


 


Draganfly ‎Innovations Inc.’s ("Draganfly
Innovations") primary custom engineering customer is domiciled in the US and was shut down and ‎reduced a number of its projects.
As a result, there was no contribution ($0) from this customer after ‎March, 2020. However, services in 2020 is currently made up
of custom engineering ‎‎(product development) and drone services work.


 


As at April 30, 2020, the Issuer completed its
acquisition of Dronelogics. Therefore, the March 31, 2020 results do not include any contribution from Dronelogics.


 


Cost of Goods Sold / Gross Margin


 


	For the three months ended March 31,	 	2021	 	 	2020	 
	Cost of goods sold	 	$	(1,024,729	)	 	$	(59,786	)
	Gross profit	 	$	515,007	 	 	$	437,271	 
	Gross margin (%)	 	 	33.4	%	 	 	88.0	%



 


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. For
the three months ended March 31, 2021, the Company’s Gross Profit increased by $77,736 or 17.8%. As a percentage of sales, gross
margin decreased from 88.0% in 2020 to 33.4% in 2021.


 


Engineering service work consists of the design
and customization of various UAV type products for the Company’s clients. Further, this service work tends to have higher gross
margins than straight product sales. With this business line currently impacted by the pandemic, gross profit margins were down as this
shift in gross margin is due to the lower margin product sales that the Company acquired with Dronelogics.


 






    7


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Selling, General, and Administrative (SG&A)


 


	For the three months ended March 31,	 	2021	 	 	2020	 
	Office and Miscellaneous	 	$	2,339,401	 	 	$	650,297	 
	Professional Fees	 	 	868,479	 	 	 	92,425	 
	Research and development	 	 	15,048	 	 	 	3,969	 
	Share-based payments	 	 	1,049,866	 	 	 	519,384	 
	Travel	 	 	28,758	 	 	 	7,620	 
	Wages and salaries	 	 	402,361	 	 	 	366,503	 
	Total	 	$	4,703,913	 	 	$	1,640,198	 



 


For the three months ended March 31, 2021, Selling,
General, and Administrative expenses in 2021 increased by 186.8%, from $1,640,198 in 2020 to $4,703,913 in 2021. The largest contributor
to the increase is marketing and investor relations costs in the office and miscellaneous as well as share-based payments. Some of the
other SG&A expenses such as professional fees increased due to increased accounting and legal work around the Reg A financing and
in the regular course of being a publicly listed Company.


 


Net and Comprehensive Loss


 


	For the three months ended March 31,	 	2021	 	 	2020	 
	Loss from operations	 	$	(4,324,593	)	 	$	(1,217,962	)
	Change in fair value of derivative liability	 	 	(41,019,172	)	 	 	-	 
	Finance and other costs	 	 	(6,405	)	 	 	(4,006	)
	Foreign exchange gain	 	 	145,095	 	 	 	50,845	 
	Gain on settlement of debt	 	 	-	 	 	 	67,493	 
	Income from government assistance	 	 	20,706	 	 	 	-	 
	Other loss	 	 	(16,708	)	 	 	(478	)
	Unrealized gain on investments available for sale	 	 	277,143	 	 	 	-	 
	Net loss	 	 	(44,923,934	)	 	 	(1,104,108	)
	Cumulative translation differences	 	 	9,287	 	 	 	13,814	 
	Comprehensive loss	 	$	(44,914,647	)	 	$	(1,090,294	)



 


For the three months ended March 31, 2021, the
Company recorded a comprehensive loss of $44,914,647 compared to $1,090,294 in 2020. The net loss and comprehensive loss for the three
months ended March 31, 2021 include a change in fair value of derivative liability for USD warrants of $41,019,172 and would otherwise
be $3,904,762 and $3,895,475, respectively. The second largest contributor to the year over year increase is the increased marketing and
investor relations costs and share-based payments partially offset by increased revenues.


 


Authorized share capital


 


Unlimited number of common shares without par
value.


 






    8


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Issued share capital


 


During the three months ended March 31, 2021,


 


		-	The Company issued 7,015,124 common shares for the exercise of warrants for $3,507,562.



 


		-	The Company issued 624,998 common shares for the vesting of Restricted Share Units.



 


		-	The Company issued 1,892,495 common shares for the exercise of stock options for $955,373.



 


		-	The Company issued 75,000 common shares in lieu of cash.



 


		-	The Company issued 32,443,457 units for the Regulation A+ financing in the United States. Each unit is
comprised of one common share and one share purchase warrant. These warrants have an exercise price of $0.71 USD per warrant, each convert
to one common share, and have a life of two years.



 


		-	The Company issued 6,000,000 units for the acquisition of Vital Intelligence. Each unit is comprised of one common share and one warrant.
These warrants have an exercise price of $2.67 per warrant, each convert to one common share, and have a life of two years.



 


Dronelogics Acquisition


 


On April 30, 2020, the Company closed the share
purchase agreement with the shareholders of Dronelogics Systems Inc. (“Dronelogics”), whereby the Company acquired all of
the issued and outstanding shares in the capital of Dronelogics, excluding the cinematography division, for a consideration of $2,000,000,
plus the amount, if any, by which the estimated closing date working capital exceeds the target closing working capital (the “Transaction”).
The consideration was paid $500,000 in cash, subject to working capital adjustment and 3,225,438 common shares in the capital of the Company
at a deemed price of $0.50 per share. In addition, the Company welcomed Mr. Hannewyk as a member of the Board.


 


In connection with the Transaction, the Company
paid fees of $160,000 to certain advisors; consisting of $100,000 by way of 200,000 in shares at a deemed price of $0.50 per share and
as to $60,000 in cash or shares at a deemed price of $0.50 per share. At closing, the Company (i) granted 445,000 incentive stock options
to certain employees of Dronelogics pursuant to the Company’s share compensation plan, exercisable at a price equal to closing price
of the shares on the CSE on January 31, 2020. The options shall have a term of 10 years and 375,000 vest in three equal tranches, on the
grant date and first and second anniversaries of the date of grant while 70,000 vest on the first anniversary of the grant date, and (ii)
awarded 375,000 RSUs to certain directors and officers of Dronelogics. RSUs were awarded to certain directors and officers of Dronelogics
pursuant to the Company’s share compensation plan. The RSUs shall vest in three equal tranches, on the first, second and third anniversaries
of the date of award.


 


The purchase price allocation (“PPA”)
is as follows:


 


	Number of shares of Draganfly Inc.	 	 	 	3,225,438	 
	Fair value of common shares	 	 	$	0.83	 
	Fair value of shares of Draganfly Inc.	 	 	$	2,677,114	 
	Present value of the fair value of shares of Draganfly Inc.	 	 	 	2,178,960	 
	Cash portion of purchase price	 	 	 	500,000	 
	Total	 	 	$	2,678,960	 



 






    9


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


	Tangible assets acquired	 	 	 
	  Cash	 	$	42,593	 
	  Accounts receivable	 	 	98,852	 
	  Inventory	 	 	629,684	 
	  Prepaids and deposits	 	 	93,997	 
	  Other current assets	 	 	3,014	 
	  Capital assets	 	 	54,946	 
	  Right-of-use assets	 	 	83,428	 
	  Accounts payable and accrued liabilities	 	 	(222,766	)
	  Customer deposits	 	 	(245,959	)
	  Loans	 	 	(245,752	)
	  Other current liabilities	 	 	(8,437	)
	  Lease liabilities	 	 	(87,203	)
	 	 	 	196,397	 
	 	 	 	 	 
	Identifiable intangible assets	 	 	 	 
	  Customer relationships	 	 	197,000	 
	  Website	 	 	119,000	 
	 	 	 	316,000	 
	 	 	 	 	 
	Goodwill	 	 	2,166,563	 
	Total consideration	 	$	2,678,960	 



 


Vital Intelligence Acquisition


 


On March 25, 2021, the Company acquired the assets
of Vital Intelligence Inc. (“Vital”) for consideration of: (a) a cash payment of $500,000 with ‎‎$50,000 paid
upon execution of the asset purchase agreement, $200,000 to be paid at closing and ‎‎$250,000 to be paid on the six-month
anniversary date of ‎closing; and (b) ‎6,000,000 units of the ‎Company with each unit being comprised of one common
share of the Company and one common share ‎purchase warrant (the “Acquisition”). Each warrant will entitle the holder
to acquire one common share for a period of 24 ‎months following closing at an exercise price of $2.67 per common share and the
Company will be able ‎to accelerate the expiry date of the warrants after one year in the event the underlying common shares ‎have
a value of at least 30% greater than the exercise price of the warrants. The units will be held in ‎escrow following closing with
1,500,000 units being released at closing and the remainder to be released ‎upon the Company reaching certain revenue milestones
received from the purchased assets.


 


The units of the Company are to be releasable
from escrow in accordance with the terms and conditions of the Escrow Agreement, as follows:


 


		a)	1,500,000 units shall be released on the closing date;



 


		b)	1,500,000 units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount
of $2,000,000;



 


		c)	1,500,000 units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount
of $4,000,000; and



 


		d)	1,500,000 units shall be released from escrow upon the Vital assets earning revenue in the aggregate amount
of $6,000,000.



 


The Vital Intelligence product platform is a combination
of proprietary Intellectual Property along with external technology. The base technology is computer vision signal processing that incorporates
learning algorithms that can detect heart rate, breathing/respiratory rate, coughs, mask usage, social distancing, temperature, oxygen
saturation of blood, and blood pressure. Combined, all these data points provide and deliver an analysis of health and better accuracy
in determining infection with various respiratory related issues.


 






    10


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Vital Intelligence has developed a suite of products
that is designed to maximize the use of its technology by serving a variety of different market segments and sectors:


 


		-	Drone Vital Sign Detection: Video from a drone is analyzed and can provide an individuals’ heart
rate, respiratory rate, and also detect coughing. The data is processed via either a local or cloud storage service in real or near-real
time.



 


		-	Drone Social Distancing Detection: Video cameras attached to drones collect data which is then used to
determine social distancing. The data is processed via either a local or cloud storage service in real or near-real time.



 


		-	Thermography Kiosk: This product, also branded as Safe Set Solution, is a moveable kiosk (consisting of
a thermal detection camera, laptop and stand) to provide thermal detection and reporting systems. Kiosk is able to be placed in entryways
or throughways to capture temperature readouts of passers-by.



 


		-	Thermography Detection Camera System: This group of products is a stationary camera system, or systems
of networked cameras aimed at critical entryways or locations designed to capture core-body temperature of individuals entering a space.
Algorithms read video feeds and allow for company or facility use decisions to be made. An example would be capturing temperature readouts
from individuals and then integrating that data into a company’s employee badge systems for compliance and monitoring as well as
door locking systems to grant access to a space.



 


		-	Social Distancing Camera System: This product is a stationary camera system, or system of networked cameras
aimed at high traffic areas in order to capture data on social distancing. Information is provided via overlay on capture footage. The
technology can be used on archived or real-time video footage to assist community health workers in predicting outbreaks of infections.



 


The PPA is as follows:


 


	Number of units of Draganfly Inc.	 	 	6,000,000	 
	Fair value of units	 	$	2.88	 
	Fair value of units of Draganfly Inc.	 	$	17,292,857	 
	Fair value of cash portion of purchase price	 	 	488,659	 
	Total	 	$	17,781,516	 



 


	Identifiable intangible assets	 	 	 
	  Brand	 	$	540,000	 
	  Software	 	 	1,711,000	 
	 	 	 	2,251,000	 
	 	 	 	 	 
	Goodwill	 	 	15,530,516	 
	Total consideration	 	$	17,781,516	 



 


The Company estimated the fair value
as follows:


 


		•	Brand based on an income approach, specifically relief from royalty methodology,
using a reasonable royalty rate of 1.0% and discount rate of 40% per annum.



 


		•	Software based on an income approach, specifically relief from royalty methodology,
using a reasonable royalty rate of 5.0% and discount rate of 40% per annum.



 


Summary of Quarterly Results


 


The following selected quarterly financial data
has been extracted from the financial statements, prepared in accordance with International Financial Reporting Standards.


 


Total revenue for the three months ended March
31, 2021 increased by $1,042,679 or 209.8% as compared to the same period in 2020. The increase in revenue is largely due to the Company’s
acquisition of Dronelogics Systems Inc. and the retail sales and services business that they brought partially offset by a decrease in
Custom Engineering services due to the downturn caused by COVID-19. Product sales increased 4,951.5% or $1,106,951 in the first quarter
of 2021 as compared to the same period in 2020 primarily due to third party product sales generated from Dronelogics.


 


Operating expenses increased 192.4% compared
to the same period in 2020 due to higher marketing, investor relations costs, professional fees, and share-based payments after
going public. The other expense and comprehensive loss for the first quarter of 2021 include a
change in fair value of derivative liability for USD warrants of $41,019,172 and would otherwise be income of $419,831 and loss of
$3,895,475, respectively.


 






    11


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


	 	 	2021 Q1	 	 	2020 Q4	 	 	2020 Q3	 	 	2020 Q2	 
	Revenue	 	$	1,539,736	 	 	$	1,486,009	 	 	$	1,453,905	 	 	$	926,540	 
	Cost of goods sold	 	$	(1,024,729	)	 	$	(1,155,491	)	 	$	(893,441	)	 	$	(495,193	)
	Gross profit	 	$	515,007	 	 	$	330,518	 	 	$	560,464	 	 	$	431,347	 
	Gross margin – percentage	 	 	33.4	%	 	 	22.2	%	 	 	38.5	%	 	 	46.6	%
	Operating expenses	 	$	(4,839,600	)	 	$	(3,359,508	)	 	$	(2,852,003	)	 	$	(2,387,738	)
	Operating loss	 	$	(4,324,593	)	 	$	(3,028,990	)	 	$	(2,291,539	)	 	$	(1,956,391	)
	Operating loss per share (basic and diluted)	 	$	(0.05	)	 	$	(0.04	)	 	$	(0.03	)	 	$	(0.03	)
	Other income (expense)	 	$	(40,599,341	)	 	$	(713,885	)	 	$	91,228	 	 	$	987,872	 
	Other comprehensive income	 	$	9,287	 	 	$	1,235	 	 	$	(1,232	)	 	$	(13,713	)
	Comprehensive loss	 	$	(44,914,647	)	 	$	(3,741,640	)	 	$	(2,451,453	)	 	$	(982,232	)
	Comprehensive loss per share (basic and diluted)	 	$	(0.48	)	 	$	(0.05	)	 	$	(0.03	)	 	$	(0.01	)



 


	 	 	2020 Q1	 	 	2019 Q4	 	 	2019 Q3	 	 	2019 Q2	 
	Revenue	 	$	497,057	 	 	$	491,520	 	 	$	450,943	 	 	$	289,735	 
	Cost of goods sold	 	$	(59,786	)	 	$	(42,401	)	 	$	(71,043	)	 	$	(49,147	)
	Gross profit	 	$	437,271	 	 	$	449,119	 	 	$	379,900	 	 	$	240,588	 
	Gross margin – percentage	 	 	88.0	%	 	 	91.4	%	 	 	84.2	%	 	 	83.0	%
	Operating expenses	 	$	(1,655,233	)	 	$	(2,983,115	)	 	$	(683,777	)	 	$	(484,155	)
	Operating loss	 	$	(1,217,962	)	 	$	(2,533,996	)	 	$	(303,877	)	 	$	(243,567	)
	Operating loss per share (basic and diluted)	 	$	(0.02	)	 	$	(0.04	)	 	$	(0.01	)	 	$	(0.01	)
	Other income (expense)	 	$	113,854	 	 	$	506,080	 	 	$	(8,133,663	)	 	$	(46,220	)
	Other comprehensive income	 	$	13,814	 	 	$	-	 	 	$	-	 	 	$	-	 
	Comprehensive loss	 	$	(1,090,294	)	 	$	(2,027,916	)	 	$	(8,437,540	)	 	$	(289,787	)
	Comprehensive loss per share (basic and diluted)	 	$	(0.02	)	 	$	(0.03	)	 	$	(0.22	)	 	$	(0.01	)



 


Liquidity and Capital Resources


 


The Company’s liquidity
risk is derived from its loans, accounts payable, and accrued liabilities, as it may encounter difficulty discharging those obligations,
but the Company endeavors to mitigate that risk through the careful management of its debt holders and the assertive pursuit of capital
inflow for its operations. The Company’s working capital deficit of $20,834,520, as at March 31, 2021, would be a working capital
surplus of $20,184,652, if the non-cash liability for outstanding USD warrants were excluded. The Company’s working capital as at
December 31, 2020 was $1,214,371.


 


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. A $250,000 cash payment will be
paid from the Company’s available funds for the second and final payment of the Vital Intelligence assets. Aside from this transaction
and the regular business operations of managing its liabilities, 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. The Company will need to raise additional capital during the next twelve months and beyond to support current operations
and planned development. Management intends to finance operating costs over the next twelve months with cash on hand and with the issuance
of securities such as the private placement of common shares and convertible debentures. Further, 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 March 31, 2021, shareholders’ equity was $381,485 and at December 31, 2020, shareholder’s
equity was $3,848,205.


 






    12


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


On
February 5, 2021, the Company closed a second tranche of its Regulation A+ Offering for gross proceeds in the amount of $4,003,195 (US$3,135,838). On
March 9, 2021, the Company announced that it completed the final closing of its Regulation A+ offering
of units sold pursuant to the Company’s Regulation A+ offering circular (the “Offering Document”) filed with the U.S.
Securities and Exchange Commission. The Company issued 25,771,465 units at the offering price set out in the Offering Document for gross
proceeds in the ‎amount of $15,504,135 (US$12,112,606) in the final closing. Each unit is comprised of one common share of the Company
 ‎‎and one common share purchase warrant, with each warrant entitling the ‎holder to acquire one common share at a price
of US$0.71 per common share for period of two years from the date of issuance. ‎The common shares and warrants issued in connection
with the offering are subject to a nine month ‎hold period.‎ In total, the Company issued 35,000,000 units under its Offering
Document for aggregate gross proceeds of US$16,450,000.


 


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.


 


Our plan of operations for the next year 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; and (vii) developing and increasing current product offering to various niche
industries that are not currently being served.


 


This expected use of the net proceeds from the
Regulation A+ Offering represents our intentions based upon our current financial condition, results of operations, and conditions. As
of the date of this MD&A, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the
closing of this Regulation A+ Offering. The amounts and timing of our actual expenditures may vary significantly depending on numerous
factors.


 


Subsequent Events


 


Subsequent to March 31, 2021,


 


		-	887,500 warrants were exercised for proceeds of $443,750.






		-	910,000 stock options were granted to employees of the Company with an exercise price of $2.03 and expire
10 years from the date of grant. These stock options vest:






		o	1/3 on the first anniversary;






		o	1/3 on the second anniversary; and






		o	1/3 on the third anniversary.






		-	50,000 RSUs were granted to employees of the Company. These RSUs vest:






		o	1/3 on the first anniversary;






		o	1/3 on the second anniversary; and






		o	1/3 on the third anniversary.






		-	10,000 stock options were exercised for proceeds of $5,000.






		-	124,999 RSUs vested and were exercised.



 


Off-Balance Sheet Arrangements


 


The Company has no material undisclosed off-balance
sheet arrangements that have or are reasonably likely to have, a current or future effect on our results of operations, financial condition,
revenues or expenses, liquidity, capital expenditures or capital resources.


 






    13


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Contractual Obligations


 


As of March 31, 2021, and as of the date of this
MD&A, and in the normal course of business, the following is a summary of the Company’s material obligations to make future
payments, representing contracts, and other commitments that are known and committed.


 


On December 1, 2020, the Company entered into
an amendment for the lease agreement, where the lease was amended with a change in annual payments. As a result of IFRS 16, the right
of use asset and lease liability were setup and recorded as follows:


 


Right of Use Asset


 


	 	 	Total	 
	Cost	 	 	 	 
	Balance at January 1, 2020	 	$	159,539	 
	  Lease acquired in the Acquisition	 	 	83,428	 
	Balance at December 31, 2020	 	$	242,967	 
	  Addition	 	 	28,610	 
	  Lease removal	 	 	(7,092	)
	Balance at March 31, 2021	 	$	264,485	 
	 	 	 	 	 
	Accumulated depreciation	 	 	 	 
	Balance at January 1, 2020	 	$	29,545	 
	  Charge for the period	 	 	69,003	 
	Balance at December 31, 2020	 	$	98,548	 
	  Historical correction	 	 	7,152	 
	  Charge for the period	 	 	22,911	 
	Balance at March 31, 2021	 	$	128,611	 
	 	 	 	 	 
	Net book value:	 	 	 	 
	December 31, 2020	 	$	144,419	 
	March 31, 2021	 	$	135,874	 



 


Lease Liability


 


	 	 	Total	 
	Balance at January 1, 2020	 	$	136,073	 
	  Leases acquired in the Acquisition	 	 	87,203	 
	  Interest expense	 	 	18,290	 
	  Lease Payments	 	 	(83,442	)
	Balance at December 31, 2020	 	$	158,124	 
	  Historical correction	 	 	22,043	 
	  Interest expense	 	 	4,297	 
	  Lease payments	 	 	(27,139	)
	  Lease removal	 	 	(7,645	)
	Balance at March 31, 2021	 	 	149,680	 
	 	 	 	 	 
	Which consists of:	 	 	 	 
	  Current lease liability	 	$	83,283	 
	  Non-current lease liability	 	 	66,397	 
	Balance at March 31, 2021	 	$	149,680	 



 






    14


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Related Party Transactions


 


Key management personnel include those persons
having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has
determined that key management personnel consist of members of the Company's Board of Directors and corporate officers.


 


Trade payables and accrued liabilities:


 


On
Aug 1, 2019, the Company entered in a business services agreement (the “Agreement”) with Business Instincts Group (“BIG”),
a company that Cameron Chell, CEO and director has a material interest in that he previously controlled, to provide: corporate development
and governance, strategic facilitation and management, general business services, office space, corporate business development video content,
website redesign and management, and online visibility management. The services are provided by a team of up to six consultants and the
costs of all charges are based on the fees set in the Agreement and are settled on a monthly basis. The Company records these charges
under Office and Miscellaneous. For the three months ended March 31, 2021, the company incurred fees of $43,500 compared to $70,350 in
2020. As at March 31, 2021, the Company was indebted to this company in the amount of $nil (December 31, 2020 - $nil).


 


On October 1, 2019, the Company entered into an
independent consultant agreement (“Consultant Agreement”) with 1502372 Alberta Ltd, a company controlled by Cameron Chell,
CEO and director, to provide executive consulting services to the Company. The costs of all charges are based on the fees set in the Consultant
Agreement and are settled on a monthly basis. The Company records these charges under Office and Miscellaneous. For the three months ended
March 31, 2021, the Company incurred fees of $53,764 compared to $24,150 in 2020. As at March 31, 2021, the Company was indebted to this
company in the amount of $73,500 (December 31, 2020 - $321,741).


 


On July 3, 2020, the Company entered
into an executive consultant agreement (“Executive Agreement”) with Scott Larson, a director of the Company, to provide executive
consulting services, as President, to the Company. The costs of all charges are based on the fees set in the Executive Agreement and are
settled on a monthly basis. The Company records these charges under Office and Miscellaneous. For the three months ended March 31, 2021,
the Company incurred fees of $44,123. As at March 31, 2021, the Company was indebted to this company in the amount of $nil (December 31,
2020 - $153,887).


 


As at March 31, 2021, the Company had
$92,250 (December 31, 2020 - $475,628) payable to related parties outstanding that were included in accounts payable. The balances outstanding
are unsecured, non-interest bearing and due on demand.


 


Key management compensation


 


Key management includes the Company’s
directors and members of the executive management team. Compensation awarded to key management for the three months ended March 31, 2021
and 2020 included:


 


	 	 	March 31, 2021	 	 	March 31, 2020	 
	Director fees	 	$	86,691	 	 	$	-	 
	Management fees paid to a company controlled by CEO and director	 	 	53,764	 	 	 	-	 
	Management fees paid to a company controlled by president and director	 	 	44,123	 	 	 	-	 
	Management fees paid to a company controlled by a former director	 	 	45,000	 	 	 	30,000	 
	Salaries	 	 	122,976	 	 	 	71,190	 
	Salaries paid to the former owner of the Company	 	 	-	 	 	 	33,415	 
	Share-based payments	 	 	680,097	 	 	 	271,639	 
	Total	 	$	1,032,651	 	 	$	430,394	 



 






    15


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Share Capital


 


Common shares issued


 


	 	 	Number of
    Common Shares	 	 	Share Capital	 
	Balance, December 31, 2019	 	 	69,670,613	 	 	$	27,786,517	 
	Shares issued for exercise of warrants	 	 	7,923,875	 	 	 	4,007,130	 
	Shares issued for acquisition	 	 	3,225,438	 	 	 	2,178,961	 
	Shares issued as finder’s fees	 	 	200,000	 	 	 	100,000	 
	Shares issued for debt settlement	 	 	555,409	 	 	 	344,354	 
	Shares issued for financing	 	 	3,518,034	 	 	 	2,018,845	 
	Shares issued for exercise of RSUs	 	 	999,992	 	 	 	507,497	 
	Balance, December 31, 2020	 	 	86,093,361	 	 	$	36,943,304	 
	Shares issued for exercise of warrants	 	 	7,015,124	 	 	 	3,507,562	 
	Shares issued for acquisition	 	 	6,000,000	 	 	 	14,220,000	 
	Shares issued for exercise of RSUs	 	 	624,998	 	 	 	300,000	 
	Shares issued for exercise of stock options	 	 	1,892,495	 	 	 	1,846,776	 
	Shares issued for financing	 	 	32,443,457	 	 	 	18,788,549	 
	    Share issue costs	 	 	-	 	 	 	(344,280	)
	Shares issued in lieu of cash	 	 	75,000	 	 	 	198,000	 
	Balance, March 31, 2021	 	 	134,144,435	 	 	$	75,459,911	 



 


Stock options


 


The following is the summary of the Company’s
stock option activity:


 


	 	 	 	Number of Options	 	 	Weighted Average Exercise Price	 
	Outstanding, December 31, 2019	 	 	 	3,725,000	 	 	$	0.50	 
	Forfeited	 	 	 	(216,668	)	 	 	0.50	 
	Granted	 	 	 	2,460,000	 	 	 	0.63	 
	Outstanding, December 31, 2020	 	 	 	5,968,332	 	 	$	0.55	 
	Exercised	 	 	 	(1,892,495	)	 	 	0.50	 
	Granted	 	 	 	200,000	 	 	 	2.68	 
	Outstanding, March 31, 2020	 	 	 	4,275,837	 	 	$	0.67	 



 


Restricted Share Units (RSUs)


 


The following is the summary of the Company’s
RSU activity:


 


	 	 	 	Number of RSUs	 
	Outstanding, December 31, 2019	 	 	 	3,175,000	 
	Exercised	 	 	 	(999,992	)
	Forfeited	 	 	 	(341,667	)
	Granted	 	 	 	1,240,000	 
	Outstanding, December 31, 2020	 	 	 	3,073,341	 
	Exercised	 	 	 	(624,998	)
	Granted	 	 	 	740,000	 
	Outstanding, March 31, 2021	 	 	 	3,188,343	 



 






    16


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Warrants


 


During the year ended December 31, 2020 and the
three months ended March 31, 2021, the Company issued warrants (“USD Warrants”) with a USD exercise price. Being in a foreign
currency that is not the Company’s functional currency, these USD Warrants are required to be recorded as a financial liability
and not as equity. As a financial liability, these USD Warrants are revalued on a quarterly basis to fair market value with the change
in fair value being recorded through the Consolidated Statement of Comprehensive Loss. The initial fair value of these USD Warrants was
parsed out from equity and recorded as a financial liability.


 


To reach a fair value of the USD Warrants, a Black
Scholes calculation is used, calculated in USD as the Company also trades on the OTCQB. The Black Scholes value per USD Warrant is then
multiplied by the number of outstanding warrants and then multiplied by the foreign exchange rate at the end of the period from the Bank
of Canada.


 


Warrant Derivative Liability


 


	Balance at January 1, 2020	 	$	-	 
	Change in fair value of warrants outstanding	 	 	748,634	 
	Balance at December 31, 2020	 	$	748,634	 
	Change in fair value of warrants outstanding	 	 	41,019,172	 
	Balance at March 31, 2021	 	$	41,767,806	 



 


The derivative financial liability consists of
the fair value of the non-compensatory share purchase warrants that have exercise prices that differ from the functional currency of the
Company and are within the scope of IAS 32 “Financial Instruments: Presentation”. Details of these warrants and their fair
values are as follows:


 


	Issue Date	 	Exercise Price	 	 	Number of Warrants Outstanding at March 31,

                                                                                2021
	 	 	Fair Value at March 31,

                                                                                2021
	 	 	Number of Warrants Outstanding at December 31, 2020	 	 	Fair Value at December 31, 2020	 
	November 30, 2020	 	US$	     0.71	 	 	 	2,556,496	 	 	 	3,050,839	 	 	 	2,556,496	 	 	$	748,634	 
	February 5, 2021	 	US$	     0.71	 	 	 	6,671,992	 	 	 	7,962,138	 	 	 	-	 	 	 	-	 
	March 5, 2021	 	US$	     0.71	 	 	 	25,771,465	 	 	 	30,754,829	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	 	34,999,953	 	 	 	41,767,806	 	 	 	2,556,496	 	 	$	748,634	 



 


During the year ended December 31, 2020, the Company
extended the life of the November 5, 2019 warrants from expiring on November 5, 2020 to expiring on November 5, 2021. To do this, it was
required that 25% of the remaining November 5, 2019 warrants needed to be exercised by October 21, 2020 and was completed.


 


The following is the summary of the Company’s
warrant activity:


 


	 	 	 	Number of Warrants	 	 	Weighted Average Exercise Price	 
	Outstanding, December 31, 2019	 	 	 	18,051,499	 	 	$	0.41	 
	Expired	 	 	 	(7,923,874	)	 	 	0.30	 
	Exercised	 	 	 	(600,000	)	 	 	0.50	 
	Issued	 	 	 	2,556,496	 	 	 	0.71	 
	Outstanding, December 31, 2020	 	 	 	12,084,121	 	 	$	0.59	 
	Exercised	 	 	 	(7,015,124	)	 	 	050	 
	Granted	 	 	 	38,443,457	 	 	 	1.02	 
	Outstanding, March 31, 2021	 	 	 	43,512,454	 	 	$	0.97	 




 






    17


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


As at March 31, 2021, the Company had the following
warrants outstanding:


 


	Date issued	 	Expiry date	 	Exercise price	 	 	Number of warrants outstanding	 
	November 5, 2019	 	November 5, 2021	 	CDN$ 	    0.50	 	 	 	2,512,501	 
	November 30, 2020	 	November 30, 2022	 	US$  	   0.71	 	 	 	2,556,496	 
	February 5, 2021	 	February 5, 2023	 	US$	     0.71	 	 	 	6,671,992	 
	March 5, 2021	 	March 5, 2023	 	US$ 	    0.71	 	 	 	25,771,465	 
	March 22, 2021	 	March 22, 2023	 	CDN$ 	    2.67	 	 	 	6,000,000	 
	 	 	 	 	 	 	 	 	43,512,454	 



 


The weighted average remaining contractual life
of warrants outstanding as of March 31, 2021 was 1.83 years (December 31, 2020 - 0.90 years).


 


Of the 6,000,000 warrants issued on March 22,
2021 with regards to the Vital Intelligence Acquisition, 4,500,000 of the warrants are currently held in escrow, to be released upon completion
of the milestones.


 


Critical Accounting Policies and Estimates


 


Note 2 of the
audited consolidated financial statements for the year ended December 31, 2020 describe fully the significant accounting policies used
in preparing the financial statements.


 


Measurement Uncertainty (Use of Estimates)


 


The preparation of the consolidated financial
statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities
and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the
reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ
from these estimates.


 


The key sources of estimation uncertainty that
have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:


 


		a.	SR&ED tax credits



 


The determination of the amount of the Saskatchewan
SR&ED tax credit receivable requires management to make calculations based on its interpretation of eligible expenditures in accordance
with the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies.
Although the Company has used its best judgment and understanding of the related program agreements in determining the receivable amount,
it is possible that the amounts could increase or decrease by a material amount in the near-term dependent on the review and audit by
the government agency.


 


		b.	Allowance for uncollectible trade and other receivables



 


The Company makes use of estimates when making
allowances for uncollectible trade and other receivables. The Company evaluates each receivable at year end using factors such as age
of receivable, payment history, and credit risk to estimate when determining if an allowance is required, and the amount of the allowance.


 






    18


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


		c.	Share-based payment transactions



 


The Company measures the cost of share-based payment
transactions with employees by reference to the fair value of the equity instruments. Estimating fair value for share-based payment transactions
requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate
also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected lives
and forfeiture rates of the share options and volatility of the market value of the underlying shares.


 


New Policies Adopted


 


Accounting standards or amendments to existing
accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant
impact on the Company’s financial statements.


 


Business Risks


 


In the normal course of business, the Company’s
operations are influenced by a number of internal and external factors and are exposed to risks and uncertainties that can affect its
business, financial condition and operating results. The activities of the Company are subject to ongoing operational risks including
the performance of key suppliers, product performance, and government and other industry regulations and reliance on information systems,
all of which may affect the ability of the Company to meet its obligations. While management believes its innovation and technology make
it a leader in the industry, revenue and results may be affected if products are not accepted in the market place, are not approved by
regulatory authorities, or if products are not brought to market in a timely manner.


 


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.


 


Resale of Shares


 


There can be no assurance that the publicly-traded
market price of the Company Shares will be high enough to create a positive return for the existing investors. Further, there can be no
assurance that the Company 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 Company 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 Company Shares and any investment in
the Company may be lost.


 


Ability to Manage Future Growth


 


Future growth, if any, may cause a
significant strain on the Company’s management and its operational, financial, human and other resources. The Company’s
ability to manage growth effectively will require it to implement and improve operational, financial, software development and
management information systems and to expand, train, manage and motivate employees. These demands may require the addition of
management and other personnel and the development of additional expertise. Any increase in resources devoted to research, product
development and marketing and sales efforts without a corresponding increase in operational, financial, product development and
management information systems could have a material adverse effect on the Company’s business, financial condition and results
of operations. There can be no assurance that the Company will be able to manage such growth effectively, that its management,
personnel or systems will be adequate to support the Company's operations or that the Company will be able to achieve the increased
levels of revenue commensurate with the increased levels of operating expenses associated with this growth. The Company is exposed
to a variety of financial risks by virtue of its activities, including currency risk, credit risk, and liquidity risk. The overall
risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on
financial performance.


 






    19


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Market for Securities


 


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 Company 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 Company Shares will be affected by such volatility.


 


Dilution
and future sale of Common Shares


 


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 the
Option Plan, which will result in further dilution to the Shareholders. Potential future acquisitions may also divert Management’s
attention and result in further dilution to the Shareholders.


 


History of Losses


 


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.


 


Reliance on Management and
Key Employees


 


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.


 


Risks Associated with Acquisitions


 


As part of the Company’s overall business
strategy, after the completion of the Listing, 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.


 






    20


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


Competitive
Markets


 


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 licences in jurisdictions in which the Company operates in.


 


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.


 


Uncertainty to develop and renew contracts


 


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 and as a result lose the ability to develop and renew
contracts relating to its business. 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.


 


Company 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.


 






    21


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


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.


 


Attract and retain engineering talent and other
highly qualified personnel


 


The Company may experience a period of significant
growth and require a high 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. Further, management may not be able to retain its
existing workforce in an expanding and competitive marketplace for talent.


 


Ability to successfully develop and commercially
market new products


 


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.


 


Changing policies and spending priorities of
governments and government agencies


 


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.


 


Access additional capital when required and
on reasonable terms


 


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


 


Continuing impact from COVID-19


 


The recent outbreak of the coronavirus, also known
as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus
continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. These measures,
which include the implementation of travel bans, self-imposed quarantine periods, and social distancing, have caused material disruption
to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments
and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.


 






    22


     


    

 





	Draganfly Inc.
	Management Discussion and Analysis
	For the three months ended March 31, 2021


 


There are significant uncertainties with respect
to future developments and impact to the Company related to the COVID-19 pandemic, including the duration, severity, and scope of the
outbreak and the measures taken by governments and businesses to contain the pandemic. While the impact of COVID-19 is expected to be
temporary, the current circumstances are dynamic and the impacts of COVID-19 on our business operations cannot be reasonably estimated
at this time. At the date of this MD&A, the outbreak and the related mitigation measures have had the following impacts on the Company’s
operations, among others: temporary closure of business locations, supply chain issues, and decrease in sales. The extent to which these
events may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of
the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada
and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine the
ultimate financial impacts at this time. Any deterioration in the current situation could have an adverse impact on our business, results
of operations, financial position, and cash flows in 2021.


 


Credit risk


 


Credit and liquidity risk associated with cash
and the marketable security is managed by ensuring assets are placed with major financial institutions with strong investment grade ratings.


 


Credit risk on trade and other receivables reflects
the risk that the Company may be unable to recover them. The Company manages its credit risk by closely monitoring the granting of credit.
Trade and other receivables that are greater than 30 days are considered past due. Based on the status of trade and other receivables,
no allowance for doubtful accounts has been recorded as at March 31, 2021 (December 31, 2020 - $nil).


 


Interest rate risk


 


Interest rate risk is the risk that the value
of a financial instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks from interest
rate fluctuations, the Company manages exposure through its normal operating and financing activities. The Company is exposed to minimal
interest rate risk on its cash balances as they carry a floating rate of interest.


 


Foreign currency risk


 


The Company does engage in significant transactions
and activities in currencies other than its functional currency. Depending on the timing of the transactions and the applicable currency
exchange rates such conversions may positively or negatively impact the Company.


 


Other Information 


 


Additional information about the Company is
available at www.draganfly.com


 


Approval


 


This MD&A is authorized for issue by the
Board on May 26, 2021.


 








    23