Exhibit 4.4


 





 


 


 


Draganfly Inc.


 


Condensed Consolidated Interim Financial Statements
- Unaudited


 


For the Three Months Ended March 31, 2021


 


(Expressed in Canadian Dollars)


 






     


     


    

 


Draganfly Inc.


Condensed Consolidated Interim Statements of Financial Position


Expressed in Canadian Dollars


	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	March 31,	 	 	December 31,	 
	As at	 	Notes	 	 	2021	 	 	2020	 
	 	 	 	 	 	(unaudited)	 	 	 	 
	ASSETS	 	 	 	 	 	 	 	 	 	 	 	 
	Current Assets	 	 	 	 	 	 	 	 	 	 	 	 
	  Cash and cash equivalents	 	 	5	 	 	$	21,067,923	 	 	$	1,982,416	 
	  Amounts receivable	 	 	6	 	 	 	946,961	 	 	 	810,791	 
	  Inventory	 	 	7	 	 	 	1,377,405	 	 	 	1,233,619	 
	  Prepaids	 	 	8	 	 	 	301,141	 	 	 	335,022	 
	 	 	 	 	 	 	 	23,693,430	 	 	 	4,361,848	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-current Assets	 	 	 	 	 	 	 	 	 	 	 	 
	

                                                                             Goodwill
	 	 	3,4,11	 	 	 	17,697,079	 	 	 	2,166,563	 
	  Equipment	 	 	10	 	 	 	241,133	 	 	 	153,870	 
	  Intellectual property	 	 	11	 	 	 	2,511,173	 	 	 	273,867	 
	  Investment	 	 	9	 	 	 	777,143	 	 	 	-	 
	  Right of use asset	 	 	12	 	 	 	135,874	 	 	 	144,419	 
	TOTAL ASSETS	 	 	 	 	 	$	45,055,832	 	 	$	7,100,567	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	LIABILITIES AND SHAREHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	 	 	 	 
	Current Liabilities	 	 	 	 	 	 	 	 	 	 	 	 
	  Trade payables and accrued liabilities	 	 	14	 	 	$	1,908,593	 	 	$	1,857,177	 
	  Customer deposits	 	 	15	 	 	 	289,803	 	 	 	385,449	 
	  Deferred income	 	 	16	 	 	 	440,000	 	 	 	-	 
	  Loans	 	 	17	 	 	 	38,465	 	 	 	62,978	 
	  Derivative liability	 	 	18	 	 	 	41,767,806	 	 	 	748,634	 
	  Lease liability	 	 	13	 	 	 	83,283	 	 	 	93,239	 
	 	 	 	 	 	 	 	44,527,950	 	 	 	3,147,477	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-current Liabilities	 	 	 	 	 	 	 	 	 	 	 	 
	  Deferred income	 	 	16	 	 	 	8,932	 	 	 	5,062	 
	  Loans	 	 	17	 	 	 	71,068	 	 	 	34,938	 
	  Lease liability	 	 	13	 	 	 	66,397	 	 	 	64,885	 
	TOTAL LIABILITIES	 	 	 	 	 	 	44,674,347	 	 	 	3,252,362	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	SHAREHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	 	 	 	 
	  Share capital	 	 	18	 	 	 	75,459,911	 	 	 	36,943,304	 
	  Equity reserve	 	 	18	 	 	 	5,955,327	 	 	 	3,024,007	 
	  Accumulated deficit	 	 	 	 	 	 	(81,320,287	)	 	 	(36,119,210	)
	  Unrealized gain on investments available for sale	 	 	9	 	 	 	277,143	 	 	 	-	 
	  Accumulated other comprehensive loss	 	 	 	 	 	 	9,391	 	 	 	104	 
	TOTAL SHAREHOLDERS’ EQUITY	 	 	 	 	 	 	381,485	 	 	 	3,848,205	 
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	 	 	 	 	 	$	45,055,832	 	 	$	7,100,567	 



 


Nature and Continuance of Operations (Note 1)


Subsequent Events (Notes 1, 25)


 


Approved and authorized for issuance by the Board
of Directors on May 26, 2021.


 


	“Scott Larson”	 	“Cameron Chell”	 
	Director	 	Director	 



 


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


 






     


     


    

 


Draganfly Inc.


Condensed Consolidated Interim Statements of Comprehensive Loss
- Unaudited


Expressed in Canadian Dollars


	 	 	 	 	 	 	 
	 	 	 	 	 	For the three months ended	 
	 	 	 	 	 	March 31,	 	 	March 31,	 
	 	 	Note	 	 	2021	 	 	2020	 
	Revenue from sales of goods	 	 	19	 	 	$	1,129,307	 	 	$	22,356	 
	Revenue from provision of services	 	 	19	 	 	 	410,429	 	 	 	474,701	 
	TOTAL REVENUE	 	 	 	 	 	 	1,539,736	 	 	 	497,057	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	COST OF SALES	 	 	 	 	 	 	(1,024,729	)	 	 	(59,786	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	GROSS PROFIT	 	 	 	 	 	 	515,007	 	 	 	437,271	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	OPERATING EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 
	  Amortization	 	 	11	 	 	$	13,694	 	 	$	882	 
	  Depreciation	 	 	10,12	 	 	 	35,302	 	 	 	14,153	 
	  Director fees	 	 	22	 	 	 	86,691	 	 	 	-	 
	  Office and miscellaneous	 	 	20	 	 	 	2,339,401	 	 	 	650,297	 
	  Professional fees	 	 	 	 	 	 	868,479	 	 	 	92,425	 
	  Research and development	 	 	 	 	 	 	15,048	 	 	 	3,969	 
	  Share-based payments	 	 	18	 	 	 	1,049,866	 	 	 	519,384	 
	  Travel	 	 	 	 	 	 	28,758	 	 	 	7,620	 
	  Wages and salaries	 	 	 	 	 	 	402,361	 	 	 	366,503	 
	 	 	 	 	 	 	 	(4,839,600	)	 	 	(1,655,233	)
	OTHER INCOME (EXPENSE)	 	 	 	 	 	 	 	 	 	 	 	 
	  Change in fair value of derivative liability	 	 	18	 	 	 	(41,019,172	)	 	 	-	 
	  Finance and other costs	 	 	23	 	 	 	(6,405	)	 	 	(4,006	)
	  Foreign exchange gain (loss)	 	 	 	 	 	 	145,095	 	 	 	50,845	 
	  Gain on settlement of debt	 	 	24	 	 	 	-	 	 	 	67,493	 
	  Government income	 	 	 	 	 	 	20,706	 	 	 	-	 
	  Other income (loss)	 	 	 	 	 	 	(16,708	)	 	 	(478	)
	  Unrealized investment gain	 	 	9	 	 	 	277,143	 	 	 	-	 
	NET LOSS	 	 	 	 	 	$	(44,923,934	)	 	$	(1,104,108	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	OTHER COMPREHENSIVE LOSS	 	 	 	 	 	 	 	 	 	 	 	 
	  Foreign exchange translation	 	 	 	 	 	 	9,287	 	 	 	13,814	 
	COMPREHENSIVE LOSS	 	 	 	 	 	 	(44,914,647	)	 	 	(1,090,294	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss per share	 	 	 	 	 	 	 	 	 	 	 	 
	  Basic/Diluted	 	 	 	 	 	$	(0.48	)	 	$	(0.02	)
	Weighted average number of common shares outstanding	 	 	 	 	 	 	93,426,279	 	 	 	70,178,481	 



 


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


 






     


     


    

 


Draganfly Inc.


Condensed Consolidated Interim Statements of Changes in Shareholders’
Equity (Deficiency) - Unaudited


Expressed in Canadian Dollars


	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of Shares	 	 	Share Capital	 	 	Equity Reserve	 	 	Accumulated Deficit	 	 	Unrealized Gain on Investments Available for Sale	 	 	Accumulated Other Comprehensive Income	 	 	Total Shareholders’ Equity (Deficiency)	 
	Balance at December 31, 2019	 	 	69,670,613	 	 	$	27,786,517	 	 	$	2,508,233	 	 	$	(28,103,397	)	 	$	-	 	 	$	-	 	 	$	2,191,353	 
	Shares issued for exercise of warrants	 	 	3,110,800	 	 	 	1,155,539	 	 	 	(756,459	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	399,080	 
	Share-based payments	 	 	-	 	 	 	-	 	 	 	519,384	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	519,384	 
	Net loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,104,108	)	 	 	-	 	 	 	-	 	 	 	(8,015,813	)
	Translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	13,814	 	 	 	13,814	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at March 31, 2020	 	 	72,781,413	 	 	$	28,942,056	 	 	$	2,271,158	 	 	$	(29,207,505	)	 	$	-	 	 	$	13,814	 	 	$	2,019,523	 
	Shares issued for exercise of warrants	 	 	4,813,075	 	 	 	2,851,591	 	 	 	(888,734	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,962,857	 
	Shares issued for acquisition	 	 	3,225,438	 	 	 	2,178,961	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,178,961	 
	Shares issued as finder’s fees	 	 	200,000	 	 	 	100,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	100,000	 
	Shares issued for debt settlement	 	 	555,409	 	 	 	344,354	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	344,354	 
	Shares issued for financing	 	 	3,518,034	 	 	 	2,018,845	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,018,845	 
	Shares issued for exercise of RSUs	 	 	999,992	 	 	 	507,497	 	 	 	(507,497	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Share-based payments	 	 	-	 	 	 	-	 	 	 	2,149,080	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,149,080	 
	Net loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(6,911,705	)	 	 	-	 	 	 	-	 	 	 	(6,911,705	)
	Translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(13,710	)	 	 	(13,710	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at December 31, 2020	 	 	86,093,361	 	 	$	36,943,304	 	 	$	3,024,007	 	 	$	(36,119,210	)	 	$	-	 	 	$	104	 	 	$	3,848,205	 
	Shares issued for exercise of warrants	 	 	7,015,124	 	 	 	3,507,562	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,507,562	 
	Shares issued for acquisition	 	 	6,000,000	 	 	 	14,220,000	 	 	 	3,072,857	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	17,292,857	 
	Shares issued for exercise of RSUs	 	 	624,998	 	 	 	300,000	 	 	 	(300,000	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Shares issued for exercise of stock options	 	 	1,892,495	 	 	 	1,846,776	 	 	 	(891,403	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	955,373	 
	Shares issued for financing	 	 	32,443,457	 	 	 	18,717,438	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	18,717,438	 
	    Share issue costs	 	 	-	 	 	 	(273,169	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(273,169	)
	Shares issued in lieu of cash	 	 	75,000	 	 	 	198,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	198,000	 
	Share-based payments	 	 	-	 	 	 	-	 	 	 	1,049,866	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,049,866	 
	Net loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(45,201,077	)	 	 	-	 	 	 	-	 	 	 	(45,201,077	)
	Unrealized gain on investments available for sale	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	277,143	 	 	 	-	 	 	 	277,143	 
	Translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	9,287	 	 	 	9,287	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at March 31, 2021	 	 	134,144,435	 	 	$	75,459,911	 	 	$	5,955,327	 	 	$	(81,320,287	)	 	$	277,143	 	 	$	9,391	 	 	$	381,485	 




 


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


 






     


     


    

 


Draganfly Inc.


Condensed Consolidated Interim Statements of Cash Flows - Unaudited


Expressed in Canadian Dollars


	 	 	 	 
	 	 	For the three months ended	 
	 	 	March 31, 2021	 	 	March 31, 2020	 
	OPERATING ACTIVITIES	 	 	 	 	 	 	 	 
	  Comprehensive loss	 	$	(44,923,934	)	 	$	(1,104,108	)
	    Adjustments for:	 	 	 	 	 	 	 	 
	      Amortization	 	 	13,694	 	 	 	882	 
	      Depreciation	 	 	35,302	 	 	 	14,153	 
	      Change in fair value of derivative liability	 	 	41,019,172	 	 	 	-	 
	      Finance and other costs	 	 	6,405	 	 	 	4,006	 
	      Gain on settlement of debt	 	 	-	 	 	 	(67,493	)
	      Income from government assistance	 	 	(20,706	)	 	 	-	 
	      Share-based payments	 	 	1,049,866	 	 	 	519,384	 
	      Unrealized gain on investments	 	 	(277,143	)	 	 	-	 
	 	 	 	(3,097,344	)	 	 	(633,176	)
	Net changes in non-cash working capital items:	 	 	 	 	 	 	 	 
	      Accounts receivable	 	 	(136,170	)	 	 	64,604	 
	      Inventory	 	 	(143,786	)	 	 	(402,376	)
	      Prepaid expenses	 	 	33,881	 	 	 	155,416	 
	      Right of use asset	 	 	(14,365	)	 	 	-	 
	      Trade payables and accrued liabilities	 	 	(188,645	)	 	 	(104,688	)
	      Customer deposits	 	 	(95,646	)	 	 	-	 
	      Deferred income	 	 	(3,870	)	 	 	-	 
	      Loans	 	 	443,870	 	 	 	-	 
	      Lease liability	 	 	14,398	 	 	 	-	 
	Funds used in operations activities	 	 	(3,187,677	)	 	 	(920,220	)
	 	 	 	 	 	 	 	 	 
	INVESTING ACTIVITIES	 	 	 	 	 	 	 	 
	      Cash paid for acquisition	 	 	(250,000	)	 	 	-	 
	      Purchase of equipment	 	 	(103,274	)	 	 	-	 
	      Revaluation of equipment	 	 	3,619	 	 	 	-	 
	      Investments	 	 	(500,000	)	 	 	-	 
	Funds provided by (used in) investing activities	 	 	(849,655	)	 	 	-	 
	 	 	 	 	 	 	 	 	 
	FINANCING ACTIVITIES	 	 	 	 	 	 	 	 
	      Proceeds from issuance of common shares for financing	 	 	18,717,438	 	 	 	399,080	 
	          Share issue costs	 	 	(273,169	)	 	 	-	 
	      Proceeds from issuance of common shares in lieu of cash	 	 	198,000	 	 	 	-	 
	      Proceeds from issuance of common shares for warrants exercised	 	 	3,507,562	 	 	 	-	 
	      Proceeds from issuance of common shares for stock options exercised	 	 	955,373	 	 	 	-	 
	      Proceeds from issuance of loans	 	 	60,000	 	 	 	-	 
	      Repayment of loans	 	 	(24,513	)	 	 	-	 
	      Repayment of lease liability	 	 	(27,139	)	 	 	(10,750	)
	Funds provided by financing activities	 	 	23,113,552	 	 	 	388,330	 
	 	 	 	 	 	 	 	 	 
	Effects of exchange rate changes on cash	 	 	9,287	 	 	 	12,457	 
	Change in cash	 	 	19,076,220	 	 	 	(531,890	)
	Cash, beginning of period	 	 	1,982,416	 	 	 	2,429,375	 
	Cash, end of period	 	$	21,067,923	 	 	$	1,909,942	 



 


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


 






     


     


    

 


Draganfly Inc.


Condensed Consolidated Interim Statements of Cash
Flows - Unaudited


Expressed in Canadian Dollars


	 	 	 	 	 	 	 
	Cash and cash equivalents consist of the following:	 	 	 	 	 	 	 	 
	Cash held in banks	 	$	20,925,211	 	 	$	1,767,932	 
	Guaranteed investment certificate	 	 	142,712	 	 	 	142,010	 
	 	 	$	21,067,923	 	 	$	1,909,942	 



 


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


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		1.	NATURE AND CONTINUANCE OF OPERATIONS



 


Draganfly Inc. (the “Company”) was
incorporated on June 1, 2018 under the Business Corporations Act (British Columbia). The Company’s shares began trading on the Canadian
Securities Exchange (the “CSE”) under the symbol “DFLY”. The Company’s head office is located at 2108 St.
George Avenue, Saskatoon, SK, S7M 0K7 and its registered office is located at 2300 – 550 Burrard Street, Vancouver, BC, V6C 2B5.


 


On August 15, 2019, the Company and 1187607 B.C.
Ltd. (“Merger Co.”), a wholly-owned subsidiary of the Company, completed a Business Combination Agreement (the “BCA”)
with Draganfly Innovations Inc. (“Draganfly Innovations”) (the “Amalgamation”). Under the Amalgamation, shareholders
of Draganfly Innovations received 1.794 fully paid and non-assessable common shares in the authorized share structure of the Company for
each Draganfly Innovations share. Consequently, the Company owns 100% of Draganfly Innovations and the Draganfly Innovations shareholders
became shareholders of the Company. Draganfly is an operational business of developing and manufacturing multi-rotor helicopters, industrial
aerial video systems and civilian small unmanned aerial systems or vehicles. Pursuant to the Amalgamation the Company changed its name
to “Draganfly Inc.”.


 


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


 


There are significant uncertainties with respect
to future developments and impact to the Company related to the COVID-19 pandemic, including the duration, severity, and scope of the
outbreak and the measures taken by governments and businesses to contain the pandemic. While the impact of COVID-19 is expected to be
temporary, the current circumstances are dynamic and the impacts of COVID-19 on our business operations cannot be reasonably estimated
at this time. At the date of these financial statements, the outbreak and the related mitigation measures have had the following impacts
on the Company’s operations, among others: temporary closure of business locations, supply chain issues, and decrease in sales.
The extent to which these events may impact the Company’s business activities will depend on future developments, such 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.


 






     


     


    

  


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		2.	BASIS OF PREPARATION



 


Statement of Compliance


 


These condensed consolidated interim financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and interpretations issued by the International Reporting Interpretation Committee (“IFRIC”).
The principal accounting policies applied in the preparation of these interim financial statements, including International Accounting
Standards (“IAS”) 34 Interim Financial Reporting, are set out below. These policies have been consistently applied to all
years presented, unless otherwise stated.


 


The notes presented in these condensed consolidated
interim financial statements include only significant events and transactions occurring since the Company’s last fiscal year end
and they do not include all of the information required in the Company’s most recent annual financial statements. Except as noted
below, these condensed consolidated interim financial statements follow the same accounting policies and methods of application as the
Company’s annual financial statements and should be read in conjunction with the Company’s annual financial statements for
the year ended December 31, 2020, which were prepared in accordance with IFRS as issued by IASB. There have been no significant changes
in judgement or estimates from those disclosed in the financial statements for the year ended December 31, 2020.


 


These condensed consolidated interim financial
statements were authorized for issue by the Board of Directors on May 25, 2021.


 


The financial statements of the Company have been
prepared on a historical cost basis, modified where applicable. In addition, the financial statements have been prepared using the accrual
basis of accounting except for cash flow information.


 


Basis of consolidation


 


Each subsidiary is fully consolidated from the
date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control
ceases.


 


The consolidated financial statements include
the accounts and results of operations of the Company and its wholly owned subsidiaries listed in the following table:


 


	Name of Subsidiary	 	Place of Incorporation	 	 	Ownership Interest	 
	Draganfly Innovations Inc.	 	 	Canada	 	 	 	100	%
	Draganfly Innovations USA, Inc.	 	 	US	 	 	 	100	%
	Dronelogics Systems Inc.	 	 	Canada	 	 	 	100	%



 


All intercompany balances and transactions were
eliminated on consolidation.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		3.	DRONELOGICS ACQUISITIONS



 


On April 30, 2020, the Company acquired all of
the issued and outstanding shares of Dronelogics Systems Inc. (“Dronelogics”), excluding the cinematography division, for
consideration of $500,000 cash and 3,225,438 common shares (the “Transaction”).


 


In connection with the Transaction, the Company
paid fees of $160,000 to certain advisors consisting of $100,000 by way of 200,000 in shares at a price of $0.50 per share and as to $60,000
in cash or shares at a deemed price of $0.50 per share. At closing, the Company (i) granted 445,000 incentive stock options to certain
employees of Dronelogics pursuant to the Company’s share compensation plan, exercisable at a price equal to closing price of the
shares on the CSE on January 31, 2020. The options 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 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	 
	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	 



 


The Company estimated the fair value
as follows:


 


		•	Customer relationships based on an income approach, specifically
multi-period excess earnings method, by identifying key customers, applying attribution rate of 15% per annum and discount rate of 18%
per annum; and



 




		•	Website based on an income approach, specifically relief from royalty methodology,
using a reasonable royalty rate of 0.5% and discount rate of 17% per annum.



 


Furthermore, the excess of the consideration
paid over the fair value of the identifiable assets (liabilities) acquired were recognized as goodwill, which primarily consisted of the
assembled workforce.


 


From the date of the acquisition to
December 31, 2020, the acquired business contributed $4,086,350 of revenue and a net income of $434,528.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		4.	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 were issued on March 22, 2021.


 


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.


 


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.



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		4.	VITAL INTELLIGENCE ACQUISITION



 


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.



 


		5.	CASH AND CASH EQUIVALENTS



 


	 	 	March 31, 2020	 	 	December 31, 2020	 
	Cash held in banks	 	$	20,925,211	 	 	$	1,839,871	 
	Guaranteed investment certificate	 	 	142,712	 	 	 	142,545	 
	 	 	$	21,067,923	 	 	$	1,982,416	 



 


On March 27, 2021, the Company has $142,710 in
a guaranteed investment certificate (“GIC”) to secure its credit cards. The terms of the GIC are for 1 year at a rate of 0.10%
per annum.


 


		6.	AMOUNTS RECEIVABLE



 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Trade accounts receivable	 	$	946,961	 	 	$	780,254	 
	SR&ED receivable	 	 	-	 	 	 	30,537	 
	 	 	$	946,961	 	 	$	810,791	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars 


 





		7.	INVENTORY



 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Finished goods	 	$	1,286,017	 	 	$	1,155,871	 
	Parts	 	 	91,388	 	 	 	77,748	 
	 	 	$	1,377,405	 	 	$	1,233,619	 



 


During the three months ended March 31, 2021,
$784,095 (2020: $7,576) of inventory was sold and recognized in cost of sales.


 


		8.	PREPAID EXPENSES AND DEPOSITS



 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Insurance	 	$	29,195	 	 	$	992	 
	Prepaid interest	 	 	4,750	 	 	 	-	 
	Prepaid marketing services	 	 	56,532	 	 	 	187,826	 
	Prepaid rent	 	 	-	 	 	 	3,583	 
	Prepaid subscriptions	 	 	4,167	 	 	 	5,953	 
	Deposits	 	 	206,497	 	 	 	136,668	 
	 	 	$	301,141	 	 	$	335,022	 



 


		9.	INVESTMENTS



 


On March 10, 2021, the Company purchased 1,428,571
units of a company for $500,000. Each unit is comprised of one common share and one share purchase warrant. These warrants have an exercise
price of $0.50 per warrant, each convert to one common share, and have a life of two years, expiring on March 17, 2023. These assets have
been classified as Available for Sale and any unrealized gains or losses will be recognized through the income statement.


 


	Balance at March 10, 2021	 	$	500,000	 
	  Gain/Loss	 	 	277,143	 
	Balance at March 31, 2021	 	$	777,143	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		10.	EQUIPMENT



 


	 	 	Computer Equipment	 	 	Furniture and Equipment	 	 	Leasehold Improvements	 	 	Software	 	 	Vehicles	 	 	Total	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2020	 	$	7,000	 	 	$	142,173	 	 	$	-	 	 	$	29,967	 	 	$	-	 	 	$	179,140	 
	  Additions	 	 	2,028	 	 	 	21,860	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	23,888	 
	  Net assets acquired in the Acquisition	 	 	15,369	 	 	 	7,573	 	 	 	4,352	 	 	 	-	 	 	 	27,652	 	 	 	54,946	 
	Balance at December 31, 2020	 	$	24,397	 	 	$	171,606	 	 	$	4,352	 	 	$	29,967	 	 	$	27,652	 	 	$	257,974	 
	  Additions	 	 	1,505	 	 	 	101,769	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	103,274	 
	  Revaluation	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,619	)	 	 	(3,619	)
	Balance at March 31, 2021	 	$	25,902	 	 	$	273,376	 	 	$	4,352	 	 	$	29,967	 	 	$	24,033	 	 	$	357,629	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2020	 	$	6,761	 	 	$	37,944	 	 	$	-	 	 	$	19,294	 	 	$	-	 	 	$	63,999	 
	  Charge for the year	 	 	5,631	 	 	 	22,019	 	 	 	3,220	 	 	 	3,202	 	 	 	6,033	 	 	 	40,105	 
	Balance at December 31, 2020	 	$	12,392	 	 	$	59,963	 	 	$	3,220	 	 	$	22,496	 	 	$	6,033	 	 	$	104,104	 
	  Charge for the year	 	 	1,744	 	 	 	7,606	 	 	 	1,132	 	 	 	560	 	 	 	1,350	 	 	 	12,392	 
	Balance at March 31, 2021	 	$	14,136	 	 	$	67,569	 	 	$	4,352	 	 	$	23,056	 	 	$	7,383	 	 	$	116,496	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2020	 	$	12,005	 	 	$	111,643	 	 	$	1,132	 	 	$	7,471	 	 	$	21,619	 	 	$	153,870	 
	March 31, 2021	 	$	11,765	 	 	$	205,807	 	 	$	-	 	 	$	6,911	 	 	$	16,650	 	 	$	241,133	 




 


		11.	INTELLECTUAL PROPERTY



 


	 	 	Patents	 	 	Customer Relationships	 	 	Brand & Software	 	 	Goodwill	 	 	Total	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2020	 	$	41,931	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	41,931	 
	  Intangible assets acquired in the Transaction	 	 	-	 	 	 	197,000	 	 	 	119,000	 	 	 	2,166,563	 	 	 	2,482,563	 
	Balance at December 31, 2020	 	$	41,931	 	 	$	197,000	 	 	$	119,000	 	 	$	2,166,563	 	 	$	2,524,494	 
	Intangible
assets acquired in the Acquisition
	 	 	-	 	 	 	-	 	 	 	2,251,000	 	 	 	15,530,516	 	 	 	17,781,516	 
	Balance at March 31, 2021	 	$	41,931	 	 	$	197,000	 	 	$	2,370,000	 	 	$	17,697,079	 	 	$	20,264,079	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated amortization	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2020	 	$	40,546	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	40,546	 
	  Charge for the year	 	 	1,385	 	 	 	26,267	 	 	 	15,866	 	 	 	-	 	 	 	43,518	 
	Balance at December 31, 2020	 	$	41,931	 	 	$	26,267	 	 	$	15,866	 	 	$	-	 	 	$	84,064	 
	  Charge for the year	 	 	-	 	 	 	8,537	 	 	 	5,157	 	 	 	-	 	 	 	13,694	 
	Balance at March 31, 2021	 	$	41,931	 	 	$	34,804	 	 	$	21,023	 	 	$	-	 	 	$	97,758	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2020	 	$	-	 	 	$	170,733	 	 	$	103,134	 	 	$	2,166,563	 	 	$	2,440,430	 
	March 31, 2021	 	$	-	 	 	$	162,196	 	 	$	2,348,977	 	 	$	17,697,079	 	 	$	20,208,252	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		11.	INTELLECTUAL PROPERTY (CONT’D)



 


Customer relationships


On April 30, 2020, the Company acquired
a 100% interest in Dronelogics and assigned $197,000 to the fair value of customer relationships.


 


Brand


On April 30, 2020, the Company acquired
a 100% interest in Dronelogics and assigned $119,000 to the fair value of the website/domain name.


 


On March 25, 2021, the Company acquired
the assets of Vital and assigned $540,000 to the fair value of the brand.


 


Software


On March 25, 2021, the Company acquired
the assets of Vital and assigned $1,711,000 to the fair value of the software.


 


Goodwill


On April 30, 2020, the Company acquired
a 100% interest in Dronelogics, which included goodwill. Goodwill was valued at $2,166,563.


 


On March 25, 2021, the Company acquired
the assets of Vital, which included goodwill. Goodwill was valued at $15,530,516.


 


The key assumptions used in the calculations
of the recoverable amounts include sales growth per year, changes in cost of sales and capital expenditures based on internal forecasts.


 


		12.	RIGHT OF USE ASSETS



 


	 	 	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	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars 


 


		13.	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.	TRADE PAYABLES AND ACCRUED LIABILITIES



 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Trade accounts payable	 	$	1,303,477	 	 	$	813,881	 
	Accrued liabilities	 	 	478,669	 	 	 	512,205	 
	Due to related parties (Note 21)	 	 	92,250	 	 	 	475,628	 
	Government grant payable (Note 20)	 	 	33,709	 	 	 	33,709	 
	GST/PST Payable	 	 	11,829	 	 	 	21,754	 
	 	 	$	1,919,934	 	 	$	1,857,177	 



 


		15.	CUSTOMER DEPOSITS



 


The Company takes a customer deposit on certain
orders.


 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Customer deposits	 	$	289,803	 	 	$	385,449	 



 


		16.	DEFERRED INCOME



 


At times, the Company’s subsidiaries may
take payment in advance for services to be rendered. These amounts are held and recognized as services are rendered.


 


	 	 	March 31, 2021	 	 	December 31, 2020	 
	Deferred income from customers	 	$	440,000	 	 	$	-	 
	Deferred income from government	 	 	8,932	 	 	 	5,062	 
	 	 	 	448,932	 	 	 	5,062	 



 


The deferred income from the government is the
calculated fair value of the interest on the Canadian Emergency Business Account (CEBA) loans which is accreted over the remaining expected
life of the loans.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		17.	LOANS



 


	 	 	Start
    Date	 	Maturity
    Date	 	Rate	 	 	Principal	 	 	Interest	 	 	Total	 
	CEBA	 	2020-05-19	 	2022-12-31	 	 	0	%	 	$	33,848	 	 	$	1,686	 	 	$	35,534	 
	CEBA	 	2021-03-15	 	2022-12-31	 	 	0	%	 	 	35,424	 	 	 	110	 	 	 	35,534	 
	Vehicle loan	 	2019-08-30	 	2024-09-11	 	 	6.99	%	 	 	19,831	 	 	 	3,778	 	 	 	23,609	 
	Shopify loan	 	2020-08-05	 	 	 	 	7.00	%	 	 	13,884	 	 	 	972	 	 	 	14,856	 
	Total	 	 	 	 	 	 	 	 	 	$	102,987	 	 	$	6,546	 	 	$	109,533	 



 


On May 19, 2020, Dronelogics received a $40,000
CEBA loan. This loan is currently interest-free and 25% of the loan, up to $10,000, is forgivable if the loan is repaid on or before December
31, 2022. If the loan is not repaid by that date, the loan can be converted to a three-year term loan at an interest rate of 5%.


 


On December 4, 2020, the Government of Canada
allowed for an expansion of the CEBA loan by $20,000, of which, an additional $10,000 is forgivable if the loan is repaid on or before
December 31, 2022.


 


On March 15, 2021, Draganfly Innovations Inc.
received a $60,000 CEBA loan. This loan is currently interest free and up to $20,000 is forgivable if the loan is repaid on or before
December 31, 2022. If the loan is not repaid by that date, the loan can be converted to a three-year term loan at an interest rate of
5%.


 


The CEBA loans are unsecured, the vehicle loan
is secured by the vehicle, and the Shopify loan is secured by the Company’s accounts receivable.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars 


 


		18.	SHARE CAPITAL



 


Authorized share capital


Unlimited number of common shares without par
value.


 


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.



 


Stock Options


 


The Company has adopted an incentive share compensation
plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the CSE
requirements, grant to directors, officers, employees, and technical consultants to the Company, non-transferable stock options to purchase
common shares. The total number of common shares reserved and available for grant and issuance pursuant to this plan shall not exceed
20% (in the aggregate) of the issued and outstanding common shares from time to time. The number of options awarded and underlying vesting
conditions are determined by the Board of Directors in its discretion.


 


As at March 31, 2021, the Company had the following
options outstanding and exercisable:


 


	Grant Date	 	Expiry Date	 	Exercise Price	 	 	Remaining Contractual Life (years)	 	 	Number of Options Outstanding	 	 	Number of Options Exercisable	 
	October 30, 2019	 	October 30, 2029	 	$	0.50	 	 	 	8.59	 	 	 	1,483,337	 	 	 	599,998	 
	November 19, 2019	 	November 19, 2029	 	$	0.50	 	 	 	8.64	 	 	 	250,000	 	 	 	166,666	 
	April 30, 2020	 	April 30, 2030	 	$	0.50	 	 	 	9.09	 	 	 	445,000	 	 	 	124,999	 
	April 30, 2020	 	April 30, 2030	 	$	0.77	 	 	 	9.09	 	 	 	550,000	 	 	 	150,000	 
	July 3, 2020	 	July 3, 2025	 	$	0.64	 	 	 	4.26	 	 	 	1,000,000	 	 	 	166,666	 
	November 24, 2020	 	November 24, 2030	 	$	0.50	 	 	 	9.66	 	 	 	160,000	 	 	 	50,000	 
	December 11, 2020	 	December 11, 2030	 	$	0.43	 	 	 	9.70	 	 	 	187,500	 	 	 	-	 
	February 2, 2021	 	February 2, 2031	 	$	2.64	 	 	 	9.85	 	 	 	150,000	 	 	 	50,000	 
	March 8, 2021	 	March 8, 2026	 	$	2.78	 	 	 	4.94	 	 	 	50,000	 	 	 	12,500	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	4,275,837	 	 	 	1,320,829	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed
Consolidated Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		18.	SHARE CAPITAL (CONT’D)



 


	 	 	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, 2021	 	 	4,275,837	 	 	$	0.67	 



 


During the three months ended March
31, 2021,


		-	The Company granted 150,000 options to an employee. Each option is exercisable
at $2.64 per share for 10 years.



		-	The Company granted 50,000 options to a consultant. Each option is exercisable
at $2.78 per share for 5 years.



 


During the year ended December 31,
2020,


		-	The Company granted 445,000 options to employees. Each option is exercisable at
$0.50 per share for a period of 10 years from the grant date.



		-	The Company issued 600,000 options to consultants. Each option is exercisable at
$0.77 per share for a period of 10 years from the grant date.



		-	The Company granted 1,000,000 options to employees. Each option is exercisable
at $0.64 per share for a period of 5 years from the grant date.



		-	The Company granted 165,000 options to employees. Each option is exercisable at
$0.50 per share for a period of 10 years from the grant date.



		-	The Company granted 250,000 options to a consultant. Each option is exercisable
at $0.43 per share for a period of 10 years from the grant date.



 


During the three months ended March 31, 2021,
the Company recorded share-based payment expense of $516,351 (2020: $274,584).


 


Restricted Share Units


 


The Company has adopted an incentive share compensation
plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the Exchange
requirements, grant to directors, officers, employees, and technical consultants to the Company, restricted stock units (RSUs). The number
of RSUs awarded and underlying vesting conditions are determined by the Board of Directors in its discretion. RSUs will have a 3-year
vesting period following the award date. The total number of common shares reserved and available for grant and issuance pursuant to this
plan, and the total number of Restricted Share Units that may be awarded pursuant to this plan, shall not exceed 20% (in the aggregate)
of the issued and outstanding common shares from time to time.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		18.	SHARE CAPITAL (CONT’D)



 


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


 


	 	 	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	 



 


During the three months ended March 31, 2021,
the Company accelerated the vesting of 624,998 RSUs and issued 740,000 RSUs to employees of the Company with each RSU exercisable into
one common share of the Company or the cash equivalent thereof upon the vesting conditions being met for a period of three years from
the grant date.


 


During the year ended December 31, 2020, the Company
committed to grant 1,240,000 RSUs to employees and consultants of the Company with each RSU exercisable into one common share of the Company
or the cash equivalent thereof upon the vesting conditions being met for a period of three years from the grant date.


 


During the three months ended March 31, 2021,
the Company recorded share-based payment expense of $533,515 in stock-based compensation for RSUs, based on the fair values of RSUs granted
which were calculated using the closing price of the Company’s stock on the day prior to grant.


 


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	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		18.	SHARE CAPITAL (CONT’D)



 


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.


 


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



 


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 (December 31, 2020 - 0.90 years).


 


Of the 6,000,000 warrants issued on March 22,
2021 to acquire Vital, 4,500,000 of the warrants are currently held in escrow, to be released upon completion of the milestones (note
4).


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 


		19.	REVENUE



 


The Company sub-classifies revenue within the
following components: product revenue and consulting revenue. Product revenue comprises of sales of internally assembled multi-rotor helicopters,
industrial aerial video systems, civilian small unmanned aerial systems or vehicles, and wireless video systems. Consulting revenue consists
of fees charged for custom engineering and training and simulation consulting.


 


	 	 	March 31, 2021	 	 	March 31, 2020	 
	Product sales	 	$	1,129,307	 	 	$	22,356	 
	Drone service	 	 	409,963	 	 	 	-	 
	Custom engineering services	 	 	466	 	 	 	474,701	 
	 	 	$	1,539,736	 	 	$	497,057	 



 


The Company does not derive significant
revenue from any (2019 – one) customers, which exceed 10% of total revenues for the three months ended March 31, 2021 (2020 –
$474,701 of custom engineering services revenue).


 


Consulting revenue:


 


On May 22, 2017, the Company executed
a standard consulting agreement, whereby the Company would provide consulting, custom engineering and investigating and solving on a project-by-project
basis. The Company shall be responsible for the development, design, procurement, fabrication, assembly, integration, checkout, integration
and test of hardware, software, and firmware necessary to produce a complete system per each project. The consideration for the services
performed are based on the labor cost incurred on an hourly basis and minimal preapproved expenditures.


 


Geographic revenue segmentation is as follows:


 


	 	 	March 31, 2021	 	 	March 31, 2020	 
	Canada	 	$	769,380	 	 	$	7,931	 
	United States	 	 	769,419	 	 	 	489,126	 
	International	 	 	937	 	 	 	-	 
	 	 	$	1,539,736	 	 	$	497,057	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		19.	REVENUE (CONT’D)



 


The Company operates in an international
market with four reportable operating segments.


 


	 	 	Draganfly Inc.	 	 	Draganfly Innovations Inc.	 	 	Draganfly Innovations USA, Inc.	 	 	Dronelogics Systems Inc.	 	 	Total	 
	Product sales	 	$	-	 	 	$	16,722	 	 	$	2,127	 	 	$	1,110,459	 	 	$	1,129,308	 
	Drone services	 	 	-	 	 	 	-	 	 	 	244,552	 	 	 	165,410	 	 	 	409,962	 
	Custom engineering services	 	 	-	 	 	 	466	 	 	 	-	 	 	 	-	 	 	 	466	 
	 	 	 	-	 	 	 	17,188	 	 	 	246,679	 	 	 	1,275,869	 	 	 	1,539,736	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost of sales	 	 	-	 	 	 	(28,645	)	 	 	(170,756	)	 	 	(825,328	)	 	 	(1,024,729	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	-	 	 	 	(11,457	)	 	 	75,923	 	 	 	450,541	 	 	 	515,007	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expenses	 	 	3,452,771	 	 	 	834,203	 	 	 	142,847	 	 	 	409,779	 	 	 	4,839,600	 
	Other income (expenses)	 	 	(41,015,596	)	 	 	489,382	 	 	 	-	 	 	 	(73,127	)	 	 	(40,599,341	)
	Net income (loss)	 	 	(44,468,367	)	 	 	(356,278	)	 	 	(66,924	)	 	 	(32,365	)	 	 	(44,923,934	)
	Cumulative translation differences	 	 	-	 	 	 	-	 	 	 	9,287	 	 	 	-	 	 	 	9,287	 
	Comprehensive income (loss)	 	$	(44,468,367	)	 	$	(356,278	)	 	$	(57,637	)	 	$	(32,365	)	 	$	(44,914,647	)



 


The Company separated the operating
segments based on the existing subsidiaries and have revenues as follows:


		-	Draganfly Inc.: No revenues.



		-	Draganfly Innovations Inc.: Product sales revenues and revenues derived from custom
integration and engineering services.



		-	Draganfly Innovations USA, Inc.: Product sales revenues and revenues derived from
drone and health/telehealth services.



		-	Dronelogics Systems Inc.: Product sales revenues and revenues derived from rental,
repair, drone as a service, and training services.



 


For 2020 and 2021, all revenues are
derived from external customers.


 


		20.	OFFICE AND MISCELLANEOUS



 


	 	 	March 31, 2021	 	 	March 31, 2020	 
	Advertising, Marketing, and Investor Relations	 	$	2,095,092	 	 	$	486,639	 
	Contract Work	 	 	34,077	 	 	 	118,663	 
	Other	 	 	210,232	 	 	 	44,995	 
	 	 	$	2,339,401	 	 	$	650,297	 



 






     


     


    

 


Draganfly Inc.


Notes to the Condensed
Consolidated Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		21.	GOVERNMENT ASSISTANCE



 


In February 2016, the Company and an Alberta-based
government funded not-for-profit organization (the “Organization”) entered into a funding agreement, whereby the Organization
would fund 50% of the total costs, up to $375,000 to the Company for the development of a new product. During the year ended December
31, 2016, the Company received $75,000 in funding. On February 28, 2017, the Company and the Organization entered into a repayment agreement,
where the Company would refund and repay a portion of the Organization’s initial funding. The repayment agreement set out the terms
and conditions upon which the Company was to pay $41,292 over a 12-month repayment plan. In addition, the Company will pay the Organization
$33,709 if the Company ever sells a product that the Organization’s funding contributed to. During the year ended December 31, 2019,
the final repayment of $13,764 was made and the contingent balance of $33,709 remains in government grants payable (Note 13).


 


		22.	RELATED PARTY TRANSACTIONS



 


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


 


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.


 






     


     


    

 


Draganfly Inc.


Notes to the Condensed Consolidated
Interim Financial Statements - Unaudited


For The Three Months Ended March 31, 2021


Expressed in Canadian Dollars


 





		22.	RELATED PARTY TRANSACTIONS (CONT’D)



 


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	 



 


		23.	FINANCE AND OTHER COSTS



 


	 	 	March 31, 2021	 	 	March 31, 2020	 
	Accretion expense	 	$	706	 	 	$	-	 
	Interest expense on lease liabilities	 	 	4,297	 	 	 	-	 
	Interest income on GIC	 	 	(2	)	 	 	(10	)
	Interest on outstanding trade payables and bank charges	 	 	1,404	 	 	 	4,016	 
	 	 	$	6,405	 	 	$	4,006	 



 


		24.	GAIN ON SETTLEMENT OF DEBT



 


During the three months ended March 31, 2020,
as a result of the transactions relating to the private placement and ensuing debt repayments, a gain of $67,493 was recognized on the
settlement of outstanding debt.


 


		25.	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.