Exhibit 99.1
Draganfly Inc.
Condensed Consolidated Interim Financial Statements — Unaudited
For the Three and Nine Months Ended September 30, 2026
(Expressed in Canadian Dollars)
Draganfly Inc. Condensed Consolidated Interim Statements of Financial Position - Unaudited Expressed in Canadian Dollars |
| September 30, | December 31, | |||||||||
| As at | Notes | 2026 | 2025 | |||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Receivables | 5 | |||||||||
| Inventory | 6 | |||||||||
| Prepaids and deposits | 7 | |||||||||
| Non-current assets | ||||||||||
| Equipment | 8 | |||||||||
| Intangible assets | ||||||||||
| Investments | 9 | |||||||||
| Goodwill | 10 | |||||||||
| Right-of-use assets | 11 | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current liabilities | ||||||||||
| Trade payables and accrued liabilities | 13,20 | $ | $ | |||||||
| Customer deposits | ||||||||||
| Deferred revenue | 14 | |||||||||
| Derivative liability | 15 | |||||||||
| Lease liabilities | 12 | |||||||||
| Non-current liabilities | ||||||||||
| Deferred revenue | 14 | |||||||||
| Lease liabilities | 12 | |||||||||
| TOTAL LIABILITIES | ||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||
| Share capital | 15 | |||||||||
| Reserves – share-based payments | 15 | |||||||||
| Reserves – Warrants | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||||
Approved and authorized for issuance by the Board of Directors on November 10, 2026
| “Kim Moody” | “Cameron Chell” | |
| Director | Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 2 |
Draganfly Inc. Condensed Consolidated Interim Statements of Comprehensive loss - Unaudited Expressed in Canadian Dollars |
| For the three months ended | For the nine months ended | |||||||||||||||||
| September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||
| Sales of goods | 17 | $ | $ | $ | $ | |||||||||||||
| Provision of services | 17 | |||||||||||||||||
| TOTAL REVENUE | ||||||||||||||||||
| COST OF SALES | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| GROSS PROFIT | ||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||||
| Depreciation | 8,11 | |||||||||||||||||
| Director fees | 20 | |||||||||||||||||
| Insurance | ||||||||||||||||||
| Office and miscellaneous | 18 | |||||||||||||||||
| Professional fees | ||||||||||||||||||
| Research and development | ||||||||||||||||||
| Share-based payments | 15,20 | |||||||||||||||||
| Travel | ||||||||||||||||||
| Employee and management expenses | 20 | |||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||
| Change in fair value of derivative liability | 15 | ( | ) | ( | ) | ( | ) | |||||||||||
| Finance and other gain | 16 | |||||||||||||||||
| Foreign exchange (loss) gain | ( | ) | ||||||||||||||||
| Gain (loss) on disposal of assets | ( | ) | ||||||||||||||||
| Gain (loss) on recovery (impairment) of notes receivable | ||||||||||||||||||
| Other income (expense) | 19 | ( | ) | ( | ) | |||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||||
| Items that may be reclassified to profit or loss | ||||||||||||||||||
| Foreign exchange translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Items that will not be reclassified to profit or loss | ||||||||||||||||||
| Change in fair value of equity investments at FVTOCI | ( | ) | ( | ) | ||||||||||||||
| COMPREHENSIVE LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss per share – Basic & diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||
| Weighted average number of common shares outstanding – Basic & diluted | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 3 |
Draganfly Inc. Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity - Unaudited Expressed in Canadian Dollars |
| Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||
| Number of Shares | Share Capital | Reserve - Share-Based Payments |
Reserves – Warrants | Accumulated Deficit | Change in Fair Value of Investments at FVTOCI | Exchange Differences on Translation of Foreign Operations | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | ||||||||||||||||||||
| Units issued for financing | ||||||||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for exercise of overallotment | ||||||||||||||||||||||||||||||||
| Share issue costs – overallotment | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for the exercise of warrants | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for the exercise of RSUs | ( | ) | ||||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Change in fair value of equity investments at FVTOCI | - | |||||||||||||||||||||||||||||||
| Translation of foreign operations | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Shares issued for financing | - | |||||||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for the exercise of warrants | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for the exercise of RSUs | ||||||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Change in fair value of equity investments at FVTOCI | - | |||||||||||||||||||||||||||||||
| Translation of foreign operations | - | |||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for the exercise of warrants | ||||||||||||||||||||||||||||||||
| Shares issued for the exercise of RSUs | ( | ) | ||||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Change in fair value of equity investments at FVTOCI | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Translation of foreign operations | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 4 |
Draganfly Inc. Condensed Consolidated Interim Statements of Cash Flows - Unaudited Expressed in Canadian Dollars |
| For the nine months ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments for: | ||||||||
| Amortization | ||||||||
| Depreciation | ||||||||
| Impairment of accounts receivable | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Impairment of inventory | ||||||||
| Gain on recovery of notes receivable | ( | ) | ||||||
| Finance and other costs | ||||||||
| Gain (loss) on disposal of assets | ||||||||
| Share-based payments | ||||||||
| ( | ) | ( | ) | |||||
| Net changes in non-cash working capital items: | ||||||||
| Receivables | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaids | ( | ) | ( | ) | ||||
| Trade payables and accrued liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Acquisition of Skip Dynamix | ( | ) | ||||||
| Repayment of notes receivable | ||||||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common shares for financing | ||||||||
| Share issue costs | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares for warrants exercised | ||||||||
| Repayment of lease liabilities | ( | ) | ( | ) | ||||
| Cash provided by financing activities | ||||||||
| Effects of exchange rate changes on cash | ||||||||
| Change in cash | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW DISCLOSURE | ||||||||
| Interest paid | $ | $ | ||||||
| Interest received | ||||||||
| Share issue costs in accounts payable | ||||||||
| Fixed assets in accounts payable | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 5 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 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 trade on the following stock exchanges: NASDAQ: DPRO; CSE: DPRO; FSE: 3U8. The Company’s head office is located at 235 103rd St. E, Saskatoon, SK, S7N 1Y8 and its registered office is located at 2800 – 666 Burrard Street, Vancouver, BC, V6C 2Z7.
Draganfly is a manufacturer, contract engineering, and product development company within the commercial UAV space serving the public safety, civil, military, agriculture, industrial inspections and mapping and surveying markets.
| 2. | BASIS OF PREPARATION |
Statement of Compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. The Company has prepared these financial statements on the basis that it will continue to operate as a going concern. These condensed consolidated interim financial statements include all necessary disclosures required for interim financial statements but do not include all disclosures required for annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2025.
These condensed consolidated interim financial statements were authorized for issue by the Board of Directors on November 10, 2026.
Basis of consolidation
Each subsidiary is fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continues to be consolidated until the date when such control ceases.
The condensed consolidated interim 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. (“DII”) | ||||
| Draganfly Innovations USA, Inc. (“DI USA”) | ||||
| Dronelogics Systems Inc. (“Dronelogics”) |
All intercompany balances and transactions were eliminated on consolidation.
| 3. | MATERIAL ACCOUNTING POLICY INFORMATION, ESTIMATES, AND JUDGEMENTS |
The preparation of condensed consolidated interim financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. These condensed consolidated interim financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the condensed consolidated interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods.
These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
| 6 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 3. | MATERIAL ACCOUNTING POLICY INFORMATION, ESTIMATES AND JUDGEMENTS (CONT’D) |
Accounting policy added in the quarter
Business Combinations
The acquisition method of accounting is used to account for the acquisition of businesses by the Company. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and debt incurred or assumed at the acquisition date. Costs directly attributable to the acquisition are expensed in the period incurred. The fair value of the assets and liabilities acquired is determined and compared to the fair value of the consideration paid. If the fair value of the consideration paid exceeds the fair value of the net assets acquired, then goodwill is recognized.
Goodwill
Goodwill represents the excess of value of the consideration transferred over the fair value of the net identifiable assets and liabilities acquired in a business combination. Goodwill is allocated to the cash generating unit to which it relates.
Addition to the impairment of non-financial assets section of Financial Instruments
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If indicators exist, then the asset’s recoverable amount is estimated. The recoverable amounts of the following types of intangible assets are measured annually, whether or not there is any indication that it may be impaired:
| ● | an intangible asset with an indefinite useful life; | |
| ● | an intangible asset not yet available for use; and | |
| ● | goodwill recognized in a business combination. |
The recoverable amount of an asset or cash-generating unit (“CGU”) is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.
If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the condensed consolidated statement of comprehensive loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
In respect of assets other than goodwill and intangible assets that have indefinite useful lives, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed in a subsequent period when there has been an increase in the recoverable amount of a previously impaired asset or CGU. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
| 7 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 3. | MATERIAL ACCOUNTING POLICY INFORMATION, ESTIMATES AND JUDGEMENTS (CONT’D) |
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
Critical accounting estimates:
| a) | The value of inventories carried at the lower of cost and net realizable value; | |
| b) | The measurement and recognition of deferred tax assets and liabilities; | |
| c) | Recoverable amount of CGUs; | |
| d) | Share-based payments; | |
| e) | The measurement of the purchase price and identification of assets acquired, and liabilities assumed in |
business combinations;
| f) | Investments in private companies; | |
| g) | Expected credit losses on trade receivables and notes receivable; and | |
| h) | Useful lives of equipment and intangible assets |
Critical accounting judgments:
| a) | The determination of categories of financial assets and financial liabilities; | |
| b) | The evaluation of the Company’s ability to continue as a going concern; | |
| c) | Determination of the functional currency of the entity and its subsidiaries; and | |
| d) | The assessment of indications of impairment of intangible assets. |
| 4. | SKIP DYNAMIX |
On June 9, 2026, the Company acquired the assets of Skip Dynamix, Corporation (“Skip”), a company that had developed a fixed wing drone. The Company acquired it to diversify its drone offering and add a kind of drone not previously produced by the Company.
Consideration for the transaction is as follows:
| a) | On
the close of the transaction $ |
The acquisition will be accounted for as a business acquisition under IFRS 3.
Skip
contributed revenue of $ and
a net loss of $
In addition, warrants were issued as part of the transaction and are considered employee compensation. See note 15 for details.
| 8 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 4. | SKIP DYNAMIX (CONT’D) |
The preliminary purchase price and the preliminary allocation of consideration to the assets and liabilities acquired is as follows:
| Preliminary assets and liabilities acquired/assumed | ||||||||
| USD | CAD | |||||||
| Inventory | ||||||||
| Working capital adjustment | ||||||||
| Foreign exchange | ( | ) | ||||||
| Preliminary goodwill | ||||||||
| Total preliminary consideration | $ | $ | ||||||
| Cash portion of purchase price | $ | $ | ||||||
The
acquisition included a working capital target of $
The Company is still in the process of determining the value allocated to goodwill and whether amounts may need to be allocated to any other intangible assets. Accordingly, the purchase price is a preliminary allocation. The goodwill represents the value of acquiring the ability to produce a new fixed wing drone that was not part of the Company’s current offering and the expertise acquired through employees brought across with the knowledge to produce these drones.
| 5. | RECEIVABLES |
| As at | September 30, 2026 | December 31, 2025 | ||||||
| Trade accounts receivable | $ | $ | ||||||
| Sales tax receivable | ||||||||
| $ | $ | |||||||
Expected credit loss
| Balance at December 31, 2024 | ( | ) | ||
| Additional amounts provided for the year | ( | ) | ||
| Trade receivables written off during the year | ||||
| Foreign exchange | ||||
| Balance at December 31, 2025 | $ | ( | ) | |
| Additional amounts recovered during the period | ||||
| Foreign exchange | ( | ) | ||
| Balance at September 30, 2026 | $ | ( | ) |
During
the three and nine months ended September 30, 2026, the Company recorded an expected credit loss recovery of $
| 9 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 5. | RECEIVABLES (CONT’D) |
The Company assumes that the credit risk on a financial asset has increased if it is outstanding beyond the agreed payment terms. The Company considers a receivable to be in default when the customer is unlikely to pay its obligations to the Company in full. The carrying amount of a receivable is written-off (either partially or in full) to the extent that there is no realistic prospect of recovery.
Indicators that there is no reasonable expectation of recovery include, amongst others, business failure, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments over the negotiated contract period.
| 6. | INVENTORY |
| As at | September 30, 2026 | December 31, 2025 | ||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
During
the three and nine months ended September 30, 2026, $
Cost of sales consist of the following:
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||
| Inventory | $ | $ | $ | $ | ||||||||||||
| Consulting and services | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 7. | PREPAIDS AND DEPOSITS |
| As at | September 30, 2026 | December 31, 2025 | ||||||
| Insurance | $ | $ | ||||||
| Prepaid other | ||||||||
| Deposits | ||||||||
| $ | $ | |||||||
Deposits consist of amounts required to be prepaid in order for vendors to manufacture or supply goods.
| 10 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 8. | EQUIPMENT |
| Computer Equipment | Furniture and Equipment | Leasehold Improvements | Vehicles | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Additions | ||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
| Additions | ||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Foreign exchange | ||||||||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | $ | $ | |||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
| Charge for the year | ||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
| Charge for the period | ||||||||||||||||||||
| Disposals | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Foreign exchange | ||||||||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | $ | $ | |||||||||||||||
| Net book value: | ||||||||||||||||||||
| December 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
| September 30, 2026 | $ | $ | $ | $ | $ | |||||||||||||||
Depreciation
commences when assets are available for use. Depreciation expense for the three and nine months ended September 30, 2026 of $
| 9. | INVESTMENTS |
| As at | September 30, 2026 | December 31, 2025 | ||||||
| DoD Solution | $ | $ | ||||||
| Windfall Geotek | ||||||||
| $ | $ | |||||||
DoD Solution
On September 16, 2026, the Company entered into a Simple Agreement for Future Equity (the “SAFE”) with DoD Solution OÜ (“DoD Solution”), an Estonian private company engaged in the development of integrated hardware and software solutions for autonomous and remotely operated systems.
Under
the SAFE, the Company agreed to invest $
| 11 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 9. | INVESTMENTS (CONT’D) |
The Company recorded its investment in DoD Solution as an investment at fair value classified as FVTPL. Subsequent measurements of the investment will be recorded at fair value, with gains and losses arising from changes in fair value recognized in profit or loss.
Windfall Geotek
The Company holds common shares (2025 — ) of Windfall Geotek Inc., a publicly traded company. At September 30, 2026, the fair value of the shares was based on the quoted price of $ (2025 — $).
| 10. | GOODWILL |
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the identifiable net assets of the business at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated to each cash generating unit (“CGU”) that is expected to benefit from the synergies of the related business combination. The Company currently has two CGUs and goodwill is part of the drones segment.
The goodwill represents the value of acquiring the ability to produce a new fixed wing drone that was not part of the Company’s current offering and the expertise and processes acquired through employees brought across with the knowledge to produce these drones.
Management believes that any reasonably possible change in the key assumptions on which Skip’s recoverable amount is based would not cause Skip’s carrying amount to exceed its recoverable amount.
| September 30, 2026 | ||||
| Cost | ||||
| Goodwill on Skip acquisition (note 4) | $ | |||
| Balance at September 30, 2026 | $ | |||
| 11. | RIGHT-OF-USE ASSETS |
The Company has five leases with expiration dates between January 31, 2027, and June 30, 2029.
| Total | ||||
| Cost | ||||
| Balance at December 31, 2025, and 2024 | $ | |||
| Additions | ||||
| Balance at September 30, 2026 | $ | |||
| Accumulated depreciation | ||||
| Balance at December 31, 2024 | $ | |||
| Charge for the year | ||||
| Balance at December 31, 2025 | $ | |||
| Charge for the period | ||||
| Balance at September 30, 2026 | $ | |||
| Net book value: | ||||
| December 31, 2025 | $ | |||
| September 30, 2026 | $ | |||
Depreciation
expense for the three and nine month period ended September 30, 2026 in the amount of $
| 12 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 12. | LEASE LIABILITIES |
The
Company leases certain assets under lease agreements. The lease liabilities consist of leases of facilities with terms ranging from one
to five years. The leases are calculated using incremental borrowing rates ranging from
| Total | ||||
| Balance at December 31, 2024 | $ | |||
| Interest expense | ||||
| Lease payments | ( | ) | ||
| Balance at December 31, 2025 | ||||
| Interest expense | ||||
| Additions | ||||
| Lease payments | ( | ) | ||
| Balance at September 30, 2026 | $ | |||
Which consists of:
| September 30, 2026 | December 31, 2025 | |||||||
| Current lease liability | $ | $ | ||||||
| Non-current lease liability | ||||||||
| Ending balance | $ | $ | ||||||
| Maturity analysis | September 30, 2026 | December 31, 2025 | ||||||
| Less than one year | $ | $ | ||||||
| One to three years | ||||||||
| Four to five years | ||||||||
| Total undiscounted lease liabilities | ||||||||
| Amount representing interest | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
three month and nine month variable lease payments of $
| 13. | TRADE PAYABLES AND ACCRUED LIABILITIES |
| As at | September 30, 2026 | December 31, 2025 | ||||||
| Trade accounts payable (note 20) | $ | $ | ||||||
| Accrued liabilities | ||||||||
| $ | $ | |||||||
| 13 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | DEFERRED REVENUE |
At times, the Company may take payment in advance for services to be rendered. These amounts are held and recognized as services are rendered.
| September 30, 2026 | December 31, 2025 | |||||||
| Deferred revenue, beginning | $ | $ | ||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Unearned revenues received | ||||||||
| Foreign exchange | ( | ) | ||||||
| $ | $ | |||||||
| Current portion | $ | $ | ||||||
| Long-term portion | ||||||||
| $ | $ | |||||||
Deferred
revenue of $
| 15. | SHARE CAPITAL |
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital
During the nine months ended September 30, 2026,
| ● | The Company issued common shares for the vesting of restricted share units and common shares for the exercise of warrants. | |
| ● | On
September 28, 2026, the Company completed a private placement of
common shares.
Each unit was sold at a price of USD $,
for gross proceeds of USD $
(CAD $).
Net proceeds of CAD $
were received after
share issue costs of CAD $
and $ broker warrants.
As part of the transaction
warrants were issued
to the underwriter with an exercise price of CAD $
with a term of
| |
| ● | On
February 23, 2026, the Company issued common shares and |
During the year ended December 31, 2025,
| ● | The Company issued common shares for the vesting of restricted share units. | |
| ● | On
May 5, 2025, the Company issued
units consisting of one common share and one warrant in a financing for $
with share issue costs of $,
including $
related to the fair value of broker warrants, for net proceeds of $.
The value of the issuance was allocated $
to the shares and $ | |
| ● | The Company issued shares related to the overallotment of the May 5, 2025 share issuance for gross proceeds of $ with share issue costs of $ for net proceeds of $. | |
| ● | On June 12, 2025 the Company issued units consisting of one common share and one warrant in a financing for $ with share issue costs of $, including $ related to broker warrants, for net proceeds of $. The value of the issuance was allocated $ to the shares and $ to the warrants based on the residual method. |
| 14 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
| ● | On July 21, 2025 the Company issued units consisting of one common share and one warrant in a financing for $ with share issue costs of $, including $ related to broker warrants, for net proceeds of $. The warrants were valued at $ based on the residual method. | |
| ● | shares were issued for the exercise of warrants. | |
| ● | The Company incurred share issue costs of $ related to the June 30, 2023 base shelf prospectus and included in share issuance costs. |
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 15% (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.
| Grant Date | Expiry Date | Exercise Price | Remaining Contractual Life (years) | Number of Options Outstanding | Number of Options Exercisable | |||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | ||||||||||||||||||
| Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2024 | $ | |||||||
| Forfeited | ) | |||||||
| Expired | ) | |||||||
| Outstanding, December 31, 2025 | $ | |||||||
| Forfeited | ) | |||||||
| Expired | ) | |||||||
| Outstanding, September 30, 2026 | $ | |||||||
options were granted by the Company during the nine months ended September 30, 2026 (September 30, 2025 — ).
| 15 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
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 vesting period determined by the board not to exceed 3 years 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 15% (in the aggregate) of the issued and outstanding common shares from time to time.
The grant date fair value of the RSUs generally approximates the cost of purchasing the shares in the open market.
As at September 30, 2026, the Company had the following RSUs outstanding:
| Number of RSUs | ||||
| Outstanding, December 31, 2024 | ||||
| Vested | ) | |||
| Issued | ||||
| Forfeited | ) | |||
| Outstanding, December 31, 2025 | ||||
| Vested | ) | |||
| Issued | ||||
| Forfeited | ) | |||
| Outstanding, September 30, 2026 | ||||
During the nine months ended September 30, 2026 the Company issued RSUs with a fair value of $ and performance-based RSUs with a fair value of $ (total RSU issuance of RSUs with a value of $) that .
Of
the total performance-based RSUs granted, performance-based RSUs had a fair value of $ and of the total non-performance-based
RSUs granted, had a fair value of $ that were issued to the CEO for a total grant of RSUs with a total fair
value of $
| ● | market capitalization attained and maintained for a minimum of 90 days of $ million USD for year one and $ million USD for years two and three; | |
| ● | projected revenue based on the annual board approved budget; and | |
| ● | completed financing based on the annual board approved budget. |
The first, second and third tranches vest only if all three of the noted targets are met at the end of fiscal 2026, 2027 and 2028 and will vest on March 1 of the year following the end of the respective fiscal years. If any one of the targets is missed, no vesting will occur for that tranche. At grant, a 50% probability was applied for estimated achievement of the performance targets based on historical payouts related to performance-based compensation. At September 30, 2026, the first tranche was assessed a zero probability as the targets will not be met for this vest.
| 16 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
The fair value of the performance-based RSUs issued to the CEO of $ was calculated using a Monte Carlo simulation which utilized Geometric Brownian motion to simulate share prices over the life of the RSUs. During the nine months ended September 30, 2026, the Company recognized $ of the share-based compensation on the future tranches. Estimates included in the Monte Carlo simulation are as follows:
| As at grant date April 15, 2026 | First Vest | Second Vest | Third Vest | |||||||||
| Starting share price — CAD | $ | $ | $ | |||||||||
| Volatility | % | % | % | |||||||||
| Number of years to vest | ||||||||||||
| Interpolated risk free rate | % | % | % | |||||||||
| Value of conversion feature | ||||||||||||
| Number of RSUs outstanding | ||||||||||||
| Fair value of RSUs, pre-vesting adjustment | $ | $ | $ | |||||||||
| Probability of performance vesting | % | % | % | |||||||||
| Fair value of RSUs | $ | $ | $ | |||||||||
The fair value of the performance-based RSUs granted to non-CEO executives is $. These did not contain any market conditions so were valued using the closing share prices from the date before grant and a 50% probability was applied for estimated achievement of the performance targets based on historical payouts related to performance-based compensation.
During the three and nine months ended September 30, 2026, the Company recorded share-based payment expense of $ (2025 — $) and $ (2025 — $) for RSUs. For the three and nine months respectively, $ and $ for RSUs valued 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. For the three and nine months ended September 30, 2026, $ and $ respectively was recorded for the vesting of the CEO RSUs valued using the Monte Carlo simulation.
Warrants
During
the nine months ended September 30, 2026, the Company issued
| 17 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
| September issuance | February issuance | |||
| 2026 issuances | Broker | Broker | ||
| Volatility | % | % | ||
| Risk free rate | % | % | ||
| Expected life | ||||
| Expected dividend yield | % | % | ||
| May Issuance | June Issuance | July Issuance | ||||
| 2025 issuances | Broker | Broker | Broker | |||
| Volatility | % | % | % | |||
| Risk free rate | % | % | % | |||
| Expected life | ||||||
| Expected dividend yield | % | % | % |
Warrant Derivative Liability
| Balance at December 31, 2024 | $ | |||
| Exercised | ( | ) | ||
| Change in fair value of warrants outstanding | ||||
| Balance at December 31, 2025 | $ | |||
| Pre-funded warrants issued | ||||
| Warrants and pre-funded warrants exercised | ( | ) | ||
| Change in fair value of warrants and pre-funded outstanding | ( | ) | ||
| Balance at September 30, 2026 | $ |
Details of these warrants and their fair values are as follows:
| Issue Date | Exercise Price | Number of Warrants Outstanding at September 30, 2026 | Fair Value at September 30, 2026 | Number of Warrants Outstanding at December 31, 2025 | Fair Value at December 31, 2025 | |||||||||||||||
| Derivative Liability | ||||||||||||||||||||
| February 26, 2024 (1) | USD$ | $ | $ | |||||||||||||||||
| February 23, 2026 (2) | $ | |||||||||||||||||||
| $ | $ | |||||||||||||||||||
| (1) |
| (2) |
The fair values of the warrants were estimated using the Black-Scholes Option Pricing Model with the following weighted average assumptions:
| September 30, 2026 | December 31, 2025 | |||||||
| Risk free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life | years | years | ||||||
| Expected dividend yield | % | % | ||||||
| 18 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
| Date issued | Expiry date | Exercise price | Number of warrants outstanding | |||||||
| $ | ||||||||||
| USD$ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
The weighted average remaining contractual life of warrants outstanding as of September 30, 2026, was years (December 31, 2025 — years).
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2024 | $ | |||||||
| Issued | ||||||||
| Exercised(1) | ) | |||||||
| Outstanding December 31, 2025 | $ | |||||||
| Issued | ||||||||
| Exercised(1) | ) | |||||||
| Outstanding September 30, 2026 | $ | |||||||
| (1) |
Compensation warrants
On June 9, 2026, the Company closed the asset acquisition with Skip resulting in two tranches of warrants being issued to the two founders who are now employees of the Company. The terms are as follows:
| a) | Warrants
have been issued that will automatically convert into common shares for $ consideration
on the first anniversary of the close if both of the founders are still employed by the Company.
The number of warrants issued were based on the 30-day VWAP of the Company to a value of
$ | |
| b) | Warrants
have been issued that will automatically convert into common shares and cash for $nil consideration
on the second anniversary of the close if both of the founders are still employed by the
Company and operations related to Skip have achieved $ |
The
fair value of the first tranche of warrants was determined to be $
| 19 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SHARE CAPITAL (CONT’D) |
The
fair value of the second tranche of warrants was determined to be $
When
the warrants convert on their respective anniversaries, 10% of the shares will be released immediately and the remaining
| - | ||
| - | ||
| - | ||
| - | ||
| - | ||
| - |
Share-based payments
For the three months ended September 30, 2026 the Company recorded total share-based payments of $ consisting of $ related to RSUs and $ related to the compensation warrants.
For the nine months ended September 30, 2026, the Company recorded total share-based payments of $ consisting of $ related to RSUs and $ related to the compensation warrants.
| 16. | FINANCE AND OTHER GAIN |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Interest income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Interest and penalties | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | |||||||
| 17. | SEGMENTED INFORMATION |
The
Company operates in
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
| 20 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 17. | SEGMENTED INFORMATION (CONT’D) |
The board of the Company relies on executive management which assesses the financial performance and position of the group and makes strategic decisions. Executive management, which has been identified as being the chief operating decision maker, consists of the chief executive officer, chief operating officer and chief financial officer.
| September 30, 2026 | Drones | Corporate | Total | |||||||||
| Sales of goods | $ | $ | $ | |||||||||
| Provision of services | ||||||||||||
| Total revenue | ||||||||||||
| Segment loss | ||||||||||||
| Finance and other costs | ||||||||||||
| Depreciation | ||||||||||||
| Amortization | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||
| Loss on write down of inventory | ||||||||||||
| Net loss for the period | $ | $ | $ | |||||||||
| September 30, 2025 | Drones | Corporate | Total | |||||||||
| Sales of goods | $ | $ | $ | |||||||||
| Provision of services | ||||||||||||
| Total revenue | ||||||||||||
| Segment loss | $ | |||||||||||
| Finance and other costs | ||||||||||||
| Depreciation | ||||||||||||
| Amortization | ||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||
| Loss on write-off of notes receivable | ||||||||||||
| Loss on write down of inventory | ||||||||||||
| Net loss for the period | $ | $ | $ | |||||||||
Geographic revenue is measured by aggregating sales based on the location of the customer.
| September 30, 2026 | December 31, 2025 | |||||||
| Non-current assets | ||||||||
| Canada | $ | $ | ||||||
| United States | ||||||||
| $ | $ | |||||||
| For
the three months ended September 30, | For
the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue | ||||||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||
| United States | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 21 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 18. | OFFICE AND MISCELLANEOUS |
For the three months ended September 30, | For
the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Advertising, marketing, and investor relations | $ | $ | $ | $ | ||||||||||||
| Compliance fees | ||||||||||||||||
| Business development | ||||||||||||||||
| General freight | ||||||||||||||||
| Subscription, membership and IT support | ||||||||||||||||
| Software expense | ||||||||||||||||
| Rent | ||||||||||||||||
| Shop supplies | ||||||||||||||||
| General office | ||||||||||||||||
| $ | $ | |||||||||||||||
| 19. | OTHER EXPENSE |
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Share issue costs | $ | $ | $ | $ | ||||||||||||
| Write-off of accounts (payable) receivable | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ( | ) | ( | ) | ||||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||
| 20. | RELATED PARTY TRANSACTIONS |
On
August 1, 2019, the Company entered into 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 consultants and the
costs of all charges are based on the fees set in the Agreement. For the three and nine months ended September 30, 2026, the Company
incurred fees of $
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. For the three and nine months ended September 30, 2026, the Company incurred
fees of $
| 22 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 20. | RELATED PARTY TRANSACTIONS (CONT’D) |
On
July 3, 2020, the Company entered into an executive consultant agreement with Scott Larson, a director of the Company, to provide executive
consulting services as President. On May 2, 2022, the Company entered into a further agreement with Scott Larson to provide executive
consulting services, with all fees set in the consulting agreement. For the three and nine months ended September 30, 2026, the Company
incurred fees of $ (2025 — $
For
the three and nine months ended September 30, 2026 and 2025, salary and commissions were paid to family members of key management. In
addition, during 2025, one family member was paid as a contractor prior to becoming an employee. Amounts paid for the three and
nine months ended September 30, 2026 were $
Trade receivables/payables and accrued receivables/payables:
As
at September 30, 2026, the Company had $
Key management compensation
Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. Compensation awarded to key management for the three and nine months ended September 30, 2026 and 2025 included:
For the three months ended September 30, | For
the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Director fees | $ | $ | $ | $ | ||||||||||||
| Salaries | ||||||||||||||||
| Share-based payments | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Other related party transactions
| For
the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Management fees paid to a company controlled by CEO and director | $ | $ | $ | $ | ||||||||||||
| Management fees paid to a company that the CEO holds an economic interest in | ||||||||||||||||
| Salary and commission paid to family of key management | ||||||||||||||||
| Management fees paid to a company controlled by a director | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 23 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 21. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual obligations.
The Company is subject to credit risk on its cash and receivables. The majority of cash is deposited in bank accounts held with a major bank in Canada and the United States. As most of the Company’s cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies.
Receivables
Receivables primarily consist of trade receivables, accrued receivables and taxes receivable. The Company’s exposure to credit risk is associated with trade receivables and the potential risk that any customer is unable to pay amounts due. Allowances for doubtful accounts and bad debts are estimated as at the balance sheet date. The amounts reported for trade receivables on the balance sheet are net of allowances for doubtful accounts and the net carrying value represents the Company’s maximum exposure to credit risk.
Management reviews past due trade receivables balances on a continuous basis to monitor potential credit risks. Accounts are considered for impairment on a case-by-case basis when they are past due or when objective evidence is received that a customer may default. A number of factors are considered in determining the likelihood of impairment. All bad debt write-offs and changes in the doubtful trade receivables reserve are expensed or credited, as applicable, to selling expenses in the condensed consolidated interim statement of comprehensive loss.
Draganfly believes that credit risk associated with its trade receivables is limited for the following reasons:
| ● | Trade receivables balances are spread amongst a broad customer base; | |
| ● | The aging profile of trade receivables balances is systematically monitored by management; and | |
| ● | Payments for larger orders are requested at least partially in advance of products being shipped. |
Foreign exchange risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company does not hedge its exposure to fluctuations in foreign exchange rates.
The following table summarizes the sensitivity of the fair value of the Company’s risk to foreign exchange rates, with all other variables held constant. Fluctuations of 10 percent in the foreign exchange rate between US dollars and Canadian dollars could have resulted in a change impacting net loss upon consolidation as follows:
| September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||
| USD | Change in currency | Effect
on after tax loss | USD | Change in currency | Effect on after tax loss | |||||||||||||||||||
| Net monetary assets | $ | % | $ | $ | % | $ | ||||||||||||||||||
| Net monetary liabilities | ( | ) | % | ( | ) | ( | ) | % | ( | ) | ||||||||||||||
| 24 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Nine Months Ended September 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 21. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D) |
Fair value
A number of the Company’s accounting policies and disclosures require the measurement of fair values for financial assets and liabilities. The Company has established a control framework with respect to the measurement of fair values. Fair values are categorized into different levels of a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Cash, equity securities in investee companies and warrants are measured at fair value. The financial assets and liabilities measured at fair value by hierarchy are shown in the table below. The amounts shown are based on the amounts recognized in the condensed consolidated interim statements of financial position. These financial assets and liabilities are measured at fair value through profit and loss.
| September 30, 2026 | Level 1 | Level 3 | Total | |||||||||
| Cash | $ | $ | $ | |||||||||
| Equity securities in investee companies | ||||||||||||
| Derivative liability | ( | ) | ( | ) | ||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2025 | Level 1 | Level 3 | Total | |||||||||
| Cash | $ | $ | $ | |||||||||
| Equity securities in investee companies | ||||||||||||
| Derivative liability | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ( | ) | $ | |||||||
The following table shows the valuation techniques used in measuring Level 3 fair values for the derivative liability as well as the significant unobservable inputs used.
Type |
Valuation technique |
Key inputs |
Inter-relationship between significant inputs and fair value measurement | |||
| Warrant derivative liability | The fair value of the warrants derivative liability at initial recognition and at year end has been calculated using the Black-Scholes Option Pricing Model | Key observable inputs ● Share price ● Risk free interest rate ● Dividend yield Key unobservable inputs ● Expected volatility |
The estimated fair value would increase (decrease) if: ● The price was higher (lower) ● The risk-free rate was higher (lower) ● The dividend yield was lower (higher) ● The expected volatility was higher (lower) |
For the fair value of the derivative liability, reasonably possible changes to the expected volatility, the most significant unobservable input would have the following effects:
| Impact on comprehensive loss | ||||||||||||
| Unobservable Inputs | Change | Nine months ended September 30, 2026 | Year ended December 31, 2025 | |||||||||
| Volatility | % | $ | $ | |||||||||
| 25 |