Exhibit 99.1
Draganfly Inc.
Condensed Consolidated Interim Financial Statements - Unaudited
For the Three and Six Months Ended June 30, 2026
(Expressed in Canadian Dollars)
Draganfly Inc.
Condensed Consolidated Interim Statements of Financial Position - Unaudited
Expressed in Canadian Dollars
| June 30, | December 31, | |||||||||
| As at | Notes | 2026 | 2025 | |||||||
| ASSETS | ||||||||||
| Current Assets | ||||||||||
| Cash | $ | $ | ||||||||
| Receivables | 5 | |||||||||
| Inventory | 6 | |||||||||
| Prepaids and Deposits | 7 | |||||||||
| Non-current Assets | ||||||||||
| Equipment | 8 | |||||||||
| Intangible assets | ||||||||||
| Investments | ||||||||||
| Goodwill | 4,9 | |||||||||
| Right of use assets | 10 | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current Liabilities | ||||||||||
| Trade payables and accrued liabilities | 12,18 | $ | $ | |||||||
| Customer deposits | ||||||||||
| Deferred income | 13 | |||||||||
| Derivative liability | 14 | |||||||||
| Lease liabilities | 11 | |||||||||
Non-current Liabilities | ||||||||||
| Deferred Income | 13 | |||||||||
| Lease liabilities | 11 | |||||||||
| TOTAL LIABILITIES | ||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||
| Share capital | 14 | |||||||||
| Reserves – share-based payments | 14 | |||||||||
| Reserves - warrants | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||||
Nature and Continuance of Operations (Note 1)
Approved and authorized for issuance by the Board of Directors on August 10, 2026.
| “Kim Moody” | “Cameron Chell” |
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 six months ended | |||||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||||
| Sales of goods | 15 | $ | $ | $ | $ | |||||||||||||
| Provision of services | 15 | |||||||||||||||||
| TOTAL REVENUE | ||||||||||||||||||
| COST OF SALES | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| GROSS PROFIT | ||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||||
| Depreciation | 8,10 | |||||||||||||||||
| Director fees | 18 | |||||||||||||||||
| Insurance | ||||||||||||||||||
| Office and miscellaneous | 16 | |||||||||||||||||
| Professional fees | ||||||||||||||||||
| Research and development | ||||||||||||||||||
| Share-based payments | 14,18 | |||||||||||||||||
| Travel | ||||||||||||||||||
| Employee and management expenses | 18 | |||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||
| Change in fair value of derivative liability | 14 | ( | ) | ( | ) | ( | ) | |||||||||||
| Finance and other gain | ||||||||||||||||||
| Foreign exchange gain (loss) | ( | ) | ( | ) | ||||||||||||||
| Gain (loss) on disposal of assets | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gain on recovery of notes receivable | ||||||||||||||||||
| Other income (expense) | 17 | ( | ) | ( | ) | ( | ) | |||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| 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 FVOCI | ( | ) | ||||||||||||||||
| 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 Income (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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||||||
| Share issue costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Warrants issued | - | |||||||||||||||||||||||||||||||
| Shares issued for exercise of overallotment | ||||||||||||||||||||||||||||||||
| Shares issue costs – overallotment | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for the exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||
| Shares issued for the exercise of RSUs | ( | ) | ||||||||||||||||||||||||||||||
| Shared-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Change in fair value of equity investments at FVOCI | - | |||||||||||||||||||||||||||||||
| Translation of foreign operations | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||||||
| Share issue costs - Financing | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for exercise of warrants | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for exercise of RSU’s | ( | ) | ||||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Unrealized gain on investments available for sale | - | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Shares issued for financing | ||||||||||||||||||||||||||||||||
| Share issue costs - Financing | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued for exercise of warrants | ||||||||||||||||||||||||||||||||
| Shares issued for exercise of RSU’s | ( | ) | ||||||||||||||||||||||||||||||
| Share-based payments | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Unrealized gain on investments available for sale | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | |||||||||||||||||||||||||||||||
| Balance at June 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 six months ended June 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 | ( | ) | ||||||
| Impairment (Gain) on recovery of notes receivable | ( | ) | ||||||
| Finance and other costs | ||||||||
| Gain 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 income | ( | ) | ||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Acquisition of Skip Dynamics | ( | ) | ||||||
| Repayment of notes receivable | ||||||||
| Cash provided by (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 (used in) 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 Six Months Ended June 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 August 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.
| 6 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 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.
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 to sell. 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.
| 7 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 3. | MATERIAL ACCOUNTING POLICY INFORMATION, ESTIMATES AND JUDGEMENTS (CONT’D) |
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.
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 income tax assets and liabilities; | |
| c) | Recoverable amount of CGU; | |
| 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 ACQUISITION |
On June 9, 2026, the Company acquired the assets of Skip Dynamix, Corporate (“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 $
| 8 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 4. | SKIP DYNAMIX (CONT’D) |
In addition warrants were issued as part of the transaction and are considered employee compensation. See note 14 for details.
The preliminary purchase price and the allocation of consideration to the assets and liabilities acquired is as follows:
| USD | CAD | |||||||
| Cash portion of purchase price | $ | $ | ||||||
| Preliminary assets and liabilities acquired/assumed | ||||||||
| Other net working capital | $ | ( | ) | $ | ( | ) | ||
| Inventory | ||||||||
| Working capital adjustment | ||||||||
| Preliminary goodwill | ||||||||
| Total preliminary consideration | $ | |||||||
There
is 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 | June 30, 2026 | December 31, 2025 | ||||||
| Trade accounts receivable | $ | $ | ||||||
| Sales tax receivable | ||||||||
| $ | $ | |||||||
The average trade credit allowed on the sale of goods is between 30 and 60 days from the date of shipment. Sales that require deposits are typically agreed to in advance to mitigate the potential for default.
The Company has recognized an allowance for doubtful trade receivables on accounts that are past due by more than 31 days based on best estimates of future expected credit losses and estimated irrecoverable amounts determined by reference to past experiences.
In determining the recoverability of a trade receivable, the Company considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting year. The concentration of credit risk is limited due to the fact that the customer base is diversified. The provision for expected credit losses is as follows:
Provision for doubtful accounts
| Balance at December 31, 2024 | ( | ) | ||
| Additional amounts provided for during 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 June 30, 2026 | $ | ( | ) |
| 9 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 5. | RECEIVABLES (CONT’D) |
During
the three months and six months ended June 30, 2026, the Company recorded an expected credit loss recovery of $
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 | June 30, 2026 | December 31, 2025 | ||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
During
the three and six months ended June 30, 2026, $
Cost of sales consists of the following:
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Inventory | $ | $ | $ | $ | ||||||||||||
| Consulting and services | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 7. | PREPAIDS AND DEPOSITS |
| As at | June 30, 2026 | December 31, 2025 | ||||||
| Insurance | $ | $ | ||||||
| Prepaid other | ||||||||
| Deposits | ||||||||
| $ | $ | |||||||
| 10 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 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 June 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 June 30, 2026 | $ | |||||||||||||||||||
| Net book value: | ||||||||||||||||||||
| December 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||
| June 30, 2026 | $ | |||||||||||||||||||
Depreciation
commences when assets are available for use. Depreciation expense for the three and six months ended June 30, 2026 of $
| 9. | 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 CGU’s 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.
| June 30, 2026 | ||||
| Cost | ||||
| Goodwill on Skip acquisition (note 4) | $ | |||
| Balance at June 30, 2026 | $ | |||
| 11 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 10. | RIGHT OF USE ASSETS |
The Company has three leases with expiration dates of January 31, 2027, and September 30, 2028.
| Total | ||||
| Cost | ||||
| Balance at December 31, 2025, and 2024 | $ | |||
| Additions | ||||
| Balance at June 30, 2026 | ||||
| Accumulated depreciation | ||||
| Balance at December 31, 2024 | $ | |||
| Charge for the year | ||||
| Balance at December 31, 2025 | $ | |||
| Charge for the period | ||||
| Balance at June 30, 2026 | $ | |||
| Net book value: | ||||
| December 31, 2025 | $ | |||
| June 30, 2026 | $ | |||
Depreciation
expense for the three and six month period ended June 30, 2026 in the amount of $
| ROU Assets consist of the following: | June 30, 2026 | December 31,2025 | ||||||
| Buildings | $ | $ | ||||||
| 11. | 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 June 30, 2026 | $ | |||
Which consists of:
| June 30, 2026 | December 31, 2025 | |||||||
| Current lease liability | $ | $ | ||||||
| Non-current lease liability | ||||||||
| Ending balance | $ | $ | ||||||
| 12 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 11. | LEASE LIABILITIES (CONT’D) |
| Maturity analysis | June 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 six month variable lease payments of $
| 12. | TRADE PAYABLES AND ACCRUED LIABILITIES |
| As at | June 30, 2026 | December 31, 2025 | ||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Ending balance | $ | $ | ||||||
| 13. | DEFERRED INCOME |
At times, the Company may take payment in advance for services to be rendered. These amounts are held and recognized as services are rendered.
| June 30, 2026 | December 31, 2025 | |||||||
| Deferred, revenue beginning | $ | $ | ||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Unearned revenues received | ||||||||
| Foreign exchange | ( | ) | ||||||
| $ | $ | |||||||
| Current portion | $ | $ | ||||||
| Long term portion | ||||||||
| $ | $ | |||||||
Deferred
revenue of $
| 13 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | SHARE CAPITAL |
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital
During the six months ended June 30, 2026,
| ● | 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 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. This issuance included an overallotment of warrants convertible to shares. | |
| ● | 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. | |
| ● | 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 $nil 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.
| 14 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | SHARE CAPITAL (CONT’D) |
| 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, June 30, 2026 | ||||||||
options were granted by the Company during the six months ended June 30, 2026 (June 30, 2025 - ).
Restricted Stock 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 RSU’s generally approximates the cost of purchasing the shares in the open market.
| 15 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | SHARE CAPITAL (CONT’D) |
As at June 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, June 30, 2026 | ||||
During the six months ended June 30, 2026 the Company issued RSU’s with a fair value of $ and performance based RSU’s 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; | |
| ● | 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. A 50% probability was applied for estimated achievement of the performance targets based on historical payouts related to performance based compensation.
The fair value of the performance based RSU’s 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 RSU’s. During the six months ended June 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 RSU’s outstanding | ||||||||||||
| Fair value of RSU’s, pre-vesting adjustment | $ | $ | $ | |||||||||
| Probability of performance vesting | % | % | % | |||||||||
| Fair value of RSU’s | $ | $ | $ | |||||||||
The fair value of the performance based RSU’s 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 six months ended June 30, 2026, the Company recorded share-based payment expense of $ (2025 - $) and $ (2025 - $) for RSUs. For the three and six months respectively, $ and $ for RSU’s 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 both the three and six months $ was recorded for the immediate vest of the CEO RSU’s valued using the Monte Carlo simulation.
Warrants
During the three months ended June 30, 2026 the Company issued pre-funded warrants (“USD pre-funded Warrants”) where a portion of the funds related to the eventual exercise have already been received with the remaining exercise price in USD. As the pre-funded warrants have a cashless exercise option and were not issued in exchange for services, the value related to the future exercise price of the USD pre-funded Warrants are required to be recorded as a financial liability and not as equity. As a financial liability, the portion of the USD pre-funded Warrants related to the future exercise price will be revalued on a quarterly basis to fair market value with the change in fair value being recorded in profit or loss. The Company valued the prefunded warrants in relation to the Company’s share price as the exercise price of the prefunded warrants was nominal.
| February issuance | ||||
| 2026 issuances | 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 | % | % | % | |||||||||
| 16 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | SHARE CAPITAL (CONT’D) |
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 June 30, 2026 | $ |
Details of these warrants and their fair values are as follows:
| Issue Date | Exercise Price | Number of Warrants Outstanding at June 30, 2026 | Fair Value at June 30, 2026 | Number of Warrants Outstanding at December 31, 2025 | Fair Value at December 31, 2025 | |||||||||||||||
| Derivative Liability | ||||||||||||||||||||
| February 26, 2024 (1) | US$ | $ | $ | |||||||||||||||||
| 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:
| June 30, 2026 | December 31, 2025 | |||||||
| Risk free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life | years | years | ||||||
| Expected dividend yield | % | % | ||||||
| Date issued | Expiry date | Exercise price | Number of warrants outstanding | |||||||
| $ | ||||||||||
| US$ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
The weighted average remaining contractual life of warrants outstanding as of June 30, 2026, was years (December 31, 2025 – years).
| 17 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 14. | SHARE CAPITAL (CONT’D) |
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 $nil 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 $
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
| - | ||
| - | ||
| - | ||
| - | ||
| - | ||
| - |
| 18 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SEGMENTED INFORMATION |
As
at and for the three months ended June 30, 2026 the Company operates in
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
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.
| June 30, 2026 | Drones | Corporate | Total | |||||||||
| Sales of goods | $ | |||||||||||
| Provision of services | ||||||||||||
| Total revenue | ||||||||||||
| Segment loss (income) | ||||||||||||
| 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 | $ | |||||||||||
| June 30, 2025 | Drones | Corporate | Total | |||||||||
| Sales of goods | $ | $ | $ | |||||||||
| Provision of services | ||||||||||||
| Total revenue | ||||||||||||
| Segment loss (income) | ||||||||||||
| 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 | $ | $ | $ | |||||||||
| 19 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 15. | SEGMENTED INFORMATION (CONT’D) |
| June 30, 2026 | December 31, 2025 | |||||||
| Non-current assets | ||||||||
| Canada | $ | $ | ||||||
| United States | ||||||||
| $ | $ | |||||||
Geographic revenue is measured by aggregating sales based on the country and the entity where the sale was made.
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenue | ||||||||||||||||
| Canada | $ | $ | $ | $ | ||||||||||||
| United States | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 16. | OFFICE AND MISCELLANEOUS |
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Advertising, Marketing, and Investor Relations | $ | $ | $ | $ | ||||||||||||
| Compliance fees | ||||||||||||||||
| Business development | ||||||||||||||||
| General freight | ||||||||||||||||
| Subscription, membership & IT support | ||||||||||||||||
| Rent | ||||||||||||||||
| Shop Supplies | ||||||||||||||||
| General office | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 17. | OTHER EXPENSE |
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Share issue costs | $ | $ | $ | $ | ||||||||||||
| Write off of accounts (payable) receivable | ( | ) | ( | ) | ||||||||||||
| Other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | $ | $ | |||||||||||
| 20 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 18. | RELATED PARTY TRANSACTIONS |
On
August 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 consultants and the
costs of all charges are based on the fees set in the Agreement. For the three and six months ended June 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 six months ended June 30, 2026, the Company incurred
fees of $
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. On May 2, 2022, the Company and entered into
an agreement with Scott Larson, a director, to provide executive consulting services to the Company and all fees are set in the consulting
agreement. For the three and six months ended June 30, 2026, the Company incurred fees of $ (2025 - $
For
the three and six months ended June, 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. The amounts paid were $
Trade receivables/payables and accrued receivables/payables:
As
at June 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 six months ended June 30, 2026 and 2025 included:
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Director fees | $ | $ | $ | $ | ||||||||||||
| Salaries | ||||||||||||||||
| Share-based payments | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 21 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 18. | RELATED PARTY TRANSACTIONS (CONT’D) |
Other related party transactions
For the three months ended June 30, | For the six months ended June 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 | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 19. | 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 that 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 Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. The Company performs credit evaluations of its customers to reduce the credit risk of receivable balances.
Receivables
Receivables primarily consist of trade receivables, accrued receivables and taxes receivable. The Corporation’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 Corporation’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 |
| 22 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 19. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D) |
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:
| June 30, 2026 | June 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 | ( | ) | % | ( | ) | ( | ) | % | ( | ) | ||||||||||||||
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.
| June 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 | $ | $ | ( | ) | $ | |||||||
| 23 |
Draganfly Inc. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2026 Expressed in Canadian Dollars (unaudited) |
| 19. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONT’D) |
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, reasonable possible changes to the expected volatility, the most significant unobservable input would have the following effects:
| Unobservable Inputs | Change | Impact on comprehensive loss | ||||||||||
Six months ended June 30, 2026 | Year ended December 31, 2025 | |||||||||||
| Volatility | % | $ | $ | |||||||||
| 24 |