ANNUAL REPORT 31 DECEMBER 2021 DELTA DRONE INTERNATIONAL LIMITED | ABN 17 618 678 701 1 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DLT IS A LEADING GLOBAL MINING & AGRICULTURE TECH-SERVICES COMPANY. We enable clients to detect, define & calculate asset value by digitising their operational sites daily, with precision and at speed 2 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 HIGHLIGHTS FY2021 – as at 28 Feb 2022 (unaudited) ASX: DLT REVENUE INCREASED 36% From pcp to $4.6m ($3.4m FY20) AUSTRALIAN OPERATIONS 12% Contribution to the Group’s overall revenues NEW ENTERPRISE CUSTOMERS 12 Increased from 2020 3 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 OUR ADVANTAGE What makes our business model so unique ASX: DLT Market-leading Technologies We research & deploy sophisticated sensors that are best in their class, enabling faster workflows & data capture Long-Range Flight Capabilities We operate semi & fully autonomous equipment beyond visual line of site (BVLOS) to enable larger area acquisition Scalable Business Model We deploy specialist drone pilots & semi- autonomous drones within a short time period of receiving customer orders, allowing flexibility of capital structures High- Frequency High Speed Data We provide higher resolution data at a higher frequency (vs. manned aircraft & satellite solutions) within 24 hours of capture Proven Safety & Quality Systems Our systems are world-class in meeting enterprise customer demand & regulator support for complex drone operations Economies of Scale We provide a more cost-effective offering through strong negotiating power with suppliers and with the support of our own internal maintenance & repair facilities 4 ASX: DLT “The future is about long-range, high frequency super-fast drone data that is delivered daily on site enabling autonomous operations for our customers CHRISTOPHER CLARK CEO 5 5 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 TABLE OF CONTENTS INTRODUCTION Chairman’s Letter CEO’s Letter Corporate Directory Directors’ Report Information on Directors FINANCIAL STATEMENTS Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report to the members of Delta Drone International Limited ASX Additional Information 7 7 8 9 11 13 30 31 33 34 35 36 75 76 80 6 6 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 CHAIRMAN’S LETTER Dear Shareholders On behalf of the Board, it is with pleasure I present Delta Drone International’s annual report for the financial year ended 31 December 2021 (FY21). Delta Drone International’s first year as a listed company has seen us build a market-leading drone service business by extensively expanding the markets we operate in, our suite of services and number and calibre of enterprise contracts. At the beginning of 2021, two international business were merged to form Delta Drone International, and with our majority acquisition of Arvista in Australia, we have formalised the foundations of our future market focus. This refreshed focus on the Australian market along with thriving African operations has contributed to a strong financial performance in FY21, driven by our strong customer relationships, our expanded global footprint, and growing our range of services. Post-balance date we also sold the ParaZero business to narrow our focus on drone services, which will position Delta Drone International for accelerated growth in the years to come. Delta Drone International operates as a subsidiary under the Delta Drone Group (DDG) (EPA: ALDR), with DDG owning 55.22% of DLT’s shares as of February 2022. Post reporting period, leading provider of integrated drone solutions Volatus Aerospace made a strategic investment in the Delta Drone Group which will provide significant opportunities for Delta Drone International to further grow its business through sharing of expertise and use of complementary services. The FY21 achievements would not have been possible without the dedication and tremendous contribution of our staff, led ably by CEO Chris Clark. I would therefore like to thank our team for their ongoing commitment and outstanding effort throughout the year. On behalf of the Board, we thank our shareholders for their support throughout 2021. As the world embarks on a new journey towards autonomous drone operations, we see an abundance of opportunities for Delta Drone International, not only in Australia, but into new markets and geographies with our leading drone service capabilities. With the overall global drone market expected to grow at a compound annual growth rate of 13.8% over 2020–2025 to reach US$42.8 billion, I look forward to updating you on the role Delta Drone International plays in revolutionising the way mining and agriculture companies conduct complex aerial data capture and embrace drone technology across other aspects of their sector, and in turn, deliver strong results for our shareholders. Eden Attias Executive Chairman 7 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 CEO’S LETTER I am pleased to report that throughout the FY21 year we have made significant progress to ensure Delta Drone International remains one of the world’s leading drones-as-a-service providers, by delivering on key strategic initiatives, particularly with respect to new markets and services. Delta Drone International entered new markets throughout FY21, bringing our global footprint to nine countries, as well as adding another 12 major contracts with multinational enterprise companies. These achievements, along with others outlined in this report, played a key role in Delta Drone International being recognised as a top four global drone services provider in the Drone Industry Insights (Droneii) Top Drone Service Providers for 2021 Report. The Company’s overall revenue grew significantly, up 64% to $5.5 million for the year, attributed to expanding the markets we operate in, an expanded suite of services, and growing the number and calibre of enterprise contracts. Our already extensive range of services was bolstered by the latest capability in light detection and ranging [LiDAR], security monitoring and advanced Beyond Visual Line-of-Site (BVLOS) operations, allowing us to meet the increasingly specialist needs of our customers. Our customer base continues to grow, with Delta Drone International signing contracts with some of the world’s leading enterprise mining and agriculture companies, including, South32 Coal Holdings (now Seriti Power), Pioneer Seed RSA, GoviEx Uranium, AMS African Mining Services, and Rustenberg Platinum Mines, to name a few. Perhaps the most significant milestone for our Company throughout 2021, was establishing an Australian-based headquarters and acquiring Perth-based provider of aerial and terrestrial surveying services, Arvista. Australia was identified as a key expansion area due to its vast mining and agriculture sectors and fragmented drone services industry, with the acquisition of Arvista providing the Company with a blue-chip Australian customer base. Post financial year end, we sold our drone safety business, ParaZero Technologies, for A$6 million to allow the Company to focus on becoming the leading drone service provider globally. The sale of ParaZero provides DLT with a strengthened balance sheet and a substantially reduced need for cash to fund the ongoing R&D investment that had been required by the ParaZero business, allowing us to focus on aggressively growing our global drone services business. While 2021 was a year of positive flux, with the merger, establishing Australian operations, purchasing Arvista, the sale of ParaZero, we have a plan to profitability. Looking ahead, I am excited by scaling our drone services offering and looking for other attractive growth opportunities. Commercial applications for drone services are steadily rising and will probably overtake government and defense in terms of market share in the next few years. Delta Drone International is therefore focused on profitably growing its business, with ongoing investment in sales and marketing to harness the reputation of our technology and operations leadership as we execute our growth strategy throughout 2022 and beyond. Lastly, I would like to thank you, our shareholders, for joining us on this exciting journey. I am confident our strong business offering combined with a wider social acceptance of drone technology will ensure our company continues to grow sustainably into the future and delivers value for our shareholders. Christopher Clark Chief Executive Officer 8 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 CORPORATE DIRECTORY Directors B.Gen (ret.) Eden Attias Mr Christopher Clark Mr Stephen Gorenstein Mr Nicolas Clerc Mr Christian Viguie Mr Clive Donner Executive Chairman Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Company secretary Mr Stephen Buckley Registered office 75 Thomas Street Subiaco WA 6008 Email: contact@dlti.com.au Principal place of business 75 Thomas Street Subiaco WA 6008 Share register Auditor Legal Advisers (Australia) Legal Advisers (Israel) Legal Advisers (South Africa) Stock exchange listing Automic Registry Services Level 5, 191 St Georges Terrace Perth WA 6000 Tel: 1300 288 664 (Within Australia) | +61 2 9698 5414 (Outside Australia) Fax: +61 8 9321 2337 Email: hello@automic.com.au Web: www.automic.com.au BDO Audit (WA) Pty Ltd Level 9, Mia Yellogonga Tower 2 5 Spring Street Perth WA 6000 Arnold Bloch Leibler Level 21 333 Collins Street Melbourne VIC 3000 Shibolet Museum Tower 4 Berkowitz Street Tel Aviv Israel 6423806 Rodl & Partner 1 Eastgate Lane Bedfordview South Africa 2007 Delta Drone International Limited shares are listed on the Australian Securities Exchange (ASX code: DLT) ASX Limited Level 40, Central Park 152-158 St Georges Terrace Perth WA 6005 Website Web: www.dlti.com.au Corporate Governance Statement Delta Drone’s Corporate Governance Statement can be viewed at: https://www.dlti.com.au/resource/corporate-governance/ 9 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 1010 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Delta Drone International Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 31 December 2021. Directors Name Title Appointed Resigned B. Gen (ret.) Eden Attias Executive Chairman 13 June 2018 Mr Christopher Clark Chief Executive Officer 3 December 2020 Mr Stephen Gorenstein Non-Executive Director 17 October 2018 Mr Nicolas Clerc Non-Executive Director 8 April 2021 Mr Christian Viguie Non-Executive Director 8 April 2021 Mr Clive Donner Non-Executive Director 14 July 2021 - - - - - - Mr Chris Singleton Non-Executive Director 1 January 2019 14 July 2021 Mr Dan Arazi Non-Executive Director 13 June 2018 21 June 2021 Principal activities Delta Drone is a multi-national drone-based data service and technology solutions provider for the mining, agricultural and engineering industries. It provides aerial surveying and mapping, security and surveillance and blast monitoring and fragment analysis through a fully-outsourced service and fast data turnaround that allows enterprise customers to focus on their operations while DLT takes care of everything in the air, including compliance and maintenance. During the year, Delta Drone had in-house enabling proprietary technology, an R&D and integration centre and specialist expertise in designing, developing and provided best-in-class autonomous safety systems for commercial drone deliveries, drone flights for crowd monitoring in urban areas as well as ‘beyond visual line of sight’ (BVLOS) missions. While the COVID-19 pandemic did have an impact on the business, the overall business remained resilient due to long-term annuity contracts with mining customers, considered essential to national economies. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The loss for the Group including non controlling interests, after providing for income tax amounted to $3,590,483 (31 December 2020: $115,391). The loss for the Group from continuing operations amounted to $1,705,749 (31 December 2020: $61,003). Unless otherwise stated, all figures in this report are in the Company’s presentation currency, the Australian Dollar (“$”). 11 Likely developments and expected results of operations The Group continues to be a drone-based data service and technology solutions provider for the mining, agricultural and engineering industries. It provides aerial surveying and mapping, security and surveillance and blast monitoring and fragment analysis through a fully-outsourced service and fast data turnaround that allows enterprise customers to focus on their operations on the ground while Delta Drone takes care of everything in the air, including compliance and maintenance. Board changes During the year Mr Chris Singleton and Mr Dan Arazi resigned as non-executive directors effective 14 July 2021 and 21 June 2021 respectively, while Mr Nicolas Clerc, Mr Christian Viguie and Mr Clive Donner were appointed as non-executive directors effective 8 April 2021, 8 April 2021 and 14 July 2021 respectively. There were no other significant changes in the state of affairs of the Group during the financial year. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Significant changes in the state of affairs Acquisition of 60% ownership of Arvista Pty Ltd On 1 September 2021 the Group completed the acquisition of 60% of the shares in Perth-based provider of aerial and terrestrial surveying services, Arvista Pty Ltd (Arvista). The merger is a key milestone in DLT’s expansion strategy and has immediately provided the Group with a blue-chip Australian client base and access to a team of highly skilled professionals with the expertise to expand their skillset beyond surveying to include the full range of drone-as-a-service operations Delta Drone International provides. Matters subsequent to the end of the financial year On 28 January 2022 the Group announced that it had entered into a binding agreement with a consortium of investors led by NASDAQ-listed Medigus Ltd and facilitated by Israeli venture capital firm L.I.A Pure Capital Ltd to sell ParaZero Technologies Ltd (“ParaZero”) which operated the Company’s drone safety business, for a total consideration of A$6 million in cash. This transaction allows the Group to focus on becoming one of the leading drone service providers globally after its successful acquisition of the Delta Drone South Africa business in December 2020 and the purchase of Arvista Pty Ltd in Australia in September 2021. Post- sale this will leave the Company with a strengthened balance sheet and a substantially reduced need for cash to fund the ongoing R&D investment that had been required by the ParaZero business, allowing the Group to focus on aggressively growing its global drone services business. As such, the assets (including goodwill and intangible assets), liabilities and net profit of the Parazero operations have been classified as assets held for sale and liabilities directly attributed to discontinued operations in the 31 December 2021 report. No other matter or circumstance has arisen since 31 December 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 12 INFORMATION ON DIRECTORS DIRECTORS’ REPORT B. GEN (RET.) EDEN ATTIAS Executive Chairman MR CHRISTOPHER CLARK Chief Executive Officer Qualifications Bachelor of Arts in Computer Science, Master of Arts in Public Administration Qualifications Bachelor of Accounting, Master of Business Administration Experience and expertise Brigadier General (ret.) Attias was nominated as Israel’s first Ministry of Defense attach to Ottawa, Canada. He has a distinguished military resume, having served in Israeli’s Air Force as a pilot and as a leader in numerous positions for over 30 years, achieving the rank of Brigadier General. Eden was previously CEO and Chairman of ParaZero Limited and has immense experience in the development of the Drone services business. Following the acquisition of Delta Drone South Africa in December 2020, Eden stepped down as CEO but he has continued as Executive Chairman of the Company to provide his experience and guidance gained within the global drone services market. Other current directorships None Former directorships (last 3 years) None Interests in shares 559,717 Ordinary Shares Interests in options 37,106 unlisted options expiring 24 June 2024 exercisable at $0.1125 5,598,837 Options expiring 13 June 2023 exercisable at $0.0027 Interests in rights 6,000,000 performance rights (Terms as noted in note 38 of this Annual report) Experience and expertise Mr Clark has been involved in the mining services sector for over 11 years in South Africa, beginning with technology and communication projects for mining giant Anglo American. Mr Clark has spearheaded the development of the DDSA business across Africa, including Ghana and Namibia, and has set up new business verticals in agriculture and executive training. Chris was appointed as CEO of the Company following the acquisition of Delta Drone South Africa in December 2020. Other current directorships None Former directorships (last 3 years) None Interests in shares None Interests in options None Interests in rights 6,000,000 performance rights (Terms as noted in note 38 of this Annual report) 13 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT INFORMATION ON DIRECTORS MR STEPHEN GORENSTEIN Non-Executive Director MR NICOLAS CLERC Non-Executive Director Qualifications BSc (Hons) Geology and Geophysics, Masters in Accounting and Finance Experience and expertise Mr Gorenstein has over 17 years’ experience in the capital markets including analyst roles at both Goldman Sachs and Merrill Lynch. He was formerly the Regional Head of Asia Pacific Metals and Mining at Bank of America Merrill Lynch. Mr Gorenstein has extensive networks in the Australian capital markets and is active in cross border transactions particularly sourcing high-quality technology companies from Israel looking to establish themselves in Australia. Other current directorships None Qualifications Advanced Degree in Accounting and Management Experience and expertise Mr Clerc boasts 20 years of experience within accounting and audit firms. After working within several national and international firms, he became audit manager within a firm of about 60 people in the Auvergne-Rh ne-Alpes region. He joined the Delta Drone group in September 2017 as Group Administrative and Finance Director. Other current directorships None Former directorships (last 3 years) None Former directorships (last 3 years) White Rock Minerals Limited (ceased 1 February 2021) Interests in shares None Interests in shares 400,000 Ordinary Shares Interests in options 37,106 unlisted options expiring 24 June 2024 exercisable at $0.1125 Interests in rights Interests in rights: 1,000,000 performance rights (Terms as noted in note 38 of this Annual report) 14 INFORMATION ON DIRECTORS DIRECTORS’ REPORT MR CLIVE DONNER Non-Executive Director Qualifications Bachelor of Commerce MR CHRISTIAN VIGUIE Non-Executive Director Qualifications Graduate of IEP Paris Experience and expertise Mr Viguie worked as a financial analyst before forming multiple financial reporting companies. He also served as CEO of the Unilog Group from 1998 to 2006, where he was responsible for relationships with the financial community. A member of the French Society of Financial Analysts, Christian VIGUIÉ serves as a professor at the Financial Analysis Training Center. Other current directorships None Former directorships (last 3 years) None Interests in shares None Experience and expertise Mr Donner is the founding Managing Director of the LinQ Group, a boutique investment bank he founded in 2004 with specialist skills in mining and resources, technology and the property development sectors. Mr Donner has substantial private equity and debt skills having served as a former director of NM Rothschild and Sons (Australia) Limited, one of the world’s preeminent project finance and advisory banking institutions and a senior executive of Citibank Group for the nine years prior to that. He founded and managed several mining private equity funds and property funds. Mr Donner has over 40 years’ commercial experience in both Australia and internationally in both debt and equity including: private equity, funds management, corporate and project financing, capital raising, investment advising and evaluation of companies across several sectors. Other current directorships None Former directorships (last 3 years) None Interests in shares None 15 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT MR DAN ARAZI Non-Executive Director Qualifications Bachelor of Economics and History Other current directorships None Former directorships (last 3 years) None Experience and expertise Mr Arazi is a serial entrepreneur and has been involved in a number of start-ups in Israel, most particularly in the telecom and internet space. He was a leading film producer in Israel and has been a member of the Board of Israeli Film Council. He is currently the Chairman of the Israel AeroClub Gliding Association and the President of the Keiretsu Forum, the Israeli Chapter of the 100+ Angels Club. Mr Arazi is also a cofounder and executive at Orckit Communications (NASDAQ: ORCT). MR CHRIS SINGLETON Non-Executive Director Qualifications B.Ed. Industrial Arts Experience and expertise Mr Singleton has extensive international experience in Oil & Gas, Manufacturing, Technology, Telecommunications and Service Industries. He is currently the a provider of corporate advisory and growth strategies to Australian businesses. Mr Singleton has held numerous directorship roles with public and private companies and has successfully founded and sold business including: Votel, a service provider acquired by Vodafone, B Digital, that was funded by Australian Capital Equity and eventually acquired by Soul Pattinson; Managing Director of Impress Energy, acquired by Beach Petroleum and recruitment solutions, Total Staffing Solutions and UltimateSkills, that were both acquired by Humanis Group. MR STEPHEN BUCKLEY Company secretary Qualifications GAICD Interests in shares 359,800 Ordinary shares (as at the date of ceasing to be a director) Interests in options: 25,956 unlisted options expiring 24 June 2024 exercisable at $0.1125 (as at the date of ceasing to be a director) Other current directorships None Former directorships (last 3 years) Cycliq Group Limited (ceased 7 May 2019) Interests in shares 200,000 Ordinary Shares (as at the date of ceasing to be a director) Interests in options: 18,553 unlisted options expiring 24 June 2024 exercisable at $0.1125 (as at the date of ceasing to be a director) Experience and expertise Mr Buckley has over 40 years’ experience in financial markets and is a director of Governance Corporate Pty Ltd, a company specialising in providing company secretarial, corporate governance and corporate advisory services. In the 20 years prior to starting his own business, Mr Buckley has held executive and senior leadership roles in partnership management and business development. ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 16 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Meetings of Directors The number of meetings of the Company’s Board of Directors (‘the Board’) held during the year ended 31 December 2021, and the number of meetings attended by each Director were: Full Board Attended Held Eden Attias Christopher Clark Stephen Gorenstein Clive Donner Nicolas Clerc Christian Viguie Dan Arazi Chris Singleton 9 9 9 3 6 5 5 6 9 9 9 3 6 6 5 6 Held: represents the number of meetings held during the time the Director held office. Remuneration report (audited) This remuneration report for the year ended 31 December 2021 outlines the remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 (Cth), as amended (Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all Directors. Introduction Key Management Personnel (KMP) have authority and responsibility for planning, directing and controlling the major activities of the Group. KMP comprise the directors of the Company and identified key management personnel. Compensation levels for KMP are competitively set to attract and retain appropriately qualified and experienced directors and executives. The Board may seek independent advice on the appropriateness of compensation packages, given trends in comparable companies both locally and internationally and the objectives of the Group’s compensation strategy. The Key Management Personnel of Delta Drone includes the current and former directors of the Company and Key Management Personnel of Delta Drone during the year ended 31 December 2021. 17 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Remuneration governance The Board considers that the Company will not currently benefit from the establishment of a Remuneration Committee. In accordance with the Company’s Board Charter, the Board carries out the duties that would ordinarily be carried out by the Remuneration Committee under the Remuneration Committee Charter, including the following processes to set the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and not excessive: a) the Board devotes time at appropriate Board meetings to assess the level and composition of remuneration for Directors and senior executives; b) items that are usually required to be discussed by a remuneration committee are marked as separate agenda items at Board meetings when required; and c) the Board may seek external advice and benchmarking to inform their decisions. During the financial year ended 31 December 2021, the Company did not engage any remuneration consultants. Executive remuneration arrangements The compensation structures are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. Compensation packages may include a mix of fixed compensation, equity-based compensation, as well as employer contributions to superannuation funds. Shares and options may only be issued subject to approval by shareholders in a general meeting. At the date of this report the Company has two (2) appointed executives, Mr Eden Attias as Executive Chairman and Christopher Clark as Chief Executive Officer. The terms of their Executive Services Agreement with Delta Drone are summarised below: EDEN ATTIAS CHRISTOPHER CLARK • Executive salary of $185,000. • Reimbursement of reasonable business expenses incurred in the ordinary course of the business in accordance with the Group’s reimbursement policies. • The Agreement is terminable by either party on 90 days’ notice but may be terminated immediately where either party commits a material breach of the Agreement, including for not performing the services under the Agreement. • A total remuneration package of $195,000 per annum including statutory superannuation • Participation in the Company’s incentive programs. • Reimbursement of reasonable business expenses incurred in the ordinary course of the business in accordance with the Group’s reimbursement policies. • The Agreement may be terminated by either party giving four (4) months’ notice and the Agreement may be terminated immediately if Mr Clark is engaged in conduct justifying summary dismissal. • Non-compete and non-solicitation restraints in place for up to six months following cessation of employment. 18 18 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Performance Conditions Linked to Remuneration The Group maintains an Employee Incentive Plan (“Plan”) to provide ongoing incentives to Eligible Participants of the Company. The Plan was approved by shareholders at the Company’s annual general meeting held on 24 June 2021. Eligible Participants include: • a Director (whether executive or non-executive) of any Group company; • a full or part time employee of any Group company; • a casual employee or contractor of a Group Company; or • a prospective participant, being a person to whom the Offer was made but who can only accept the Offer if arrangement has been entered into that will resulting in the person becoming an Eligible Participant. The purpose of the Plan is to provide an incentive to the employees and directors of Delta Drone and its subsidiaries to encourage the sense of proprietorship and to stimulate their active interest in the development and financial success of the Company by providing them with opportunities to purchase shares in the Company. Both Mr Attias and Mr Clark were issued with 6,000,000 Performance Rights during the 2021 financial year under the Plan, subject to various milestones which are detailed in note 38 of this annual report. No other Shares or Options were issued to executives under the Plan during the 2021 financial year (2020: nil). Non-executive director fee arrangements The Board policy is to remunerate non-executive directors at a level to comparable companies for time, commitment, and responsibilities. Non- executive directors may receive performance related compensation. Directors’ fees cover all main Board activities and membership of any committee. The Board has no established retirement or redundancy schemes in relation to non-executive directors. The maximum aggregate amount of fees that can be paid to non-executive directors is presently limited to an aggregate of $300,000 per annum and any change is subject to approval by shareholders at a General Meeting. To align directors’ interests with shareholder interests, directors are encouraged to hold shares in the Company. Total fees for non-executive directors for the financial year were $99,144 (2020: $120,000) and cover main Board activities only. Non-executive directors may receive additional remuneration for other services provided to the Group. All non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the board policies and terms, including remuneration, relevant to the office of director. During the 2021 financial year, Mr Gorenstein was issued with 1,000,000 Performance Rights under the Plan, subject to various milestones which are detailed in note 38 of this annual report. Details of remuneration The Key Management Personnel of Delta Drone includes the current and former directors of the Company and Key Management Personnel of Delta Drone during the year ended 31 December 2021. Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. 19 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT 2021 Short-term benefits Postemployment benefits Long-term benefits Sharebased payments(i) $ Cash salary and fees Cash bonus Non- monetary Superannuation Long service leave Equity- settled Non-Executive Directors: Stephen Gorenstein 40,000 Clive Donner(ii) 18,639 Nicholas Clerc(iii) Christian Viguie(iv) Dan Arazi(v) Chris Singleton(vi) Executive Directors: Eden Attias Christopher Clark(vii) - - 19,000 21,505 200,446 165,991 465,581 - - - - - - - - - - - - - - - - - - - - - - 16,821 16,821 14,638 14,638 - - - - - - - - Total 44,138 18,639 - - 19,000 21,505 4,138 - - - - - 24,828 225,274 24,828 222,278 53,794 550,834 (i) Share-based payment expense is recorded pro-rata over the vesting period. Refer to Additional disclosures relating to equity instruments for further information on share-based payments granted to directors and key management during the year. (ii) Appointed as non-executive director effective 14 July 2021. (iii) Appointed as non-executive director effective 8 April 2021. No remuneration was paid during the year. (iv) Appointed as non-executive director effective 8 April 2021. No remuneration was paid during the year. (v) Resigned as non-executive director effective 21 June 2021. (vi) Resigned as non-executive director effective 14 July 2021. (vii) The remuneration for 31 December 2021 includes remuneration paid to Christopher Clark while employed in Delta Drone South Africa (Pty) Ltd. Other remuneration includes pension, medical and life insurances and other statutory employment benefits. 2020 Short-term benefits Postemployment benefits Long-term benefits Sharebased payments(i) $ Cash salary and fees Cash bonus Non- monetary Superannuation Long service leave Equity- settled Non-Executive Directors: Dan Arazi(i) Stephen Gorenstein Chris Singleton(ii) Executive Directors: Eden Attias Christopher Clark(iii) 40,000 40,000 40,000 192,021 82,538 394,559 - - - - - - - - - - - - - 37,526 37,526 770 770 - - - - - - - - - - - Total 40,000 40,000 40,000 192,021 120,834 432,855 (i) Resigned as non-executive director effective 21 June 2021. (ii) Resigned as non-executive director effective 14 July 2021. (iii) Appointed 3 December 2020. The remuneration for 31 December 2020 represents remuneration paid to Christopher Clark for the financial year 2020 whilst a director of Delta Drone South Africa (Pty) Ltd. Short term non-cash benefits includes medical and life insurances and other statutory employment benefits. 20 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT The proportion of remuneration linked to performance and the fixed proportion are as follows: Fixed remuneration At risk - STI At risk - LTI Name 2021 2020 2021 2020 2021 2020 Non-Executive Directors: Stephen Gorenstein Clive Donner Nicholas Clerc Christian Viguie Dan Arazi Chris Singleton Executive Directors: Eden Attias Christopher Clark 91% 100% 100% 100% 100% 100% 89% 89% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - - - - - 9% - - - - - 11% 11% - - - - - - - - Share-based compensation Issue of shares There were no shares issued to Directors and other key management personnel as part of compensation during the year ended 31 December 2021. Options There were no options over ordinary shares issued to Directors and other key management personnel as part of compensation that were outstanding as at 31 December 2021. There were no options over ordinary shares granted to or vested by Directors and other key management personnel as part of compensation during the year ended 31 December 2021. Performance rights There were 13,000,000 performance rights over ordinary shares issued to Directors as part of compensation during the year ended 31 December 2021. Shareholders of the Company approved the issue of the Performance Rights at the Annual General Meeting of the Company held on 24 June 2021. During the year 1,000,000 performance rights held by Chris Singleton were forfeited due to his resignation. As at 31 December 2021, an expense of $53,794 based on a fair value of $0.024 per right has been recognised as share-based payment in the statement of profit or loss and other comprehensive income which represents the pro-rated value from 24 June 2021 (grant date) to 31 December 2021. Total value of the remaining 13,000,000 Performance Rights will be expensed over management’s expected vesting period of 3 years. No performance rights have vested in the year ended 31 December 2021. There were no performance rights over ordinary shares granted to or vested by Directors and other key management personnel as part of compensation during the year ended 31 December 2021. The terms and milestones for the Performance Rights are listed in note 38 of this annual report. 21 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Name No. of Performance Rights Milestones % vested % unvested 2,000,000 2,000,000 2,000,000 666,667 666,667 666,667 1,333,334 1,333,334 1,333,334 333,334 333,334 333,334 13,000,000 New Milestone 1 New Milestone 2 New Milestone 3 DDG Milestone 1 DDG Milestone 2 DDG Milestone 3 New Milestone 1 New Milestone 2 New Milestone 3 New Milestone 1 New Milestone 2 New Milestone 3 - - - - - - - - - - - - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Eden Attias Eden Attias Eden Attias Christopher Clark Christopher Clark Christopher Clark Christopher Clark Christopher Clark Christopher Clark Stephen Gorenstein Stephen Gorenstein Stephen Gorenstein DDG Milestones Milestone Description DDG Milestone 1 DDSA achieving consolidated revenue (for the avoidance of doubt, only DDSA and excluding the Group) for any full financial year (being 1 Jan to 31 Dec) during the three-year term of the Performance Rights of not less than US$3,200,000 (based on audited accounts having been prepared by an external auditor or other suitable expert). If DDSA enters into at least two binding contracts with Australian-based mining companies (being companies that conduct mining, exploration or extraction services) for the provision of drone survey or mapping solutions services DDG to those mining companies in Australia (“Services”) and DDSA receives not less than US$1,000,000 (based on Milestone 2 audited accounts having been prepared by an external auditor or other suitable expert) of verified revenue in aggregate from such executed contracts received within the three-year term of the Performance Rights for its Services. If during the three-year term of the Performance Rights, the Company announces to the ASX that DDSA has DDG Milestone 3 expanded the services of its business offering (being the provision of drone survey and mapping solutions) into a new geographic location outside of Australia, Israel, South Africa, Ghana and Namibia and achieved a revenue in that new geographic location of not less than US$1,000,000 (based on audited accounts having been prepared by an external auditor or other suitable expert). Note: DDSA means Delta Drone South Africa and its subsidiaries, Drone Safety and Legal, Rocketmine South Africa and Rocketmine Ghana. New Milestones Milestone Description New The Group achieving consolidated revenue of not less than A$10,000,000 in a single financial year (being 1 Jan to Milestone 1 31 Dec) based on audited accounts having been prepared by an external auditor or other suitable expert. New The Group achieving total consolidated EBITDA of not less than A$1,000,000 in a single financial year (being 1 Jan Milestone 2 to 31 Dec) based on audited accounts having been prepared by an external auditor or other suitable expert. New Milestone 3 The Company achieving a total return on equity of not less than 10% in a single financial year (being 1 Jan to 31 Dec), where return on equity is equal to net profit as a percentage of total equity based on audited accounts having been prepared by an external auditor or other suitable expert. 22 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals/ resignations/ other Balance at the end of the year Ordinary shares Eden Attias Christopher Clark Stephen Gorenstein Clive Donner Nicolas Clerc Christian Viguie Dan Arazi Chris Singleton 559,717 - 400,000 - - - 359,800 200,000 1,519,517 - - - - - - - - - - - - - - - - - - - - - - - - (359,800) (200,000) (559,800) 559,717 - 400,000 - - - - - 959,717 Option holding The number of options over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/ resigned/ other Balance at the end of the year Vested Unvested Options over ordinary shares Eden Attias 5,635,943 Christopher Clark - Stephen Gorenstein 37,106 Clive Donner Nicolas Clerc Christian Viguie Dan Arazi Chris Singleton - - - 25,956 18,553 5,717,558 - - - - - - - - - - - - - - - - - - - - - - - - (25,956) (18,553) 5,635,943 100% - - 37,106 100% - - - - - - - - 100% 100% (44,509) 5,673,049 0% - 0% - - - 0% 0% 23 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Performance rights holding The number of performance rights over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Granted Vested Expired/ forfeited/ other Balance at the end of the year Performance rights over ordinary shares Eden Attias Christopher Clark Stephen Gorenstein Clive Donner Nicolas Clerc Christian Viguie Dan Arazi Chris Singleton - - - - - - - - - 6,000,000 6,000,000 1,000,000 - - - - - 13,000,000 - - - - - - - - - - - - - - - - - - 6,000,000 6,000,000 1,000,000 - - - - - 13,000,000 Loans to key management personnel and their related parties There were no loans to/from key management personnel and their related parties as at 31 December 2021 (2020: nil) Other transactions with key management personnel and their related parties Transactions with related parties are entered into on terms equivalent to those that prevail in arm’s length transactions. The Group had no other transactions with members of the Group’s key management personnel and/or their related parties during the year. Voting of shareholders at last year’s annual general meeting The Company received 99.47% “Yes” votes cast on its Remuneration Report for the 2020 financial year. The Company did not receive any specific feedback at the Annual General Meeting regarding its remuneration policies. This concludes the remuneration report, which has been audited. 24 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT Shares under option Unissued ordinary shares of Delta Drone International Limited under option at the date of this report are as follows: Grant date 13 June 2018 17 April 2019 Expiry date 13 June 2023 17 April 2024 24 June 2019 24 June 2024 5 November 2019 5 November 2024 Exercise price Number under option $0.0027 $0.1125 $0.1125 $0.09 7,590,418 955,480 953,544 948,053 10,447,495 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. No options were issued in the year. Shares issued on the exercise of options The following ordinary shares of Delta Drone International Limited were issued during the year ended 31 December 2021 and up to the date of this report on the exercise of options granted: Date options granted 13 June 2018 Exercise price $0.0027 Number of shares issued 579,201 Shares under performance rights Unissued ordinary shares of Delta Drone International Limited under performance rights at the date of this report are as follows: Grant date 24 June 2021 Expiry date 24 June 2024 Number under rights 13,000,000 There were 13,000,000 performance rights over ordinary shares issued to Directors as part of compensation during the year ended 31 December 2021. Shareholders of the Company approved the issue of the Performance Rights at the Annual General Meeting of the Company held on 24 June 2021. During the year 1,000,000 performance rights held by Chris Singleton were forfeited due to his resignation. As at 31 December 2021, an expense of $53,794 based on a fair value of $0.024 per right has been recognised as share-based payment in the statement of profit or loss and other comprehensive income which represents the pro-rated value from 24 June 2021 (grant date) to 31 December 2021. Total value of the remaining 13,000,000 Performance Rights ($312,000) will be expensed over management’s expected vesting period of 3 years. No performance rights have vested in the year ended 31 December 2021. No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. 25 Non-audit services The Company may decide to employ the Auditor (BDO Audit (WA) Pty Ltd) on assignments additional to their statutory audit duties. Details of the amounts paid or payable to the Auditor for audit and non-audit services provided during the year are set out below. The Board has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the Auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Board to ensure they do not impact the impartiality and objectivity of the Auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the Auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Shares issued on the exercise of performance rights There were no ordinary shares of Delta Drone International Limited issued on the exercise of performance rights during the year ended 31 December 2021 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the Directors and Officers of the Company for costs incurred, in their capacity as a Director or Officer, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the Directors and Officers of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. 26 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 (i) Audit services Audit or review of the financial statements Total remuneration for audit and other assurance services (ii) Other services Investigating Accountant’s Report - BDO Corporate Finance (WA) Pty Ltd Total remuneration for other services Total remuneration of BDO Audit (WA) Pty Ltd (iii) Audit services - network firms Audit or review of the financial statements Total remuneration of auditors Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors’ report. Auditor BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Christopher Clark Chief Executive Officer 31 March 2022 Consolidated 2021 $ 71,000 71,000 $ - - 71,000 $ 54,831 125,831 2020 $ 58,000 58,000 $ 60,600 60,600 118,600 $ 60,327 178,927 27 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ REPORT 28 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 29 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 CONTENTS FINANCIAL STATEMENTS Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report to the members of Delta Drone International Limited ASX Additional Information 31 33 34 35 36 75 76 80 General information The financial statements cover Delta Drone International Limited as a Group consisting of Delta Drone International Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Delta Drone International Limited’s functional and presentation currency. Delta Drone International Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 75 Thomas Street, Subiaco WA 6008 A description of the nature of the Group’s operations and its principal activities are included in the Directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 31 March 2022. The Directors have the power to amend and reissue the financial statements. ASX: DLT 3030 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2021 Revenue Cost of sales Gross profit Other income Gains from disposals of assets Expenses Operating expense Depreciation expense Amortisation of intangible assets Operating (loss)/profit Finance income Finance expense (Loss)/profit before income tax benefit/(expense) from continuing operations Income tax benefit/(expense) Loss after income tax benefit/(expense) from continuing operations Loss after income tax expense from discontinued operations Loss after income tax benefit/(expense) for the year 6 7 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Depreciation expense Total comprehensive income for the year Loss for the year is attributable to: Non-controlling interest Owners of Delta Drone International Limited Total comprehensive income for the year is attributable to: Continuing operations Discontinued operations Non-controlling interest Continuing operations Discontinued operations Owners of Delta Drone International Limited Consolidated Note 2021 ($) 2020 ($) 4 4,581,962 (2,153,244) 2,428,718 39,811 11,123 3,369,115 (1,398,727) 1,970,388 68,519 20,332 5 (4,114,053) (1,874,275) (86,995) (33,273) (125,154) (37,595) (1,754,669) 22,215 11,654 (867) (1,743,882) 38,133 (1,705,749) (1,884,734) (3,590,483) (94,728) (94,728) (3,685,211) 27,324 (3,617,807) (3,590,483) (4,705) - (4,705) (1,795,771) (1,884,735) (3,680,506) (3,685,211) 26,292 (23,064) 25,443 (86,446) (61,003) (54,388) (115,391) 454,230 454,230 338,839 68,568 (183,959) (115,391) 67,596 - 67,596 325,631 (54,388) 271,243 338,839 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 31 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2021 (continued) Loss per share for loss from continuing operations Basic loss per share Diluted loss per share Loss per share for loss from discontinued operations Basic loss per share Diluted loss per share Loss per share for loss Basic loss per share Diluted loss per share Cents Cents 37 37 37 37 37 37 (0.34) (0.34) (0.37) (0.37) (0.71) (0.71) (0.34) (0.34) (0.04) (0.04) (0.13) (0.13) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 32 32 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Consolidated statement of financial position As at 31 December 2021 Assets Current assets Cash and cash equivalents Trade and other receivables Deposits Assets of disposal groups classified as held for sale Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangibles Deferred tax Goodwill Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Deferred consideration Bank overdraft Liabilities directly associated with assets classified as held for sale Total current liabilities Non-current liabilities Borrowings Lease liabilities Deferred tax Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Equity attributable to the owners of Delta Drone International Limited Non-controlling interest Total equity Consolidated Note 2021 ($) 2020 ($) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 954,916 1,415,957 40,178 2,411,051 6,540,901 8,951,952 741,252 121,621 5,313 97,542 1,403,438 2,369,166 11,321,118 470,718 114,850 350,000 97,638 271,483 18,895 1,323,584 1,682,604 3,006,188 105,253 56,003 - 161,256 3,167,444 8,153,674 13,207,118 (587,354) (4,581,279) 8,038,485 115,189 4,991,134 789,758 35,531 5,816,423 7,282,631 13,099,054 397,952 177,304 38,118 50,930 580,824 1,245,128 14,344,182 408,425 - 506,839 79,194 - 31 994,489 1,746,997 2,741,486 - 122,642 13,169 135,811 2,877,297 11,466,885 12,904,061 (548,725) (963,472) 11,391,864 75,021 8,153,674 11,466,885 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 33 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Consolidated statement of changes in equity As at 31 December 2021 Consolidated Issued capital ($) Foreign Currency Translation Reserve ($) Reserves ($) Accumulated losses ($) Noncontrolling interest ($) Total equity ($) Balance at 1 January 2020 1,159,854 (35,357) (968,570) (779,513) 7,425 (616,161) (Loss)/profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Reverse acquisition Issue of shares Share issue costs Balance at 31 December 2020 - - - 5,563,284 6,815,530 (634,607) - 455,202 455,202 - - - - - - - - - (183,959) 68,568 (115,391) - (972) 454,230 (183,959) 67,596 338,839 - - - - - - 5,563,284 6,815,530 (634,607) 12,904,061 419,845 (968,570) (963,472) 75,021 11,466,885 Consolidated Issued capital ($) Foreign Currency Translation Reserve ($) Reserves ($) Share based payment reserves ($) Accumulated losses ($) Non- controlling interest ($) Total equity ($) Balance at 1 January 2021 12,904,061 419,845 (968,570) - (963,472) 75,021 11,466,885 (Loss)/profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (92,422) (92,422) Acquisition of Arvista 5,563,284 Issue of shares 6,815,530 Issue of performance rights Share issue costs Balance at 31 December 2021 - (5,882) - - - - - - - - - - - (3,617,807) 27,324 (3,590,483) - (2,306) (94,728) (3,617,807) 25,018 (3,685,211) 53,793 - - - - - - - - 5,563,284 6,815,530 53,793 (5,882) 13,207,118 327,423 (968,570) 53,793 (4,581,279) 115,189 8,153,674 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 34 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Consolidated statement of cash flows For the year ended 31 December 2021 Current assets Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Net cash from/(used in) continuing operating activities Net cash from/(used in) operating activities - discontinued operations Consolidated Note 2021 ($) 2020 ($) 4,507,022 3,761,123 (6,216,466) (3,483,788) (1,709,444) 11,654 (1,697,790) (1,163,968) 277,335 23,374 300,709 - Net cash from/(used in) operating activities 34 (2,861,758) 300,709 Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Cash acquired on acquisition of subsidiary Payments for deposits (equipment and rental) Net cash (used by) continuing investing activities Net cash (used by) investing activities - discontinued operations Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Repayment of borrowings Repayment of lease liabilities Proceeds from loans Net cash from/(used in) continuing financing activities Net cash from/(used in) financing activities – discontinued operations Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash movement of discontinued operations 31 11 (231,213) (813,792) 18,364 - (515) (1,027,156) (6,466) (1,033,622) - (339,117) 91,376 247,104 (19,876) (20,513) - (20,513) 4 - 4,395,356 (512,111) (49,062) 454,821 (106,352) (36,963) (143,315) (167,707) (112,563) - 4,115,086 - 4,115,086 (4,038,695) 4,395,282 4,991,134 2,477 - 784,604 3,037 (191,789) Cash and cash equivalents at the end of the financial year 8 954,916 4,991,134 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. 36 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 30. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Delta Drone International Limited (‘Company’ or ‘parent entity’) as at 31 December 2021 and the results of all subsidiaries for the year then ended. Delta Drone International Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. 37 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Delta Drone International Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on either a fixed price or an hourly rate. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. 38 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Discontinued operations A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co- ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. 39 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Non-current assets or disposal groups classified as held for sale Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of a non- current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Non- current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. 40 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Computer Furniture and equipment Leasehold improvements Buildings Plant and equipment 3 years 3-17 years the shorter of the lease term and the useful life 2-3 years 1-10 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. 41 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Contract liabilities Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. 42 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. • from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. 43 If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 4444 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non- controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. 45 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Delta Drone International Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 31 December 2021. The Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. 46 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The Group issued performance rights during the year ended 31 December 2021 based on the conditions set out in note 38. The Group follows the guidelines of AASB 2 ‘Share Based Payments’ and takes into account non-market vesting conditions and estimates the probability and expected timing of achieving the vesting conditions. For full terms of the securities issued see note 38. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. 47 Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Business combinations As discussed in note 1, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. During the year, the Company acquired 60% of the ordinary shares of Arvista Pty Ltd and accounted for the acquisition as a business combination as disclosed in note 31. The Shareholders Agreement provides for a call option where the Company has the right to purchase the remaining 40% interest in Arvista Pty Ltd at 1.5 times the 12-month trading revenue. The call option is not on fixed for fixed terms and is therefore accounted for as a derivative at fair value through profit or loss. As the exercise price is based on fair value of the business, the value of the option has been determined by the directors to be nil. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 48 48 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 3. Operating segments Identification of reportable operating segments The Group is organised into three operating segments. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The segments are split into the geographical locations of the Group’s main business, namely Australia, South Africa and Israel. The following table analyses sales revenue and EBITDA based on geographical location Operating segment information Consolidated - 2021 Australia ($) South Africa ($) Israel ($) Other segments ($) Total ($) Revenue Sales to external customers 553,836 4,028,126 966,354 553,836 4,028,126 966,354 - - 5,548,316 5,548,316 Total revenue EBITDA (1,689,851) 114,393 (1,324,677) (44,679) (2,944,814) Depreciation and amortisation (16,891) (103,377) (525,148) Interest revenue Finance costs 164 (108) 11,654 - (13,279) (34,910) - - - (645,416) 11,818 (48,297) (Loss)/profit before income tax benefit (1,706,686) 9,391 (1,884,735) (44,679) (3,626,709) Income tax benefit Loss after income tax benefit 36,226 (3,590,483) Consolidated - 2020 Australia ($) South Africa ($) Israel ($) Other segments ($) Total ($) Revenue Sales to external customers Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs (Loss)/profit before income tax benefit Income tax benefit Loss after income tax benefit - - 3,369,115 3,369,115 - - (172,220) 357,184 (40,000) - - (4,207) (176,427) (162,747) (14,388) 26,291 (18,858) 201,870 - - (54,388) - - - - - - - 3,369,115 3,369,115 144,964 (177,135) 26,291 (23,065) (28,945) (86,446) (115,391) (i) Results relating to operations in Israel have been included in this note for disclosure purposes. Results for the segment are reported on a net basis in the consolidated statement of profit or loss and other comprehensive income as it is a discontinued operation. 49 Segment assets Unallocated assets: Cash Deferred tax asset Segment liabilities Unallocated liabilities: Borrowings Note 4. Revenue NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2021 2020 10,504,861 9,302,118 954,915 4,991,134 97,542 50,930 11,557,318 14,344,182 2,948,391 2,357,290 455,253 506,838 3,403,644 2,864,128 Consolidated 2021 ($) 2020 ($) Rendering of services 4,581,962 3,369,115 Timing of revenue recognition At a point in time Over time Note 5. Operating expense Employee benefits expense General and administrative expenses Corporate costs Consolidated 2021 ($) 2020 ($) - - 4,581,962 3,369,115 4,581,962 3,369,115 Consolidated 2021 ($) 2020 ($) 1,474,711 822,905 1,398,698 1,240,644 879,150 172,220 4,114,053 1,874,275 50 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 6. Income tax expense/(benefit) Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate (Loss)/profit before income tax benefit/(expense) from continuing operations (1,743,882) 25,443 Consolidated 2021 ($) 2020 ($) Loss before income tax expense from discontinued operations Tax at the statutory tax rate of 26% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Permanent difference relating to loss on disposal of discontinued operations Permanent difference relating to non-deductible expenses Movement in unrecognised temporary differences Movement in temporary differences Tax effect of current year losses for which no deferred tax asset has been recognised Tax effect of losses utilised Effect of different tax rate of group entities operating in different jurisdictions Income tax expense/(benefit) Tax losses not recognised (1,884,734) (54,388) (3,628,616) (28,945) (943,440) (7,526) 490,031 31,270 (422,139) - - - (7,526) 18,228 (31,593) (88,707) 495,665 - (2,724) 14,645 (19,045) (4,041) 39,209 (86,446) Consolidated 2021 ($) 2020 ($) Unused tax losses for which no deferred tax asset has been recognised 1,906,403 4,043,881 Potential tax benefit @ 26% 495,665 1,051,409 The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test is passed. 51 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets Capital allowances Leases Provisions Carry forward foreign tax losses Deferred tax liabilities Prepayments Brand name Licenses to operate Domain, manuals and processes Deferred tax liabilities US License Technology Customer Relationships Unrecognised temporary differences Deferred tax assets Blackhole expenditure Patent costs Accrued expenses Capital raising costs Carry forward revenue tax losses Deferred tax liability Contract assets Consolidated 2021 ($) 2020 ($) 5,994 8,261 7,431 76,541 98,227 803 (282) (1,129) (77) (685) 2,201 6,869 4,362 37,498 50,930 (2,496) (2,025) (8,099) (549) (13,169) (218,822) (102,368) (251,000) (117,000) (266,174) (380,000) (587,364) (748,000) Consolidated 2021 ($) 2020 ($) - - 67,570 - 457,956 525,526 (29,861) (29,861) 176,781 431 27,820 275,442 570,935 1,051,409 - - Total unrecognised temporary differences 495,665 1,051,409 Unused tax losses for which no deferred tax asset has been recognised will be subject to the Company satisfying the requirements imposed by regulatory taxation authorities. The benefits of deferred tax assets will only be recognised if: • Future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; • The conditions for deductibility imposed by tax legislation continue to be complied with; and • No changes in tax legislation adversely affect the Company in realising the benefit. 52 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 7. Discontinued operations Revenue Expenses Loss before income tax expense Income tax expense Loss after income tax expense from discontinued operations Consolidated 2021 ($) 966,354 2020 ($) - (2,851,088) (54,388) (1,884,734) (54,388) - - (1,884,734) 1,051,409 In February 2022, the Group finalised the sale of Parazero Israel. In line with AASB 5 Non-current Assets Held for Sale and Discontinued Operations the assets and liabilities of the entity has been disclosed separately in this note and has been recognised as assets of disposal groups classified as held for sale and liabilities directly associated with assets classified as held for sale. The performance of Parazero Israel has been included as a single line item in the Consolidated statement of profit or loss and other comprehensive income. Refer to note 33 for further information. Note 8. Current assets - cash and cash equivalents Cash and cash equivalents Consolidated 2021 ($) 954,916 2020 ($) 4,991,134 Refer to note 26 for further information on the risk exposure analysis of cash and cash equivalents. Note 9. Current assets - trade and other receivables Trade receivables Expected Credit loss allowance Goods and services tax Prepayments Other receivables Consolidated 2021 ($) 1,067,644 (6,095) 92,143 1,153,692 2020 ($) 557,898 (7,946) 206,819 756,771 259,885 23,522 2,380 9,465 1,415,957 789,758 Refer to note 26 for further information on the risk exposure analysis of trade and other receivables. There are no receivables that are past due where expected credit loss has not been assessed. Prepayments mainly relate to payments made for insurances paid in advance. 53 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 10. Current assets - assets of disposal groups classified as held for sale Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Intangibles and goodwill Deferred tax asset Note 11. Non-current assets - property, plant and equipment Consolidated 2021 ($) 2020 ($) 45,424 38,281 191,789 184,453 483,895 480,850 68,957 82,337 5,818,054 6,343,202 86,290 - 6,540,901 7,282,631 Consolidated 2021 ($) 2020 ($) 2,095,970 1,495,952 (1,354,718) (1,098,000) 741,252 397,952 Cost Accumulated depreciation Net carrying amount 31 December 2021 Survey equipment Furniture and fixtures Motor vehicles Office equipment IT equipment Leasehold improvements Drone accessories Drones Drone batteries Other fixed assets Capital works in progress Opening balance ($) Additions ($) Disposals ($) Foreign exchange movements ($) Depreciation ($) Closing balance ($) 18,961 28,571 20,281 12,533 44,779 16,285 55,404 183,832 - 287 17,019 - 2,936 137,770 28,620 47,278 - 219,829 291,614 69,686 7,318 8,741 397,952 813,792 - - - - - - - (3,044) (1,427) (1,488) (189) (6,148) 349 (743) (1,186) (250) 861 (278) (1,527) (8,926) (1,122) 6 (1,087) (19,310) (7,327) (14,679) (8,635) (43,206) (5,835) (129,241) - 23,437 142,186 32,268 49,712 10,172 141,421 (170,165) 294,928 (47,081) (4,962) - 19,995 2,460 24,673 (13,903) (450,441) 741,252 54 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 11. Non-current assets - property, plant and equipment (continued) 31 December 2020 Survey equipment Furniture and fixtures Motor vehicles Office equipment IT equipment Leasehold improvements Drone accessories Small assets Drones Other fixed assets Capital works in progress Opening balance ($) Additions ($) Disposals ($) Foreign exchange movements ($) Depreciation ($) Closing balance ($) - 24,924 12,259 12,353 101,471 35,644 67,203 - 318,647 563 - 31,762 12,552 12,339 4,483 15,466 14,195 73,305 6,163 108,319 - 17,019 - - - - - (3,150) (957) (1,492) (12,801) (5,755) (3,360) (2,811) (5,556) (14,227) (52,375) - (4,802) - (4,629) (11,312) (28,925) (68,990) - (6,163) 18,961 28,571 20,281 12,533 44,779 16,285 55,404 - (1,925) (39,605) (201,604) 183,832 - - (73) - (203) - 287 17,019 573,064 295,603 (12,283) (75,445) (382,987) 397,952 Note 12. Non-current assets - right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Consolidated 2021 ($) 397,700 (276,079) 2020 ($) 368,680 (191,376) 121,621 177,304 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 January 2020 Additions Exchange differences Depreciation expense Balance at 31 December 2020 Additions Exchange differences Transfers in/(out) Balance at 31 December 2021 Land and buildings ($) Total ($) 202,463 202,463 92,882 92,882 (26,304) (26,304) (91,737) (91,737) 177,304 20,694 16,215 177,304 20,694 16,215 (92,592) (92,592) 121,621 121,621 Right-of-use assets relate to rental properties used in South Africa. 55 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 13. Non-current assets - intangibles Brand Names - at cost Less: Accumulated amortisation Client contracts - at cost Less: Accumulated amortisation Licenses to operate - at cost Less: Accumulated amortisation Domain, manuals and processes - at cost Less: Accumulated amortisation Consolidated 2021 ($) 30,235 (29,228) 1,007 194,837 (194,837) - 120,942 (116,910) 4,032 94,594 (94,320) 274 2020 ($) 30,990 (23,759) 7,231 - - - 123,960 (95,036) 28,924 96,956 (94,993) 1,963 5,313 38,118 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 January 2020 Additions through business combinations (note 31) Brand names ($) Licenses to operate ($) Domain, manuals and processed ($) USA licenses ($) Technology ($) Customer relationships ($) Total ($) 15,435 61,741 9,843 - - - 87,019 - - - 1,569,000 734,000 2,376,000 4,679,000 Exchange differences (2,005) (8,022) (1,278) - - - (11,305) Amortisation expense (6,199) (24,795) (6,602) (5,370) (2,512) (6,506) (51,984) Balance at 31 December 2020 Classified as held for sale Exchange differences 7,231 28,924 1,963 1,563,630 731,488 2,369,494 4,702,730 - 90 - 355 - 24 (1,367,639) (639,801) (2,132,024) (4,139,464) - - - 469 Amortisation expense (6,313) (25,248) (1,713) (195,991) (91,687) (237,470) (558,422) Balance at 31 December 2021 1,008 4,031 274 - - - 5,313 Note 14. Non-current assets - deferred tax Deferred tax asset Consolidated 2021 ($) 97,542 2020 ($) 50,930 56 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 15. Non-current assets - Goodwill Goodwill Consolidated 2021 ($) 1,403,438 2020 ($) 580,824 Goodwill relates to the acquisition of Rocketmine (Pty) Ltd (South Africa), and Arvista Pty Ltd (Australia). The recoverable amount of all cash-generating units is based on the higher of its value-in-use or fair value less costs to sell which require use of assumptions. For the purpose of impairment testing, goodwill is allocated to two (2) cash-generating units (CGU), being Delta Drone South Africa and Australia. In assessing goodwill impairment for the year ended 31 December 2021, all CGUs used a discounted cash flow model in accordance with the value-in-use (VIU) method, which reflect the present value of the future cash flows expenditure to be derived from each CGUs. The allocation of the fair value to goodwill arising on acquisition of Arvista Pty Ltd has been made on a provisional basis. Under AASB 3 – Business Combinations management has up to 12 months to finalise the carrying value of assets and liabilities acquired on completion of an acquisition. The significant inputs and key assumptions used by management within the discounted cash flow model for the Delta Drone South Africa CGU and Arvista Pty Ltd CGU are: Delta Drone South Africa (Pty) Ltd • Discount rate (pre-tax): risk in the industry and Arvista Pty Ltd • Discount rate (pre-tax): risk in the industry and country in which it operates – 16.3%. country in which it operates – 15.0%. • Revenue growth: relevant to the market conditions • Revenue growth: relevant to the market conditions and business plan – 31.4%. and business plan – 33.5% • Budgeted gross profit rate: based on past • Budgeted gross profit rate: based on past performance and management’s expectations for the future – 54.7%. performance and management’s expectations for the future – 35.0%. • Long term growth rate: typically consistent with the long-term growth rate of the economic environment or country in which it operates. • Long term growth rate: typically consistent with the long-term growth rate of the economic environment or country in which it operates. Note 16. Current liabilities - trade and other payables Trade payables Goods and services tax Refer to note 26 for further information on financial instruments. Consolidated 2021 ($) 431,388 39,330 2020 ($) 408,425 - 470,718 408,425 57 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 17. Current liabilities - contract liabilities Contract liabilities Reconciliations Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Opening balance Payments received in advance Closing balance Note 18. Current liabilities - borrowings Short-term loan Refer to note 26 for further information on financial instruments. Consolidated 2021 ($) 114,850 - 114,850 114,850 2020 ($) - - - - Consolidated 2021 ($) 350,000 2020 ($) 506,839 The borrowing represents a short-term bridge financing by way of an unsecured line of credit (“loan”) of $350,000 (2020: $500,000) advanced by Delta Drone SA France with an interest rate of 2.5% (2020: 10%) per annum. The loan and the accrued interest were repaid subsequent to the year end. Note 19. Current liabilities - lease liabilities Lease liability Refer to note 26 for further information on financial instruments. Note 20. Current liabilities – deferred consideration Deferred consideration - Arvista Pty Ltd acquisition Consolidated 2021 ($) 97,638 2020 ($) 79,194 Consolidated 2021 ($) 271,483 2020 ($) - Deferred consideration The deferred provision represents the obligation to pay contingent consideration following the acquisition of Arvista Pty Ltd in the year. It is measured at the present value of the estimated liability. This consideration is to be paid in cash one month after the annual report is provided to the Australian Securities Exchange (ASX). 58 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 21. Current liabilities - liabilities directly associated with assets classified as held for sale Trade payables Deferred tax liability Consolidated 2021 ($) 932,302 750,302 1,682,604 2020 ($) 998,997 748,000 1,746,997 Refer to note 26 for further information on financial instruments. Non-current borrowings relate to motor vehicle finance leases and long-term borrowing from a supplier. Note 22. Non-current liabilities - borrowings Borrowings Refer to note 26 for further information on financial instruments. Consolidated 2021 ($) 105,253 2020 ($) - Non-current borrowings relate to motor vehicle finance leases and long-term borrowing from a supplier. Note 23. Non-current liabilities - lease liabilities Lease liability Refer to note 26 for further information on financial instruments. Consolidated 2021 ($) 56,003 2020 ($) 122,642 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 24. Equity - issued capital Ordinary shares - fully paid 511,604,932 500,800,731 13,207,118 12,904,061 Consolidated 2021 Shares 2020 Shares 2021 ($) 2020 ($) Movements in ordinary share capital Details Balance Date Shares Issue price ($) 1 January 2020 139,082,099 1,735,384 Conversion of convertible notes 22 December 2020 12,500,000 $0.0040 500,000 Conversion of convertible notes 22 December 2020 14,705,882 $0.0340 500,000 Issue of shares to acquire Delta Drone South Africa 22 December 2020 203,512,750 $0.0273 5,563,284 Issue of shares pursuant to Prospectus 22 December 2020 125,000,000 $0.0400 5,000,000 Issue of Broker Shares Capital raising costs 22 December 2020 6,000,000 $0.0400 240,000 22 December 2020 Balance 31 December 2020 500,800,731 Issue of shares on exercise of options 10 February 2021 579,201 $0.0027 Issue of shares to third party 10 March 2021 625,000 $0.0310 Issue of shares for acquisition of Arvista Pty Ltd 1 September 2021 9,600,000 $0.0300 288,000 Share issue costs 1 September 2021 - (5,882) Balance 31 December 2021 511,604,932 13,207,118 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. Share buy-back There is no current on-market share buy-back. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. 60 (634,607) 12,904,061 1,564 19,375 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 25. Equity - reserves Predecessor accounting reserves Foreign currency reserve Share-based payments reserve Consolidated 2021 ($) (968,570) 327,423 53,793 2020 ($) (968,570) 419,845 - (587,354) (548,725) Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. Predecessor accounting reserve The predecessor accounting reserve comprises the excess of purchase price over the fair value of net assets when the common controlled entity, Drone Safety and Legal (Pty) Ltd was acquired by Delta Drone SA France. 61 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 26. Financial instruments Financial risk management objectives The Group’s objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. Given the nature of the business, the Group monitors capital on the basis of current business operations and cash flow requirements. There were no changes in the Group’s approach to capital management during the year. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. Finance reports to the Board on a monthly basis. Financial assets Cash and cash equivalents Trade and other receivables Financial assets held at amortised cost Financial liabilities Trade and other payables Bank overdraft Lease liabilities Borrowings Deferred consideration Consolidated 2021 ($) 2020 ($) 954,916 1,415,957 34,869 4,991,134 789,758 35,531 2,405,742 5,816,423 470,718 18,895 153,371 455,253 271,483 408,425 31 201,836 506,839 1,369,720 1,117,131 The fair value of the above financial instruments approximates their carrying values. Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the US Dollar (the functional currency of the Israeli subsidiary company now held for sale), the New Israeli Shekel, the Australian Dollar (functional currency of the Parent company) and the South African Rand (the functional currency of the South African subsidiaries). 62 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Interest rate risk The Group’s main interest rate risk arises from borrowings. Borrowings obtained at variable rates expose the Group to interest rate risk. Price risk The Group is not exposed to any significant price risk Consolidated - 2021 Basis points change Basis points increase profit before tax Effect on equity Basis points change Basis points decrease Effect on profit before tax Effect on equity Cash and cash equivalents 100 9,549 9,549 (100) (9,549) (9,549) Consolidated - 2020 Basis points change Basis points increase profit before tax Effect on equity Basis points change Basis points decrease Effect on profit before tax Effect on equity Cash and cash equivalents 100 49,911 49,911 (100) (49,911) (49,911) trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to Allowance for expected credit losses The Group has recognised a loss of $6,095 (31 December 2020: $7,946) in profit or loss in respect of the expected credit losses for the year ended 31 December 2021. 63 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Expected credit loss rate Carrying amount Allowance for expected credit losses Consolidated Not overdue 2021 % - 2020 % 2021 % 2020 % - 1,059,504 515,374 0 to 3 months overdue 74.69% 18.00% 8,160 3 to 6 months overdue - 20.36% - 30,162 12,362 2021 % - 6,095 - 1,067,664 557,898 6,095 2020 % - 5,429 2,517 7,946 Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate (%) 1 year or less ($) Between 1 and 2 years ($) Between 2 and 5 years ($) Over 5 years ($) Remaining contractual maturities ($) Consolidated - 2021 Non-derivatives Non-interest bearing Trade payables Deferred consideration Non-interest bearing Bank overdraft Lease liability Interest-bearing - fixed rate - - - 470,718 271,483 18,895 97,638 - - 56,003 Borrowings 2.50% 350,000 - Total non-derivatives - 1,208,734 56,003 - - - - - - - - - - 470,718 271,483 18,895 153,641 350,000 1,264,737 64 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Weighted average interest rate (%) 1 year or less ($) Between 1 and 2 years ($) Between 2 and 5 years ($) Over 5 years ($) Remaining contractual maturities ($) Consolidated - 2020 Non-derivatives Non-interest bearing Trade payables Non-interest bearing Lease liability Interest-bearing - fixed rate - - 408,425 - 79,194 122,642 - - - - - - - - 408,425 201,836 506,839 1,117,100 Borrowings 10.00% 506,839 - Total non-derivatives - 994,458 122,642 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. Note 27. Key management personnel disclosures Directors The following persons were Directors of Delta Drone International Limited during the financial year: Eden Attias Executive Chairman Christopher Clark Chief Executive Officer Stephen Gorenstein Non-Executive Officer Clive Donner Nicolas Clerc Christian Viguie Dan Arazi Chris Singleton Non-Executive Officer (appointed 14 July 2021) Non-Executive Officer (appointed 8 April 2021) Non-Executive Officer (appointed 8 April 2021) Non-Executive Officer (resigned 21 June 2021) Non-Executive Officer (resigned 14 July 2021) 65 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2021 ($) 482,402 14,638 53,794 550,834 2020 ($) 432,085 770 - 432,855 Note 28. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by BDO Audit (WA) Pty Ltd, the auditor of the Company, and its network firms: Audit services - Audit or review of the financial statements Other services - Investigating Accountant’s Report - BDO Corporate Finance (WA) Pty Ltd Audit services - network firms Audit or review of the financial statements Consolidated 2021 ($) 2020 ($) 71,000 58,000 - 71,000 - 60,600 60,600 118,600 54,831 60,327 Note 29. Related party transactions Parent entity Delta Drone International Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 32. Key management personnel Disclosures relating to key management personnel are set out in note 27 and the remuneration report included in the Directors’ report. Transactions with related parties There were no transactions with related parties during the current and previous financial year. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. 66 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Loans from related parties The following balances are outstanding at the reporting date in relation to loans with related parties: Current borrowings: Loan from Delta Drone SA (France) Consolidated 2021 ($) 2020 ($) 350,000 506,838 As at 31 December 2021, Delta Drone International Limited held a loan payable balance of $350,000 (31 December 2020: $500,000), which was owed to Delta Drone SA (France), a related party which holds a majority shareholding in the Company. The loan bears an interest of 2.5% (2020: 10%) per annum. This loan balance was repaid in full post-year end. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 30. Parent entity information Loss after income tax Assets Current assets Total assets Liabilities Current assets Total liabilities Net Assets Shareholders’ Equity Issued capital Reserves Accumulated losses Parent 2021 ($) Parent 2020 ($) (4,064,639) (17,429,836) Parent 2021 ($) Parent 2020 ($) 562,846 562,846 (708,660) (708,660) 4,340,808 4,340,808 (726,869) (726,869) (145,814) 3,613,939 19,418,100 1,924,512 (21,488,426) (145,814) 19,115,043 1,922,683 (17,423,787) 3,613,939 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 31 December 2021 and 31 December 2020. Contingent liabilities The parent entity had no contingent liabilities as at 31 December 2021 and 31 December 2020. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2021 and 31 December 2020. 67 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 31. Business combinations Arvista Pty Ltd On 1 September 2021 Delta Drone International Limited acquired 60% of the ordinary shares of Arvista Pty Ltd for the total consideration transferred of $859,483. The acquired business contributed revenues of $553,836 and profit after tax of $39,760 to the Group for the period from 1 September 2021 to 31 December 2021. The goodwill on acquisition was $836,758 which arose as the difference between the fair value of consideration paid and the total tangible assets transferred and represents the access to blue-chip Australian client base and highly skilled professionals allowing the Group to expand its offering beyond surveying. If the acquisition occurred on 1 January 2021, the full year contributions would have been revenues of $1,396,352 and loss after tax of $80,584. Details of the acquisition are as follows: Deferred consideration There is a deferred consideration portion of $271,483 that is due within one (1) month of the submission of the 31 December 2021 annual report to the Australian Securities Exchange (ASX). Call Option The Shareholders Agreement provides for a call option where the Group has the right to purchase the remaining 40% interest in Arvista Pty Ltd at 1.5 times the 12-month trading revenue on the purchase price for 31 August 2021. The option is valid for 5 years. As the option exercise price is linked to the fair value of the business, the directors have determined that the option is immaterial. Cash and cash equivalents Trade receivables Other current assets Plant and equipment Motor vehicles Trade payables Employee benefits Other borrowings Net assets acquired Goodwill Non-controlling interest Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Delta Drone International Limited shares issued to vendor Deferred consideration Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: payments to be made in future periods Less: shares issued by theCompany as part of consideration Net cash used Fair value ($) 68,787 173,595 1,092 1,867 13,739 (161,201) (58,922) (1,082) 37,875 836,758 (15,150) 859,483 300,000 288,000 271,483 859,483 859,483 (68,787) (271,483) (288,000) 231,213 * The non-controlling interest has been calculated by the proportionate share of net asset method. Fair value measured on a provisional basis The allocation of the fair value to goodwill has been made on a provisional basis. Under AASB 3 – Business Combinations management has up to 12 months to finalise the carrying value of assets and liabilities acquired on completion of an acquisition. 68 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 32. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1: Name ParaZero Technologies Delta Drone South Africa (Pty) Ltd Drone Safety and Legal (Pty) Ltd Rocketmine South Africa Rocketmine Ghana Rocketmine Australia Pty Ltd Arvista Pty Ltd Principal place of business / Country of incorporation Ownership interest 2021 ($) Ownership interest 2020 ($) Israel South Africa South Africa South Africa Ghana Australia Australia 100.00% 100.00% 100.00% 74.00% 90.00% 100.00% 60.00% 100.00% 100.00% 100.00% 74.00% 90.00% 100.00% - Note 33. Events after the reporting period On 28 January 2022 the Group announced that it had entered into a binding agreement with a consortium of investors led by NASDAQ-listed Medigus Ltd and facilitated by Israeli venture capital firm L.I.A Pure Capital Ltd to sell ParaZero Technologies Ltd (“ParaZero”) which operated the Company’s drone safety business, for a total consideration of A$6 million in cash. This transaction allows the Group to focus on becoming one of the leading drone service providers globally after its successful acquisition of the Delta Drone South Africa business in December 2020 and the purchase of Arvista Pty Ltd in Australia in September 2021. Post-sale this will leave the Company with a strengthened balance sheet and a substantially reduced need for cash to fund the ongoing R&D investment that had been required by the ParaZero business, allowing the Group to focus on aggressively growing its global drone services business. As such, the assets (including goodwill and intangible assets), liabilities and net profit of the Parazero operations have been classified as assets held for sale and liabilities directly attributed to discontinued operations in the 31 December 2021 report. No other matter or circumstance has arisen since 31 December 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 69 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 34. Reconciliation of loss after income tax to net cash from/(used in) operating activities Loss after income tax benefit/(expense) for the year Adjustments for: Depreciation and amortisation Share-based payments Foreign exchange differences Gain on sale of assets Interest received Finance costs Expected credit loss allowance Change in operating assets and liabilities: Increase in trade and other receivables Decrease/(increase) in inventories Decrease/(increase) in income tax refund due Increase in deferred tax assets Increase in trade and other payables Increase in contract liabilities Consolidated 2021 ($) (3,590,483) 2020 ($) (115,391) 1,064,076 202,293 53,793 (92,422) (11,123) - 7,487 6,095 (318,694) 6,185 (135,576) (146,070) 180,124 114,850 - 585 (20,332) (26,292) 110,723 (5,019) (289,083) (472,719) 86,446 - 829,498 - Net cash from/(used in) operating activities (2,861,758) 300,709 Note 35. Non-cash investing and financing activities Shares issued in relation to business combinations Consolidated 2021 ($) 2020 ($) 288,000 - The Company issued 9,600,000 shares as part of the business combination to acquire Arvista Pty Ltd during the year. Refer to note 31 for more information. 70 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 36. Changes in liabilities arising from financing activities Consolidated Balance at 1 January 2020 Net cash used in financing activities Loans received Acquisition of leases Exchange differences Changes in fair values Other changes Balance at 31 December 2020 Net cash used in financing activities Proceeds from loans Addition on business combination Exchange differences Changes in fair values Balance at 31 December 2021 There are no other non-cash investing and financing activities. Note 37. Earnings per share Loss per share for loss from continuing operations Loss after income tax Non-controlling interest Loss after income tax Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic loss per share Diluted loss per share Loss per share for loss from discontinued operations Loss after income tax Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic loss per share Diluted loss per share Total Basic loss per share Total Diluted loss per share Borrowing ($) 3,354,742 (167,707) 500,000 - - 6,839 (3,187,035) 506,839 (512,111) 454,821 1,082 4,620 - Lease liabilies ($) 226,740 (103,384) - 92,882 (29,459) 15,058 Total ($) 3,581,482 (271,091) 500,000 92,882 (29,459) 21,897 - (3,187,035) 201,837 (49,062) - - (867) 708,676 (561,173) 390,000 1,082 4,620 (867) 455,241 151,908 607,149 Consolidated 2021 ($) 2020 ($) (1,705,749) (27,324) (61,003) (68,568) (1,733,073) (129,571) Number 505,033,787 505,033,787 Number 144,191,756 144,191,756 Cents (0.34) (0.34) Cents (0.09) (0.09) Consolidated 2021 ($) 2020 ($) (1,884,734) (54,388) Number 505,033,787 505,033,787 Number 144,191,756 144,191,756 Cents (0.37) (0.37) Cents (0.71) (0.71) Cents (0.04) (0.04) Cents (0.13) (0.13) 71 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 38. Share-based payments The Group provided performance rights to selected directors as a part of their remuneration package and as a performance incentive – the Board considers that performance rights are an appropriate form of incentive as they align remuneration with the long- term success of the Group, shareholder interests and current market practice. Vesting of the performance rights is conditional on the satisfaction of various milestones within a three (3) year timeframe. The performance rights were issued at nil cost and will be converted into the equivalent number of shares when exercised. 2021 Grant date Expiry date 24/06/2021 24/06/2024 Balance at the start of the year Granted Exercised - - 14,000,000 14,000,000 - - Expired/ forfeited/ other Balance at the end of the year (1,000,000) (1,000,000) 13,000,000 13,000,000 Set out below are summaries of performance rights granted under the plan: Outstanding at the beginning of the financial year Granted Forfeited Outstanding at the end of the financial year Number of rights 2021 - 14,000,000 (1,000,000) 13,000,000 There were 14,000,000 performance rights over ordinary shares issued to Directors as part of compensation during the year ended 31 December 2021. Shareholders of the Company approved the issue of the Performance Rights at the Annual General Meeting of the Company held on 24 June 2021. During the year 1,000,000 performance rights held by Chris Singleton were forfeited due to his resignation. As at 31 December 2021, an expense of $53,794 based on a fair value of $0.024 per right has been recognised as share-based payment in the statement of profit or loss and other comprehensive income which represents the pro-rated value from 24 June 2021 (grant date) to 31 December 2021. Total value of the remaining 13,000,000 Performance Rights will be expensed over management’s expected vesting period of 3 years. No performance rights have vested in the year ended 31 December 2021. 72 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The details of allottees and the Milestones are described in the tables below Name Eden Attias Eden Attias Eden Attias Christopher Clark Christopher Clark Christopher Clark Christopher Clark Christopher Clark Christopher Clark Stephen Gorenstein Stephen Gorenstein Stephen Gorenstein DDG Milestones Milestone Description No. of Performance Rights Milestones 2,000,000 New Milestone 1 2,000,000 New Milestone 2 2,000,000 New Milestone 3 666,667 666,667 666,667 DDG Milestone 1 DDG Milestone 2 DDG Milestone 3 1,333,334 New Milestone 1 1,333,334 New Milestone 2 1,333,334 New Milestone 3 333,334 333,334 333,334 13,000,000 New Milestone 1 New Milestone 2 New Milestone 3 DDG Milestone 1 DDSA achieving consolidated revenue (for the avoidance of doubt, only DDSA and excluding the Group) for any full financial year (being 1 Jan to 31 Dec) during the three-year term of the Performance Rights of not less than US$3,200,000 (based on audited accounts having been prepared by an external auditor or other suitable expert). If DDSA enters into at least two binding contracts with Australian-based mining companies (being companies that conduct mining, exploration or extraction services) for the provision of drone survey or mapping solutions services DDG to those mining companies in Australia (“Services”) and DDSA receives not less than US$1,000,000 (based on Milestone 2 audited accounts having been prepared by an external auditor or other suitable expert) of verified revenue in aggregate from such executed contracts received within the three-year term of the Performance Rights for its Services. If during the three-year term of the Performance Rights, the Company announces to the ASX that DDSA has DDG Milestone 3 expanded the services of its business offering (being the provision of drone survey and mapping solutions) into a new geographic location outside of Australia, Israel, South Africa, Ghana and Namibia and achieved a revenue in that new geographic location of not less than US$1,000,000 (based on audited accounts having been prepared by an external auditor or other suitable expert). Note: DDSA means Delta Drone South Africa and its current subsidiaries, Drone Safety and Legal, Rocketmine South Africa and Rocketmine Ghana. New Milestones Milestone Description New The Group achieving consolidated revenue of not less than A$10,000,000 in a single financial year (being 1 Jan to Milestone 1 31 Dec) based on audited accounts having been prepared by an external auditor or other suitable expert. New The Group achieving total consolidated EBITDA of not less than A$1,000,000 in a single financial year (being 1 Jan Milestone 2 to 31 Dec) based on audited accounts having been prepared by an external auditor or other suitable expert. New Milestone 3 The Company achieving a total return on equity of not less than 10% in a single financial year (being 1 Jan to 31 Dec), where return on equity is equal to net profit as a percentage of total equity based on audited accounts having been prepared by an external auditor or other suitable expert. 73 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 38. Share-based payments (continued) In the prior year the Company issued 45,000,000 Performance Shares for which $nil value was ascribed to as part of the acquisition accounting. The Performance Shares will convert to new shares according to the following milestones: Class C Performance Shares Each Class C Performance Share entitles Delta Drone SA France to subscribe for one fully paid ordinary share in the capital of the Company if during the three-year term of the Class C Performance Shares the Company announces to the ASX that Delta Drone South Africa has expanded the services of its business offering (being the provision of drone survey and mapping solutions) into a new geographic location outside of Australia, Israel South Africa, Ghana and Namibia and achieved a revenue in that geographic location of not less than US$1,000,000 (“Third Performance Milestone”). If a Performance Milestone is not satisfied within 3 years of the date of issue of the Performance Shares (being 22 December 2020), then the relevant Performance Shares will automatically lapse. Class A Performance Shares Each Class A Performance Share entitles Delta Drone SA France to subscribe for one fully paid ordinary share in the capital of the Company if Delta Drone South Africa achieves consolidated revenue (for avoidance of doubt, only Delta Drone South Africa and excluding the Company) for any full financial year (being 1 January to 31 December) during the three-year term of the Class A Performance Share of not less than US$3.2 million (“First Performance Milestone”). Class B Performance Shares Each class B Performance Share entitles Delta Drone SA France to subscribe for one fully paid ordinary share in the capital of the Company if Delta Drone South Africa enters into at least two binding contracts with Australian based mining companies (being companies that conduct mining, exploration or extraction activities) for the provision of drone survey or mapping solution services to those mining companies in Australia (“Services”) and Delta Drone South Africa receives not less than US$1,000,000 (based on audited accounts) of verified revenue in aggregate form from such executed contracts received within the three-year term of the Performance Shares for its Services (“Second Performance Milestone”). 74 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DIRECTORS’ DECLARATION Directors’ declaration In the Directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; • the attached financial statements and notes give a true and fair view of the Group’s financial position as at 31 December 2021 and of its performance for the financial year ended on that date; and • there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Christopher Clark Chief Executive Officer 31 March 2022 75 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DELTA DRONE INTERNATIONAL LIMITED 76 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DELTA DRONE INTERNATIONAL LIMITED 77 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DELTA DRONE INTERNATIONAL LIMITED 78 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DELTA DRONE INTERNATIONAL LIMITED 79 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 DELTA DRONE INTERNATIONAL ANNUAL REPORT 2022 ASX ADDITIONAL INFORMATION The shareholder information set out below was applicable as at 6 March 2022. As at 6 March 2022, there were 706 holders of fully paid ordinary shares. VOTING RIGHTS The voting rights of the ordinary shares are as follows: Subject to any rights or restrictions for the time being attached to any shares or class of shares of the Company, each member of the Company is entitled to receive notice of, attend and vote at a general meeting. Resolutions of members will be decided by a show of hands unless a poll is demanded. On a show of hands each eligible voter present has one vote. However, where a person present at a general meeting represents personally or by proxy, attorney or representation more than one member, on a show of hands the person is entitled to one vote only despite the number of members the person represents. On a poll each eligible member has one vote for each fully paid share held. There are no voting rights attached to any of the options and performance options that the Company currently has on issue. Upon exercise of these options, the shares issued will have the same voting rights as existing ordinary shares. TWENTY LARGEST SHAREHOLDERS The names of the twenty largest holders of Ordinary Fully Paid Shares are: Holder Name Delta Drone SA The Trust Company (Australia) Limited010 Yazamut Ltd HSBC Custody Nominees (Australia) Limited Meah Plus Maarchot Betichot Le’rachfanim LP Cukierman & Co Investment House Ltd Nintieth Y Pty Ltd Pither Investments Pty Ltd Adfect Aps Mr Perry Julian Rosenzweig Mr Shane Gavin Mcleay & Ms Karen Leigh Mcleay Mr Evan Mckern Amir Tsaliah Ronald Zelazo Auto Management Pty Ltd Ronald Zelazo Opima Pty Limited Investmin Pty Ltd Mrs Kathryn Valerie Van Der Zwan Jetmax Trading Pty Ltd Totals Holding % IC 282,506,678 55.22% 27,275,691 23,959,727 19,999,624 18,112,983 6,000,000 5,750,000 5,750,000 5,107,395 5,000,000 3,840,000 3,840,000 3,523,386 3,238,622 3,000,000 2,433,333 2,000,000 1,920,000 1,750,000 1,681,250 5.33% 4.68% 3.91% 3.54% 1.17% 1.12% 1.12% 1.00% 0.98% 0.75% 0.75% 0.69% 0.63% 0.59% 0.48% 0.39% 0.38% 0.34% 0.33% 426,688,689 83.40% 80 DELTA DRONE INTERNATIONAL ANNUAL REPORT 2022 SHAREHOLDER INFORMATION SUBSTANTIAL HOLDERS The names of the substantial shareholders disclosed to the Company as substantial shareholders are: Name Delta Drone SA Merchant Funds Management Pty Ltd as manager of the Merchant Opportunities Fund and the Merchant Leaders Fund No of Shares Held % of Issued Capital 282,506,678 27,275,691 55.22% 5.44% DISTRIBUTION OF EQUITY SECURITIES Ordinary Fully Paid Shares Holding Ranges 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and ove Totals Holders Total Units % Issued Share Ca 9 15 69 423 190 706 3,581 54,790 665,198 20,118,847 490,762,516 511,604,932 0.00% 0.01% 0.13% 3.93% 95.93% 100.00% Unmarketable Parcels – 216 Holders with a total of 3,061,590 shares, based on the last trading price of $0.018 on 4 March 2022. RESTRICTED SECURITIES The following securities are subject to ASX escrow: 211,718,632 Ordinary Fully Paid Shares escrowed until 31 December 2022 20,000,000 Class A Performance Shares escrowed until 31 December 2022 15,000,000 Class B Performance Shares escrowed until 31 December 2022 10,000,000 Class C Performance Shares escrowed until 31 December 2022 Note: The milestones applicable to the Performance Shares are detailed in Note 38 of this Annual Report. The following securities are subject to voluntary escrow: 625,000 Ordinary Fully Paid Shares voluntarily escrowed until 10 March 2022 9,600,000 Ordinary Fully Paid Shares voluntarily escrowed until 1 September 2023 81 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 SHAREHOLDER INFORMATION UNQUOTED SECURITIES The following unquoted securities are on issue: 7,590,418 Options Expiring 13 June 2023 @ $0.0027 – 3 Holders Holders with more than 20% Holder Name EATC International Ltd 20,000,000 Class A Performance Shares escrowed until 31 December 2022 – 1 Holder Holders with more than 20% Holder Name Delta Drone SA Holding 5,598,837 % IC 73.76% Holding 20,000,000 % IC 100.00% The milestones applicable to the Performance Shares are detailed in Note 38 of this Annual Report. 15,000,000 Class B Performance Shares escrowed until 31 December 2022 – 1 Holder Holders with more than 20% Holder Name Delta Drone SA Holding 15,000,000 % IC 100.00% The milestones applicable to the Performance Shares are detailed in Note 38 of this Annual Report. 10,000,000 Class C Performance Shares escrowed until 31 December 2022 – 1 Holder Holders with more than 20% Holder Name Delta Drone SA Holding 10,000,000 % IC 100.00% The milestones applicable to the Performance Shares are detailed in Note 38 of this Annual Report. 955,480 Options Expiring 17 April 2024 @ $0.1125 – 14 Holders Holders with more than 20% Holder Name The Trust Company (Australia) Limited 953,544 Options Expiring 24 June 2024 @ $0.1125 – 5 Holders Holders with more than 20% Holder Name Meah Plus Maarchot Betichot Le’rachfanim LP 948,053 Options Expiring 5 November 2024 @ $0.09 – 5 Holders Holders with more than 20% Holder Name 010 Yazamut Ltd Adfect Aps Ronald Zelazo The Trust Company (Australia) Limited Holding 618,430 % IC 64.72% Holding 823,673 % IC 86.38% Holding 270,872 225,727 225,727 222,745 % IC 28.57% 23.81% 23.81% 23.50% 82 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021 SHAREHOLDER INFORMATION The following unquoted securities are on issue and were issued under the employee incentive plan. 666,667 Performance Rights - 1 Holder 666,667 Performance Rights - 1 Holder 666,666 Performance Rights - 1 Holder 3,666,668 Performance Rights - 3 Holders 3,666,666 Performance Rights - 3 Holders 3,666,666 Performance Rights - 3 Holders The milestones applicable to the Performance Shares are detailed in Note 38 of this Annual Report. ON-MARKET BUY BACK There is currently no on-market buyback program. ASX LISTING RULE 4.10.19 The Company has used its cash and assets in a form readily convertible to cash that it had at the time of listing of the Company’s securities to quotation in a way consistent with its business objectives. 83 DELTA DRONE INTERNATIONAL LIMITED contact@dlti.com.au +61 8 6189 1155 75 Thomas Street Subiaco WA 6008 Email: contact@dlti.com.au DELTA DRONE INTERNATIONAL LIMITED | ABN 17 618 678 701 84 DELTA DRONE INTERNATIONAL LIMITED ANNUAL REPORT 2021