Appendix 4E
For the year ended 31 December 2020
DroneShield Limited
ABN 26 608 915 859
1. Reporting period
The financial information contained in the attached consolidated financial report is for the year ended 31 December 2020.
The previous corresponding period was the year ended 31 December 2019.
Results for announcement to the market
Revenue from continuing activities
Up/
Down
Up
%
Movement
58%
Loss from continuing activities after tax attributable to members
Down
24%
Net loss attributable to members
Down
24%
2020
$
5,557,736
(5,866,990)
(5,866,990)
to
to
to
Dividends: No dividends are being proposed or have been paid
Nil
Nil
Nil
Additional information:
2. Commentary related to the above results
Refer to Directors Report in the attached Annual Report.
3. Net Tangible Assets/(Liabilities) per share (includes right-of-use assets and lease liabilities):
31 December 2020: $0.06; 31 December 2019: $0.03
4. There was no change of control during the year
5. There were no payments of dividends during the year
6. There is no dividend reinvestment plan in operation
7. There are no associates or joint venture entities
8. This report is based on the consolidated financial report which has been audited by HLB Mann Judd Assurance
(NSW) Pty Ltd.
Further information regarding the company and its business activities can be obtained by visiting the company’s website
at www.droneshield.com
Annual Report
For the Year Ended
31 December 2020
Image: DroneSentry-XTM C-UAS
system mounted on a vehicle
DroneShield Limited (ASX:DRO)
ASX Release
ABN 26 608 915 859
DroneShield Limited | 2020 Annual Report 1
Table of Contents
Corporate Information ......................................................................................................................................................... 2
Chairman’s Review ............................................................................................................................................................. 3
About DroneShield .............................................................................................................................................................. 4
Board of Directors and Executives .................................................................................................................................... 11
Corporate Governance Statement .................................................................................................................................... 13
Directors’ Report ............................................................................................................................................................... 23
Directors’ Report- Remuneration Report (audited) ............................................................................................................ 37
Auditor’s Independence Declaration ................................................................................................................................. 44
Consolidated Statement of Profit or Loss and Other Comprehensive Income .................................................................. 45
Consolidated Statement of Financial Position ................................................................................................................... 46
Consolidated Statement of Changes in Equity .................................................................................................................. 47
Consolidated Statement of Cash Flows ............................................................................................................................ 48
Summary of Significant Accounting Policies .......................................................................................................... 49
1.
Critical accounting judgements, estimates and assumptions ................................................................................. 55
2.
Revenue................................................................................................................................................................. 56
3.
Other income (losses) ............................................................................................................................................ 56
4.
Corporate and support expense ............................................................................................................................. 56
5.
Corporate governance expense ............................................................................................................................. 57
6.
Income taxes relating to continuing operations ...................................................................................................... 57
7.
Options issued ....................................................................................................................................................... 58
8.
Cash and cash equivalents .................................................................................................................................... 60
9.
Trade and other receivables .................................................................................................................................. 60
10.
11.
Inventories ............................................................................................................................................................. 60
12. Other investments .................................................................................................................................................. 60
Plant, equipment and intangible assets ................................................................................................................. 61
13.
Right-of-use asset .................................................................................................................................................. 62
14.
15.
Provisions .............................................................................................................................................................. 62
16. Other liabilities ....................................................................................................................................................... 62
Lease liabilities ....................................................................................................................................................... 62
17.
Borrowings ............................................................................................................................................................. 63
18.
Contributed equity .................................................................................................................................................. 63
19.
Shares and options ................................................................................................................................................ 64
20.
Earnings (loss) per share ....................................................................................................................................... 64
21.
Key Management Personnel disclosures and related party transactions ............................................................... 65
22.
Parent entity financial information .......................................................................................................................... 65
23.
Financial risk management .................................................................................................................................... 66
24.
Contingent liabilities ............................................................................................................................................... 67
25.
Commitments ......................................................................................................................................................... 67
26.
Remuneration of auditor ........................................................................................................................................ 68
27.
Segment information .............................................................................................................................................. 68
28.
Reconciliation from loss after income tax to net cash outflow from operating activities ......................................... 70
29.
30.
Impact of COVID-19 ............................................................................................................................................... 70
Events after the reporting date ............................................................................................................................... 71
31.
Directors’ Declaration ........................................................................................................................................................ 72
Independent Auditor’s Report ............................................................................................................................................ 73
Shareholder Information .................................................................................................................................................... 77
2
DroneShield Limited | 2020 Annual Report
Corporate Information
Directors & Management
Solicitors
Baker & McKenzie LLP
452 Fifth Avenue
New York NY 10018
United States of America
Steinepreis Paganin
16 Milligan Street
Perth, WA 6000
Australia
K&L Gates
1601 K Street, NW
Washington DC 20006
United States of America
Share Registry
Automic Pty Ltd t/a Automic Registry Services
267 St Georges Terrace
Perth WA 6000
Australia
Enquiries (within Australia): 1300 288 664
Enquiries (outside Australia): +61 8 9324 2099
Stock Exchange Listing
DroneShield Limited (ASX code DRO) shares are quoted
on the Australian Securities Exchange.
Peter James Independent Non-Executive Chairman
Jethro Marks Independent Non-Executive Director
Oleg Vornik CEO and Managing Director
Registered Office
Level 5, 126 Phillip St
Sydney, NSW 2000
Australia
Telephone: +61 2 9995 7280
Email: info@droneshield.com
Website: www.droneshield.com
Auditors
HLB Mann Judd Assurance (NSW) Pty Ltd
Level 19, 207 Kent Street
Sydney, NSW 2000
Australia
Bankers
Commonwealth Bank of Australia
309-315 George Street
Sydney, NSW 2000
Australia
Westpac
275 Kent Street
Sydney, NSW 2000
Australia
PNC Bank
1405 P Street, NW
Washington DC 20005
United States of America
DroneShield Limited | 2020 Annual Report
3
Chairman’s Review
Dear Fellow Shareholders,
2020 has seen DroneShield Ltd (“DroneShield” or the “Company”) continue to rapidly grow as a
leader and early mover in the C-UAS / counterdrone industry, despite the COVID-19 disruptions.
Highlights for the year included:
• DroneShield generated total customer revenue of $5.6 million for the calendar year 2020 (in
addition to R&D and other incentives, such as grants). This is an approximately 58% increase
on 2019 revenues, and continues the trend of the Company generating record revenues each
year of its existence.
Importantly, a substantial majority of these sales were to blue chip customers such as defence
and government agencies of the Five Eyes community, including repeat contracts.
•
• DroneShield raised a record $17 million of new capital, enabling its continued rapid expansion.
• Strong sales pipeline with approx. $100 million1 in active contract discussions, and total sales
opportunities of approx. $200 million1.
• Substantial tailwinds for the defence industry, with an increase in Government spending in
Australia and globally.
Peter James,
Independent Non-
Executive Chairman
During the year, the Company focussed on solidifying its established core product lines, rapidly evolving the software for
the products, and scaling its supply chain for growing customer orders. Artificial Intelligence/Machine Learning has been a
core focus for the business, both within the C-UAS sector and other defence work, with DroneShield winning its first defence
contract outside of the C-UAS space to continue developing its AI capabilities.
Despite the COVID-19 slowdown, drones continued to present a rapidly growing threat, both across State-level warfare
(as seen with China and Russia both heavily investing in drone warfare and the Nagorno-Karabakh conflict featuring
extensive use of drones), and non-State actors continuing to use drones for nefarious applications at airports, prisons,
critical infrastructure and other situations. Last month in the U.S. (the largest defence market globally), the Pentagon
released a new strategy to counter increasingly complex small drone threats, that focuses on establishing a common threat
picture, architecture and protocol across the services. The new strategy, emphasising the importance of the C-UAS sector
to the U.S. Government, also sets up stronger coordination between other federal agencies in the homeland as well as
with allies and partners abroad.
At the macro level, international tensions and greyzone warfare
(which C-UAS, EW and related areas are a key part of) continue to
rise, driving increases in security and national defence budgets. The
Company currently offers its products in over 100 countries and the
diversity of its pipeline is one of its key strengths. Importantly, with a
wide distribution network and a history of orders from a variety of
customers, DroneShield is not dependent on any one customer or
any one existing or potential contract for its success.
On the partnerships side, DroneShield has continued to grow its
relationships with key defence primes in Australia and globally, and
is a part of their global supply chain processes. This is expected to
bring further cash receipts (in the form of outright sales and paid R&D
contracts) in 2021.
Image: A Chinese UAS/drone fires from a launcher
mounted to a Dongfeng Mengshi light tactical
vehicle
The Australian Government continues to strongly encourage the growth of the domestic defence industry, with DroneShield
having received and delivered (and in the process of delivering) several contracts with various Australian Government
agencies. Importantly, there may from time to time appear attractive acquisition opportunities in the defence industry space,
and the Company will seek to capitalise on those opportunities when appropriate, to complement its strong organic growth.
On behalf of the Board, I would like to thank our executive team for their significant contributions for the past year.
I would also like to thank our fellow shareholders for your support and look forward to continued growth of the Company.
Peter James
Independent Non-Executive Chairman
1 Necessarily, not all (and there can be no assurance that any) of the Company’s sales opportunities will result in sales.
4
DroneShield Limited | 2020 Annual Report
About DroneShield
DroneShield (ASX:DRO) is an Australian publicly listed company with its head office in Sydney and teams in the U.S. and
UK, specialising in C-UAS, Electronic Warfare, RF sensing, Artificial Intelligence and Machine Learning, Sensor Fusion,
rapid prototyping and MIL-SPEC manufacturing. Our capabilities are used to protect military, Government, law
enforcement, critical infrastructure, commercial and VIPs throughout the world.
Through our team of Australian based engineers, we offer customers bespoke solutions and off-the-shelf products
designed to suit a variety of terrestrial, maritime or airborne platforms. DroneShield is proudly exporting Australian
capability to customers throughout the world and supporting Australia’s defence, national security and other organisations
protect people, critical infrastructure and vital assets.
History of DroneShield
Founded on 10 January 2014, the DroneShield business began as DroneShield LLC in the U.S. On 4 November 2015,
DroneShield Limited was incorporated in Australia for the primary purpose of listing on the ASX and engaging in the
business of offering products manufactured by DroneShield globally, as well as managing and operating DroneShield’s
business.
DroneShield Limited listed on the ASX on 22 June 2016, raising $7 million through the issue of 35 million shares at $0.20
per share in an oversubscribed initial public offer (‘IPO’). Most recently, DroneShield raised $17 million in August and
September 2020 via a placement and Share Purchase Plan.
DroneShield has grown from a small start-up to a global leader in C-UAS detection and mitigation.
Business Model and Products
Affordable consumer-grade drones (“UAS”) have become popular around the world, but they present unique and frequent
threats to privacy, physical security and public safety in a wide variety of environments. DroneShield offers products that
detect and defeat such drones to civil infrastructure operators, militaries, and other government and commercial users
globally. DroneShield’s distribution channels focus on third party distributors, as well as direct relationships with various
key customers. With offices in Australia, the United States and the United Kingdom, DroneShield has an experienced
salesforce with distribution partners across over 100 countries. The ultimate end-users and potential end-users of
DroneShield’s products come from a diverse array of global sectors, including the following:
Airports and other civil defence users.
- Defence agencies.
-
- Utilities such as power plants, electricity grids and gas pipelines.
-
-
-
-
- Media production sites.
- Real estate owners including hotels, commercial offices and manufacturing plants.
-
Ports and other critical infrastructure asset owners.
Intelligence and national security agencies.
Prisons.
Stadiums and other public event venues and organisers.
Executive protection including ultra-high net worth individuals and government officials.
DroneShield offers a comprehensive solution to drone threats with a suite of detection and countermeasure products.
Please see below for additional detail on the Company’s current product range.
• Portable rifle shape drone disruptor, causing the drone (or swarm) to safely
land, or fly back to the starting point (potentially identifying the pilot)
• 7kg weight, no backpack
• Best-in-breed effective range
• 70 units ordered by a Middle Eastern Ministry of Defence in 2018
• Additional units sold to Australian, Asian, Latin American, and Western
Governments
DroneGun TacticalTM
DroneShield Limited | 2020 Annual Report
5
• Pistol shaped drone disruptor, up to 1km range
• Best-in-breed effective range
• Released in mid-2019
• Only 2kg weight including battery
• Unique patented design enabling to affect a wide range of drones with compact
design
• Suitable for mobile deployments, patrols, law enforcement and special forces
DroneGun MKIIITM
types of customers
• During 2020, Five Eyes special forces and intelligence agencies purchased the
product
• Body-worn drone detection device
• Best-in-breed detection range
• Can be used with a directional accessory (DAUTM) to determine direction of the
threat
• Completely passive (no RF emissions)
• Deployed with Australian military and other high-profile users
• Rapidly deployable omni-directional drone detector
• Completely passive, no emissions
• Vehicle or fixed site mountable
• Cost effective
• Best-in-breed detection range
• Utilises DroneShield’s proprietary DroneSentry-C2TM counterdrone software
engine
• During 2020, DroneShield conducted numerous RfZeroTM deployments both as
stationary and vehicle system, including U.S., Europe, and Australia
• Integrated detect-and-defeat system
• Best-in-breed detection and defeat range
• Includes radiofrequency direction finders, radars and cameras in a modular
manner, with an integrated DroneCannonTM drone disruptor
• Utilises DroneShield’s proprietary DroneSentry-C2TM counterdrone software
engine
• Successfully deployed in multiple locations globally
• Integrated detect-and-defeat counterdrone solution
• Best-in-breed detection and defeat range
• Deployable on a vehicle or fixed site platforms
• Customer trials commenced in late 2020, as first production of the product
started
• Covert portable drone disruptor
• Best-in-breed effective range
• Suitable for counterdrone protection at public gatherings and other similar
situations
• Deployed at South East Asian (SEA) Games in late 2019, reportedly, to
intercept drones in the path of a helicopter carrying the President of the
Philippines and Sultan of Brunei
• Drone disruptor module for a remote weapon station
• Best-in-breed effective range
• Allows for a layered response to a drone threat, starting with soft defeat / UAS
target freeze via DroneCannon, followed by utilisation of the primary kinetic
weapon if required
• Can be utilised with a range of Remote Weapon Stations (RWSs)
• Marketed to numerous high profile customers globally through 2020
RfPatrol MKIITM
RfZeroTM
DroneSentryTM
DroneSentry-XTM
DroneNodeTM
DroneCannon RWTM
6
DroneShield Limited | 2020 Annual Report
Underpinning all DroneShield’s detection products is the Company’s proprietary software engine, DroneSentry-C2TM.
The engine is an intuitive interface with a comprehensive reporting suite, which can combine a number of customer
sites deploying both DroneShield’s and third-party sensor hardware. The software engine comes either included with
DroneShield hardware purchases (with a subscription charge), or on a standalone basis as a subscription-based
product.
Image: DroneSentry-C2TM
Revenue Model and Recurring Cashflows
Importantly, both vehicle/fixed site (DroneSentryTM, DroneSentry-XTM, RfZeroTM) and body-worn (RfPatrolTM) UAS
detection products have a recurring revenue element in that the Company charges its customers for updates to the
drone libraries of the products. Over time, DroneShield expects to build a robust recurring revenue line as more
products requiring library updates are sold.
Additionally, DroneShield offers lease options of its product range to its in-country partners and end customers (where
possession and use of a particular product is lawful for that customer according to local laws). The lease periods vary
from weekly, to multi-year. Leasing may be suitable for event-based requirements, product evaluations without a
commitment to purchase, or for customers who have a preference to lease vs outright purchase.
The Company does not believe that leasing would cannibalise its sales, as leasing appeals to a different set of
customers and utilises different deployment opportunities. Further, the Company believes that leasing is
complementary to its sales efforts as it will promote customer awareness of DroneShield’s products and their
applications.
Finally, defence and Government agency markets are naturally of a recurring nature, with repeat contracts following
initial successful deployments. DroneShield has received repeat customer orders globally on that basis.
Environment
The end of 2020 saw the U.S. military place emphasis on the development and deployment of C-UAS equipment in
2021, with plans to spend approximately U.S.$500 million on the counterdrone sector, as outlined by the
Congressional Research Service. On 7 January 2021, the Pentagon released a new strategy to counter increasingly
complex small drone threats, that focuses on establishing a common threat picture, architecture and protocol across
the services.
The new strategy also sets up stronger coordination between other federal agencies in the homeland as well as with
allies and partners abroad.
At the same time, the U.S. Government has added DJI, a Chinese drone manufacturer that is one of the largest drone
sellers in the world, to the U.S. Department of Commerce’s Entity List, designating DJI as a national security concern
and banning US-based companies from exporting technology to the company, in a similar mechanism to the U.S.
Government’s ongoing ban on the Huawei products.
The use of small UAS is no longer limited to non-government actors, with militaries such as Iran developing low-cost,
payload carrying and surveillance aircraft. The Iranian kamikaze UAS, which are more compact than traditional military
UAS, were recently used in a two-day exercise as bombers, interceptors and reconnaissance missions, as tensions
in the region increase.
Iran and the regional forces it backs have increasingly relied in recent years on drones in Yemen, Syria, Iraq and the
Strait of Hormuz at the mouth of the Gulf.
DroneShield Limited | 2020 Annual Report
7
Image: Iranian drones capable of carrying out swarm kamikaze attacks on display at an Iranian military exercise
As military-grade drones become more common, so do publicly accessible drones. Smaller state groups can quickly
support their cause with widely available commercial-off-the-shelf (COTS) and modified (MOTS) drones. The
Pakistan/India border experienced several incidents where rebel groups delivered supporting equipment, such as
ammunition, arms and communication equipment to frontline fighters, with the Punjab Police making two arrests associated
with drone smuggling.
Image: One of the drones confiscated by the Punjab Police during the smuggler arrests
The BBC published a report by Conflict Armament Research (CAR) in December 2020 showing ISIS seeking to develop
high-speed drones powered by pulse jet engines like those used in V-1 bombs dropped on the UK during World War II.
The report mentioned a "fully constructed pulse jet engine" measuring more than two metres in length was found at a
hospital in west Mosul, Iraq in September 2017. Namir Shabibi, the CAR’s head of operations in Iraq, was reported stating
"remaining cells in Iraq and Syria have become increasingly active in the past year".
8
DroneShield Limited | 2020 Annual Report
Image: The pulse jet engine (pictured left, with air intake unit at right) was found at a hospital in Mosul, Iraq in September
2017
The Taliban were suspected of using a drone to kill at least four security officers in Afghanistan in November, marking a
potentially dangerous upgrade to the insurgents’ arsenal, as violence continues throughout the country while peace talks
with the government remain stalled. The attack on a government compound in the northern province of Kunduz earlier in
January was thought to have been the first use of a weaponised drone by the Islamist group during the 19-year war. One
Taliban fighter told The Times (UK newspaper) that the group had a “fun new weapon” at its disposal.
Meanwhile, the Kuwaiti military has issued a statement threatening legal action to anyone flying drones without permits
from the Directorate General of Civil Aviation (DGCA), and in September 2020, Oman also announced new rules regulating
drone usage, requiring users to get permits.
Small UAS continued to cause incidents with commercial aircraft. The reported incidents during the quarter have included:
• A student training aircraft in South Africa was forced to make an emergency landing after striking a small UAS
•
and sustaining wing damage.
In November in Canada, law enforcement was unable to locate the drone that was interfering with air traffic in the
North Bay area. Transport Minister Marc Garneau stated: "Interfering with air traffic near airports with a drone, as
was the case in North Bay this weekend, can cause a serious incident. When you fly your drone, you're sharing
the skies, remember to always stay away from people, airports, and other aircraft."
• A medical helicopter landing at a Michigan hospital came within meters of colliding with a drone that was flown
illegally over the helipad. While the drone was recovered after the incident, the pilot could not be located or
prosecuted in the absence of drone detection equipment.
• Authorities arrested a man for crashing a drone into an LAPD helicopter.
DroneShield Limited | 2020 Annual Report
9
Image: A small UAS that was involved in a near miss with a landing Aero Med helicopter at Butterworth Hospital in Michigan
Residents of Coral Gates, a small community in San Ysidro, California have been reporting increasing drone flights from
across the border (the location is close to Tijuana, Mexico), which reportedly were carrying drugs.
In January 2021, Cyprus Police reportedly seized a drone carrying 60g of cannabis in Ayios Dhometios, Nicosia.
Prison drug drops have continued to be reported, including a man charged over a drone smuggling operation of phones
and cocaine at Ireland’s maximum security Portlaoise Prison.
Commercial venues have proven to be particularly vulnerable to small UAS, which can discretely circumvent security
measures. Even small UAS are capable of causing significant damage in both intentional and negligent scenarios. Allegiant
stadium in Las Vegas suffered damage after a UAS was crashed into panels approximately 100 feet above the ground.
Whilst the offending drone was captured, its lack of registration meant the pilot could not be found or prosecuted.
The impact of COVID-19 on sporting fixtures resulted in many matches taking place without spectators, causing a spike in
UAS incidents as pilots sought to gain exclusive imagery of the games. In all the incidents listed below, authorities were
unable to identify or prosecute the pilot.
• Championship match between Rotherham United and Sheffield Wednesday was halted after a UAS was flown
into the stadium and hovered above the pitch.
• A Chicago MLB game had to evacuate players and umpires after a drone with filming equipment landed in the
outfield.
• An MLB game in New York was delayed after a UAS incursion shortly after the match started.
• A Minneapolis MLB game was halted when an unauthorised UAS flew over the field.
10
DroneShield Limited | 2020 Annual Report
Image: Small UAS that interrupted a Minneapolis Major League Baseball game
Please see https://www.droneshield.com/press-coverage and https://twitter.com/DroneShield for more information.
Market Position
The Company is addressing what is believed to be a multibillion-dollar addressable market, with hundreds of thousands of
potential user installations.
As the counterdrone space continues to rapidly grow, new entrants attempt to enter the market. Broadly, they can be
classified into three groups:
•
•
“Garage” businesses, which have limited product or a concept, and are not being considered by the end users
due to the immaturity of their offering and their inability to support customers. This group is not considered a
competitive threat.
Large defence and security integrators. Those companies are potential partners for DroneShield, with the
potential for them to add the Company’s products into their overall offering. Due to the rapidly evolving nature of
the counterdrone industry and competitive pricing, the integrators generally choose to partner with smaller agile
providers such as DroneShield. DroneShield has established partnerships with several such companies, including
Thales, Bosch and BT, as previously disclosed to the market. Additionally, DroneShield’s products are materially
cheaper than most competing detection products that are being marketed (particularly, systems being marketed
by larger defence contractors) and are in fact capable of being delivered.
• Mid-sized companies. There are several such companies globally, however DroneShield continues typically to
outperform its peers due to:
Track record of sales/customer references in the sector.
-
- Mature, highly innovative and well performing products – the Company has been successful in a number
of competitive processes.
The number of high-profile customer and integrator partner credentials, highlighting the quality of the
DroneShield brand.
A full suite of counterdrone products, meaning that the Company has the ability to sell to the need of every
counterdrone customer – as opposed to being a single product company.
A global network in over 100 countries, as opposed to being more geographically narrow.
Safety certifications further underpin the Company’s position in government tenders.
-
-
-
-
DroneShield is an Australian company with meaningful U.S. operations, its origin is a positive factor in the decision-making
process by allied country users, especially government users. It is prominently positioned as an Australian defence
contractor, having been part of Team Defence Australia key global defence events, and having engaged in active dialogue
with Austrade and Centre for Defence Industry Capability (CDIC).
Board of Directors and Executives
DroneShield Limited | 2020 Annual Report
11
Peter James; Independent Non-Executive Chairman
Mr. James has over 30 years’ experience in the Technology, Telecommunications and Media
Industries, and has extensive experience as Chair, Non-Executive Director and Chief Executive
Officer across a range of publicly listed and private companies. He is currently Chair of ASX-
listed companies Macquarie Telecom, Ansarada, Nearmap Limited and Keytone Dairy
Corporation Ltd.
Mr. James joined the Board of DroneShield on 1 April 2016, serving as Executive Chairman
from 2 December 2016 to 24 January 2017. Mr. James is an experienced business leader with
significant strategic and operational expertise. He is a Fellow of the Australian Institute of
Company Directors, a Fellow of the Australian Computer Society and holds a BA degree with
Majors in Computer Science and Business.
Oleg Vornik; CEO and Managing Director
Mr. Vornik is an experienced senior executive with previous roles at the Royal Bank of Canada,
Brookfield, Deutsche Bank and ABN AMRO.
Prior to becoming the CEO of DroneShield, Mr. Vornik was its Chief Financial Officer. His
previous experience includes the Sydney office of the Royal Bank of Canada as well as with
Brookfield Asset Management, Deutsche Bank and ABN AMRO in Australia and New Zealand.
Mr. Vornik holds a BSc (Mathematics) and BCom (Hons) from the University of Canterbury,
New Zealand and has completed a business program with Columbia University in New York.
After co-leading the Company in the role of the Chief Financial Officer for over a year, Mr. Vornik
was appointed as the CEO and Managing Director of DroneShield on 24 January 2017. Mr.
Vornik does not hold any other public company directorships.
Jethro Marks; Independent Non-Executive Director
Mr. Marks is a Sydney-based CEO and co-founder of the Mercury Retail Group, an eCommerce
retail, services, logistics and outsourcing business. Over 17 years Mr. Marks has led, and
continuously grown, the business at the forefront of digital commerce, marketing and
international logistics, while competing with the largest retailers globally. Mr. Marks brings to the
Board extensive commercial experience in successfully scaling a multinational business.
Mercury Retail Group’s global supply chain and award-winning logistics capability has extended
to most consumer goods categories in multiple countries, and today carries 32 million products.
This capability has extended to provisioning international logistics support to multinational
brands and technology companies.
Mr. Marks graduated from the University of Auckland, with a Bachelor of Commerce (Honours).
Mr. Marks joined the Board on 16 January 2020. Mr. Marks does not hold any other public
company directorships.
12
DroneShield Limited | 2020 Annual Report
Angus Bean; Chief Technology Officer
With a background in Industrial Design and Mechanical Engineering, Angus Bean brings a
wealth of knowledge in product development through to production management. Mr. Bean
merges the various fields of mechanical hardware, electronics, software, digital interface and
technology.
Mr. Bean joined DroneShield early in 2016, since then has been a driving force in DroneShield’s
technology team, working to build the team and the technology to deliver on key projects and
milestones. Previous to DroneShield, Mr. Bean was the Development Lead for Australia’s
largest and most prominent industrial design and engineering consultancy.
Over his career, Mr. Bean has adopted both a collaborative and leadership role on a number
of projects which have attracted multiple Australian and International Awards in Innovation,
Consumer Electronics, Defence and Cyber Security. Mr. Bean holds a BDesign in Industrial
Design (First Class Hon) from the University of Technology, Sydney.
Carla Balanco; CFO and Company Secretary
Ms. Balanco joined DroneShield in mid-2018, since then she has been instrumental in scaling
the Company’s financial management systems and controls as DroneShield continues to grow.
She has the responsibility of overseeing the Company’s Financial Reporting, Financial
Planning, Compliance, Human Resources, Administration, and Treasury functions.
Prior to DroneShield, Ms. Balanco gained experience working in Chartered, Commercial and
Business Development roles. Ms. Balanco gained an in-depth knowledge of the International
Financial Reporting Standards (IFRS) whilst working as a Senior Auditor for mid-tier Chartered
firms Crowe Horwath and HLB Mann Judd, auditing both private and public companies.
Ms. Balanco is a member of the South African Institute of Chartered Accountants and holds an
Honours in Accounting from the University of Johannesburg and an Honours in Accounting
Science from the University of South Africa.
DroneShield Limited | 2020 Annual Report
13
Corporate Governance Statement
The board of the Company (“Board”) recognises the importance of establishing a comprehensive system of control and
accountability as the basis for the administration of corporate governance.
To the extent relevant and practical, the Company has adopted a corporate governance framework that is consistent with
The Corporate Governance Principles and Recommendations (4th Edition) as published by ASX Corporate Governance
Council (“Recommendations”).
The Board has adopted the following suite of corporate governance policies and procedures which are contained with the
Company’s Corporate Governance Plan, a copy of which
the Company’s website at
https://www.droneshield.com/investors .
is available on
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Board Charter
Corporate Code of Conduct
Public Sector Code of Conduct
Audit and Risk Committee Charter
Remuneration Committee Charter
Nomination Committee Charter
Continuous Disclosure Policy
Risk Management Policy
Remuneration Policy
Trading Policy
Diversity Policy
Whistleblower Policy
Anti-bribery & Corruption Policy
Shareholder Communications Strategy
Performance Evaluation Procedures
Skills Matrix
The Board is committed to administering the policies and procedures with openness and integrity, pursuing the true spirit
of corporate governance commensurate with the Company's needs.
The Company is pleased to report that its practices are largely consistent with the Recommendations of the ASX Corporate
Governance Council and sets out below its compliance and departures from the Recommendations for the year ended 31
December 2020.
In the context of the Company’s nature, scale and operations, the Board considers that the current corporate governance
regime is an efficient, practical and cost-effective method of directing and managing the Company. As the Company’s
activities develop in size, nature and scope, the implementation of additional corporate governance policies and structures
will be reviewed and considered.
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
Principle 1: Lay solid foundations for management and oversight
Recommendation 1.1
A listed entity should have and disclose a board
charter setting out:
(a) the respective roles and responsibilities of
its board and management; and
(b) those matters expressly reserved to the
board and those delegated to management.
YES
The Board is responsible for the corporate
governance of the Company.
The Company has adopted a Board Charter which
sets out, amongst other things, the specific
responsibilities of the Board, the roles and
responsibilities of the Chairman, Board and
management, as well as the matters expressly
reserved for the decision of the Board and those
delegated to management.
A copy of the Company’s Board Charter is contained
in its Corporate Governance Plan which is available
on the Company’s website:
https://www.droneshield.com/investors.
The Company is committed to the circulation of
relevant materials to Directors in a timely manner to
facilitate Directors’ participation in Board discussions
on a fully informed basis.
The Company intends to regularly review the balance
of responsibilities between the Board and
14
DroneShield Limited | 2020 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
Recommendation 1.2
A listed entity should:
(a)
undertake appropriate checks before
appointing a director or senior executive,
or putting someone forward for election,
as a Director; and
provide security holders with all material
information relevant to a decision on
whether or not to elect or re-elect a
Director.
(b)
Recommendation 1.3
A listed entity should have a written agreement
with each Director and senior executive setting
out the terms of their appointment.
Recommendation 1.4
The company secretary of a listed entity should
be accountable directly to the board, through the
chair, on all matters to do with the proper
functioning of the board.
Recommendation 1.5
A listed entity should:
(a)
(b)
(c)
have and disclose a diversity policy;
through its board or a committee of the
board set measurable objectives for
achieving gender diversity in the
composition of its board, senior
executives and workforce generally; and
disclose in relation to each reporting
period:
a.
the measurable objectives set for
that period to achieve gender
diversity;
the entity’s progress towards
achieving those objectives; and
either:
b.
c.
A. the respective proportions of
men and women on the board,
in senior executive positions
and across the whole
workforce (including how the
entity has defined “senior
executive” for these purposes);
or
B. (if the entity is a “relevant
employer” under the
Workplace Gender Equality
Act, the entity’s most recent
“Gender Equality Indicators”,
as defined in and published
under that Act.
If the entity was in the S&P / ASX 300 Index at
the commencement of the reporting period, the
measurable objective for achieving gender
diversity in the composition of its board should
be to have not less than 30% of its directors of
each gender within a specified period.
YES
YES
YES
YES
YES
NO
management to ensure that the division of functions
remains appropriate to the needs of the Company.
(a) The Company’s Corporate Governance Plan
requires the Board to undertake appropriate
checks as to the character, experience,
education, criminal record and bankruptcy
history of the candidate before appointing a
person or putting forward to security holders a
candidate for election, as a Director.
(b) All material information relevant to a decision
on whether to elect or re-elect a Director will be
provided to security holders in any notice of
meeting pursuant to which the resolution to
elect or re-elect such Director will be voted on.
Each Director and senior executive of the Company
is party to a written agreement with the Company
which sets out the terms and conditions of that
Director’s or senior executive’s appointment.
The Board Charter outlines the role, responsibility
and accountability of the Company Secretary. The
Company Secretary is accountable directly to the
Board, through the Chair, on all matters relating to
the proper functioning of the Board. The Chairman
and the Company Secretary co-ordinate the Board
agenda.
(a) The Company has adopted a Diversity Policy
which identifies gender diversity as a key area
of focus for the Company. However, given the
current size of the Company, the Board has
determined that the benefits of the initiatives
recommended by the ASX Corporate
Governance Council in this regard are
disproportionate to the costs involved in the
implementation of such strategies.
Accordingly, the Board has elected to adopt a
tiered approach to the implementation of its
Diversity Policy which is relative to the size of
the Company and its workforce, such that:
- Where the Company employs 20 or more
employees, the Board will adopt practices
in line with the Recommendations.
(b) A copy of the Company’s Diversity Policy is
contained in its Corporate Governance Plan
which is available on the Company’s website
https://www.droneshield.com/investors.
(c)
(i) As the Company did not employ 20 or
more employees for the majority of the
2020 Financial Year, the Company did
not formally define a set of measurable
gender diversity objectives.
(ii) During the reporting period (i.e. the year
ended 31 December 2020), the
respective proportions of men and
women in the following roles were as
follows:
Board
Senior executives
Across the whole
organisation
Men
Women
100 %
50%
0%
50%
89%
11%
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
DroneShield Limited | 2020 Annual Report
15
Recommendation 1.6
A listed entity should:
(a)
have and disclose a process for
periodically evaluating the performance of
the board, its committees and individual
Directors; and
disclose for each reporting period,
whether a performance evaluation has
been undertaken in the reporting period in
accordance with that process during or in
respect of that period.
Recommendation 1.7
A listed entity should:
(a)
have and disclose a process for
periodically evaluating the performance of
its senior executives at least once every
reporting period; and
disclose in relation to each reporting
period, whether a performance evaluation
has been undertaken in the reporting
period in accordance with that process
during or in respect of that period.
(b)
(b)
YES
YES
YES
YES
(a)
(b)
(a)
(b)
The performance of the Board as a group and
of individual Directors will be assessed each
year for all future years. The Remuneration
Committee (the function of which is currently
performed by the full Board) is responsible for
evaluating the performance of the Board and
individual Directors on an annual basis. The
process for this is set out in the Company’s
Performance Evaluation Procedures policy
which is contained in its Corporate
Governance Plan which is available on the
Company’s website
https://www.droneshield.com/investors.
The Board undertook an evaluation of Board
performance in 2021.
The Managing Director of the Company is
responsible for evaluating the performance of
senior executives on an annual basis. The
process for this is set out in the Company’s
Performance Evaluation Procedures policy
which is contained in its Corporate
Governance Plan which is available on the
Company’s website
https://www.droneshield.com/investors.
A formal performance evaluation of senior
executives was undertaken during the 2020
financial year.
Principle 2: Structure the board to be effective and add value
Recommendation 2.1
The board of a listed entity should:
have a nomination committee which:
(a) has at least three members, a majority
NO
of whom are independent Directors; and
(b) is chaired by an independent Director,
and disclose:
(c)
the charter of the committee;
(d) the members of the committee; and
(e) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
if it does not have a nomination committee,
disclose that fact and the processes it employs to
address board succession issues and to ensure
that the board has the appropriate balance of
skills, experience, independence and knowledge
of the entity to enable it to discharge its duties
and responsibilities effectively.
NO
NO
NO
N/A
YES
Recommendation 2.2
A listed entity should have and disclose a board
skill matrix setting out the mix of skills and
diversity that the board currently has or is looking
to achieve in its membership.
YES
Due to its size, the Board has determined that the
function of the Nomination Committee is most
efficiently carried out with full Board participation and
accordingly, the Board has elected not to establish a
separate Nomination Committee at this stage.
As a result, the duties that would ordinarily be
assigned to the Nomination Committee under the
Nomination Committee Charter are carried out by the
full Board.
A copy of the Nomination Committee Charter is
contained in the Company’s Corporate Governance
Plan which is available on the Company’s website
https://www.droneshield.com/investors.
The Board devotes time at Board meetings on at
least an annual basis to discuss Board succession
issues. Where appropriate, all members of the Board
are involved in the Company’s nomination process,
to the maximum extent permitted under the
Corporations Act and ASX Listing Rules.
The Board also conducts an annual review of the
Company’s Board Skills Matrix (in accordance with
Recommendation 2.2) to ensure the Board maintains
an appropriate balance of skills, experience,
independence and knowledge to discharge its duties
and responsibilities effectively.
The Board of the Company is comprised of Directors
with a broad range of technical, commercial, financial
and other skills, experience and knowledge relevant
to overseeing the business of a drone security
company.
The Company had developed a Board Skills Matrix
which is used as a tool to assess the appropriate and
16
DroneShield Limited | 2020 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
Recommendation 2.3
A listed entity should disclose:
(a)
the names of the Directors considered by
the board to be independent Directors;
if a Director has an interest, position,
association or relationship of the type
described in Box 2.3 of the ASX
Corporate Governance Principles and
Recommendation (3rd Edition), but the
board is of the opinion that it does not
compromise the independence of the
Director, the nature of the interest,
position, association or relationship in
question and an explanation of why the
board is of that opinion; and
the length of service of each Director.
(b)
(c)
Recommendation 2.4
A majority of the board of a listed entity should
be Independent Directors.
YES
Recommendation 2.5
The chair of the board of a listed entity should be
an Independent Director and, in particular,
should not be the same person as the CEO of
the entity.
Recommendation 2.6
A listed entity should have a program for
inducting new Directors and for periodically
reviewing whether there is a need for existing
directors to undertake professional development
to maintain the skills and knowledge needed to
perform their role as a Director effectively.
YES
YES
ideal balance of skills, experience, independence
and diversity necessary for the Board to discharge its
duties and responsibilities effectively.
A summary of the collective skills, experience,
independence and diversity of the Board is set in
Annexure C of the Company’s Corporate
Governance Plan which is available on the
Company’s website:
https://www.droneshield.com/investors.
YES
(a) During the 2020 financial year, the Independent
Directors of the Company were:
- Mr. Peter James (Non-Executive
Chairman); and
- Mr. Jethro Marks (Non-Executive Director).
Mr. Oleg Vornik, the Managing Director, was
not considered to be independent during his
tenure due to his executive role as Managing
Director of the Company.
(b) The Board has determined the independence
of each of the Company’s Directors in line with
the guidance set out by the ASX’s Corporate
Governance Council and have not formed an
opinion contrary to those guidelines.
(c) The Directors who held office during and after
the 2020 financial year have served
continuously since their respective dates of
appointment unless otherwise noted below:
- Mr. Peter James: appointed 1 April 2016;
- Mr. Oleg Vornik: appointed 24 January
2017;
- Mr. Jethro Marks: appointed 16 January
2020;
- Mr. Robert Clisdell: appointed 24 January
2017, resigned 16 January 2020.
The Board Charter requires that where practical the
majority of the Board will be independent.
During the 2020 financial year, the following two of
the Company’s four Directors were considered to be
Independent Directors:
- Mr. Peter James (Non-Executive
Chairman); and
- Mr. Jethro Marks (Non-Executive Director).
The Chairman, Mr. Peter James is an Independent
Non-Executive Director and is not the same person
as the Managing Director of the Company.
The Company’s program for the induction of new
Directors is tailored for each new Director (depending
on their personal requirements, background skills,
qualifications and experience) and includes the
provision of a formal letter of appointment and an
induction package containing sufficient information to
allow the new Director to gain an understanding of
the business of the Company, and the roles, duties
and responsibilities of Directors and the Executive
team.
All Directors are encouraged to undergo continual
professional development and, subject to prior
approval by the Chairman, all Directors may have
access to various resources and professional
development training to address any skills gaps.
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
Principle 3: Instil a Culture of acting Lawfully, Ethically and Responsibly
DroneShield Limited | 2020 Annual Report
17
Recommendation 3.1
A listed entity should articulate and disclose its
values.
Recommendation 3.2
A listed entity should:
(a)
have and disclose a code of conduct for
its Directors, senior executives and
employees; and
ensure that the board or a committee of
the board is informed of any material
breaches of that code.
Recommendation 3.3
A listed entity should:
(a)
have and disclose a whistleblower policy;
and
ensure that the board or a committee of
the board is informed of any material
incidents reported under that policy.
Recommendation 3.4
A listed entity should:
(a)
have and disclose an anti-bribery and
corruption policy; and
ensure that the board or committee of the
board is informed of any material
breaches of that policy.
(b)
(b)
(b)
YES
The Company’s values are:
• Maintain high performance, nimble team
culture;
• Communicate with transparency and inclusion;
• Think critically, independently and take pride
of ownership in your role; and
• Act ethically and in the best interests of the
customers, shareholders and other
stakeholders.
The Company values are available in the Corporate
Code of Conduct.
YES
(a)
(b)
The Company has adopted a Corporate Code
of Conduct which applies to Directors,
employees and contractors of the Company.
The Corporate Code of Conduct is contained
in the Company’s Corporate Governance Plan
which is available on the Company’s website
at: https://www.droneshield.com/investors.
The Board is informed of any material
breaches of the Corporate Code of Conduct.
YES
The Company has adopted a Whistleblower Policy
which is available on the Company’s website
https://www.droneshield.com/investors.
Clause 7 of the Whistleblower Policy provides that
the board is informed of any material incidents
reported
YES
The Company has adopted an anti-bribery and
corruption (ABC) policy which applies to all officers,
employees, and contractors who represent the
Company. The ABC policy is available on the
Company’s website
https://www.droneshield.com/investors.
Clause 8.2 of the ABC Policy provides that all
material breaches of the ABC Policy must be
reported immediately to the Board.
18
DroneShield Limited | 2020 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
Principle 4: Safeguard the integrity of corporate reports
Recommendation 4.1
The board of a listed entity should:
have an audit committee which:
(i)
(ii)
has at least three members, all of
whom are Non-Executive Directors
and a majority of whom are
Independent Directors; and
is chaired by an Independent
Director, who is not the chair of the
board,
and disclose:
(iii)
(iv)
(v)
the charter of the committee;
the relevant qualifications and
experience of the members of the
committee; and
in relation to each reporting period,
the number of times the committee
met throughout the period and the
individual attendances of the
members at those meetings; or
if it does not have an audit committee, disclose
that fact and the processes it employs that
independently verify and safeguard the integrity
of its financial reporting, including the processes
for the appointment and removal of the external
auditor and the rotation of the audit engagement
partner.
Recommendation 4.2
The board of a listed entity should, before it
approves the entity’s financial statements for a
financial period, receive from its CEO and CFO a
declaration that the financial records of the entity
have been properly maintained and that the
financial statements comply with the appropriate
accounting standards and give a true and fair
view of the financial position and performance of
the entity and that the opinion has been formed
on the basis of a sound system of risk
management and internal control which is
operating effectively.
NO
NO
YES
YES
N/A
N/A
YES
YES
Due to the current size of the Company, the Board
has determined that the function of the Audit and
Risk Committee is most efficiently carried out with full
Board participation and accordingly, the Company
has elected not to establish a separate Audit and
Risk Committee at this stage.
As a result, the duties that would ordinarily be
assigned to the Audit and Risk Committee under the
Audit and Risk Committee Charter are carried out by
the full board.
The Audit and Risk Committee Charter is contained
in the Company’s Corporate Governance Plan which
is available on the Company’s website
https://www.droneshield.com/investors.
The Board devotes time on at least an annual basis
to consider the robustness of the various internal
control systems it has in place to safeguard the
integrity of the Company’s financial reporting.
In addition, following the completion of each half year
review and annual audit review, the Company’s
external auditors confer with the Board on any
matters identified during the course of the audit that
have the potential to increase the Company’s
exposure to risks of material misstatements in its
financial reports.
The full Board also assumes responsibility for
recommendations to security holders on the
appointment and removal of the external auditor.
Audit partner rotations will be enforced in accordance
with the relevant guidelines.
Prior to the execution of the financial statements of
the Company, the Company’s Managing Director and
Chief Financial Officer provide the Board with written
assurances that the financial records of the Company
have been properly maintained and that the financial
statements comply with the appropriate accounting
standards and give a true and fair view of the
financial position and performance of the Company
and that the opinion has been formed on the basis of
a sound system of risk management and internal
control which is operating effectively in all material
aspects.
Recommendation 4.3
A listed entity should disclose its process to
verify the integrity of any periodic corporate
report it releases to the market that is not audited
or reviewed by an external auditor.
YES
The Board ensures that any periodic corporate report
the Company releases to the market that has not
been subject to audit or review by an external auditor
discloses the process taken to verify the integrity of
its content.
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
DroneShield Limited | 2020 Annual Report
19
Principle 5: Make timely and balanced disclosure
Recommendation 5.1
A listed entity should have and disclose a written
policy for complying with its continuous
disclosure obligations under listing rule 3.1.
YES
Recommendation 5.2
A listed entity should ensure that its board
receives copies of all material market
announcements promptly after they have been
made.
Recommendation 5.3
A listed entity that gives a new and substantive
investor or analyst presentation should release a
copy of the presentation materials on the ASX
Market Announcements Platform ahead of the
presentation.
YES
YES
Principle 6: Respect the rights of security holders
Recommendation 6.1
A listed entity should provide information about
itself and its governance to investors via its
website.
YES
Recommendation 6.2
A listed entity should have an investor relations
program that facilitates effective two-way
communication with investors.
YES
Recommendation 6.3
A listed entity should disclose how it facilitates
and encourages participation at meetings of
security holders.
YES
The Company has adopted a Continuous Disclosure
Policy which details the processes and procedures
which have been adopted by the Company to ensure
that it complies with its continuous disclosure
obligations as required under the ASX Listing Rules
and other relevant legislation.
The Company’s Continuous Disclosure Policy is
contained within the Company’s Corporate
Governance Plan which is available on the
Company’s website
https://www.droneshield.com/investors.
The Company Secretary ensures the Board is
provided with copies of all material market
announcements promptly after they have been
made.
Pursuant to the Company’s Continuous Disclosure
Policy ahead of any new and substantive investor or
analyst presentation, a copy of the presentation
materials must be released to the ASX (even if the
information in the presentation would not otherwise
require market disclosure).
Shareholders can access information about the
Company and its governance (including its
constitution and adopted corporate governance
policies) from the Company’s website
https://www.droneshield.com/investors. The
Company will regularly update the website and
contents therein as deemed necessary.
The Company has adopted a Shareholder
Communications Strategy which aims to promote and
facilitate effective two-way communication with
investors. The Strategy outlines a range of ways in
which information is communicated to Shareholders,
including via its website, through announcements
released to the ASX, its annual report and general
meetings. Shareholders are also welcome to contact
the Company or its registrar, Automic Registry
Services, via email or telephone.
The Company’s Shareholder Communications
Strategy is contained in the Company’s Corporate
Governance Plan which is available on the
Company’s website
https://www.droneshield.com/investors.
As noted above, the Company’s Shareholder
Communications Strategy is contained in the
Company’s Corporate Governance Plan which is
available on the Company’s website
https://www.droneshield.com/investors.
Shareholders will be encouraged to participate at all
general meetings of the Company by written
20
DroneShield Limited | 2020 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
statement contained in every Notice of Meeting sent
to shareholders prior to each meeting.
The Company intends to accommodate shareholders
who are unable to attend general meetings in person
by accepting votes by proxy.
Further, any material presented to shareholders at
the meeting will be released to the ASX immediately
prior to the commencement of the meeting for the
benefit of those shareholders who are unable to
attend in person. The Company will also announce to
the ASX the outcome of each meeting immediately
following its conclusion.
At each general meeting, shareholders will be given
an opportunity to ask questions in relation to the
resolutions put to shareholders at that meeting, and
in respect of the Company’s business and operations
generally.
At each AGM, shareholders will also be invited by the
Chairman to ask questions of the Company’s
external auditor and the Board in relation to the
annual financial report of the Company and the
conduct of the audit.
The Company’s Shareholder Communications
Strategy provides that all substantive resolutions at a
meeting of security holders will be decided by a poll
rather than a show of hands.
Shareholders have the option of electing to receive
all shareholder communications by e-mail and can
update their communication preferences with the
Company’s registrar, Automic Registry Services, at
any time.
Security holders can also register with the Company
at info@droneshield.com to receive email
notifications following the release of a material
announcement to the ASX.
Due to its size, the Board has determined that the
function of the Audit and Risk Committee is most
efficiently carried out with full Board participation and
accordingly, the Company has elected not to
establish a separate Audit and Risk Committee at
this stage.
As a result, the duties that would ordinarily be
assigned to the Audit and Risk Committee under the
Audit and Risk Committee Charter are carried out by
the full Board.
The Audit and Risk Committee Charter is contained
in the Company’s Corporate Governance Plan which
is available on the Company’s website
https://www.droneshield.com/investors.
The Board devotes time on at least an annual basis
to fulfil the roles and responsibilities associated with
overseeing risk and maintaining the Company’s risk
management framework and associated internal
compliance and control procedures.
Recommendation 6.4
A listed entity should ensure that all substantive
resolutions at a meeting of security holders are
decided by a poll rather than by a show of hands.
Recommendation 6.5
A listed entity should give security holders the
option to receive communications from, and send
communications to, the entity and its security
registry electronically.
YES
YES
Principle 7: Recognise and manage risk
Recommendation 7.1
The board of a listed entity should:
have a committee or committees to oversee risk,
each of which:
(a) has at least three members, a majority
of whom are Independent Directors;
and
(b) is chaired by an Independent Director,
and disclose:
(c)
the charter of the committee;
(d) the members of the committee; and
(e) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
if it does not have a risk committee or
committees that satisfy (a) above, disclose that
fact and the process it employs for overseeing
the entity’s risk management framework.
NO
NO
YES
YES
N/A
N/A
YES
PRINCIPLES AND RECOMMENDATIONS
Recommendation 7.2
The board or a committee of the board should:
(a) review the entity’s risk management
framework at least annually to satisfy
itself that it continues to be sound and
that the entity is operating with due
regard to the risk appetite set by the
board; and
(b) disclose in relation to each reporting
period, whether such a review has
taken place.
Recommendation 7.3
A listed entity should disclose:
(a) if it has an internal audit function, how
the function is structured and what role
it performs; or
(b) if it does not have an internal audit
function, that fact and the processes it
employs for evaluating and continually
improving the effectiveness of its
governance, risk management and
internal control processes.
Recommendation 7.4
A listed entity should disclose whether it has any
material exposure to environmental or social
risks and, if it does, how it manages or intends to
manage those risks.
NO
YES
YES
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1
The board of a listed entity should:
have a remuneration committee which:
(a) has at least three members, a majority
of whom are Independent Directors;
and
(b) is chaired by an Independent Director,
and disclose:
the charter of the committee;
(c)
(d) the members of the committee; and
(e) as at the end of each reporting period,
the number of times the committee met
throughout the period and the individual
attendances of the members at those
meetings; or
if it does not have a remuneration committee,
disclose that fact and the processes it employs
for setting the level and composition of
remuneration for Directors and senior executives
and ensuring that such remuneration is
appropriate and not excessive.
NO
NO
YES
YES
N/A
N/A
YES
DroneShield Limited | 2020 Annual Report
21
COMPLY
(YES/NO)
YES
EXPLANATION
During the 2020 financial year, the Board, in carrying
out the duties typically assigned to the Audit and
Risk Committee under the Audit and Risk Committee
Charter, undertook a review of the Company’s risk
management framework in line with its Risk
Management Policy.
Due to the current size of the Company and the
manageable scale of its operations, the Board, in
carrying out the duties typically assigned to the Audit
& Risk Committee under the Audit & Risk Committee
Charter, have determined that the Company’s
existing risk management processes and internal
controls are sufficiently robust and as such, no
internal audit committee is required at this stage.
The Company’s Risk Management Policy details the
Company’s risk management systems which assist in
identifying and managing potential or apparent
business, economic, environmental and social
sustainability risks (where appropriate).
During the 2020 financial year, the Company
undertook a review of the Company’s risk
management framework in line with its Risk
Management Policy.
All material risks are announced to the market, in
accordance with the requirements of the ASX listing
rules and otherwise.
Due to the size of the Board and the scale of the
Company’s operations, the Board have determined
that the function of the Remuneration Committee is
most efficiently carried out with full Board
participation (to the extent permitted under the
Corporations Act and ASX Listing Rules), and
accordingly has elected not to establish a separate
Remuneration Committee at this stage.
As a result, the duties that would ordinarily be
assigned to the Remuneration Committee under the
Remuneration Committee Charter are carried out by
the full Board.
The Remuneration Committee Charter is contained in
the Company’s Corporate Governance Plan which is
available on the Company’s website
https://www.droneshield.com/investors.
The Board devotes time on at least an annual basis
to fulfil the roles and responsibilities associated with
setting the level and composition of remuneration for
Directors and senior executives and ensuring that
such remuneration is appropriate and not excessive.
22
DroneShield Limited | 2020 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
YES
Recommendation 8.2
A listed entity should separately disclose its
policies and practices regarding the
remuneration of Non-Executive Directors and the
remuneration of Executive Directors and other
Senior Executives.
Recommendation 8.3
A listed entity which has an equity-based
remuneration scheme should:
YES
(a) have a policy on whether participants
are permitted to enter into transactions
(whether through the use of
derivatives or otherwise) which limit
the economic risk of participating in
the scheme; and
(b) disclose that policy or a summary of it.
EXPLANATION
The Company’s general policies and practices
regarding the remuneration of Non-Executive and
Executive Directors and other senior employees are
set out in the Remuneration Policy which is
contained in the Company’s Corporate Governance
Plan which is available on the Company’s website
https://www.droneshield.com/investors.
Further information regarding the remuneration
practices of the Company is contained in the
Remuneration Report section of the Company’s 2020
Annual Report.
The Company’s Remuneration Committee (the
function of which is currently performed by the full
Board) is responsible for the review and approval of
any equity-based remuneration schemes offered to
Directors and Employees of the Company. Further, in
accordance with the Remuneration Committee
Charter, the Remuneration Committee (the function
of which is currently performed by the full Board) is
also responsible for granting permission, on a case
by case basis, for scheme participants to enter
transactions (whether through the use of
derivatives or otherwise) which limit the
economic risk of participating in the scheme.
During the 2020 financial year, the Board of the
Company authorised the issue of securities to
Directors and employees under its shareholder
approved Incentive Option Plan. To date, no
participant to the Incentive Option Plan has sought
(or been granted) approval to enter into transactions
(whether through the use of derivatives or
otherwise) which limit the economic risk of
participating in the scheme.
The Company’s policy in this regard is set out the
Company’s Remuneration Committee Charter, a
copy of which is contained in the Company’s
Corporate Governance Plan which is available on the
Company’s website
https://www.droneshield.com/investors.
The Company also has a Securities Trading Policy
that prohibits Directors, Officers and employees from
entering into transactions or arrangements which
limits the economic risk of participating in unvested
entitlements under any equity-based remuneration
scheme. A copy of the Securities Trading Policy is
contained in the Company’s Corporate Governance
Plan which is available on the Company’s website
https://www.droneshield.com/investors.
DroneShield Limited | 2020 Annual Report
23
Directors’ Report
Your Directors present their report for DroneShield Limited (the “Company”) and its controlled entities (“the Group”) for the
year ended 31 December 2020.
Directors
The names of the Company’s Directors in office during the year and until the date of this report are set out below. Directors
were in office for this entire period unless otherwise stated. Details of the current members of the Board, including their
experience, qualifications, special responsibilities and term of office are included on page 11 of the Annual Report.
Position
Effective date
Independent Non-Executive
Chairman
Appointed as Independent Non-Executive Chairman 1 April 2016.
Served as Executive Chairman from 2 December 2016.
Returned to Independent Non-Executive Chairman 24 January 2017.
Appointed as CEO and Managing Director 24 January 2017.
Oleg Vornik
Executive Director, CEO and
Managing Director
Name
Directors
Peter James
Jethro Marks
Independent Non-Executive Director
Appointed 16 January 2020.
Robert Clisdell
Non-Executive Director
Appointed 24 January 2017. Resigned 16 January 2020.
Meetings of Directors
Name
Meetings eligible to attend
Meetings attended
Directors
Peter James
Oleg Vornik
Jethro Marks
Robert Clisdell
12
12
12
-
12
12
12
-
24
DroneShield Limited | 2020 Annual Report
Review of Operations and Financial Results
- All-time record high revenue of $5.6 million in 2020 due to sales to high quality, blue chip
customers, along with $1.7 million in grants and government incentives2 received,
compared to revenue of $3.5 million in 2019
- Rapidly growing C-UAS and greyzone warfare markets, estimated to be worth A$5.9b by
2026
- Strong sales pipeline with $100 million3 in active contract discussions and total sales
opportunities of $200 million3
- Strong cash position, following $17 million raised in late 2020, with minimal debt
Revenue since 2016 (A$m – December year end)
5.6
3.5
1.2
0.1
FY16
0.3
FY17
FY18
FY19
FY20
Cash Receipts since 2016 (A$m – December year end)
5.4
3.7
1.8
0.20
FY16
0.5
FY17
FY18
FY19
FY20
Customer receipts
Research and Development Tax and other incentives received
2 Including R&D Tax Incentive of $883,592
DroneShield Limited | 2020 Annual Report
25
The net loss after tax for the year was $5.9 million, a decrease of 24% relative to the 2019 loss of $7.7 million. Through
2020, DroneShield has continued to substantially scale up its research and development (R&D) and sales and marketing
activities, secure initial and repeating orders for its products, generating revenues which were over 50% higher than those
in the previous year, while reducing its net loss for the year. Importantly, $2.5 million of the loss related to non-cash share-
based payments.
During 2020, the Company undertook a $17 million substantially oversubscribed Placement and Share Purchase Plan in
August and September. Related transaction costs amounted to $867k. The Company carries no meaningful financial debt,
other than lease liabilities. The capital raise has put the Company’s balance sheet in a strong position, with a $16 million
bank balance as at 31 December 2020. The Company’s steady-state fixed cost base (including its R&D team) is
approximately $850k/month, before any cash receipts from sales or grants.
In January 2020, Robert Clisdell stepped down from his position as a Non-Executive Director and Jethro Marks joined the
Board as an Independent Non-Executive Director. DroneShield’s Board currently comprises of Peter James (Independent
Non-Executive Chairman), Oleg Vornik (CEO and Managing Director) and Jethro Marks (Independent Non-Executive
Director).
The Company’s high conviction pipeline is estimated at approximately $100 million3. In addition to the high conviction
pipeline, there are a number of further tenders and other processes in the $200 million3 full project pipeline that DroneShield
is participating in, which are not referred to in the high conviction pipeline, due to the Company having lesser visibility of
the probability of winning the project.
Key Sales Themes
At the macro level, international tensions and greyzone warfare (which C-UAS, EW and related areas are a key part of)
continue to rise, driving increases in security and national defence budgets. During the quarter, DroneShield continued to
expand the range of its customers and its sales pipeline. The Company currently offers its products in over 100 countries
and the diversity of its pipeline is one of its key strengths. Importantly, with a wide distribution network and a history of
orders from a variety of customers, DroneShield is not dependent on any one customer or any one existing or potential
contract for its success.
The update below does not seek to cover each of the Company’s sales opportunities or even each type of Company’s
sales opportunities, which are numerous. Rather, it highlights a limited number of near-term themes that are some of the
main sales drivers for the Company.
Five Eyes Community
As an Australian defence manufacturer with an on the ground presence in the U.S. and the UK, DroneShield is closely
aligned with the Five Eyes (a signals intelligence alliance between the U.S., Canada, Australia, UK and New Zealand).
During the quarter, the Company completed delivery of a $900,000 order for its DroneGun TacticalTM hand-held counter-
drone product from a major intelligence Government agency of a Five Eyes country, with a follow up $400,000 order
received during the same quarter, on 29 December 2020. This follow up order is expected to be delivered in 1Q21, with
payments received across 1Q21 and 2Q214.
The United States Department of Defense and other U.S. government agencies
The United States government, through a wide variety of its agencies and departments, is the largest counterdrone
customer globally.
During the quarter, DroneShield continued to expand its U.S. operations, moving into a larger U.S. premises (consisting of
an office, demonstration facility and an inventory warehouse) within the same Warrenton precinct in Virginia as its previous
office. The precinct has a long defence heritage with a substantial amount of defence facilities and military contractors
within its vicinity. The Company has also continued to expand its U.S. team, including hiring of a dedicated Sales Director
to service Corrections, Ports and Maritime and Commercial markets within the U.S.
3 Necessarily, not all, and there can be no assurance that any, of the Company’s sales opportunities will result in sales
4 All quarters refer to calendar quarters, as DroneShield’s financial year end is December
26
DroneShield Limited | 2020 Annual Report
Image: DroneShield U.S. Government agency demonstration
To further accelerate its work in the U.S. market, the Company continues to work with Cassidy & Associates, Inc.
(“Cassidy”), a pre-eminent Washington, DC government relations firm, whereby Cassidy advises the Company on
contracting with U.S. government agencies, contracts in connection with U.S. federal government budgetary allocations,
and other U.S. federal government relations matters.
During the quarter DroneShield continued to undertake product demonstrations and meetings with the U.S. Department of
Defense and other Government agencies, including supporting the recent U.S. Army Defense in Depth Exercise (DiDEX
20) with several of its C-UAS solutions for dismounted, mounted, and fixed-site drone detection.
During DiDEX, DroneShield successfully demonstrated its DroneSentryTM, DroneSentry-XTM, RfPatrolTM, and DroneGunTM
solutions to support multiple operational scenarios within a densely populated urban environment. DroneGunTM and
RfPatrolTM were used to support dismounted operations, providing situational awareness and an intuitive response
capability at the tactical edge by an individual operator. DroneSentry-XTM, while mounted to a commercial vehicle, provided
real-time alerts, stationary and on-the-move through the city, proving a highly effective, portable, and flexible C-UAS
solution for mobile operations.
Images: DroneShield’s fixed-site DroneSentryTM system being installed in support of Defense in Depth Exercise (DiDEX)
and DroneShield’s vehicle mounted DroneSentry-XTM operating near the Superdome in New Orleans, LA
DroneSentryTM demonstrated its extended range of Radio Frequency (“RF”) detection and triangulation throughout the
urban airspace with its RfOneTM sensors. In addition to long-range detections, DroneSentry demonstrated interoperability
with the U.S. Army’s Forward Area Air Defense Command and Control (“FAAD C2”) software. FAAD C2 was selected and
approved by the Department of Defense Joint Counter Small-Unmanned Aircraft Systems Office (“JCO”) earlier this year.
This is a key step towards a more seamless integration between the DroneSentryTM multi-sensor system and FAAD C2.
DroneShield Limited | 2020 Annual Report
27
One of DroneShield’s key demonstrated advantages during the evaluation was offering a family of adaptable and
interoperable solutions to effectively detect and mitigate the threat, and protect the Warfighter, as opposed to a single “one
size fits all” solution. This enables individuals and units to effectively address their C-UAS requirements, leverage existing
mission components, and reduce overall cognitive burden. DroneSentryTM and DroneSentry-C2TM’s open architecture
allows for interoperability of DroneShield solutions across the ecosystem of JCO approved C-UAS systems and solutions
including FAAD C2 and others.
DiDEX is facilitated by the U.S. Army’s C5ISR Center Unique Mission Cell (UMC), part of the Combat Capabilities
Development Command (CCDC). Following DroneShield’s participation in DiDEX last month, the Company announced
MIL-STD-2525 compliance of its DroneSentry-C2TM, further demonstrating its commitment to and support of U.S. DoD end
users.
Additionally, the Company is currently awaiting on finalisation of internal DoD spectrum approvals to complete the
installation of its DroneSentryTM system at a DoD base. This is currently expected to be complete this March 2021 quarter,
with installation and payment shortly following.
In addition to the defence work, DroneShield has been selected as a shortlisted tenderer for a major state-wide prison
rollout tender in the U.S., with an expected total value of about $15 million (upfront and ongoing), with DroneShield bidding
to act as the primary contractor for the commissioning, deployment and operations of the system.
Image: U.S. Government agency DroneGunTM demonstration
Australian and New Zealand Departments of Defence and other government agencies
Following several orders from the Australian Department of Defence (“DoD”) in the recent 12 months, DroneShield
continues to actively engage with the DoD and other Australian Government agencies, both directly and as a subcontractor
for large defence prime contractors.
The Company won a $630,000 contract with the DoD in November 2020. Further, it is the preferred bidder on a high-profile
defence project in Australia as a subcontractor to a major defence prime, and expects to finalise and announce this contract
in the current quarter. DroneShield is also working with several other primes, who are including the Company’s products
and capabilities into their submissions to the Australian DoD as part of the Australian Industrial Capability (AIC) requirement
for the primes to do business with the DoD.
In February 2021, DroneShield appointed Pyne & Partners to assist in its rapid growth within the Australian defence and
government agency market. Pyne & Partners is led by Christopher Pyne who served as the 54th Australian Defence
Minister, and was responsible for delivering the $200 billion build-up of Australia’s military capability, the largest in
Australia’s peacetime history. Pyne & Partners will support DroneShield’s executive team, identifying business
development and strategic growth opportunities, and assist the Company’s aspirations to achieve Australian sovereign
defence prime status.
28
DroneShield Limited | 2020 Annual Report
Image: Hon Christopher Pyne, as the Australian Defence Minister, at a defence exhibition with DroneShield’s CEO Oleg
Vornik
As previously reported in October 2020, DroneShield received a Capability Improvement Grant from the Australian
Department of Defence via the Centre for Defence Industry Capability (“CDIC”), towards meeting the standards for secret
clearance levels required for the Company as the overall business, to engage in more classified work. As DroneShield is
in the business of understanding, and minimising defence and Government customer vulnerabilities, secret clearances are
important for closer and more productive customer engagements as the Company scales its business. The Company
anticipates completing its Defence Industry Security Program (“DISP”) process and becoming eligible for a defence
clearance, this 2021 calendar year.
The Middle East
DroneShield is awaiting a payment of approximately $2.3 million (in addition to the funds previously received by
DroneShield under this order) for a shipment of the remaining DroneGun TacticalTM units under a prior Middle Eastern
Ministry of Defence order, with the customer confirming successful receipt of the goods and all obligations met on
DroneShield’s part. The delays resulted from COVID-19-related disruptions and a recent transfer of the counter-UAS
responsibility between the departments within the Ministry of Defence, however an active engagement to process the
payment continues and the payment is currently expected in the present quarter.
DroneShield also continues to pursue the $58 million to $71 million5 potential order, with a fully completed form of contract
awaiting execution by the sovereign customer. During the quarter, DroneShield’s in-country partner held multiple
discussions with the customer and work continues to arrange near term execution of the contract.6
Europe
During 4Q20, DroneShield delivered and received full payment for a DroneSentryTM system from a European Ministry of
Defence. The system will be used for evaluation deployments by the customer, with a view to potential near-term purchases
of additional units following the successful deployment.
Further, DroneShield is presently in the process of delivering several large orders to Europe across its product range,
including portables, vehicle and fixed site solutions.
5 Corresponding to U.S.$45-55 million. Movement from previously reported amount due to AUD/USD FX fluctuations
6 Originally announced on 10 July 2018. Necessarily, there can be no assurance that any of the Company’s sales opportunities will result
in sales. There is no assurance that the bid referenced in this paragraph will result in a sale
Also during 4Q20, the Company announced deployment of a DroneSentryTM system at the Altenrhein Airport in
Switzerland. The provided system was entirely passive (no emissions) with no interference to other equipment, making it
well suited for the airport environment.
DroneShield Limited | 2020 Annual Report
29
Image: DroneSentry-C2TM screen at air traffic control tower of Altenrhein Airport
While the system has been deployed on a no revenue basis, an ability to have a working airport with a DroneShield system
that can be referenced and visited by prospective airport and other customers, around Europe and globally, is expected to
result in paid deployments, as a number of airports in Europe and globally have indicated upcoming deployments of C-
UAS systems in 2021.
The Company also continues to progress discussions with the European Union police forces, where it has won the
framework agreement, under which DroneGun TacticalTM is expected to be rolled out across a range of police units across
the European Union. The first order under the EU police framework agreement was received on 18 January 2021.
The United Kingdom – Partnership with BT
DroneShield continues its partnership with BT on its counterdrone pipeline. UK Ministry of Defence (“UK MOD”) is presently
the prime focus for the partnership, given the COVID-19 slowdown affecting other customers in the UK, particularly in light
of the recent lockdowns. DroneShield and BT have made substantial inroads within the UK MOD in the last nine months,
including DroneShield products having been successfully deployed by the UK MOD in actual combat conditions, with highly
positive reviews. The DroneShield/BT team is progressing several opportunities ranging from hundreds of thousands to
millions of pounds in value, expecting to close some of these opportunities in the 2021 calendar year, with the timing being
substantially dependent on the UK COVID-19 situation7. Additionally, BT has demonstrated its confidence in its partnership
with the Company and continued to support the partnership in the short term by purchasing DroneShield equipment for
demonstration purposes, including taking sensor deliveries from DroneShield under purchase orders this March quarter.
As part of its joint marketing, BT and DroneShield conducted multiple defence and commercial customer webinars, which
were both well attended by key prospective stakeholders of the UK C-UAS industry.
7 Necessarily, not all, and there can be no assurance that any, of the Company’s sales opportunities will result in sales
30
DroneShield Limited | 2020 Annual Report
Image: BT DroneShield C-UAS webinar
Importantly, in addition to the C-UAS strategy, BT has been actively growing its civilian Unmanned Traffic Management
(“UTM”) strategy, including its Future Flight consortium with Altitude Angel (a UK based UTM provider) selected by the UK
Research & Innovation to deliver the UK’s first commercial drone corridor in open and unrestricted airspace, located south
of Reading, Berkshire. DroneShield RfOneTM sensors, are ideally suited for the sensor hardware element of the UTM
systems, being long range passive sensors not requiring the tracked drones to carry any specialised transponders or
cooperate with the sensors in any way.
Team and Operations
Following the transformative $17 million capital raise in 3Q20, DroneShield expanded the team, including additions to its
engineering and operations staff in its Australian office, and sales and engineering field support staff in the U.S. office. The
team is currently approximately 40 full time staff across Australia, U.S. and UK.
In order to assist scale up in operations and increase efficiency, DroneShield is continuing to onboard an experienced
defence manufacturing contractor in Australia (a fully Australian owned and operated medium size specialised electronics
manufacturer), for some of its product lines. DroneShield continues to do its own manufacturing for products which continue
to be further developed. The outsourced manufacturer works on a per unit cost basis, meaning DroneShield does not take
volume associated risks, and orders for manufacture are placed to align with customer and demonstration requirements.
Image: DroneShield’s Australian manufacturing partner operations
DroneShield Limited | 2020 Annual Report
31
Image: RfOne MKII™ units completing manufacturing process
Marketing
While most trade shows continued to be postponed or held virtually due to COVID-19 during the quarter, DroneShield is
planning to participate in events which are still going ahead in 2021, directly or via local partners, starting with the
International Defence Exhibition and Conference (“IDEX”) in Abu Dhabi in February 2021.
Image: DroneGun TacticalTM at a South Korean Army Training and Doctrine Command conference, held during 4Q20
32
DroneShield Limited | 2020 Annual Report
DroneShield continues to be recognised at premier Australian defence awards.
Image: DroneShield’s CEO Oleg Vornik, CFO Carla Balanco and Vice President of Design Lawrence Marychurch at the
DefenceConnect Australian Defence Industry Awards, where DroneShield was selected as the Finalist in several
categories, held December 2020
DroneShield’s Guillaume Jounel was selected as the winner of the Australian Industry and Defence Network (AIDN) NSW
Young Achiever of the Year Award, going on to the AIDN National Awards along with winners from the other States, held
in Canberra on 3rd February 2021. This continues DroneShield’s tradition of winning the AIDN NSW Young Achiever
Award, with the previous year winners being its CTO Angus Bean and Vice President of Design Lawrence Marychurch.
Image: Guillaume Jounel, DroneShield Optical AI Lead, receiving the AIDN NSW Young Achiever Award, with DroneShield
CEO Oleg Vornik
DroneShield Limited | 2020 Annual Report
33
In November 2020, DroneShield held a launch event together with the University of Technology Sydney (UTS), with whom
it has collaborated on the optical Artificial Intelligence technology for UAS detection, under the Australian Government’s
Defence Innovation Network scheme. Collaboration between defence industry and universities forms an important part of
product development in defence. The event was held at the Sydney Science Park in Western Sydney and attended by the
UTS Vice Chancellor Professor Attila Brungs and Hon Stuart Ayers, NSW Minister for Jobs, Investment, Tourism and
Western Sydney.
Image: DroneShield/UTS showcase event at the Sydney Science Park
34
DroneShield Limited | 2020 Annual Report
Product Development
DroneShield continues to position itself at the cutting edge of solutions for detection and response to a wide variety of
asymmetric multi-domain threats, as the greyzone conflict continues to rapidly rise, at both non-State actor level and State-
on-State warfare.
This presents several current priorities for 2021 being:
•
rapid software advancements including Artificial Intelligence/Machine Learning, at Field-Programmable Gate
Array (“FPGA”) circuit level up – making sense of a wide amount of received multi-domain information
• Printed Circuit Board (“PCB”) design technologies – making our circuits smarter and faster
• waveform technologies – receiving and emitting RF signals better
•
ecosystem integration, both as third-party products into DroneShield’s ecosystem, and offering the Company’s
sensors into ecosystems of defence primes and similar integrators. This dual approach maximises the sales
opportunities available to the Company. During 4Q20, DroneShield completed integration of several third party
sensors into its C2, with further detail available at https://www.droneshield.com/partner-technologies
continuous refinement of supply chain, enhancement of build manuals and other required work to maximise
scalability and short delivery time for complex products, exceeding defence and security customer expectations
in the industry known for excessive delivery timeframes and scope creep. DroneShield positions itself as an
industry disruptor not only in the nature of its products, but in transforming customer expectations on
responsiveness and order delivery timing.
•
DroneSentry-C2TM
During the December quarter, the Company released a U.S. DoD MIL-STD-2525 compliant version of its DroneSentry-
C2TM command-and-control system, as part of its continued work with the U.S. Department of Defense.
Image: DroneShield’s DroneSentry-C2TM system in the MIL-STD-2525 compliant mode
MIL-STD-2525 refers to a standard structured set of symbology for the display of information in command-and-control (C2)
systems and applications, used by the U.S. Department of Defense, and non-DOD entities such as other Federal agencies
and NATO partners. DroneSentry-C2 TM now provides users with industry leading enterprise features and MIL-STD-2525
compliance.
DroneSentry-C2 TM is a common operating picture for the Counter-UxS mission. DroneSentry-C2TM enables its users to
visualise their operational space, integrate with existing perimeter security and C2 systems, and leverage multi-sensor
fusion capabilities unique to DroneSentry-C2TM. As a sensor agnostic, open architecture platform, DroneSentry-C2 TM
brings advanced interoperability and flexibility to users.
Intellectual Property
DroneShield holds several current counterdrone patents and is progressing the registration process in relation to several
additional patents globally.
The Company does not file patents for all of its inventions, due to the requirement to publish the “secret sauce” as part of
a patent filing.
Press Coverage
DroneShield continued to be reported as being at the cutting edge of the counterdrone industry in the media. Recent
coverage of DroneShield included the following:
DroneShield Limited | 2020 Annual Report
35
Future of warfare: New tech helps better detect drones13
Trakka Systems and DroneShield announce strategic partnership11
• Pyne signs up third defence client8
• DroneShield received $900K order from major Govt. Agency9
• Why the DroneShield (ASX:DRO) share price is climbing higher10
•
• DroneShield partners with M2K Technologies for the Indian market12
•
• DroneShield, UTS develop technology to better detect and track drone threats14
• DroneShield highlights DroneOptID’s AI-driven UAS identification capabilities15
• DroneShield boosts AI capabilities for C-UAS and beyond16
• Common ways counter-drone technology detects drones17
• How counter-drone systems defeat and destroy rogue drones18
• DroneShield and Squarehead partner in the C-UAS space19
• DroneShield releases U.S. Military compliant counter drone system, DroneSentry-C220
• DroneShield hits record sales, rolls out demonstration airport system21
• DroneShield deploys C-UAS DroneSentry at Swiss airport22
• DroneShield receives follow-up order from a Five Eyes government agency23
• A Five Eyes country has upped its recent order for DroneShield’s DroneGun24
• Counter-Drone Technology Supports U.S. Army Exercise25
• DroneShield receives first order under EU Police contract26
• DroneShield 'aggressively' investing in growth27
DroneShield appeared on Channel 7 news late last year:
Video: DroneShield on Channel 7 News
8 https://www.afr.com/rear-window/pyne-signs-up-third-defence-client-20210131-p56y5n
9 https://themarketherald.com.au/droneshield-asxdro-receives-900k-order-from-major-govt-agency-2020-10-01/
10 https://www.fool.com.au/2021/02/08/why-the-droneshield-asxdro-share-price-is-climbing-higher/
11 http://www.australiandefence.com.au/news/trakka-systems-and-droneshield-announce-strategic-partnership
12 https://www.suasnews.com/2021/02/droneshield-partners-with-m2k-technologies-for-the-indian-market/
13 https://www.miragenews.com/future-of-warfare-new-tech-helps-better-detect-drones/
14 https://www.thedefensepost.com/2020/11/11/droneshield-uts-drone-threats/
15 https://www.janes.com/defence-news/news-detail/droneshield-highlights-droneoptids-ai-driven-uas-identification-capabilities
16 https://asianmilitaryreview.com/2020/11/droneshield-boosts-ai-capabilities-for-c-uas-and-beyond/
17 https://dronedj.com/2020/12/01/common-ways-counter-drone-technology-detects-drones/
18 https://dronedj.com/2020/12/03/how-counter-drone-systems-defeat-and-destroy-rogue-drones/
19 https://www.suasnews.com/2020/12/droneshield-and-squarehead-partner-in-the-c-uas-space/
20https://www.unmannedairspace.info/counter-uas-systems-and-policies/droneshield-releases-us-military-compliant-counter-drone-
system-dronesentry-c2/
21 https://themarketherald.com.au/droneshield-asxdro-hits-record-sales-rolls-out-demo-airport-system-2020-12-15/
22 https://uasweekly.com/2020/12/17/droneshield-deploys-c-uas-dronesentry-at-swiss-airport/
23 https://dronedj.com/2020/12/29/droneshield-receives-follow-up-order-from-a-five-eyes-government/
24 https://stockhead.com.au/tech/a-five-eyes-country-has-upped-its-recent-order-for-droneshields-dronegun/
25 https://www.unmannedsystemstechnology.com/2020/12/counter-drone-technology-supports-u-s-army-exercise
26 https://www.defenceconnect.com.au/key-enablers/7502-droneshield-receives-first-order-under-eu-police-contract
27 https://www.eurekareport.com.au/investment-news/droneshield-aggressively-investing-in-growth/149238
36
DroneShield Limited | 2020 Annual Report
Principal Activities
The principal activity of the Company is the development, commercialisation and sales of hardware and software
technology for drone detection and security.
Significant Changes in the State of Affairs
Other than discussed in the Review of Operations above, there have been no significant changes in the state of affairs of
the Company during the year ended 31 December 2020.
Significant Events after the Balance Date
No matter or circumstance has arisen since 31 December 2020 which has significantly affected or may significantly affect:
•
•
•
The Group’s operations in future financial years; or
The results of those operations in future financial years; or
The Group’s state of affairs in future financial years.
Likely developments and expected results of operations
Refer to the Chairman’s Review to shareholders, on page 3, for further information on likely developments and expected
results of the Group.
Environmental regulation
The Group’s operations are not subject to any significant environmental regulation under either Commonwealth or State
legislation. The Board considers that adequate systems are in place to manage the Group’s obligations and is not aware
of any breach of environmental requirements as they relate to the Group.
Dividends
No dividends were declared or paid to shareholders during the financial year (2019: $nil).
Insurance of officers
During or since the end of the financial year the Company has paid, or agreed to pay, premiums to insure persons who
are, or have been, an officer of the Company, or any past, present or future Director or officer of the Company. The
contracts prohibit disclosure of the amount of the premium paid. The liabilities insured include costs and expenses that
may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as
officers of entities of the Group.
Proceedings on behalf of the Company
No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of
the Corporations Act 2001.
Non-audit services
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Company and/or the Group are important.
Details of the amounts paid or payable to the auditor (HLB Mann Judd Assurance (NSW) Pty Ltd) for audit and non-audit
services provided during the year are outlined in Note 27 to the financial statements.
The Board of Directors has considered the position and is satisfied that the provision of 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 provided by the auditor 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 objectives and
impartiality of the auditor;
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 review or auditing the auditor’s own work, acting in a
management or decision-making capacity for the Group, acting as advocate for the Group or jointly sharing
economic risks and rewards.
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as required under the Section 307C of the Corporations Act 2001 is set
out on page 44.
DroneShield Limited | 2020 Annual Report
37
Directors’ Report- Remuneration Report (audited)
Executive remuneration governance
The Board reviews and approves the remuneration policy to enable the Company to attract and retain executives and
Directors who will create value for shareholders having consideration to the amount deemed to be commensurate for a
company of its size and level of activity as well as the relevant Directors’ time, commitment and responsibility. The Board
is also responsible for reviewing any employee incentive and equity-based plans including the appropriateness of
performance hurdles and total payments proposed.
Remuneration committee
Due to the size and nature of the existing Board and the magnitude of the Company’s operations, the Company does not
currently have a Remuneration Committee. In accordance with the Company’s Corporate Governance Plan, which is
available on the Company’s website https://www.droneshield.com/investors, the full Board currently carries out the duties
that would ordinarily be assigned to the Remuneration Committee under the written terms of reference for that committee.
The Board will devote time on an annual basis to fulfil the roles and responsibilities associated with setting the level and
composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and
not excessive. The Managing Director of the Company is responsible for evaluating the performance of senior executives
on an annual basis. The Board of Directors is responsible for overseeing the Managing Director’s performance evaluations.
This evaluation is based on specific criteria, including the business performance of the Company, whether strategic
objectives are being achieved and the development of management and personnel.
Directors’ remuneration
The remuneration of an Executive Director is decided by the Board, without the affected Executive Director participating in
that decision-making process.
In accordance with the Constitution, the total maximum remuneration of Non-Executive Directors is initially set by the Board
and subsequent variation is by ordinary resolution of shareholders in general meeting in accordance with the Constitution,
the Corporations Act 2001 and the ASX Listing Rules, as applicable.
The determination of Non-Executive Directors’ remuneration within that maximum will be made by the Board having regard
to the inputs and value to the Company of the respective contributions by each Non-Executive Director. The current
amount has been set at an amount not to exceed $500,000 per annum.
In addition, a Director may be paid fees or other amounts (i.e. subject to any necessary shareholder approval, non-cash
performance incentives such as options) as the Directors determine where a Director performs special duties or otherwise
performs services outside the scope of the ordinary duties of a Director.
Directors are also entitled to be paid reasonable travelling, hotel and other expenses incurred by them respectively in or
about the performance of their duties as Directors.
The Group’s remuneration policy for Executive Directors (including the Managing Director) and senior management is
designed to promote superior performance and long-term commitment to the Group. Executives receive a base
remuneration which is market related and may also be entitled to performance-based remuneration at the ultimate
discretion of the Board.
Overall remuneration policies are subject to the discretion of the Board and can be changed to reflect competitive market
and business conditions where it is in the interests of the Group and the Company’s shareholders to do so.
Executive remuneration framework
The Group’s reward policy reflects the benefits of aligning executive remuneration with shareholders’ interests and to retain
appropriately qualified executive talent for the benefit of the Group. The main principles of the policy are:
(a)
(b)
(c)
remuneration is reasonable and fair, taking into account the Group’s obligations at law, the competitive market in
which the Group operates and the relative size and scale of the Group’s business;
individual reward should be linked to clearly specified performance targets which should be aligned to the Group’s
short term and long-term performance objectives; and
executives should be rewarded for both financial and non-financial performance.
38
DroneShield Limited | 2020 Annual Report
Directors’ Report- Remuneration Report continued
Executive remuneration framework continued
The total remuneration of Executive Directors (including the Managing Director) and other senior managers consist of the
following:
(a)
(b)
(c)
(d)
Salary - Executive Directors and senior managers may receive a fixed sum payable monthly in cash;
Short term incentive - Executive Directors and nominated senior managers are eligible to participate in a profit
participation plan if deemed appropriate. The Board may at its discretion award bonuses for exceptional
performance in relation to each person’s pre-agreed Key Performance Indicators;
Post-employment benefits – this refers to superannuation schemes; and
Long term incentives - Executive Directors may participate in share option schemes with the prior approval of
shareholders. Executives may also participate in employee share option schemes, with any option issues generally
being made in accordance with thresholds set in plans approved by shareholders. The Board, however, considers
it appropriate to retain the flexibility to issue options to executives outside of approved Employee Option Plans in
exceptional circumstances.
KMP remuneration disclosures in detail
The Directors and other Key Management Personnel (“KMP”) of the Company during or since the end of the financial year
were:
Name
Position
Effective date
Non-Executive Directors
Peter James
Independent Non-Executive Chairman
Appointed as Independent Non-Executive Chairman 1 April 2016.
Served as Executive Chairman from 2 December 2016.
Returned to Independent Non-Executive Chairman 24 January 2017.
Jethro Marks
Independent Non-Executive Director
Appointed 16 January 2020.
Robert Clisdell
Non-Executive Director
Appointed 24 January 2017. Resigned 16 January 2020.
Executive Director
Oleg Vornik
Executive Director,
Managing Director and CEO
Appointed as CEO and Managing Director 24 January 2017.
DroneShield Limited | 2020 Annual Report
39
Directors’ Report- Remuneration Report continued
Shareholdings of KMP
The number of shares in the Company and subsidiary held during the financial year by each Director of DroneShield and
other KMP (of which there are none), including their personally related entities, are set out in the following table:
(a)
Received during
the year on
exercise of
options
(Number)
Opening balance
(Number)
(c)
Other changes
during the year
(Number)
Balance at
31 December
2020
(Number)
3,170,435
-
745,435
132,500
83,333
-
149,587
3,452,522
-
-
83,333
(b)
3,970,435
250,000
149,587
4,370,022
7,886,305
465,833
299,174
7,905,877
31 December 2020
Non-Executive Directors
Peter James
Jethro Marks
Robert Clisdell
Executive Director
Oleg Vornik
Total
Notes
(a) The options exercised during the year were exercised using limited recourse loans provided by the Company.
The loans are interest free and due for repayment by December 2025. The loans are non-recourse except
against the shares issued on exercise of the options and are held by the Director to which the loan relates.
(b) Robert Clisdell resigned as a director on 16 January 2020 and therefore his share holdings are no longer shown
in the table above as he no longer is a member of key management personnel.
(c) Shares issued due to participation in Share Purchase Plan.
31 December 2019
Non-Executive Directors
Peter James
Robert Clisdell
Executive Director
Oleg Vornik
Received during
the year on
exercise of
options
(Number)
Other changes
during the year
(Number)
Balance at
31 December
2019
(Number)
Opening balance
(Number)
670,435
245,435
2,500,000
500,000
270,435
3,700,000
-
-
-
-
3,170,435
745,435
3,970,435
7,886,305
Total
1,186,305
6,700,000
40
DroneShield Limited | 2020 Annual Report
Directors’ Report- Remuneration Report continued
Share options held by KMP
Opening
balance
(Number)
Granted as
compensati
on
(Number)
Options
lapsed
(Number)
(a)(b)
Options
exercised
(Number)
Balance at
31
December
2020
(Number)
Vested
Options
December
2020
(Number)
Unvested
Options
December
2020
(Number)
-
-
-
(132,500)
7,262,500
(83,333)
166,667
-
-
-
-
-
7,262,500
166,667
(c)
31 December
2020
Non-Executive
Directors
Peter James
Jethro Marks
7,395,000
-
-
250,000
Robert Clisdell
1,795,000
-
Executive Director
Oleg Vornik
13,900,000
-
-
(250,000)
13,650,000
-
13,650,000
Total
23,090,000
250,000
-
(465,833)
21,079,167
-
21,079,167
Notes
(a) The options exercised during the year were exercised using limited recourse loans provided by the Company.
The loans are interest free and due for repayment by December 2025. The loans are non-recourse except against
the shares issued on exercise of the options and are held by the Director to which the loan relates.
(b) The options exercised during the year by Directors were exercised at $0.65 per share.
(c) Robert Clisdell resigned as a director on 16 January 2020 and therefore his share options holdings are no longer
shown in the table above as he no longer is a member of key management personnel.
Opening
balance
(Number)
Granted as
compensation
(Number)
Options
lapsed
(Number)
Options
exercised
(Number)
Balance at
31
December
2019
(Number)
Vested
Options
December
2019
(Number)
Unvested
Options
December
2019
(Number)
11,100,000
2,100,000
795,000
(2,000,000)
(2,500,000)
195,000
-
(500,000)
7,395,000
1,795,000
Oleg Vornik
16,900,000
1,500,000
(800,000)
(3,700,000)
13,900,000
Total
30,100,000
2,490,000
(2,800,000)
(6,700,000)
23,090,000
-
-
-
-
7,395,000
1,795,000
13,900,000
23,090,000
31 December
2019
Non-Executive
Directors
Peter James
Robert Clisdell
Executive Director
DroneShield Limited | 2020 Annual Report
41
Directors’ Report- Remuneration Report continued
Performance based remuneration granted and exercised during the year
31 December 2020
31 December 2019
(a)
Value granted
$
(b)
Value exercised
$
(a)
Value granted
$
(b)
Value exercised
$
-
7,287
-
-
7,287
86,125
54,166
-
162,500
302,791
141,906
-
36,349
750,000
-
150,000
267,747
1,110,000
446,002
2,010,000
Non-Executive
Directors
Peter James
Jethro Marks
Robert Clisdell
Executive Directors
Oleg Vornik
Total
Notes
(a) The value at grant date is calculated using the Black Scholes Model.
(b) The value of the options exercised is calculated using the exercise price.
Terms and conditions of the share-based payment arrangements
The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are as
follows:
Class of
Options
issued
during
2020
Q
Q
Q
Number of
Options
83,333
Grant date
28-Aug-20
Vesting
date
30-Nov-20
Expiry
date
30-Jun-23
83,333
28-Aug-20
30-Nov-21
30-Jun-23
83,333
28-Aug-20
30-Nov-22
30-Jun-23
Exercise
Price
0.65
0.65
0.65
Class of
Options
issued
during 2019
Number
of
Options
Grant date
Vesting
date
Expiry
date
Exercise
Price
Value per
option at
grant date
$
0.0291
0.0291
0.0291
Value per
option at
grant date
$
Performance
achieved
Yes
to be
determined
to be
determined
% Vested
during
2020
100%
n/a
n/a
Performance
achieved
% Vested
during
2019
ZEPO
1,147,500
12-Dec-19
ZEPO
97,500
17-Dec-19
(a)
(a)
30-Nov-22
30-Nov-22
Q
Q
Q
Q
Q
Q
382,500
12-Dec-19
30-Nov-20
30-Jun-23
32,500
17-Dec-19
30-Nov-20
30-Jun-23
382,500
12-Dec-19
30-Nov-21
30-Jun-23
32,500
17-Dec-19
30-Nov-21
30-Jun-23
382,500
12-Dec-19
30-Nov-22
30-Jun-23
32,500
17-Dec-19
30-Nov-22
30-Jun-23
-
-
0.65
0.65
0.65
0.65
0.65
0.65
0.2550
0.2650
0.1020
0.1078
0.1020
0.1078
0.1020
0.1078
to be
determined
to be
determined
to be
determined
to be
determined
to be
determined
to be
determined
to be
determined
to be
determined
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
42
DroneShield Limited | 2020 Annual Report
Directors’ Report- Remuneration Report continued
Notes
(a) Zero Price (“Zepo”) options are subject to the following vesting conditions being satisfied: DroneShield achieving
$20 million revenue or customer cash receipts (excluding any revenue or customer cash receipts which are
applied towards satisfaction of the vesting condition attaching to the Tranche 1 Zepos) in any 12-month period
within 36 months of the date of issue of the Options; or automatic vesting in the event that DroneShield is subject
to a takeover or other change of control transaction. As there is no exercise price and no near-term expectations
of dividends for DroneShield, the value of the option (excluding the impact of vesting conditions) determined using
Black Scholes is equivalent to the price of a DroneShield share. The value of the Options is based on the spot
price of a DroneShield share on the date at which the options were issued. Based on the sales pipeline and
existing orders, management estimate that the options will vest within the expiry period. At this stage, the vesting
period is assumed to be three years, which will be reviewed against updated pipeline and forecasts each six
months.
Remuneration details of KMP
Salary and
fees
$
Cash bonus
$
Post-
employment
benefits
$
Termination
payment
$
Share based
payments
(options)
$
Total
$
31 December 2020
Non-Executive Directors
Peter James
Jethro Marks
Robert Clisdell (a)
Executive Director
Oleg Vornik
Total
Notes
94,996
44,651
1,290
317,482
458,419
-
-
-
-
-
-
-
-
21,348
21,348
(a) Robert Clisdell resigned as a director on 16 January 2020.
Salary and
fees
$
Cash bonus
$
Post-
employment
benefits
$
Termination
payment
$
100,000
30,000
-
303,135
433,135
-
-
-
-
-
-
-
-
27,484
27,484
31 December 2019
Non-Executive Directors
Peter James
Robert Clisdell
Bradley Buswell (a)
Executive Director
Oleg Vornik
Total
Notes
(b) Bradley Buswell resigned as a director on 3 October 2019.
-
-
-
-
-
-
-
-
-
-
431,681
3,459
207,821
526,677
48,110
209,111
849,193
1,188,023
1,492,154
1,971,921
Share based
payments
(options)
$
Total
$
380,773
108,010
83,984
480,773
138,010
83,984
770,674
1,101,293
1,343,441
1,804,060
DroneShield Limited | 2020 Annual Report
43
Directors’ Report- Remuneration Report continued
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Non-Executive Directors
Peter James
Robert Clisdell
Jethro Marks
Executive Director
Oleg Vornik
Fixed
Performance
2019
2020
2019
2020
21%
22%
n/a
31%
18%
1%
n/a
29%
79%
78%
100%
69%
82%
99%
n/a
71%
The performance component of remuneration received by Directors relates to share options. The issue of share options to
Directors is subject to shareholder approval. Remuneration in the form of DroneShield share options is used as a tool to
align KMP remuneration with shareholder interests.
The employment agreement of the Executive Director during the year included the following key terms:
Name
Positions held during the year
Key terms of employment agreement
Oleg Vornik
CEO and Managing Director
-
Advisory Board remuneration
-
-
-
-
-
Base remuneration of $330,000 p.a.
Eligible to participate in short term incentive program
Eligible to participate in long term incentive program
A notice period of 3 months, except in defined circumstances
No fixed term
During the year, the Advisory Board included one individual who was remunerated as follows:
31 December 2020
Hon. Jay M Cohen
Total
31 December 2019
Hon. Jay M Cohen
Total
End of Remuneration Report.
Salary and Fees
$
-
-
Salary and Fees
$
-
-
Share based
payments
(options)
$
-
-
Share based
payments
(options)
$
60,646
60,646
Total
$
-
-
Total
$
60,646
60,646
This Directors’ Report is made in accordance with a resolution of Directors.
Peter James
Independent Non-Executive Chairman
Sydney, NSW
25 February 2021
44
DroneShield Limited | 2020 Annual Report
Auditor’s Independence Declaration
Auditor’s Independence Declaration
To the directors of DroneShield Limited:
As lead auditor for the audit of the consolidated financial report of DroneShield Limited for the year ended 31
December 2020, I declare that, to the best of my knowledge and belief, there have been no contraventions of:
(a)
the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(b)
any applicable code of professional conduct in relation to the audit.
This declaration is in relation to DroneShield Limited and the entities it controlled during the year.
Sydney, NSW
25 February 2021
A G Smith
Director
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
DroneShield Limited | 2020 Annual Report
45
Revenue
Other income (losses)
Cost of sales
Product development expense
Sales and customer service expense
Corporate and support expense
Corporate governance expense
Share based payment expense
Loss before income tax
Income tax benefit
Loss after income tax
Other comprehensive income:
Items that may be reclassified to profit or loss
Adjustments on translation of foreign controlled entity
31 December
2020
$
31 December
2019
$
Note
3
4
5
6
8
7
5,557,736
3,520,615
325,836
(1,826,864)
(3,287,028)
(1,778,252)
(2,626,681)
(590,627)
(2,524,702)
93,969
(1,610,636)
(3,177,227)
(1,896,707)
(2,862,926)
(495,342)
(1,752,177)
(6,750,582)
(8,180,431)
883,592
485,351
(5,866,990)
(7,695,080)
9,922
(21,800)
Total comprehensive loss for the period
(5,857,068)
(7,716,880)
Basic loss per share
Diluted loss per share
21
21
(0.02)
(0.02)
(0.04)
(0.04)
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction
with the accompanying notes.
46
DroneShield Limited | 2020 Annual Report
Consolidated Statement of Financial Position
31 December
2020
$
31 December
2019
$
Note
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other investments
Total current assets
Non-current assets
Plant, equipment and intangible assets
Right-of-use assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables
Provisions
Other liabilities
Lease Liabilities
Borrowings
Total current liabilities
Non-current liabilities
Lease Liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Accumulated losses
Total equity
9
10
11
12
13
14
15
16
17
18
17
18
19
7,858,738
3,710,494
2,018,279
8,430,034
5,485,000
1,581,432
725,920
-
22,017,545
7,792,352
874,115
236,973
1,158,642
427,579
1,111,088
1,586,221
23,128,633
9,378,573
884,363
184,007
1,994,265
135,461
107,043
397,993
182,583
1,666,940
118,528
32,707
3,305,139
2,398,751
191,108
42,953
328,709
-
234,061
328,709
3,539,200
2,727,460
19,589,433
6,651,113
37,283,293
7,765,812
(25,459,672)
21,012,607
6,135,277
(20,496,771)
19,589,433
6,651,113
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Consolidated Statement of Changes in Equity
DroneShield Limited | 2020 Annual Report
47
Contributed
equity
$
Options
reserve
$
Foreign
currency
translation
reserve
$
Accumulated
losses
$
Total equity
$
Balance at 1 January 2019
11,628,172
7,343,147
(290)
(16,908,688)
2,062,341
Transfer from option reserve to accumulated
losses
-
(4,106,997)
-
4,106,997
-
Transactions with owners in their capacity as
owners:
Options exercised
Options issued
Contributions of equity, net of transaction costs
417,159
-
8,967,276
-
1,752,177
1,169,040
9,384,435
2,921,217
Exchange difference on translation of foreign
operations
Loss for the period
Total comprehensive loss for the period
-
-
-
-
-
-
-
-
-
-
(21,800)
-
-
-
-
-
417,159
1,752,177
10,136,316
12,305,652
(21,800)
-
(7,695,080)
(7,695,080)
(21,800)
(7,695,080)
(7,716,880)
Balance at 31 December 2019
21,012,607
6,157,367
(22,090)
(20,496,771)
6,651,113
Balance at 1 January 2020
21,012,607
6,157,367
(22,090)
(20,496,771)
6,651,113
Transfer from option reserve to accumulated
losses
Transactions with owners in their capacity as
owners:
Options issued
Contributions of equity, net of transaction costs
Repayment of management/ employee option
exercise loan
-
(904,089)
-
904,089
-
-
2,524,702
16,099,895
170,791
-
-
16,270,686
2,524,702
-
-
-
-
-
-
-
2,524,702
16,099,895
170,791
-
18,795,388
Exchange difference on translation of foreign
operations
Loss for the period
Total comprehensive loss for the period
-
-
-
-
-
-
9,922
-
9,922
-
(5,866,990)
(5,866,990)
9,922
(5,866,990)
(5,857,068)
Balance at 31 December 2020
37,283,293
7,777,980
(12,168)
(25,459,672)
19,589,433
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
48
DroneShield Limited | 2020 Annual Report
Consolidated Statement of Cash Flows
31 December
2020
$
31 December
2019
$
Note
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Research and Development Tax and other incentives received
3,660,494
(10,026,619)
1,706,555
3,162,838
(8,744,543)
582,224
Net cash flows used in operating activities
29
(4,659,570)
(4,999,481)
Cash flows from investing activities
Purchase of plant and equipment
(772,158)
(1,044,592)
Net cash flows used in investing activities
(772,158)
(1,044,592)
Cash flows from financing activities
Interest income on cash deposits
Proceeds from option exercise
Proceeds from share and option issue
Proceeds from borrowings
Repayment of borrowings
Borrowings transaction costs
Payments for lease liabilities
Share issue transaction costs
Repayment of employee loans
23,657
-
16,967,000
750,368
(600,000)
(12,000)
(114,277)
(876,344)
170,791
35,702
417,159
10,849,696
500,000
(500,000)
(155,580)
(94,592)
(719,230)
-
Net cash flows from financing activities
16,309,195
10,333,155
Cash and cash equivalents at beginning of period
5,485,000
1,229,499
Net increase in cash and cash equivalents
10,877,467
4,289,082
Exchange rate adjustments to balances held in foreign
currencies
(73,695)
(33,581)
Cash and cash equivalents at the end of the year
9 & 12
16,288,772
5,485,000
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
DroneShield Limited | 2019 Annual Report
49
Notes to the Financial Statements
Corporate Information
The consolidated financial report of DroneShield Limited (“the Company”) and its controlled entities (“DroneShield” or “the
Group”) for the year ended 31 December 2020 was authorised for issue in accordance with a resolution of the Directors
on 25 February 2021.
DroneShield Limited is a company incorporated in Australia, limited by shares which are publicly traded on the ASX.
The principal activity of the Company is the development, commercialisation and sales of hardware and software
technology for drone detection and security.
Statement of compliance
These consolidated financial statements are general purpose financial statements which have been prepared in
accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements
of the law.
Accounting Standards are Australian Accounting Standards (“AAS”). Compliance with AAS ensures that the financial
statements and notes of the Group comply with International Financial Reporting Standards (”IFRS”).
The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the
consolidated financial statements, the Group is a for-profit entity.
1. Summary of Significant Accounting Policies
Basis of preparation
The consolidated financial statements have been prepared on the basis of historical cost as explained in the accounting
policies below.
The consolidated financial statements are presented in Australian dollars (“AUD”), unless otherwise noted, which is also
the functional currency of the Company. The principal accounting policies are set out below.
Going Concern
This consolidated financial report has been prepared on the basis that the Group will continue to meet its commitments
and can therefore continue normal business activities and realise assets and settle liabilities in the ordinary course of
business.
For the year ended 31 December 2020, the Group incurred a loss after income tax of $5,866,990 and net cash outflows
from operating activities of $4,659,570, with cash on hand and term deposits at 31 December 2020 of $16,288,772. At 31
December 2020, the Group had net assets of $19,589,433 and an excess of current assets over current liabilities of
$18,712,406.
During the year, the Company issued 60,000,000 shares in a Share Placement and 75,735,467 shares in a Share Purchase
Plan. The issue price per share was $0.125 and the total cash received was $16,967,000 (before transaction costs).
A cash flow forecast for the next 12 months prepared by management has indicated that the Group will have sufficient
cash assets and term deposits to be able to meet its debts as and when they are due, and therefore the financial statements
have been prepared on a going concern basis.
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (i.e. subsidiaries). Subsidiaries are all 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.
Intercompany transactions, balances and unrealised gains on transactions between Group companies (if any) are
eliminated. Accounting policies of all companies in the Group are consistent.
50
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
Foreign currency translation
Foreign currency transactions are translated into the functional currency 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 re-
measurement of monetary items at year end exchange rates are recognised in profit or loss.
On consolidation, assets and liabilities have been translated into AUD at the closing rate at the reporting date. Income and
expenses have been translated into AUD at the average rate over the reporting period. Exchange differences on
consolidation are charged or credited to other comprehensive income and recognised in the foreign currency translation
reserve in equity.
Revenue recognition
The Group recognises revenue from the following major sources:
o Sale of hardware
o Subscription services
o Services
Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue
when it transfers control of a product or service to a customer.
Sale of hardware
The Group sells hardware to distributors and directly to customers. Sales-related warranties associated with hardware
cannot be purchased separately and they serve as an assurance that the products sold comply with agreed-upon
specifications. Accordingly, the Group accounts for warranties in accordance with AASB 137 Provisions, Contingent
Liabilities and Contingent Assets.
For sales of hardware to distributors, revenue is recognised when control of the hardware has transferred, being when the
hardware has been shipped to the distributor’s specified location (delivery) and collected from Customs by the distributor.
Following delivery, the distributor has full discretion over the manner of distribution and price to sell the hardware, has the
primary responsibility when on-selling the goods and where there is a risk of obsolescence and loss in relation to the goods.
A receivable is recognised by the Group when the hardware is delivered to the distributor as this represents the point in
time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is
due.
Contracts with customers have a variable sales element, dependent on volume sold. Currently, revenue from sales is fixed
with no variable consideration. Contracts do not include financing components.
For sales directly to customers, revenue is recognised when control of the hardware has transferred to the customer, being
at the point the hardware is delivered to the customer. Delivery occurs when the goods have been shipped to the customer’s
specified location. A receivable is recognised by the Group when the hardware is delivered to the customer as this
represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is
required before payment is due.
As shipping income is directly related to the sale of hardware, it is not seen as a separate performance obligation and is
recognised as and when the related hardware sale is recognised.
When the customer or distributor initially places the order, the customer or distributor is invoiced and the transaction price
of the invoice at that point is recognised by the Group as deferred revenue, until control of the hardware has transferred to
the customer or distributor and revenue is recognised.
Outside of warranties, customers do not have the right to return hardware sold therefore no “right to returned goods asset”
is recognised.
Subscription services
The Group provides a subscription service for software updates. Such services are recognised as a performance obligation
satisfied over time.
The transaction price allocated to these services is recognised as deferred revenue at the time of the initial sales transaction
and is released on a straight-line basis over the period of service
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
51
Services
The Group provides services for research and training. Such services are recognised as a performance obligation satisfied
over time.
The transaction price allocated to these services is recognised as deferred revenue at the time of the initial sales transaction
and is released on a straight-line basis over the period of service.
Interest income
Interest income and expenses are reported on an accrual basis using the effective interest method.
Government grant income
Income from government grants is recognised at their fair value in profit and loss when there is reasonable assurance that
the grant will be received, and the Group will comply with attached conditions.
Income tax
The income tax expense/ (income) for the year comprises current income tax expense/ (income) and deferred tax expense/
(income).
Current tax and deferred tax are recognised as an expense/ (income) except to the extent that they relate to a business
combination or are recognised directly in equity or other comprehensive income. Current tax liabilities/ (assets) are
therefore measured at the amounts expected to be paid to/ (received from) the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax assets and deferred tax liability balances during the year
as well as unused tax losses.
Current and deferred income tax expense/ (income) is recognised in equity instead of profit or loss when the tax relates to
items that are credited or charged directly to equity.
Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability
where there is no effect on accounting or taxable profit or loss.
Deferred tax liabilities/ (assets) are calculated at the tax rates that are expected to apply to the period when the liability is
settled (asset is realised), and their measurement also reflects the manner in which management expects to settle the
carrying amount of the related liability/ (recover the assets).
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is
probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.
Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and
liabilities from the same taxation authority.
The research and development tax incentive claim is recognised as income tax revenue in the period in which it is received.
Goods and services and other value-added taxes (“GST”)
Revenue, expenses and assets are recognised net of the amount of associated GST, except where the amount of GST
incurred is not recoverable from the taxation authority, in which case it is recognised as part of the acquisition cost of an
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 taxation authority is included as part of other receivables or payables in the statement
of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from
investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating
cash flows.
52
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits with terms of less than three months, together
with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
Trade and other receivables
Trade and other receivables are stated at their cost less an allowance for impairment of receivables. These receivables
are unsecured.
Payment for hardware sales and subscription services are due from the customer on the date the invoice is issued.
Contracts do not include financing components.
Individually significant receivables are considered for impairment when they are past due or when other objective evidence
is received that a specific counterparty will default.
The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped
based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment
profiles of sales over a period of 36 months before 31 December 2020 or 1 January 2020 respectively and the
corresponding historical credit losses experienced within this period.
Trade and other payables
Trade and other payables are liabilities for goods and services provided to the Group prior to the end of the financial period
which are unpaid. These amounts are unsecured and generally payable within 30 days of recognition.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned
using the average cost method. Net realisable value is the estimated selling price in the ordinary course of business less
any applicable selling expenses.
Leases
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses and adjusted for
certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payment
made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a
change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes
in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option
is reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include
renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease
term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.
For short‑term leases (lease term of 12 months or less) and leases of low‑value assets the Group will recognise a lease
expense on a straight‑line basis.
Employee benefits
Wages, salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits expected to be settled within 12 months, are recognised
in other payables. Annual leave is recognised in provisions and is measured using the remuneration rate expected to apply
at the time of settlement.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
53
Long service leave
The liability for long service leave is measured as the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels,
experience of employee departures and periods of service. Expected future payments are discounted using interest rates
on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.
Post-employment benefits
The Group makes fixed percentage contributions for all Australian resident employees to complying third party
superannuation funds and recognises the expense as they become payable.
Provisions, contingent liabilities and contingent assets
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is
more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably
estimated.
No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such
situations are disclosed as contingent liabilities, unless the outflow of resources is remote, in which case no liability is
disclosed.
Contributed equity
Costs directly attributable to the issue of new shares are shown as a deduction from the equity proceeds net of any income
tax benefit.
Plant and equipment
Plant and equipment (including fittings and furniture) are initially recognised at acquisition cost.
Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of plant and
equipment. The following useful lives are applied:
Office equipment
Plant & Equipment
Demonstration equipment
Vehicles and Trailers
2 – 5 years
2 – 5 years
2 years
8 years
Depreciation will commence for self-constructed assets once the asset is available for use.
Material residual value estimates and estimates of useful life are updated as required, but at least annually.
Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the
disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other
expenses.
Intangible assets
Intangible assets relate to purchased computer software. Amortisation is recognised on a straight-line basis over an
estimated useful economic life of 5 years. The estimated useful economic life is reviewed at the end of each reporting
period with the effect of any changes in estimate being accounted for on a prospective basis.
Earnings per share
Basic earnings per share is computed by dividing net earnings by the weighted average number of ordinary shares
outstanding during each period.
Dilutive earnings per share is computed by dividing net earnings by the dilutive weighted average number of ordinary
shares assuming the conversion of all dilutive potential ordinary shares.
54
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
Research and development
Research is the original and planned investigation undertaken with the prospect of gaining new knowledge and
understanding. Development is the application of research findings to a plan or design for the production of new or
substantially improved processes or products prior to the commencement of commercial production. Research costs are
expensed as they are incurred.
Share-based payments
Share based compensation benefits are provided to employees via an Employee Option Plan. Information in relation to
this plan is set out in Note 8.
The fair value of options granted is recognised as an employee benefits expense with a corresponding increase in equity.
The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any
market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and
non-market performance vesting conditions.
Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The
total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to
vest based on the non-market vesting conditions. It recognises the impact of the revision or original estimates, if any, in
profit or loss, with a corresponding adjustment to equity.
Impairment of assets
Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows which are largely dependent of the cash inflows from other assets or other groups of assets (cash generating
units).
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the
operating segments, is the CEO.
Comparative disclosures
Where appropriate, comparative disclosures have been reclassified/amended to be consistent with the current year’s
presentation.
New accounting standards and interpretations
DroneShield has adopted all of the new, revised or amended Accounting Standards and interpretations issued by the
Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. There has been no
material impact on the Group on the adoption of these new standards.
There are no new Accounting Standards or interpretations that have been published, but not yet mandatory, that are
expected to have a material impact on the Group.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
55
2. Critical accounting judgements, estimates and assumptions
In the application of the Group’s accounting policies, which are described in Note 1, the Directors are required to make
judgements, estimates and assumptions in the preparation of the financial statements about matters that are not readily
available from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to items (refer to
the respective notes) within the next financial year are discussed below.
Licence and patent expenses
There is a degree of judgement required in respect of the capitalisation of patent costs and the future commercial
application thereof. The Directors have adopted a prudent approach and all patent costs incurred have been expensed.
Share based payments
The Group measures the cost of equity settled transactions by reference to the fair value of the equity instruments at the
date they are granted. The accounting estimates and assumptions relating to equity-settled share-based payments would
have no impact on the carrying amounts of assets and liability within the next annual reporting period but may impact profit
or loss and equity. Details of the key assumptions used are set out in Note 8.
Inventories
Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at
each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven
changes that may reduce future selling prices.
Demonstration Units
Management reviews its estimate of the useful lives of demonstration assets at each reporting date, based on the expected
utility of these assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of
certain items.
Leases
Management estimates the Group’s incremental borrowing rate which is used as the discount rate to calculate the present
value of the lease payments that are not paid at the commencement date.
Judgement is also applied by management to determine the lease term for some lease contracts, in which it is a lessee,
that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts
the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.
56
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
31 December
2020
$
31 December
2019
$
3. Revenue
72,689
Demonstration revenue
3,131,124
Hardware sales
-
Services revenue
83,973
Shipping revenue
1,699
Subscription services
Total revenue from sales
3,289,485
The Group derives its revenue from the transfer of goods and services over time and at a point in time. This is consistent with
the revenue information that is disclosed for each reportable segment (see Note 28).
16,455
4,710,275
134,084
148,281
16,782
5,025,877
Timing of revenue recognition
At a point in time
Hardware sales including shipping income
-
-
direct sales
distributors
Demonstration revenue
direct sales
distributors
-
-
Over time
Subscription services
direct sales
distributors
-
-
Services revenue
-
direct sales
Total revenue from sales
Other revenue
Interest revenue
Revenue for achieving customer performance targets
Other revenue
Sublease revenue
Total other revenue
Total revenue
4. Other income (losses)
Awards and incentives revenue (Note a)
Net foreign exchange losses
928,138
3,930,418
1,455,441
1,759,655
-
16,455
27,889
44,801
15,000
1,782
-
1,699
134,084
5,025,877
-
3,289,485
23,660
383,148
125,051
-
531,859
35,702
-
128,888
66,540
231,130
5,557,736
3,520,615
823,348
(497,512)
325,836
96,873
(2,904)
93,969
Total other gains (losses)
Note a:
Awards and incentives income comprises of government and industry assistance including the JobKeeper scheme, payroll
tax relief and ATO cashflow boost.
5. Corporate and support expense
Legal
Office costs and communication
Other
Payroll
Professional expenses
Travel and entertainment
151,411
443,885
420,912
985,527
610,298
14,648
200,897
401,390
481,297
1,060,964
628,337
90,041
Total corporate and support expense
2,626,681
2,862,926
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
57
6. Corporate governance expense
ASX fees
Audit
Board and Advisory Board expenses
Insurance
Other
Professional expenses
31 December
2020
$
31 December
2019
$
105,771
71,879
141,909
133,718
81,941
55,409
126,674
62,106
129,993
91,117
46,472
38,980
Total corporate governance expense
590,627
495,342
7.
Income taxes relating to continuing operations
The components of tax recognised in profit or loss include:
Current tax
Deferred tax
Research and Development Tax Incentive28
Total tax benefit
-
-
-
-
(883,592)
(485,351)
(883,592)
(485,351)
The income tax for the year can be reconciled to the accounting profit as follows:
Income tax benefit calculated at 27.5%
Tax effect of amounts which are not deductible
Research and Development Tax Incentive
Effect of unused tax losses not recognised as deferred tax assets
(1,856,410)
(2,249,619)
694,293
(883,592)
1,162,117
481,849
(485,351)
1,767,770
Income tax benefit recognised in profit or loss (relating to continuing operations)
(883,592)
(485,351)
The tax rate used for the 2020 and 2019 reconciliations above is the corporate tax rate of 27.5% payable by DroneShield Limited
on taxable profits under Australian tax law.
The Company has unused tax losses of $15,066,071 (2019: $10,840,191). The benefit of these losses will only be recognised
where it is probable that future taxable profit will be available against which the benefit of the deferred tax asset can be utilised.
The deferred tax asset not recognised in relation to these tax losses is $4,143,170 (2019: $2,981,053).
28 A tax credit of $883,592 was received in the current year in relation to expenses incurred in the 31 December 2019 financial year.
58
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
8. Options issued
During the year ended 31 December 2020, a number of options were issued to Directors, management and other employees of the Group. Using the Black Scholes Model, the fair value of each
option is as set out below and based on the following criteria/assumptions. The options below were issued at various dates between January and December 2020.
Options Issued
31 December 2020
No of new options
Expiry (years)
Exercise price ($)
Average vesting period (years)
Underlying volatility
Average risk-free interest rate
Average calculated fair value of each option ($)
Total expense recorded for the period ended 31
December 2020 ($)
Class F
Options
1,150,000
0.79
0.30
0
87.7%
0.21%
0.0241
27,626
Class Q
Options
750,000
3.45
0.65
1.87
87.7%
0.76%
0.0876
30,344
Class S
Options
2,200,000
3.01
0.25
0.00
87.7%
0.11%
0.0794
174,597
Zero Price
Options1
Other
Options2
Total option
expense for
the year3
500,000
2.87
0
2.87
n/a
n/a
0.2350
38,979
2,253,156
2,524,702
1 Zero Price (“Zepo”) options are subject to the following vesting conditions being satisfied: DroneShield achieving $20,000,000 of revenue or customer cash receipts (excluding any revenue or customer cash
receipts which are applied towards satisfaction of the vesting condition attaching to the Tranche 1 Zepos) or automatic vesting in the event that DroneShield is subject to a takeover or other change of control
transaction. As there is no exercise price and no near-term expectations of dividends for DroneShield, the value of the option (excluding the impact of vesting conditions) determined using Black Scholes is
equivalent to the price of a DroneShield share. The value of the Options is based on the spot price of a DroneShield share on the date at which the options were issued. Based on the sales pipeline and existing
orders, management estimate that the options will vest within the expiry period. At this stage, the vesting period is assumed to be three years, which will be reviewed against updated pipeline and forecasts each
six months.
2 $2,253,156 relates to the vesting expense from options issued in prior periods, comprising option expense for Tranche 2 Zepos, Classes N, P and Q (issued in 2019), Tranche 1 Zepos (issued in 2018). Refer
to 2018 and 2019 Annual Report for details of options issued in prior periods.
3 During the year, limited-recourse loans were issued to certain employees and directors, where the company provided interest free loans for conversion of options previously issued by the company. In total,
1,682,500 options were converted into ordinary shares, at various exercise prices. The loans are due for repayment by December 2025. The loans are non-recourse except against the shares issued on exercise
of the options and are held by the participant to which the loan relates. Non-recourse loans issued are treated as a modification of the option under the Accounting Standards. No additional expense has been
recognised in relation to these modifications.
DroneShield Limited | 2020 Annual Report
59
Notes to the Financial Statements continued
Options issued (continued)
During the year ended 31 December 2019, a number of options were issued to Directors, management and other employees of the Group as well as to brokers participating in the Share Placements
that occurred in February and August 2019. Using the Black Scholes Model, the fair value of each option is as set out below and based on the following criteria/assumptions. The options below were
issued at various dates between January and December 2019.
Options Issued
31 December 2019
Class G
Options
Class K
Options
Class M
Options
Class N
Options
Class O
Options1
Class P
Options
Class Q
Options
Class R
Options2
Zero Price
Options3
Other
Options4
Total option
expense for
the year5
No of new options
Expiry (years)
Exercise price ($)
Average vesting period (years)
Underlying volatility
Average risk-free interest rate
Average calculated fair value
of each option ($)
Total expense recorded for the
period ended 31 December
2019 ($)
200,000
3
0.3
-
87.7%
1.53%
0.0344
450,000
2.75
0.50
-
87.7%
0.78%
0.1659
175,000
2.93
0.20
-
87.7%
0.81%
0.1297
175,000
3.93
0.20
0.69
87.7%
0.83%
0.1434
2,825,425
2
0.22
-
87.7%
1.72%
0.0352
1,050,000
2.82
0.40
0.47
87.7%
0.78%
0.1467
5,200,000
3.54
0.65
1.96
87.7%
0.83%
0.1091
10,000,000
2.63
0.40
-
87.7%
1.72%
0.1118
5,200,000
3
0
3
n/a
n/a
0.2671
6,881
76,496
17,436
15,302
-
100,400
15,761
-
20,704
1,499,197
1,752,177
1 Class O options were issued to brokers as part of the February 2019 capital raise and included as part of share transaction costs and treated as a deduction from equity (of $99,344 see Note 19).
2 Class R options were issued to brokers as part of the August 2019 capital raise and included as part of share transaction costs and treated as a deduction from equity (of $1,118,195 see Note 19).
3 Zero Price (“Zepo”) options are subject to the following vesting conditions being satisfied: DroneShield achieving $20,000,000 of revenue or customer cash receipts (excluding any revenue or customer cash
receipts which are applied towards satisfaction of the vesting condition attaching to the Tranche 1 Zepos; or automatic vesting in the event that DroneShield is subject to a takeover or other change of control
transaction. As there is no exercise price and no near-term expectations of dividends for DroneShield, the value of the option (excluding the impact of vesting conditions) determined using Black Scholes is
equivalent to the price of a DroneShield share. The value of the Options is based on the spot price of a DroneShield share on the date at which the options were issued. Based on the sales pipeline and existing
orders, management estimate that the options will vest within the expiry period. At this stage, the vesting period is assumed to be three years, which will be reviewed against updated pipeline and forecasts each
six months.
4 $1,499,197 relates to the vesting expense from options issued in prior periods, comprising option expense for Tranche 1 Zepos, Classes G, H, M and N (issued in 2018), and H (issued in 2016). Refer to 2018
Annual Report for details of options issued in prior periods.
5 During the year, limited-recourse loans were issued to certain employees and directors, where the company provided interest free loans for conversion of options previously issued by the company. In total,
9,575,000 options were converted into ordinary shares, at an exercise price of $0.30. The loans are due for repayment by September 2024. The loans are non-recourse except against the shares issued on
exercise of the options and are held by the participant to which the loan relates. Non-recourse loans issued are treated as a modification of the option under the Accounting Standards. No additional expense
has been recognised in relation to these modifications.
60
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
9. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
31 December
2020
$
31 December
2019
$
4,158,819
3,699,919
1,906,555
3,578,445
Total cash and cash equivalents
7,858,738
5,485,000
The cash and cash equivalents at the end of the year in the Consolidated Statement of Cash Flows include term deposits of
$8,430,034 (Note 12).
10. Trade and other receivables
Trade receivables
Deferred sales proceeds (see Note 16)
Prepayments
2,669,714
816,438
224,342
602,942
732,095
246,395
Total trade and other receivables
3,710,494
1,581,432
Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the
reporting period for which the Group has not recognised a provision for expected credit loss because there has not
been a significant change in credit quality and the amounts are still considered recoverable.
Age of receivables that are past due but not impaired.
60 – 90 days
>120 days
-
2,363,746
-
601,753
Payment for hardware sales and subscription services are due from the customer as per the terms specified in the contract.
11. Inventories
Finished goods inventory at cost
Work in Progress
Total Inventory
12. Other investments
Term Deposits
Total Other investments
1,282,041
736,238
441,023
284,897
2,018,279
725,920
8,430,034
8,430,034
-
-
Term deposits have interest rates of 0.30% to 0.70% and mature in less than 12 months.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
61
13. Plant, equipment and intangible assets
Development
equipment
$
Demonstration
equipment
$
Office
equipment
$
Plant &
equipment
$
Vehicles
and
Trailers
$
Intangible
Assets
(software)
$
Total
$
Balance at 1 Jan 19
109,939
512,643
39,900
127,597
Additions
Disposals
Transfers from (to) other
fixed asset categories
Transfer from (to)
inventory
Depreciation/amortisation
Exchange differences
407,048
-
(288,447)
231,082
(43,857)
278,672
122,188
(3,244)
9,775
258,000
-
-
(10,903)
(128,409)
6,566
-
-
-
(424,347)
2,580
(52,358)
282
(33,697)
-
Balance at 31 Dec 19
217,637
428,364
123,109
351,900
-
-
-
-
-
-
-
-
16,172
806,251
29,086
-
-
1,047,404
(47,101)
-
-
(132,746)
(7,626)
-
(518,028)
2,862
37,632
1,158,642
Additions
Disposals
Transfers from (to) other
fixed asset categories
Transfer from (to)
inventory
Depreciation/amortisation
Exchange differences
225,749
-
(128,426)
42,325
(23,780)
128,426
80,302
(6,943)
-
4,531
-
-
153,656
13,392
-
-
519,955
(30,723)
-
(185,246)
(76,028)
-
-
-
(261,274)
-
-
(317,994)
(6,066)
(80,355)
(810)
(81,775)
-
(3,239)
(11,428)
(10,818)
-
(494,181)
(18,304)
Balance at 31 Dec 20
129,714
175,247
115,303
274,656
138,989
40,206
874,115
Cost
$
Accumulated
Depreciation
$
Carrying Value
$
Development equipment
Demonstration equipment
Office equipment
Plant & Equipment
Vehicles and Trailers
Intangible Assets (software)
129,714
762,499
272,707
399,612
141,952
63,344
-
587,252
157,404
124,956
2,963
23,138
129,714
175,247
115,303
274,656
138,989
40,206
Balance at 31 December 2020
1,769,828
895,713
874,115
Development equipment
Demonstration equipment
Office equipment
Plant & Equipment
Intangible Assets (software)
217,637
1,003,180
212,275
395,081
49,952
-
574,816
89,166
43,181
12,320
217,637
428,364
123,109
351,900
37,632
Balance at 31 December 2019
1,878,125
719,483
1,158,642
62
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
14. Right-of-use asset
Balance at 1 January 2020
Additions
Depreciation
Impairment
Balance at 31 December 2020
31 December
2020
$
31 December
2019
$
427,579
-
-
(135,140)
(55,466)
541,829
(114,250)
-
236,973
427,579
The Group leases various assets including offices and storage units. The contractual lease terms range from 1 to 3 years.
The total cash outflow for leases, including short-term leases was $278,725.
The maturity analysis of lease liabilities is presented in Note 17.
Amounts recognised in profit and loss
Depreciation expense on right-of-use assets
Expense relating to short-term leases
Impairment expense on right-of-use assets
Interest expense on lease liabilities
15. Provisions
Employee entitlements
Other
Total provisions
16. Other liabilities
Accrued expenses
Deferred Revenue
-
-
Hardware sales
Subscription services
- Other revenue
Total other liabilities
17. Lease liabilities
Amounts due for settlement within 12 months
Amounts due for settlement after 12 months
Total lease liabilities
135,140
147,989
55,466
35,324
114,250
86,328
-
39,030
184,007
-
164,761
17,822
184,007
182,583
132,299
413,148
1,646,614
212,851
2,501
1,126,173
2,567
125,052
1,994,265
1,666,940
135,461
191,108
118,528
328,709
326,569
447,237
These liabilities were measured at the present value of the remaining lease payments, discounted using the weighted average
incremental borrowing rate of 9%.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
63
18. Borrowings
Unsecured borrowing at amortised cost
Insurance Premium Finance
Paycheck Protection Program Term Note
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
19. Contributed equity
31 December
2020
$
31 December
2019
$
21,136
128,860
32,707
-
149,996
32,707
107,043
42,953
32,707
-
No. of shares
(Note a)
$
Balance at beginning of period (1 January 2020)
252,462,135
21,012,607
Shares issued following options exercised during period (Note b)
Shares issued from Share Placement (Note c)
Shares issued from Share Purchase Plan (Note d)
Transaction costs in relation to Shares issued from Share Placement (Note e)
Repayment of limited recourse loan (Note f)
1,682,500
60,000,000
75,735,467
-
-
-
7,500,000
9,466,933
(867,038)
170,791
Balance at end of period (31 December 2020)
389,880,102
37,283,293
Note a:
The number of shares disclosed is the number of shares in DroneShield Limited.
Note b:
Note c:
Note d:
Note e:
Note f:
During 2020, 1,682,500 unlisted options were exercised by Directors and employees using the limited recourse loan
provided by the Company.
In August 2020, the Company issued 60,000,000 shares in a Share Placement. The issue price was $0.125 per
share and the total cash received from the placement of shares was $7,500,000.
In September 2020, the Company issued 75,735,467 shares in a Share Purchase Plan. The issue price was $0.125
per share, and the total cash received from the placement of shares was $9,466,933.
Included in transaction costs is $867,038 management, selling and success fees paid to brokers in relation to the
August 2020 Share Placement and September 2020 Share Purchase Plan.
During the 2019 year, limited-recourse loans were issued to certain employees and directors, where the company
provided interest free loans for conversion of options previously issued by the company into shares. The loans are
due for repayment by September 2024. The loans are non-recourse except against the shares issued on exercise of
the options and are held by the participant to which the loan relates. During 2020, $170,791 of this loan amount was
repaid.
64
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
20. Shares and options
Opening balances at 1 January 2020
August Share Placement
September Share Purchase Plan
Options exercised during the period
Options cancelled prior to vesting
Options cancelled after vesting
Options lapsed during the period
Options issued to Directors, Management and Employees
Number of Shares
Number of Unlisted
Options
252,462,135
60,000,000
75,735,467
1,682,500
-
-
-
-
48,751,450
-
-
(1,682,500)
(2,160,000)
(275,000)
(621,000)
4,700,000
Closing balance at 31 December 2020
389,880,102
48,712,950
Unlisted Options
4,700,000 Unlisted Options were issued to Directors, Management and employees during the year to 31 December 2020. These
Options are subject to various escrow and vesting conditions relating to length of employment with the Company and performance
of the Company. See Note 8 for further details.
21. Earnings (loss) per share
Basic earnings (loss) per share
(a)
Total basic earnings (loss) per share attributable to the ordinary equity
holders of the company
Dilutive earnings per share
(b)
Dilutive earnings (loss) per share attributable to the ordinary equity holders
of the company
Weighted average number of shares used as the denominator
(c)
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted earnings per share
Options
31 December
2020
$
31 December
2019
$
(0.02)
(0.04)
(0.02)
(0.04)
299,102,204
214,031,563
Unlisted Options on issue (refer to Note 20) are not included in the calculation of diluted earnings per share because they are
considered to be antidilutive for the period ended 31 December 2020. These options and shares could potentially dilute basic
earnings per share in future periods.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
65
22. Key Management Personnel disclosures and related party transactions
(a) KMP Compensation
Post-employment benefits
Salaries and fees
Share-based payments
Total KMP compensation
31 December
2020
$
31 December
2019
$
21,348
458,419
1,492,154
27,484
433,135
1,343,441
1,971,921
1,804,060
Detailed remuneration disclosures are provided in the Remuneration Report on pages 37- 43.
(b) Other transactions with related parties
During the financial year, the Group engaged the services of the following related parties on normal commercial terms and
conditions no more favourable than those available to other parties:
Sort Hub Pty Ltd, of which Jethro Marks is a Director, received payments totalling $168,048. Sort Hub Pty Ltd invoiced the
Company $310,563 for shipping of inventory globally during the year. At year end, $142,515 was owed to Sort Hub Pty Ltd.
The Company also entered into a short-term lease with Sort Hub Pty Ltd for a manufacturing facility. The lease ended prior to 31
December 2020, as the Company moved into its current larger combined office, R&D and manufacturing facility in central Sydney.
The Group paid $22,685 to lease the premises of which $12,992 was paid during the year. At year-end $9,693 was owed to Sort
Hub Pty Ltd.
23. Parent entity financial information
The individual financial statements for the accounting parent entity, DroneShield Limited, show the following aggregate amounts:
Statement of financial Position
Current assets
Non-current Assets
Total assets
Current liabilities
Non-Current Liabilities
Total liabilities
Net assets
Share Capital
Reserves
Accumulated losses
Total Equity
Loss for the year
Other comprehensive loss
Total comprehensive loss
23,593,483
958,614
24,552,097
2,061,681
191,108
2,252,789
11,530,659
1,492,904
13,023,563
1,908,507
328,709
2,237,216
22,299,308
10,786,347
35,960,746
7,777,980
(21,439,418)
22,299,308
19,690,060
6,157,367
(15,061,080)
10,786,347
(7,282,426)
(6,921,043)
-
-
(7,282,426)
(6,921,043)
DroneShield LLC, DroneShield Corporation Pty Ltd and DroneShield UK Limited are all legal subsidiaries of DroneShield Limited
and are 100% owned by DroneShield Limited.
66
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
24. Financial risk management
The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable and inter-entity loans.
The Directors’ overall risk management strategy seeks to assist the Group in meeting its financial targets whilst minimising
potential adverse effects on financial performance.
Credit risk
With respect to credit risk arising from other financial assets, which comprise cash and cash equivalents, trade and other
receivables and other investments, the Company’s exposure to credit risk arises in the form of default of the counter party, with a
maximum exposure equal to the carrying amount of these instruments. Management has considered impairment, with none noted
at 31 December 2020.
Since the Company trades only with recognised parties, there is no requirement for collateral security.
The maximum exposure to credit risk at the balance date is as follows:
Cash and cash equivalents
Other investments
Trade and other receivables
Liquidity risk
31 December
2020
$
31 December
2019
$
7,858,738
8,430,034
3,486,152
5,485,000
-
1,335,037
The Company’s policy is to maintain a comfortable level of liquidity through the continual monitoring of actual and forecast cash
flows and the maturity profile of term deposits, and the raising of additional capital as required.
Foreign exchange risk
The Company operates from Australia, UK and the U.S., and accordingly transactions currently occur in a mix of AUD, GBP and
USD. Cash and cash equivalents used to fund working capital are held in USD and AUD bank accounts.
Transactional currency exposures arise from sales or purchases in currencies other than the Company’s functional currency. For
example, the Company is exposed to transactional exposure in respect of non-functional currencies on foreign currency
denominated sales contracts entered into by DroneShield Limited in Australia.
Additionally, the Company is exposed to foreign currency exchange risk when capital is raised in AUD and transferred to the U.S.
entity. The Company closely monitors foreign currency movements at such times but does not use hedging instruments to manage
such risk.
Foreign currency denominated financial assets and liabilities which expose the Company to currency risk are disclosed below.
The amounts shown are translated into AUD at the closing rate.
Cash
Trade and other receivables
Total Financial assets
Borrowings
Other liabilities
Provisions
Trade and other payables
Total Financial liabilities
31 December
2020
$
31 December
2019
$
904,325
2,389,702
3,294,027
(128,860)
(6,895)
(16,162)
(450,146)
(602,063)
19,370
1,020,740
1,040,110
-
(277,063)
(64,009)
(197,770)
(538,842)
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
67
Foreign exchange risk
The following table, expressed in AUD, indicates DroneShield’s sensitivity to movements in exchange rates on the profit or loss,
based on the AUD strengthening/ weakening against the USD by 10%:
+ 10%
- 10%
31 December
2020
$
31 December
2019
$
(244,596)
299,264
143,103
(762,258)
Exposure to foreign currency varies during the year depending on the volume of transactions. Nonetheless, the analysis above
is considered to be representative of the Group’s exposure to currency risk.
Financial instrument composition and maturity analysis
The table below reflects the undiscounted contractual settlement terms for financial liabilities.
Contractual maturities of
financial liabilities
As at 31 December 2019
Trade and other payables
Borrowings
Lease Liabilities
Accrued Expenses
Less than 6
months
$
6-12
Months
$
Between 1
and 2 years
$
Between 2
and 5 years
$
Total
contractual
cash flows
$
Carrying amount
(assets)/
liabilities
$
397,993
27,017
56,947
413,148
-
5,690
61,582
-
-
-
135,260
-
-
-
193,448
-
397,993
32,707
447,237
413,148
397,993
32,707
447,237
413,148
Total
895,105
67,272
135,260
193,448
1,291,085
1,291,085
As at 31 December 2020
Trade and other payables
Borrowings
Lease Liabilities
Accrued Expenses
Total
25. Contingent liabilities
884,363
59,900
65,643
132,299
-
47,143
69,818
-
-
42,953
152,985
-
-
-
38,123
-
884,363
149,996
326,569
132,299
884,363
149,996
326,569
132,299
1,142,205
116,961
195,938
38,123
1,493,227
1,493,227
A former supplier of the Group (“the plaintiff”) has filed a civil lawsuit against the Group for alleged breaches of contract and
misappropriation of trade secrets. As the plaintiff has not provided all evidence to court, it is not practical to provide an estimate
of the financial effect of this matter. However, based on legal advice received, the directors consider that:
-
-
the plaintiff does not have a case; and
there is a low likelihood that the Group will incur any material adverse financial effect.
26. Commitments
At 31 December 2020, contractual agreements existed to pay suppliers $1,577,947 for the manufacturing of inventory to deliver
on orders received. (2019: $873,482).
68
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
27. Remuneration of auditor
During the year, the following fees were paid or payable for services provided by the auditor, HLB Mann Judd Assurance (NSW)
Pty Limited and its related practices:
Audit and assurance services
Taxation services
31 December
2020
$
31 December
2019
$
71,879
10,624
62,106
12,168
Total Auditor’s remuneration
82,503
74,274
28. Segment information
The Group operates in one operating segment, being the development and commercialisation of hardware and software
technology for drone detection and security.
This operating segment is monitored by the Group’s chief operating decision maker and strategic decisions are made on the basis
of adjusted segment operating results. The chief operating decision maker of the Group is the CEO.
The following tables present certain information regarding geographical segments for the years ended 31 December 2020 and 31
December 2019.
Segment performance
31 December 2020
USA
$
UK
$
Australia
$
Elimination
$
Total
$
Hardware sales including shipping income
-
-
direct sales
distributors
Subscription services
-
-
direct sales
distributors
Services Revenue
-
-
direct sales
distributors
Total revenue from sales
Other revenue
Total revenue
Depreciation
Loss after income tax expense
Assets and liabilities
Segment assets
Segment liabilities
538,950
-
-
1,782
19,204
-
559,936
21,891
581,827
-
-
389,188
3,930,418
-
-
-
-
-
-
-
15,000
-
114880
16,455
4,465,941
509,968
4,975,909
(75,282)
(1,058,304)
(1,447)
(173,784)
(546,079)
(4,634,902)
-
-
-
-
-
-
-
-
-
-
-
928,138
3,930,418
15,000
1,782
134,084
16,455
5,025,877
531,859
5,557,736
(622,808)
(5,866,990)
316,363
4,753
30,652,468
(7,844,951)
23,128,633
(6,287,972)
(309,516)
(4,786,663)
7,844,951
(3,539,200)
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
69
28. Segment information continued
Segment performance
31 December 2019
USA
$
UK
$
Australia
$
Elimination
$
Total
$
Hardware sales including
shipping income
-
-
direct sales
distributors
Subscription services
distributors
-
Services Revenue
-
-
direct sales
distributors
Total revenue from sales
Other revenue
Total revenue
Depreciation
Loss after income tax
expense
Assets and liabilities
Segment assets
Segment liabilities
Information about major customers
-
-
1,699
-
-
1,699
-
-
-
-
-
-
421,878
423,577
(185,843)
(1,532,336)
271,060
271,060
(929)
(136,365)
1,455,441
1,759,655
-
27,889
44,801
3,287,786
230,654
3,518,440
(445,506)
(6,026,379)
-
-
-
-
-
-
(692,462)
(692,462)
-
-
1,455,441
1,759,655
1,699
27,889
44,801
3,289,485
231,130
3,520,615
(632,278)
(7,695,080)
119,754
(5,028,165)
7,230
(150,227)
14,319,225
(2,616,704)
(5,067,636)
5,067,636
9,378,573
(2,727,460)
The following chart presents certain information regarding customers/distributors who contributed 10 per cent or more to the
Group’s revenue for the years ended 31 December 2020 and 31 December 2019.
2020
Revenue
30%
10%
25%
35%
2019
Revenue
17%
17%
18%
48%
Australian Government Department of Defence
Australian Government Department of Defence
Middle Eastern Ministry of Defence
European Ministry of Defence
Other
BT
Middle Eastern Ministry of Defence
Other
70
DroneShield Limited | 2020 Annual Report
Notes to the Financial Statements continued
29. Reconciliation from loss after income tax to net cash outflow from operating activities
Operating loss for the year after tax
Bad debts
Depreciation
Effects of foreign currency translation
Interest income on cash deposits
Inventory impairment expense
Loss on disposal of fixed asset
Provisions
Right-of-use asset impairment
Share option expense
Transaction costs related to loans and borrowings
Change in operating assets and liabilities
Decrease/(Increase) in trade and other receivables
(Increase) in inventory
(Decrease)/increase in trade and other payables
(Decrease)/increase in other liabilities
31 December
2020
$
31 December
2019
$
(5,866,990)
-
622,808
509,168
(23,657)
20,606
30,723
1,424
55,466
2,524,702
12,000
(2,066,772)
(1,292,359)
486,371
326,940
(7,695,080)
35,516
632,278
73,872
(35,702)
40,000
41,262
88,516
-
1,752,177
155,580
(291,742)
(83,417)
213,677
73,582
Net cash flows from (used in) operating activities
(4,659,570)
(4,999,481)
30. Impact of COVID-19
During March 2020, COVID-19 was declared a pandemic by the World Health Organisation and has had a significant
impact on domestic and global markets and economies. The impact of the COVID-19 pandemic, which continues to evolve
on a daily basis, has significantly affected market volatility, exchange rates, supply chains, consumer demand, liquidity and
credit conditions and unemployment rates and in a bid to curtail the spread of COVID-19, travel, trade and social restrictive
measures have been imposed by the Australian Government.
The majority of the Group’s customers are Military and Government agencies which have remained substantially unaffected
by COVID-19, thereby reducing the project pipeline exposure of DroneShield. Whilst there were delays in some customer
procurement processes, there were no cancellations of any customer orders for DroneShield’s products, nor did any
potential customer decline to purchase the Company’s products.
While there were some delays in the supply chain process, these delays were substantially resolved, resulting in no
material impact on the manufacturing process.
In response to the COVID-19 pandemic, the Group had initially decreased its operating expenditure including employee
payroll, and requested and received a partial deferral, for 6 months, of the Sydney office rental expense. The Group also
applied for and received government assistance including the JobKeeper scheme, payroll tax relief and ATO cashflow
boost in Australia and Paycheck Protection Program in the USA. Following the $7.5 million capital raise via a Share
Placement, and $9.47 million capital raise via a Share Purchase Plan, the Company commenced growing the business
and increasing operating expenditure again, to pursue emerging customer opportunities.
The Directors are managing and monitoring the Group’s operations closely in response to COVID-19 which continues to
evolve on a daily basis. The extent of the impact COVID-19 may have on the Group’s future financial performance and
position is currently not known given the degree of uncertainty in the current climate.
Notes to the Financial Statements continued
DroneShield Limited | 2020 Annual Report
71
31. Events after the reporting date
No matter or circumstance has arisen since 31 December 2020 which has significantly affected or may significantly affect:
•
•
•
The Group’s operations in future financial years; or
The results of those operations in future financial years; or
The Group’s state of affairs in future financial years.
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DroneShield Limited | 2020 Annual Report
Directors’ Declaration
1.
In the opinion of the Directors:
(a)
the consolidated financial statements and notes set out on pages 45 to 71 are in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its
performance for the financial year ended on that date; and
complying with Australian Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements; and
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable.
2. The notes to the consolidated financial statements include a statement of compliance with International Financial
Reporting Standards.
3. The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer for the
year ended 31 December 2020 required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Peter James
Independent Non-Executive Chairman
Sydney, NSW
25 February 2021
DroneShield Limited | 2020 Annual Report
73
Independent Auditor’s Report
Independent Auditor’s Report to the Members of DroneShield Limited
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
Opinion
We have audited the financial report of DroneShield Limited (“the Company”) and its controlled entities (“the
Group”), which comprises the consolidated statement of financial position as at 31 December 2020, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the
financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(a)
giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial
performance for the year then ended; and
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of the Group in accordance with the auditor independence requirements
of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to
our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial report of the current period. These matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. We have determined the matters described below to be the key audit matters to be
communicated in our report.
Key Audit Matter
How our audit addressed the key audit matter
Revenue recognition (Note 3)
The Group recognised total revenue from sales of
$5,025,877 during the year ended 31 December
2020 (2019: $3,289,485).
reviewed management’s
We
recognition
accounting policy to assess whether it complied with AASB
15.
revenue
We focussed on this area as a key audit matter due
to the judgements involved in applying AASB 15
Revenue from Contracts with Customers.
We reviewed a sample of revenue items recorded during
the year and reviewed contracts and other documentation
in relation to these to assess whether revenue recognised
was in accordance with the requirements of AASB 15.
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DroneShield Limited | 2020 Annual Report
Key Audit Matter
How our audit addressed the key audit matter
We also reviewed disclosures in the financial statements
to assess whether these were in accordance with AASB
15.
We reviewed the cost of these items by agreeing a sample
to purchase invoices.
We assessed whether
the
equipment was in accordance with accounting standards.
to capitalise
the policy
We discussed with management its plans to generate
sales, and obtained sales forecasts prepared to identify if
any impairment indicators existed.
We reviewed sales made during the year to assess if any
impairment indicators existed.
We reviewed the useful life of these assets.
We enquired of management whether there was any
indication that the technological advances would indicate
that the items capitalised were obsolete.
We reviewed the valuation of the options, and the
methodology used. We also reviewed the key assumptions
in the valuation.
We assessed whether the Group’s disclosures met the
requirements of accounting standards.
Capitalised demonstration equipment (Note 13)
At 31 December 2020, the Group held
demonstration equipment with a carrying value of
$175,247 (2019: $428,364).
We focussed on this area as a key audit matter due
to the judgement used by management in preparing
its assessment of impairment.
Valuation of share options (Note 8)
The Company issued a number of share options to
directors and management.
The fair value of the options at grant date was
determined by management, and used to account
for the options.
The key assumptions used in determining the fair
value of the options are set out in Note 8 to the
financial statements.
We focused on this area as a key audit matter due
to the judgement involved in assessing the fair value
of the options.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 31 December 2020, but does not include the financial
report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
DroneShield Limited | 2020 Annual Report
75
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have
no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
•
•
•
•
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
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DroneShield Limited | 2020 Annual Report
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
REPORT ON THE REMUNERATION REPORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 37 to 43 of the directors’ report for the year
ended 31 December 2020.
In our opinion, the Remuneration Report of DroneShield Limited for the year ended 31 December 2020
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
HLB Mann Judd Assurance (NSW) Pty Ltd
Chartered Accountants
A G Smith
Director
Sydney, NSW
25 February 2021
DroneShield Limited | 2020 Annual Report
77
Shareholder Information
Holdings distribution at 24 February 2021
Holding Ranges
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - over
Total
Holders
123
2,238
1,596
3,303
584
7,844
Total Shares
22,549
7,619,283
12,648,491
115,342,546
254,247,233
389,880,102
% Issued Share Capital
0.01%
1.95%
3.24%
29.58%
65.21%
100.00%
The shareholders are entitled to one vote for each share held.
Twenty largest shareholders at 24 February 2021
Position Holder Name
Shares Held % Issued Share Capital
BNP PARIBAS NOMINEES PTY LTD
BETA GAMMA PTY LTD
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
S R BENNETT PTY LTD
CS THIRD NOMINEES PTY LIMITED
Oleg Vornik
Peter James
MR RICHARD GUY DARLING
AZOTH LLC
MR HEIN VICTOR GRAAFHUIS
MR VOLODYMYR YATSYNA
SOIRHU PTY LTD
WRITEMAN PTY LIMITED
BRISPOT NOMINEES PTY LTD
UBS NOMINEES PTY LTD
BLACKWOOD CONSULTING PTY LTD
DR DONALD LIU & MRS WENDY YAO
MR ADAM O'DONNELL FERRIS
MR DAVID PHILLIP RICKARDS & MRS KERRY ANNE RICKARDS
ROSSBEL PTY LIMITED
MR WARWICK VERNON BOYD
MIGHTYBOY PTY LTD
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
19
19
19
20
Total
Balance of register
Total issued capital
32,165,384
21,500,000
12,635,134
10,311,250
5,717,538
5,424,989
4,370,022
3,452,522
2,294,729
2,250,000
1,700,000
1,500,000
1,282,362
1,249,587
1,236,549
1,166,823
1,139,240
1,046,000
1,000,000
1,000,000
1,000,000
1,000,000
999,587
115,441,716
274,438,386
389,880,102
8.25%
5.51%
3.24%
2.64%
1.47%
1.39%
1.12%
0.89%
0.59%
0.58%
0.44%
0.38%
0.33%
0.32%
0.32%
0.30%
0.29%
0.27%
0.26%
0.26%
0.26%
0.26%
0.26%
29.61%
70.39%
100.00%
The number of unquoted equity securities on issue as at 31 December 2020 was 48,712,950, held by 33 holders.
1012 holders held less than a marketable parcel of DRO securities, based on the closing market price as at 31 December
2020 of $0.17.