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2023 ReportAppendix 4E
For the year ended 31 December 2022
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 2022.
The previous corresponding period was the year ended 31 December 2021.
Results for announcement to the market
Revenue from continuing activities
Up/
Down
Up
%
Movement
59%
Loss from continuing activities after tax attributable to members
Down
82%
Net loss attributable to members
Down
82%
2022
$
16,886,081
(949,301)
(949,301)
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:
31 December 2022: $0.04; 31 December 2021: $0.04
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 2022
Image: DroneShield customer order ready for dispatch
DroneShield Limited (ASX:DRO)
ASX Release
ABN 26 608 915 859
DroneShield Limited | 2022 Annual Report 1
Table of Contents
Corporate Information ......................................................................................................................................................... 2
Chairman’s Review ............................................................................................................................................................. 3
About DroneShield .............................................................................................................................................................. 4
Board of Directors and Executives ...................................................................................................................................... 7
Corporate Governance Statement ...................................................................................................................................... 9
Directors’ Report ............................................................................................................................................................... 19
Directors’ Report- Remuneration Report (audited) ............................................................................................................ 24
Auditor’s Independence Declaration ................................................................................................................................. 31
Consolidated Statement of Profit or Loss and Other Comprehensive Income .................................................................. 32
Consolidated Statement of Financial Position ................................................................................................................... 33
Consolidated Statement of Changes in Equity .................................................................................................................. 34
Consolidated Statement of Cash Flows ............................................................................................................................ 35
Summary of Significant Accounting Policies .......................................................................................................... 36
1.
Critical accounting judgements, estimates and assumptions ................................................................................. 42
2.
Revenue................................................................................................................................................................. 43
3.
Other income ......................................................................................................................................................... 43
4.
Product development expense ............................................................................................................................... 44
5.
Sales and customer service expense .................................................................................................................... 44
6.
Corporate and support expense ............................................................................................................................. 44
7.
Corporate governance expense ............................................................................................................................. 44
8.
Options issued ....................................................................................................................................................... 45
9.
Income taxes relating to continuing operations ...................................................................................................... 47
10.
Cash and cash equivalents .................................................................................................................................... 47
11.
Trade and other receivables .................................................................................................................................. 47
12.
13.
Inventories ............................................................................................................................................................. 48
14. Other investments .................................................................................................................................................. 48
Plant, equipment and intangible assets ................................................................................................................. 49
15.
Right-of-use asset .................................................................................................................................................. 50
16.
17.
Provisions .............................................................................................................................................................. 50
18. Other liabilities ....................................................................................................................................................... 50
Lease liabilities ....................................................................................................................................................... 51
19.
Borrowings ............................................................................................................................................................. 51
20.
Contributed equity .................................................................................................................................................. 51
21.
Shares and options ................................................................................................................................................ 52
22.
Earnings (loss) per share ....................................................................................................................................... 52
23.
Key Management Personnel disclosures and related party transactions ............................................................... 53
24.
Parent entity financial information .......................................................................................................................... 53
25.
Financial risk management .................................................................................................................................... 54
26.
Contingent liabilities ............................................................................................................................................... 55
27.
Commitments ......................................................................................................................................................... 55
28.
Remuneration of auditor ........................................................................................................................................ 56
29.
Segment information .............................................................................................................................................. 56
30.
Reconciliation from loss after income tax to net cash outflow from operating activities ......................................... 58
31.
32.
Events after the reporting date ............................................................................................................................... 58
Directors’ Declaration ........................................................................................................................................................ 59
Independent Auditor’s Report ............................................................................................................................................ 60
Shareholder Information .................................................................................................................................................... 64
2
DroneShield Limited | 2022 Annual Report
Corporate Information
Directors & Management
Solicitors
Peter James Independent Non-Executive Chairman
Jethro Marks Independent Non-Executive Director
Oleg Vornik CEO and Managing Director
Registered Office
Level 5, 126 Phillip Street
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 5,10 Shelley 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
Baker & McKenzie LLP
452 Fifth Avenue
New York NY 10018
United States of America
K&L Gates
1601 K Street, NW
Washington DC 20006
United States of America
MinterEllison
Level 11 Constitution Place
1 Constitution Avenue
Canberra City ACT 2601
Australia
Steinepreis Paganin
16 Milligan Street
Perth WA 6000
Australia
Share Registry
Automic Registry Services
Level 5, 126 Phillip St
Sydney, NSW 2000
Australia
Enquiries (within Australia): 1300 288 664
Enquiries (outside Australia): +61 2 9698 5414
Stock Exchange Listing
DroneShield Limited (ASX code DRO) shares are quoted
on the Australian Securities Exchange.
Chairman’s Review
DroneShield Limited | 2022 Annual Report
3
Dear Fellow Shareholders,
2022 has seen DroneShield Ltd (“DroneShield” or the “Company”) produce another leap in
results, with 2023 shaping to be a truly transformational year for the business.
Highlights for 2022 and 2023 to date included:
Peter James,
Independent Non-
Executive Chairman
•
2022 Revenue of $16.9 million (in addition to R&D incentives and other grants). This is an
approximately 60% increase on 2021 revenues, and continues the trend of the Company
generating record revenues each year of its existence.
$15.6 million of 2022 cash receipts, another all-time record.
•
• Record $11 million order received in December followed by another $11 million order from
a different Government customer in January 2023, as well as numerous smaller contracts.
• Strong bank balance of approximately $22 million as of date of this report, including
completion of $10.9 million placement this month, which received exceptional institutional
investor support.
• Record $24 million contract backlog at the start of the year, and a strong sales pipeline with
over $200 million1 in active project discussions for 2023 opportunities (risk unweighted).
• Substantial tailwinds for the defence industry with growing geopolitical tensions, with an
increase in Government spending in Australia and in other markets.
The Ukrainian war, where DroneShield has been deployed since the start in February 2022 on the Ukrainian side, has
clearly demonstrated the potential of drones and counterdrone systems on the battlefield, coupled with significant non-
military use cases for intelligence community, airports, prisons, border security, stadiums, and other facilities. Nefarious
use of drones is a global and rapidly rising threat, with DroneShield providing proven market leading suite of solutions,
directly and via its network of 100+ in-country partners globally.
DroneShield has continued to ramp up its mass production capabilities, across supply chain, inventory and deployment
aspects, with the goal of immediate or short-term fulfilment of customer orders, including anticipated record-size orders.
The Australian Government continues to strongly encourage the growth of the domestic defence industry. The current $3.9
million Electronic Warfare contract has been progressing well and a subsequent, larger, contract is expected in 2023.
The U.S. Government and military market is expected to be the single largest opportunity for DroneShield, being the largest
counterdrone customer in the world. During 2022, DroneShield continued to solidify its position in that market, led by its
Virginia office, securing both significant repeat sales to existing customers and adding new customers. The US business
is led by a seasoned ex-military veteran team, experienced in scaling US Government sales and the associated steps
towards larger purchases. The US DoD recommended DroneShield solutions for a rollout across its bases nationwide
during the year, as part of the SAIC consortium.
DroneShield continues to actively engage with strategic primes, including welcoming a $3.7 million investment from Epirus,
a defence technology unicorn based in California, developing software-defined directed energy systems. The counterdrone
industry continues to consolidate as it rapidly grows, as evidenced by Texas-based Highlander Partners acquiring Black
Sage, Liteye Systems and DZYNE, in the last 6 months. DroneShield is well-
positioned strategically in this environment.
At the macro level, international tensions and greyzone warfare (which C-UAS,
Electronic Warfare (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.
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.
Image: A security agent with
DroneGun Tactical next to the Rolls-
Royce used by President-elect Luiz
Inácio Lula da Silva at his inauguration
ceremony in Brasilia, on January 1,
2023
DroneGun at the Brazil Presidential
Inauguration in January 2023
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 | 2022 Annual Report
About DroneShield
DroneShield (ASX:DRO) provides Artificial Intelligence based platforms for protection against advanced threats such as
drones and autonomous systems. It offers customers bespoke counterdrone (or counter-UAS) and electronic warfare
solutions and off-the-shelf products designed to suit a variety of terrestrial, maritime or airborne platforms. The customers
include military, intelligence community, Government, law enforcement, critical infrastructure, and airports globally.
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 on a $20 million valuation in an oversubscribed
initial public offer (‘IPO’). In February 2023, its last capital raise, DroneShield raised $10.9 million via a placement.
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 and the United States, DroneShield has an experienced salesforce with distribution
partners across over 100 countries. The end-users of DroneShield’s products come from a diverse array of global sectors,
including the following:
Airports and other civil defence users.
- Defence and intelligence 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.
The main product range is as follows:
• 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
• Released in early 2018
• Existing sales globally
DroneGun TacticalTM
DroneGun MKIIITM
• Pistol shaped compact drone disruptor
• Best-in-breed effective range
• Released in mid-2019
• Only 2kg weight including battery
• Unique patented design
• Suitable for mobile deployments, patrols, law enforcement and special forces
• Existing sales globally
DroneShield Limited | 2022 Annual Report
5
• Body-worn drone detection device
• Best-in-breed detection range
• Can be used with a directional accessory (DAUTM) to determine direction of the
threat as well as vehicle kit
• Completely passive (no RF emissions)
• MKII version launched in mid-2020
• Deployments include global military and intelligence customers
• Receives quarterly software updates via a SaaS model
• 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 proprietary DroneSentry-C2TM counterdrone software
command-and-control engine
• The
camera
includes DroneOptIDTM, DroneShield proprietary AI
computervision software to detect and track drone targets
• Successfully deployed in multiple locations globally, in full or modular forms,
across military and Government customer base
• Receives quarterly software updates via a SaaS model
• Integrated detect-and-defeat counterdrone solution
• Best-in-breed detection and defeat range
• Deployable on a vehicle, ship or fixed site platforms
• Existing customers include US Government agencies and other Government
and military departments globally
• Receives quarterly software updates via a SaaS model
RfPatrol MKIITM
DroneSentryTM
DroneSentry-XTM
Underpinning all DroneShield’s detection products is the Company’s proprietary software engine RFAITM, with
quarterly software updates on a subscription basis.
The second subscription software product,
DroneSentry-C2TM,
the Company’s
is
Command-and-Control platform on
its
DroneSentryTM multi-sensor system. It 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. An optional additional module to
DroneSentry-C2TM is DroneOptIDTM, the
AI-based
optical/thermal
company’s
detection engine
Image: DroneSentry-C2TM
Artificial Intelligence R&D Defence Contracts
During the year, DroneShield progressed two R&D contracts with the Australian Department of Defence (DoD):
-
-
$3.8 million, 2-year contract in AI applied in Electronic Warfare domain (following on a $600,000, 6-month
contract in 2020) – due for completion mid-2023, with a larger follow-on contract expected on completion.
$800,000 1-year contract in AI applied in computervision domain with Defence Innovation Hub. The contract
was successfully completed at the end of 2022 and DroneShield is currently in discussions for a follow-up
contract.
Additional, and larger, contracts, are anticipated with the Australian DoD, as well as potentially the U.S. Department
of Defense.
6
DroneShield Limited | 2022 Annual Report
Revenue Model and Recurring Cashflows
DroneSentryTM, DroneSentry-XTM and RfPatrolTM products have a recurring revenue element which it charges for
RFAITM quarterly 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.
DroneSentry-C2TM, the command-and-control software for DroneShield and third-party sensors, is offered on a
subscription basis (via on-prem or secure cloud solution). Within that, DroneOptIDTM offers a third subscription product,
as an add-on to DroneSentry-C2TM.
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 is
currently shortlisted for a large U.S. Government “Counterdrone as a service” project, expected to be structured as a
long-term lease of its equipment. The tender result is expected to be known this year.
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 typically of a recurring nature, with repeat contracts following
initial successful deployments. DroneShield has received repeat customer orders globally on that basis.
Board of Directors and Executives
DroneShield Limited | 2022 Annual Report
7
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 and Halo Food Co. Most recently, Mr. James
was the chair of Nearmap, which was sold to Thoma Bravo (US private equity firm) for $1.06
billion, in December 2022.
Mr. James joined the Board of DroneShield on 1 April 2016. 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 Nile 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.
The Nile 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.
Matt McCrann; CEO, DroneShield LLC (USA)
Mr McCrann is an experienced business development executive, having previously built and led
business units for enterprises delivering innovative technology to military, intelligence, public
safety, and law enforcement communities worldwide. Mr McCrann brings to DroneShield more
than 15 years of experience in the Defense and National Security sector with significant roles
spanning Sales, Operations, and Engineering.
Mr McCrann has industry certifications and specialised training in RF and wireless
communications and is a member of numerous industry and government organisations
including; National Defense Industrial Association (NDIA), Armed Forces Communications and
Electronics Association (AFCEA), Association of the United States Army (AUSA), and American
Correctional Association (ACA).
8
DroneShield Limited | 2022 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
Mrs. Balanco is a member of Chartered Accountants Australia & New Zealand (CA ANZ). She
holds an Honours in Accounting from the University of Johannesburg and an Honours in
Accounting Science from the University of South Africa.
Mrs. Balanco started her career working for Chartered firms Crowe Horwath and HLB Mann
Judd in the audit division. She moved on from Chartered to gain experience working in
Commercial and Business Development roles.
Since joining DroneShield in 2018, she has spearheaded improvements to critical systems and
internal controls and has been instrumental in scaling the Company’s financial management
systems. Today, as CFO and Company Secretary, Mrs. Balanco oversees statutory reporting,
management reporting, payroll, treasury, administration, and compliance for the global
DroneShield Group of companies.
Mrs. Balanco was selected as a finalist in the 2021 ADM’s Women in Defence Awards and 2020
Australian Defence Industry Awards.
Lyle Halliday; Chief Operating Officer
Mr Halliday joined DroneShield as an experienced Systems Engineer in 2020 with a background
in medical device product development. Since then, he has taken his experience in risk
management, cybersecurity, requirements management, quality assurance and regulatory
compliance and applied this to business operations.
Mr Halliday is responsible for implementation of processes to ensure customer expectations are
met with respect to product quality, delivery and continuous improvement. His engineering
experience spans electrical, mechanical, manufacturing and software engineering, allowing him
to work across all aspects of business operations.
Mr Halliday is a University Medallist of the Australian National University where he studied a
Bachelor of Systems Engineering (Research and Development).
Tom Branstetter, U.S. Director of Business Development
Tom is a U.S. Navy veteran and former Navy SEAL. Upon separation from active duty in 2010,
he began work as a high-threat protective officer for the U.S. government.
Tom now serves as the Director of Business Development for DroneShield’s U.S. operations
focusing on overall growth across DoD and other federal agencies. Tom’s responsibilities
include identifying and developing new business opportunities as well as expanding brand
presence. Additional areas of focus include leading cross-functional teams and managing
existing partnerships.
Tom holds a Bachelor of Arts degree in Entrepreneurship. He and his family reside in Northern
Virginia.
DroneShield Limited | 2022 Annual Report
9
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
Shareholder Communications Strategy
Whistleblower Protection Policy
Anti-bribery and Anti-Corruption Policy
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 2022.
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
those matters expressly reserved to the
board and those delegated to management.
b)
Yes
for
things,
the corporate
The Board
responsible
is
governance of the Company.
The Company has adopted a Board Charter which
the specific
sets out, amongst other
the Board,
responsibilities of
roles and
the
the Chairman, Board and
responsibilities of
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
its Corporate
Governance Plan which is available on the Company’s
website at: https://www.droneshield.com/investors
is contained
in
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
the Board and
of
responsibilities between
10
DroneShield Limited | 2022 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)
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.
(c)
b.
c.
the measurable objectives set for
that period to achieve gender
diversity;
the entity’s progress towards
achieving those objectives; and
either:
(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.
Recommendation 1.6
Yes
Yes
Yes
Yes
No
N/A
N/A
Yes
management to ensure that the division of functions
remains appropriate to the needs of the Company.
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.
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
the Company Secretary. The
accountability of
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.
The Company has adopted a Diversity Policy which
identifies gender diversity as a key area of focus for
the Company. While the Company is committed to
gender diversity in its workplace, the Board believes
that the Company is not yet of a size where it is
appropriate
formal measurable
objectives for achieving gender diversity.
implement
to
Whilst the Board previously adopted a tiered approach
to the implementation, this approach has been
revisited given the stage of development that the
Company remains in. As the Company’s workforce
continues to grow, this will be re-assessed at the
appropriate times.
A copy of the Company’s Diversity Policy is contained
in its Corporate Governance Plan which is available
on
at:
https://www.droneshield.com/investors
Company’s
website
the
During the reporting period (i.e., the year ended 31
December 2022), the respective proportions of men
and women in the following roles were as follows:
Men
Women
Board
100%
Senior executives
75%
0%
25%
Across
organisation
the whole
81%
19%
Yes
The performance of the Board as a group and of
individual Directors will be assessed each year for all
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
DroneShield Limited | 2022 Annual Report
11
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)
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
at:
https://www.droneshield.com/investors.
the Company’s website
on
Given the small composition of the Board, the Board
will undertake an evaluation of the Board and
individual Director performance during FY23.
Yes
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
at:
https://www.droneshield.com/investors.
the Company’s website
on
A formal performance evaluation of senior executives
was undertaken during the 2022 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:
(i)
(ii)
has at least three members, a
majority of whom are independent
Directors; and
is chaired by an independent
Director,
and disclose:
(iii)
(iv)
(v)
the charter of the committee;
the members of the committee;
and
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
Yes
N/A
N/A
Yes
the Nomination Committee
Due to its size, the Board has determined that the
function of
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 at:
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.
Recommendation 2.2
A listed entity should have and disclose a board
skill matrix setting out the mix of skills and
Yes
The Board of the Company is comprised of Directors
with a broad range of technical, commercial, financial
12
DroneShield Limited | 2022 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
diversity that the board currently has or is looking
to achieve in its membership.
and other skills, experience and knowledge relevant to
overseeing the business of a drone security company.
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 or
relationship of the type described in Box
2.3 but the board is of the opinion that it
does not compromise the independence
of the Director, the nature of the interest,
position 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)
The Company had developed a Board Skills Matrix
which is used as a tool to assess the appropriate and
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 at:
https://www.droneshield.com/investors.
Yes
During the 2022 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.
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.
The Directors who held office during and after the
2022 financial year have served continuously since
respective dates of appointment unless
their
otherwise noted below:
- Mr. Peter James: appointed 1 April 2016;
- Mr. Oleg Vornik: appointed 24 January
2017; and
- Mr Jethro Marks: appointed 16 January
2020.
Recommendation 2.4
A majority of the board of a listed entity should
be independent directors.
Yes
The Board Charter requires that, where practical the
majority of the Board will be independent.
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
Yes
Yes
During the 2022 financial year, the following two of the
Company’s three 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
the
provision of a formal letter of appointment and an
induction package containing sufficient information to
includes
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
DroneShield Limited | 2022 Annual Report
13
to maintain the skills and knowledge needed to
perform their role as a Director effectively.
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
resources and professional
access
development training to address any skills gaps.
to various
Principle 3: Instil a Culture of acting Lawfully, Ethically and Responsibly
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
Yes
Yes
Yes
The Company’s values are disclosed in the Corporate
Code of Conduct which is contained in the Company’s
Corporate Governance Plan and available on the
Company’s website at:
https://www.droneshield.com/investors.
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
at:
https://www.droneshield.com/investors.
The Board is informed of any material breaches of the
Corporate Code of Conduct.
the Company’s website
on
The Company has adopted a Whistleblower Policy
which is contained in the Company’s Corporate
Governance Plan which is available on the Company’s
website at: https://www.droneshield.com/investors.
Clause 7 of the Whistleblower Policy provides that the
board is informed of any material incidents reported.
The Company has adopted an anti-bribery and anti-
corruption (ABC) policy which applies to all officers,
employees, and contractors who represent
the
Company.
The ABC policy is contained in the Company’s
Corporate Governance Plan which is available on the
Company’s website at:
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.
14
DroneShield Limited | 2022 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:
(a) have an audit committee which:
No
(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,
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.
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
(b) 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.
Yes
N/A
N/A
Yes
Yes
The Audit and Risk Committee Charter is contained in
the Company’s Corporate Governance Plan which is
available
at:
https://www.droneshield.com/investors.
the Company’s website
on
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.
full Board also assumes responsibility
for
The
recommendations
the
appointment and removal of the external auditor. Audit
partner rotations will be enforced in accordance with
the relevant guidelines.
to security holders on
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 | 2022 Annual Report
15
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
The Company has adopted a Continuous Disclosure
Policy which details the processes and procedures
which have been adopted by the Company to ensure
that
its continuous disclosure
obligations as required under the ASX Listing Rules
and other relevant legislation.
it complies with
The Company’s Continuous Disclosure Policy is
contained within
the Company’s Corporate
Governance Plan which is available on the Company’s
website at: https://www.droneshield.com/investors.
The Company Secretary ensures
is
provided with copies of all material market
announcements promptly after they have been made.
the Board
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 ASX (even if the
information in the presentation would not otherwise
require market disclosure).
The Company’s Continuous Disclosure Policy is
contained within
the Company’s Corporate
Governance Plan which is available on the Company’s
website at: https://www.droneshield.com/investors.
the
Shareholders can access
Company and
its
its governance
constitution and adopted corporate governance
policies)
website
https://www.droneshield.com/investors.
information about
(including
Company’s
from
the
The Company will regularly update the website and
contents therein as deemed necessary.
Recommendation 6.2
A listed entity should have an investor relations
program that facilitates effective two-way
communication with investors.
Yes
The Company has adopted a Shareholder
Communications Strategy which aims to promote and
facilitate effective
two-way communication with
investors.
is communicated
The Strategy outlines a range of ways in which
information
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 at: https://www.droneshield.com/investors.
16
DroneShield Limited | 2022 Annual Report
PRINCIPLES AND RECOMMENDATIONS
Recommendation 6.3
A listed entity should disclose how it facilitates
and encourages participation at meetings of
security holders.
COMPLY
(YES/NO)
Yes
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:
(a) have a committee or committees to
No
oversee risk, each of which:
(i)
has at least three members, a majority
of whom are independent Directors;
and
is chaired by an independent Director,
(ii)
and disclose:
(iii)
(iv)
(v) as at the end of each reporting period,
the number of times the committee
met throughout the period and the
the charter of the committee;
the members of the committee; and
Yes
N/A
N/A
EXPLANATION
in
on
the Company’s Shareholder
As noted above,
Communications Strategy
the
is contained
Company’s Corporate Governance Plan which is
available
at:
https://www.droneshield.com/investors. Shareholders
will be encouraged to participate at all general
meetings of the Company by written statement
to
contained
shareholders prior to each meeting.
in every Notice of Meeting sent
the Company’s website
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
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.
immediately prior
the ASX
to
to
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.
info@droneshield.com
Security holders can also register with the Company
at
receive email
notifications following the release of a material
announcement to the ASX.
to
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
website
Company’s
https://www.droneshield.com/investors.
the
on
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
DroneShield Limited | 2022 Annual Report
17
individual attendances of the
members at those meetings; or
(b) 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.
Yes
Recommendation 7.2
The board or a committee of the board should:
No
(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.
N/A
Yes
Yes
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1
The board of a listed entity should:
(a) have a remuneration committee which:
No
(i)
(ii)
has at least three members, a
majority of whom are independent
Directors; and
is chaired by an independent
Director,
and disclose:
(iii)
(iv)
(v) 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
the charter of the committee;
the members of the committee; and
(b) if it does not have a remuneration
committee, disclose that fact and the
processes it employs for setting the
level and composition of remuneration
Yes
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
internal
compliance and control procedures.
framework and associated
The Board, in carrying out the duties typically
assigned to the Audit and Risk Committee under the
Audit and Risk Committee Charter, will undertake 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
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.
that
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).
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.
Yes
N/A
N/A
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
at:
https://www.droneshield.com/investors.
the Company’s website
on
18
DroneShield Limited | 2022 Annual Report
PRINCIPLES AND RECOMMENDATIONS
COMPLY
(YES/NO)
EXPLANATION
for Directors and senior executives and
ensuring that such remuneration is
appropriate and not excessive.
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.
Yes
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.
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 at:
https://www.droneshield.com/investors.
information
Further
practices of
Remuneration Report on pages 24 to 30.
the Company
regarding
the
is contained
remuneration
the
in
Recommendation 8.3
A listed entity which has an equity-based
remuneration scheme should:
Yes
(i) 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
(ii) disclose that policy or a summary of it.
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.
in accordance with
Further,
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.
issue of securities
During the 2022 financial year, the Board of the
Company authorised
to
the
employees under its 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
participating in the scheme.
the economic
risk of
limit
The Company’s policy in this regard is set out in 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 at: 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
at:
https://www.droneshield.com/investors.
the Company’s website
on
DroneShield Limited | 2022 Annual Report
19
Directors’ Report
Your Directors present their report for DroneShield Limited (the “Company”) and its controlled entities (“the Group”) for the
year ended 31 December 2022.
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 7 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.
Meetings of Directors
Name
Meetings eligible to attend
Meetings attended
Directors
Peter James
Oleg Vornik
Jethro Marks
12
12
12
12
12
12
20
DroneShield Limited | 2022 Annual Report
Review of Operations and Financial Results
The Company recorded another record results year by a substantial margin, with revenues up 59% to $16.9 million, while
cash receipts from sales and grants have risen to $15.6 million, as the counterdrone industry continues to rapidly grow and
defence and security budgets rise with an increasing uncertainty globally, underscored by the Ukraine war.
DroneShield has also continued to rapidly improve its bottom-line, closing the 2022 year with a net P&L of only ($949k) –
an 82% improvement over previous year, as the Company continues rapid trajectory to profitability.
This performance has continued a string of record years for the business since its listing in 2016. The closing cash and
term deposits balance as at 31 December 2022 was $10.3 million. Approximate bank balance as of the date of this report
is $20.5 million, providing a strong base for working capital acquisition for rapid order fulfilment.
Highlights during the year have included:
• Record $11 million order received in December followed by another $11 million order from a different Government
customer on 9 January 2023, as well as numerous smaller contracts. The Ukraine situation continues to drive the
requirement for counterdrone equipment, following initial successful sale of the Company’s equipment to Ukraine at
the start of the war. Importantly, this is expected to be a permanent increase in requirement, to be sustained after the
Ukraine war ends, as militaries and Government agencies around the world are seeking to establish inventory of
counterdrone systems, usually from little or no existing stock of such systems.
• Entering 2023 with a record order backlog of $24 million in cash receipts (committed contract payments due to be paid
this year), and a $200 million+2 in sales pipeline.
• Recommendation by the Joint Counter-small Unmanned Aircraft Systems Office (JCO) for a rollout across US
Department of Defense nationwide, expected to commence this year.
• Successful completion of $800k Australian DoD Defence Innovation Hub project.
• Selection for the Australian DoD Intelligence, Surveillance, Reconnaissance and Electronic Warfare (ISREW) Standing
Panel, exposing DroneShield to a number of additional opportunities in those sectors.
• Collaboration agreement with The Australian Missile Corp Corporation (AMC), as the $1bn Guided Weapons and
Explosive Ordnance (GWEO) enterprise enters the next phase.
• Successful completion of a key Canadian military exercise.
• SBIR project awarded by US DoD with partner Quantum Research International.
•
Initial paid US civilian airport deployment – a reference case and pathway to further sales.
• 5-year Contract Framework with the State of Texas, enabling a more streamlined purchasing process.
•
Initial U.S. General Services Administration (GSA) order to a Homeland Security agency for a DroneSentryTM variant.
• Paid permanent deployment at a major tier 1 airport in Asia-Pacific, and selection as a short-listed tendered for a major
nation-wide deployment in another Asia-Pacific country.
• $3.7 million investment from Epirus Inc in November, a high-growth U.S. defense technology company developing
software-defined directed energy systems.
2 Necessarily, not all (and there can be no assurance that any) of the Company’s sales opportunities will result in sales.
DroneShield Limited | 2022 Annual Report
21
• Deployment by Swiss Police for protection of Davos 2022.
• Deployment at IRONMAN Texas 2022.
• New partnership XRG, for Extended Reality C-UAS training, as well as partnerships with Nearmap, Trakka, and a
further collaboration strengthening with Thales.
• Launch of a dedicated testing facility in Australia.
• High-profile DroneGun deployment at Brazil presidential inauguration (held in early January 2023).
• Participation at a number of industry events as the world starts to re-open following the pandemic, including Global
SOF (Special Operator Forces) event in Budapest, Army USA (AUSA) in Washington DC and Land Forces in Brisbane.
• Continued move to a SaaS model, via three subscription products:
- Quarterly updates to Artificial Intelligence (AI) engine software running on hardware of RfPatrolTM,
DroneSentry-XTM and RfOneTM.
- Quarterly firmware updates to the camera AI engine DroneOptIDTM.
- DroneSentry-C2TM Command-and-Control and analytics software.
• Reaching UK MOD SAPIENT compliance.
• Commencement of Sydney-based manufacturing of drone smart jammers, following receipt of the first exemption permit
of its kind to undertake advanced testing and manufacturing of the Company’s Electronic Warfare and counterdrone
portfolio in Australia by the Australian Communications and Media Authority (ACMA), the regulator of the
communications spectrum nationally. This permit accelerates the development and optimisation of advanced Artificial
Intelligence-powered electronic warfare and counter-terrorism technologies here in Australia.
22
DroneShield Limited | 2022 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 2022.
Significant Events after the Balance Date
Subsequent to 31 December 2022, the following occurred;
-
-
-
In January 2023, the Company received a new purchase order for approximately $11 million from a government
agency customer.
In February 2023, the Company issued 36,266,666 shares in a share placement. The issue price was $0.30, and
the total cash received from the placement of shares was $10,880,000. Under the terms of the Placement, brokers
participating in the Placement will receive a commission on the funds raised.
As of close of 28 February 2023, the Company will be admitted into the MSCI Global Micro Cap Index.
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 (2021: $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.
DroneShield Limited | 2022 Annual Report
23
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 29 of 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 31.
24
DroneShield Limited | 2022 Annual Report
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.
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.
DroneShield Limited | 2022 Annual Report
25
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.
Executive Director
Oleg Vornik
Executive Director,
Managing Director and CEO
Appointed as CEO and Managing Director 24 January 2017.
26
DroneShield Limited | 2022 Annual Report
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)
(b)
Other changes
during the year
(Number)
Balance at
31 December
2022
(Number)
Opening balance
(Number)
10,052,522
583,333
132,500
83,333
(883,334)
9,301,688
-
666,666
16,827,022
250,000
(1,766,666)
15,310,356
27,462,877
465,833
(2,650,000)
25,278,710
31 December 2022
Non-Executive Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik
Total
Notes
(a) The options exercised during the year were exercised at $0.65 per share, using a limited recourse loan provided
by the Company. The loan is interest free and due for repayment by 18 March 2027. The loan is non-recourse
except against the shares issued on exercise of the options and are held by the Directors.
(b) Shares sold during the year to cover tax liability associated with vesting of DroneShield options.
(a)
Received during the
year on exercise of
options
(Number)
(b)
Other changes
during the year
(Number)
Balance at
31 December
2021
(Number)
Opening balance
(Number)
3,452,522
83,333
6,600,000
500,000
-
-
10,052,522
583,333
4,370,022
12,400,000
57,000
16,827,022
7,905,877
19,500,000
57,000
27,462,877
31 December 2021
Non-Executive Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik
Total
Notes
(a) The options exercised by Jethro Marks during the year were exercised at $0.25 per share, using a limited
recourse loan provided by the Company. The loan is interest free and due for repayment by June 2026. The
loan is non-recourse except against the shares issued on exercise of the options and are held by Jethro Marks.
The options exercised by Peter James and Oleg Vornik were Performance Options(, which vested during
the year.
(b) Shares purchased during the year.
DroneShield Limited | 2022 Annual Report
27
Directors’ Report- Remuneration Report continued
Share options held by KMP
Opening
balance
(Number)
Granted as
compensation
(Number)
Options
lapsed
(Number)
(a)
Options
exercised
(Number)
Balance at
31 December
2022
(Number)
Vested
Options
December
2022
(Number)
Unvested
Options
December
2022
(Number)
662,500
5,000,000
(397,500)
(132,500)
5,132,500
132,500
5,000,000
166,667
1,000,000
-
(83,333)
1,083,334
83,334
1,000,000
31 December
2022
Non-Executive
Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik
1,250,000
10,000,000
(750,000)
(250,000)
10,250,000
250,000
10,000,000
Total
2,079,167
16,000,000
(1,147,500)
(465,833)
16,465,834
465,834
16,000,000
Notes
(a) The options exercised during the year were exercised at $0.65 per share, using a limited recourse loan provided
by the Company. The loan is interest free and due for repayment by 18 March 2027. The loan is non-recourse
except against the shares issued on exercise of the options and are held by the Directors.
Opening
balance
(Number)
Granted as
compensation
(Number)
Options
lapsed
(Number)
(a)
Options
exercised
(Number)
Balance at
31 December
2021
(Number)
Vested
Options
December
2021
(Number)
Unvested
Options
December
2021
(Number)
7,262,500
6,600,000
(6,600,000)
(6,600,000)
166,667
500,000
-
(500,000)
662,500
166,667
-
83,333
662,500
83,334
31 December
2021
Non-Executive
Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik
13,650,000
12,400,000
(12,400,000)
(12,400,000)
1,250,000
250,000
1,000,000
Total
21,079,167
19,500,000
(19,000,000)
(19,500,000)
2,079,167
333,333
1,745,834
Notes
(a) The options exercised by Jethro Marks during the year were exercised at $0.25 per share, using a limited
recourse loan provided by the Company. The loan is interest free and due for repayment by June 2026. The
loan is non-recourse except against the shares issued on exercise of the options and are held by Jethro Marks.
The options exercised by Peter James and Oleg Vornik were Performance Options, which vested during the
year.
28
DroneShield Limited | 2022 Annual Report
Directors’ Report- Remuneration Report continued
Performance based remuneration granted and exercised during the year
31 December 2022
31 December 2021
(a)
Value granted
$
(b)
Value exercised
$
(a)
Value granted
$
(b)
Value exercised
$
1,175,000
235,000
2,350,000
3,760,000
13,515
2,429
25,499
41,443
1,122,000
33,179
1,122,000
33,179
2,232,000
2,232,000
3,387,179
3,387,179
Non-Executive
Directors
Peter James
Jethro Marks
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 Black-Scholes Model.
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 2022
Performance
Options
Class of
Options
issued
during 2021
Performance
Options
Performance
Options
U
Number of
Options
Grant date
Vesting date
Expiry date
Exercise
Price
Value per
option at
grant date $
Performance
achieved
% Vested
during 2022
16,000,000
26-Apr-22
29-Apr-27
29-Apr-27
-
0.24
No
0%
Number of
Options
Grant date
Vesting date
Expiry date
Exercise
Price
Value per
option at
grant date $
Performance
achieved
% Vested
during 2021
12,400,000
26-May-21
16-Aug-21
31-Aug-24
6,600,000
500,000
27-May-21
26-May-21
16-Aug-21
27-May-21
31-Aug-24
27-May-24
-
-
0.25
0.22
0.22
0.07
Yes
Yes
Yes
100%
100%
100%
DroneShield Limited | 2022 Annual Report
29
Directors’ Report- Remuneration Report continued
Remuneration details of KMP
Salary and fees
$
Movement in
employee
provisions
$
Cash incentive
$
Post-
employment
benefits
$
Share based
payments
(options)
$
Total
$
31 December 2022
Non-Executive Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik (a)
99,993
50,000
-
-
306,195
(10,022)
Total
456,188
(10,022)
-
-
-
-
-
-
93,442
32,977
193,435
82,977
24,430
195,463
516,066
24,430
321,882
792,478
31 December 2021
Non-Executive Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik (a)
Salary and fees
$
Movement in
employee
provisions
$
Cash incentive
$
Post-
employment
benefits
$
Share based
payments
(options)
$
Total
$
99,993
50,000
-
-
45,455
-
-
-
210,440
36,022
355,888
86,022
307,369
63,727
150,000
22,631
419,107
962,834
Total
457,362
63,727
195,455
22,631
665,569
1,404,744
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Non-Executive Directors
Peter James
Jethro Marks
Executive Director
Oleg Vornik
Fixed
Performance
2021
2022
2021
2022
28%
58%
41%
52%
60%
62%
72%
42%
59%
48%
40%
38%
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
-
-
-
-
-
Remuneration of $300,000p.a. plus superannuation
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
30
DroneShield Limited | 2022 Annual Report
Directors’ Report- Remuneration Report continued
Advisory Board remuneration
For the year-ended 2022 and 2021, there was no Advisory Board.
End of Remuneration Report.
This Directors’ Report is made in accordance with a resolution of Directors.
Peter James
Independent Non-Executive Chairman
Sydney, NSW
27 February 2023
DroneShield Limited | 2022 Annual Report
31
Auditor’s Independence Declaration
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 2022, 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 period.
Sydney, NSW
27 February 2023
N J Guest
Director
32
DroneShield Limited | 2022 Annual Report
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
Revenue
Other income
Cost of sales
Product development expense
Sales and customer service expense
Corporate and support expense
Corporate governance expense
Share based payment expense
31 December
2022
$
31 December
2021
$
Note
3
4
5
6
7
8
9
16,886,081
10,598,124
272,254
(4,976,034)
(6,616,104)
(3,302,029)
(3,689,389)
(787,730)
(715,881)
345,687
(2,849,001)
(5,569,604)
(2,832,455)
(4,253,768)
(669,222)
(1,168,041)
Loss before income tax
(2,928,832)
(6,398,280)
Income tax benefit
10
1,979,531
1,087,833
Loss after income tax
(949,301)
(5,310,447)
Other comprehensive income:
Items that may be reclassified to profit or loss
Adjustments on translation of foreign controlled entity
97,420
136,376
Total comprehensive loss for the period
(851,881)
(5,174,071)
Basic loss per share
Diluted loss per share
23
23
(0.002)
(0.002)
(0.013)
(0.013)
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction
with the accompanying notes.
Consolidated Statement of Financial Position
DroneShield Limited | 2022 Annual Report
33
31 December
2022
$
31 December
2021
$
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
Other investments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables
Provisions
Other liabilities
Lease liabilities
Borrowings
Total current liabilities
Non-current liabilities
Provisions
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
11
12
13
14
15
16
14
17
18
19
20
17
19
21
10,143,861
8,316,648
3,733,416
75,000
9,419,235
859,131
6,915,939
75,000
22,268,925
17,269,305
2,436,271
458,956
42,900
1,028,471
-
42,900
2,938,127
1,071,371
25,207,052
18,340,676
564,231
427,235
4,555,326
526,045
70,052
478,382
408,631
1,566,894
152,985
56,584
6,142,889
2,663,476
64,760
-
54,995
38,802
64,760
93,797
6,207,649
2,757,273
18,999,403
15,583,403
40,535,156
5,088,141
(26,623,894)
36,983,156
5,299,211
(26,698,964)
18,999,403
15,583,403
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
34
DroneShield Limited | 2022 Annual Report
Consolidated Statement of Changes in Equity
Contributed
equity
$
Options
reserve
$
Foreign
currency
translation
reserve
$
Accumulated
losses
$
Total equity
$
Balance at 1 January 2021
37,283,293
7,777,980
(12,168)
(25,459,672)
19,589,433
Transfer from option reserve to accumulated
losses
Transactions with owners in their capacity as
owners:
Net share-based payments movement
Equity transaction costs
-
(3,771,018)
-
3,771,018
-
-
1,168,041
(300,137)
-
(300,137)
1,168,041
-
-
-
-
1,168,041
300,137
-
300,137
1,168,041
Exchange difference on translation of foreign
operations
Loss for the period
Total comprehensive loss for the period
-
-
-
-
-
-
136,376
-
136,376
-
(5,310,447)
(5,310,447)
136,376
(5,310,447)
(5,174,071)
Balance at 31 December 2021
36,983,156
5,175,003
124,208
(26,698,964)
15,583,403
Balance at 1 January 2022
36,983,156
5,175,003
124,208
(26,698,964)
15,583,403
Transfer from option reserve to accumulated
losses
Transactions with owners in their capacity as
owners:
Net share-based payments movement
Contributions of equity, net of transaction costs
-
(1,024,371)
-
1,024,371
-
-
715,881
3,552,000
3,552,000
-
715,881
-
-
-
-
-
-
715,881
3,552,000
4,267,881
Exchange difference on translation of foreign
operations
Loss for the period
Total comprehensive loss for the period
-
-
-
-
-
-
97,420
97,420
-
(949,301)
(949,301)
97,420
(949,301)
(851,881)
Balance at 31 December 2022
40,535,156
4,866,513
221,628
(26,623,894)
18,999,403
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
DroneShield Limited | 2022 Annual Report
35
31 December
2022
$
31 December
2021
$
Note
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Other receipts
Research and Development Tax and other incentives received
13,533,039
(17,465,446)
75,548
2,090,914
13,444,547
(21,060,606)
79,200
1,227,121
Net cash flows used in operating activities
31
(1,765,945)
(6,309,738)
Cash flows from investing activities
Purchase of plant and equipment
(832,175)
(467,452)
Net cash flows used in investing activities
(832,175)
(467,452)
Cash flows from financing activities
Interest income on cash deposits
Proceeds from share and option issue
Payments for lease liabilities
19,097
3,700,000
(641,231)
35,827
-
(122,033)
Net cash flows from (used in) financing activities
3,077,866
(86,206)
Cash and cash equivalents at beginning of period
9,419,235
16,170,872
Net increase (decrease) in cash and cash equivalents
479,746
(6,863,396)
Exchange rate adjustments to balances held in foreign
currencies
244,880
111,759
Cash and cash equivalents at the end of the year
11
10,143,861
9,419,235
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
DroneShield Limited | 2022 Annual Report
36
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 2022 was authorised for issue in accordance with a resolution of the Directors
on 27 February 2023.
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 2022, the Group incurred a loss after income tax of $949,301 and net cash outflows from
operating activities of $1,765,945, with cash on hand and term deposits at 31 December 2022 of $10,261,761. At 31
December 2022, the Group had net assets of $18,999,403 and an excess of current assets over current liabilities of
$16,126,036.
The Group’s ability to continue as a going concern beyond this period is dependent on the availability of existing cash
assets and term deposits as well as generating revenues from operations. A cash flow forecast for the next 12 months
prepared by management has indicated that the Group will have sufficient cash on hand and cash generated from sales
opportunities 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. Subsequent to year-end, cash of $10,880,000 was received from a share placement.
Refer to Note 32 for further details on the share placement.
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.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
37
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 can
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.
38
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
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.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
39
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 2022 or 1 January 2023 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.
40
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
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.
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.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
41
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.
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 9.
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 of 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.
42
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
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 9.
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.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
43
3. Revenue
Hardware sales
Services revenue
Shipping revenue
Subscription revenue
Warranty revenue
Total revenue from sales
31 December
2022
$
31 December
2021
$
14,452,915
1,529,857
488,526
331,232
4,193
16,806,723
7,208,348
2,833,003
231,672
189,081
4,193
10,466,297
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 30).
Timing of revenue recognition
At a point in time
Hardware sales including shipping income
direct sales
distributors
Over time
Subscription services
direct sales
distributors
Services revenue
direct sales
distributors
Warranty revenue
distributors
Total revenue from sales
Other revenue
Interest revenue
Sublease revenue
Total other revenue
Total revenue
4. Other income
Awards and incentives revenue
Net foreign exchange gains
Total other gains
7,938,000
7,003,441
3,854,433
3,585,587
270,280
60,952
88,170
100,911
1,464,750
65,107
2,767,231
65,772
4,193
16,806,723
4,193
10,466,297
19,098
60,260
79,358
35,827
96,000
131,827
16,886,081
10,598,124
111,382
160,872
269,170
76,517
272,254
345,687
44
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
5.
Product development expense
Consultants
Other
Payroll
Travel, accommodation and meals
Total product development expense
6.
Sales and customer service expense
Marketing and advertising
Other
Payroll
Travel, accommodation and entertainment
Total sales and customer service expense
7.
Corporate and support expense
Legal
Office costs and communication
Other
Payroll
Professional expenses
Travel, accommodation and entertainment
31 December
2022
$
31 December
2021
$
490,565
1,200,069
4,764,823
160,647
434,727
1,130,060
3,967,312
37,505
6,616,104
5,569,604
76,447
575,727
2,325,673
324,182
139,860
820,875
1,683,332
188,388
3,302,029
2,832,455
159,645
681,482
774,438
1,434,754
563,294
75,776
344,091
1,019,318
424,964
1,529,157
908,625
27,613
Total corporate and support expense
3,689,389
4,253,768
8.
Corporate governance expense
ASX fees
Audit
Board expenses
Insurance
Other
Professional expenses
93,953
77,365
212,993
237,801
94,970
70,648
94,746
84,916
195,449
163,893
56,850
73,368
Total corporate governance expense
787,730
669,222
DroneShield Limited | 2022 Annual Report
45
Notes to the Financial Statements continued
9. Options issued
During the year ended 31 December 2022, a number of options were issued to Directors, management and other employees of the Group. In addition to this, a number of options did not meet the
vesting conditions during the period. 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 2022.
Options Issued
31 December 2022
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 2022 ($)
Class X
Options
14,650,000
2.01
0.25
0.00
54.4%
0.72%
0.0349
511,224
Class Y
Options
850,000
5.00
0.25
0.00
54.4%
1.54%
0.0719
61,157
Class Z
Options
100,000
0.25
0.20
0.00
54.4%
3.29%
0.0107
1,067
Class AA
Options
600,000
2.98
0.30
0.00
54.4%
3.26%
0.1059
63,561
Class AB
Options
Performance1
Options
Other
Options2
Total option
expense for
the year3
500,000
3.01
0.20
0.00
54.4%
3.01%
0.1900
95,000
25,000,000
4.87
-
4.87
n/a
n/a
0.2188
675,265
(691,393)
715,881
1 Zero Price Performance Options (“Performance Options”) are subject to the following vesting conditions being satisfied: DroneShield achieving $50,000,000 of revenue or customer cash receipts; 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 five years, which will be reviewed against updated pipeline and forecasts each six months.
2 $691,393 comprises of a credit for Tranche 2 Performance Options (issued in 2019) and a vesting expense for Class Q options (issued in 2019 and 2020). The expense recognised in prior periods for Tranche
2 Performance Options was credited due to the vesting conditions not being met within 3 years from the date of issue of the Tranche 2 Performance Options. Refer to 2021 Annual Report for details of options
issued in prior periods.
3 During the year, limited-recourse loans were issued to certain employees and directors, where the company provided interest free loans for conversion of options previously issued by the company. In total,
14,315,833 options were converted into ordinary shares, at various exercise prices. The loans are due for repayment within 5 years from the date of inception. The loans are non-recourse except against the
shares issued on exercise of the options and are held by the participant to which the loan relates. Non-recourse loans issued are treated as a modification of the option under the Accounting Standards. No
additional expense has been recognised in relation to these modifications.
46
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
9. Options issued (continued)
During the year ended 31 December 2021, a number of options were issued to Directors, management and other employees of the Group as well as to brokers participating in the share placement
that occurred in August 2020. In addition to this, a number of options did not meet the vesting conditions during the period. Using the Black-Scholes Model, the fair value of each option is as set out
below and based on the following criteria/assumptions. The options below were issued at various dates between January and December 2021.
Options Issued
31 December 2021
No of new options
Expiry (years)
Exercise price ($)
Average vesting period (years)
Underlying volatility
Average risk-free interest rate
Average calculated fair value of each option ($)
Total expense recorded for the period ended 31
December 2021 ($)
Class T
Options
3,570,000
0.35
0.20
0.00
70.0%
0.05%
0.0204
65,125
Class U
Options
500,000
3.01
0.25
0.00
70.0%
0.14%
0.0664
33,179
Class V1
Options
Class W
Options
Performance 2
Options
Other
Options3
Total option
expense for
the year4
5,000,000
3.00
0.25
0.00
70.0%
0.10%
0.0600
-
450,000
3.00
0.20
0.00
70.0%
0.14%
0.0651
29,213
21,459,384
3.37
0
0.33
n/a
n/a
0.1780
3,354,000
(2,313,476)
1,168,041
1 Class V options were issued to brokers as part of the August 2020 capital raise and included as part of share transaction costs which is treated as a deduction from equity of $300,137.
2 19,000,000 of the Zero Price Performance Options (Performance Options) was issued to Directors. The vesting conditions were satisfied and the options were exercised into shares on 16 August 2021.
2,459,384 of the Performance Options was issued to management and employees. These options automatically lapsed, during the year, as the vesting conditions attached to Tranche 1 Performance Options,
issued in 2018, were satisfied.
3 $2,313,476 comprises of a credit for Tranche 1 Performance Options (issued in 2018) and a vesting expense for Tranche 2 Performance Options and Class Q options (issued in 2019 and 2020). The expense
recognised in prior periods for Tranche 1 Performance Options was credited due to the vesting conditions not being met within 36 months from the date of issue of the Tranche 1 Performance Options. Refer to
2020 Annual Report for details of options issued in prior periods.
4 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,
6,886,666 options were converted into ordinary shares, at various exercise prices. The loans are due for repayment within 5 years from the date of inception. 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.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
47
10.
Income taxes relating to continuing operations
The components of tax recognised in profit or loss include:
Current tax
Deferred tax
31 December
2022
$
31 December
2021
$
-
-
-
-
Research and Development Tax Incentive
(1,979,531)
(1,087,833)
Total tax benefit
(1,979,531)
(1,087,833)
The income tax for the year can be reconciled to the accounting profit as follows:
Income tax benefit calculated at 25% (2021: 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
(732,208)
(1,759,527)
178,970
321,211
(1,979,531)
(1,087,833)
553,238
1,438,316
Income tax benefit recognised in profit or loss (relating to continuing operations)
(1,979,531)
(1,087,833)
The tax rate used for the 2022 reconciliations above is the corporate tax rate of 25% (2021:27.5%) payable by DroneShield
Limited on taxable profits under Australian tax law.
The Company has unused tax losses of $11,344,498 (2021: $12,255,676). 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 $2,836,124 (2021: $3,370,311).
11. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
9,290,829
853,032
5,660,677
3,758,558
Total cash and cash equivalents
10,143,861
9,419,235
12. Trade and other receivables
Trade receivables
GST receivable
Deferred revenue (see Note 18)
Prepayments
6,625,276
222,429
31,478
1,437,465
259,031
130,054
131,278
338,768
Total trade and other receivables
8,316,648
859,131
Age of receivables that are past due but not impaired.
>120 days
9,559
-
Payment for hardware sales and subscription services are due from the customer as per the terms specified in the
contract.
48
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
13.
Inventories
Raw materials
Finished goods
Total Inventory
14. Other investments
Current
-
Term Deposits
Non-current
-
Term Deposits
Total Other investments
31 December
2022
$
31 December
2021
$
2,403,734
1,329,682
5,980,558
935,381
3,733,416
6,915,939
75,000
75,000
42,900
42,900
117,900
117,900
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
49
15. Plant, equipment and intangible assets
Development
equipment
$
Demonstration
equipment
$
Office
equipment
$
Plant &
equipment
$
Vehicles
and
trailers
$
Intangible
assets
(software)
$
Total
$
Balance at 1 Jan 21
129,714
175,247
115,303
274,656 138,989
40,206
874,115
Additions
Disposals
Transfer from (to) inventory
Depreciation/amortisation
Exchange differences
142,005
-
(174,356)
-
-
62,084
25,774
229,898
(174,087)
(27,039)
122,471
8,164
-
(96,089)
(13,675)
114,051
-
-
(96,908)
-
49,706
-
-
(21,805)
6,146
14,785
(2,159)
-
(14,610)
-
505,102
31,779
55,542
(403,499)
(34,568)
Balance at 31 Dec 21
97,363
291,877
136,174
291,799 173,036
38,222 1,028,471
Additions
Disposals
Transfer from (to) inventory
Depreciation/amortisation
Exchange differences
634,581
-
(187,962)
-
-
-
(116,030)
1,387,807
(128,495)
4,273
95,483
(11,542)
-
(106,559)
860
7,384
-
-
(101,597)
-
-
(44,463)
-
(22,367)
5,854
4,247
741,695
(172,035)
-
- 1,199,845
(372,692)
10,987
(13,674)
-
Balance at 31 Dec 22
543,982
1,439,432
114,416
197,586 112,060
28,795 2,436,271
Development equipment
Demonstration equipment
Office equipment
Plant & equipment
Vehicles and trailers
Intangible assets (software)
Balance at 31 December 2022
Development equipment
Demonstration equipment
Office equipment
Plant & equipment
Vehicles and trailers
Intangible assets (software)
Balance at 31 December 2021
Cost
$
Accumulated
Depreciation
$
Carrying Value
$
543,982
2,030,428
395,063
514,526
155,654
79,902
-
(590,996)
(280,647)
(316,940)
(43,594)
(51,107)
543,982
1,439,432
114,416
197,586
112,060
28,795
3,719,555
(1,283,284)
2,436,271
97,363
917,027
319,859
520,183
198,434
75,655
-
(625,150)
(183,685)
(228,384)
(25,398)
(37,433)
97,363
291,877
136,174
291,799
173,036
38,222
2,128,521
(1,100,050)
1,028,471
50
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
16. Right-of-use asset
Balance at 1 January
Additions
Depreciation
Impairment
Balance at 31 December
31 December
2022
$
31 December
2021
$
-
236,973
949,790
(557,465)
66,631
-
(105,322)
(131,651)
458,956
-
The Group leases various assets including offices and storage units. The contractual lease terms range from 1 to 4 years.
The total cash outflow for leases, including short-term leases was $641,231. (2021: $625,298).
The maturity analysis of lease liabilities is presented in Note 19.
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
Reversal of impairment on right-of-use assets
17. Provisions
Current
-
Annual leave
Non-current
-
Long-service leave
Total provisions
18. Other liabilities
Accrued expenses
Deferred Revenue
-
-
-
Hardware sales
Subscription services
Services
-
Shipping
- Other revenue
Sublease bonds
Total other liabilities
557,465
22,967
-
56,707
(66,631)
105,322
440,499
131,651
10,441
-
427,235
408,631
64,760
54,995
491,995
463,626
478,285
310,511
1,606,250
1,664,521
-
-
780,970
25,300
571,293
398,333
282,579
4,178
-
-
4,555,326
1,566,894
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
51
19. Lease liabilities
Amounts due for settlement within 12 months
Amounts due for settlement after 12 months
Total lease liabilities
31 December
2022
$
31 December
2021
$
526,045
-
152,985
38,802
526,045
191,787
These liabilities were measured at the present value of the remaining lease payments, discounted using the weighted
average incremental borrowing rate of 6.07% - 9.00%.
20. Borrowings
Unsecured borrowing at amortised cost
Insurance Premium Finance
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
21. Contributed equity
70,052
56,584
70,052
56,584
70,052
-
56,584
-
No. of shares
(Note a)
$
Balance at beginning of period (1 January 2022)
418,226,152
36,983,156
Shares issued following options exercised during period (Note b)
Share placement (Note c)
Transaction costs in relation to shares issued from share placement
Balance at end of period (31 December 2022)
14,315,833
18,500,000
-
-
3,700,000
(148,000)
451,041,985
40,535,156
Note a: The number of shares disclosed is the number of shares in DroneShield Limited.
Note b: During the year, 14,315,833 options were exercised using limited-recourse loans, where the company provided
interest free loans for conversion of options previously issued by the company into shares. The loans are due for
repayment within 5 years from the date of inception. The loans are nonrecourse except against the shares issued
on exercise of the options and are held by the participant to which the loan relates.
In November 2022, the Company issued 18,500,000 shares in a share placement. The issue price was $0.20 per
share and the total cash received from the placement of shares was $3,700,000.
Note c:
52
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
22. Shares and options
Number of Shares
Number of Unlisted
Options
Opening balances at 1 January 2022
418,226,152
24,115,834
Share placement
Options exercised
Options lapsed
Options issued to Directors, Management and Employees
18,500,000
14,315,833
-
-
-
(14,315,833)
(15,745,000)
41,700,000
Closing balance at 31 December 2022
451,041,985
35,755,001
Unlisted Options
41,700,000 Unlisted Options were issued to Directors, Management and employees during the year to 31 December 2022.
These Options are subject to various vesting conditions relating to length of employment with the Company and
performance of the Company. See Note 9 for further details.
23. Earnings (loss) per share
(a) Basic earnings (loss) per share
Total basic earnings (loss) per share attributable to the ordinary equity
holders of the company
(b) Dilutive earnings per share
Dilutive earnings (loss) per share attributable to the ordinary equity
holders of the company
(c) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator
in calculating basic and diluted earnings per share
Options
31 December
2022
$
31 December
2021
$
(0.002)
(0.013)
(0.002)
(0.013)
429,980,471
397,919,239
Unlisted Options on issue (refer to Note 22) are not included in the calculation of diluted earnings per share because they
are considered to be antidilutive for the period ended 31 December 2022. These options and shares could potentially dilute
basic earnings per share in future periods.
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
53
24. Key Management Personnel disclosures and related party transactions
(a) KMP Compensation
Cash incentive
Movement in employee provisions
Post-employment benefits
Salaries and fees
Share-based payments
31 December
2022
$
31 December
2021
$
-
(10,022)
24,430
456,188
321,882
195,455
63,727
22,631
457,362
665,569
Total KMP compensation
792,478
1,404,744
Detailed remuneration disclosures are provided in the Remuneration Report on pages 24-30.
(b) Other transactions with related parties
There were no related party transactions during the financial year.
25. 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
5,126,447
2,624,992
7,751,439
2,370,837
64,760
2,435,597
10,383,461
897,987
11,281,448
1,179,366
93,797
1,273,163
5,315,842
10,008,285
39,212,609
4,866,513
(38,763,280)
5,315,842
35,660,609
5,175,003
(30,827,327)
10,008,285
(8,960,323)
(13,456,268)
-
-
(8,960,323)
(13,456,268)
DroneShield LLC and DroneShield Corporation Pty Ltd are legal subsidiaries of DroneShield Limited and are 100% owned by
DroneShield Limited.
54
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
26. 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 2022.
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
2022
$
31 December
2021
$
10,143,861
117,900
6,879,183
9,419,235
117,900
520,363
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 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
Other liabilities
Provisions
Trade and other payables
Total Financial liabilities
31 December
2022
$
31 December
2021
$
4,839,648
6,614,195
11,453,843
(186,060)
-
(225,618)
(411,678)
2,410,035
332,726
2,742,761
(24,939)
(33,066)
(353,239)
(411,244)
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
55
26. Financial risk management (continued)
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
2022
$
31 December
2021
$
(1,007,918)
1,143,766
(193,520)
136,452
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 2021
Accrued expenses
Borrowings
Lease liabilities
Trade and other payables
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
$
310,511
47,973
74,192
478,382
-
8,611
78,793
-
-
-
38,802
-
-
-
-
-
310,511
56,584
191,787
478,382
310,511
56,584
191,787
478,382
Total
911,058
87,404
38,802
-
1,037,264
1,037,264
As at 31 December 2022
Accrued expenses
Borrowings
Lease liabilities
Trade and other payables
478,285
60,727
300,903
564,231
-
9,325
225,142
-
Total
1,404,146
234,467
27. Contingent liabilities
As at 31 December 2022 there were no contingent liabilities.
28. Commitments
-
-
-
-
-
-
-
-
-
478,285
70,052
526,045
564,231
478,285
70,052
526,045
564,231
-
1,638,613
1,638,613
At 31 December 2022, contractual agreements existed to pay suppliers $2,354,271 for the manufacturing of inventory to
deliver on orders received (2021: $1,210,769).
56
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
29. 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 and other services
Total Auditor’s remuneration
30. Segment information
31 December
2022
$
31 December
2021
$
76,353
14,036
112,348
39,489
90,389
151,837
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 2022 and
31 December 2021.
Segment performance
31 December 2022
USA
$
Australia
$
Elimination
$
Total
$
Hardware sales including shipping income
-
-
direct sales
distributors
Subscription services
-
-
direct sales
distributors
Services revenue
-
-
direct sales
distributors
Warranty revenue
-
distributors
Total revenue from sales
Other revenue
Total revenue
Depreciation
7,180,891
1,732,536
757,109
5,270,905
152,759
8,783
71,706
-
-
9,146,675
-
9,146,675
(268,046)
117,521
52,169
1,393,044
65,107
4,193
7,660,048
79,358
7,739,406
(647,655)
Loss after income tax expense
3,322,828
(4,272,129)
-
-
-
-
-
-
-
-
-
-
-
-
7,938,000
7,003,441
270,280
60,952
1,464,750
65,107
4,193
16,806,723
79,358
16,886,081
(915,701)
(949,301)
Assets and liabilities
Segment assets
Segment liabilities
6,539,065
(6,873,124)
27,613,170
(8,279,708)
(8,945,183)
25,207,052
8,945,183
(6,207,649)
Notes to the Financial Statements continued
DroneShield Limited | 2022 Annual Report
57
30. Segment information (continued)
Segment performance
31 December 2021
USA
$
UK
$
Australia
$
Elimination
$
Total
$
Hardware sales including shipping income
-
-
direct sales
distributors
Subscription services
-
-
direct sales
distributors
Services revenue
-
-
direct sales
distributors
Warranty revenue
-
distributors
Total revenue from sales
Other revenue
Total revenue
Depreciation
Loss after income tax expense
Assets and liabilities
Segment assets
Segment liabilities
2,858,605
1,273,927
7,078
28,881
84,454
36,872
-
4,289,817
-
4,289,817
(50,152)
2,083,416
-
-
-
-
-
-
-
-
-
-
995,828
2,311,660
81,092
72,030
2,682,777
28,900
4,193
6,176,480
131,827
6,308,307
(2,648)
299,475
(455,139)
(7,693,338)
-
-
-
-
-
-
-
-
-
-
-
-
3,854,433
3,585,587
88,170
100,911
2,767,231
65,772
4,193
10,466,297
131,827
10,598,124
(507,939)
(5,310,447)
563,594
-
21,809,715
(4,032,633)
18,340,676
(4,314,724)
(3,176)
(2,472,006)
4,032,633
(2,757,273)
58
DroneShield Limited | 2022 Annual Report
Notes to the Financial Statements continued
31. Reconciliation from loss after income tax to net cash outflow from operating activities
Operating loss for the year after tax
Annual and long service leave entitlement
Awards and incentives revenue - Paycheck Protection Program (“PPP”)
Bad debts
Depreciation
Effects of foreign currency translation
Intercompany loan
Interest income on cash deposits
Inventory impairment expense
Loss on disposal of fixed asset
Right-of-use asset impairment reversal
Share option expense
Transfers from fixed assets
Change in operating assets and liabilities
Decrease/(Increase) in trade and other receivables
Decrease/(Increase) in inventory
(Decrease)/increase in trade and other payables
(Decrease)/increase in borrowings
(Decrease)/increase in other liabilities
31 December
2022
$
31 December
2021
$
(949,301)
18,486
-
-
915,701
(153,168)
6,886
(19,098)
(1,315)
56,006
(66,631)
715,881
222,797
(7,557,316)
1,982,678
85,849
13,468
2,963,132
(5,310,447)
277,876
(129,883)
8,218
507,939
13,105
-
(35,827)
211,945
25,051
131,651
1,168,041
-
2,166,203
(4,897,660)
(405,981)
-
(39,969)
Net cash flows from (used in) operating activities
(1,765,945)
(6,309,738)
32. Events after the reporting date
Subsequent to 31 December 2022, the following occurred;
-
-
-
In January 2023, the Company received a new purchase order for approximately $11 million from a government
agency customer.
In February 2023, the Company issued 36,266,666 shares in a share placement. The issue price was $0.30, and
the total cash received from the placement of shares was $10,880,000. Under the terms of the Placement, brokers
participating in the Placement will receive a commission on the funds raised.
As of close of 28 February 2023, the Company will be admitted into the MSCI Global Micro Cap Index.
DroneShield Limited | 2022 Annual Report
59
Directors’ Declaration
1.
In the opinion of the Directors:
(a)
the consolidated financial statements and notes set out on pages 32 to 58 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 2022 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 2022 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
27 February 2022
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DroneShield Limited | 2022 Annual Report
Independent Auditor’s Report
Independent Auditor’s Report to the Members of DroneShield Limited
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 2022, 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 2022 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 below to the key audit matters to be communicated in our
report.
DroneShield Limited | 2022 Annual Report
61
Key Audit Matter
How our audit addressed the key audit matter
Revenue recognition (Note 3)
The Group recognised total revenue from
sales of $16,806,723 during the year ended
31 December 2022 (2021: $10,466,297).
We focussed on this area as a key audit
matter due to the judgements involved in
applying AASB 15 Revenue from Contracts
with Customers.
Our audit procedures included but were not limited to the
following:
We reviewed management’s revenue recognition accounting
policy to assess whether it complied with AASB 15.
We reviewed a sample of revenue transactions recorded
during the year along with management’s assessments and
reviewed contracts and other documentation in relation to
these to assess whether revenue recognised was in
accordance with the requirements of AASB 15.
We also reviewed disclosures in the financial
statements to assess whether they are in
accordance with AASB 15.
Existence and Valuation of inventory (Note 13)
At 31 December 2022, the Group held
inventory with a carrying value of $3,733,416
(2021: $6,915,939).
As detailed in note 1 of the financial
statements, inventories are valued at the
lower of cost and net realisable value.
Significant judgement is involved in
estimating the net realisable value of
inventory as it requires estimating the future
sales volumes and prices for specific
inventory lines.
We focussed on this area as a key audit
matter due to the material value of this
balance.
Share Based Payments (Note 9)
In the current and previous periods, the
Company has issued a number of share
options to directors and management.
As detailed in note 1 of the financial
statements, and in accordance with AASB 2:
Share Based Payment, the fair value of the
options at grant date are determined by
management, and utilised to account for the
share based payment expense and options
issued.
The key assumptions used in determining the
fair value of the options are set out in Note 9
to the financial statements.
We considered this to be a key audit matter
due to the complexity and significant
management estimation and judgement
involved in determining the fair value of the
share based payments issued.
Our audit procedures included but were not limited to the
following:
We attended the year-end stocktake and observed the count
procedures and controls.
We agreed the physical inventory count records to the
accounting inventory listing at year-end.
We tested a sample of inventory items to assess whether the
carrying value was recorded at lower of cost or net realisable
value in accordance with AASB 102 Inventories.
We reviewed and tested management’s assessment of
inventory obsolescence.
We reviewed the accounting policies adopted by the Group
for inventory, and the disclosures in the financial report to
ensure they meet the requirements of accounting standards.
Our audit procedures included but were not limited to the
following:
We reviewed and verified the key terms of the options issued
as shared based payments during the year, to the supporting
agreements and documentation.
We reviewed the fair valuation calculation for the options,
with reference to the methodology utilised and the key
assumptions adopted in the valuation.
We tested the accuracy of the recorded share-based
payment expense for the period in the statement of profit or
loss and option reserve.
We assessed the accuracy of the Group’s disclosures of the
share based payment arrangement and options on issue in
the financial statements with reference to the requirements
of accounting standards.
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DroneShield Limited | 2022 Annual Report
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 2022, 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.
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.
•
DroneShield Limited | 2022 Annual Report
63
•
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.
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 24 to 30 of the directors’ report for the year
ended 31 December 2022.
In our opinion, the Remuneration Report of DroneShield Limited for the year ended 31 December 2022
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
N J Guest
Director
Sydney, NSW
27 February 2023
DroneShield Limited | 2022 Annual Report
64
Shareholder Information
Holdings distribution at 24 February 2023
Holding Ranges
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,000 - over
Total
Holders
182
3,158
1,923
3,724
544
9,531
Total Shares
37,012
9,974,207
15,137,253
126,225,676
335,934,503
487,308,651
% Issued Share Capital
0.01%
2.05%
3.11%
25.90%
68.94%
100.00%
The shareholders are entitled to one vote for each share held.
Twenty largest shareholders at 24 February 2023
Position Holder Name
Shares Held % Issued Share Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP PARIBAS NOMINEES PTY LTD
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