Core Points - KWESST Micro Systems Inc. has closed the first tranche of a private placement, raising approximately CAD$3.5 million (around US$2.5 million) [1] - The first tranche included the issuance of 903,700 common shares and 2,884,179 pre-funded warrants at a price of CAD$0.928 (approximately US$0.66) per share or warrant [2] - Each common share or pre-funded warrant was bundled with a common share purchase warrant, exercisable at CAD$1.16 (approximately US$0.817) for 60 months [2] - The company paid a cash fee of CAD$263,636 (7.5% of gross proceeds) and issued 189,394 warrants to ThinkEquity as compensation for services rendered [3] - Due to investor interest, KWESST is increasing the offering size with a second tranche expected to close on or before February 25, 2025, raising an additional CAD$142,070 (approximately US$100,000) [4] - The net proceeds from the offering will be used for general working capital purposes [4] - The securities offered have not been registered under the U.S. Securities Act and cannot be sold in the U.S. without registration or exemption [6] Company Overview - KWESST develops and commercializes next-generation tactical systems for military and security forces, including digitization of tactical forces and countermeasures against various threats [8] - The company is headquartered in Ottawa, Canada, with offices in London, UK, and Abu Dhabi, UAE [8]

Core Points - KWESST Micro Systems Inc. has entered into definitive securities purchase agreements for a private placement, aiming to raise approximately CAD$3.5 million (around US$2.5 million) [1] - The offering includes the issuance of 3,787,879 common shares and/or pre-funded warrants at a price of CAD$0.928 (approximately US$0.66) per share or warrant [2] - The net proceeds from the offering will be used for general working capital purposes [3] Financial Details - The common shares or pre-funded warrants will be bundled with common share purchase warrants, each exercisable at CAD$1.16 (approximately US$0.817) for a period of 60 months [2] - ThinkEquity is acting as the sole placement agent, receiving a cash fee of 7.5% of the gross proceeds and warrants equal to 5.0% of the pre-funded warrants sold [4] Regulatory Information - The offering is subject to approval from the TSX Venture Exchange [5] - The securities offered have not been registered under the U.S. Securities Act and cannot be sold in the U.S. without registration or an exemption [6] Company Overview - KWESST develops next-generation tactical systems for military and security forces, including digitization of tactical forces and countermeasures against various threats [8]

Core Viewpoint - KWESST Micro Systems reported a significant revenue growth of 588% in Q1 Fiscal 2025 compared to Q1 Fiscal 2024, indicating a successful transition from development to revenue generation [1][4][2] Financial Performance - Revenue for Q1 Fiscal 2025 reached CAD 887,658, up from CAD 129,068 in Q1 Fiscal 2024, driven by government contracts and the pilot of the Lightning SaaS product [5][4] - Gross profit for the quarter was CAD 404,522, representing a gross margin of 45.6%, a notable improvement from a gross loss of CAD 53,805 in the same period last year [4][5] - Operating loss increased to CAD 2,916,186 in Q1 Fiscal 2025 from CAD 2,508,240 in Q1 Fiscal 2024, reflecting higher operating expenses [5][8] Revenue Drivers - The revenue increase was primarily attributed to the DSEF and Land C4ISR government contracts, the Canadian Red Cross pilot, and growth in the ARWEN business [4][6] - The digitization business line contributed an additional CAD 0.6 million, while the non-lethal business line added CAD 0.1 million from ARWEN product sales [6] Operating Expenses - Total operating expenses rose by CAD 0.9 million year-over-year, driven by increased general and administrative costs, sales and marketing expenses, and research and development expenses [8][9] - General and administrative expenses increased by CAD 0.6 million due to higher professional fees and personnel costs [9] Future Outlook - The company anticipates further revenue growth with the commercial launch of KWESST Lightning and expected demand for new ARWEN products [7] - Management is focused on ramping up activities related to the DSEF and Land C4ISR programs, with a maximum potential workshare of approximately CAD 48 million and CAD 27 million respectively [12] Major Highlights - The company reported CAD 0.8 million in unfavorable changes in the fair value of warrant liabilities and CAD 1.8 million in share offering costs during the quarter [11] - A public offering in November 2024 raised approximately CAD 4.9 million before expenses, indicating strong market interest [13] Financial Position - As of December 31, 2024, total assets were CAD 8,070,198, with cash and cash equivalents significantly increasing to CAD 2,854,256 from CAD 256,828 [10] - Total liabilities decreased to CAD 3,057,657 from CAD 4,248,861, reflecting improved financial health [10]

Financial Performance - KWESST Micro Systems reported revenue of CAD 887,658 for the three months ended December 31, 2024, a significant increase from CAD 129,068 in the same period of 2023, representing a growth of 687%[5] - The company's gross profit for the same period was CAD 404,522, compared to a gross loss of CAD 53,805 in the prior year[5] - KWESST reported a net loss of CAD 3,457,015 for the three months ended December 31, 2024, compared to a net loss of CAD 398,973 in the same period of 2023, indicating a substantial increase in losses[5] - KWESST reported a net loss of $3.5 million for the three months ended December 31, 2024, compared to a net loss of $0.4 million in the same period of 2023, indicating a significant increase in losses[15] - The company had negative operating cash flows of $3.2 million for the three months ended December 31, 2024, compared to negative operating cash flows of $2.9 million in the prior year[15] - The company recorded share-based compensation of $51,055 for the three months ended December 31, 2024, compared to $63,489 in 2023, showing a reduction of 20%[98] - For the three months ended December 31, 2024, total interest expense was $63,863, a slight decrease from $64,336 in the same period of 2023[104] Assets and Liabilities - The total assets of KWESST increased to CAD 8,070,198 as of December 31, 2024, up from CAD 5,617,148 at the end of September 2024, marking a growth of 43%[3] - Cash and cash equivalents rose to CAD 2,854,256 at the end of December 2024, compared to CAD 256,828 at the end of September 2024, reflecting a significant increase of 1,010%[3] - The company’s total liabilities decreased to CAD 3,057,657 as of December 31, 2024, down from CAD 4,248,861 at the end of September 2024, a reduction of 28%[3] - Shareholders' equity increased to CAD 5,012,541 as of December 31, 2024, compared to CAD 1,368,287 at the end of September 2024, representing a growth of 267%[3] - As of December 31, 2024, KWESST had $2.8 million in working capital, a recovery from negative working capital of $1.1 million as of September 30, 2024[15] - Accumulated deficit increased to $46.1 million as of December 31, 2024, up from $42.7 million on September 30, 2024[15] - Total trade and other receivables increased to $1.04 million as of December 31, 2024, compared to $0.57 million on September 30, 2024[33] - Inventory decreased slightly to $529,778 as of December 31, 2024, from $533,163 on September 30, 2024[35] - Accounts payable and accrued liabilities totaled $1.13 million as of December 31, 2024, down from $1.66 million on September 30, 2024[39] - Contract liabilities decreased to $92,986 as of December 31, 2024, from $120,571 on September 30, 2024[41] Capital Raising Activities - The company raised CAD 4,871,033 from a U.S. public offering and CAD 3,421,635 from a private placement in November 2024, contributing to its cash position[7] - KWESST Micro Systems Inc. closed a U.S. public offering on April 9, 2024, generating gross proceeds of CAD$1.4 million (US$1 million) by issuing 80,350 pre-funded warrants[44] - On August 13, 2024, KWESST closed a direct offering for 471,500 common shares at US$2.00 per share, resulting in gross proceeds of CAD$1.3 million (US$0.9 million)[47] - The company announced a public offering on November 1, 2024, raising gross proceeds of CAD$4.9 million (US$3.5 million) by selling 80,000 common shares and 3,809,000 pre-funded warrants[51] - KWESST exercised 639,000 pre-funded warrants at a weighted average exercise price of US$0.01, recognizing a gain of CAD$693,328 in the change in fair value of warrant liabilities before reclassifying them to equity[54] - The company raised gross proceeds of $4.9 million (US$3.5 million) in a November U.S. Public Offering, with warrants exercised resulting in additional proceeds of $0.8 million (US$0.6 million)[105] Shareholder Information - KWESST's weighted average number of shares outstanding increased to 3,032,168 for the three months ended December 31, 2024, compared to 561,678 in the same period of 2023[5] - As of December 31, 2024, the total number of outstanding common shares increased to 7,887,223, up from 1,579,176 on September 30, 2024, reflecting a significant issuance for various purposes[57] - The company reported a total of 1,006,645 outstanding securities as of December 31, 2024[49] - The company issued 119,047 common shares at a deemed price of CAD$0.84 per share for debt settlement, representing a 20% discount on the closing price prior to the announcement[80] Revenue Breakdown - The revenue from the digitization product line was $718,983, compared to $92,769 in the prior year, indicating a year-over-year increase of 676%[101] - KWESST's contracted not yet recognized revenue as of December 31, 2024, was $158,011, down from $392,636 in 2023, reflecting a decrease of 60%[101] Other Financial Metrics - The company has incurred significant losses and negative cash flows since inception, primarily funded through financing activities[15] - The company recognized a loss of CAD$104,227 in fair value of warrant liabilities during the year ended September 30, 2024[46] - At December 31, 2024, KWESST reported a gain of CAD$461,340 in fair value of warrant liabilities, compared to nil in 2023[50] - The fair value of the 2024 warrants was calculated at CAD$0.06 per warrant, with an exercise price of US$2.50[50] - The exchange rate used for the fair value calculations was USD/CAD 1.4389[50] - KWESST's warrant liabilities are classified as financial liabilities under IFRS due to the exercise price being denominated in U.S. dollars[45] - The company had a minimum royalty commitment of $2,000,000, with $1,000,000 due beyond five years[107] - Total contractual obligations amounted to $3,447,428, with $1,344,218 due within one year[107] - Non-cash working capital changes for the three months ended December 31, 2024 resulted in a decrease of $957,235, compared to a decrease of $768,042 in 2023[108] - During the three months ended December 31, 2024, the company recorded a foreign exchange gain of $113,283, compared to a gain of $91,710 in 2023[106] - The net U.S. dollar exposure was $1,158,750, with a potential impact of $57,938 on profit or loss from a 5% movement in the U.S. dollar[106] - At December 31, 2024, the company had one right-of-use asset valued at $41,699, down from $72,315 in 2023[112]

Financial Performance - KWESST reported a net loss of CAD $7.4 million for Fiscal 2024, a reduction of CAD $1.9 million compared to Fiscal 2023[3]. - Revenue for Fiscal 2024 increased by 22% to CAD $1.5 million, driven by government contracts in the DSEF and Land C4ISR programs[4]. - Gross profit for Fiscal 2024 was CAD $0.5 million, representing a gross margin of 32.3%, compared to a gross loss of CAD $0.2 million in Fiscal 2023[10]. - Total operating expenses decreased by CAD $1.6 million, or 14%, over Fiscal 2023, primarily due to reductions in general and administrative and selling and marketing costs[13]. - Cash and cash equivalents decreased to CAD $256,828 as of September 30, 2024, down from CAD $5.4 million in the previous year[14]. - Total liabilities decreased to CAD $4.2 million in Fiscal 2024 from CAD $7.8 million in Fiscal 2023[14]. Business Development and Strategy - The Company expects revenue growth with the commercial launch of KWESST Lightning in calendar 2025 and increased demand for new ARWEN 40mm ammunition[9]. - KWESST's digitization business generated CAD $1.0 million in sales in Fiscal 2024, with ongoing contracts contributing significantly[8]. - The Company plans to expand its ARWEN business, including the introduction of a new 40mm cartridge for riot control launchers[15]. - The Company plans to ramp up volume production of its PARA OPS products in early 2024, with initial production having started in fall 2023[18]. - The Company has engaged an external manufacturer for the assembly of its Arwen ammunition and is discussing potential outsourcing and distribution agreements for PARA OPS products[18]. Capital and Funding - The Company received gross proceeds of approximately US$1,000,000 from a public offering of 153,850 Common Shares at a price of US$6.50 per share on April 4, 2024[20]. - The Company announced a public offering of 3,889,000 pre-funded warrants at a price of US$0.90 per share, resulting in gross proceeds of approximately US$3,500,000 on November 1, 2024[25]. - The Company has entered into definitive agreements for the purchase and sale of 471,500 Common Shares at US$2.00 per share, generating gross proceeds of approximately US$943,000 on August 12, 2024[23]. Contracts and Partnerships - The Company reported an annualized revenue of approximately CAD$3.3 million from its subcontract with Thales Canada for the Canadian Department of National Defence contracts[22]. - The Company has been awarded a contract by the Ontario Provincial Police to deliver training and certification for its TAK users and trainers[20]. Leadership and Management - The Company appointed Sean Homuth as President and CEO and Kris Denis as interim CFO and Chief Compliance Officer on November 27, 2023[18]. Product Development and Innovation - The Company showcased a new 40mm baton cartridge at the SHOT Show in January 2024, responding to significant interest from law enforcement agencies[18]. - KWESST develops next-generation tactical systems for military and security forces, including real-time shared situational awareness and targeting information[27]. - The company offers a proprietary non-lethal product line branded PARA OPS, applicable across all segments of the non-lethal market, including law enforcement[27]. - KWESST's products can operate stand-alone or integrate with OEM products and battlefield management systems, all integrated with TAK[27]. Risks and Forward-Looking Statements - Forward-looking statements indicate potential risks, including the inability to secure contracts and subcontracts for its products in 2024-2025[30]. - Management believes that assumptions underlying forward-looking statements are reasonable but may prove incorrect due to various risk factors[30]. - The company faces uncertainties related to financing the scale-up to full commercial production levels for its physical products[30]. - There is a risk of overall interest in KWESST's products being lower than anticipated, affecting future sales[30]. - The company does not undertake any obligation to publicly update or revise forward-looking statements unless required by applicable securities laws[30]. Regulatory and Compliance - The Company received a letter from Nasdaq granting an additional 180-day period until May 12, 2025, to regain compliance with the minimum bid price requirement of US$1.00 per share[25]. - The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of the release[31].

Results of Operations - Total revenue for Fiscal 2024 increased by $0.3 million compared to Fiscal 2023, driven by $0.2 million from the digitization business line and $0.1 million from the less-lethal business line [1] - Revenue for Fiscal 2024 increased by 22% over Fiscal 2023, attributed to government contracts in the Directorate Land Command Systems Program Management Software Engineering Facility (DSEF) and Land C4ISR [28] - The company recorded a net loss of $7.4 million for Fiscal 2024, a reduction of $1.9 million from Fiscal 2023 [28] Gross Profit - Gross profit for Fiscal 2024 was $0.5 million, representing a gross margin of 32.3%, compared to a gross loss of $0.2 million with a gross margin of -15.5% in Fiscal 2023 [29][31] Operating Expenses - Total operating expenses decreased by $1.6 million, or 14%, over Fiscal 2023, primarily due to reductions in selling and marketing costs and general administrative expenses [46] - General and administrative expenses decreased by $1.0 million, or 13%, mainly due to an impairment charge on the Phantom intangible asset in Fiscal 2023 and a decrease in general administrative expenditures [3] - Research and development expenses increased by $0.8 million, or 51%, due to costs associated with the KWESST LightningTM and BLDS projects, as well as the write-off of obsolete inventory [4] Other Income and Expenses - Total other income for Fiscal 2024 was $2.4 million, compared to $2.8 million for Fiscal 2023, reflecting a decrease of $0.4 million [48] - The change in other income was primarily driven by a $3.0 million gain on the change in fair value of warrant liabilities due to a decrease in the underlying common share price [48] Balance Sheet Highlights - As of September 30, 2024, total assets were approximately CAD$5.6 million, down from CAD$11.8 million in 2023 [49] - Total liabilities decreased to CAD$4.2 million from CAD$7.8 million in the previous year [49] Strategic Developments - The company announced plans to issue 4,670 common shares at a deemed price of CAD$20.90 to settle a debt of approximately CAD$97,615 [8] - The appointment of Sean Homuth as President and CEO and Kris Denis as interim CFO and Chief Compliance Officer was announced [9] - The company engaged Dave Ibbetson as a Strategic Defence Advisor [10] Future Outlook - The company expects revenue to increase with the commercial launch of KWESST LightningTM anticipated in calendar 2025, along with expected demand for new ARWEN 40mm ammunition and PARA OPS products [44] - Gross profit margins are expected to continue increasing in Fiscal 2025 due to ramp-up on Canadian Government contracts [45]

Workforce and Employment - The company had a total of 30 employees in Fiscal 2024, up from 29.2 in Fiscal 2023, indicating a growth in workforce [225]. - The company may face challenges in retaining qualified directors and officers due to potential unavailability of adequate D&O insurance [227]. - The company’s executive compensation program is designed to attract and retain high-quality executives while linking compensation to corporate performance [263]. Financial Reporting and Compliance - The company is subject to the requirements of Sarbanes-Oxley (SOX), which necessitates a comprehensive evaluation of internal controls over financial reporting [232]. - Management assessed the effectiveness of internal controls over financial reporting as effective as of September 30, 2024 [383]. - The company is considered an Emerging Growth Company and is exempt from the audit requirements of Section 404(b) of SOX [384]. - There were no changes in internal controls over financial reporting that materially affected the company in Fiscal 2024 [384]. Insurance and Legal Risks - The company maintains D&O insurance, but there is no guarantee that coverage will be adequate in the event of litigation, which could adversely affect financial condition [227]. - The company has not reported any penalties or sanctions against its current directors or executive officers in the past ten years [223]. - The company has not obtained a legal opinion regarding its PFIC status, which may affect U.S. taxpayers holding Common Shares [233]. Stock Performance and Market Conditions - The company has experienced stock price volatility, which may be exacerbated by low trading volumes and market conditions [230]. - The company has experienced significant fluctuations in stock price, which may not correlate with its actual operating performance [231]. - The company received a notice from Nasdaq on May 16, 2024, indicating non-compliance with the Minimum Bid Requirement, which requires a closing bid price of at least USD $1.00 per share for 30 consecutive business days [243]. - The company was granted an additional 180-day period until May 12, 2025, to regain compliance with the Minimum Bid Requirement [243]. - Shareholder approval was not obtained for a proposed share consolidation ratio higher than 10-for-1, limiting the company's ability to address the Minimum Bid Requirement effectively [244]. Taxation and Regulatory Matters - The Company believes it was not a Passive Foreign Investment Company (PFIC) for its most recently completed tax year and expects the same for the current tax year [233]. - Proposed changes in U.S. tax laws, including the Inflation Reduction Act of 2022, may adversely affect the Company and holders of Common Shares [234]. - U.S. taxpayers should consult their tax advisors regarding the implications of PFIC rules on their investments in Common Shares [233]. Compensation and Equity Ownership - Total compensation for David Luxton, Executive Chairman, was $360,000 in fiscal year 2024, compared to $493,500 in 2023 [239]. - Sean Homuth, President & CEO, received total compensation of $352,769 in fiscal year 2024, up from $234,558 in 2023 [239]. - Harry Webster, Chief Operating Officer, earned total compensation of $278,962 in fiscal year 2024, compared to $23,077 in 2023 [239]. - The Company’s NEOs' compensation data indicates a significant increase in total compensation across various roles from 2023 to 2024 [239]. - As of December 23, 2024, the beneficial ownership of Common Shares by named executive officers and directors was 133,101 shares, representing 1.90% of the total outstanding shares [256]. - Total common shares beneficially owned by directors and executives amount to 147,224, which is 1.73% of outstanding shares [281]. Product Development and Contracts - The company has developed proprietary laser defense products to protect ground forces from portable laser attacks [268]. - The company’s core technology, TASCS, integrates a sensor package with a display for real-time situational awareness in military applications [267]. - The company announced a potential contract value exceeding $40 million for Phantom units with General Dynamics Land Systems if awarded [276]. - The company showcased new products at the SHOT SHOW 2023, including the PARA OPS products and ARWEN less-lethal launcher [277]. - The company announced a new scalable situational awareness solution, "Lightning," for public safety agencies, offered as a cloud-based SaaS product [280]. Financial Activities and Capital Raising - The company raised $940,255 through various financing methods in 2018 to fund working capital requirements [267]. - The company closed a U.S. IPO and Canadian Offering, raising aggregate gross proceeds of $14.1 million, selling 250,000 U.S. IPO Common Units at $41.30 each [277]. - The company completed a reverse stock split on October 23, 2024, at a ratio of 1-for-10, which may affect the liquidity of its Common Shares [264]. - The company announced a brokered private placement, raising approximately $5.6 million from the issuance of Common Shares [279].

Core Viewpoint - KWESST Micro Systems Inc. has confirmed that its management is unaware of any material changes in operations that would explain the recent increase in market activity [1] Company Overview - KWESST develops and commercializes next-generation tactical systems for military and security forces, focusing on digitization for real-time shared situational awareness and targeting information [2] - The company's offerings include countermeasures against threats such as electronic detection, lasers, and drones, which can operate independently or integrate with OEM products and battlefield management systems [2] - KWESST has introduced a proprietary non-lethal product line branded PARA OPSTM, applicable across various segments of the non-lethal market, including law enforcement [2] - The company is headquartered in Ottawa, Canada, with representative offices in London, UK, and Abu Dhabi, UAE [2]

Core Points - KWESST Micro Systems Inc. has received a notification from Nasdaq granting an additional 180 calendar days, until May 12, 2025, to regain compliance with the minimum bid price requirement of $1 per share [1][2][3] - The company was initially notified of its non-compliance on May 16, 2024, and had until November 12, 2024, to address the issue but failed to do so [2][4] - Nasdaq's decision is based on the company's compliance with other listing requirements, except for the bid price, and its intention to rectify the deficiency, potentially through a reverse share split [3][4] Company Overview - KWESST develops next-generation tactical systems for military and security forces, focusing on real-time situational awareness and targeting information [6] - The company's product portfolio includes countermeasures against electronic detection, lasers, and drones, and features a new non-lethal product line branded PARA OPSTM [6] - KWESST is headquartered in Ottawa, Canada, with offices in London, UK, and Abu Dhabi, UAE [6]

Core Points - KWESST Micro Systems Inc. has closed a brokered private placement offering, raising approximately CAD$3.4 million (around US$2.5 million) from an institutional accredited investor [1] - The offering included the issuance of 4,145,200 pre-funded warrants, each allowing the purchase of one common share at CAD$0.824 (US$0.592), along with common share purchase warrants exercisable at CAD$1.03 (US$0.74) for 60 months [2] - The net proceeds from the offering will be used for general working capital purposes [3] Group 1: Offering Details - ThinkEquity acted as the sole placement agent for the offering, receiving an 8.0% cash fee and warrants to purchase common shares equal to 5% of the pre-funded warrants sold [4] - The offering is subject to final approval from the TSX Venture Exchange [5] - The securities sold in the offering have not been registered under the U.S. Securities Act and cannot be offered or sold in the U.S. without registration or an exemption [6] Group 2: Related Transactions - KWESST completed a shares-for-debt transaction, issuing 119,047 common shares at a deemed price of CAD$0.84 per share to settle a debt of CAD$100,000 owed to a company controlled by the Executive Chairman [9] - This transaction is classified as a "related party transaction" under Multilateral Instrument 61-101, with exemptions from formal valuation and minority shareholder approval [9] Group 3: Compliance and Financial Position - KWESST received notification from Nasdaq regarding non-compliance with the minimum US$1.00 bid price requirement, with a deadline to regain compliance by November 12, 2024 [10] - The company estimates its unaudited pro-forma consolidated shareholders' equity to be above US$5.0 million, based on adjustments from recent offerings and transactions [11] - KWESST believes it is eligible for an additional 180-day period to regain compliance with Nasdaq requirements [12] Group 4: Company Overview - KWESST develops next-generation tactical systems for military and security forces, including digitization of tactical forces and countermeasures against various threats [13]