Liberty Defense Holdings, Ltd 6-K, filed Aug 17, 2026
Liberty Defense Holdings, Ltd. (DETX)
About this 6-K
Liberty Defense Holdings, Ltd filed this 6-K on August 17, 2026.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN
PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of: August, 2026
Commission File Number: 001-43241
| Liberty Defense Holdings, Ltd. | ||
| (Translation of registrant’s name into English) |
| 187 Ballardvale Street, Suite 110, Wilmington, Massachusetts 01887 | ||
| (Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 17, 2026
| LIBERTY DEFENSE HOLDINGS, LTD. | ||
| By: | /s/ William Frain | |
| Name: | William Frain | |
| Title: | Chief Executive Officer | |
Exhibit 99.1
Liberty Defense Holdings, Ltd.
Condensed Interim Consolidated Financial Statements
(Unaudited)
For the Three Months and Six Months Ended June 30, 2026 and 2025
Prepared by Management
(Expressed in U.S. dollars)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Liberty Defense Holdings Ltd.
Results of Review of Interim Financial Statements
We have reviewed the condensed interim consolidated statement of financial position of Liberty Defense Holdings Ltd.. as of June 30, 2026, and the related condensed statements of loss and comprehensive loss for the three and six month periods ended June 30, 2026 and 2025, and changes in shareholder’s equity (deficiency), and cash flows for the six month periods ended June 30, 2026 and 2025, and the related notes (collectively referred to as the “interim financial information or statements”). Based on our reviews, we are not aware of any material modifications that should be made to the interim financial statements for them to be in accordance with IFRS Accounting Standards (“IFRS”) as issued by the International Accounting Standards Board.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statement of financial position of Liberty Defense Holdings Ltd. and subsidiaries as of December 31, 2025, and the related consolidated statements of loss and comprehensive loss, changes in shareholders’ deficiency, and cash flows for the year then ended (not presented herein); and in our report dated April 29, 2026, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2025, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"). We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ DAVIDSON & COMPANY LLP
| Chartered Professional Accountants | Vancouver, Canada |
August 14, 2026
LIBERTY DEFENSE HOLDINGS, LTD.
Responsibility
For Unaudited Condensed Interim Consolidated Financial Statements
For the Three Months and Six Months Ended June 30, 2026 and 2025
The accompanying unaudited condensed interim consolidated financial statements of Liberty Defense Holdings, LTD. and all information in this financial report are the responsibility of the Board of Directors and Management. The interim unaudited condensed consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), including International Accounting Standard (“IAS”) 34 – Interim Financial Reporting and, where appropriate, include management’s best estimates an judgements. Management maintains a system of internal control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, and that financial information is timely and reliable. However, any system of internal control over financial reporting, no matter how well designed and implemented, has inherent limitations and may not prevent or detect all misstatements. The Board of Directors is responsible for reviewing and approving the unaudited condensed interim consolidated financial statements. The Board of Directors carries out this responsibility principally though its Audit Committee. The Board of Directors appoints the Audit Committee, and all of its members are independent directors. The Audit Committee meets periodically with Management and the auditors to review internal controls, audit results, accounting principles and related matters. The Board of Directors approves the unaudited condensed interim consolidated financial statements on recommendation form the Audit Committee.
| "William Frain" | "Omar Garcia Abrego" | |
| Director, Chief Executive Officer | Chief Financial Officer | |
| August 14, 2026 | ||
Liberty Defense Holdings, Ltd.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited - Expressed in U.S. dollars)
| As at: | Note | June 30,
2026 | December 31,
2025 | |||||||
| $ | $ | |||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash | 7,585,264 | 319,294 | ||||||||
| Accounts receivable, prepaids and deposits | 4 | 1,810,736 | 1,248,367 | |||||||
| Inventory | 6 | 1,773,131 | 1,189,910 | |||||||
| Contract costs | 18 | 85,386 | 152,421 | |||||||
| Deferred financing costs | – | 803,698 | ||||||||
| 11,254,517 | 3,713,690 | |||||||||
| Non-current assets: | ||||||||||
| Property and equipment | 7 | 512,327 | 671,793 | |||||||
| Intangible assets | 8 | 1,712,851 | 1,999,132 | |||||||
| 2,225,178 | 2,670,925 | |||||||||
| Total assets | 13,479,695 | 6,384,615 | ||||||||
| Liabilities | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accrued liabilities | 5 & 20 | 3,211,755 | 4,882,377 | |||||||
| Parabilis term-loan | 10 | 558,433 | 2,622,717 | |||||||
| Factoring and credit line liability | 11 | – | 779,831 | |||||||
| Deferred revenue | 17 | 123,088 | 95,541 | |||||||
| Lease liabilities | 12 | 149,347 | 235,834 | |||||||
| 4,042,623 | 8,616,300 | |||||||||
| Non-current liabilities: | ||||||||||
| Non-current lease liabilities | 12 | 255,916 | 300,401 | |||||||
| Derivative warrant liability | 15 | 197,437 | – | |||||||
| Total liabilities | 4,495,976 | 8,916,701 | ||||||||
| Shareholders’ equity (deficiency) | ||||||||||
| Share capital | 13 | 64,736,067 | 51,355,559 | |||||||
| Equity reserves | 14 | 7,907,310 | 6,390,580 | |||||||
| Accumulated other comprehensive income | 200,339 | 179,164 | ||||||||
| Deficit | (63,859,997 | ) | (60,457,389 | ) | ||||||
| Total shareholders’ equity (deficiency) | 8,983,719 | (2,532,086 | ) | |||||||
| Total liabilities and shareholders’ equity (deficiency) | 13,479,695 | 6,384,615 | ||||||||
Nature of operations and going concern (note 1)
Subsequent events (note 25)
Approved on behalf of the Board of Directors:
| "William Frain" | "Will Hamilton" |
| Director | Director |
The accompanying notes form an integral part of these condensed consolidated interim financial statements.
1
Liberty Defense Holdings, Ltd.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
(Unaudited - Expressed in U.S. dollars, except number of shares)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| Note | 2026 | 2025 | 2026 | 2025 | |||||||||||||
| $ | $ | ||||||||||||||||
| Revenue | 17 & 18 | ||||||||||||||||
| HEXWAVE revenue | 42,202 | - | 686,623 | 780,358 | |||||||||||||
| Contract revenue | - | 429,849 | 275,000 | 704,849 | |||||||||||||
| Total Revenue | 42,202 | 429,849 | 961,623 | 1,485,207 | |||||||||||||
| Cost of revenue | |||||||||||||||||
| HEXWAVE cost of revenue | 987,728 | 531,592 | 1,580,624 | 1,134,234 | |||||||||||||
| Contract cost of revenue | 221,167 | 496,055 | 526,602 | 1,239,245 | |||||||||||||
| Total cost of revenue | 1,208,895 | 1,027,647 | 2,107,226 | 2,373,479 | |||||||||||||
| Gross loss | (1,166,693 | ) | (597,798 | ) | (1,145,603 | ) | (888,272 | ) | |||||||||
| Engineering and Research and Development Expenses: | 972,697 | 629,087 | 1,692,914 | 1,389,886 | |||||||||||||
| Product development & technology Costs | 122,617 | 125,972 | 195,272 | 184,337 | |||||||||||||
| Salaries and consulting fees | 20 | 484,665 | 448,485 | 965,615 | 1,020,425 | ||||||||||||
| Stock-based compensation | 14 & 20 | - | 362 | - | 15,106 | ||||||||||||
| Depreciation | 7 | 101,813 | 46,979 | 201,163 | 132,509 | ||||||||||||
| Office, rent & administration, travel, and miscellaneous | 263,602 | 7,289 | 330,864 | 37,509 | |||||||||||||
| General & Administration Expenses | 1,345,759 | 2,344,349 | 3,216,953 | 4,904,667 | |||||||||||||
| Salaries and consulting fees | 20 | 220,014 | 394,754 | 677,845 | 1,013,612 | ||||||||||||
| Legal and professional fees | 394,701 | 551,982 | 580,829 | 688,383 | |||||||||||||
| Stock-based compensation | 14 & 20 | 193,905 | 407,758 | 343,038 | 976,819 | ||||||||||||
| Office, rent & administration, travel, and miscellaneous | 537,139 | 989,855 | 1,615,241 | 2,225,853 | |||||||||||||
| 2,318,456 | 2,973,436 | 4,909,867 | 6,294,553 | ||||||||||||||
| Operating Loss | $ | (3,485,149 | ) | $ | (3,571,234 | ) | (6,055,470 | ) | (7,182,825 | ) | |||||||
| Other (income) expense: | |||||||||||||||||
| Other income, net | (116,793 | ) | (1,222 | ) | (118,157 | ) | (1,330 | ) | |||||||||
| Initial recognition of warrant liability | 15 | (1,330,381 | ) | - | (1,330,381 | ) | - | ||||||||||
| Gain on fair value change in warrant liability | 15 | (79,448 | ) | - | (79,448 | ) | - | ||||||||||
| Loss on debt settlement | 29,995 | - | 29,995 | - | |||||||||||||
| Interest expense | 9 & 10 | 221,278 | 186,508 | 371,252 | 340,932 | ||||||||||||
| Foreign exchange (gain) loss | (32 | ) | 1,226 | (316 | ) | 20,014 | |||||||||||
| (1,275,381 | ) | 186,512 | (1,127,055 | ) | 359,616 | ||||||||||||
| Net loss for the period | $ | (2,209,768 | ) | $ | (3,757,746 | ) | (4,928,415 | ) | (7,542,442 | ) | |||||||
| Other comprehensive loss | |||||||||||||||||
| Items that may be reclassified subsequently to profit or (loss) | |||||||||||||||||
| Foreign currency translation adjustment | (21,178 | ) | 80,150 | - | 242,450 | ||||||||||||
| Total loss and comprehensive loss for the period | $ | (2,230,946 | ) | $ | (3,677,596 | ) | (4,928,415 | ) | (7,299,992 | ) | |||||||
| Weighted average number of common shares outstanding | |||||||||||||||||
| Basic and diluted | 5,161,843 | 1,276,429 | 3,357,218 | 1,120,540 | |||||||||||||
| Loss per share | |||||||||||||||||
| Basic and diluted loss per common share | 16 | (0.43 | ) | (2.94 | ) | (1.47 | ) | (6.73 | ) | ||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements.
2
Liberty Defense Holdings, Ltd.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity (Deficiency)
(Expressed in U.S. dollars, except number of shares)
| Number of | Accumulated other | |||||||||||||||||||||||||
| common | Share | Equity | comprehensive | |||||||||||||||||||||||
| Note | shares | capital | reserves | income (loss) | Deficit | Total | ||||||||||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Balance as at December 31, 2024 | 962,919 | 40,717,157 | 4,872,472 | (28,896 | ) | (46,325,212 | ) | (764,479 | ) | |||||||||||||||||
| Issue of private placement, net of share issue cost | 13 | 67,356 | 3,058,928 | – | – | – | 3,058,928 | |||||||||||||||||||
| Residual value allocated to warrants | 14 | – | (263,584 | ) | 263,584 | – | ||||||||||||||||||||
| Fair value of broker warrants allocated to share capital | 13 | – | (84,183 | ) | 84,183 | – | – | – | ||||||||||||||||||
| Warrants exercised for cash | 13 | 120,317 | 2,075,555 | – | – | – | 2,075,555 | |||||||||||||||||||
| Restricted share units issued | 13 | 4,202 | 369,454 | (369,454 | ) | – | – | – | ||||||||||||||||||
| Stock based compensation | 13 | – | – | 1,009,922 | – | – | 1,009,922 | |||||||||||||||||||
| Foreign currency translation adjustment | 13 | – | – | – | 242,450 | – | 242,450 | |||||||||||||||||||
| Loss for the period | – | – | – | – | (7,542,442 | ) | (7,542,442 | ) | ||||||||||||||||||
| Balance as at June 30, 2025 | 1,154,794 | 45,873,327 | 5,860,707 | 213,554 | (53,867,654 | ) | (1,920,066 | ) | ||||||||||||||||||
| Balance as at December 31, 2025 | 1,896,677 | 51,355,559 | 6,390,580 | 179,164 | (60,457,389 | ) | (2,532,086 | ) | ||||||||||||||||||
| Issue of private placement and initial public offering net of share issue cost | 13 | 3,761,264 | 14,847,516 | 2,994,502 | – | – | 17,842,018 | |||||||||||||||||||
| Residual value allocated to warrants | 14 | – | (56,452 | ) | 56,452 | – | – | – | ||||||||||||||||||
| Restricted shares units exercised | 13 | 181 | 32,407 | (32,407 | ) | – | – | – | ||||||||||||||||||
| Fair value of broker warrants allocated to share capital | 13 | – | (13,087 | ) | 13,087 | – | – | – | ||||||||||||||||||
| Stock based compensation | 13 | – | – | 352,782 | – | – | 352,782 | |||||||||||||||||||
| Reclassification of warrants to derivative financial liability | 15 | – | – | (1,607,266 | ) | – | – | (1,607,266 | ) | |||||||||||||||||
| Loss for the period | – | – | – | – | (4,928,415 | ) | (4,928,415 | ) | ||||||||||||||||||
| Foreign exchange impact from change in functional currency | 2 | – | (1,429,876 | ) | (260,420 | ) | 21,175 | 1,525,807 | (143,314 | ) | ||||||||||||||||
| Balance as at June 30, 2026 | 5,658,122 | 64,736,067 | 7,907,310 | 200,339 | (63,859,997 | ) | 8,983,719 | |||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements.
3
Liberty Defense Holdings, Ltd.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - Expressed in U.S. dollars)
| Six Months Ended June 30, | ||||||||||
| Note | 2026 | 2025 | ||||||||
| $ | $ | |||||||||
| Cash (used in) provided by: | ||||||||||
| Operating activities: | ||||||||||
| Loss and comprehensive loss for the period | (4,928,415 | ) | (7,542,442 | ) | ||||||
| Items not involving cash: | ||||||||||
| Lease liability interest | 12 | 27,525 | 24,033 | |||||||
| Accrued interest | 9 | 222,709 | 161,190 | |||||||
| Depreciation | 7 | 134,992 | 136,889 | |||||||
| Amortization recorded in cost of revenue | 8 | 286,281 | 286,281 | |||||||
| Loss on disposal of lease | 12 | – | (18,514 | ) | ||||||
| Stock based compensation | 14 | 352,782 | 1,009,923 | |||||||
| Impairment of inventory | 6 | 332,193 | 136,693 | |||||||
| Impairment of contract costs | 18 | 217,770 | – | |||||||
| Credit line Parabilis interest and fees | 11 | – | 172,795 | |||||||
| Warrant liability initial recognition | (1,330,381 | ) | – | |||||||
| Warrant liability revaluation | (79,448 | ) | – | |||||||
| Loss on debt settlement | 29,995 | – | ||||||||
| Changes in non-cash working capital | 19 | (3,232,881 | ) | 285,240 | ||||||
| Cash used in operating activities | (7,966,878 | ) | (5,347,912 | ) | ||||||
| Investing activities: | ||||||||||
| Additions to property and equipment | 7 | (44,233 | ) | (152,398 | ) | |||||
| Cash used in investing activities | (44,233 | ) | (152,398 | ) | ||||||
| Financing activities: | ||||||||||
| Proceeds from equity issuance, net of share issue costs | 13 | 18,645,715 | 3,058,927 | |||||||
| Repayment of working capital loans - Related Parties | 9 | – | (74,658 | ) | ||||||
| Proceeds from working capital loans | 9 | 327,046 | – | |||||||
| Repayments from working capital loans | 9 | (327,046 | ) | (26,249 | ) | |||||
| Proceeds from factoring and credit line | 11 | 2,196,109 | – | |||||||
| Repayments on Parabilis Term Loan | 10 | (2,199,751 | ) | (90,350 | ) | |||||
| Repayments on factoring and credit line | 11 | (3,063,182 | ) | (380,939 | ) | |||||
| Proceeds from warrants exercised | 13 | – | 2,075,555 | |||||||
| Repayment of leases liabilities | 12 | (158,497 | ) | (101,969 | ) | |||||
| Cash provided by financing activities | 15,420,394 | 4,460,317 | ||||||||
| Effect of foreign exchange rate changes on cash | (143,313 | ) | 242,449 | |||||||
| Effect of foreign exchange rate changes on cash | (143,313 | ) | 242,449 | |||||||
| Increase (Decrease) in cash | 7,265,970 | (797,544 | ) | |||||||
| Cash, beginning of the period | 319,294 | 1,153,229 | ||||||||
| Cash, end of the period | 7,585,264 | 355,685 | ||||||||
The accompanying notes form an integral part of these condensed consolidated interim financial statements.
4
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 1. | Nature of operations and going concern |
Liberty Defense Holdings, Ltd. (“Liberty” or the “Company”) is a publicly traded company listed on NASDAQ (NASDAQ: DETX), the TSX Venture Exchange (TSXV: SCAN), the Frankfurt Stock Exchange (Frankfurt: L2D), and the OTCQB (OTCQB: LDDFF). The Company was incorporated under the Business Corporations Act (Ontario) on June 8, 2012. On July 27, 2020, Liberty continued its jurisdiction of incorporation from Ontario to British Columbia and is now governed by the Business Corporations Act (British Columbia).
The Company’s registered and records office is located at 1055 West Georgia Street, Suite 1500, Royal Centre, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7, Canada. Its head office is located at 187 Ballardvale Street, Suite 110, Wilmington, Massachusetts, 01887, USA.
The Company is engaged in the development and commercialization of advanced security detection technologies. Liberty’s flagship product, HEXWAVE, utilizes millimeter wave technology and advanced 3D imaging to detect concealed threats. In addition to HEXWAVE, the Company has licensed High-Definition Advanced Imaging Technology (HD-AIT) for body and shoe scanning.
Going concern
These unaudited condensed interim consolidated financial statements have been prepared using IFRS Accounting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. During the six months ended June 30, 2026, the Company incurred a net loss of $4,928,415 and had cash outflows from operating activities of $7,966,878. Given the current stage of operations, the Company’s ability to continue as a going concern is contingent on its ability to obtain additional financing. While the Company has been successful in arranging financing in the past, the success of such initiatives cannot be assured. These events and conditions indicate that a material uncertainty exists that might cast significant doubt upon the Company’s ability to continue as a going concern.
These unaudited condensed interim consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated statement of financial position classifications that would be necessary were the going concern assumption deemed to be inappropriate. These adjustments could be material.
| 2. | Basis of presentation |
| (a) | Statement of compliance |
These unaudited condensed interim consolidated financial statements have been prepared in conformity with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, using the same accounting policy information as detailed in the Company’s audited annual consolidated financial statements for the year ended December 31, 2025, and do not include all the information required for full annual financial statements in accordance with IFRS Accounting Standards (“IFRS”), as issued by the International Accounting Standards Board ("IASB"). It is suggested that these financial statements be read in conjunction with the annual audited consolidated financial statements.
These condensed interim consolidated financial statements were approved for issuance by the Board of Directors on August 14, 2026.
| (b) | Basis of measurement |
These condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
5
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 2. | Basis of presentation (continued) |
| (c) | Functional and presentation currency |
Effective April 23, 2026, the parent company changed its functional currency from the Canadian dollar ("CAD") to the U.S. dollar ("USD"). Management determined that, following the completion of the Company's initial public offering and NASDAQ listing on April 23, 2026, the USD became the currency of the primary economic environment in which the Company operates. The change in functional currency was accounted for prospectively from the date of the change in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates.
The presentation currency of these condensed interim consolidated financial statements is the USD. Accordingly, references to "$" or "USD" are to U.S. dollars and references to "CAD$" are to Canadian dollars.
| (d) | Basis of consolidation |
These condensed interim consolidated financial statements include the financial statements of Liberty Defense Holdings, Ltd., and the entities controlled by the Company (its subsidiaries), as follows:
| Place of | Functional | Beneficial | |||||||
| Subsidiary | Incorporation | Currency | Interest | ||||||
| Liberty Defense Technologies, Inc. (“LDT”) | United States | USD | 100 | % | |||||
| LDH GS Amalco Corp. (“LDH”) | Canada | CAD | 100 | % | |||||
| DrawDown Detection, Inc. (“DDD”) | Canada | CAD | 100 | % | |||||
| DrawDown Technologies, Inc. (“DDT”) | United States | CAD | 100 | % | |||||
Control exists when the Company has power over an investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Company’s returns. All intercompany balances and transactions have been eliminated upon consolidation.
| (e) | Critical accounting estimates and judgments |
The preparation of financial statements in conformity with IFRS, requires management to select accounting policies and make estimates and judgments that may have a significant impact on the consolidated financial statements. Estimates are continuously evaluated and are based on management’s experience and expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
The Company’s critical accounting judgements and estimates were presented in Note 2 of the annual audited consolidated financial statements and have been consistently applied in the preparation of these condensed interim consolidated financial statements. No new estimates and judgements were applied for the period ended June 30, 2026.
| 3. | Material Accounting Policy Information |
These condensed interim consolidated financial statements do not include all note disclosures required by IFRS for annual financial statements and, therefore, should be read in conjunction with the audited financial statements for the year ended December 31, 2025. In the opinion of management, all adjustments considered necessary for fair presentation of the Company’s financial position, results of operations and cash flows have been included. Operating results for the six months ended June 30, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
6
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 3. | Material Accounting Policy Information (continued) |
Effective April 23, 2026, the Company changed its functional currency from CAD to USD as a result of changes in the underlying transactions, events and conditions relevant to the Company. In accordance with IAS 21, the change was applied prospectively from the date of the change. On April 23, 2026, all assets, liabilities and equity balances were translated into USD using the exchange rate in effect on that date, and those translated amounts became the historical carrying amounts in the Company's new functional currency. The change in functional currency did not result in the recognition of a cumulative translation adjustment.
Derivative financial liabilities are initially recognized at fair value and subsequently measured at fair value through profit or loss at each reporting date.
| 4. | Accounts Receivable, Prepaids and Deposits |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Trade accounts receivables | $ | 257,263 | $ | 470,263 | ||||
| Other accounts receivables | 26,064 | 114,980 | ||||||
| Prepaids and deposits | 1,527,409 | 663,124 | ||||||
| $ | 1,810,736 | $ | 1,248,367 | |||||
The Company provides credit to its customers in the normal course of business and has mitigated this risk by managing and monitoring the underlying business relationships. The Company recognized $nil in expected credit losses during the six months ended June 30, 2026 (December 31, 2025 - $13,910).
| 5. | Accounts Payable |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Accounts payable | $ | 1,941,492 | $ | 2,546,832 | ||||
| Accrued liabilities | 1,270,264 | 2,335,545 | ||||||
| $ | 3,211,756 | $ | 4,882,377 | |||||
Accounts payable of the Company relates to amounts owed to suppliers for goods and services, as well as vendors in relation to legal services, consulting, and credit cards payable. Accrued liabilities of the Company are principally comprised of amounts professional fees, payroll-related obligations, professional fees, royalties, warranty provision, and other expenses incurred but not yet invoiced as of the reporting date.
Amounts payable to Viken were originally due within 120 days and bore interest at a rate of 1.5% per month on overdue balances. As at June 30, 2026, the amount payable to Viken was $nil (December 31, 2025 – $510,000). On March 19, 2026, the parties entered into an amendment requiring the Company to repay the outstanding balance on the earlier of the date the Company’s common shares commenced trading on the Nasdaq Stock Market and March 31, 2026. The amendment also resulted in the recognition of $93,379 of interest expense, increasing the total amount payable to $603,379.
7
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 6. | Inventory |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Raw materials | $ | 244,869 | $ | 532,604 | ||||
| Work-in-progress | 1,401,274 | 283,656 | ||||||
| Finished Goods | - | 124,550 | ||||||
| Right of return on finished goods | 126,988 | 249,100 | ||||||
| $ | 1,773,131 | $ | 1,189,910 | |||||
During the six months ended June 30, 2026, the Company recognized an impairment expense of $332,193 (June 30, 2025 - $136,693).
During the six months ended June 30, 2026, the Company expensed $585,852 of inventory to HEXWAVE cost of revenue (June 30, 2025, $751,114).
During the six months ending June 30, 2026, the Company recognized $42,833 of warranty provision expense to HEXWAVE cost of revenue (June 30, 2025, $35,724).
During the six months ending June 30, 2026, the Company recorded $68,707 of amortization capitalized to inventory (June 30, 2025, $54,245).
| 7. | Property and Equipment |
The continuity of the Company’s property and equipment is as follows:
| Right of Use | Prototype & Demo | Construction in | ||||||||||||||||||
| Equipment | Asset | Untis | Process | Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| At December 31, 2024 | $ | 248,254 | $ | 1,186,874 | $ | 774,566 | $ | 119,388 | $ | 2,329,082 | ||||||||||
| Additions | - | - | - | 87,119 | 87,119 | |||||||||||||||
| Transfers | - | - | 292,310 | (206,507 | ) | 85,803 | ||||||||||||||
| Disposals | (8,453 | ) | - | - | - | (8,453 | ) | |||||||||||||
| At December 31, 2025 | $ | 239,801 | $ | 1,186,874 | $ | 1,066,876 | $ | - | $ | 2,493,551 | ||||||||||
| Additions | - | - | - | 44,233 | 44,233 | |||||||||||||||
| At June 30, 2026 | $ | 239,801 | $ | 1,186,874 | $ | 1,066,876 | $ | 44,233 | $ | 2,537,784 | ||||||||||
| Accumulated Depreciation | ||||||||||||||||||||
| At December 31, 2024 | $ | 189,564 | $ | 617,062 | $ | 762,519 | $ | - | $ | 1,569,145 | ||||||||||
| Depreciation for disposal | - | - | - | - | - | |||||||||||||||
| Depreciation for the year | 22,791 | 193,417 | 36,405 | - | 252,613 | |||||||||||||||
| At December 31, 2025 | $ | 212,355 | $ | 810,479 | $ | 798,924 | $ | - | $ | 1,821,758 | ||||||||||
| Depreciation for disposal | - | - | - | - | - | |||||||||||||||
| Depreciation for the period | 4,384 | 85,019 | 114,296 | - | 203,699 | |||||||||||||||
| At June 30, 2026 | $ | 216,739 | $ | 895,498 | $ | 913,220 | $ | - | $ | 2,025,457 | ||||||||||
| Net Book Value | ||||||||||||||||||||
| At December 31, 2025 | $ | 27,446 | $ | 376,395 | $ | 267,952 | $ | - | $ | 671,793 | ||||||||||
| At June 30, 2026 | $ | 23,062 | $ | 291,376 | $ | 153,656 | $ | 44,233 | $ | 512,327 | ||||||||||
8
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 7. | Property and Equipment (continued) |
During the six months ended June 30, 2026, equipment depreciation recorded to cost of revenue was $2,536 (December 31, 2025 - $126,568).
During the year ended December 31, 2025, the Company disposed of assets with a carrying value of $8,453 for $nil proceeds.
| 8. | Intangible Assets |
The continuity of the Company’s intangible assets is as follows:
| Intellectual | ||||||||||||
| MIT licenses | property | Total | ||||||||||
| Balance, December 31, 2024 | $ | 373,009 | $ | 2,198,684 | $ | 2,571,693 | ||||||
| Amortization | (34,108 | ) | (538,453 | ) | (572,561 | ) | ||||||
| Balance, December 31, 2025 | $ | 338,901 | $ | 1,660,231 | $ | 1,999,132 | ||||||
| Amortization | (17,054 | ) | (269,227 | ) | (286,281 | ) | ||||||
| Balance, June 30, 2026 | $ | 321,847 | $ | 1,391,004 | $ | 1,712,851 | ||||||
Intangible assets including MIT license and Battelle license, encompassing payments in connection to reimbursement of global patent filing costs and annual maintenance fees. Additionally, intellectual property was generated through the reverse take over (“RTO”) transaction closed during the year ended December 31, 2021, and became ready for use during the year ended December 31, 2022. The remaining useful life of the intangible assets are as follows: MIT license 9.5 years, Battelle license nil years, and intellectual property 2.5 years.
During the six months ended June 30, 2026, $286,281 of amortization expense was allocated to HEXWAVE cost of revenues (June 30, 2025 - $286,281).
| (a) | MIT License Agreements |
The Company, through its wholly owned subsidiary Liberty Defense Technologies Inc. (“LDT”), has entered into agreements with the Massachusetts Institute of Technology (“MIT”) and MIT’s Lincoln Laboratory (“MIT LL”), including an exclusive patent licence agreement between MIT and LDT dated September 10, 2018, as amended from time to time (the “Licence Agreement”), a technology transfer agreement between LDT and MIT LL, effective August 24, 2018 (the “Technology Transfer Agreement”), and a cooperative research and development agreement between LDT and MIT dated as of December 21, 2018 (“CRADA”), such agreements providing LDT with an exclusive licence for patents, design assets and MIT LL technical expertise related to active three-dimensional imaging technology that are the technology behind the HEXWAVE product.
The obligations under the Technology Transfer Agreement and the CRADA have now been completed. Liberty may consider extending the CRADA (and therefore changing its scope) if it determines that additional MIT LL technical expertise related to active three-dimensional imaging technology is required. Pursuant to the License Agreement, LDT has been granted the exclusive rights to MIT’s patent in “multistatic sparse array topology for FFT-based field imaging” (MIT Case No. l 8409L) (the “Patent”), which is being utilized in the development and application of the HEXWAVE product. The License Agreement is to be in effect until the expiration of the Patent, which is 10 years (December 2035). In granting LDT such patent rights, the Company shall pay MIT, in addition to patent filling costs, an annual fees as follows: 1) $20,000 for 2019 (paid); $50,000 for 2020 (paid); $60,000 for 2021 (paid); $100,000 for 2022 (paid); $nil for 2023, $40,000 for 2024 (payable),
9
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 8. | Intangible Assets (continued) |
$200,000 for 2025 (payable), and $350,000 for 2026 and thereafter; and 2) a royalty of 5.7% of all gross amount billed licensed products (HEXWAVE) of the Company.
During the six months ended June 30,2026, the Company accrued royalty payments of $132,490 (December 31, 2025, $44,916).
| (b) | Battelle Memorial License Agreement |
On March 22, 2021, the Company, through its wholly owned subsidiary DrawDown Detection, Inc. has entered into an agreement (“Battelle License Agreement”) with Battelle Memorial Institute (“Battelle”), which operates the Pacific Northwest National Laboratory (“PNNL”), to license the millimeter wave-based, High-Definition Advanced Imaging Technology (HD-AIT) body scanner and shoe scanner technologies. The agreement, as amended from time to time, provides the Company with a three-year exclusive license for certain patents which will convert to a non-exclusive license for the remaining life of the patents. The agreement also provides the Company with non-exclusive license for certain patents for life.
As consideration for the Battelle License Agreement, the Company paid $30,000 upon signing and $30,000 six months after.
Under the Battelle License Agreement, the Company shall pay a five percent royalty on gross sales less any returns, repayments, or rejections, that pertain to the production utilizing the license agreement (HD-AIT), and a twenty-five percent royalty on all sublicensing revenues if permitted under the contract guidelines.
During the six months ended June 30, 2026, the Company accrued royalty payments of $nil (December 31, 2025, $nil).
The Company is required to pay a minimum royalty amount as follows, unless the agreement is terminated:
| (b) | Battelle Memorial License Agreement (continued) |
| Amounts | ||||
| Year 2021 (paid) | $ | 50,000 | ||
| Year 2022 (paid) | 50,000 | |||
| Year 2023 (paid) | 100,000 | |||
| Year 2024 (paid) | 200,000 | |||
| Year 2025 (payable) | 200,000 | |||
| Year 2026 and each year thereafter (payable) | 200,000 | |||
The Company is obligated reimburse Battelle for ongoing patenting expenses, as well as past patenting expenses in the total amount of $50,000, from which $50,000 has been paid.
As at June 30, 2026, the Company has a balance payable of $134,230 (December 31, 2025, $200,000).
| 9. | Loans Payable |
| (a) | Related Party Loans |
During the six months ended June 30, 2026, the Company received working capital loans from related parties in the amount of $327,046. The Company did not receive working capital loans from related parties during the fiscal year ended December 31, 2025. These loans, unsecured and non-interest bearing, lack specified maturity dates. As of June 30, 2026, all loans were fully repaid.
10
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 9. | Loans Payable (continued) |
| (a) | Related Party Loans (continued) |
| Amounts | |||||
| Balance, December 31, 2024 | $ | 74,658 | |||
| Repayments | (74,658 | ) | |||
| Balance, December 31, 2025 | $ | - | |||
| Additions | 327,046 | ||||
| Repayments | (327,046 | ) | |||
| Balance, June 30, 2026 | $ | - | |||
| (b) | Short Term Loans |
During the year ended December 31, 2024, the Company obtained a secured business loan of $420,000 from Blade Funding with a 32-week term. The loan carries an annual interest rate of 11.50%, requires weekly payments of $13,125. The loan matured on January 19, 2025. As at March 31, 2026, the balance outstanding was $nil (December 31, 2025 - $nil). During the year ended December 31, 2025, the Company fully repaid this loan.
| Amounts | ||||
| Balance, December 31, 2024 | $ | 26,250 | ||
| Repayments | (26,250 | ) | ||
| Balance, December 31, 2025 and June 30, 2026 | $ | - | ||
| 10. | Parabilis Term Loan |
On August 22, 2024, the Company secured a $1,800,000 business term loan from PFF, LLC (“Parabilis”). The loan has a term of 104 weeks with an annual interest rate of 17.99% and is scheduled to mature on August 15, 2026. The agreement was amended on March 15, 2025, July 15, 2025, August 14, 2025, and September 1, 2025, with additional advancements totaling $650,000 and amending the payment schedule. Repayments of principal commenced in October 2025 with interest only payments through September 2025. The remaining contractual repayments approximate the carrying value of the term loan and are payable over eight months. See Note 10(a) regarding collateral.
| Amounts | ||||
| Balance, December 31, 2024 | $ | 983,671 | ||
| Additions | 683,017 | |||
| Accrued interest and fee | 169,279 | |||
| Repayments | (1,056,136 | ) | ||
| Balance, December 31, 2025 | $ | 779,831 | ||
| Additions | 2,196,109 | |||
| Accrued interest and fees | 87,242 | |||
| Repayments | (3,063,182 | ) | ||
| Balance, June 30, 2026 | $ | - | ||
11
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 11. | Factoring and Credit Line Liabilities |
| (a) | Parabilis Credit Line |
On August 22, 2024, the Company entered into a secured revolving credit line agreement with Parabilis for up to $2,500,000. The borrowing base for the credit line is determined based on the following percentages: 90% of eligible billed receivables, 65% of eligible unbilled receivables, and 30% of eligible delivery orders. The aggregate of eligible billed and unbilled receivables, along with eligible delivery orders, establishes the Company’s borrowing capacity under the credit line.
When invoicing occurs, payments on the invoices are applied directly to the outstanding principal and interest on the credit line. The revolving credit facility had a maturity date of August 31, 2025, which was then amended on September 1, 2025, to mature on May 31, 2026, and will automatically renew for one-year periods unless the lender has notified the borrower at least 90 days in advance of the current maturity date will not renew. The facility carries an interest rate of 14.99% per annum. The Company shall pay a monthly commitment fee equal to 0.083% multiplied by the line of credit balance at the end of each month.
The Parabilis term loan and credit line are secured by all tangible and intangible personal property of the Company, wherever located, whether currently owned or acquired in the future. As of June 30, 2026, the balance has been paid in full.
| Amounts | ||||
| Balance, December 31, 2024 | $ | 983,671 | ||
| Additions | 683,017 | |||
| Accrued interest and fee | 169,279 | |||
| Repayments | (1,056,136 | ) | ||
| Balance, December 31, 2025 | $ | 779,831 | ||
| Additions | 2,196,109 | |||
| Accrued interest and fees | 87,242 | |||
| Repayments | (3,063,182 | ) | ||
| Balance, June 30, 2026 | $ | - | ||
| 12. | Leases |
The Company’s lease liabilities as at June 30, 2026, and December 31, 2025, are as follows:
| Right of use liability | ||||
| Balance, December 31, 2024 | $ | 708,825 | ||
| Finance costs | 44,882 | |||
| Lease cancelation | (18,514 | ) | ||
| Lease payments | (198,958 | ) | ||
| Balance, December 31, 2025 | $ | 536,235 | ||
| Finance costs | 27,525 | |||
| Lease payments | (158,497 | ) | ||
| Balance, June 30, 2026 | $ | 405,263 | ||
| Less current portion | 149,347 | |||
| Non-current lease liability | $ | 255,916 | ||
During the year ended December 31, 2025, the Company was notified one of the leases being nulled due to the owners selling the building. The lease was canceled but the Company’s right to the building was retained until September 30, 2025.
12
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 12. | Leases (continued) |
Minimum lease payments are as follows:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Maturity analysis - contractual undiscounted cash flows | ||||||||
| One year or less | $ | 243,527 | $ | 238,567 | ||||
| Two to five years | 195,492 | 358,949 | ||||||
| Six and thereafter | - | - | ||||||
| Total lease liabilities | $ | 439,019 | $ | 597,516 | ||||
| Lease liabilities included in the statement of financial position | $ | 405,263 | $ | 536,235 | ||||
| Current | $ | 149,347 | $ | 235,834 | ||||
| Non-current | $ | 255,916 | $ | 300,401 | ||||
During the six months ended June 30, 2026, the Company recorded a lease expense of $9,000 (December 31, 2025-$6,000) related to short-term leases not meeting the criteria for capitalization under IFRS 16.
| 13. | Share Capital |
| (a) | Common share transactions for the six months ended June 30, 2026 |
| i) | On January 15, 2026, the Company closed the second and final tranche of the December 2025 non-brokered private placement for additional gross proceeds of $624,002 (CAD$867,506) through the issuance of 87,627 units at a price of CAD$9.90 per unit. Each unit comprised one common share and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share at an exercise price of CAD$13.50 per share, exercisable from March 17, 2026, to January 15, 2028. The warrants were allocated a residual value of $56,452. In connection with the private placement, the Company issued an aggregate of 5,045 broker warrants to agents under terms and conditions substantially identical to those of the unit warrant. The broker warrants were allocated a fair value of $13,087 (CAD$18,194). Additionally, the Company paid commissions and legal expenses of $48,490 (CAD$67,413). |
| ii) | On April 21, 2026, the Company priced an initial public offering in the United States consisting of 3,673,638 common shares at a price of $4.50 per share for gross proceeds of $16,531,371 and, in lieu of common shares for certain investors, 770,807 pre-funded warrants at a purchase price of $4.4999 per pre-funded warrant for gross proceeds of $3,468,554. The common shares commenced trading on the Nasdaq Capital Market on April 22, 2026 under the symbol "DETX". The offering closed on April 23, 2026, resulting in aggregate gross proceeds of $19,999,925. The Company incurred commissions and legal expenses of $2,733,420 in connection with the offering. |
The pre-funded warrants were classified as equity instruments in accordance with IAS 32, Financial Instruments: Presentation, as they represent the right to acquire a fixed number of the Company's common shares for a fixed exercise price denominated in the Company's functional currency at the date of issuance. The gross proceeds received from the issuance of the pre-funded warrants were recorded within equity reserves and will be transferred to share capital upon exercise. As equity instruments, the pre-funded warrants are not subsequently remeasured.
| iii) | During the six months ended June 30, 2026, a total of 181 common shares were issued pursuant to the RSUs with a fair value of $32,407. |
13
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 13. | Share Capital (continued) |
| (b) | Common share transactions for the year ended December 31, 2025 |
| i) | On January 6, 2025, the Company received $2,071,851 (CAD$2,977,851) from the exercise of 120,317 share purchase warrants after electing, on December 31, 2024, to exercise its acceleration right for a total of 277,778 warrants granted on December 19, 2024, pursuant to a private placement. As a result, the remaining 157,461 unexercised warrants expired. |
| ii) | On March 20, 2025, the Company closed a non-brokered private placement for gross proceeds of $3,479,351 (CAD$5,001,183). The Company issued 67,356 units (each a “Unit”) of the Company at a price of CAD$74.25 per Unit. Each Unit comprised of one common share and one-half common share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share of the Company at a price of CAD$92.25 for a period of 24 months and is subject to an accelerated expiry at the Company’s election under certain conditions. The warrants were allocated a residual value of $263,584. In connection with the non-brokered private placement, the Company issued 4,715 finder warrants. Each finder’s warrant will be exercisable to purchase one common share for a period of 24 months at an exercise price of CAD$74.25. The broker warrants were allocated a fair value of $84,183 (CAD$121,004). Additionally, the Company paid commissions and legal expenses of $420,424 (CAD$600,650). |
| iii) | On April 1, 2025, a total of 78 shares were issued pursuant to the exercise of 78 warrants, resulting in proceeds of $3,704 (CAD$5,285). Residual value in the amount of $nil was reversed. |
| iv) | On April 13, 2025, a total of 478 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $5,498 and the reserve value was reclassified to share capital. |
| v) | On May 9, 2025, a total of 309 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $3,816 and the reverse value was reclassified to share capital. |
| vi) | On June 6, 2025, a total of 206 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $1,892 and the reverse value was reclassified to share capital. |
| vii) | On July 29, 2025, the Company closed a non-brokered private placement for gross proceeds of $3,199,767 (CAD$4,399,996). The Company issued 444,444 units (each a “Unit”) of the Company at a price of CAD$9.90 per Unit. Each Unit comprised of one common share and one common share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share of the Company at a price of CAD$15.75 for a period of 12 months and is subject to an accelerated expiry at the Company’s election under certain conditions. The warrants were allocated a residual value of $nil. Additionally, the Company issued 16,000 broker warrants with a fair value of $38,472 (CAD$52,902). The Company paid commissions and legal expenses of $137,898 (CAD$189,781). |
| viii) | On October 31, 2025, the Company received gross proceeds of $1,353,116 (CAD$1,895,093) from the exercise of 120,323 warrants. |
| ix) | On December 31, 2025, the Company closed the first tranche of a non-brokered private placement for gross proceeds of $1,274,365 (CAD$1,747,172), through the issuance of 176,482 units at a price of CAD$9.90 per unit. Each unit comprised one common share and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share at an exercise price of CAD$13.50 per share, exercisable from March 2, 2026, to December 31, 2027. The Company issued an aggregate of 7,915 broker warrants with a fair value of $20,866 (CAD$28,608). The warrants were allocated a residual value of $115,851 (CAD$158,833). The Company paid commissions and legal expenses of $57,331 (CAD$78,356). |
| x) | During the year ended December 31, 2025, a total of 4,758 common shares were issued pursuant to the RSUs with a fair value of $383,471. |
14
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 14. | Equity Reserves |
| (a) | Share-based compensation |
The Company maintains an Omnibus Equity Incentive Plan (the “Incentive Plan”) which is comprised of stock options, restricted share units (“RSUs”), performance share units (“PSUs”), and deferred share units (“DSUs”). The maximum number of common shares reserved for issuance, in the aggregate, under the Incentive Plan is 10% of the aggregate number of common shares issued and outstanding to be granted to directors, officers, employees, and consultants under certain restrictions.
Unless the Board decides, or the grant agreement specifies otherwise, the stock options will vest in two years with quarterly intervals following the date of such grant. The Board shall fix the exercise price of any stock option when such stock option is granted, which shall not be less than the closing price of the common shares on the Exchange on the day prior to the date of grant (the “Market Value”). A stock option shall be exercisable during a period established by the Board, which shall commence on the date of the grant and shall terminate no later than ten (10) years after the date of grant of the award or such shorter period as the Board may determine.
With respect to RSUs, the specific provisions of the RSU plan, eligibility, vesting period, terms of the RSUs and the number of RSUs granted are to be determined by the Board of Directors at the time of the grant.
With respect to PSUs, the specific provisions of the PSU plan, eligibility, vesting period, terms of the PSUs and the number of PSUs granted are to be determined by the Board of Directors at the time of the grant.
The continuity of the number of stock options issued and outstanding are as follows:
| Number of stock | Weighted average | |||||||
| options | exercise price | |||||||
| Outstanding, December 31, 2024 | 71,717 | CAD$ | 58.05 | |||||
| Cancelled | (15,329 | ) | 59.96 | |||||
| Granted | 54,444 | 13.69 | ||||||
| Outstanding, December 31, 2025 | 110,832 | CAD$ | 35.85 | |||||
| Expired | (1,844 | ) | 225.00 | |||||
| Outstanding, June 30, 2026 | 108,988 | CAD$ | 33.86 | |||||
As at June 30, 2026, the number of stock options outstanding and exercisable were:
| Outstanding | Exercisable | ||||||||||||||||
| Expiry date | Number
of stock options | Exercise price | Remaining
contractual life (years) | Number
of stock options | |||||||||||||
| 28-Jul-26 | 278 | CAD$ | 247.50 | 0.08 | 278 | ||||||||||||
| 28-Jul-26 | 111 | CAD$ | 292.50 | 0.08 | 111 | ||||||||||||
| 1-Nov-26 | 944 | CAD$ | 207.00 | 0.34 | 944 | ||||||||||||
| 14-Jan-27 | 222 | CAD$ | 162.00 | 0.54 | 222 | ||||||||||||
| 15-Apr-27 | 1,111 | CAD$ | 26.55 | 0.79 | 1,111 | ||||||||||||
| 26-Apr-27 | 2,633 | CAD$ | 184.50 | 0.82 | 2,633 | ||||||||||||
| 2-Jul-27 | 5,556 | CAD$ | 10.80 | 1.01 | 2,778 | ||||||||||||
| 21-Nov-27 | 133 | CAD$ | 99.00 | 1.39 | 133 | ||||||||||||
| 26-Apr-28 | 111 | CAD$ | 81.00 | 1.82 | 111 | ||||||||||||
| 16-Oct-28 | 1,778 | CAD$ | 85.50 | 2.30 | 1,778 | ||||||||||||
| 30-Dec-29 | 51,667 | CAD$ | 38.25 | 3.50 | 40,695 | ||||||||||||
| 2-Apr-30 | 3,333 | CAD$ | 37.80 | 3.76 | 2,083 | ||||||||||||
| 30-Sep-30 | 41,111 | CAD$ | 12.15 | 4.25 | 15,417 | ||||||||||||
| June 30, 2026 | 108,988 | 68,294 | |||||||||||||||
15
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 14. | Equity Reserves (continued) |
| (a) | Share-based compensation (continued) |
During the six months ended June 30, 2026, the Company recognized stock-based compensation related to stock options totaling $352,783 (June 30, 2025 – $932,985). Of this amount, $8,084 was recorded as stock-based compensation in the HEXWAVE cost of revenue (June 30, 2025 – $13,747), and $9,951 was recorded as stock-based compensation in cost of contract revenue (June 30, 2025 - $2,765).
The fair value of the stock options granted were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Risk-free interest rate | Nil | 2.52 | % | |||||
| Expected dividend yield | Nil | Nil | ||||||
| Stock price volatility | Nil | 155.49 | % | |||||
| Expected life (in years) | Nil | 5 years | ||||||
| Stock price | Nil | CAD$ | 13.50 | |||||
| (b) | Restricted share units (“RSU”) |
Restricted share units granted for the six months ended June 30, 2026:
The estimated fair value of the equity settled RSUs granted as of June 30, 2026, was $nil (December 31, 2025 – $60,998) and will be recognized as an expense over the vesting period of the RSUs. The fair value of the equity settled RSUs as at the grant date was determined with reference to the market value of the common shares of the Company at the grant date.
Restricted share units granted for the year ended December 31, 2025:
| i) | During the year ended December 31, 2025, a total of 4,758 common shares were issued pursuant to the exercise of RSUs. |
| ii) | On August 7, 2025, the Company granted 1,111 RSUs to consultants; these RSUs shall be settled with common shares of the Company, have an exercise period that expires on January 1, 2029, and vest at 100% on January 1, 2026. |
| iii) | On December 12, 2025, the Company granted 7,149 RSUs to a contractor; these RSUs shall be settled with common shares of the Company, have an exercise period that expires December 12, 2029, and vests 100% on December 12, 2026. |
The following table summarizes the movements in outstanding RSUs:
| Number of equity | ||||||||
| settled RSUs | Grant Price | |||||||
| Outstanding, December 31, 2024 | 11,918 | CAD$ | 180.45 | |||||
| Granted | 8,260 | 10.91 | ||||||
| Exercised | (4,758 | ) | 115.88 | |||||
| Outstanding, December 31, 2025 | 15,420 | CAD$ | 55.51 | |||||
| Exercised | (181 | ) | 247.5 | |||||
| Cancelled | (1,672 | ) | 179.34 | |||||
| Outstanding, June 30, 2026 | 13,567 | CAD$ | 37.74 | |||||
16
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 14. | Equity Reserves (continued) |
| (b) | Restricted share units (“RSU”) (continued) |
| Outstanding | Exercisable | |||||||||||||||
| Expiry date | Number of restricted share units | Grant Price | Remaining contractual life (years) | Number of restricted share units | ||||||||||||
| 26-Apr-27 | 444 | CAD$ | 198.00 | 0.82 | 444 | |||||||||||
| 16-Oct-28 | 2,752 | CAD$ | 76.50 | 2.30 | 2,752 | |||||||||||
| 28-Feb-29 | 2,111 | CAD$ | 58.50 | 2.67 | 2,111 | |||||||||||
| 01-Jan-29 | 1,111 | CAD$ | 12.15 | 2.51 | 1,111 | |||||||||||
| 12-Dec-29 | 7,149 | CAD$ | 10.58 | 3.45 | - | |||||||||||
| June 30, 2026 | 13,567 | 6,418 | ||||||||||||||
A total of 6,418 RSU’s were vested as at June 30, 2026.
During the six months ended June 30, 2026, the Company recognized stock-based compensation related to RSUs in the amount of $22,811 (June 30, 2025 – $24,295).
| (c) | Share purchase warrants |
The continuity of the number of share purchase warrants outstanding is as follows:
| Warrants | Exercise | |||||||
| outstanding | Price | |||||||
| Outstanding, December 31, 2024 | 446,109 | CAD$ | 54.90 | |||||
| Issued | 683,234 | 19.32 | ||||||
| Expired | (169,855 | ) | 32.79 | |||||
| Exercised | (240,718 | ) | 20.27 | |||||
| Outstanding December 31, 2025 | 718,770 | CAD$ | 36.45 | |||||
| Issued | 863,479 | 6.94 | ||||||
| Outstanding June 30, 2026 | 1,582,249 | CAD$ | 20.35 | |||||
The fair value of the compensation warrants was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Risk-free interest rate | 2.90 | % | 2.88 | % | ||||
| Expected dividend yield | Nil | Nil | ||||||
| Stock price volatility | 93.11 | % | 94.42 | % | ||||
| Expected life (in years) | 2 years | 1.4 years | ||||||
| Share price on grant date | CAD$ | 9.00 | CAD$ | 41.04 | ||||
| Fair value share purchase warrants | CAD$ | 3.61 | CAD$ | 7.38 | ||||
17
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 14. | Equity Reserves (continued) |
| (c) | Share purchase warrants (continued) |
The outstanding number of share purchase warrants is as follows:
| Outstanding | ||||||||||||
| Remaining | ||||||||||||
| Expiry date | Number of warrants | Exercise price | contractual
life (years) | |||||||||
| 28-Jul-26 | 324,121 | CAD$ | 15.75 | 0.08 | ||||||||
| 28-Jul-26 | 15,999 | CAD$ | 15.75 | 0.08 | ||||||||
| 5-Oct-26 | 39,617 | CAD$ | 135.00 | 0.27 | ||||||||
| 5-Oct-26 | 1,349 | CAD$ | 90.00 | 0.27 | ||||||||
| 18-Dec-26 | 45,162 | CAD$ | 24.75 | 0.47 | ||||||||
| 12-Jan-27 | 12,116 | CAD$ | 67.95 | 0.54 | ||||||||
| 5-Feb-27 | 2,222 | CAD$ | 90.00 | 0.60 | ||||||||
| 28-Feb-27 | 20,202 | CAD$ | 67.50 | 0.67 | ||||||||
| 27-Jun-27 | 423 | CAD$ | 90.00 | 0.99 | ||||||||
| 27-Jun-27 | 10,256 | CAD$ | 67.95 | 0.99 | ||||||||
| 20-Mar-27 | 33,678 | CAD$ | 92.25 | 0.72 | ||||||||
| 20-Mar-27 | 4,715 | CAD$ | 74.25 | 0.72 | ||||||||
| 27-Oct-27 | 3,215 | CAD$ | 123.75 | 1.33 | ||||||||
| 27-Oct-27 | 21,296 | CAD$ | 225.00 | 1.33 | ||||||||
| 31-Dec-27 | 176,482 | CAD$ | 13.50 | 1.50 | ||||||||
| 31-Dec-27 | 7,915 | CAD$ | 13.50 | 1.50 | ||||||||
| 15-Jan-28 | 87,627 | CAD$ | 13.50 | 1.55 | ||||||||
| 15-Jan-28 | 5,045 | CAD$ | 13.50 | 1.55 | ||||||||
| 23-Apr-28 | 770,807 | CAD$ | 6.15 | 1.82 | ||||||||
| June 30, 2026 | 1,582,249 | |||||||||||
Effective April 23, 2026, certain outstanding CAD-denominated warrants were reclassified from equity to derivative financial liabilities following the Company's change in functional currency. Refer to Notes 3 and 15. The pre-funded warrants issued in connection with the Company's initial public offering are not included in the above reclassification, as they continue to qualify for equity classification under IAS 32. As at June 30, 2026, the Company had 770,807 pre-funded warrants outstanding (December 31, 2025 – nil). Each pre-funded warrant entitles the holder to acquire one common share of the Company at an exercise price of $0.0001 per share and remains exercisable until exercised. As equity instruments, the pre-funded warrants are not subsequently remeasured.
| (d) | Performance Shares |
On March 17, 2021, Liberty deposited into escrow, and held in escrow, Operational Performance Shares (“OPS”) and Capital Market Performance Shares (“CMPS”) for certain directors, officers, and consultants of the Company upon the Company achieving certain performance milestones. Once these milestones were achieved the shares would be released. These performance shares included 4,444 of OPS and 19,496 of CMPS. In order to fair value these performance shares, management estimated the probability that the Company would issue the performance shares.
All CMPS have been issued in previous years upon the completion of all required milestones.
18
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 14. | Equity Reserves (continued) |
| (d) | Performance Shares (continued) |
Operational Performance Shares
As at June 30, 2026, none of the 4,444 OPS have been issued as neither of the two milestones have been met. The estimated fair value of the OPS is CAD$800,000 which has an estimated vesting period of December 2026. During the six months ended June 30, 2026, the Company recorded stock-based compensation in connection to OPS in the amounts of $47,831 (June 30, 2025 – $51,157). For the six months ended June 30, 2026, and year ended December 31, 2025, none of the operational performance shares have been released from escrow.
| 15. | Derivative Warrant Liability |
Effective April 23, 2026, the Company changed its functional currency from the Canadian dollar ("CAD") to the U.S. dollar ("USD"). As a result, certain outstanding warrants with exercise prices denominated in CAD no longer satisfied the fixed-for-fixed criterion under IAS 32, Financial Instruments: Presentation, and were reclassified from equity to derivative financial liabilities.
Upon the change in functional currency, the derivative warrant liability was initially recognized at fair value. The historical carrying amount of the related warrant reserve was derecognized, and the difference between the historical carrying amount and the initial fair value of the derivative warrant liability was recognized in the condensed interim consolidated statement of loss and comprehensive loss.
Following initial recognition, the derivative warrant liability is measured at fair value at each reporting date, with changes in fair value recognized in profit or loss in accordance with IFRS 9, Financial Instruments.
| Amounts | ||||
| Balance, December 31, 2024 and 2025 | $ | - | ||
| Initial recognition on April 23, 2026 | 276,885 | |||
| Change in fair value | (79,448 | ) | ||
| Balance, June 30, 2026 | $ | 197,437 | ||
The fair value of the derivative warrant liability was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
| June 30, | ||||
| 2026 | ||||
| Risk-free interest rate | 3.91 | % | ||
| Expected dividend yield | Nil | |||
| Stock price volatility | 78.28 | % | ||
| Expected life (in years) | 0.71 years | |||
| Share price on grant date | $ | 4.67 | ||
| Fair value share purchase warrants | $ | 0.38 | ||
The derivative warrant liability relates exclusively to legacy CAD-denominated unit warrants outstanding on April 23, 2026. Pre-funded warrants issued in connection with the Company's initial public offering and other equity-classified warrants are not included in the derivative warrant liability.
19
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 16. | Loss Per Share |
Basic loss per share is calculated by dividing the net loss for the period by the weighted average number of common shares outstanding during the period.
The Company incurred net losses for the six months ended June 30, 2026 and 2025; therefore, all potentially dilutive securities, including outstanding stock options, share purchase warrants, restricted share units, and performance share units, if any, have been excluded from the calculation of diluted loss per share as their effect would be anti-dilutive. The pre-funded warrants have been included in the weighted average number of commons shares outstanding during the period because they are exercisable into common shares for a nominal exercise price.
| Three months ended June 30, | Six months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Loss attributable to common shareholders | $ | (2,209,768 | ) | $ | (3,757,746 | ) | $ | (4,928,415 | ) | $ | (7,542,441 | ) | ||||
| Weighted average number of shares | 5,161,843 | 1,276,429 | 3,357,218 | 1,120,540 | ||||||||||||
| Basic and diluted loss per share | $ | (0.43 | ) | $ | (2.94 | ) | $ | (1.47 | ) | $ | (6.73 | ) | ||||
| 17. | Deferred Revenue |
Revenue recognized for the six months ended June 30, 2026, and 2025, relates to contract revenue from the Transportation Security Administration (“TSA”) (Note 17), as well as sales of HEXWAVE units.
Deferred revenue as of June 30, 2026, was as follows:
| Deferred Revenue | Amounts | |||
| Outstanding, December 31, 2024 | 180,000 | |||
| Additions | 189,725 | |||
| Refunds | (180,000 | ) | ||
| Recongnized revenue | (94,254 | ) | ||
| Outstanding, December 31, 2025 | 95,541 | |||
| Additions | 82,242 | |||
| Recongnized revenue | (54,695 | ) | ||
| Outstanding, June 30, 2026 | 123,088 | |||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| Revenue | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| TSA Contract Award HD-AIT | - | 357,905 | - | 457,905 | ||||||||||||
| TSA OA Development | - | 71,944 | - | 246,944 | ||||||||||||
| HD-AIT Phase II B | - | - | 275,000 | - | ||||||||||||
| HEXWAVE units | - | - | 601,928 | 653,500 | ||||||||||||
| HEXWAVE Software, Training & Warranty | 42,202 | - | 84,695 | 126,858 | ||||||||||||
| Total Revenue | $ | 42,202 | $ | 429,849 | $ | 961,623 | $ | 1,485,207 | ||||||||
| 18. | Contract Awards |
During the six months ended June 30, 2026, the Company recognized total contract revenue of $275,000, recorded in revenue (June 30, 2025 – $704,849). Future revenue related to these contracts will be recognized as performance obligations are satisfied. It is estimated that future revenues will be recognized on the same basis according to the following timelines:
| Year ended December 31, | ||||||||
| Contract Award Revenue Expected in Future Years | 2026 | 2027 | ||||||
| HD-AIT Phase II B | $ | 82,759 | $ | - | ||||
| Total estimated contract revenues | $ | 82,759 | $ | - | ||||
20
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 18. | Contract Awards (continued) |
| TSA HD-AIT Phase II B |
On September 29, 2025, the Company received a contract award for $357,759 from TSA for the HD-AIT Phase II B option. The contract award is a follow-on option to the current HD-AIT development program to execute phase II to drive to a final hardware design capable of supporting future compliance efforts. Invoices will be issued once the milestones are reached based on the agreed upon timeline. As at June 30, 2026, the Company received $100,000 and had a receivable of $175,000 (June 20, 2025 - $nil, and $nil respectively). The balance remaining on the contract as of June 30, 2026, was $82,759 (December 31, 2025 - $357,759).
| TSA HD-AIT Phase II B | Amounts | |||
| Year 2026 | ||||
| Milestone 3 (Q1 2026) | $ | 100,000 | ||
| Milestone 4 (Q1 2026) (payable) | 175,000 | |||
| Milestone 5 (Q3 2026) | 82,759 | |||
| Total Contract Value | $ | 357,759 | ||
As of June 30, 2026, the Company recorded contract costs of $85,386, representing costs incurred for contract milestones not yet achieved less related impairment charges (December 31, 2025 - $152,421). As of June 30, 2026, the Company recorded an impairment of the contract costs of $217,770 (December 31, 2025 - $192,951).
| 19. | Supplemental Disclosure with Respect to Cash Flows |
During the six months ended June 30, 2026, and 2025, the Company paid $nil in income taxes in both periods, and paid interest of $371,258 and $117,543, respectively.
21
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 19. | Supplemental Disclosure with Respect to Cash Flows (continued) |
| Six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Changes in non-cash working capital | ||||||||
| Amounts receivable and prepaids | $ | (562,369 | ) | $ | (175,214 | ) | ||
| Inventory | (846,707 | ) | (365,142 | ) | ||||
| Contract cost | (150,735 | ) | 268,952 | |||||
| Accounts payable and accrued liabilities | (1,700,617 | ) | 541,644 | |||||
| Deferred financing fee | - | - | ||||||
| Deferred revenue | 27,547 | 15,000 | ||||||
| Net changes in non-working capital | $ | (3,232,881 | ) | $ | 285,240 | |||
| Supplemental cash flow information | ||||||||
| Fair value of compensation brokers warrants | $ | 13,087 | $ | 84,183 | ||||
| Reclassification restricted shares units exercised | 32,407 | - | ||||||
| Residual value allocated to warrants | 56,452 | 263,584 | ||||||
| Stock based compensation recorded in cost of revenue | 18,035 | 16,511 | ||||||
| Deferred financing costs applied to equity | 803,698 | - | ||||||
| Intangible assets included in accounts payable | - | 286,280 | ||||||
| 20. | Related Party Transactions |
Compensation of key management personnel:
Key management personnel include persons having the authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The key management personnel of the Company are the members of the Company’s executive management team and Board of Directors. Compensation provided to key management personnel is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Salaries | $ | 540,634 | $ | 213,121 | $ | 822,665 | $ | 568,138 | ||||||||
| Stock-based compensation | 83,254 | 206,792 | 211,508 | 524,858 | ||||||||||||
| $ | 623,887 | $ | 419,913 | $ | 1,034,173 | $ | 1,092,996 | |||||||||
As of June 30, 2026, the Company had a balance payable of $268,014 to key management personnel (June 30, 2025, – $177,594). This payable balance includes accounts payable and accrued liabilities relating to compensation to directors, officers, or their related companies, included in compensation of key management personnel. These related party balances are unsecured, non-interest bearing and have no specific terms of settlement.
During the six months ended June 30, 2026, the Company received working capital loans in the amount of $193,647 (June 30, 2025 - $nil) from members of key management personnel or their related parties and repaid $193,647 (June 30, 2025 - $74,658). As at June 30, 2026, the outstanding balance is $nil (Note 8(a)) (December 31, 2025 – $nil).
22
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 21. | Financial Instruments |
As at June 30, 2026, the Company’s financial instruments comprise cash, trades receivables, accounts payable and accrued liabilities, term loan, lease liabilities and line of credit. The fair values of the Company’s financial instruments approximate their carrying values due to their short-term maturity or market interest rates.
Fair value of financial instruments:
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The three levels of the fair value hierarchy are:
· Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
· Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly
· Level 3 – Inputs that are not based on observable market data.
The Company’s activities expose it to financial risks of varying degrees of significance, which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are credit risk, liquidity risk and currency risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
| (a) | Credit risk |
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations, including accounts receivable terms. The Company’s cash is held through large Canadian, international, and foreign national financial institutions. The Company’s receivables primarily consist of GST receivable due from the Canadian government and trade receivables that the Company continues to collect. These trade receivables are primarily with continuing customers and are not subject to significant credit risk. As at June 30, 2026, the Company’s trade receivables totalling $257,263 are from four customers (December 31, 2025 - $470,263). The Company’s maximum exposure to credit risk is limited to the carrying amount of cash and accounts receivables.
| (b) | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure. To mitigate this risk, the Company has a planning and budgeting process in place to determine the funds required to support its ongoing operations and capital expenditures. The Company ensures that sufficient funds are raised from equity offerings or debt financings to meet its operating requirements, after considering existing cash balances, expected exercise of share purchase warrants, and stock options. The Company's ability to continue as a going concern involves significant judgements and estimates while determining forecasted cashflows and is dependent on the Company's ability to obtain financing (Note 1). As at June 30, 2026, the Company had cash of $7,585,264 (December 31, 2025 – $319,294) to settle current liabilities of $4,042,623 (December 31, 2025 – $8,616,300).
During the six months ended June 30, 2026, the Company repaid all amounts outstanding under its commercial agreement with Viken Detection Corporation. As a result, the outstanding balance due to Viken was reduced to $nil as at June 30, 2026. Subsequent to the repayment, Viken terminated its security interest by filing a UCC-3 Termination Statement on June 11, 2026. Accordingly, the competing security interest previously held by Viken has been discharged, and the Company no longer considers the competing security interests described above to exist.
23
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 21. | Financial Instruments (continued) |
The Company’s exposure to liquidity risk related to the competing security interests is limited to the carrying amounts to the Parabilis and Viken Detection agreements. As at June 30, 2026, the amount due to Viken is $nil (December 31, 2025 - $603,379). As at June 30, 2025, the amount due to Parabilis is $558,433 (December 31, 2025 - $3,402,548), included in the Parabilis Term Loan, in the Statement of Financial Position. See Notes 10 and 11(a) for activity related to the Parabilis loans during the six months ended June 30, 2026.
| (c) | Market risk |
This risk refers to the potential fluctuations in the fair value or future cash flows of a financial instrument due to changes in market prices. The Company is exposed to the following significant market risks:
Interest rate risk
Interest rate risk arises from changes in market rates of interest that could adversely affect the Company. The Company currently has interest-bearing financial instruments in relation to loans and line of credit (Note 9 and 10). The Company’s exposure to interest rate risk is minimal as the interest rates are at a fixed percentage on the term loan and credit line liability.
Foreign currency risk
The Company is exposed to currency risk by having balances and transactions in currencies that are different from its functional currency. The Company operates in foreign jurisdictions, which uses the U.S. dollar. The Company does not use derivative instruments to reduce upward, and downward risk associated with foreign currency fluctuations. The Company’s exposure to foreign currency risk is minimal.
Price risk
The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market.
The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
| 22. | Capital Risk Management |
The Company manages common shares, stock options, performance share units, restricted share units, and share purchase warrants as capital. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its products and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt, acquire or dispose of assets, or adjust the amount of cash on hand.
In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.
In order to maximize ongoing development efforts, the Company does not pay out dividends. The Company’s investment policy is to keep its cash treasury on deposit in an interest-bearing chartered bank account. Cash consists of cash on held with banks.
24
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 22. | Capital Risk Management (continued) |
The Company expects its current capital resources will be sufficient to carry its operations, and product development plans for the foreseeable future. Except for the security pledged in certain term loans and credit lines as outlined in Notes 10 and 11(a) and liquidity risk with Viken Detection (Note 5) respectively, the Company is not subject to externally imposed capital requirements.
There has been no change to the Company’s approach to capital management during the six months ended June 30, 2026.
| 23. | Segmented Information |
The Company operates through three distinct segments: Corporate, HEXWAVE and Contract. The operating segments of the Company are based on the reports which are reviewed by the chief operating decision maker (“CODM”) in making strategic resource allocation decisions. The Company considers its CODM to be its CEO, who evaluate the operations of each reportable segment.
The CODM reviews the net income (loss) of each of these segments in allocating resources and evaluating operating performance. The corporate reporting segment covers the Company’s non-allocated, general overhead expenses, such as legal, compliance, accounting, head-office staff, and other such items. This reporting segment is reviewed for cost control and budgetary considerations.
The following tables summarize the Company’s segments for the six months ended June 30, 2026, and 2025:
| For the six months ended June 30, 2026 | ||||||||||||||||
| Corporate | HEXWAVE | Contract | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | - | 686,623 | 275,000 | 961,623 | ||||||||||||
| Cost of revenue | - | 1,580,624 | 526,602 | 2,107,226 | ||||||||||||
| Expenses | ||||||||||||||||
| Salaries and consulting | 337,148 | 548,651 | 757,661 | 1,643,460 | ||||||||||||
| General and administrative | 603,657 | 563,828 | 778,620 | 1,946,105 | ||||||||||||
| Product development & tech | - | 82,014 | 113,258 | 195,272 | ||||||||||||
| Stock-based compensation | 361,074 | (7,575 | ) | (10,461 | ) | 343,038 | ||||||||||
| Depreciation | - | 84,488 | 116,675 | 201,163 | ||||||||||||
| Legal and professional fees | 260,082 | 134,714 | 186,033 | 580,829 | ||||||||||||
| Total expenses | 1,561,961 | 1,406,121 | 1,941,785 | 4,909,867 | ||||||||||||
| Other | (62,109 | ) | (23,540 | ) | (32,508 | ) | (118,157 | ) | ||||||||
| Initial recognition of warrant liability | (1,330,381 | ) | - | - | (1,330,381 | ) | ||||||||||
| Gain on fair value change in warrant liability | (79,448 | ) | - | - | (79,448 | ) | ||||||||||
| Loss on debt settlement | - | 12,598 | 17,397 | 29,995 | ||||||||||||
| Interest expense | 1,094 | 155,466 | 214,692 | 371,252 | ||||||||||||
| Foreign exchange (gain) loss | (316 | ) | - | - | (316 | ) | ||||||||||
| Net loss for the period | (90,801 | ) | (2,444,646 | ) | (2,392,968 | ) | (4,928,415 | ) | ||||||||
25
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 23. | Segmented Information (continued) |
| For the six months ended June 30, 2025 | ||||||||||||||||
| Corporate | HEXWAVE | Contract | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue | - | 780,358 | 704,849 | 1,485,207 | ||||||||||||
| Cost of revenue | - | 1,134,234 | 1,239,245 | 2,373,479 | ||||||||||||
| Expenses | ||||||||||||||||
| Salaries and consulting | 557,063 | 620,329 | 856,645 | 2,034,037 | ||||||||||||
| General and administrative | 1,561,896 | 294,616 | 406,850 | 2,263,362 | ||||||||||||
| Product development & tech | - | 77,422 | 106,915 | 184,337 | ||||||||||||
| Stock-based compensation | 1,008,437 | (6,934 | ) | (9,578 | ) | 991,925 | ||||||||||
| Depreciation | - | 55,654 | 76,855 | 132,509 | ||||||||||||
| Legal and professional fees | 254,257 | 182,333 | 251,793 | 688,383 | ||||||||||||
| Total expenses | 3,381,653 | 1,223,420 | 1,689,480 | 6,294,553 | ||||||||||||
| Other | 20,036 | (567 | ) | (784 | ) | 18,685 | ||||||||||
| Interest expense | - | 143,191 | 197,741 | 340,932 | ||||||||||||
| Net loss for the period | (3,401,689 | ) | (1,719,920 | ) | (2,420,833 | ) | (7,542,442 | ) | ||||||||
Geographic Breakdown
As at June 30, 2026, and 2025, all non-current assets are in the United States.
All revenue from contract segment was earned from one customer in the United States (June 30, 2025 – one customer in the United States).
For the six months ended June 30, 2026, and 2025, revenues from the HEXWAVE segment attributable to the Company’s country of domicile, Canada, were $nil and $nil. Revenues attributable to customers in the United States totaled approximately $686,623 (June 30, 2025 - $780,358). The determination of revenues by geographic area is based on the location of the customer.
For the six months ended June 30, 2026, the Company reported HEXWAVE revenues from major customers over 10% of its total HEXWAVE revenues as follows: $315,000 (June 30, 2025 - $nil), $170,000 (June 30, 2025 - $nil), $85,000 (June 30, 2025 - $nil), $nil (June 30, 2025 - $390,000), $nil (June 30, 2025 - $185,000) and $nil (June 30, 2025 - $108,500).
| 24. | Reverse Stock Split |
On March 3, 2026, the Company’s Board of Directors approved a one-for-forty-five reverse stock split of its common stock. The reverse stock split became effective as of March 13, 2026. In accordance with TSX Venture Exchange, the Consolidation was approved by shareholders of the Company at a special meeting of shareholders held on February 6, 2026. Upon the effectiveness of the reverse stock split, (i) every forty-five shares of outstanding common stock were reclassified and combined into one share of common stock and (ii) the number of shares of common stock for which each outstanding option and warrant to purchase common stock is exercisable was proportionately decreased and the exercise price of each outstanding option and warrant to purchase common stock was proportionately increased. No fractional shares were issued as a result of the reverse stock split. The total number of authorized shares of common stock and the par value per share of common stock did not change as a result of the reverse stock split. Accordingly, all share and per share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and exercise price of each outstanding option and warrant as if the transaction had occurred as of the beginning of the earliest period presented.
26
Liberty Defense Holdings, Ltd.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise stated and per share amounts)
For the three and six months ended June 30, 2026 and 2025
| 25. | Subsequent Events |
Subsequent to June 30, 2026, the Company recorded:
| · | the expiry of 389 stock options on July 28, 2026 |
| · | on July 29, 2026, the Company issued 23,306 common shares to a service provider in settlement of CAD$117,000 of accounts payable |
| · | on August 4, 2026, the Company issued 555 common shares as a result of RSU exercised |
| · | on July 28,2026 a total of 340,120 share purchase warrants expired without being exercised |
27
Exhibit 99.2
|
INNOVATIVE & REVOLUTIONARY Threat DETECTION
MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND SIX MONTHS ENDED JUNE 30, 2026 (Expressed in U.S. dollars, unless otherwise stated and per share amounts)
Dated: August 14, 2026 |
Liberty Defense Holdings Ltd. (the “Company” or “Liberty”) has prepared this Management’s Discussion and Analysis (“MD&A”) as of August 14, 2026, and it should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and related notes for the three and six months ended June 30, 2026. Unless otherwise stated, all financial information has been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are expressed in U.S. dollars unless otherwise indicated. References to “$” are to U.S. dollars and references to “CAD$” are to Canadian dollars.
This MD&A contains forward-looking statements and forward-looking information (collectively, “forward-looking information”) based on management’s current expectations, estimates, assumptions and judgments regarding future events. Forward-looking information is often, but not always, identified by words such as “anticipate”, “believe”, “expect”, “intend”, “plan”, “may”, “will”, “should”, “estimate”, “predict”, “potential”, “continue”, and similar expressions, or statements that certain events or conditions “may”, “would”, “could” or “will” occur. Forward-looking information involves known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking information.
This MD&A includes forward-looking information regarding, among other things, the Company’s anticipated commercialization activities, future sales opportunities, operating activities, expenses, research and development initiatives, business strategy and growth opportunities. Such information is based on management’s current expectations, assumptions and estimates and is subject to significant business, economic, operational and competitive risks and uncertainties, many of which are beyond the Company’s control. Readers are cautioned not to place undue reliance on forward-looking information, as actual results may differ materially from those expressed or implied. Forward-looking information is provided solely for the purpose of assisting readers in understanding management’s current expectations regarding the Company’s future business activities and may not be appropriate for other purposes. The Company undertakes no obligation to update or revise any forward-looking information contained in this MD&A, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.
Additional information relating to the Company is available on the Company's website at www.libertydefense.com and under the Company's profile on SEDAR+ at www.sedarplus.ca.
| Q2-2026 MD&A (Expressed in U.S. dollars) |  | Page| 1 |
|
Table of Contents
|
Page | |
| 1 | Overview | 2 |
| 2 | Results of Operations and selected annual information | 7 |
| 3 | Summary of Quarterly Results | 11 |
| 4 | Liquidity and Capital Transactions Resources | 13 |
| 5 | Commitments | 21 |
| 6 | Revenue | 21 |
| 7 | Contract Awards | 22 |
| 8 | Off-balance Sheet Arrangements | 23 |
| 9 | Transaction Between Related Parties | 23 |
| 10 | Subsequent Events | 23 |
| 11 | Financial Instruments | 23 |
| 12 | Other Requirements | 25 |
| 13 | Disclosure Controls and Procedures and Internal Controls over Financial Reporting | 27 |
| 1. | Overview |
(a) Description of Business
Liberty Defense Holdings, Ltd. (“Liberty” or the “Company”) is a publicly traded company listed on NASDAQ (NASDAQ: DETX), the TSX Venture Exchange: (TSXV: SCAN), the Frankfurt Stock Exchange (Frankfurt: L2D), and the OTCQB (OTCQB: LDDFF). The Company was incorporated under the Business Corporations Act of Ontario on June 8, 2012. On July 27, 2020, Liberty continued its jurisdiction of incorporation from Ontario to British Columbia and is now governed by the Business Corporations Act of British Columbia.
The Company’s registered and records office is located at 1055 West Georgia Street, Suite 1500, Royal Centre, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7, Canada. Its head office is located at 187 Ballardvale Street, Suite 110, Wilmington, Massachusetts, 01887, USA.
The Company is engaged in the development and commercialization of advanced security detection technologies. Liberty’s flagship product, HEXWAVE™, utilizes millimeter wave technology and advanced 3D imaging to detect concealed threats. In addition to HEXWAVE™, the Company has licensed High-Definition Advanced Imaging Technology (HD-AIT) for body and shoe scanning.
(b) Board Changes
| a. | Effective April 21, 2026, William Hamilton was appointed as a member of the Board of Directors. |
Mr. Hamilton is a partner at Kestrel Merchant Partners, LLC and has over 20 years of experience in equity research and portfolio management. He was previously a Partner at Manatuck Hill Partners, a small-cap focused hedge fund, and has also held positions at Granite Point Capital, Sanders Morris Harris, and Pershing. Mr. Hamilton holds a B.A. from Duke University and is a CFA Charterholder.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 2 |
(c) License Agreements
Licence agreements values and descriptions:
| MIT licenses | Intellectual property | Total | ||||||||||
| Balance, December 31, 2024 | $ | 373,009 | $ | 2,198,684 | $ | 2,571,693 | ||||||
| Amortization | (34,108 | ) | (538,453 | ) | (572,561 | ) | ||||||
| Balance, December 31, 2025 | $ | 338,901 | $ | 1,660,231 | $ | 1,999,132 | ||||||
| Amortization | (17,054 | ) | (269,227 | ) | (286,281 | ) | ||||||
| Balance, June 30, 2026 | $ | 321,847 | $ | 1,391,004 | $ | 1,712,851 | ||||||
| i) | HEXWAVE™ Technology (intellectual property) |
| a. | Active real-time 3D imaging technology licensed from MIT LL |
Active video rate imaging technology was developed by the Massachusetts Institute of Technology Lincoln Labs (“MIT LL”) and the technology has been in development since 2014. In October 2017, a concept demonstrator (pre-prototype) of the core technology was successfully tested under environmental conditions by MIT LL.
MIT LL undertook 4 years of research and development, including building a working prototype and testing the technology in both lab and real electromagnetic environments. LDT worked with MIT LL to transfer the active imaging technology starting in Q4 2018. In September 2019, Liberty and MIT LL were recognized by the FLC (Federal Laboratory Consortium) for the 2019 Excellence in Technology Transfer Northeast Region.
With the exclusive global license agreement (the “License Agreement”) for the use of the active imaging technology, the Company has continued to develop HEXWAVE™ using the technology and concepts demonstrated by MIT LL. MIT LL, through the Technology Transfer Agreement (“TTA”) has transferred the intellectual property and understanding to Liberty’s Center of Excellence (“COE”) in order for the technology to be further refined and developed. As part of the commercialization and go to market strategy, the Company had identified certain required changes and entered into a Cooperative Research and Development Agreement (CRADA) with MIT LL to leverage off their existing experience and accelerate the development of certain aspects of HEXWAVE™. In addition to active imaging technology, the Company is also developing Automatic Threat Detection technology with the help of rich 3-dimension data and deep learning algorithms.
HEXWAVE™ Overview:
Since acquiring the License Agreement from MIT LL, Liberty has significantly advanced HEXWAVE™ which includes the active imaging technology, automated threat detection (“ATD”) and smart IoT technologies. This culminated in the demonstration of the four principal subsystems in September 2019. This step represented a significant de-risking of the product development phase.
| b. | Artificial intelligence and Deep Learning – Automatic Threat Recognition (“ATR”) |
Automatic Threat Recognition utilizing deep learning algorithms was developed by Liberty to recognize person-borne concealed metal and non-metal threats. The 3-D data and images produced by the HEXWAVE™ are used to train and enhance the artificial intelligence engine using deep-learning algorithms.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 3 |
At a frame capture rate of 20 images per second, the algorithms can exploit the changes in person’s positioning from frame-to-frame, thus maximizing the total coverage area and threat detection performance.
ATR improves detection accuracy, reduces resources required for screening, and allows the security personnel to take necessary action instantly. As additional field data and images are collected by the system over time, our goal will be to continuously improve HEXWAVE™ and its threat detection performance by receiving real time updates to its algorithms as new and emerging threats are identified.
Global License Agreement – September 2018
The License Agreement for the use of the technology behind HEXWAVE™ with MIT is to be in effect until December 2035. Under the License Agreement, several milestones are required to be met to keep it in good standing. MIT continues to work closely with Liberty on developing this technology and amended the timeline to develop a beta prototype from on or before December 31, 2019, to removing the deadline entirely and replacing it with an in-plant inspection by MIT at regular intervals with at least six months between each such inspection. The amendment also included additional details in relation to changes on required commercial sales dates, required total net sales by year, and payment dates on its license agreement. Refer to SEDAR+ (www.sedarplus.ca) for further details on the MIT amendment.
HEXWAVE™ Key Discriminators
Central to positioning HEXWAVE™ is building on its key discriminators. These are enabled by the system architecture that aligns to key market needs. These include:
| · | Detects metal & non-metal threat objects | |
| · | Operates in both indoor and outdoor locations including both overt and covert applications | |
| · | Protects privacy (no personal data is collected or analyzed) | |
| · | ATD in real-time using rich 3D data and deep learning algorithms | |
| · | Smart functionality provides connectivity to existing security systems (VMS, door locks, networks) | |
| · | Routine software & artificial intelligence updates | |
| · | Operationally agile (mobile and deployable across detection space) | |
| · | High throughput (over 700 screens per hour) with precise secondary screening |
About the Explosives and Weapon Detection Market
The aggregate markets associated with the explosives and weapon detection market are expected to total over $11 billion by 2025. The verticals most relevant to the growing Urban Security Market (“USM”) are public venues, secured perimeters & buildings, land transportation, government, and others (schools, hotels, casinos, places of worship, malls, workplace & community screening).
The complexity of the urban security threat environment has dramatically changed over the last decade, requiring a more proactive approach to preventing violent attacks against communities. Since the 9/11 events, the air transportation community has effectively deployed a combination of detection technologies that are being consistently upgraded in an attempt to “stay ahead” of evolving threats. The array of detection tools has largely been protecting access to aircraft systems as gated or “point” solutions. The public is forced to tolerate the delays associated with such inspections due to the extreme risks that explosives or weapons can have on an aircraft and its passengers.
In contrast, urban communities are largely unprotected against random acts of violence or use systems that significantly impede the flow of customers into and within business facilities. While the occasional violent act was more often considered an anomaly, the frequency and magnitude of violent attacks is forcing both businesses and governments to rethink how to move to more proactive measures. Since 2015, there have been over 300 mass shootings per year in the United States (“US”) at a pace of nearly one per day. There is a market-driven need for security detection that can be broadly deployed across nearly all public and private facilities. The base requirements are that they be both highly accurate and nonintrusive to our daily lives.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 4 |
Current Alternatives
The current alternatives in the United States market are typically restricted to:
| · | principally focusing on metal threats, therefore non-metal threats can potentially go undetected | |
| · | airport solutions which are not able to be used across other verticals and do not have the requisite throughput | |
| · | limited outdoor application and therefore hinder the capability of providing a layered defense for proactive threat detection | |
| · | requiring large, dedicated areas or space versus integration into existing infrastructure | |
| · | limited capability for integration into existing security systems command & control |
About Liberty’s Management Team
Central to Liberty’s team is the technical and management expertise are: CEO and Director, Bill Frain, former Senior Vice President for L-3 Security & Detection Systems (NYSE – LHX), the world’s leading supplier of security inspection systems. In this role Bill led global sales, business development and key account management. CTO, Jeffrey Gordon, who spent his last five years working at General Electric Global Research developing roadmaps for imaging and sensor technologies and over 35 years experience leading the development of ground-breaking sensing products for the military, medical, industrial, and commercial markets, including body scanners that can be seen deployed across most United States and European Union airport checkpoints.
Liberty’s Advisors
Liberty has assembled a group of Advisors that can provide unprecedented market access to several of our identified market verticals including the National Football League, law enforcement, federal and state government facilities, and former airport executives. A key aspect to Liberty’s success will be gaining access and developing the market for HEXWAVE™.
| ii) | MIT License Agreement Description and Commitments |
The Company, through its wholly owned subsidiary Liberty Defense Technologies Inc. (“LDT”), has entered into agreements with the Massachusetts Institute of Technology (“MIT”) and MIT’s Lincoln Laboratory (“MIT LL”), including an exclusive patent licence agreement between MIT and LDT dated September 10, 2018, as amended from time to time (the “Licence Agreement”), a technology transfer agreement between LDT and MIT LL, effective August 24, 2018 (the “Technology Transfer Agreement”), and a cooperative research and development agreement between LDT and MIT dated as of December 21, 2018 (“CRADA”), such agreements providing LDT with an exclusive licence for patents, design assets and MIT LL technical expertise related to active three-dimensional imaging technology that are the technology behind the HEXWAVE product.
The obligations under the Technology Transfer Agreement and the CRADA have now been completed. Liberty may consider extending the CRADA (and therefore changing its scope) if it determines that additional MIT LL technical expertise related to active three-dimensional imaging technology is required. Pursuant to the License Agreement, LDT has been granted the exclusive rights to MIT’s patent in “multistatic sparse array topology for FFT-based field imaging” (MIT Case No. l 8409L) (the “Patent”), which is being utilized in the development and application of the HEXWAVE product. The License Agreement is to be in effect until the expiration of the Patent, which is about 10 years (December 2035). In granting LDT such patent rights, the Company shall pay MIT, in addition to patent filling costs, an annual fees as follows: 1) $20,000 for 2019 (paid); $50,000 for 2020 (paid); $60,000 for 2021 (paid); $100,000 for 2022 (paid); $nil for 2023, $40,000 for 2024 (payable), $200,000 for 2025 (payable), and $350,000 for 2026 (payable) and thereafter; and 2) a royalty of 5.7% of all gross amount billed licensed products (HEXWAVE) of the Company.
During the six months ended June 30, 2026, the Company accrued royalty payments of $132,490 (December 31, 2025, $44,916).
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 5 |
| iii) | Battelle Memorial Institute License Agreement Description and Commitments |
On March 22, 2021, the Company, through its wholly owned subsidiary DrawDown Detection, Inc. has entered into an agreement (“Battelle License Agreement”) with Battelle Memorial Institute (“Battelle”), which operates the Pacific Northwest National Laboratory (“PNNL”), to license the millimeter wave-based, High-Definition Advanced Imaging Technology (HD-AIT) body scanner and shoe scanner technologies. The agreement, as amended from time to time, provides the Company with a three-year exclusive license for certain patents which will convert to a non-exclusive license for the remaining life of the patents. The agreement also provides the Company with non-exclusive license for certain patents for life.
As consideration for the Battelle License Agreement, the Company paid $30,000 upon signing and $30,000 six months after.
Under the Battelle License Agreement, the Company shall pay a five percent royalty on gross sales less any returns, repayments, or rejections, that pertain to the production utilizing the license agreement (HD-AIT), and a twenty-five percent royalty on all sublicensing revenues if permitted under the contract guidelines.
During the six months ended June 30, 2026, the Company accrued royalty payments of $nil (December 31, 2025, $nil).
The Company is required to pay a minimum royalty amount as follows, unless the agreement is terminated:
| Amounts | |||||
| Year 2021 (paid) | $ | 50,000 | |||
| Year 2022 (paid) | 50,000 | ||||
| Year 2023 (paid) | 100,000 | ||||
| Year 2024 (paid) | 200,000 | ||||
| Year 2025 (payable) | 200,000 | ||||
| Year 2026 and each year thereafter (payable) | 200,000 | ||||
The Company is obligated to reimburse Battelle for ongoing patent-related expenses and previously incurred patent-related expenses totaling $50,000, all of which has been paid.
As at June 30, 2026, the Company has a balance payable of $134,230 (December 31, 2025, $200,000).
(d) HD-AIT Upgrade Kit
The HD-AIT Upgrade Kit is being developed pursuant to contracts awarded by the U.S. Transportation Screening Administration (“TSA”) to create a solution to aging high-definition advanced imaging technology (“HD-AIT”) systems currently in use in airports throughout North America and also can be implemented to upgrade HD-AIT systems around the globe. The TSA plans to upgrade over 1,000 body scanners installed at U.S. airports over the next five years, which we believe creates a near-term market opportunity.
(e) Recent Developments
From inception, Liberty set itself an aggressive product development timeline by pursuing a concurrent engineering and development approach and prior to its financial constraints had managed to deliver upon this timeline.
In addition to advancing HEXWAVE™ and the market for it, Liberty achieved several significant corporate milestones which include:
| · | Liberty Announces Closing of Final Tranche of LIFE Private Placement Raising a Total of $2.6 Million (January 2026) | |
| · | Liberty Defense Announces Confidential Submission of Draft Registration Statement for Proposed U.S. Initial Public Offering (January 2026) | |
| · | Liberty Defense Secures New Major U.S. Airport Contract, Fueling Momentum in Aviation Security (February 2025) | |
| · | Liberty Defense Announces Public Filing of Registration Statement for Proposed U.S. Initial Public Offering (February 2026) |
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 6 |
| · | Liberty Defense Secures Contract with Acclaimed Infectious Disease Laboratory for HEXWAVE Walkthrough Screening System (February 2026) | |
| · | Liberty Defense Announces Pricing of its U.S. Initial Public Offering (April 2026) | |
| · | Liberty Defense Appoints Seasoned Capital Markets Executive Will Hamilton to its Board of Directors (April 2026) | |
| · | Liberty Defense Deploys HEXWAVE at LaGuardia Terminal B, Expanding Footprint in High-Traffic U.S. Airports and announces Shares of Debt Settlement (May 2026) | |
| · | Liberty Defense Expands Aviation Footprint with New HEXWAVE Award at Major International Airport (June 2026) |
(e) Outlook and Going Concern
Expenditure in research and development activities undertaken with the prospect of gaining new scientific or technological knowledge and understanding is recognized in the statement of loss as an expense when incurred.
The Company’s expenditures in development activities where research results are used in planning and designing the production of new or substantially improved products and processes are recognized under intangible assets if the product or process is technically and commercially feasible, if there is an intention and ability to complete the project and then use or sell it and expect economic benefits from the project, if the Company has sufficient resources to complete development and if it is able to measure reliably the cost during development. The recognized research and development expenditures incurred are recognized in the statement of loss as an expense when incurred.
The Company incurred in a total loss during the six months ended June 30, 2026, of $4,928,415 and had cash outflows from operating activities of $7.966,878. Given the current stage of operations, the Company’s ability to continue as a going concern is contingent on its ability to obtain additional financing. While the Company has been successful in arranging financing in the past, there can be no assurance that it will be able to do so in the future.
During the six months ended June 30, 2026, the Company completed financing transactions, including private placements and a public offering, for aggregate gross proceeds more than approximately $20.0 million. Management believes the Company’s current cash resources are sufficient to fund planned operations for at least the next twelve months.
The application of the going concern concept is dependent upon the Company’s ability to generate future profitable operations and receive continued financial support from its creditors and shareholders. These consolidated financial statements do not give effect to any adjustments that might be required should the Company be unable to continue as a going concern. If the company cannot generate positive future cashflows, this will delay the production timeline and shipments to backlogged orders, in addition to delaying necessary product cost reductions and improvements caused by the lack of funds to hire, produce, and execute the necessary product updates / revisions. Continued equity and/or debt financing is critical in order to ramp production up in order to become profitable.
Management plans to continue to pursue equity and/or debt financing to support operations. There can be no assurance that these financing efforts will be successful. Failure to maintain the support of creditors and obtain additional external financing will cause the Company to curtail operations and the Company’s ability to continue as a going concern will be impaired. The outcome of these matters cannot be predicted at this time.
| 2. | Results of Operations |
Certain comparatives in prior periods may have been revised to conform to the current presentation.
During the three and six months ended June 30, 2026, the Company reported a total loss and comprehensive loss of $2,230,946 and $4,928,415 respectably (three and six months ended June 30, 2025 – $3,677,596 and $7,299,992), and basic and diluted loss per share of $0.43 and $1.47 (three and six months ended June 30, 2025 – $2.94 and $6.73). Despite the accumulated losses, the Company's management is confident in scaling up production and commercialization of its primary technology, HEXWAVE™, and advancing the research and development of various potential technologies currently under review.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 7 |
The net loss for the three and six months ended June 30, 2026, and 2025 is comprised of the following items:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| $ | $ | |||||||||||||||
| Revenue | ||||||||||||||||
| HEXWAVE revenue | 42,202 | - | 686,623 | 780,358 | ||||||||||||
| Contract revenue | - | 429,849 | 275,000 | 704,849 | ||||||||||||
| Total Revenue | 42,202 | 429,849 | 961,623 | 1,485,207 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| HEXWAVE cost of revenue | 987,728 | 531,592 | 1,580,624 | 1,134,234 | ||||||||||||
| Contract cost of revenue | 221,167 | 496,055 | 526,602 | 1,239,245 | ||||||||||||
| Total cost of revenue | 1,208,895 | 1,027,647 | 2,107,226 | 2,373,479 | ||||||||||||
| Gross loss | (1,166,693 | ) | (597,798 | ) | (1,145,603 | ) | (888,272 | ) | ||||||||
| Engineering and Research and Development Expenses: | ||||||||||||||||
| Product development & technology Costs | 122,617 | 125,972 | 195,272 | 184,337 | ||||||||||||
| Salaries and consulting fees | 484,665 | 448,485 | 965,615 | 1,020,425 | ||||||||||||
| Stock-based compensation | - | 362 | - | 15,106 | ||||||||||||
| Depreciation | 101,813 | 46,979 | 201,163 | 132,509 | ||||||||||||
| Office, rent & administration, travel, and miscellaneous | 263,602 | 7,289 | 330,864 | 37,509 | ||||||||||||
| General & Administration Expenses | ||||||||||||||||
| Salaries and consulting fees | 220,014 | 394,754 | 677,845 | 1,013,612 | ||||||||||||
| Legal and professional fees | 394,701 | 551,982 | 580,829 | 688,383 | ||||||||||||
| Stock-based compensation | 193,905 | 407,758 | 343,038 | 976,819 | ||||||||||||
| Office, rent & administration, travel, and miscellaneous | 537,139 | 989,855 | 1,615,241 | 2,225,853 | ||||||||||||
| 2,318,456 | 2,973,436 | 4,909,867 | 6,294,553 | |||||||||||||
| Operating Loss | $ | (3,485,149 | ) | $ | (3,571,234 | ) | (6,055,470 | ) | (7,182,825 | ) | ||||||
| Other (income) expense: | ||||||||||||||||
| Other income, net | (116,793 | ) | (1,222 | ) | (118,157 | ) | (1,330 | ) | ||||||||
| Initial recognition of warrant liability | (1,330,381 | ) | - | (1,330,381 | ) | - | ||||||||||
| Gain on fair value change in warrant liability | (79,448 | ) | - | (79,448 | ) | - | ||||||||||
| Loss on debt settlement | 29,995 | - | 29,995 | - | ||||||||||||
| Interest expense | 221,278 | 186,508 | 371,252 | 340,932 | ||||||||||||
| Foreign exchange (gain) loss | (32 | ) | 1,226 | (316 | ) | 20,014 | ||||||||||
| (1,275,381 | ) | 186,512 | (1,127,055 | ) | 359,616 | |||||||||||
| Net loss for the period | $ | (2,209,768 | ) | $ | (3,757,746 | ) | (4,928,415 | ) | (7,542,442 | ) | ||||||
| i) | Revenue |
Three months ended June 30, 2026 vs 2025
HEXWAVE revenue for the three months ended June 30, 2026 was $42,202, compared to nil for the corresponding period in 2025. The increase was primarily attributable to revenue recognized from software and maintenance services during the current period.
Contract revenue for the three months ended June 30, 2026 was $nil, compared to $429,849 for the corresponding period in 2025. The decrease was primarily attributable to the completion of contract programming activities.
Six months ended June 30, 2026 vs 2025
HEXWAVE revenue for the six months ended June 30, 2026 was $686,623, compared to $780,358 for the corresponding period in 2025, representing a decrease of $93,735, or 12%. The decrease was primarily attributable to fewer HEXWAVE™ units delivered during the current period, partially offset by a higher average selling price per unit.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 8 |
The Company expects revenue activity to increase during the second half of 2026 as production capacity and inventory availability improve following the completion of the financing transactions in April 2026. These initiatives are expected to support increased customer shipments and deployments.
During the six months ended June 30, 2026, Contract revenue was $275,000 compared to $704,849 during the six months ended June 30, 2025, representing a decrease of $429,849, or 61%. The decrease was primarily attributable to contract programming work performed during the prior period, resulting in lower contract programming revenue recognized during the current period.
During the six months ended June 30, 2026, the Company delivered six HEXWAVE™ units at an average selling price of approximately $95,000 per unit, compared to nine units delivered during the corresponding period in 2025 at an average selling price of approximately $84,157 per unit. Although the number of units delivered decreased during the period, the higher average selling price partially offset the impact of the lower delivery volume on revenue. The lower volume of deliveries was primarily attributable to timing-related factors, including customer site readiness, installation scheduling, and the deferral of certain customer deployments into subsequent periods, as well as management's continued focus on manufacturing optimization and operational efficiency initiatives.
Contract revenue relates primarily to ongoing development programs that are nearing completion. Accordingly, the Company expects revenue from the current program to decline as the remaining performance obligations are satisfied. However, additional contract revenue may be generated from future customer contracts and development opportunities.
| ii) | Cost of revenues |
Three months ended June 30, 2026 vs 2025
Cost of revenue for the three months ended June 30, 2026 was $1,208,895, compared to $1,027,647 for the corresponding period in 2025, representing an increase of $181,248, or 18%. The increase was primarily attributable to higher HEXWAVE cost of revenue as additional inventory was recognized in cost of revenue during the period. This increase was partially offset by lower contract cost of revenue, reflecting the near completion of the Company's development program and the corresponding reduction in contract-related activities.
Six months ended June 30, 2026 vs 2025
Cost of revenue for the six months ended June 30, 2026 was $2,107,226, compared to $2,373,479 for the corresponding period in 2025, representing a decrease of $266,253, or 11%. The decrease primarily reflects lower contract cost of revenue resulting from the near completion of the Company's development program. This decrease was partially offset by higher HEXWAVE cost of revenue as additional inventory associated with customer deliveries was recognized during the period.
| iii) | Engineering and Research & Development |
Three months ended June 30, 2026 vs 2025
Engineering and research and development expenses for the three months ended June 30, 2026 were $972,697, compared to $629,087, for the three months ended June 30, 2025, representing an increase of $343,610 or 54.6%. The increase was mainly attributable to higher office, rent and administration, travel and miscellaneous expenses, increased depreciation expense and higher salaries and consulting fees.
During the three months ended June 30, 2026, engineering and research and development expenses included $122,617 in product development and technology costs, $484,665 in salaries and consulting fees, $263,602 of office, rent and administration, travel and miscellaneous expenses, and $101,813 of depreciation expense.
Six months ended June 30, 2026 vs 2025
Engineering and research and development expenses for the six months ended June 30, 2026 were $1,692,914, compared to $1,389,886 for the corresponding period in 2025, representing an increase of $303,028, or 21.8%. The increase was primarily attributable to higher office, rent and administration, travel and miscellaneous expenses, increased depreciation expense, and higher product development and technology costs. These increases were partially offset by lower salaries and consulting fees and the absence of stock-based compensation expense during the current period.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 9 |
Engineering and research and development expenses for the six months ended June 30, 2026 consisted of $965,615 in salaries and consulting fees, $195,272 in product development and technology costs, $330,864 in office, rent and administration, travel and miscellaneous expenses, and $201,163 in depreciation expense.
| iv) | General and Administrative |
Three months ended June 30, 2026 vs 2025
General and administrative expenses for the three months ended June 30, 2026 were $1,345,759, compared to $2,344,349 for the corresponding period in 2025, representing a decrease of $998,590, or 42.6%. The decrease was primarily attributable to lower office, rent and administration, travel and miscellaneous expenses, reduced stock-based compensation, lower legal and professional fees, and lower salaries and consulting fees compared to the corresponding period in 2025.
General and administrative expenses for the three months ended June 30, 2026 consisted of $537,139 in office, rent and administration, travel and miscellaneous expenses, $394,701 in legal and professional fees, $220,014 in salaries and consulting fees, and $193,905 in stock-based compensation.
Six months ended June 30, 2026 vs 2025
General and administrative expenses for the six months ended June 30, 2026 were $3,216,953, compared to $4,904,667 for the corresponding period in 2025, representing a decrease of $1,687,714, or 34.4%. The decrease was primarily attributable to lower office, rent and administration, travel and miscellaneous expenses, reduced stock-based compensation, lower salaries and consulting fees, and lower legal and professional fees compared to the corresponding period in 2025.
General and administrative expenses for the six months ended June 30, 2026 consisted of $1,615,241 in office, rent and administration, travel and miscellaneous expenses, $677,845 in salaries and consulting fees, $580,829 in legal and professional fees, and $343,038 in stock-based compensation.
| v) | Other Income (Expenses) |
Three months ended June 30, 2026 vs 2025
Other income, net for the three months ended June 30, 2026 was $1,275,381, compared to other expenses of $186,512 for the corresponding period in 2025. The increase was primarily attributable to a $1.33 million non-cash gain recognized on the initial recognition of a derivative warrant liability following the parent company's change in functional currency from the $CAD to the $USD. As a result of the change in functional currency, certain outstanding CAD-denominated warrants no longer qualified for equity classification under IAS 32 and were reclassified as derivative financial liabilities.
Interest expense for the three months ended June 30, 2026 increased to $221,278, compared to $186,508 for the corresponding period in 2025, primarily reflecting interest incurred on the Company's debt facilities.
The Company recorded a foreign exchange gain of $32 during the three months ended June 30, 2026, compared to a foreign exchange loss of $1,226 during the corresponding period in 2025, primarily reflecting the impact of foreign currency fluctuations on monetary assets and liabilities denominated in foreign currencies.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 10 |
Six months ended June 30, 2026 vs 2025
Other income, net for the six months ended June 30, 2026 was $1,127,055, compared to other expense of $359,616 for the corresponding period in 2025. The increase was primarily attributable to a $1.33 million non-cash gain recognized on the initial recognition of a derivative warrant liability following the parent company's change in functional currency from the Canadian dollar ("CAD") to the U.S. dollar ("USD"). As a result of the change in functional currency, certain outstanding CAD-denominated warrants no longer qualified for equity classification under IAS 32 and were reclassified as derivative financial liabilities. Refer to Notes 3 and 15 to the condensed consolidated interim financial statements for further details.
Interest expense for the six months ended June 30, 2026 increased to $371,252, compared to $340,932 for the corresponding period in 2025, primarily reflecting interest incurred on the Company's outstanding debt facilities.
The Company recorded a foreign exchange gain of $316 during the six months ended June 30, 2026, compared to a foreign exchange loss of $20,014 during the corresponding period in 2025. The increase primarily reflects the impact of foreign currency fluctuations on the Company's monetary assets and liabilities denominated in foreign currencies during the period.
| 3. | Summary of Quarterly Results |
| Three months ended | Working capital (deficiency) | Total assets | Total loss and comprehensive income loss | Loss per share | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 30-Jun-26 | 7,211,894 | 13,479,695 | (2,230,946 | ) | (0.43 | ) | ||||||||||
| 31-Mar-26 | (6,579,966 | ) | 5,339,690 | (2,697,469 | ) | (1.38 | ) | |||||||||
| 31-Dec-25 | (4,902,610 | ) | 6,384,615 | (3,526,571 | ) | (2.15 | ) | |||||||||
| 30-Sep-25 | (4,452,151 | ) | 6,754,164 | (3,097,554 | ) | (2.03 | ) | |||||||||
| 30-Jun-25 | (4,447,549 | ) | 6,352,896 | (3,677,596 | ) | (3.25 | ) | |||||||||
| 31-Mar-25 | (650,555 | ) | 8,522,470 | (3,629,323 | ) | (3.49 | ) | |||||||||
| 31-Dec-24 | (2,652,516 | ) | 7,286,501 | (2,336,807 | ) | (5.40 | ) | |||||||||
| 30-Sep-24 | (6,250,036 | ) | 4,377,411 | (2,469,234 | ) | (6.60 | ) | |||||||||
Discussion of Quarterly Trends
Q2 2026 (June 30, 2026):
Net loss and comprehensive loss for the three months ended June 30, 2026 was $2.2 million, or $0.43 per share, compared to a net loss of $3.7 million, or $3.25 per share, for the corresponding period in 2025. During the quarter, the Company continued its efforts related to the production of HEXWAVE™ units and the completion of its TSA-related programs. The Company also continued to invest in inventory procurement, customer demonstrations and industry trade shows to support future commercial growth.
On April 23, 2026, the Company completed its initial public offering and Nasdaq listing, significantly strengthening its financial position. As a result, working capital improved from a deficiency of $6.6 million at March 31, 2026 to positive working capital of $7.2 million at June 30, 2026. In addition, the quarter included a significant non-cash gain resulting from the initial recognition of derivative warrant liabilities following the Company's change in functional currency from the Canadian dollar to the U.S. dollar.
Q1 2026 (March 31, 2026):
Net loss and comprehensive loss for the three months ended March 31, 2026, was $2.7 million, or loss per share of $1.38. During the quarter, the Company continued its efforts related to the production of the HEXWAVE™ units and the completion of the TSA related programs, resulting in revenue of $919,421. In addition, the Company incurred costs associated with the financing and uplisting activities completed subsequent to the quarter end, while continuing to invest in marketing initiatives, trade shows, and customer demonstrations intended to support future commercial growth.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 11 |
Q4 2025 (December 31, 2025):
Net loss and comprehensive loss was $3.5 million (loss per share of $2.15). During the quarter, the Company continued production of HEXWAVE™ however, no shipments occurred. Backlog orders continued, however customers preferred shipment during Q1 - 2026. Marketing and investor relations efforts also continued to increase to support sales initiatives. The working capital deficiency increased slightly to $4.9 million. The Company also closed a private placement on December 31, 2025, generating gross proceeds of $1.7 million.
Q3 2025 (September 30, 2025):
Net loss and comprehensive loss was $3.1 million (loss per share of $2.03). During the quarter, the Company continued production of HEXWAVE™ while advancing research and development on other licensed technologies. HEXWAVE™ shipments continued, with TSA contract performance remaining on schedule. Marketing and investor relations efforts also increased to support sales initiatives. The working capital deficiency remained flat at $4.4 million. The Company als closed a private placement on July 29, 2025, generating gross proceeds of $3.2 million.
Q2 2025 (June 30, 2025):
Net loss and comprehensive loss was $3.7 million (loss per share of $3.25). During the quarter, the Company continued production of HEXWAVE™ while advancing research and development on other licensed technologies. HEXWAVE™ shipments continued, with TSA contract performance remaining on schedule. Marketing and investor relations efforts also increased to support sales initiatives. The working capital deficiency increased to $4.4 million, reflecting continued cash usage in operations.
Q1 2025 (March 31, 2025):
Net loss and comprehensive loss was $3.6 million (loss per share of $3.49). The Company closed a private placement on March 20, 2025, generating gross proceeds of $3.48 million, which increased total assets to $8.5 million. The results also reflected higher operating expenses associated with commercialization activities.
Prior’s years quarters (December 31, 2024 & September 30, 2024):
Net losses and comprehensive losses for these periods ranged between $2.5 million and $2.3 million per quarter, with loss per share ranging from $5.40 to $6.60. These results primarily reflected ongoing investment in HEXWAVE™ production and commercialization, research and development on licensed technologies, stock-based compensation, and financing-related expenses. Detailed discussions of these quarters were provided in the Company’s MD&A filings for those periods, available on SEDAR+.
Overall Trends
The Company has incurred net losses over the past eight quarters as it has continued to invest in the development and commercialization of its HEXWAVE™ technology and related products. Quarterly operating results have been influenced by the timing of product deliveries and contract revenue recognition, fluctuations in research and development and general and administrative expenses, including stock-based compensation, and costs associated with commercialization, marketing and financing activities.
During this period, the Company strengthened its financial position through a series of financing transactions, culminating in the successful completion of its initial public offering and Nasdaq listing in April 2026. These financings have significantly improved the Company's liquidity and working capital position, enabling increased investment in inventory, production capacity and commercialization activities to support future growth.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 12 |
| 4. | Liquidity and Capital Transactions Resources |
(a) Liquidity
As of June 30, 2026, the Company maintained a cash balance of $7,585,264 and experienced a working capital of $7,211,894. Current liabilities amounted to $4,042,623 as of the same date, primarily attributed to loans and expenses associated with commencing production, ongoing development of the Company’s licensed technologies, and maintaining licenses and the Company’s public registry in good standing.
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating activities: | ||||||||
| Loss and comprehensive loss for the period | $ | (4,928,415 | ) | $ | (7,542,442 | ) | ||
| Items not involving cash: | 194,418 | 1,909,290 | ||||||
| Changes in non-cash working capital: | (3,232,881 | ) | 285,240 | |||||
| Cash used in operating activities | (7,966,878 | ) | (5,347,912 | ) | ||||
| Cash used in investing activities | (44,233 | ) | (152,398 | ) | ||||
| Cash provided by financing activities | 15,420,394 | 4,460,317 | ||||||
| Effect of foreign exchange rate changes on cash | (143,313 | ) | 242,449 | |||||
| Increase (Decrease) in cash | 7,265,970 | (797,544 | ) | |||||
| Cash, beginning of the period | 319,294 | 1,153,229 | ||||||
| Cash, end of the period | $ | 7,585,264 | $ | 355,685 | ||||
During the six months ended June 30, 2026, the Company used $7,966,878 of cash in operating activities, compared to $5,347,912 during the corresponding period in 2025. The increase in cash used in operating activities was primarily attributable to unfavorable changes in non-cash working capital, partially offset by a lower net loss during the period.
Non-cash items primarily included stock-based compensation, depreciation and amortization, inventory impairment, accrued interest, credit line fees, the reversal of impairment of contract costs, and the non-cash gain recognized on the initial recognition of derivative warrant liabilities following the Company's change in functional currency.
Changes in non-cash working capital used $3,232,881 of cash during the six months ended June 30, 2026, compared to cash provided of $285,240 during the corresponding period in 2025. The increase in working capital outflows was primarily attributable to increases in accounts receivable, prepaid expenses and inventory, together with a reduction in accounts payable and accrued liabilities. These changes were partially offset by increases in deferred revenue and decreases in deferred financing costs and contract costs.
The increase in working capital outflows during the period was primarily driven by inventory purchases to support commercialization activities and the settlement of outstanding accounts payable and accrued liabilities.
Operating cash flows for the six months ended June 30, 2026 and 2025 reflect the Company's continued investment in research and development, commercialization initiatives and general and administrative activities, including salaries, consulting fees, investor relations and promotional activities.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 13 |
Investing Activities
Cash used in investing activities during the six months ended June 30, 2026 was $44,233, compared to $152,398 during the corresponding period in 2025. The cash outflows primarily related to purchases of property and equipment. Investing cash outflows were lower than in the prior year period due to reduced capital expenditures.
Net cash provided by financing activities during the six months ended June 30, 2026 was $15,420,394, compared to $4,460,317 during the corresponding period in 2025. Financing activities during the current period primarily consisted of:
| · | net proceeds of $18,645,715 from the Company's initial public offering, net of share issuance costs; |
| · | proceeds of $2,196,109 from the Parabilis factoring and credit line; |
| · | partially offset by repayments of $2,199,751 on the Parabilis term loan, $3,063,182 under the factoring facility, and $158,497 of lease liabilities. |
No proceeds were received from the exercise of warrants during the six months ended June 30, 2026, compared to proceeds of $2,075,555 during the corresponding period in 2025.
During the corresponding period in 2025, financing activities primarily reflected net proceeds of $3,058,927 from private placements and $2,075,555 from the exercise of warrants, partially offset by repayments of related-party working capital loans, working capital loans and lease liabilities.
Dividends
The Company has not declared or paid dividends to date and has no current plans to do so in the foreseeable future.
Contractual Obligations
At June 30, 2026, the Company had contractual obligations totaling $4,495,976, of which $4,042,623 are due within one year. These short-term obligations include:
| · | Accounts payable and accrued liabilities of $3,211,755; | |
| · | Loans payable of $558,443; | |
| · | Deferred revenue of $123,088; and | |
| · | Lease liabilities of $149,347. |
Contractual obligations in the one-to-three-year period includes:
| · | Lease liabilities of $255,916 | |
| · | Derivative warrant liability of $197,437 |
There were no contractual obligations due in the four-to-five year or greater than periods.
(b) Capital Transactions and Resources
Common share transactions for the six months ended June 30, 2026
| i) | On January 15, 2026, the Company closed the second and final tranche of the December 2025 non-brokered private placement for additional gross proceeds of $624,002 (CAD$867,506) through the issuance of 87,627 units at a price of CAD$9.90 per unit. Each unit comprised one common share and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share at an exercise price of CAD$13.50 per share, exercisable from March 17, 2026, to January 15, 2028. The warrants were allocated a residual value of $56,452. In connection with the private placement, the Company issued an aggregate of 5,045 broker warrants to agents under terms and conditions substantially identical to those of the unit warrant. The broker warrants were allocated a fair value of $13,087 (CAD$18,194). Additionally, the Company paid commissions and legal expenses of $48,490 (CAD$67,413). |
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 14 |
| ii) | On April 21, 2026, the Company priced an initial public offering in the United States consisting of 3,673,638 common shares at a price of $4.50 per share for gross proceeds of $16,531,371 and, in lieu of common shares for certain investors, 770,807 pre-funded warrants at a purchase price of $4.4999 per pre-funded warrant for gross proceeds of $3,468,554. The common shares commenced trading on the Nasdaq Capital Market on April 22, 2026 under the symbol "DETX". The offering closed on April 23, 2026, resulting in aggregate gross proceeds of $19,999,925. The Company incurred commissions and legal expenses of $2,733,420 in connection with the offering. |
The pre-funded warrants were classified as equity instruments in accordance with IAS 32, Financial Instruments: Presentation, as they represent the right to acquire a fixed number of the Company's common shares for a fixed exercise price denominated in the Company's functional currency at the date of issuance. The gross proceeds received from the issuance of the pre-funded warrants were recorded within equity reserves and will be transferred to share capital upon exercise. As equity instruments, the pre-funded warrants are not subsequently remeasured.
| iii) | During the six months ended June 30, 2026, a total of 181 common shares were issued pursuant to the RSUs with a fair value of $32,407. |
Common share transactions for the year ended December 31, 2025
| i) | On January 6, 2025, the Company received $2,071,851 (CAD$2,977,851) from the exercise of 120,317 share purchase warrants after electing, on December 31, 2024, to exercise its acceleration right for a total of 277,778 warrants granted on December 19, 2024, pursuant to a private placement. As a result, the remaining 157,461 unexercised warrants expired. |
| ii) | On March 20, 2025, the Company closed a non-brokered private placement for gross proceeds of $3,479,351 (CAD$5,001,183). The Company issued 67,356 units (each a “Unit”) of the Company at a price of CAD$74.25 per Unit. Each Unit comprised of one common share and one-half common share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share of the Company at a price of CAD$92.25 for a period of 24 months and is subject to an accelerated expiry at the Company’s election under certain conditions. The warrants were allocated a residual value of $263,584. In connection with the non-brokered private placement, the Company issued 4,715 finder warrants. Each finder’s warrant will be exercisable to purchase one common share for a period of 24 months at an exercise price of CAD$74.25. The broker warrants were allocated a fair value of $84,183 (CAD$121,004). Additionally, the Company paid commissions and legal expenses of $420,424 (CAD$600,650). |
| iii) | On April 1, 2025, a total of 78 shares were issued pursuant to the exercise of 78 warrants, resulting in proceeds of $3,704 (CAD$5,285). Residual value in the amount of $nil was reversed. |
| iv) | On April 13, 2025, a total of 478 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $5,498 and the reverse value was reclassified to share capital. |
| v) | On May 9, 2025, a total of 309 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $3,816 and the reverse value was reclassified to share capital. |
| vi) | On June 6, 2025, a total of 206 finder warrants expired with an exercise price of $135.00. These broker warrants had a fair value of $1,892 and the reverse value was reclassified to share capital |
| vii) | On July 29, 2025, the Company closed a non-brokered private placement for gross proceeds of $3,199,767 (CAD$4,399,996). The Company issued 444,444 units (each a “Unit”) of the Company at a price of CAD$9.90 per Unit. Each Unit comprised of one common share and one common share purchase warrant. Each warrant entitles the holder thereof to purchase one additional common share of the Company at a price of CAD$15.75 for a period of 12 months and is subject to an accelerated expiry at the Company’s election under certain conditions. The warrants were allocated a residual value of $nil. Additionally, the Company issued 16,000 broker warrants with a fair value of $38,472 (CAD$52,902). The Company paid commissions and legal expenses of $137,898 (CAD$189,781). |
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 15 |
| viii) | On October 31, 2025, the Company received gross proceeds of $1,353,116 (CAD$1,895,093) from the exercise of 120,323 warrants. |
| ix) | On December 31, 2025, the Company closed the first tranche of a non-brokered private placement for gross proceeds of $1,274,365 (CAD$1,747,172), through the issuance of 176,482 units at a price of CAD$9.90 per unit. Each unit comprised one common share and one common share purchase warrant, with each warrant entitling the holder to acquire one additional common share at an exercise price of CAD$13.50 per share, exercisable from March 2, 2026, to December 31, 2027. The Company issued an aggregate of 7,915 broker warrants with a fair value of $20,866 (CAD$28,608). The warrants were allocated a residual value of $115,851 (CAD$158,833). The Company paid commissions and legal expenses of $57,331 (CAD$78,356). |
| x) | During the year ended December 31, 2025, a total of 4,758 common shares were issued pursuant to the RSUs with a fair value of $383,471. |
Other sources of funds:
Other sources of funds potentially available to the Company are through the exercise of outstanding stock options, and share purchase warrants with the following terms:
As at June 30, 2026, the number of stock options outstanding and exercisable was:
| Outstanding | Exercisable | |||||||||||||||
| Remaining | ||||||||||||||||
| Number of stock | contractual life | Number of stock | ||||||||||||||
| Expiry date | options | Exercise price | (years) | options | ||||||||||||
| 28-Jul-26 | 278 | CAD$ | 247.50 | 0.08 | 278 | |||||||||||
| 28-Jul-26 | 111 | CAD$ | 292.50 | 0.08 | 111 | |||||||||||
| 1-Nov-26 | 944 | CAD$ | 207.00 | 0.34 | 944 | |||||||||||
| 14-Jan-27 | 222 | CAD$ | 162.00 | 0.54 | 222 | |||||||||||
| 15-Apr-27 | 1,111 | CAD$ | 26.55 | 0.79 | 1,111 | |||||||||||
| 26-Apr-27 | 2,633 | CAD$ | 184.50 | 0.82 | 2,633 | |||||||||||
| 2-Jul-27 | 5,556 | CAD$ | 10.80 | 1.01 | 2,778 | |||||||||||
| 21-Nov-27 | 133 | CAD$ | 99.00 | 1.39 | 133 | |||||||||||
| 26-Apr-28 | 111 | CAD$ | 81.00 | 1.82 | 111 | |||||||||||
| 16-Oct-28 | 1,778 | CAD$ | 85.50 | 2.30 | 1,778 | |||||||||||
| 30-Dec-29 | 51,667 | CAD$ | 38.25 | 3.50 | 40,695 | |||||||||||
| 2-Apr-30 | 3,333 | CAD$ | 37.80 | 3.76 | 2,083 | |||||||||||
| 30-Sep-30 | 41,111 | CAD$ | 12.15 | 4.25 | 15,417 | |||||||||||
| June 30, 2026 | 108,988 | 68,294 | ||||||||||||||
During the six months ended June 30, 2026, the Company recognized stock-based compensation related to stock options totaling $352,783 (June 30, 2025 – $932,985). Of this amount, $8,084 was recorded as stock-based compensation in the HEXWAVE cost of revenue (June 30, 2025 – $13,747), and $9,951 was recorded as stock-based compensation in cost of contract revenue (June 30, 2025 - $2,765).
As at June 30, 2026, the number of restricted share units (“RSU”) outstanding and exercisable are as follows:
| Number of equity | ||||||||
| settled RSUs | Grant Price | |||||||
| Outstanding, December 31, 2024 | 11,918 | CAD$ | 180.45 | |||||
| Granted | 8,260 | 10.91 | ||||||
| Exercised | (4,758 | ) | 115.88 | |||||
| Outstanding, December 31, 2025 | 15,420 | CAD$ | 55.51 | |||||
| Exercised | (181 | ) | 247.5 | |||||
| Cancelled | (1,672 | ) | 179.34 | |||||
| Outstanding, June 30, 2026 | 13,567 | CAD$ | 37.74 | |||||
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 16 |
The estimated fair value of the equity settled RSUs granted as of June 30, 2026, was $nil (December 31, 2025 - $60,998) and will be recognized as an expense over the vesting period of the RSUs. The fair value of the equity settled RSUs as at the grant date was determined with reference to the market value of the common shares of the Company at the grant date.
During the six months ended June 30, 2026, the Company recognized stock-based compensation related to RSUs in the amount of $22,811 (June 30, 2025 – $24,295).
On June 2, 2026, the Company obtained approval from the TSX Venture Exchange to undertake a normal course issure bid (the “NCIB”) to purchase up to 5,142,844 of its outstanding Common Shares (pre-consolidation) (114,285 post-consolidation), representing approximately 10% of the Company’s public float. The NCIB commenced on June 5, 2025, and expired on June 4, 2026. The Company engaged Research Capital to act as their broker for purchases under the NCIB. Any shares purchased pursuant to the NCIB would have been returned to treasury and cancelled; however, no Common Shares were repurchased under the NCIB prior to its expiry.
Restricted share units granted for the six months ended June 30, 2026:
No transactions occurred during the six months ended June 30, 2026, in regard to restricted share units.
During the year ended December 31, 2025, the following transactions occurred in connection to restricted share units:
| i) | During the year ended December 31, 2025, a total of 4,758 common shares were issued pursuant to the exercise of RSUs. |
| ii) | On August 7, 2025, the Company granted 1,111 RSUs to consultants; these RSUs shall be settled with common shares of the Company, have an exercise period that expires on January 1, 2029, and vest at 100% on January 1, 2026. |
| iii) | On December 12, 2025, the Company granted 7,149 RSUs to a contractor; these RSUs shall be settled with common shares of the Company, have an exercise period that expires December 12, 2029, and vests 100% on December 12, 2026. |
As at June 30, 2026, the outstanding number of share purchase warrants are as follows:
| Warrants | Exercise | |||||||
| outstanding | Price | |||||||
| Outstanding, December 31, 2024 | 446,109 | CAD$ | 54.90 | |||||
| Issued | 683,234 | 19.32 | ||||||
| Expired | (169,855 | ) | 32.79 | |||||
| Exercised | (240,718 | ) | 20.27 | |||||
| Outstanding December 31, 2025 | 718,770 | CAD$ | 36.45 | |||||
| Issued | 863,479 | 6.94 | ||||||
| Outstanding June 30, 2026 | 1,582,249 | CAD$ | 20.35 | |||||
Effective April 23, 2026, certain outstanding CAD-denominated warrants were reclassified from equity to derivative financial liabilities following the Company's change in functional currency. Refer to notes 3 and 15. The pre-funded warrants issued in connection with the Company's initial public offering are not included in the above reclassification, as they continue to qualify for equity classification under IAS 32. As at June 30, 2026, the Company had 770,807 pre-funded warrants outstanding (December 31, 2025 – nil). Each pre-funded warrant entitles the holder to acquire one common share of the Company at an exercise price of $0.0001 per share and remains exercisable until exercised. As equity instruments, the pre-funded warrants are not subsequently remeasured.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 17 |
(c) Performance Shares
On March 17, 2021, Liberty deposited into escrow, and held in escrow, Operational Performance Shares (“OPS”) and Capital Market Performance Shares (“CMPS”) for certain directors, officers, and consultants of the Company upon the Company achieving certain performance milestones. Once these milestones were achieved the shares would be released. These performance shares included 4,444 of OPS and 19,496 of CMPS. In order to fair value these performance shares, management estimated the probability that the Company would issue the performance shares.
All CMPS have been issued in previous years upon the completion of all required milestones.
Operational Performance Shares
As at June 30, 2026, none of the 4,444 OPS have been issued as neither of the two milestones have been met. The estimated fair value of the OPS is CAD$800,000 which had an estimated vesting period of December 2026. During the three and six months ended June 30, 2026, the Company recorded stock-based compensation in connection to OPS in the amounts of $24,252 and $47,831 (three and six months ended June 30, 2025 – $26,221 and $51,157). For the six months ended June 30, 2026, and 2025, none of the operational performance shares have been released from escrow.
| (a) | Reconciliation of use of proceeds from the Initial Public Offering (April 2026) (“IPO Q2 2026”) |
| Intended use of proceeds of IPO Q2 2026 | Actual use of proceeds from IPO Q2 2026 | (Over)/under expenditure | Explanation of Variance and impact on business objectives | |||||||||||
| Agent’s fees and expenses | $ | 1,777,344 | $ | 1,777,344 | $ | - | N/A | |||||||
| Legal Fees associated with Nasdaq uplisting | $ | 2,733,450 | $ | 2,733,450 | $ | - | N/A | |||||||
| Payable and Loans | $ | 4,758,137 | $ | 4,758,137 | $ | - | N/A | |||||||
| Marketing and Investor Relations | $ | 500,000 | $ | 247,149 | $ | 252,851 | Balance to be used for planed trade shows and marketing initiatives | |||||||
| General and Administrative Expenses | $ | 4,230,994 | $ | 1,189,085 | $ | 3,041,909 | Balance to be used for future G&A expenses | |||||||
| Further the production of HEXWAVE™ and HD-AIT to support the increase in demand and deliver units in backlog to customers | $ | 6,000,000 | $ | 1,709,236 | $ | 4,290,764 | Balance to be used for HEXWAVE support and production. | |||||||
| Total | $ | 19,999,925 | $ | 12,414,673 | $ | 7,585,524 | N/A | |||||||
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 18 |
| (b) | Reconciliation of use of proceeds from the non-brokered private placement closed on January 15, 2026 (“PP Q1 2026”) |
| Intended use of proceeds of PP Q1 2026 | Actual use of proceeds from PP Q1 2026 | (Over)/under expenditure | Explanation of Variance and impact on business objectives | |||||||||||
| Agent’s legal fees, expenses and disbursements | $ | 21,225 | $ | 21,225 | $ | - | N/A | |||||||
| Cash portion of Agent’s corporate finance fee | $ | 36,027 | $ | 36,027 | $ | - | N/A | |||||||
| Further the production of HEXWAVE™ to support the increase in demand and deliver units in backlog to customers | $ | 566,750 | $ | 566,750 | $ | - | N/A | |||||||
| Total | $ | 624,002 | $ | 624,002 | $ | - | N/A | |||||||
| (c) | Reconciliation of use of proceeds from the non-brokered private placement closed on December 31, 2025 (“PP Q4 2025”) |
| Intended use of proceeds of PP Q4 2025 | Actual use of proceeds from PP Q4 2025 | (Over)/under expenditure | Explanation of Variance and impact on business objectives | |||||||||||
| Cash portion of Agent’s corporate finance fee | $ | 56,029 | $ | 56,029 | $ | - | N/A | |||||||
| Further the production of HEXWAVE™ to support the increase in demand and deliver units in backlog to customers | $ | 1,274,365 | $ | 1,274,365 | $ | - | N/A | |||||||
| Total | $ | 1,330,394 | $ | 1,274,365 | $ | - | N/A | |||||||
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 19 |
| (d) | Reconciliation of use of proceeds from the non-brokered private placement closed on July 29, 2025 (“PP Q3 2025”) |
| PP Q3 2025Intended use of proceeds of PP Q3 2025 | Actual use of proceeds from PP Q3 2025 | (Over)/under expenditure | Explanation of Variance and impact on business objectives | |||||||||||
| Agent’s legal fees, expenses and disbursements | $ | 21,043 | $ | 21,043 | $ | - | N/A | |||||||
| Cash portion of Agent’s corporate finance fee | $ | 115,187 | $ | 115,187 | $ | - | N/A | |||||||
| Consulting and Investor Relations from Private Placement | $ | 1,150,000 | $ | 1,150,000 | $ | - | N/A | |||||||
| Further the production of HEXWAVE™ to support the increase in demand and deliver units in backlog to customers | $ | 1,913,537 | $ | 1,913,537 | $ | - | N/A | |||||||
| Total | $ | 3,199,767 | $ | 3,199,767 | $ | - | N/A | |||||||
| (e) | Reconciliation of use of proceeds from the non-brokered private placement closed on March 20, 2025 (“PP Q1 2025”) |
| Intended use of proceeds of PP Q1 2025 | Actual use of proceeds from PP Q1 2025 | (Over)/under expenditure | Explanation of Variance and impact on business objectives | |||||||||||
| Agent’s legal fees, expenses and disbursements | $ | 78,790 | $ | 78,790 | $ | - | N/A | |||||||
| Cash portion of Agent’s corporate finance fee | $ | 243,555 | $ | 243,555 | $ | - | N/A | |||||||
| Consulting and Investor Relations from Private Placement | $ | 498,374 | $ | 498,374 | $ | - | N/A | |||||||
| Further the production of HEXWAVE™ to support the increase in demand and deliver units in backlog to customers | $ | 2,658,632 | $ | 2,658,632 | $ | - | N/A | |||||||
| Total | $ | 3,479,351 | $ | 3,479,351 | $ | - | N/A | |||||||
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 20 |
| 5. | Commitments |
| i) | As at June 30, 2026, and December 31, 2025, the minimum lease payments are as follows: |
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Maturity analysis - contractual undiscounted cash flows | ||||||||
| One year or less | $ | 243,527 | $ | 238,567 | ||||
| Two to five years | 195,492 | 358,949 | ||||||
| Six and thereafter | - | - | ||||||
| Total lease liabilities | $ | 439,019 | $ | 597,516 | ||||
| Lease liabilities included in the statement of financial position | $ | 405,263 | $ | 536,235 | ||||
| Current | $ | 149,347 | $ | 235,834 | ||||
| Non-current | $ | 255,916 | $ | 300,401 | ||||
| 6. | Revenue |
Revenue recognized for the three and six months ended June 30, 2026, and 2025, relates to contract revenue from the Transportation Security Administration (“TSA”), as well as sales of HEXWAVE™ units.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| Revenue | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| TSA Contract Award HD-AIT | - | 357,905 | - | 457,905 | ||||||||||||
| TSA OA Development | - | 71,944 | - | 246,944 | ||||||||||||
| HD-AIT Phase II B | - | - | 275,000 | - | ||||||||||||
| HEXWAVE units | - | - | 601,928 | 653,500 | ||||||||||||
| HEXWAVE Software, Training & Warranty | 42,202 | - | 84,695 | 126,858 | ||||||||||||
| Total Revenue | $ | 42,202 | $ | 429,849 | $ | 961,623 | $ | 1,485,207 | ||||||||
As of June 30, 2026, the Company continued its efforts to try and achieve year-over-year revenue growth, with a backlog of $1 million from signed purchase orders and contract revenue in 2026.
During the six months ended June 30, 2026, the Company delivered 6 HEXWAVE™ units at an average selling price per unit of approximately US$95,000, compared to 9 units delivered at an average selling price per unit of approximately US$84,157 during the six months ended June 30, 2025. The lower volume of deliveries in the current period, was primarily attributable to timing-related factors, including customer site readiness, installation scheduling, and the deferral of certain customer deployments into subsequent periods, as well as management’s focus on manufacturing optimization and operational efficiency initiatives during the period.
Future revenue for the Company consists of HEXWAVE™ purchasers, existing and expected additional Transportation Security Administration (“TSA”) contract revenue and other sources. For the six months ended June 30, 2026, the Company recorded total revenue of $961,623, primarily from HEXWAVE™ sales and TSA contract revenue. Based on current orders, anticipated contract revenue, and expected customer deployments, the Company expects revenue recognition to be weighted toward the second half of fiscal 2026. The timing and amount of revenue recognized will depend on customer deployment schedules, delivery, acceptance and other factors.. The Company's ability to achieve this revenue range is dependent on several factors, including the timing of customer procurement decisions, government budget approvals and funding availability, the timing of customer deployments, and the successful execution of existing and anticipated contracts. The projected revenue range is dependent on several material factors outlined below:
Backlog Orders:
The Company has shipped a total of $635,000 of HEXWAVE™ backlog orders, with $1,115,000 of backlog remaining as at June 30, 2026. Following the increase in production capacity, the Company expects to fulfill the remaining backlog during fiscal 2026. Historically, the Company experienced inventory constraints due to limited funding. During the period, however, the Company secured additional financing, which is expected to improve inventory availability and support the fulfillment of customer orders.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 21 |
HEXWAVE™ Sales Projections:
As a relatively new product with limited historical sales data and few comparable market benchmarks, revenue projections for HEXWAVE™ remain conservative. The Company has received several quotations requests and proposals from prospective customers that support its expectations for future revenue growth during fiscal 2026. Historically, limited funding constrained the Company's ability to pursue sales opportunities, invest in marketing initiatives, and promote the HEXWAVE™ product, which may have delayed its market visibility and customer adoption. During the period, however, the Company secured additional financing to support these activities. In addition, the implementation deadline for the TSA employee screening mandate was postponed by one year, from April 2025 to April 2026. The Company continues to expect additional customer orders during 2026 as production capacity increases and market adoption progresses.
TSA Contract Revenue:
The Company has experienced delays in TSA contract revenue projects, as well as in additional contract line items that the TSA had planned to exercise in 2025 and 2026. As a result, revenue of $357,759 will be recognized in Q1 and Q2 of 2026.
Global Economic Challenges:
The Company continues to operate in a challenging global economic environment, characterized by constrained capital markets and slower customer procurement cycles. These conditions, which began in 2024, have persisted through 2025 and early 2026 and continue to affect the timing of purchase orders for HEXWAVE™ units.
While interest rates remain elevated, recent signals of potential monetary policy easing in 2026 may improve access to capital markets and support increased customer activity. Management expects that any improvement in financing conditions could positively impact order volumes in future periods.
In response, the Company has undertaken proactive measures to mitigate these challenges and position itself for growth. These include:
| · | Increasing product awareness through targeted marketing and investor relations activities; |
| · | Focusing on advancing customer pilots and demonstrations to strengthen the sales pipeline; and | |
| · | Maintaining operational readiness to scale production as purchase commitments are secured. |
Management also recognizes that current capital market conditions directly affect the Company’s liquidity and working capital position. As at June 30, 2026, the Company had a working capital of $7.2 million and contractual obligations of $4.5 million, of which $4.1 million are due within the next 12 months. Continued access to external financing will therefore be critical to support operations and growth initiatives until the Company is able to generate sustainable revenues from commercial sales.
| 7. | Contract Awards |
During the six months ended June 30, 2026, the Company recognized total contract revenue of $275,000, recorded in revenue (June 30, 2025 - $704,849). Future revenue related to these contracts will be recognized as performance obligations are satisfied. It is estimated that future revenues will be recognized on the same basis according to the following timelines:
| Year ended December 31, | ||||||||
| Contract Award Revenue Expected in Future Years | 2026 | 2027 | ||||||
| HD-AIT Phase II B | $ | 82,759 | $ | - | ||||
| Total estimated contract revenues | $ | 82,759 | $ | - | ||||
TSA HD-AIT Phase II B
On September 29, 2025, the Company received a contract award for $357,759 from TSA for the HD-AIT Phase II B option. The contract award is a follow-on option to the current HD-AIT development program to execute phase II to drive to a final hardware design capable of supporting future compliance efforts. Invoices will be issued once the milestones are reached based on the agreed upon timeline. As at June 30, 2026, the Company received $100,000 and had a receivable of $175,000 (June 20, 2025 - $nil, and $nil respectively). The balance remaining on the contract as of June 30, 2026, was $82,759 (December 31, 2025 - $357,759).
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 22 |
| TSA HD-AIT Phase II B | Amounts | |||
| Year 2026 | ||||
| Milestone 3 (Q1 2026) | $ | 100,000 | ||
| Milestone 4 (Q1 2026) (payable) | 175,000 | |||
| Milestone 5 (Q3 2026) | 82,759 | |||
| Total Contract Value | $ | 357,759 | ||
As of June 30, 2026, the Company recorded contract costs of $85,386, representing costs incurred for contract milestones not yet achieved less related impairment charges (December 31, 2025 - $152,421). As of June 30, 2026, the Company recorded an impairment of the contract costs of $217,770 (December 31, 2025 - $192,951).
| 8. | Off-balance Sheet Arrangements |
The Company does not utilize off-balance sheet arrangements.
| 9. | Transactions Between Related Parties |
Compensation of key management personnel:
Key management personnel include persons having the authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The key management personnel of the Company are the members of the Company’s executive management team and Board of Directors. Compensation provided to key management personnel is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Salaries | $ | 540,634 | $ | 213,121 | $ | 822,665 | $ | 568,138 | ||||||||
| Stock-based compensation | 83,254 | 206,792 | 211,508 | 524,858 | ||||||||||||
| $ | 623,887 | $ | 419,913 | $ | 1,034,173 | $ | 1,092,996 | |||||||||
As of June 30, 2026, the Company had a balance payable of $268,014 to key management personnel (December 31, 2025, – $434,831). This payable balance includes accounts payable and accrued liabilities relating to compensation to directors, officers, or their related companies, included in compensation of key management personnel. These related party balances are unsecured, non-interest bearing and have no specific terms of settlement.
During the six months ended June 30, 2026, the Company received $193,647 in working capital loans (June 30, 2025 - $nil) from members of key management personnel or their related parties and repaid $193,647 (June 30, 2025 - $74,658). As at June 30, 2026, the outstanding balance is $nil (Note 8(a)) (December 31, 2025 – $nil).
| 10. | Subsequent Events |
Subsequent to June 30, 2026, the Company recorded:
| · | the expiry of 389 stock options on July 28, 2026 |
| · | on July 29, 2026, the Company issued 23,306 common shares to a service provider in settlement of CAD$117,000 of accounts payable |
| · | on August 4, 2026, the Company issued 555 common shares as a result of RSU exercised |
| · | on July 28,2026 a total of 340,120 share purchase warrants expired without being exercised |
| 11. | Financial Instruments |
As of June 30, 2026, the Company’s financial instruments comprise cash, accounts receivables, accounts payable and accrued liabilities, loans payable, and factoring liability. The fair values of the Company’s financial instruments approximate their carrying values due to their short-term maturity.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 23 |
The Company’s financial instruments are exposed to certain financial risks including, credit risk, liquidity risk, foreign currency risks, equity price risk and capital risk management. Details of each risk are laid out in the notes to the Company’s condensed interim consolidated financial statements as at June 30, 2026. Details of each risk are summarized below:
| a) | Liquidity risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure. To mitigate this risk, the Company has a planning and budgeting process in place to determine the funds required to support its ongoing operations and capital expenditures. The Company ensures that sufficient funds are raised from equity offerings or debt financings to meet its operating requirements, after considering existing cash balances, expected exercise of share purchase warrants, and stock options. The Company's ability to continue as a going concern involves significant judgements and estimates while determining forecasted cashflows and is dependent on the Company's ability to obtain financing (Note 1). As at June 30, 2026, the Company had cash of $7,585,524 (December 31, 2025 – $319,294) to settle current liabilities of $4,042,623 (December 31, 2025 – $8,616,300).
During the six months ended June 30, 2026, the Company repaid all amounts outstanding under its commercial agreement with Viken Detection Corporation. As a result, the outstanding balance due to Viken was reduced to $nil as at June 30, 2026. Subsequent to the repayment, Viken terminated its security interest by filing a UCC-3 Termination Statement on June 11, 2026. Accordingly, the competing security interest previously held by Viken has been discharged, and the Company no longer considers the competing security interests described above to exist.
The Company’s exposure to liquidity risk related to the competing security interests is limited to the carrying amounts to the Parabilis and Viken Detection agreements. As at June 30, 2026, the amount due to Viken is $nil (December 31, 2025 - $603,379). As at June 30, 2025, the amount due to Parabilis is $558,433 (December 31, 2025 - $3,402,548), included in the Parabilis Term Loan, in the Statement of Financial Position. See Notes 10 and 11(a) for activity related to the Parabilis loans during the six months ended June 30, 2026.
| b) | Credit risk |
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations, including accounts receivable terms. The Company’s cash is held through large Canadian, international, and foreign national financial institutions. The Company’s receivables primarily consist of GST receivable due from the Canadian government and trade receivables that the Company continues to collect. These trade receivables are primarily with continuing customers and are not subject to significant credit risk. As at June 30, 2026, the Company’s trade receivables totalling $257,263 are from four customers (December 31, 2025 - $470,263). The Company’s maximum exposure to credit risk is limited to the carrying amount of cash and accounts receivables.
| c) | Market risk |
Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.
Interest rate risk
Interest rate risk arises from changes in market rates of interest that could adversely affect the Company. The Company currently has interest-bearing financial instruments in relation to loans, a credit line and factoring. The Company’s exposure to interest rate risk is minimal as the interest rates are at a fixed percentage on the loans payable, term loans and factoring liability.
Foreign currency risk
The Company is exposed to currency risk by having balances and transactions in currencies that are different from its functional currency. The Company operates in foreign jurisdictions, which uses the U.S. dollar. The Company does not use derivative instruments to reduce upward, and downward risk associated with foreign currency fluctuations. The Company’s exposure to foreign currency risk is minimal.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 24 |
Price risk
The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potential adverse impact on the Company's earnings due to movements in individual equity prices or general movements in the level of the stock market.
The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.
Capital Risk Management
The Company manages common shares, stock options, performance share units, restricted share units, and share purchase warrants as capital. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its products and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt, acquire or dispose of assets, or adjust the amount of cash on hand.
In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.
In order to maximize ongoing development efforts, the Company does not pay out dividends. The Company’s investment policy is to keep its cash treasury on deposit in an interest-bearing chartered bank account. Cash consists of cash on held with banks.
The Company expects its current capital resources will be sufficient to carry its operations, and product development plans for the foreseeable future. Except for the security pledged in certain term loans and credit lines as outlined in Notes 10 and 11(a) and liquidity risk with Viken Detection (Note 5) respectively, the Company is not subject to externally imposed capital requirements.
There has been no change to the Company’s approach to capital management during the six months ended June 30, 2026.
| 12. | Other requirements |
Outstanding common share data:
Authorized: Unlimited number of common shares
Number of common shares issued and outstanding as at June 30, 2026: 5,658,122
Number of common shares issued and outstanding as at August 14, 2026: 5,681,983
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 25 |
Number of stock options outstanding and exercisable as at August 14, 2026, is as follows:
| Outstanding | Exercisable | |||||||||||||||
| Remaining | ||||||||||||||||
| Number of stock | contractual life | Number of stock | ||||||||||||||
| Expiry date | options | Exercise price | (years) | options | ||||||||||||
| 01-Nov-26 | 944 | CAD$ | 207.00 | 0.23 | 944 | |||||||||||
| 14-Jan-27 | 222 | CAD$ | 162.00 | 0.43 | 222 | |||||||||||
| 15-Apr-27 | 1,111 | CAD$ | 26.55 | 0.68 | 1,111 | |||||||||||
| 26-Apr-27 | 2,633 | CAD$ | 184.50 | 0.71 | 2,633 | |||||||||||
| 02-Jul-27 | 5,556 | CAD$ | 10.80 | 0.89 | 2,778 | |||||||||||
| 21-Nov-27 | 133 | CAD$ | 99.00 | 1.28 | 133 | |||||||||||
| 26-Apr-28 | 111 | CAD$ | 81.00 | 1.71 | 111 | |||||||||||
| 16-Oct-28 | 1,778 | CAD$ | 85.50 | 2.19 | 1,778 | |||||||||||
| 30-Dec-29 | 51,667 | CAD$ | 38.25 | 3.39 | 40,695 | |||||||||||
| 02-Apr-30 | 3,333 | CAD$ | 37.80 | 3.65 | 2,083 | |||||||||||
| 30-Sep-30 | 41,111 | CAD$ | 12.15 | 4.14 | 15,417 | |||||||||||
| August 14, 2026 | 108,599 | 67,905 | ||||||||||||||
Number of share purchase warrants as at August 14, 2026, is as follows:
| Warrants | Exercise | |||||||
| outstanding | Price | |||||||
| Outstanding, December 31, 2024 | 446,109 | CAD$ | 54.90 | |||||
| Issued | 683,234 | 19.32 | ||||||
| Expired | (169,855 | ) | 32.79 | |||||
| Exercised | (240,718 | ) | 20.27 | |||||
| Outstanding December 31, 2025 | 718,770 | CAD$ | 36.45 | |||||
| Issued | 523,359 | 11.45 | ||||||
| Outstanding June 30, 2026 & August 14, 2026 | 1,242,129 | CAD$ | 20.35 | |||||
Number of restricted share units as at August 14, 2026, is as follows:
| Number of equity | |||||||||
| settled RSUs | Grant Price | ||||||||
| Outstanding, December 31, 2024 | 11,918 | CAD$ | 180.45 | ||||||
| Granted | 8,260 | 10.91 | |||||||
| Exercised | (4,758 | ) | 115.88 | ||||||
| Outstanding December 31, 2025 | 15,420 | CAD$ | 55.51 | ||||||
| Exercised | (181 | ) | 247.5 | ||||||
| Cancelled | (1,672 | ) | 179.34 | ||||||
| Outstanding, June 30, 2026 | 13,567 | CAD$ | 37.74 | ||||||
| Exercised | (555 | ) | 69.30 | ||||||
| Outstanding August 14, 2026 | 13,012 | CAD$ | 37.74 | ||||||
Number of performance share deposited and held in escrow as at August 14, 2026:
| Number of equity settled | Weighted average | |||||||
| performance | price | |||||||
| Outstanding, December 31, 2024 and 2025 | 4,444 | CAD$ | 180.00 | |||||
| Released from escrow | - | - | ||||||
| Outstanding, June 30, 2026 & August 14, 2026 | 4,444 | CAD$ | 180.00 | |||||
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 26 |
| 13. | Disclosure Controls and Procedures and Internal Controls over Financial Reporting |
Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within the time periods specified by securities regulations and that the information required to be disclosed is accumulated and communicated to management. Internal controls over financial reporting are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In connection with National Instrument 52-109 (Certificate of Disclosure in Issuer’s Annual and Interim Filings) (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer of the Company have filed a Venture Issuer Basic Certificate with respect to the financial information contained in the condensed consolidated interim financial statements for the three and six months ended June 30, 2026 and 2025, and this accompanying MD&A (together, the “Interim Filings”).
In contrast to the full certificate under NI 52-109, the Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI 52-109. For further information, the reader should refer to the Venture Issuer Basic Certificates filed by the Company on SEDAR+ at www.sedarplus.ca.
| Q2-2026 MD&A (Expressed in U.S. dollars) | | Page| 27 |
Exhibit 99.3
Form 52-109FV2
Certification of Interim Filings
Venture
Issuer Basic Certificate
I, William Frain, Chief Executive Officer of Liberty Defense Holdings, Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Liberty Defense Holdings, Ltd. (the “issuer”) for the interim period ended June 30, 2026. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: August 14, 2026
| /s/ William Frain | |
| William Frain | |
| Chief Executive Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.4
Form 52-109FV2
Certification of Interim Filings
Venture
Issuer Basic Certificate
I, Omar Garcia Abrego, Chief Financial Officer of Liberty Defense Holdings, Ltd., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Liberty Defense Holdings, Ltd. (the “issuer”) for the interim period ended June 30, 2026. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: August 14, 2026
| /s/ Omar Garcia Abrego | |
| Omar Garcia Abrego | |
| Chief Financial Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.