DEFSEC Technologies Inc 6-K, filed Aug 12, 2026
DEFSEC Technologies Inc. (DFSC)
About this 6-K
DEFSEC Technologies Inc filed this 6-K on August 12, 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 -41566
DEFSEC Technologies Inc.
(Exact Name of Registrant as Specified in Charter)
80 Hines Rd, Suite 300, Ottawa, Ontario, K2K 2T8
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F □
INCORPORATION BY REFERENCE
Exhibits 99. 1 and 99. 2 of this Form 6-K are incorporated by reference into the Registrant's Registration Statement on Form F-3 File No. 333-277196, Form F-3 File No. 333-281960, Form F-3 File No. 333-283343, Form F-3 File No. 333-285263, Form F-3 File No. 333-293140 and Form F-1 File No. 333-297630.
SIGNATURE
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.
| DEFSEC TECHNOLOGIES INC. | ||
| (Registrant) | ||
| Date: August 12, 2026 | By: | /s/ Jennifer Welsh |
| Name: | Jennifer Welsh | |
| Title: | Chief Financial Officer | |
EXHIBIT INDEX
Unaudited Condensed Consolidated Interim Financial Statements of
DEFSEC TECHNOLOGIES INC.
Three and nine months ended June 30, 2026 and 2025
(Expressed in Canadian dollars)
DEFSEC Technologies Inc.
Table of contents
| DEFSEC TECHNOLOGIES INC. Unaudited Condensed Consolidated Interim Statements of Financial Position As at June 30, 2026 and September 30, 2025 (Expressed in Canadian dollars) |
| Notes | June 30, 2026 | September 30, 2025 | |||||
| ASSETS | |||||||
| Cash and cash equivalents | $ | 3,482,167 | $ | 6,686,429 | |||
| Restricted short-term investment | 47,500 | 47,500 | |||||
| Trade and other receivables | 2,309,087 | 1,494,152 | |||||
| Inventories | 4 | 587,139 | 519,609 | ||||
| Prepaid expenses and other | 314,052 | 163,562 | |||||
| Deferred costs | 95,217 | 34,773 | |||||
| Current assets | 6,835,162 | 8,946,025 | |||||
| Property and equipment | 5 | 315,469 | 279,132 | ||||
| Right-of-use assets | 1,051,755 | 1,165,181 | |||||
| Deposits | 15,500 | 46,132 | |||||
| Intangible assets | 6 | 2,109,219 | 2,390,030 | ||||
| Deferred costs | 124,614 | 94,976 | |||||
| Non-current assets | 3,616,557 | 3,975,451 | |||||
| Total Assets | $ | 10,451,719 | $ | 12,921,476 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 2,688,845 | $ | 2,310,662 | |||
| Accrued royalties liability | 250,000 | 200,000 | |||||
| Lease obligations | 68,964 | 188,907 | |||||
| Contract liabilities | 2,700 | 7,671 | |||||
| Warrant liabilities | 7,8(b) | 150,044 | 210,965 | ||||
| Current liabilities | 3,160,553 | 2,918,205 | |||||
| Accrued royalties liability | 959,382 | 1,087,009 | |||||
| Lease obligations | 1,221,347 | 1,114,543 | |||||
| Non-current liabilities | 2,180,729 | 2,201,552 | |||||
| Total liabilities | 5,341,282 | 5,119,757 | |||||
| Shareholders' equity | |||||||
| Share capital | 8(a) | 48,685,893 | 47,003,991 | ||||
| Warrants | 8(b) | 9,209,413 | 7,764,412 | ||||
| Contributed surplus | 8(c) | 6,303,898 | 5,398,445 | ||||
| Accumulated other comprehensive loss | (115,686 | ) | (85,077 | ) | |||
| Accumulated deficit | (58,973,081 | ) | (52,280,052 | ) | |||
| Total shareholders' equity | 5,110,437 | 7,801,719 | |||||
| Total Liabilities and Shareholders' Equity | $ | 10,451,719 | $ | 12,921,476 |
See Note 2(a) Going concern and Note 15 Commitments and contingencies.
See accompanying notes to the unaudited condensed consolidated interim financial statements.
| DEFSEC TECHNOLOGIES INC. Unaudited Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
| Three Months Ended | Nine Months Ended | ||||||||||||
| Notes | June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||
| Revenue | 10 | $ | 2,722,165 | $ | 1,417,503 | $ | 6,149,600 | $ | 3,569,323 | ||||
| Cost of sales | 4 | (1,820,441 | ) | (1,018,013 | ) | (4,217,216 | ) | (2,451,290 | ) | ||||
| Gross profit | 901,724 | 399,490 | 1,932,384 | 1,118,033 | |||||||||
| Operating expenses | |||||||||||||
| General and administrative | 1,780,082 | 1,113,296 | 4,590,301 | 3,727,001 | |||||||||
| Selling and marketing | 441,181 | 375,353 | 1,080,120 | 1,392,014 | |||||||||
| Research and development | 623,157 | 402,334 | 1,829,652 | 1,374,825 | |||||||||
| Share-based compensation | 8(c) | 480,453 | 21,777 | 480,453 | 99,174 | ||||||||
| Depreciation and amortization | 5,6 | 138,263 | 309,085 | 485,886 | 909,505 | ||||||||
| Total operating expenses | 3,463,136 | 2,221,845 | 8,466,412 | 7,502,519 | |||||||||
| Operating loss | (2,561,412 | ) | (1,822,355 | ) | (6,534,028 | ) | (6,384,486 | ) | |||||
| Other income (expenses) | |||||||||||||
| Share issuance costs | 8(a) | - | - | - | (1,807,686 | ) | |||||||
| Net finance costs | 12 | (67,730 | ) | (42,565 | ) | (150,835 | ) | (135,985 | ) | ||||
| Foreign exchange gain (loss) | 34,889 | (258,856 | ) | (13,301 | ) | (67,750 | ) | ||||||
| Impairment of right-of-use assets | - | (6,809 | ) | - | (88,596 | ) | |||||||
| Gain (loss) on disposal of property and equipment | 5 | 1,300 | - | (57,478 | ) | 6,809 | |||||||
| Change in fair value of warrant liabilities | 7 | 5,919 | (177,290 | ) | 62,613 | 1,260,106 | |||||||
| Total other expenses, net | (25,622 | ) | (485,520 | ) | (159,001 | ) | (833,102 | ) | |||||
| Net loss | $ | (2,587,034 | ) | $ | (2,307,875 | ) | $ | (6,693,029 | ) | $ | (7,217,588 | ) | |
| Other comprehensive income (loss): | |||||||||||||
| Items that are or may be reclassified subsequently to profit or loss | |||||||||||||
| Foreign currency translation differences | (28,790 | ) | 77,873 | (30,609 | ) | (17,022 | ) | ||||||
| Total comprehensive loss | $ | (2,615,824 | ) | $ | (2,230,002 | ) | $ | (6,723,638 | ) | $ | (7,234,610 | ) | |
| Net loss per share | |||||||||||||
| Basic and diluted | 9 | $ | (1.28 | ) | $ | (3.69 | ) | $ | (3.65 | ) | $ | (17.51 | ) |
| Weighted average number of shares outstanding | |||||||||||||
| Basic and diluted | 9 | 2,023,209 | 625,323 | 1,836,138 | 412,141 | ||||||||
See accompanying notes to the unaudited condensed consolidated interim financial statements.
| DEFSEC TECHNOLOGIES INC. Unaudited Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity Nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
| Notes | Number of Common Shares(1) |
Share capital | Warrants | Contributed surplus |
Translation reserve |
Deficit | Total Shareholders' Equity |
|||||||||||||||
| Balance, September 30, 2024 | 75,199 | $ | 37,822,725 | $ | 1,084,687 | $ | 5,152,753 | $ | (38,520 | ) | $ | (42,653,358 | ) | $ | 1,368,287 | |||||||
| Shares issued for public offering | 3,810 | 100,310 | - | - | - | - | 100,310 | |||||||||||||||
| Shares issued for private offering | 50,248 | 371,154 | - | - | - | - | 371,154 | |||||||||||||||
| Warrants issued for private placement | - | - | 2,394,955 | - | - | - | 2,394,955 | |||||||||||||||
| Pre-funded warrants issued for public offering | - | - | 3,489,393 | - | - | - | 3,489,393 | |||||||||||||||
| Pre-funded warrants issued for private placement | - | - | 4,579,154 | - | - | - | 4,579,154 | |||||||||||||||
| Share issuance costs | - | (164,199 | ) | (1,671,762 | ) | - | - | - | (1,835,961 | ) | ||||||||||||
| Shares issued for debt | 5,669 | 100,000 | - | - | - | - | 100,000 | |||||||||||||||
| Pre-funded warrants exercised | 516,114 | 5,343,578 | (4,551,305 | ) | - | - | - | 792,273 | ||||||||||||||
| Warrants exercised | 16,667 | 628,250 | (267,750 | ) | - | - | - | 360,500 | ||||||||||||||
| Warrants expired | - | - | (132,000 | ) | 132,000 | - | - | - | ||||||||||||||
| Share-based compensation | - | - | - | 99,174 | - | - | 99,174 | |||||||||||||||
| Other comprehensive loss | - | - | - | - | (17,022 | ) | - | (17,022 | ) | |||||||||||||
| Net loss | - | - | - | - | - | (7,217,588 | ) | (7,217,588 | ) | |||||||||||||
| Balance, June 30, 2025 | 667,707 | $ | 44,201,818 | $ | 4,925,372 | $ | 5,383,927 | $ | (55,542 | ) | $ | (49,870,946 | ) | $ | 4,584,629 | |||||||
| Balance, September 30, 2025 | 1,396,321 | $ | 47,003,991 | $ | 7,764,412 | $ | 5,398,445 | $ | (85,077 | ) | $ | (52,280,052 | ) | $ | 7,801,719 | |||||||
| Shares issued for private placement | 8(a) | 1,239,046 | 2,063,101 | - | - | - | - | 2,063,101 | ||||||||||||||
| Warrants issued for private placement | - | - | 2,700,538 | - | - | - | 2,700,538 | |||||||||||||||
| Share issuance costs | 8(a) | - | (527,546 | ) | (683,279 | ) | - | - | - | (1,210,825 | ) | |||||||||||
| Warrants expired | - | - | (425,000 | ) | 425,000 | - | - | - | ||||||||||||||
| Pre-funded warrants exercised | 8(b) | 31,265 | 146,347 | (147,258 | ) | - | - | - | (911 | ) | ||||||||||||
| Share-based compensation | 8(c) | - | - | - | 480,453 | - | - | 480,453 | ||||||||||||||
| Other comprehensive loss | - | - | - | - | (30,609 | ) | - | (30,609 | ) | |||||||||||||
| Net loss | - | - | - | - | - | (6,693,029 | ) | (6,693,029 | ) | |||||||||||||
| Balance, June 30, 2026 | 2,666,632 | $ | 48,685,893 | $ | 9,209,413 | $ | 6,303,898 | $ | (115,686 | ) | $ | (58,973,081 | ) | $ | 5,110,437 |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
(1) See Note 1(a)
| DEFSEC TECHNOLOGIES INC. Unaudited Condensed Consolidated Interim Statements of Cash Flows Nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
| Nine Months Ended | |||||||
| Notes | June 30, 2026 | June 30, 2025 | |||||
| OPERATING ACTIVITIES | |||||||
| Net loss | $ | (6,693,029 | ) | $ | (7,217,588 | ) | |
| Items not affecting cash: | |||||||
| Depreciation and amortization | 5,6 | 485,886 | 909,505 | ||||
| Share-based compensation | 8(c) | 480,453 | 99,174 | ||||
| Change in fair value of warrant liabilities (including related foreign exchange gain) | 7 | (60,921 | ) | (1,189,596 | ) | ||
| Net finance costs | 12 | 150,835 | 135,985 | ||||
| Loss on disposal of property and equipment | 5 | 57,478 | - | ||||
| Impairment of ROU asset | - | 88,596 | |||||
| Gain on debt settlement | - | (500 | ) | ||||
| Unrealized foreign exchange loss (gain) | 6,081 | - | |||||
| Changes in non-cash working capital items | 14 | (949,912 | ) | (1,154,677 | ) | ||
| Changes in non-current deferred costs | - | (52,045 | ) | ||||
| Interest received (paid) | 77,833 | (9,582 | ) | ||||
| Add back items not affecting operating activities: | |||||||
| Share issuance costs | - | 1,807,686 | |||||
| Cash used in operating activities | (6,445,296 | ) | (6,583,042 | ) | |||
| INVESTING ACTIVITIES | |||||||
| Additions of property and equipment | 5 | (191,605 | ) | (120,175 | ) | ||
| Proceeds from the sale of property and equipment | 5 | 1,300 | - | ||||
| Investments in intangible assets | 6 | - | (26,675 | ) | |||
| Cash flows used in investing activities | (190,305 | ) | (146,850 | ) | |||
| FINANCING ACTIVITIES | |||||||
| Proceeds from the issuance of common shares and warrants | 7,8(a) | 4,577,429 | 11,948,426 | ||||
| Payments of share offering costs | 8(a) | (1,025,556 | ) | (3,188,310 | ) | ||
| Payments of lease obligations | (119,434 | ) | (117,036 | ) | |||
| Proceeds from exercise of warrants | 8(b) | 31 | 373,195 | ||||
| Cash flows provided by financing activities | 3,432,470 | 9,016,275 | |||||
| Net change in cash during the period | (3,203,131 | ) | 2,286,383 | ||||
| Cash and cash equivalents, beginning of period | 6,686,429 | 256,828 | |||||
| Effect of exchange rates on cash | (1,131 | ) | - | ||||
| Cash and cash equivalents, end of period | $ | 3,482,167 | $ | 2,543,211 | |||
| Cash and investments consist of the following: | |||||||
| Cash held in banks | $ | 3,482,167 | $ | 2,543,211 | |||
| Short-term guaranteed investment certificates | 47,500 | 30,000 | |||||
| Cash and investments, end of period | $ | 3,529,667 | $ | 2,573,211 | |||
| See accompanying notes to the unaudited condensed consolidated interim financial statements. | |||||||
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
1. Corporate information
DEFSEC Technologies Inc. (the "Company", "DEFSEC") was incorporated on November 28, 2017, under the laws of the Province of British Columbia. The registered office is located at 550 Burrard Street, Suite 2900, Vancouver, British Columbia, Canada, and the corporate office is located at Suite 300, 80 Hines Rd., Ottawa, Ontario, Canada.
The Company develops and commercializes next-generation technology solutions that deliver a tactical advantage for military, public safety agencies and personal defense markets. The Company's core mission is to protect and save lives.
DEFSEC's common stock is listed on the TSX-Venture Exchange ("TSX-V'') under the stock symbol of DFSC, on the Nasdaq Capital Market ("Nasdaq") under the stock symbol of DFSC and on the Frankfurt Stock Exchange under the stock symbol of 62U2. Additionally, warrants issued in the United States are also listed on the Nasdaq under the stock symbol of DFSCW. Effective May 1, 2023, the warrants issued in Canada are listed on the TSX-V under the stock symbol of DFSC.WT.U.
(a) 2025 Reverse Stock Split (applied retrospectively)
On April 23, 2025, on Nasdaq, and on April 24, 2025, on the TSX-V, DEFSEC effected 21-for-1 reverse stock split of its common stock (the "2025 Reverse Split"). Accordingly, all shareholders of record at the opening of business on April 23, 2025, received one issued and outstanding common share of DEFSEC in exchange for twenty-one outstanding common shares of DEFSEC. No fractional shares were issued in connection with the 2025 Reverse Split. All fractional shares created by the 2025 Reverse Split were rounded to the nearest whole number of common shares, with any fractional interest representing 0.5 or more common shares entitling holders thereof to receive one whole common share.
Effective on the date of the 2025 Reverse Split, the exercise price and number of common shares issuable upon the exercise of outstanding stock options and warrants were proportionately adjusted to reflect the 2025 Reverse Split. All information respecting outstanding common shares, including net loss per share, in the current and comparative periods presented herein give effect to the 2025 Reverse Split.
2. Basis of preparation
(a) Going concern
These unaudited condensed consolidated interim financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes the Company will continue in operation for the foreseeable future and can realize its assets and discharge its liabilities and commitments in the normal course of business.
As an early-stage company, it has not yet reached significant revenue levels for most of its products and has incurred significant losses and negative operating cash flows from inception that have primarily been funded from financing activities. The Company has incurred a $6.7 million net loss and negative operating cash flows of $6.4 million in the nine month period ended June 30, 2026 (2025 - $7.2 million net loss and negative operating cash flows of $6.6 million). At June 30, 2026, the Company had $3.7 million in working capital (September 30, 2025 - $6.0 million) and $59.0 million in accumulated deficit (September 30, 2025 - $52.3 million).
The Company's ability to continue as a going concern and realize its assets and discharge its liabilities in the normal course of business is dependent upon closing timely additional sales orders, timely commercial launch of new products, and the ability to raise additional debt or equity financing, when required. There are various risks and uncertainties affecting our future financial position and our performance including, but not limited to:
- The market acceptance and rate of sales of the Company's product offerings;
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
- The Company's ability to grow its digitization services business;
- Its ability to successfully execute the Company's business plan;
- Its ability to raise additional capital at acceptable terms;
- General local and global economic conditions, including the ongoing conflict in Gaza and the global disruptions from Russia's invasion of Ukraine and the United States Conflict with Iran; and
- Risks related to United States tariffs, including potential supply chain disruptions, required operational adjustments, increased costs and potential logistical disruptions.
The Company's strategy to mitigate these material risks and uncertainties is to execute a business plan, in a timely manner, aimed at continued focus on revenue growth, product development and innovation, improving overall gross profit, managing operating expenses and working capital requirements, and securing additional capital, as needed.
Failure to implement its business plan could have a material adverse effect on the Company's financial condition and/or financial performance. There is no assurance that the Company will be able to raise additional capital as required in the future. Accordingly, there are material risks and uncertainties that may cast substantial doubt about the Company's ability to continue as a going concern.
These unaudited condensed consolidated interim financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may otherwise be required if the going concern basis was not appropriate.
(b) Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and the interpretations of the IFRS Interpretations Committee. They do not include all the information required for a complete set of financial statements prepared in accordance with IFRS® Accounting Standards ("IFRS") and should be read in conjunction with our Annual Audited Consolidated Financial Statements for the years ended September 30, 2025, 2024 and 2023 (the "Annual Financial Statements"). However, selected explanatory notes are included to explain events and transactions that are material to an understanding of the changes in our financial position and performance since the last Annual Financial Statements.
These unaudited condensed consolidated interim financial statements were authorized for issue by the Board of Directors on August 12, 2026.
(c) Basis of consolidation
These unaudited condensed consolidated interim financial statements incorporate the financial statements of DEFSEC and the entities it controls.
Control is achieved where we have the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, are exposed to, or have rights to, variable returns from our involvement with the entity and have the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to us until the date on which control ceases. Profit or loss of subsidiaries acquired during the period are recognized from the date of acquisition or effective date of disposal as applicable. All intercompany transactions and balances have been eliminated.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
At June 30, 2026, the Company has the following wholly-owned subsidiaries, which is unchanged from September 30, 2025:
| Entity | Location | Functional Currency |
Equity % |
| KWESST Inc. | Ottawa, Canada | CAD | 100% |
| 2720178 Ontario Inc. | Ottawa, Canada | CAD | 100% |
| Police Ordnance Company Inc. | Ottawa, Canada | CAD | 100% |
| KWESST U.S. Holdings Inc. | Delaware, United States | USD | 100% |
| KWESST Defense Systems U.S. Inc | North Carolina, United States | USD | 100% |
| KWESST Public Safety Systems U.S. Inc. | North Carolina, United States | USD | 100% |
| KWESST Public Safety Systems Canada Inc. | Ottawa, Canada | CAD | 100% |
(d) Functional and presentation currency
The unaudited condensed consolidated interim financial statements are presented in Canadian dollars ("CAD"), which is the functional and presentation currency.
While each of the Company's subsidiaries has its own functional currency, the functional currency of the parent company, DEFSEC, is CAD as this is the currency of the primary economic environment in which the Company operates. Most of the revenues, cost of sales and operating expenses from significant subsidiaries are denominated in CAD. The Company's Canadian wholly owned subsidiaries are measured using CAD as the functional currency and its U.S. wholly owned subsidiaries are measured using the United States dollar ("USD") as their functional currency.
(e) Basis of measurement
The unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial instruments measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
(f) Use of estimates and judgments
The preparation of the unaudited condensed consolidated interim financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income, expenses, and disclosure of contingent liabilities. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
Judgments
Information about judgments made in applying accounting policies that have the most material effects on the amounts recognized in these unaudited condensed consolidated interim financial statements are the same as disclosed in Note 2(f) of the Annual Financial Statements.
Estimates
Information about assumptions and estimation uncertainties at June 30, 2026 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year are the same as disclosed in Note 2(f) of the Annual Financial Statements.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
(g) Changes to standards and interpretations
IFRS 18 Presentation and Disclosure in Financial Statements
The IASB issued IFRS 18 Presentation and Disclosure in Financial Statements on April 9, 2024, to replace IAS 1 Presentation of Financial Statements and is effective for annual periods beginning on or after January 1, 2027. IFRS 18 introduces a defined structure for the presentation of the statement of income, including required totals and subtotals, as well as aggregating and disaggregating principles to categorize financial information. The standard also requires all Management-defined performance measures to be disclosed in the notes to the financial statements. The Company is currently assessing the impact of this new standard.
In May 2024, the IASB issued amendments to IFRS 9 and IFRS 7 Classification and Measurement of Financial Instruments. These amendments clarify the date of recognition and derecognition of some financial assets and liabilities, with a new exception for some financial liabilities settled through an electronic cash transfer system; add new disclosures for certain instruments with contractual terms that can change cash flows (such as some instruments with features linked to the achievement of environment, social and governance targets); and update the disclosures for equity instruments designated at fair value through other comprehensive income. These amendments apply to annual reporting periods beginning on or after January 1, 2026. The Company is currently assessing the impact of these amendments on its consolidated financial statements.
3. Material accounting policies
During the three and nine month periods ended June 30, 2026, the accounting policies in these unaudited condensed consolidated interim financial statements are the same as those applied in the Annual Financial Statements.
4. Inventories
The following table presents a breakdown of inventories:
| June 30, 2026 |
September 30, 2025 |
|||||
| Finished goods | $ | 98,500 | $ | 34,463 | ||
| Work-in-progress | 13,920 | 29,414 | ||||
| Raw materials | 474,719 | 455,732 | ||||
| Total | $ | 587,139 | $ | 519,609 |
For the three and nine month periods ended June 30, 2026, a total of $0.1 million and $0.2 million, respectively (2025 - $0.2 million and $0.3 million, respectively) of inventory was included in profit or loss as an expense as part of cost of sales.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
5. Property and equipment
The following is a summary of changes in property and equipment:
| Cost | Computer equipment |
Computer software |
Office furniture and equipment |
LRIP equipment (1) |
R&D equipment |
Leasehold improvements |
Sales demo equipment |
Total | ||||||||||||||||
| Balance, September 30, 2025 | $ | 231,320 | $ | 5,129 | $ | 207,530 | $ | 138,734 | $ | 218,428 | $ | 131,792 | $ | 109,234 | $ | 1,042,167 | ||||||||
| Additions | 75,696 | - | 20,488 | 41,003 | 27,974 | 26,444 | - | 191,605 | ||||||||||||||||
| Disposals | - | - | (9,782 | ) | (138,733 | ) | (137,217 | ) | (131,790 | ) | - | (417,522 | ) | |||||||||||
| Balance, June 30, 2026 | $ | 307,016 | $ | 5,129 | $ | 218,236 | $ | 41,004 | $ | 109,185 | $ | 26,446 | $ | 109,234 | $ | 816,250 |
| Accumulated depreciation | Computer equipment |
Computer software |
Office furniture and equipment |
LRIP equipment (1) |
R&D equipment |
Leasehold improvements |
Sales demo equipment |
Total | ||||||||||||||||
| Balance, September 30, 2025 | $ | 157,478 | $ | 5,129 | $ | 105,335 | $ | 102,580 | $ | 182,872 | $ | 100,407 | $ | 109,234 | $ | 763,035 | ||||||||
| Depreciation | 28,901 | - | 18,786 | 17,938 | 20,015 | 10,852 | - | 96,492 | ||||||||||||||||
| Disposals | - | - | (5,577 | ) | (115,655 | ) | (126,421 | ) | (111,093 | ) | - | (358,746 | ) | |||||||||||
| Balance, June 30, 2026 | $ | 186,379 | $ | 5,129 | $ | 118,544 | $ | 4,863 | $ | 76,466 | $ | 166 | $ | 109,234 | $ | 500,781 | ||||||||
| Carrying value, September 30, 2025 |
$ | 73,842 | $ | - | $ | 102,195 | $ | 36,154 | $ | 35,556 | $ | 31,385 | $ | - | $ | 279,132 | ||||||||
| Carrying value, June 30, 2026 | $ | 120,637 | $ | - | $ | 99,692 | $ | 36,141 | $ | 32,719 | $ | 26,280 | $ | - | $ | 315,469 | ||||||||
| (1)Low-rate initial production equipment ("LRIP") includes moulds for the PARA SHOT™ products. | ||||||||||||||||||||||||
During the second quarter of Fiscal 2026, the Company reviewed its property and equipment and identified certain assets that were no longer in use. As a result, a loss of $58,778 was recognized and recorded as gain (loss) on disposal of property and equipment in the Unaudited Condensed Consolidated Statements of Net Loss and Comprehensive Loss.
6. Intangible assets
The following table shows a breakdown of our intangible assets:
| PARA SHOT™ System |
PARA SHOT™ Patent |
ARWEN® Tradename |
Customer Relationships |
ARWEN® 40mm Patent |
Total | |||||||||||||
| Balance at September 30, 2025 | $ | 2,286,277 | $ | 40,295 | $ | 10,632 | $ | 31,041 | $ | 21,785 | $ | 2,390,030 | ||||||
| Amortization | (246,674 | ) | (19,786 | ) | (6,600 | ) | (3,750 | ) | (4,001 | ) | (280,811 | ) | ||||||
| Balance at June 30, 2026 | $ | 2,039,603 | $ | 20,509 | $ | 4,032 | $ | 27,291 | $ | 17,784 | $ | 2,109,219 |
At June 30, 2026, management concluded there was no indication of impairment on the intangible assets.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
7. Warrant liabilities
The following table shows a breakdown and balance of warrant liabilities at June 30, 2026:
| U.S. IPO and Canadian Offerings |
Private Placement | Debt Settlement |
Direct Offering |
Public Offering |
||||||||||||||||||||
| 2022 Warrants |
Over- Allotment Warrants |
2023 Warrants |
Pre- Funded Warrants |
Warrants | Warrants | Pre-Funded Warrants |
Total | |||||||||||||||||
| Balance, at September 30, 2024 | $ | 65,765 | $ | 7,644 | $ | 60,373 | $ | 31,338 | $ | 1,145 | $ | 681,030 | $ | - | $ | 847,295 | ||||||||
| Initial recognition | - | - | - | - | - | - | 4,770,722 | 4,770,722 | ||||||||||||||||
| Exercised | - | - | - | - | - | - | (779,578 | ) | (779,578 | ) | ||||||||||||||
| Gain on revaluation of financial instruments | 112,054 | (7,644 | ) | (64,314 | ) | (29,959 | ) | 1,990 | (699,473 | ) | (714,912 | ) | (1,402,258 | ) | ||||||||||
| Exchange loss on revaluation | 2,289 | - | 3,941 | 90 | - | 44,696 | 25,693 | 76,709 | ||||||||||||||||
| Extinguish warrant liability/transfer to equity | - | - | - | - | - | - | (3,301,925 | ) | (3,301,925 | ) | ||||||||||||||
| Balance, at September 30, 2025 | $ | 180,108 | $ | - | $ | - | $ | 1,469 | $ | 3,135 | $ | 26,253 | $ | - | $ | 210,965 | ||||||||
| Gain on revaluation of financial instruments | (48,085 | ) | - | - | (1,005 | ) | (836 | ) | (12,687 | ) | - | (62,613 | ) | |||||||||||
| Exchange gain on revaluation | 1,851 | - | - | (23 | ) | 32 | (168 | ) | - | 1,692 | ||||||||||||||
| Balance, at June 30, 2026 | $ | 133,874 | $ | - | $ | - | $ | 441 | $ | 2,331 | $ | 13,398 | $ | - | $ | 150,044 | ||||||||
| Number of outstanding securities at September 30, 2025(1) | 3,226,392 | - | 1,542,194 | 151,734 | 56,141 | 4,715,000 | - | 9,691,461 | ||||||||||||||||
| Number of outstanding securities at June 30, 2026(1) | 3,226,392 | - | 1,542,194 | 151,734 | 56,141 | 4,715,000 | - | 9,691,461 | ||||||||||||||||
| (1) The total number of underlying Common Shares to be issued upon exercise of all outstanding securities is 46,147 after taking into account share consolidations occurring since the grant date. | ||||||||||||||||||||||||
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
8. Share Capital and Contributed Surplus
As disclosed in Note 1(a), the 2025 Reverse Split has been applied retrospectively herein.
(a) Share capital
Authorized
DEFSEC is authorized to issue an unlimited number of common shares.
Issued Common Shares
The following is a summary of changes in outstanding common shares since September 30, 2025:
| Number | Amount | |||||
| Balance, beginning of period | 1,396,321 | $ | 47,003,991 | |||
| Issued in private placement | 1,239,046 | 2,063,101 | ||||
| Issued for exercise of warrants | 31,265 | 146,347 | ||||
| Less: share offering costs for the period | - | (527,546 | ) | |||
| Balance as at June 30, 2026 | 2,666,632 | $ | 48,685,893 |
Private Placement (June 2026)
On June 26, 2026, the Company issued 673,006 common shares at an offering price of $3.74 (US$2.63), which included a concurrent issuance of warrants to purchase up to an aggregate of 673,006 common shares. The warrants have a five-year life with an exercise price of $4.39 per common share. Gross proceeds from the transaction was $2.5 million.
The fair value of the June 2026 common share purchase warrants was calculated using the Black Scholes model, with the following assumptions:
| Initial Recognition | |||
| Number of warrants | 673,006 | ||
| Stock price | $ | 3.07 | |
| Exercise price | $ | 4.39 | |
| Volatility | 100% | ||
| Dividend yield | Nil | ||
| Risk free interest rate | 2.97% | ||
| Expected life (in years) | 5 | ||
| Fair value per warrant | $ | 2.18 | |
| Total Value of Warrants | $ | 1,467,153 |
Brokers' Compensation
In connection with the June 2026 Offering, the broker was paid a cash fee equal to 7.5% on the equity financing raised, which totaled $188,778.
As compensation for services rendered, the broker or its designees were granted 50,475 warrants ("June 2026 Broker Warrants"). The June 2026 Broker Warrants are immediately exercisable and entitle the holder to acquire common shares on a one-for-one basis. The June 2026 Broker Warrants have a five-year life with an exercise price of $4.675 per common share.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
The fair value of the June 2026 Broker Warrants at the closing of the June 2026 offering was $108,521 calculated using the Black Scholes model.
The fair value of the June 2026 Broker warrants was calculated using the Black Scholes model, with the following assumptions
| Initial Recognition | |||
| Number of warrants | 50,475 | ||
| Stock price | $ | 3.07 | |
| Exercise price | $ | 4.675 | |
| Volatility | 100% | ||
| Dividend yield | nil | ||
| Risk free rate | 2.97% | ||
| Expected life (in years) | 5 | ||
| Fair value per warrant | $ | 2.15 | |
| Total Value of Warrants | $ | 108,521 |
Private Placement (December 2025)
On December 18, 2025, the Company issued 566,040 common shares at an offering price of $3.64 (US$2.65), which included a concurrent issuance of warrants to purchase up to an aggregate of 566,040 common shares. The warrants have a five-year life with an exercise price of $4.27 per common share. Gross proceeds from this transaction was $2.1 million.
The fair value of the December 2025 common share purchase warrants was calculated using the Black Scholes model, with the following assumptions:
| Initial Recognition | |||
| Number of warrants | 566,040 | ||
| Stock price | $ | 2.59 | |
| Exercise price | $ | 4.27 | |
| Volatility | 105% | ||
| Dividend yield | nil | ||
| Risk free interest rate | 2.9% | ||
| Expected life (in years) | 5 | ||
| Fair value per warrant | $ | 1.85 | |
| Total Value of Warrants | $ | 1,047,174 |
Brokers' Compensation
In connection with the December 2025 Offering, the broker was paid a cash fee equal to 7.5% on the equity financing raised, which totaled $154,529.
As compensation for services rendered, the broker or its designees were granted 42,453 warrants ("December 2025 Broker Warrants"). The December 2025 Broker Warrants are immediately exercisable and entitle the holder to acquire common shares on a one-for-one basis. The December 2025 Broker Warrants have a five-year life with an exercise price of $4.55 per common share.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
The fair value of the December 2025 Broker Warrants at the closing of the December 2025 offering was $77,689 calculated using the Black Scholes model.
The fair value of the December 2025 Broker warrants was calculated using the Black Scholes model, with the following assumptions:
| Initial Recognition | |||
| Number of warrants | 42,453 | ||
| Stock price | $ | 2.59 | |
| Exercise price | $ | 4.55 | |
| Volatility | 105% | ||
| Dividend yield | nil | ||
| Risk free rate | 2.90% | ||
| Expected life (in years) | 5 | ||
| Fair value per warrant | $ | 1.83 | |
| Total Value of Warrants | $ | 77,689 |
Share Issuance Costs:
In Fiscal 2026 the Company incurred the following share issuance costs that have been included in share capital and warrants on the Interim Consolidated Statements of Financial Positions:
| Cost | |||
| June 2026 financing | $ | 194,076 | |
| December 2025 financing | 451,133 | ||
| Previous year financings | 36,098 | ||
| Total Share Issuance Costs | $ | 681,307 |
(b) Warrants
The following is a summary of changes in outstanding warrants since September 30, 2025:
| Number of warrants |
Weighted average exercise price |
|||||
| Balance, as at September 30, 2025 | 20,207,007 | $ | 2.45 | |||
| Issued (Note 8(a)) | 1,331,974 | 4.35 | ||||
| Exercised | (31,265 | ) | 0.001 | |||
| Expired | (500,000 | ) | 0.70 | |||
| Balance, as at June 30, 2026 | 21,007,716 | $ | 2.60 | |||
| Exercisable, as at June 30, 2026 | 21,007,716 | $ | 2.60 |
As at June 30, 2026, the 21,007,716 warrants outstanding are exercisable into 2,595,779 (September 30, 2025 - 1,295,113) common shares.
The following table provides additional information on the total outstanding warrants at June 30, 2026:
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
| Exercise Price |
Number outstanding |
Conversion ratio to Common Shares |
Underlying Securities |
Book value | Expiry Date | |||||||||||
| Classified as Equity: | ||||||||||||||||
| December 2022 U.S. Underwriter Warrants | US$5.1625 | 134,950 | 210 for 1 | 642 | 189,592 | December 9, 2027 | ||||||||||
| July 2023 U.S. Underwriter Warrants | US$2.66 | 123,637 | 210 for 1 | 588 | 204,187 | July 21, 2028 | ||||||||||
| April 2024 U.S. Underwriter Warrants | US$0.8125 | 76,925 | 210 for 1 | 366 | 43,869 | April 9, 2029 | ||||||||||
| June 2024 U.S. Underwriter Warrants | US$0.725 | 145,000 | 210 for 1 | 690 | 61,213 | June 14, 2029 | ||||||||||
| August 2024 U.S. Underwriter Warrants | US$0.25 | 353,625 | 210 for 1 | 1,683 | 28,826 | August 9, 2029 | ||||||||||
| November 2024 U.S. Underwriter Warrants | US$1.125 | 194,450 | 21 for 1 | 9,259 | 187,468 | November 1, 2029 | ||||||||||
| November 2024 Private Placement Warrants | US$1.03 | 3,795,200 | 21 for 1 | 180,723 | 2,903,328 | November 11, 2029 | ||||||||||
| November 2024 PP Underwriter Warrants | US$1.03 | 207,260 | 21 for 1 | 9,869 | 158,554 | November 11, 2029 | ||||||||||
| February 21, 2025 PP Warrants | CAD$1.16 | 3,787,879 | 21 for 1 | 180,375 | 2,196,970 | February 21, 2030 | ||||||||||
| February 21, 2025 PP Underwriter Warrants | CAD$1.16 | 189,394 | 21 for 1 | 9,018 | 109,991 | February 21, 2030 | ||||||||||
| February 25, 2025 PP Warrants | CAD$1.16 | 151,515 | 21 for 1 | 7,215 | 83,939 | February 25, 2030 | ||||||||||
| February 25, 2025 PP Underwriter Warrants | CAD$1.16 | 7,576 | 21 for 1 | 360 | 4,197 | February 25, 2030 | ||||||||||
| July 2025 Public Offering Warrants | CAD$10.52 | 759,879 | 1 for 1 | 759,879 | 3,011,466 | July 25, 2030 | ||||||||||
| July 2025 Broker Warrants | CAD$10.52 | 56,991 | 1 for 1 | 56,991 | 451,255 | July 25, 2030 | ||||||||||
| December 2025 Private Placement Warrants | CAD$4.27 | 566,040 | 1 for 1 | 566,040 | 1,047,174 | December 18, 2030 | ||||||||||
| December 2025 Broker Warrants | CAD$4.55 | 42,453 | 1 for 1 | 42,453 | 77,689 | December 18, 2030 | ||||||||||
| June 2026 Private Placement Warrants | CAD$4.39 | 673,006 | 1 for 1 | 673,006 | 1,467,154 | June 26, 2031 | ||||||||||
| June 2026 Broker Warrants | CAD$4.68 | 50,475 | 1 for 1 | 50,475 | 108,521 | June 26, 2031 | ||||||||||
| November 2024 Issuance Costs | (868,653 | ) | ||||||||||||||
| February 2025 Issuance Costs | (803,109 | ) | ||||||||||||||
| July 2025 Issuance Costs | (770,939 | ) | ||||||||||||||
| December 2025 Issuance Costs | (396,823 | ) | ||||||||||||||
| June 2026 Issuance Costs | (286,456 | ) | ||||||||||||||
| 11,316,255 | 2,549,632 | $ | 9,209,413 | |||||||||||||
| Classified as Liability: | ||||||||||||||||
| December 2022 Public Offerings | US$5.00 | 3,226,392 | 210 for 1 | 15,363 | $ | 133,874 | December 9, 2027 | |||||||||
| December 2022 Debt Settlement | US$5.00 | 56,141 | 210 for 1 | 267 | 2,331 | December 9, 2027 | ||||||||||
| July 2023 Public Offerings | US$2.66 | 1,542,194 | 210 for 1 | 7,343 | - | July 21, 2028 | ||||||||||
| July 2023 Pre-Funded Warrants | US$0.001 | 151,734 | 210 for 1 | 722 | 441 | No expiry | ||||||||||
| August 2024 Public Offering | US$0.25 | 4,715,000 | 210 for 1 | 22,452 | 13,398 | August 9, 2029 | ||||||||||
| 9,691,461 | 46,147 | 150,044 | ||||||||||||||
| Total outstanding warrants | 21,007,716 | 2,595,779 | $ | 9,359,457 |
(c) Contributed surplus
Contributed surplus consists of options issued to employees and directors at fair value, the cumulative amortized fair value of share-based compensation grants since inception, less amounts transferred to share capital for exercises. If outstanding options expire or are forfeited, there is no reversal of contributed surplus.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
Share-based compensation
The Company did not grant any RSUs, PSUs, and SARs, pursuant to the Company's Long Term Incentive Program (" LTIP") during the nine months ended June 30, 2026. As at June 30, 2026, there are 114,284 stock option units available for future grants.
The following table presents the changes in stock options during the period:
| Number of options |
Weighted average exercise price |
|||||
| Outstanding, at September 30, 2025 | 995 | $ | 555.42 | |||
| Granted | 151,552 | 6.75 | ||||
| Forfeited / Expired | (168 | ) | 587.63 | |||
| Outstanding, at June 30, 2026 | 152,379 | $ | 9.65 | |||
| Options Exercisable, at June 30, 2026 | 76,603 | $ | 12.52 |
The following table presents option outstanding during the period by grant:
| Grant | Number outstanding |
Exercise price |
Weighted average remaining life (yrs) |
Number exercisable |
||||||||
| May 2026 | 151,552 | $ | 6.75 | 2.87 | 75,776 | |||||||
| August 2023 | 805 | 535.50 | 0.13 | 805 | ||||||||
| 2021 Grants | 22 | 756.00 | 1.21 | 22 | ||||||||
| Total / weighted average | 152,379 | $ | 9.65 | 2.86 | 76,603 |
The fair value of the stock options granted on May 13, 2026, was calculated using the Black Scholes model, with the following assumptions:
| Initial Recognition | |||
| Number of stock option | 151,552 | ||
| Share price at grant date | $ | 6.75 | |
| Exercise price | $ | 6.75 | |
| Expected volatility | 154.9% | ||
| Expected life (in years) | 3.0 | ||
| Expected dividend yield | nil | ||
| Risk free interest rate | 2.91% | ||
| Fair value per option | $ | 5.59 | |
| Total value of options | $ | 847,054 |
For the three and nine months ended June 30, 2026, the Company recorded share-based compensation of $480,453 (2025 - $21,777 and $99,174, respectively). As at June 30, 2026, unrecognized share-based compensation expense was $366,601 (2025 - $14,518)
9. Loss per share
As disclosed in Note 1(a), the 2025 Reverse Split has been applied retrospectively.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
The following table summarizes the calculation of the weighted average number of basic and diluted common shares to calculate the loss per share as reported in the unaudited condensed consolidated interim statements of net loss and comprehensive loss:
| Three months ended | Nine months ended | |||||||||||
| June 30, 2026 |
June 30, 2025 |
June 30, 2026 | June 30, 2025 |
|||||||||
| Issued common shares, beginning of period | 1,993,626 | 530,364 | 1,396,321 | 75,199 | ||||||||
| Effect of shares issued from: | ||||||||||||
| Debt settlements | - | - | - | 4,797 | ||||||||
| Private Placements | 29,583 | - | 412,102 | 23,638 | ||||||||
| Public Offerings | - | - | - | 3,363 | ||||||||
| Exercise of warrants | - | 94,959 | 27,715 | 305,144 | ||||||||
| Weighted average number of basic common shares | 2,023,209 | 625,323 | 1,836,138 | 412,141 | ||||||||
| Dilutive securities | ||||||||||||
| Stock options | - | - | - | - | ||||||||
| Warrants | - | - | - | - | ||||||||
| Weighted average number of dilutive common shares | 2,023,209 | 625,323 | 1,836,138 | 412,141 | ||||||||
At June 30, 2026 and 2025, all dilutive securities, being warrants, pre-funded warrants, broker warrants and stock options, were anti-dilutive because the Company incurred a net loss for the above periods.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
10. Revenue
a) Revenue streams
DEFSEC generates revenue from the sale of products and services to its customers.
b) Disaggregation of revenue from contracts with customers
In the following table, revenue from contracts with customers is disaggregated by primary geographical market, major products and service lines, and timing of revenue recognition:
| Three months ended | Nine months ended | |||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||
| Major products/service lines | ||||||||||||
| Digitization | $ | 2,360,013 | $ | 1,067,650 | $ | 5,534,608 | $ | 2,853,419 | ||||
| Less-Lethal | 359,527 | 340,929 | 612,367 | 706,053 | ||||||||
| Other | 2,625 | 8,924 | 2,625 | 9,851 | ||||||||
| $ | 2,722,165 | $ | 1,417,503 | $ | 6,149,600 | $ | 3,569,323 | |||||
| Primary geographic market | ||||||||||||
| Canada | $ | 2,529,372 | $ | 1,274,341 | $ | 5,865,341 | $ | 3,330,797 | ||||
| United States | 192,793 | 143,162 | 284,259 | 238,526 | ||||||||
| $ | 2,722,165 | $ | 1,417,503 | $ | 6,149,600 | $ | 3,569,323 | |||||
| Timing of revenue recognition | ||||||||||||
| Products and services transferred over time |
$ | 2,394,425 | $ | 1,076,350 | $ | 5,614,988 | $ | 2,862,119 | ||||
| Products transferred at a point in time | 327,740 | 341,153 | 534,612 | 707,204 | ||||||||
| $ | 2,722,165 | $ | 1,417,503 | $ | 6,149,600 | $ | 3,569,323 | |||||
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized ("contracted not yet recognized") and includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. At June 30, 2026, the Company's contracted not yet recognized revenue was $2,700 (September 30, 2025 - $7,671), of which 100% of this amount is expected to be recognized over the next 12 months.
For the three months ended June 30, 2026, two customers accounted for 51% and 36% (2025 - two customers accounted for 66% and 10%) of revenue. For the nine months ended June 30, 2026, two customers accounted 58% and 32% (2025 - two customers accounted for 65% and 10%) of revenue.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
11. Related party transactions
At June 30, 2026, there was $782,715 (September 30, 2025 - $791,946) outstanding in accounts payable and accrued liabilities due to officers and directors for accrued wages, bonuses and vacation, consulting fees, directors' fees and expense reimbursements.
12. Net finance costs
The following table presents a breakdown of net finance costs for the following periods:
| Three months ended | Nine months ended | |||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||
| Interest expense from: | ||||||||||||
| Accretion cost - accrued royalties liability | $ | 37,717 | $ | 41,089 | $ | 122,373 | $ | 125,915 | ||||
| Lease obligations | 33,909 | 30,720 | 106,295 | 53,813 | ||||||||
| Other | (42 | ) | 100 | 252 | 6,553 | |||||||
| Total interest expense | 71,584 | 71,909 | 228,920 | 186,281 | ||||||||
| Interest income | (3,854 | ) | (29,344 | ) | (78,085 | ) | (50,796 | ) | ||||
| Gain on debt settlement | - | - | - | 500 | ||||||||
| Net finance costs | $ | 67,730 | $ | 42,565 | $ | 150,835 | $ | 135,985 | ||||
13. Financial instruments
For the nine months ended June 30, 2026, there were no material changes to our financial risks as disclosed in Note 22 of the Annual Financial Statements, except for the following:
Foreign currency risk
A portion of the Company's revenue and operating costs are realized in currencies other than its functional currency, primarily USD. The Company has entered into financing transactions in the past that were denominated in USD or allowed for the settlement in USD. As a result, the Company is exposed to currency risk on these transactions. Further, additional earnings volatility arises from the translation of monetary assets and liabilities denominated in foreign currencies at the rate of exchange on each date of the Unaudited Condensed Consolidated Interim Statements of Financial Position; the impact of which is reported as a foreign exchange gain or loss on the Unaudited Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss. The Company's objective in managing currency risk is to minimize the exposure to currencies other than our functional currency. The Company does so by matching foreign denominated assets with foreign denominated liabilities where possible. Currently, we do not use derivative instruments to hedge the U.S. dollar exposure.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
At June 30, 2026, we had the following net U.S. dollar exposure:
| June 30, 2026 | September 30, 2025 | |||||
| US denominated | ||||||
| Assets | $ | 671,725 | $ | 4,627,168 | ||
| Liabilities | (4,416 | ) | (218,577 | ) | ||
| Net USD exposure | $ | 667,309 | $ | 4,408,591 | ||
| Impact to loss if 5% movement in USD | $ | 33,365 | $ | 220,430 |
During the three and nine months ended June 30, 2026, we recorded a foreign exchange gain of $34,889 and a loss of $13,301 respectively (2025 - loss of $258,856 and $67,750).
Liquidity risk
At June 30, 2026, our contractual obligations were as follows:
| Payment due: | Total | Within 1 year |
1 to 3 years | 3 to 5 years | 5 years and beyond |
||||||||||
| Minimum royalty commitments | $ | 1,800,000 | $ | 250,000 | $ | 550,000 | $ | 650,000 | $ | 350,000 | |||||
| Accounts payable and accrued liabilities | 2,688,845 | 2,688,845 | - | - | - | ||||||||||
| Lease obligations | 2,126,135 | 203,710 | 407,420 | 409,187 | 1,105,818 | ||||||||||
| Total contractual obligations | $ | 6,614,980 | $ | 3,142,555 | $ | 957,420 | $ | 1,059,187 | $ | 1,455,818 |
At June 30, 2026, the Company had $3.5 million in cash and $3.7 million in working capital (current assets less current liabilities).
In the second quarter of Fiscal 2026 the Company confirmed with the counter party that the minimum royalty under the LEC agreement are owed on the anniversary of the effective date of that agreement, being January 15th of each year, and shall be paid no later than 45 days after that date.
Credit risk
Credit risk is the risk of financial loss to DEFSEC if a counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk exposure is limited to cash, and trade and other receivables. The Company enters into contracts with either large, financially sound global general contractors or law enforcement agencies, which mitigates the credit risk.
As described in Note 2(h) of the Annual Financial Statements, the Company has applied the simplified approach to recognize the lifetime expected credit losses. After assessing the quality of the receivables, management has concluded that the expected credit loss on all outstanding receivables is $nil. Accordingly, no loss allowance has been recognized at the reporting date (2025: $nil).
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
14. Supplemental cash flow information
The following table presents changes in non-cash working capital:
| Nine months ended | ||||||
| June 30, 2026 | June 30, 2025 | |||||
| Trade and other receivables | $ | (814,853 | ) | $ | (562,587 | ) |
| Inventories | (67,530 | ) | 24,416 | |||
| Prepaid expenses and other | (119,858 | ) | (103,923 | ) | ||
| Deferred costs | (90,082 | ) | (73,165 | ) | ||
| Accounts payable and accrued liabilities | 347,382 | (397,364 | ) | |||
| Contract liabilities | (4,971 | ) | (42,054 | ) | ||
| Accrued royalties liability | (200,000 | ) | - | |||
| $ | (949,912 | ) | $ | (1,154,677 | ) | |
The following is a summary of non-cash items that were excluded from the Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2026:
- The issuance of 42,453 December 2025 Broker warrants (see Note 8(a)); and
- The issuance of 50,475 June 2026 Broker warrants (see Note 8(a)).
The following is a summary of non-cash items that were excluded from the Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2025:
- $2,571,322 non-cash increases to right-of-use assets and lease obligations for a new lease signed in Kanata, Ontario;
- 119,047 shares issued for debt settlement of business expenses incurred while representing the Company in an aggregate amount of $100,000 owed to a company controlled by Mr. David Luxton, Chairman of the Company;
- $187,468 non-cash share issuance costs as part of the net proceeds settlement at the closing of the November 1, 2024 U.S. Public Offering;
- $221,088 non-cash share issuance costs as part of the net proceeds settlement at the closing of the November 12, 2024 Private Placement;
- $114,046 non-cash share issuance costs as part of the net proceeds settlement at the closing of the February 2025 Private Placement; and
- Expiry of 200,000 warrants in connection with the acquisition of Police Ordnance Company (see Note 4 of the Annual Financial Statements) expired December 15, 2024.
| DEFSEC TECHNOLOGIES INC. Notes to the Unaudited Condensed Consolidated Interim Financial Statements Three and nine months ended June 30, 2026 and 2025 (Expressed in Canadian dollars) |
15. Commitments and contingencies
The Company, under its LC4ISR Sub-Tier Subcontract, shall meet certain Industrial and Technological Benefits ("ITBs") targets as a condition for fulfilling the obligations in the contract. Such requirements are part of Canada's effort to promote economic development and increased competitiveness of the defence sector and develop, grow and sustain a diverse, talented, and innovative Canadian workforce. Under the obligations, DEFSEC will spend 100% of the contract-value as Supplier Development in Canada, specifically involving Small and Medium Business (employing fewer than 250 full-time personnel), and spend 20% of the contract value as transactions involving Skills Development and Training in the areas of Defence Systems Integration, Artificial Intelligence, Cyber Resilience, or In-Service Support. As all work under the contract is being executed in Canada by the Company, 100% of the Small and Medium Business requirement is expected to be met. Achievement of the Company's Skills Development and Training requirement is expected to be met by transactions related to Senior Integrated Logistics Support Specialist ("ILS") related roles filled under its taskings, as these have been deemed by Canada to be eligible, and DEFSEC currently has seven (7) such roles of its total 25 under current taskings. While these roles are expected to fulfill the Company's obligations over the achievement period, any penalty by way of liquidated damages, is limited in its financial impact to a maximum of 20% of the shortfall (up to 4% of total contract value). Further mitigating any potential shortfall is the ability to achieve a five (5) times multiplier for any contribution to Skills Development and Training for Indigenous Peoples or majority Indigenous-controlled educational or training facilities. Based on the billings to date, the Company may have an ITB obligation of $385,000 with a maximum penalty of $77,000. Management believes it will meet the required targets within the specified timeframes. Accordingly, no liability has been recorded in these unaudited condensed consolidated interim financial statements related to this commitment.
DEFSEC TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three and nine months ended June 30, 2026
(Expressed in Canadian Dollars)
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
All references in this management's discussion and analysis (the "MD&A") to "DEFSEC", "we", "us", "our", and the "Company" refer to DEFSEC Technologies Inc. and its subsidiaries as at June 30, 2026. This MD&A has been prepared with an effective date of August 12, 2026.
This MD&A should be read in conjunction with our unaudited condensed consolidated interim financial statements for the three and nine months ended June 30, 2026 and 2025 ("Q3 Fiscal 2026 FS") and the annual audited consolidated financial statements and related notes for the years ended September 30, 2025, 2024 and 2023 ("Fiscal 2025 FS"). The financial information presented in this MD&A is derived from these unaudited condensed consolidated interim financial statements prepared in accordance with IFRS® Accounting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). This MD&A contains forward-looking statements that involve risks, uncertainties and assumptions, including statements regarding anticipated developments in future financial periods and our future plans and objectives. There can be no assurance that such information will prove to be accurate, and readers are cautioned not to place undue reliance on such forward-looking statements. See "Forward-Looking Statements".
All references to "$" or "dollar" amounts in this MD&A are to Canadian currency unless otherwise indicated.
Additional information, including press releases, relating to DEFSEC is available to view on SEDAR+ at http://www.sedarplus.ca/ and EDGAR (https://www.sec.gov).
NON-IFRS MEASURES
In this MD&A, we have presented earnings before interest, taxes, depreciation and amortization ("EBITDA") and EBITDA that has been adjusted for the removal of share-based compensation, foreign exchange loss (gain), change in fair value of derivative liabilities, and any one-time, irregular and nonrecurring items ("Adjusted EBITDA") to provide readers with a supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures.
Management also references "program billings on an annualized go-forward basis" and "annualized gross margin contribution" which refers to programmatic revenue and gross margin based on the roles staffed for a full year at the program billing rate. Management believes these are useful measures because it reflects management's estimate of annualized revenues and gross margin contributions based on current contractual taskings as of the date referenced. The most directly comparable financial measure that is disclosed in the financial statements of the Company to which the non-IFRS measure relates is revenue and gross margin respectively.
Management uses non-IFRS measures, in addition to IFRS financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, and to evaluate our financial performance. We believe that these non-IFRS financial measures enable us to identify underlying trends in our business that could otherwise be hidden by the effect of certain expenses that we exclude in the calculations of the non-IFRS financial measures.
Accordingly, we believe that these non-IFRS financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis in the business and provides useful information to investors and securities analysts, and other interested parties in understanding and evaluating our operating results, enhancing their overall understanding of our past performance and future prospects.
We caution readers that these non-IFRS financial measures do not replace the presentation of our IFRS financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with IFRS. There are limitations in the use of non-IFRS measures because they do not include all the expenses that must be included under IFRS as well as they involve the exercise of judgment concerning exclusions of items from the comparable non-IFRS financial measure. Furthermore, other peers may use other non-IFRS measures to evaluate their performance, or may calculate non-IFRS measures differently, all of which could reduce the usefulness of our non-IFRS financial measures as tools for comparison.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
GOING CONCERN
As an early-stage company, we have not yet reached significant revenue levels for most of our products and services and have incurred significant losses and negative operating cash flows from inception that have primarily been funded from financing activities. DEFSEC's unaudited condensed consolidated interim financial statements for Q3 Fiscal 2026 have been prepared on the "going concern" basis which presumes that DEFSEC will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. Our ability to continue as a going concern and realize our assets and discharge our liabilities in the normal course of business is dependent upon closing timely additional sales orders, timely commercial launch of new products, and the ability to raise additional debt or equity financing, when required. There are various risks and uncertainties affecting our future financial position and our performance. Accordingly, there are material risks and uncertainties that may cast substantial doubt about our ability to continue as a going concern. Refer to Note 2(a) of the Q3 Fiscal 2026 FS for further information.
TRADEMARKS
We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This MD&A also contains additional trademarks, trade names and service marks belonging to other companies. Solely for convenience, trademarks, trade names and service marks referred to in this MD&A may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
FORWARD-LOOKING STATEMENTS
Certain statements in this document constitute "forward-looking statements" and "forward-looking information" within the meaning of applicable Canadian and United States securities laws (together, "forward-looking statements"). Such forward-looking statements include, but are not limited to, information with respect to our objectives and our strategies to achieve these objectives, as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. These forward-looking statements may be identified by the use of terms and phrases such as "may", "would", "should", "could", "expect", "intend", "estimate", "anticipate", "plan", "foresee", "believe", or "continue", the negative of these terms and similar terminology, including references to assumptions, although not all forward-looking statements contain these terms and phrases. Forward-looking statements are provided for the purposes of assisting the reader in understanding us, our business, operations, prospects and risks at a point in time in the context of historical and possible future developments and therefore the reader is cautioned that such information may not be appropriate for other purposes.
Forward-looking statements relating to us include, among other things, statements relating to:
• our expectations regarding our business, financial condition and results of operations;
• the future state of the legislative and regulatory regimes, both domestic and foreign, in which we conduct business and/or may conduct business in the future;
• our expansion into domestic and international markets;
• our ability to attract customers and clients;
• our relationships with suppliers and the terms of our arrangements with them;
• our marketing and business plans and short-term objectives;
• our ability to obtain and retain the licenses and personnel we require to undertake our business;
• our ability to deliver under contracts with customers;
• anticipated revenue and related margin from professional service contracts with customers and related growth rates;
• our strategic or other important relationships with third parties;
• our anticipated trends and challenges in the markets in which we operate;
• governance of us as a public company;
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
• expectations regarding future developments of products and our ability to bring these products to market; and
• achievement of milestones for various product development initiatives.
Forward-looking statements are based upon a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following risk factors, some of which are discussed in greater detail under the section "Risk Factors" in our 20-F dated December 29, 2025:
• limited operating history;
• failure to realize our growth strategy;
• failure to complete transactions or realize anticipated benefits;
• reliance on key personnel;
• regulatory compliance;
• competition;
• changes in policy, laws, regulations, practices and guidelines;
• demand for our products and services;
• fluctuating prices of raw materials, and third party-labour rates;
• pricing for products and services;
• ability to supply sufficient product and services;
• potential cancellation or loss of customer contracts if we are unable to meet contract performance requirements;
• potential cancellation or loss of customer contracts due to changes in customer requirements or other reasons;
• expansion to other jurisdictions;
• cost and complexity of sales or operations due to expansion to international markets;
• cost of redesign and retooling as a result of regulatory requirements or change;
• damage to our reputation;
• operating risk and insurance coverage;
• negative operating cash flows;
• management of growth and change;
• product liability or contractual liability to third parties including contingent liability;
• product recalls and warranty claims;
• environmental policy, regulations, compliance and related risks;
• ownership, use, protection and enforcement of intellectual property rights;
• shutdown or impairment of access to United States' government deployed geospatial software suite for real-time situational awareness (the Team Awareness Kit, or "TAK") impairing deployment and operation of certain of our products and services;
• constraints on marketing products and services;
• reliance on management and key personnel;
• fraudulent or illegal activity by our employees, suppliers, contractors and/or consultants;
• breaches of security at our facilities or in respect of electronic documents and data storage and risks related to breaches of applicable security and privacy laws;
• government regulations regarding public or employee health and safety regulations, including public health measures in the event of pandemics or epidemics;
• safety and security of personnel working within our facilities or at third party sites;
• regulatory or agency proceedings, investigations and/or audits;
• additional capital requirements to support our operations and growth plans, leading to further dilution to shareholders;
• the terms and timing of additional capital raises;
• conflicts of interest;
• litigation and disputes;
• risks relating to Canadian policy impacting our operations, business or prospects;
• risks related to United States' policy and other international activities, including regional conflicts that may impact our operations;
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
• risks related to security clearances and controlled goods registrations and compliance;
• risks relating to the ownership, trading or transfer of our securities, such as potential extreme volatility in the price of, or market for, our securities;
• risks related to our U.S. foreign private issuer status;
• risks related to our emerging growth company status;
• risks related to meeting the continued listing requirements of the Nasdaq Capital Market ("Nasdaq") and the TSX Venture Exchange ("TSXV");
• risks relating to new or revised Securities and Exchange Commission rules that negatively impact our Nasdaq listing or stock price. A rule change could affect our ability to satisfy the continued listing requirements of the Nasdaq and remain listed, which could negatively impact both the Company's share price and the Company's ability to continue to raise capital needed to sustain operations;
• risks related to the liquidity of the Common Shares of the Company (the "Common Shares");
• significant changes or developments in Canadian or United States trade policies and tariffs that may have a material adverse effect on our business and financial statements;
• risks related to Canadian and United States tariffs and trade agreements, including potential supply chain disruptions, required operational adjustments, increased complexity and costs and potential logistical disruptions;
• risks related specifically to United States tariffs on aluminum and steel;
• risks relating to prolonged United States' government shutdowns; and
• risks related to retaliatory tariffs imposed by Canada's government affecting potential foreign sales.
Although the forward-looking statements contained herein are based upon what we believe are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary from the forward-looking statements. Certain assumptions were made in preparing the forward-looking statements concerning availability of capital resources, business performance, market and regulatory conditions, supplies' availability and customer demand.
Consequently, all of the forward-looking statements contained herein are qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward-looking statements contained herein are provided as of the date hereof, and we do not undertake to update or amend such forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.
BUSINESS OVERVIEW
DEFSEC is an early-stage technology company that develops and commercializes next-generation tactical systems and services for military and security forces and public safety markets.
Our product development has focused on three niche market segments as follows:
Our core mission is to protect and save lives. We group our offerings into Military and Public Safety missions.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
DEFSEC's Public Safety offerings are comprised of:
- DEFSEC Lightning™: A cloud-hosted software that enables rapid incident responses with quick onboarding for inter-agency collaboration and real-time encrypted communication (text, voice, photo/video). It leverages the Company's military digitization technology experience to provide responders to any type of incident with instant onboarding to the mission and TAK-enabled real-time situational awareness software as a service ("SaaS"). "TAK-enabled" refers to integration with the Team Awareness Kit, which is a United States government developed geospatial software suite providing real-time situational awareness for military, security and public safety teams. The DEFSEC Lightning™ 2.0, which was commercially released on May 6, 2026, is the next iteration of the Company's cloud-based platform using patent-pending technology to further develop the user experience including TAK and standard Lightning™ features such as:
- Proprietary plug-in tools relevant to law enforcement, including ground search and rescue tools ("GSAR"), TAK enabled sniper and surveillance tools ("T-SAS™");
- Native Cloud-based Microsoft environment (MS Azure);
- Seamless INTEGRATION and FUSION of crucial real-time position location, imagery, and targeted time-sensitive emergency services data and information for effective and coordinated delivery of emergency services;
- Opt-in geo-fencing with unique call-out feature that enables rapid response to a critical incident, which ensures privacy for all users; and
- Supports stakeholders from Emergency Operations Centers ("EOC"), Incident Command Post ("ICP"), Incident Commanders, and all first responders whether mobile or dismounted.
The Company is presently pursuing trials and pilots of the product as it continues to evolve the product throughout Fiscal 2026. One Canadian police agency subscribed ahead of full release, and the Company continues to demonstrate the system to other agencies it has relationships with.
- Less-Lethal Munitions Systems: DEFSEC proprietary less-lethal munitions systems including launchers and various payloads to bring dangerous incidents to a safe conclusion.
- PARA SHOT™, a next-generation system designed to be less-lethal.
- ARWEN® 37mm system, plus a new 40mm munition and new live action training adapters and marking cartridges in 37mm and 40mm for realistic scenario training leveraging the PARA SHOT™ Low Energy Cartridge ("LEC") technology.
DEFSEC's Dual Use and Military offerings are comprised of:
- Digitization services to enhance mission readiness and situational awareness for military forces including through task-order based software solutions;
- Tactical Advanced System For Command And Control ("TASCS"), Indirect Fire Modules System ("TASCS IFM") and TASCS Networked Observation and Reconnaissance System ("TASCS NORS"). These are specialized, digitized and modular technology designed to enhance the effectiveness of indirect fire weapons such as mortars and rocket launchers. These systems allow for enhanced precision, situational awareness and digitization of less intelligent legacy systems;
- T-SAS™ solution enabling real-time situational awareness for tactical operators engaged in fast-paced front-line operations;
- DEFSEC Lightning™ 2.0 SaaS, as described above, has a dual use for not only the public safety market but for military customers that use TAK, particularly the Canadian and United States militaries;
- The dual-use Battlespace Laser Identification Sensor System ("BLISS™") (an earlier version being named BLDS) providing real-time alerts on presence, location and type of laser threats, and enabling future capabilities such as automated threat classification and coordinated response will support both vehicle-mounted and personnel-worn applications; and
- Phantom™ Tactical Multi-Function Electro-Magnetic Spectrum Operations (EMSO) system and Electronic Warfare device. Development and patent applications have been paused as we determine the best method to bring this product to market.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Strategy
Our strategy is to pursue and win large task-order based software development and digitization defence contracts for multi-year revenue visibility with prime, or large second tier, defence contractors, with a particular focus on command and control situational awareness (including TAK) applications that can also be leveraged to address similar requirements in the Public Safety Market. In the Public Safety market, these efforts are complemented by activities relating to our proprietary ARWEN® and PARA SHOT™ less-lethal products, where it is possible to drive related sales with combined selling efforts and where the sales cycle is typically shorter than the more programmatic defence market.
Principal Products and Services
The following is a summary of our main product and service categories for each business line:
|
Less-Lethal |
|
Digitization |
|
Counter-Threat |
|
PARA SHOT™ products: Non-reciprocating devices:
Reciprocating devices (Planning stage, not yet commercially available)
Cartridge
ARWEN® products:
|
|
Products: • TASCS IFM TASCS NORS • New T-SAS™ Services: • Android Team Awareness Kit ("ATAK") Centre of Excellence • DEFSEC Lightning™ 2.0 SaaS for Critical Incident Management System • Task-order based software services on long-term government defence contracts |
|
Products: • BLISS™ • Phantom™ Electronic Warfare device
|
Less-Lethal Products
Non-reciprocating PARA SHOT™ devices
We are in the low-rate initial production ("LRIP") phase for the .67 caliber single shot devices and cartridges. and are in the transition to a higher volume production phase for these products during Fiscal 2026 to meet anticipated demand. Both will be offered first to the professional user market (public safety and security) where demonstrations and evaluations are underway. We also intend to offer these devices and cartridges to the personal safety market in accordance with applicable rules and regulations. In the United States, this entails classification with the Bureau of Alcohol, Tobacco and Firearms ("ATF"). If the launchers are classified as a firearm, it is possible that a reduction in the caliber may be required in order to obtain the appropriate classification (as not a "destructive device" i.e. under .50 caliber) to reduce the barriers to sell to the personal safety market. This would also require testing and evaluation to determine whether a reduced caliber version would operate effectively as intended. The Company has not yet done such testing. This would entail moderate investment in tooling to resize the launchers and cartridges accordingly. The Company has already completed prototypes in .49 caliber should they be required. In June 2025 we submitted for a ruling, with the initial ruling being returned to us in November 2025. The ATF did not rule on destructive device classification. The Company will continue to seek clarity on this. In the meantime, we continue to self-classify as a destructive device until otherwise advised on the classification with the ATF.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
We offer three types of payloads for projectiles based on customer needs:
- solid slug for training practice;
- inert colored powder for practice or realistic close quarters combat simulation; and
- incapacitating irritant pepper powder for operational use.
Reciprocating PARA SHOT™ devices
We have a plan to prototype PARA SHOT™ as a high-capacity automatic pistol and carbine (referred to as reciprocating devices) for less-lethal operations and force-on-force training, along with a reciprocating PARA SHOT™ cartridge. The start of this project has yet to be determined as we have prioritized the roll-out of PARA SHOT™ for the professional user market.
See below for further details of our projected product development cycle and estimated additional investment to reach full commercialization for our PARA SHOT™ devices.
ARWEN® launchers
We are currently selling the following ARWEN® products and related ammunition to law enforcement agencies throughout North America:
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Digitization
For the Digitization business line, our products and services share the same core technology platforms and leverage our domain knowledge, proprietary sensor-software integration, proprietary algorithms and electronic circuitry expertise in order to develop and deliver integrated shared situational awareness solutions to our clients who operate in the primarily dismounted domain (i.e., away from supporting platforms such as aircraft and vehicles, including armored vehicles):
- TAK is a United States Government-owned situational awareness software ecosystem that operates on Android end-user devices and is distributed in multiple variants, including Military TAK ("MilTAK") and Civilian TAK ("CivTAK"). MilTAK is designed for U.S. and allied defence partners and is subject to controlled distribution, while CivTAK is more broadly accessible to public safety and civilian organizations. Based on our observation, TAK-across its variants-is becoming the de facto standard for software-based situational awareness in the United States, Canada, and several other North Atlantic Treaty Organization ("NATO") countries. Although the core TAK software is United States government-owned and generally available at no cost within its respective distribution channels, developing mission-specific plug-ins, enabling interoperability between MilTAK and CivTAK environments, and implementing secure tactical networking solutions remain beyond the capacity of most user organizations. We offer the experience and expertise required to support TAK deployment, integration, cross-domain interoperability, and secure network implementation for prospective clients.
- After successfully developing digital technologies for tactical military applications which provide real-time exchange of situational awareness, navigation, imagery, and operational information for soldiers on the ground, we saw opportunities to apply these digitization solutions to the public safety market. These solutions solve critical challenges for law enforcement, fire, emergency response, search and rescue, and natural disaster management, all of whom require networked situational awareness in real time to understand, decide, and act faster and more effectively in response to a critical incident. When responders are facing a public emergency, they need information quickly. In situations ranging from active shooter incidents to natural disasters, responders must have clear, real-time awareness of the environment they are entering and the location of available resources. They also need to communicate and collaborate in real-time - across teams and information sources and often across departments.
- Leveraging our experience gained through our work in the civilian public safety market with our ARWEN® line of public order products, DEFSEC has, as of May 6, 2026, commercially released DEFSEC Lightning™ 2.0 SaaS platform. Development of this platform was originally announced in October 2023.
- The DSEF (Directorate Land Command Systems Program Management Software Engineering Facility) program is a 5-year contract awarded to a joint venture to which DEFSEC is a party. The Land C4ISR (Land Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) programs are a series of task-order based long-term contracts to modernize the Canadian Army's capabilities. Under the Land C4ISR program, DEFSEC is a subcontractor to Thales Canada, who is the major sub-prime contractor. The Company will increase staffing, and related revenue, if future taskings are received.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
The following table provides an update of our current product development cycle by product line and estimated timeline by quarter to reach production:
| Concept & Design |
Prototype(1) | Market Testing(2) |
LRIP Production(3) |
Higher Volume Production(4) |
|
| PARA SHOT™ - Micro (single-shot device) (5) | Completed | Completed | Ongoing | Ongoing | Q1 FY27 |
 |
|||||
| PARA SHOT™ - Mini (5-shot device)(5) | Completed | Completed | Ongoing | Ongoing | FY27 |
 |
|||||
| BLISS™ | Completed | Ongoing | Ongoing | Ongoing | TBD per market demand |
| ARWEN® 37mm Ammunition | Completed | Completed | Completed | Completed | Completed |
| ARWEN® 40mm Ammunition | Completed | Completed | Completed | Completed | Ongoing |
| ARWEN® 40mm, 37mm training cartridge | Completed | Completed | Ongoing | Completed | FY27 |
Notes:
(1) Prototype Version 1 (V1) and Version 2 (V2), integration, and testing have been completed. Next Generation BLISS™ prototyping is ongoing with units available for qualification and customer trials.
(2) Includes field testing, prototype V2, Next Generation [Soldier Proof of Concept 8 ("SPOC8")] and BLISS™ Prototype.
(3) Low-Rate Initial Production ("LRIP"). Includes final product development, LRIP, and sales demonstration units. A product is not ready for pre-production until it reaches Technology Readiness Level ("TRL") of 5 to 6. Version 2 has been delivered to the customer for integration under this phase, SPOC 4 prototypes have been delivered to a North American customer for range-trials, Next Generation (SPOC 8) prototypes have been integrated and are undergoing testing and demonstration at DEFSEC, BLISS™ prototypes have been delivered for customer testing at U.S. Army Test Center.
(4) Awaiting customer validation and follow-on orders.
(5) Includes the cartridges for the devices. Low-rate initial production timeline extended by one to two quarters in order to include product refinements. Higher volume production anticipated timelines could be longer if modifications are required as a result of the ATF confirmation of classification to reduce barriers to sales to the civilian personal safety market.
We consider a product to have reached the commercialization phase when we have begun LRIP and we have a sales, marketing, and distribution plan for the product. Commercialization may precede a first sale of the product.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Major Highlights - Quarter ended June 30, 2026 ("Q3 Fiscal 2026")
The following is a summary of the major highlights that occurred during Q3 Fiscal 2026:
- On April 20, 2026, the Company announced that David Ibbetson, former General Manager of General Dynamics Mission Systems International ("GDMS-I") has joined DEFSEC's board of directors. The Company also announced the departure of Paul Mangano from the board of directors. Mr. Ibbetson was also appointed as a member of the audit committee.
- On April 29, 2026, the Company confirmed that it had shipped two new networked BLISS™ systems to the United States Army Yuma Test Center (US Army YTC) for test and evaluation.
- On May 6, 2026, the Company announced the commercial release of its Lightning™ real-time situational awareness system for faster, coordinated response within and across responder agencies during critical incidents.
- On May 13, 2026, the Company announced the commercial release of its ARWEN® 40mm baton ammunition, now in full-rate production, for use with third-party 40mm launchers.
- On June 24, 2026, the Company entered into definitive securities purchase agreements for the purchase and sale of 673,006 Common Shares at a purchase price of CAD$3.74 (US$2.63) per Common Share in the Registered Direct Offering. In the concurrent Private Placement, the Company issued the Investor Warrants to purchase up to 673,006 Common Shares at an exercise price of CAD$4.39 per Common Share that were immediately exercisable upon issuance and expire five years following the date of issuance and issued to the Placement Agent, or its designees, 50,475 Placement Agent's Warrants entitling the holders thereof to acquire one Common Share for a period of five years following the date of issuance at an exercise price of CAD$4.675 per Common Share. The closing of the offering occurred on June 26, 2026. .
The following is a summary of major highlights that occurred after June 30, 2026:
- On July 23, 2026, the U.S. Securities and Exchange Commission (the "Exchange") announced that it had approved the modification of Nasdaq Rule 5810(c)(1), as of July 22, 2026, to add an additional type of deficiency that would result in an immediate delisting and suspension from trading on Nasdaq of a company's securities when the company fails to comply with the continued listing requirement for Minimum Value of Listed Securities ("MVLS") of at least US$5 million under Nasdaq Rules 5450(a)(3) or 5550(a)(6) for a period of 30 consecutive business days ("MVLS Requirement"). In addition, the Exchange amended Nasdaq Rule 5810(c)(3)(C) to provide that a company would not be entitled to any cure or compliance period if the company failed to comply with the MVLS Requirement and would immediately receive a Staff Delisting Determination. Subsequently, on July 29, 2026, the Deputy Secretary of the Exchange issued a letter to the Nasdaq advising that the order is stayed due to receipt of notices to petition for review of the delegated action. The SEC has not yet ruled on the merits of the objections that are expected to be filed pursuant to the notices of intent to object that were filed giving rise to the stay; therefore the stay could be lifted, modified, or the rule otherwise ultimately upheld, narrowed, or vacated at any time and without significant advance notice.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
RESULTS OF OPERATIONS
The following selected financial data has been extracted from Q3 Fiscal 2026 FS.
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change 2026 vs 2025 |
2026 | 2025 | Change 2026 vs 2025 |
|||||||||||||
| Revenue | $ | 2,722,165 | $ | 1,417,503 | 92% | $ | 6,149,600 | $ | 3,569,323 | 72% | ||||||||
| Cost of sales | (1,820,441 | ) | (1,018,013 | ) | (79)% | (4,217,216 | ) | (2,451,290 | ) | (72)% | ||||||||
| Gross profit | 901,724 | 399,490 | 126% | 1,932,384 | 1,118,033 | 73% | ||||||||||||
| Gross Margin % | 33.1% | 28.2% | 31.4% | 31.3% | ||||||||||||||
| Operating expenses | ||||||||||||||||||
| General and administrative ("G&A") | 1,780,082 | 1,113,296 | (60)% | 4,590,301 | 3,727,001 | (23)% | ||||||||||||
| Selling and marketing ("S&M") | 441,181 | 375,353 | (18)% | 1,080,120 | 1,392,014 | 22% | ||||||||||||
| Research and development ("R&D") | 623,157 | 402,334 | (55)% | 1,829,652 | 1,374,825 | (33)% | ||||||||||||
| Share-based compensation | 480,453 | 21,777 | (2106)% | 480,453 | 99,174 | (384)% | ||||||||||||
| Depreciation and amortization |
138,263 | 309,085 | 55% | 485,886 | 909,505 | 47% | ||||||||||||
| Total operating expenses | 3,463,136 | 2,221,845 | (56)% | 8,466,412 | 7,502,519 | (13)% | ||||||||||||
| Operating loss | (2,561,412 | ) | (1,822,355 | ) | (41)% | (6,534,028 | ) | (6,384,486 | ) | (2)% | ||||||||
| Other income (expenses) | ||||||||||||||||||
| Share issuance costs | - | - | -% | - | (1,807,686 | ) | 100% | |||||||||||
| Net finance costs | (67,730 | ) | (42,565 | ) | (59)% | (150,835 | ) | (135,985 | ) | (11)% | ||||||||
| Foreign exchange gain (loss) | 34,889 | (258,856 | ) | 113% | (13,301 | ) | (67,750 | ) | 80% | |||||||||
| Impairment of right-of- use assets |
- | (6,809 | ) | 100% | - | (88,596 | ) | 100% | ||||||||||
| Gain (loss) on disposal of property and equipment |
1,300 | - | 100% | (57,478 | ) | 6,809 | (944)% | |||||||||||
| Change in fair value of warrant liabilities |
5,919 | (177,290 | ) | 103% | 62,613 | 1,260,106 | 95% | |||||||||||
| Total other expenses, net | (25,622 | ) | (485,520 | ) | 95% | (159,001 | ) | (833,102 | ) | 81% | ||||||||
| Net loss | $ | (2,587,034 | ) | $ | (2,307,875 | ) | (12)% | $ | (6,693,029 | ) | $ | (7,217,588 | ) | 7% | ||||
| EBITDA loss(1) | $ | (2,381,041 | ) | $ | (1,956,225 | ) | (22)% | $ | (6,056,308 | ) | $ | (6,172,098 | ) | 2% | ||||
| Adjusted EBITDA loss(1) | $ | (1,942,696 | ) | $ | (1,491,493 | ) | (30)% | $ | (5,567,689 | ) | $ | (5,375,807 | ) | (4)% | ||||
| Loss per share - basic and diluted |
$ | (1.28 | ) | $ | (3.69 | ) | 65% | $ | (3.65 | ) | $ | (17.51 | ) | 79% | ||||
| Weighted average Common Shares - basic and diluted |
2,023,209 | 625,323 | 1,836,138 | 412,141 | ||||||||||||||
| (1) EBITDA and Adjusted EBITDA are non-IFRS measures. See "Non-IFRS Measures". See below for "Reconciliation of Non-IFRS Measure". | ||||||||||||||||||
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
In the following table, we have reconciled EBITDA and Adjusted EBITDA to the most comparable IFRS financial measure.
| Three Months ended June 30, | Nine Months ended June 30, | |||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||
| Net loss as reported under IFRS | $ | (2,587,034 | ) | $ | (2,307,875 | ) | $ | (6,693,029 | ) | $ | (7,217,588 | ) |
| Net financing costs | 67,730 | 42,565 | 150,835 | 135,985 | ||||||||
| Depreciation and amortization | 138,263 | 309,085 | 485,886 | 909,505 | ||||||||
| EBITDA loss | (2,381,041 | ) | (1,956,225 | ) | (6,056,308 | ) | (6,172,098 | ) | ||||
| Other adjustments: | ||||||||||||
| Stock-based compensation | 480,453 | 21,777 | 480,453 | 99,174 | ||||||||
| Share issuance costs | - | - | - | 1,807,686 | ||||||||
| Impairment of right-of-use-asset | - | 6,809 | - | 88,596 | ||||||||
| Gain (loss) on disposal of property and equipment |
(1,300 | ) | - | 57,478 | (6,809 | ) | ||||||
| Change in fair value of warrant liabilities | (5,919 | ) | 177,290 | (62,613 | ) | (1,260,106 | ) | |||||
| Foreign exchange loss (gain) | (34,889 | ) | 258,856 | 13,301 | 67,750 | |||||||
| Adjusted EBITDA loss | (1,942,696 | ) | (1,491,493 | ) | (5,567,689 | ) | (5,375,807 | ) | ||||
Revenue
Total revenue increased by $1.3 million, or 92%, to $2.7 million in Q3 Fiscal 2026 compared to $1.4 million in Q3 Fiscal 2025. The increase was driven by a $1.3 million or 121% increase in digitization services revenue, along with a modest increase in Less-Lethal product and services revenue. The growth in digitization services reflects the 19 additional resources added over the last twelve months to fulfill the Company's Canadian government defence program subcontracts.
For the nine months ended June 30, 2026, total revenue increased by $2.6 million, or 72%, to $6.1 million compared to $3.6 million in the same period of Fiscal 2025. Digitization services again drove the increase. The Less-Lethal products and services revenue declined $0.1 million (14%) year-to-date, primarily reflecting a lower volume of ARWEN® launchers, related parts and ammunition sales. ARWEN® customers generally have long procurement cycles, which can cause revenue to fluctuate from period to period. Management expects that broadening the customer base may reduce, but will not eliminate, this variability, as customers generally place repeat orders once onboarded.
The Company's government services program billings on an annualized go-forward basis were approximately $9.4 million1 based on the 43 resources assigned to these projects at June 30, 2026. Management continues to work closely with industry partners and prime contractors in order to monitor the outlook for growth. The Company also expects revenue to increase with continued growth in the ARWEN® business, driven by expected demand for the new 40mm ammunition, training adapters and PARA SHOT™ products. Management believes 40mm ammunition represents the largest segment of the less-lethal ammunition market, and certain customers that previously purchased competing products have transitioned to the Company's 40mm ammunition and placed initial orders. The commercial launch of the DEFSEC Lightning™ 2.0 SaaS platform is expected to support the development of a recurring revenue stream and client base, enhancing the predictability of revenue within our product portfolio. Management also expects the initial order of BLISS™ received in the prior year to result in requests for additional prototypes ultimately resulting in future revenue.
Gross Profit
In Q3 Fiscal 2026, gross profit was $0.9 million, or 33.1% of revenue, compared to gross profit of $0.4 million, or 28.2% of revenue, in Q3 Fiscal 2025. The 4.9% improvement in gross margin % was primarily due to the additions of higher margin roles on the Company's Canadian government defence programs.
For the nine months ended June 30, 2026, gross profit was $1.9 million, or 31.4% of revenue, compared to $1.1 million, or 31.3% of revenue, in the same period of Fiscal 2025. Gross profit increased $0.8 million on higher revenue, while gross margin was essentially flat year-over-year as the growing contribution from higher-margin digitization services was partially offset by a shift in product mix toward lower-margin training within the less-lethal portfolio.
1 Unaudited, non-IFRS measure.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Operating Expenses ("OPEX")
Total OPEX increased by $1.2 million when comparing Q3 Fiscal 2026 to Q3 Fiscal 2025 due to the following factors:
- G&A expenses increased by $0.7 million, or 60%, to $1.8 million in Q3 Fiscal 2026 and by $0.9 million, or 23%, to $4.6 million on a nine-month basis. In both periods the increase was driven primarily by higher personnel costs, reflecting additional headcount, including the appointment of a Chief Legal Officer, and adjustments in compensation to align with market. In the third quarter, these increases were partially offset by a $0.1 million reduction in professional fees as legal work was brought in-house;
- S&M expenses increased by $0.1 million or 18% to $0.4 million in Q3 Fiscal 2026 but decreased by $0.3 million to $1.1 million on a nine-month basis. The third-quarter increase reflects higher personnel and consulting fees, partially offset by lower investor relations and travel costs. The year-to-date decrease was driven primarily by lower personnel costs, together with lower investor relations spend;
- R&D expenses increased by $0.2 million or 55% to $0.6 million in Q3 Fiscal 2026 and increased by $0.5 million to $1.8 million on a nine-month basis. The increases in both periods were driven by higher R&D personnel costs, reflecting the addition of new personnel dedicated to the DEFSEC Lightning™ platform as well as continued investment in the development and commercialization of the BLISS™ and PARA SHOT™ products, partially offset by lower external consulting fees; and
- Share-based compensation increased by $0.5 million in Q3 Fiscal 2026 and increased by $0.4 million on a nine-month basis as a result of the stock option grant in May 2026 whereby half of the options vested immediately resulting in the immediate recognition of the related share-based compensation expense.
Other income (expenses), net
For the third quarter of Fiscal 2026, other income (expense) totaled a loss of less than $0.1 million, compared to a loss of $0.5 million in the third quarter of Fiscal 2025. The change was primarily attributable to losses recorded in the third quarter of 2025 related to foreign exchange and the remeasurement of warrant liabilities of $0.3 million and $0.2 million respectively.
For the nine-month period ended June 30, 2026 other income (expense) totaled a loss of less than $0.2 million, compared to a loss of $0.8 million in the same period of Fiscal 2025. The change was primarily attributable to share issuance costs of $1.8 million recorded in 2025, which did not reoccur in Fiscal 2026. This expense was partially offset by a gain on the remeasurement of warrant liabilities of $1.2 million in Fiscal 2025. In accordance with IFRS, warrant liabilities are required to be remeasured at fair value at each reporting date until exercise or expiry. In the first nine months of Fiscal 2026 the primary driver is net financing costs, which are 11% higher than in Fiscal 2025.
Finally, during the second quarter of Fiscal 2026, the Company conducted a review of its fixed assets in use and determined that certain assets should be written off and disposed of, resulting in a loss on disposal of $0.1 million recorded during the quarter. The majority of these assets were held at the Company's previous head office which was vacated at the end of the quarter and it was determined that these assets were not sufficiently beneficial to relocate.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
SUMMARY OF QUARTERLY RESULTS
The following table summarizes selected results for the eight most recently completed quarters to June 30, 2026 (unaudited):
| 2026 | 2025 | 2024 | ||||||||||||||||||||||
| |
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||
| Revenue | $ | 2,722 | $ | 2,120 | $ | 1,308 | $ | 1,373 | $ | 1,417 | $ | 1,264 | $ | 888 | $ | 560 | ||||||||
| Net Loss | (2,587 | ) | (2,023 | ) | (2,083 | ) | (2,409 | ) | (2,307 | ) | (1,460 | ) | (3,457 | ) | (2,337 | ) | ||||||||
| Net Loss per Common Share (Basic and diluted) |
$ | (1.28 | ) | $ | (1.01 | ) | $ | (1.39 | ) | $ | (2.70 | ) | $ | (3.69 | ) | $ | (6.16 | ) | $ | (23.94 | ) | $ | (59.33 | ) |
Quarterly Results Trend Analysis
We experience some fluctuations within our quarterly revenue primarily related to the timing and fulfilment of orders for our less-lethal products. Our digitization revenue has grown quarter over quarter as we ramp up service delivery on our Canadian government defence programs. In the second quarter we added 14 additional resources to one digitization project, which contributed positively to revenue this quarter as compared to previous quarters. Our digitization revenue is subject to seasonal fluctuations, particularly in the first quarter of the year as there are fewer service delivery days in the month of December than during other months of the year.
Quarterly fluctuations in net loss were due to the timing of spending for certain research and development projects and the timing of trade shows and other sales and marketing program spend.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
FINANCIAL CONDITION
The following table summarizes our financial position:
| |
June 30, 2026 | September 30, 2025 | ||||
| ASSETS | ||||||
| Current | $ | 6,835,162 | $ | 8,946,025 | ||
| Non-current | 3,616,557 | 3,975,451 | ||||
| Total Assets | $ | 10,451,719 | $ | 12,921,476 | ||
| Liabilities | ||||||
| Current | $ | 3,160,553 | $ | 2,918,205 | ||
| Non-current | 2,180,729 | 2,201,552 | ||||
| Total Liabilities | 5,341,282 | 5,119,757 | ||||
| Net assets | $ | 5,110,437 | $ | 7,801,719 | ||
| Working capital(1) | $ | 3,674,609 | $ | 6,027,820 | ||
| Indebtedness: | ||||||
| Lease liabilities | $ | 1,290,311 | $ | 1,303,450 | ||
| Warrant liabilities | 150,044 | 210,965 | ||||
| Total debt | $ | 1,440,355 | $ | 1,514,415 | ||
| (1) Working capital is calculated as current assets less current liabilities. | ||||||
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Our working capital was $3.7 million at June 30, 2026, a $2.4 million decrease from September 30, 2025. The decrease was primarily due to our use of cash to fund our operations offset by the December and June private placement financings which provided $2.1 million and $2.5 million in gross proceeds, respectively. Current liabilities include warrant liabilities, a non-cash liability item (see Note 8(a) of the Q3 Fiscal 2026 FS). Excluding warrant liabilities, working capital would be $3.8 million. These warrant liabilities will be extinguished when the warrants are exercised or expired. These warrants are set to expire between December 9, 2027, and August 9, 2029. If exercised, the proceeds would provide the Company with additional capital to fund future working capital requirements. There is no assurance that any warrants will be exercised.
Total assets decreased by $2.5 million from September 30, 2025, mainly due to a decrease in cash of $3.2 million to fund our development efforts for our various product lines that have yet to generate sales and the payment of accounts payable and accrued liabilities that were owing at September 30, 2025.
Total liabilities increased by $0.2 million from September 30, 2025, mainly due to an increase in accounts payable and accrued liabilities of $0.4 million due to the timing of payments to employees and suppliers and $0.1 million decrease in accrued royalties as a result of the annual payment being made in the second quarter.
LIQUIDITY AND CAPITAL RESOURCES
Available Liquidity
Our approach to managing liquidity is to ensure, to the extent possible, that we always have sufficient liquidity to meet our liabilities as they come due. We regularly perform cash flow forecasts to ensure that we have sufficient cash to meet our operational needs while maintaining sufficient liquidity. At this time, we do not use any derivative financial instruments to hedge our currency risk.
On December 17, 2025, we entered into definitive agreements for the purchase and sale of 566,040 Common Shares at a purchase price of $3.64 (US$2.65) per Common Share in a registered direct offering. In a concurrent private placement, we issued unregistered warrants to purchase up to 566,040 Common Shares at an exercise price of $4.27 per Common Share that are immediately exercisable upon issuance and expire five years following the date of issuance. The closing of the offering occurred on December 18, 2025. The net proceeds from this Offering are intended for working capital and general corporate purposes. On February 10, 2026, these warrants were registered with the SEC.
On June 26, 2026, we entered into definitive agreements for the purchase and sale of 673,006 Common Shares at a purchase price of $3.74 (US$2.63) per Common Share in a registered direct offering. In a concurrent private placement, we issued unregistered warrants to purchase up to 673,006 Common Shares at an exercise price of $4.39 per Common Share that are immediately exercisable upon issuance and expire five years following the date of issuance. The closing of the offering occurred on June 26, 2026. The net proceeds from this Offering are intended for working capital and general corporate purposes. On August 3, 2026, these warrants were registered with the SEC.
At June 30, 2026, we held $3.5 million in cash, a decrease of $3.2 million since September 30, 2025, primarily due to funding our operations and partially offset by the financings entered into during the Fiscal year. The Company also generated cash from the delivery of products and services as revenue grew $2.6 million when comparing the nine-month period ended June 30, 2026, with the same period last year.
As an early-stage company, we have not yet reached significant revenue levels for most of our products and have incurred significant losses and negative operating cash flows from inception that have primarily been funded from financing activities. Our ability to continue as a going concern and realize our assets and discharge our liabilities in the normal course of business is dependent upon closing timely additional sales orders, timely commercial launch of new products, and the ability to raise additional debt or equity financing, when required. There are various risks and uncertainties affecting our future financial position and our performance. Accordingly, there are material risks and uncertainties that may cast substantial doubt about our ability to continue as a going concern. Further, we may require additional capital in the event we fail to implement our business plan, which could have a material adverse effect on our financial condition and/or financial performance. There is no assurance that we will be able to raise additional capital as it is required in the future. Potential sources of capital may include additional equity and/or debt financings.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
In our view, the availability of capital will be affected by, among other things, capital market conditions, the success of our PARA SHOT™ system, BLISS™ and DEFSEC Lightning™ market development efforts, timing of winning new customer contracts, potential acquisitions, and other relevant considerations. In the event we raise additional funds by issuing equity securities, our existing shareholders will likely experience dilution, and any additional incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operational and financial covenants that could further restrict our operations. Any failure to raise additional funds on terms favorable to us or at all may require us to significantly change or curtail our current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in us not being in a position to advance our commercialization strategy or take advantage of business opportunities.
Consolidated Statements of Cash Flows
The following table summarizes our consolidated statements of cash flows for the respective periods:
| |
Nine months ended June 30, | |||||
| 2026 | 2025 | |||||
| Total cash provided by (used in): | ||||||
| Operating activities | $ | (6,445,296 | ) | $ | (6,583,042 | ) |
| Investing activities | (190,305 | ) | (146,850 | ) | ||
| Financing activities | 3,432,470 | 9,016,275 | ||||
| Net cash outflows | (3,203,131 | ) | 2,286,383 | |||
| Cash, beginning of period | 6,686,429 | 256,828 | ||||
| Effect of exchange rates on cash | (1,131 | ) | - | |||
| Cash, end of period | $ | 3,482,167 | $ | 2,543,211 | ||
Cash used in operating activities
Cash flow used in operating activities decreased by $0.1 million to $6.4 million for the nine months ended June 30, 2026, primarily due to share issuance costs related to warrant liabilities incurred in the prior year offset by the change in fair value of the existing warrant liabilities.
Cash used in investing activities
Cash flows used in investing activities for the nine months ended June 30, 2026, increased by less than $0.1 million compared to the same period in Fiscal 2025. Investing activities in both periods consisted of purchases of property and equipment.
Cash provided by financing activities
Cash flow provided by financing activities was $3.4 million in the first nine months of Fiscal 2026 compared to the $9.0 million provided from financing activities in the first nine months of Fiscal 2025. The cash provided in both periods was related to proceeds generated from the issuance of common shares and warrants, offset by the related share offering costs for each transaction.
Capital Resources
Our objective in managing our capital is to safeguard our ability to continue as a going concern and to sustain future development of the business. Senior management is responsible for managing capital through regular review of financial information to ensure sufficient resources are available to meet operating requirements and investments to support the growth strategy. Our Board of Directors is responsible for overseeing this process. From time to time, we could issue new Common Shares or debt to maintain or adjust our capital structure. We are not subject to any externally imposed capital requirements.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Our primary sources of capital to date have been borrowings, security offerings, and warrants and, to a lesser extent, revenue. The following is a breakdown of our capital:
| June 30, 2026 |
September 30, 2025 |
|||||
| Debt: | ||||||
| Lease liabilities | $ | 1,290,311 | $ | 1,303,450 | ||
| Warrant liabilities | 150,044 | 210,965 | ||||
| Equity: | ||||||
| Share capital | $ | 48,685,893 | $ | 47,003,991 | ||
| Warrants | 9,209,413 | 7,764,412 | ||||
| Contributed surplus | 6,303,898 | 5,398,445 | ||||
| Accumulated other comprehensive loss | (115,686 | ) | (85,077 | ) | ||
| Accumulated deficit | (58,973,081 | ) | (52,280,052 | ) | ||
| Total capital | $ | 6,550,792 | $ | 9,316,134 |
Contractual Obligations and Commitments
At June 30, 2026, our contractual obligations and commitments were as follows:
| Payment due: | Total | Within 1 year |
1 to 3 years | 3 to 5 years | 5 years and beyond |
||||||||||
| Minimum royalty commitments | $ | 1,800,000 | $ | 250,000 | $ | 550,000 | $ | 650,000 | $ | 350,000 | |||||
| Accounts payable and accrued liabilities | 2,688,845 | 2,688,845 | - | - | - | ||||||||||
| Lease obligations | 2,126,135 | 203,710 | 407,420 | 409,187 | 1,105,818 | ||||||||||
| Total contractual obligations | $ | 6,614,980 | $ | 3,142,555 | $ | 957,420 | $ | 1,059,187 | $ | 1,455,818 |
Shares Outstanding
At June 30, 2026, authorized capital consists of an unlimited number of Common Shares with no stated par value.
The following table shows the outstanding Common Shares and dilutive securities as at June 30, 2026:
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
| Securities outstanding |
Underlying Common Shares(1) |
Average price (CAD $) |
Average price per underlying Common Share (CAD $) |
Proceeds if exercised |
||||||||||||
| Common shares | 2,666,632 | 2,666,632 | $ | - | $ | - | $ | - | ||||||||
| Warrants | 9,733,219 | 2,367,238 | 2.24 | 9.16 | 21,803,083 | |||||||||||
| Pre-funded warrants | 151,734 | 722 | 0.0014 | 0.30 | 216 | |||||||||||
| Warrant liabilities | 9,539,727 | 45,425 | 3.23 | 678.58 | 30,813,318 | |||||||||||
| U.S. underwriter warrants | 1,582,736 | 182,394 | 2.30 | 19.95 | 3,640,293 | |||||||||||
| Stock options | 152,379 | 152,379 | 9.65 | 9.65 | 1,470,686 | |||||||||||
| Total Common Shares and dilutive securities | 5,414,790 | $ | 57,727,596 | |||||||||||||
| (1)Represents the number of shares to be issued upon exercise | ||||||||||||||||
The following table shows the outstanding Common Shares and dilutive securities as at August 12, 2026:
| Securities outstanding |
Underlying Common Shares(1) |
Average price (CAD $) |
Average price per underlying Common Share (CAD $) |
Proceeds if exercised |
||||||||||||
| Common shares | 2,666,632 | 2,666,632 | $ | - | $ | - | $ | - | ||||||||
| Warrants | 9,733,219 | 2,367,238 | 2.24 | 9.16 | 21,803,083 | |||||||||||
| Pre-funded warrants | 151,734 | 722 | 0.0014 | 0.29 | 212 | |||||||||||
| Warrant liabilities | 9,539,727 | 45,425 | 3.17 | 665.78 | 30,240,935 | |||||||||||
| U.S. underwriter warrants | 1,582,736 | 182,394 | 2.28 | 19.73 | 3,608,638 | |||||||||||
| Stock options | 152,379 | 152,379 | 9.65 | 9.65 | 1,470,686 | |||||||||||
| Total Common Shares and dilutive securities | 5,414,790 | $ | 57,123,554 | |||||||||||||
| (1)Represents the number of shares to be issued upon exercise | ||||||||||||||||
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
Refer to Note 11 of the Q3 Fiscal 2026 FS for disclosure about DEFSEC's related party transactions conducted in the normal course of business.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
We recognize financial assets and liabilities when we become party to the contractual provisions of the instrument. On initial recognition, financial assets and liabilities are measured at fair value plus transaction costs directly attributable to the financial assets and liabilities, except for financial assets or liabilities at fair value through profit and loss, whereby the transactions costs are expensed as incurred.
Refer to Note 13 of the Q3 Fiscal 2026 Unaudited Condensed Consolidated Interim Financial Statements for further disclosure of our financial instruments.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to Note 2 of the Fiscal 2025 audited consolidated financial statements for a discussion of the accounting policies and estimates that are critical to the understanding of our business operations and the results of our operations.
OUTSTANDING SHARE INFORMATION
At June 30, 2026, DEFSEC's authorized capital consists of an unlimited number of Common Shares with no stated par value. There were 2,666,632 outstanding and issued Common Shares as at June 30, 2026.
SUBSEQUENT EVENTS
Refer to major highlights section earlier in this MD&A.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
As required by National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings and Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, we have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the effectiveness of the design and operation of our disclosure controls and procedures ("DC&P") (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as of the end of the quarter. These DC&P are designed to provide reasonable assurance that information required to be publicly disclosed is recorded, processed, summarized and reported on a timely basis.
Based upon the evaluation, our CEO and CFO have concluded that the operation of our DC&P were effective as of September 30, 2025. Since the September 30, 2025 evaluation, there have been no changes in our DC&P that materially affected or are reasonably likely to materially affect our DC&P, accordingly their design remains effective.
Management's Assessment on Internal Controls over Financial Reporting
In accordance with National Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings and as required by Rule 13a-15(f) of the Exchange Act, as amended, the CEO and CFO are responsible for establishing and maintaining adequate internal controls over financial reporting ("ICFR"), The Company's management, including the CEO and CFO, designed ICFR based on the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO Framework") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.
ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. ICFR has inherent limitations. ICFR is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. ICFR also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by ICFR. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management, under the supervision, and with the participation, of our CEO and CFO and oversight of the Board of Directors, evaluated the effectiveness of our ICFR as at September 30, 2025, against the COSO Framework. Based on these evaluations, our management, including our CEO and CFO, concluded that no material weaknesses existed and our ICFR were effective as of September 30, 2025. For the nine-month period ending on June 30, 2026, there have been no changes that have materially affected or is reasonably likely to materially affect our ICFR, accordingly their design remains effective.
| DEFSEC TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS THREE AND NINE MONTHS ENDED JUNE 30, 2026 |
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Additionally, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Sean Homuth, Chief Executive Officer of DEFSEC Technologies Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of DEFSEC Technologies Inc. (the "issuer") for the financial quarter 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.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, 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.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: N/A
-2-
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: August 12, 2026
| /s/ Sean Homuth | |||
| Sean Homuth | |||
| Chief Executive Officer |
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Jennifer Welsh, Chief Financial Officer of DEFSEC Technologies Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of DEFSEC Technologies Inc. (the "issuer") for the financial quarter 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.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, 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.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 ICFR - material weakness relating to design: N/A
-2-
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: August 12, 2026
| /s/ Jennifer Welsh | |||
| Jennifer Welsh | |||
| Chief Financial Officer |