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    SCAN   CA53044R2063

LIBERTY DEFENSE HOLDINGS, LTD.

(SCAN)
Delayed Bourse de Toronto  -  04/27 02:15:06 pm EDT
0.4600 CAD   +4.55%
04/26LIBERTY DEFENSE : MD&A Year Ended December 31, 2021
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04/05Liberty Defense Gains Over 4% Following Successful Trials of New AI Software That Detects Concealed Weapons and Threats
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04/05Liberty Defense Advances Proprietary AI Algorithm for its HEXWAVE Security Detection System
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Liberty Defense : MD&A Year Ended December 31, 2021

04/26/2022 | 09:55pm EDT

INNOVATIVE & REVOLUTIONARY THREAT DETECTION

MANAGEMENT'S DISCUSSION AND ANALYSIS

YEAR ENDED DECEMBER 31, 2021

(Expressed in U.S. dollars, unless otherwise stated and per share amounts)

Dated: April 26, 2022

Liberty Defense Holdings, Ltd., ("Liberty" or the "Company") has prepared this Management's Discussion and Analysis ("MD&A") as of April 25, 2021 and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2021. Unless otherwise stated, all financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. All dollar amounts herein are expressed in U.S. dollars unless stated otherwise.

References to $ means U.S. dollars, and CAD$ are to Canadian dollars. The MD&A should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2021.

This MD&A may contain forward looking statements based on assumptions and judgments of management regarding events or results that may prove to be inaccurate as a result of development or other risk factors beyond its control.

Actual results may differ materially from the expected results.

Additional information on the Company is available at the Company's website www.libertydefense.com and under the Company's profile at www.sedar.com.

Table of Contents

Page

1 Overview 2

2 Results of Operations 7

3 Summary of Quarterly Results 9

4 Liquidity and Capital Transactions Resources 10

5 Commitments 15

6 Off-balance Sheet Arrangements 16

7 Transaction Between Related Parties 16

8 Subsequent Events 17

9 Critical Accounting Estimates 17

10 Changes in Accounting Policies including Initial Adoption 17

11 Financial Instruments 17

12 Other Requirements 19

13 Disclosure Controls and Procedures and Internal Controls over Financial Reporting 20

Year End 2021 MD&A

Page| 1

(Expressed in U.S. dollars)

1) Overview

  • (a) Description of Business

    Liberty Defense Holdings, Ltd., is a public company (TSXV: SCAN, Frankfurt: L2D, OTCQB: LDDFF), that was incorporated under the Business Corporation Act of Ontario on June 8, 2012. The Company's registered and records office address is 1055 West Georgia Street, 1500 Royal Centre, P.O. Box 11117. Vancouver, British Columbia, V6E 4N7, Canada.

    The Company undertook a reverse takeover ("RTO") transaction with DrawDown Detection, Inc. ("DrawDown" or "DD") on March 17, 2021 in which Liberty acquired all of the issued and outstanding common shares of DrawDown on a post-DrawDown consolidation basis in exchange for common shares of Liberty on a one to one basis post-Liberty consolidation. As described to undertake this transaction, Liberty completed a share consolidation on a 6.2 old shares to 1 new share basis and DrawDown also completed a share consolidation on a 2 old shares to 1 new share basis.

    Drawdown has been identified as the accounting acquirer and, accordingly, the Company is considered to be a continuation of Drawdown, and the net assets of the Company at the date of the reverse acquisition are deemed to have been acquired by Drawdown. Financial information includes the results of operations of the Company from March 17, 2021.

    The Company, through its wholly owned subsidiary Liberty Defense Technologies Inc. ("LDT"), is principally engaged in the commercialization of an active 3D imaging technology system, HEXWAVE, to detect concealed threats.

  • (b) Board Changes

    Effective March 17, 2021, in connection with the RTO Jeremy Morton agreed to resign as a director and Aman Bhardwaj agreed to resign as President of US Operations, Interim Chief Executive Officer and Acting Chief Financial Officer and a director of the Company.

    Effective March 17, 2021, the Company appointed William Frain, as Chief Executive Officer and director; Omar Garcia Abrego, as Chief Financial Officer and Corporate Secretary; Michael Lanzaro, as Chief Technology Officer; Aman Bhardwaj as Chief Operating Officer, Daryl Rebeck, John McCoach and Arjun Grewal as directors of the Company.

    Effective August 5, 2021, the Company also added Linda L. Jacksta to its board of directors.

    Effective November 29, 2021, John McCoach is no longer a director of the Company.

    Effective December 31, 2021, Aman Bhardwaj is no longer the Chief Operating Officer.

  • (c) License Agreements

    i) HEXWAVE Technology

    a. Active real-time 3D imaging technology licensed from MIT LL

Active video rate imaging technology was developed by the Massachusetts Institute of Technology Lincoln Labs ("MIT LL") and the technology has been in development since 2014. In October 2017, a concept demonstrator (pre-prototype) of the core technology was successfully tested under environmental conditions by MIT LL.

MIT LL undertook 4 years of research and development, including building a working prototype and testing the technology in both lab and real electromagnetic environments. LDT worked with MIT LL to transfer the active imaging technology starting in Q4 2018. In September 2019, Liberty and MIT LL were recognized by the FLC (Federal Laboratory Consortium) for the 2019 Excellence in Technology Transfer North East Region.

With the exclusive global license agreement (the "License Agreement") for the use of the active imaging technology, the Company has continued to develop HEXWAVE using the technology and concepts demonstrated

Year End 2021 MD&A

Page| 2

(Expressed in U.S. dollars)

by MIT LL. MIT LL, through the Technology Transfer Agreement ("TTA") has transferred the intellectual property and understanding to Liberty's Center of Excellence ("COE") in order for the technology to be further refined and developed. As part of the commercialization and go to market strategy, the Company has identified certain required changes and entered into the Cooperative Research and Development Agreement (CRADA) with MIT LL to leverage off their existing experience and accelerate the development of certain aspects of HEXWAVE.

In addition to active imaging technology, the Company is also developing Automatic Threat Detection technology with the help of rich 3-dimension data and deep learning algorithms.

HEXWAVE Overview:

Since acquiring the License Agreement from MIT LL, Liberty has significantly advanced HEXWAVE which includes active imaging technology, automated threat detection ("ATD") and smart IoT technologies. This culminated in the demonstration of the four principal subsystems in September 2019. This step represented a significant de-risking of the product development phase.

b. AI and Deep Learning - Automatic Threat Recognition (ATR)

Automatic Threat Recognition utilizing deep learning algorithms was developed by Liberty Defense to recognize person-borne concealed metal and non-metal threats. The 3-D data and images produced by the HEXWAVE are used to train and enhance the Artificial Intelligence engine using deep-learning algorithms.

At a frame capture rate of 10 images/sec, the algorithms can exploit the changes in person's positioning from frame-to-frame, thus maximizing the total coverage area and threat detection performance.

ATR improves detection accuracy, reduces resources required for screening, and allows the security personnel to take necessary action instantly. As additional field data and images are collected by the system over time, our plan will be to continuously improve threat detection performance HEXWAVE can receive over-the-air updates to its algorithms as new and emerging threats are identified.

Global License Agreement - September 2018

The License Agreement for the use of the technology behind HEXWAVE with MIT is to be in effect until December 2035. Under the License Agreement, several milestones are required to be met to keep it in good standing. MIT continues to work closely with Liberty on developing this technology and recently amended the timeline to develop a beta prototype from on or before December 31, 2019, to November 1, 2020. The amendment also included additional details in relation to changes on required commercial sales dates, required total net sales by year, and payment dates on its license agreement. Refer to SEDAR (www.sedar.com) for further details on the MIT amendment.

HEXWAVE Key Discriminators

Central to positioning HEXWAVE is building on its key discriminators. These are enabled by the system architecture that aligns to key market needs. These include:

  • Detects metal & non-metal threat objects

Year End 2021 MD&A

Page| 3

(Expressed in U.S. dollars)

  • Detects both indoor and outdoor locations including both overt and covert application

  • Protects privacy (no personal data is collected or analyzed)

  • ATD in real-time using rich 3D data and deep learning algorithms

  • Smart functionality provides connectivity to existing security systems (VMS, door locks, networks)

  • Routine software & AI updates

  • Operationally agile (mobile and deployable across detection space)

  • High throughput (over 1,000 screens per hour) with precise secondary screening

About the Explosives and Weapon Detection Market

The aggregate markets associated with the explosives and weapon detection market are expected to total over $11 billion by 2025. The verticals most relevant to the growing Urban Security Market ("USM") are public venues, secured perimeters & buildings, land transportation, government, and others (schools, hotels, casinos, places of worship, malls, workplace & community screening).

The complexity of the urban security threat environment has dramatically changed over the last decade, requiring a more proactive approach to preventing violent attacks against communities. Since the 9/11 events, the air transportation community has effectively deployed a combination of detection technologies that are being consistently upgraded in an attempt to "stay ahead" of evolving threats. The array of detection tools has largely been protecting access to aircraft systems as gated or "point" solutions. The public is forced to tolerate the delays associated with such inspections due to the extreme risks that explosives or weapons can have on an aircraft and its passengers.

In contrast, urban communities are largely unprotected against random acts of violence or use systems that significantly impede the flow of customers into and within business facilities. While the occasional violent act was more often considered an anomaly, the frequency and magnitude of violent attacks is forcing both businesses and governments to rethink how to move to more proactive measures. Since 2015, there have been over 300 mass shootings per year in the USA at a pace of nearly one per day. There is a market-driven need for security detection that can be broadly deployed across nearly all public and private facilities. The base requirements are that they be both highly accurate and nonintrusive to our daily lives.

Current Alternatives

The current alternatives in the USM are typically restricted to:

  • principally focusing on metal threats, therefore non-metal threats can potentially go undetected

  • airport solutions which are not able to be used across other verticals and do not have the requisite throughput

  • limited outdoor application and therefore hinder the capability of providing a layered defense for proactive threat detection

  • requiring large, dedicated areas or space versus integration into existing infrastructure

  • limited capability for integration into existing security systems command & control

About Liberty's Management Team

Central to Liberty's team is the technical and management expertise are: CEO and Director, Bill Frain former Senior Vice President for L-3 Security & Detection Systems (NYSE - LHX), the world's leading supplier of security inspection systems. In this role Bill led global sales, business development and key account management.

President and CTO, Mike Lanzaro former Vice President of Engineering and Technology at L-3 Security & Detection Systems. Vice President of Engineering Jeffrey Gordon who spent his last five years working at General Electric Global Research developing roadmaps for imaging and sensor technologies and over 35 years experience leading the development of ground-breaking sensing products for the military, medical, industrial, and commercial markets, including body scanners that can be seen deployed across most U.S. and EU airport checkpoints.

Liberty's Advisors

Liberty has assembled a group of Advisors that can provide unprecedented market access to several of our identified market verticals including stadiums National Hockey League and Federation Internationale de Football

Year End 2021 MD&A

Page| 4

(Expressed in U.S. dollars)

Association and shopping malls. A key aspect to Liberty's success will be gaining access and developing the market for HEXWAVE.

ii) MIT License Agreement Description and Commitments

The Company, through its wholly owned subsidiary Liberty Defense Technologies Inc. ("LDT"), has entered into agreements with the Massachusetts Institute of Technology ("MIT") and MIT's Lincoln Laboratory ("MIT LL"), including an exclusive patent licence agreement between MIT and LDT dated September 10, 2018, as amended from time to time (the "Licence Agreement"), a technology transfer agreement between LDT and MIT LL, effective August 24, 2018 (the "Technology Transfer Agreement"), and a cooperative research and development agreement between LDT and MIT dated as of December 21, 2018 ("CRADA"), such agreements providing LDT with an exclusive licence for patents, design assets and MIT LL technical expertise related to active three-dimensional imaging technology that are the core technology behind the HEXWAVE product.

The obligations under the Technology Transfer Agreement and the CRADA have now been completed. Liberty may consider extending the CRADA (and therefore changing its scope) if it determines that additional MIT LL technical expertise related to active three-dimensional imaging technology is required. Pursuant to the License Agreement, LDT has been granted the exclusive rights to MIT's patent in "multistatic sparse array topology for FFT-based field imaging" (MIT Case No. l 8409L) (the "Patent"), which is being utilized in the development and application of the HEXWAVE product. The License Agreement is to be in effect until the expiration of the Patent, which is 14 years (December 2035). In granting LDT such patent rights, the Company shall pay MIT in addition to patent filling costs an annual maintenance fees as follows: 1) $20,000 for 2019 (paid); $50,000 for 2020 (paid); $60,000 for 2021 (paid); $100,000 for 2022; $200,000 for 2023 and $350,000 for 2024 and thereafter; and 2) a royalty of 5.7% of all future net sales of the Company. The Company shall also be required to achieve certain milestones

The continuity of the intangible assets is as follows:

MIT LicensesHEXWAVE TechnologyTotal

Balance, December 31, 2019 and 2020 Additions RTO transaction (note 4) Additions

$

Amortization

- 183,682 202,497 (19,899)

$

- 3,769,172 - -

$

- 3,952,854 202,497 (19,899)

Balance, December 31, 2021

$

366,280

$

3,769,172

$

4,135,452

Intangible assets included as MIT licenses include payments in connection to reimbursement of global patent filing costs and annual maintenance fees. Additionally, intellectual property was generated through the RTO transaction.

iii) Battelle Memorial Institute License Agreement Description and Commitments

On March 22, 2021, the Company, through its wholly owned subsidiary DrawDown Detection, Inc. has entered into an agreement ("Battelle License Agreement") with Battelle Memorial Institute ("Battelle"), which operates the Pacific Northwest National Laboratory, to license the millimeter wave-based, High-Definition Advanced Imaging Technology (HD-AIT) body scanner and shoe scanner technologies. The agreement, as amended from time to time, provides the Company with a three-year exclusive license for the certain patents which will convert to a non-exclusive license for the remaining life of the patents. The agreement also provides the Company with non-exclusive license for certain patents for life.

As consideration for the Battelle License Agreement, the Company paid $30,000 upon signing (paid) and $30,000 six months after (paid).

Under the Battelle License Agreement, the Company shall pay a five percent royalty on net sales and a twenty-five percent in all sublicensing revenues if permitted. The Company is also required to pay a minimum royalty amount as follows, unless the agreement is terminated:

Year End 2021 MD&A

Page| 5

(Expressed in U.S. dollars)

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Liberty Defense Holdings Ltd. published this content on 27 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 April 2022 01:54:05 UTC.


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Financials (USD)
Sales 2019 - - -
Net income 2019 -2,69 M - -
Net cash 2019 0,97  - -
P/E ratio 2019 -
Yield 2019 -
Capitalization 32,3 M 32,3 M -
Capi. / Sales 2018 -
EV / Sales 2019 -
Nbr of Employees 3
Free-Float 96,2%
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Managers and Directors
William Frain Chief Executive Officer & Director
Michael Lanzaro President & Chief Technology Officer
Omar Garcia Abrego Chief Financial Officer & Secretary
Daryl Rebeck Executive Chairman
Jeffrey S. Gordon Vice President-Engineering