Liberty Defense : Q3-2021 Interim MD&A

INNOVATIVE & REVOLUTIONARY THREAT DETECTION

MANAGEMENT'S DISCUSSION AND ANALYSIS

NINE MONTHS ENDED SEPTEMBER 30, 2021

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

Dated: November 29, 2021

Liberty Defense Holdings, Inc., ("Liberty" or the "Company") has prepared this Management's Discussion and Analysis ("MD&A") as of November 29, 2021 and should be read in conjunction with the Company's interim condensed consolidated financial statements for the three and nine months ended September 30, 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.

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.comand under the Company's profile at www.sedar.com.

Table of Contents	Page
1	Overview	2
2	Results of Operations	6
3	Summary of Quarterly Results	8
4	Liquidity and Capital Transactions Resources	9
5	Off-balance Sheet Arrangements	11
6	Transaction Between Related Parties	11
7	Subsequent Events	12
8	Critical Accounting Estimates	12
9	Financial Instruments	13
10	Other Requirements	13
11	Disclosure Controls and Procedures and Internal Controls over Financial Reporting	14

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1. Overview

1. 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 (note 3) 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. These interim condensed consolidated financial statements include 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.

1. 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.
2. License Agreements
3. 1. HEXWAVE Technology
   1. 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 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

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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.

1. 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:
2. • Detects metal & non-metal threat objects
   • 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

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• 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 of President and CTO, Mike Lanzaro former Vice President of Engineering and Technology at L-3 Security & Detection Systems (NYSE - LHX), the world's leading supplier of security inspection systems. Also COO, Aman Bhardwaj who is the technology and product development lead for the business, with 30 years experience in bringing software and hardware technologies to market and building global teams in U.S., Canada, China, and India for large multi-national and start-up companies.

Liberty's Advisors

Liberty has assembled a group of Advisors that can provide unprecedented market access to a number of our identified market verticals including stadiums National Hockey League and Federation Internationale de Football Association and shopping malls. A key aspect to Liberty's success will be gaining access and developing the market for HEXWAVE.

ii) License Agreement with Battelle Memorial Institute

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On April 13, 2021, Liberty through its wholly owned subsidiary DrawDown Detection, Inc., licensed the millimeter wave-based,High-Definition Advanced Imaging Technology (HD-AIT) body scanner and shoe scanner technologies from Battelle Memorial Institute ("Battelle"), which operates the Pacific Northwest National Laboratory. HD-AIT will enhance security screening at airports by providing a next-generation technology platform for threat detection. The license agreement provides the Company with three years exclusively licensed for certain patents which on expiration will turn into life of patent under nonexclusively basis. The Company also received the license for certain patents for life under nonexclusively basis at the inception of the license agreement. As consideration for the license agreement the Company will pay $30,000 on signing of the agreement (paid) and $30,000 in six months.

Under the above license agreement, the Company shall pay a five percent royalty on net sales and twenty-five percent in all sublicensing revenues if permitted. The Company is required to pay a minimum royalty amount every year which run between $50,000 in the first year to $200,000 in year 2024 and thereafter. The Company is also obligated to achieve certain minimum diligent requirements in the next twelve to thirty-six months and reimburse Battelle for patenting expenses including past patenting expenses in the amount of $50,000 on or before January 22, 2022.

All payments made under the license agreement with Battelle are non-refundable.

1. 1. DKL License Agreement
      On October 11, 2018, the Company through its wholly owned subsidiary DrawDown Technologies, Inc ("DDT") entered into a license agreement with DKL International, Inc., ("DKL"), as amended on February 6, 2020, for the commercial development of DKL's passive detection techniques and products that detect smokeless gunpowder from a standoff distance.
      On April 19, 2021, the Company gave notice of termination of the license agreement with DKL. Such notice of termination served as formal notice that the licensing agreement was terminated in full effective six months following the date of this notice. Upon the effective date of the termination, the parties to the licensing agreement with DKL will have no further rights and/or obligations pursuant thereto. In order to settle any and all outstanding amounts owed to DKL under this licensing agreement the Company paid $125,000.
2. Recent Developments
   From inception, Liberty set itself an aggressive product development timeline by pursuing a concurrent engineering and development approach and prior to its financial constraints had managed to deliver upon this timeline.
   Liberty has also established a number of collaboration agreements with multiple well-respected recognizable organizations across its various market verticals to participate in Beta testing HEXWAVE. These include the Port of Tampa, FL, University of Wisconsin Police Department, Greater Toronto Airport Authority, Metro Toronto Convention Center, Maryland Stadium Authority, a Hindu temple in Southeast United States, Virginia Division of Capitol Police, FC Bayern München, and Utah Attorney General, among others.
   In addition to advancing HEXWAVE and the market for it, Liberty achieved a number of significant corporate milestones which include:
    Received a $500K contract award from the Transportation Security Administration's ("TSA") (October 2021) Signed a license agreement with Battelle Memorial Institute (April 2021)
    Returned funding from the $1 million grant from The Israel-USBinational Industrial Research and Development (BIRD) Foundation (Mar 2021) due to Levitations' inability to achieve positive cash flow or attract an investment (Oct 2021).
    Complete the business combination with DrawDown (March 2021)
    Closing of oversubscribed public offering for total gross proceeds of CAD$6.9 million (March 2021) Update on Merger with DrawDown (June 2020)
    Execution of Definitive Agreement with DrawDown (April 2020) Proposed merger transaction with DrawDown (January 2020)

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