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KWESST Micro Systems (KWE) - 2024 Q4 - Annual Report
KWEKWESST Micro Systems (KWE)2024-12-28 02:52

Workforce and Employment - The company had a total of 30 employees in Fiscal 2024, up from 29.2 in Fiscal 2023, indicating a growth in workforce [225]. - The company may face challenges in retaining qualified directors and officers due to potential unavailability of adequate D&O insurance [227]. - The company’s executive compensation program is designed to attract and retain high-quality executives while linking compensation to corporate performance [263]. Financial Reporting and Compliance - The company is subject to the requirements of Sarbanes-Oxley (SOX), which necessitates a comprehensive evaluation of internal controls over financial reporting [232]. - Management assessed the effectiveness of internal controls over financial reporting as effective as of September 30, 2024 [383]. - The company is considered an Emerging Growth Company and is exempt from the audit requirements of Section 404(b) of SOX [384]. - There were no changes in internal controls over financial reporting that materially affected the company in Fiscal 2024 [384]. Insurance and Legal Risks - The company maintains D&O insurance, but there is no guarantee that coverage will be adequate in the event of litigation, which could adversely affect financial condition [227]. - The company has not reported any penalties or sanctions against its current directors or executive officers in the past ten years [223]. - The company has not obtained a legal opinion regarding its PFIC status, which may affect U.S. taxpayers holding Common Shares [233]. Stock Performance and Market Conditions - The company has experienced stock price volatility, which may be exacerbated by low trading volumes and market conditions [230]. - The company has experienced significant fluctuations in stock price, which may not correlate with its actual operating performance [231]. - The company received a notice from Nasdaq on May 16, 2024, indicating non-compliance with the Minimum Bid Requirement, which requires a closing bid price of at least USD 1.00persharefor30consecutivebusinessdays[243].−Thecompanywasgrantedanadditional180−dayperioduntilMay12,2025,toregaincompliancewiththeMinimumBidRequirement[243].−Shareholderapprovalwasnotobtainedforaproposedshareconsolidationratiohigherthan10−for−1,limitingthecompany′sabilitytoaddresstheMinimumBidRequirementeffectively[244].TaxationandRegulatoryMatters−TheCompanybelievesitwasnotaPassiveForeignInvestmentCompany(PFIC)foritsmostrecentlycompletedtaxyearandexpectsthesameforthecurrenttaxyear[233].−ProposedchangesinU.S.taxlaws,includingtheInflationReductionActof2022,mayadverselyaffecttheCompanyandholdersofCommonShares[234].−U.S.taxpayersshouldconsulttheirtaxadvisorsregardingtheimplicationsofPFICrulesontheirinvestmentsinCommonShares[233].CompensationandEquityOwnership−TotalcompensationforDavidLuxton,ExecutiveChairman,was1.00 per share for 30 consecutive business days [243]. - The company was granted an additional 180-day period until May 12, 2025, to regain compliance with the Minimum Bid Requirement [243]. - Shareholder approval was not obtained for a proposed share consolidation ratio higher than 10-for-1, limiting the company's ability to address the Minimum Bid Requirement effectively [244]. Taxation and Regulatory Matters - The Company believes it was not a Passive Foreign Investment Company (PFIC) for its most recently completed tax year and expects the same for the current tax year [233]. - Proposed changes in U.S. tax laws, including the Inflation Reduction Act of 2022, may adversely affect the Company and holders of Common Shares [234]. - U.S. taxpayers should consult their tax advisors regarding the implications of PFIC rules on their investments in Common Shares [233]. Compensation and Equity Ownership - Total compensation for David Luxton, Executive Chairman, was 360,000 in fiscal year 2024, compared to 493,500 in 2023 [239]. - Sean Homuth, President & CEO, received total compensation of 352,769 in fiscal year 2024, up from 234,558in2023[239].−HarryWebster,ChiefOperatingOfficer,earnedtotalcompensationof234,558 in 2023 [239]. - Harry Webster, Chief Operating Officer, earned total compensation of 278,962 in fiscal year 2024, compared to 23,077in2023[239].−TheCompany’sNEOs′compensationdataindicatesasignificantincreaseintotalcompensationacrossvariousrolesfrom2023to2024[239].−AsofDecember23,2024,thebeneficialownershipofCommonSharesbynamedexecutiveofficersanddirectorswas133,101shares,representing1.9023,077 in 2023 [239]. - The Company’s NEOs' compensation data indicates a significant increase in total compensation across various roles from 2023 to 2024 [239]. - As of December 23, 2024, the beneficial ownership of Common Shares by named executive officers and directors was 133,101 shares, representing 1.90% of the total outstanding shares [256]. - Total common shares beneficially owned by directors and executives amount to 147,224, which is 1.73% of outstanding shares [281]. Product Development and Contracts - The company has developed proprietary laser defense products to protect ground forces from portable laser attacks [268]. - The company’s core technology, TASCS, integrates a sensor package with a display for real-time situational awareness in military applications [267]. - The company announced a potential contract value exceeding 40 million for Phantom units with General Dynamics Land Systems if awarded [276]. - The company showcased new products at the SHOT SHOW 2023, including the PARA OPS products and ARWEN less-lethal launcher [277]. - The company announced a new scalable situational awareness solution, "Lightning," for public safety agencies, offered as a cloud-based SaaS product [280]. Financial Activities and Capital Raising - The company raised 940,255throughvariousfinancingmethodsin2018tofundworkingcapitalrequirements[267].−ThecompanyclosedaU.S.IPOandCanadianOffering,raisingaggregategrossproceedsof940,255 through various financing methods in 2018 to fund working capital requirements [267]. - The company closed a U.S. IPO and Canadian Offering, raising aggregate gross proceeds of 14.1 million, selling 250,000 U.S. IPO Common Units at 41.30each[277].−ThecompanycompletedareversestocksplitonOctober23,2024,ataratioof1−for−10,whichmayaffecttheliquidityofitsCommonShares[264].−Thecompanyannouncedabrokeredprivateplacement,raisingapproximately41.30 each [277]. - The company completed a reverse stock split on October 23, 2024, at a ratio of 1-for-10, which may affect the liquidity of its Common Shares [264]. - The company announced a brokered private placement, raising approximately 5.6 million from the issuance of Common Shares [279].