F-1/A

As filed with the Securities and Exchange Commission on September 16, 2022

Registration Statement No. 333-266897 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 
TO

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

KWESST MICRO SYSTEMS INC.

(Exact name of registrant as specified in its charter)

British Columbia	3080	98-1650180
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

155 Terence Matthews Crescent,
Unit #1, Ottawa, Ontario, K2M 2A8
(613) 241-1849
(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)

C T Corporation System

1015 15th Street N.W., Suite 1000

Washington, DC 20005

(202) 572-3133

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Richard Raymer Joshua Pleitz Dorsey & Whitney LLP 161 Bay Street, Unit #4310 Toronto, ON M5J 2S1, Canada (416) 367-7370	Frank Mariage Fasken Martineau DuMoulin LLP 800 Rue du Square-Victoria Bureau 3500 Montréal, QC H4Z 1E9, Canada (514) 397-7400	Rob Condon Dentons US LLP 1221 Avenue of the  Americas New York, NY 10020 (212) 768-6700

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.

Emerging growth company [X]

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.† [   ]

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the United States Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

__________________

The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 16, 2022

Up to 2,323,232 Common Units, Each Consisting of a Common Share and a Warrant to Purchase One Common Share

Up to 2,323,232 Pre-funded Units, Each Consisting of a Pre-funded Warrant to Purchase One Common Share and a Warrant to Purchase One Common Share

KWESST Micro Systems Inc.

This is the initial public offering (“IPO”) of securities of KWESST Micro Systems Inc., a British Columbia corporation (the “Company”), in the United States, consisting of up to 2,323,232 common units (each a “Common Unit”). Each Common Unit consists of one common share, no par value per share (a “Common Share”), and one warrant (each a “Warrant”), in a firm commitment underwritten offering at an assumed public offering price of USD$4.95 per Common Unit. We have estimated the offering price range for the IPO between USD$4.13 and USD$5.74 per Common Unit and the assumed offering price is the midpoint of this range. Each Warrant will entitle the holder to purchase one Common Share at an exercise price of USD$ , equal to 125% of the public offering price of one Common Unit, and expire five years from date of issuance.

A holder will not have the right to exercise any portion of a Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder prior to issuance, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants (the "Warrant Exercise Limitation"). However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days' prior notice from the holder to us.

We are also offering to those purchasers, if any, whose purchase of Common Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded units (each a “Pre-funded Unit”) in lieu of Common Units.  We are offering a maximum of 2,323,232 Pre-funded Units.  Each Pre-funded Unit will consist of one pre-funded warrant to purchase one Common Share at an exercise price of USD$0.01 per share (each a “Pre-funded Warrant”) and one Warrant.  The purchase price of each Pre-funded Unit is equal to the price per Common Unit being sold to the public in this offering, minus USD$0.01. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time and are subject to the Warrant Exercise Limitation. Neither Company insiders nor Company affiliates have indicated an intention to purchase Pre-funded Units.

For each Pre-funded Unit we sell, the number of Common Units we are offering will be decreased on a one-for-one basis up to 2,323,232. Common Units and Pre-funded Units will not be certificated.  The Common Shares included in the Common Units or Pre-funded Units, as the case may be, and the Warrants included in the Common Units or the Pre-funded Units, can only be purchased together in this offering, but the securities contained in the Common Units and Pre-funded Units are immediately separable and will be issued separately.

The offering also includes the Common Shares issuable from time to time upon exercise of the Pre-funded Warrants and Warrants.

Although this is our IPO for securities in the United States, our Common Shares are listed for trading on the TSX Venture Exchange (the "TSXV") under the trading stock symbol "KWE.V", quoted on the OTCQB® Venture Market (the "OTCQB") under the stock symbol of "KWEMF", and listed on the Frankfurt Stock Exchange under the stock symbol of "62U". We have applied for listing of the Common Shares and Warrants being offered on the Nasdaq Capital Market (the "Nasdaq") under the symbol "KWE" and "KWESW", respectively (the "Up-Listing"). No assurance can be given that our application will be approved.  If Nasdaq does not approve the listing of our Common Shares and Warrants, we will not proceed with this offering. There is no established trading market for the Pre-funded Warrants. We do not expect a market for such securities to develop. In addition, we do not intend to apply for the listing of the Common Units, Pre-funded Units or Pre-funded Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Pre-funded Warrants will be limited.

Concurrent with the IPO, we will offer units in Canada for aggregate gross proceeds of USD$3,000,000 on a firm commitment underwritten basis (the "Canadian Offering") led by PI Financial Corp. (the "Canadian Underwriter"). Each unit offered in Canada (each, a "Canadian Unit") will consist of one Common Share and one warrant to purchase one Common Shares (each, a "Canadian Warrant"). Each Canadian Unit will be sold in Canada at the public offering price of the Common Units in the IPO (the "Offering Price"). The Canadian Warrants being sold in the Canadian Offering will be issued in electronic book-entry form and governed by a warrant indenture by and between us and TSX Trust Company, as warrant agent. Each Canadian Warrant will entitle the holder to purchase one Common Share at an exercise price of USD$    , equal to 125% of the Offering Price, and expire five years from date of issuance.  The Canadian Warrants will not be listed on any exchange or market place. The securities offered in the Canadian Offering are not being offered by this Prospectus and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or the securities laws of any state of the United States. The Canadian Offering will be conducted in each of the provinces of Canada, except Québec, pursuant to the exclusion from the registration requirements of the Securities Act afforded by Rule 903 of Regulation S under the Securities Act. Closing of the Canadian Offering is conditional on the closing of the IPO.

Except as otherwise indicated, information in this Prospectus, other than as set forth in our financial statements and the notes thereto, reflects an assumed one for forty (1-for-40) reverse stock split of our Common Shares, which we refer to as the “Reverse Split,” to be effective prior to the effective date of the registration statement of which this Prospectus forms a part. The Reverse Split is subject to TSXV regulatory and shareholder approval (greater than 50% to be done by written shareholder consent).

On September 15, 2022, the closing price for our Common Shares on the OTCQB was USD$0.12, or USD$4.80 after giving effect to the Reverse Split. We have assumed a public offering price of USD$4.95 per Common Unit, the midpoint of the estimated price range for this offering. The actual public offering price per Common Unit and Pre-funded Unit, as the case may be, will not be determined by any particular formula but will rather be determined through negotiations between us and the underwriter at the time of pricing. Therefore, the assumed public offering price used through this Prospectus may not be indicative of the final offering price. 

We are an "emerging growth company" and a "foreign private issuer" as defined under United States federal securities laws and may elect to comply with reduced public company reporting requirements. Please read Implications of Being an Emerging Growth Company and Foreign Private Issuer Status beginning on page 9 of this Prospectus for more information.

Investing in our securities involves a high degree of risk, including the risk of losing your entire investment. See Risk Factors beginning on page 16 to read about factors you should consider before buying our securities.

Neither the United States Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Common Unit	Per Pre-funded Unit	Total
Public offering price
Underwriting discounts and commissions(1)
Proceeds, before expenses, to us(2)

⁽¹⁾ We have also agreed to issue warrants to purchase up to 116,162 Common Shares to the underwriter (the “Underwriter Warrants”) and to reimburse the underwriter for certain expenses. This table depicts broker-dealer commissions of 7.5% of the gross offering proceeds. Underwriting discounts and commissions do not include a non-accountable expense allowance equal to 1% of the public offering price payable to the underwriter. See Underwriting on page 100 for additional disclosure regarding underwriting discounts and commissions, overallotments, and reimbursement of expenses.

This offering is being conducted on a firm commitment basis. The underwriter is obligated to take and purchase all of the Common Units and Pre-funded Units offered under this Prospectus if any such securities are taken.

We have granted a 45-day option to the underwriter, exercisable one or more times in whole or in part, to purchase up to an additional 348,484 Common Shares, representing 15% of the Common Shares sold in the IPO, and/or up to 348,484 Pre-funded Warrants, representing 15% of the Pre-funded Warrants sold in the IPO, and/or up to 348,484 Warrants, representing 15% of the Warrants sold in the IPO, in each case, solely to cover over-allotments, if any (the “Over-Allotment Option”). The Underwriter will not receive commissions or discounts for the exercise of the Over-Allotment Option with respect to Warrants.

If the Over-Allotment Option is exercised solely in full for Common Shares or Pre-Funded Warrants, we will receive incremental proceeds of approximately USD$1,595,621, after the underwriting discount of 7.5%, but before other expenses, and if the Over-Allotment Option is exercised solely in full for Warrants, will receive total gross proceeds of approximately USD$3.48.

The underwriter expects to deliver the securities to the investors on or about      , 2022.

ThinkEquity

The date of this Prospectus is      , 2022.

 

 

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS	1
PROSPECTUS SUMMARY	3
THE OFFERING	10
NON-IFRS FINANCIAL MEASURES	13
SUMMARY FINANCIAL DATA	14
RISK FACTORS	16
FORWARD-LOOKING STATEMENTS	36
CAPITALIZATION AND INDEBTEDNESS	37
USE OF PROCEEDS	38
INFORMATION ON THE COMPANY	39
OPERATING AND FINANCIAL REVIEW AND PROSPECTS	61
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	81
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	94
FINANCIAL INFORMATION	96
MARKET FOR OUR COMMON SHARES	97
DILUTION	97
SHARES ELIGIBLE FOR FUTURE SALE	99
UNDERWRITING	100
DESCRIPTION OF SECURITIES	107
ADDITIONAL INFORMATION	111
MATERIAL CONTRACTS	114
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	115
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS	123
LEGAL MATTERS	124
EXPERTS	124
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	125
FINANCIAL STATEMENTS	125
CHANGE IN COMPANY'S CERTIFYING ACCOUNTANT	125
EXPENSES OF THIS OFFERING	126
WHERE YOU CAN FIND MORE INFORMATION	127
INDEX TO FINANCIAL STATEMENTS	128

ABOUT THIS PROSPECTUS

This Prospectus is part of a registration statement on Form F-1 that we filed with the United States Securities and Exchange Commission (the "SEC"). You should read this Prospectus and the related registration statement carefully. This Prospectus and registration statement contain important information you should consider when making your investment decision.

You should rely only on the information that we have provided in this Prospectus and any applicable prospectus supplement. We have not authorized anyone to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Prospectus and any applicable prospectus supplement. You must not rely on any unauthorized information or representation. This Prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information in this Prospectus and any applicable prospectus supplement is accurate only as of the date on the front of the document, regardless of the time of delivery of this Prospectus, any applicable prospectus supplement, or any sale of a security.

Except as otherwise indicated, references in this Prospectus to "KWESST," "Company," "we," "us" and "our"  refer to KWEESST Micro Systems Inc. and its consolidated subsidiaries.

Enforceability of Civil Liabilities

We are incorporated under the laws of British Columbia. Some of our directors and officers, and the experts named in this Prospectus, are residents of Canada or otherwise reside outside of the United States, and all or a substantial portion of their assets, and all or a substantial portion of our assets, are located outside of the United States. We have appointed an agent for service of process in the United States, but it may be difficult for shareholders who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for shareholders who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our directors, officers and experts under the United States federal securities laws. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States. There can be no assurance that United States investors will be able to enforce against us, members of our Board of Directors, officers or certain experts named herein who are residents of Canada or other countries outside the United States, any judgments in civil and commercial matters, including judgments under the federal securities laws.

Market, Industry and Other Data

This Prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our products. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

In addition, assumptions and estimates of our and our industry's future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Risk Factors. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See Forward-Looking Statements.

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 Prospectus 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 Prospectus 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.

1

Financial Information and Currency

Our financial statements appearing in this Prospectus are prepared in Canadian dollars and in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), as described in Note 2 to the consolidated financial statements for the three and nine months ended June 30, 2022, the fiscal year ended September 30, 2021, the nine months ended September 30, 2020, and the year ended December 31, 2019. In September 2020, we changed our fiscal year from December 31^st to September 30^th.

Unless otherwise indicated, all references in this Prospectus to "dollars" or "CAD" or "$" are to Canadian dollars and all references to "USD" or "USD$" are to United States dollars.

Exchange Rates

The following tables set forth the annual average exchange rates for the year ended September 30, 2021, nine months ended September 30, 2020, the year ended December 31, 2019, and the monthly average exchange rates for each month during the previous twelve months, as supplied by the Bank of Canada. These exchange rates are expressed as one United States dollar converted into Canadian dollars.

Period	Average
Year Ended September 30, 2021	1.2644
Nine Months Ended September 30, 2020	1.3539
Year Ended December 31, 2019	1.3268

Month Ended	Average
August 31, 2022	1.2922
July 31, 2022	1.2942
June 30, 2022	1.2814
May 31, 2022	1.2852
April 30, 2022	1.2628
March 31, 2022	1.2658
February 28, 2022	1.2716
January 31, 2022	1.2616
December 31, 2021	1.2794
November 30, 2021	1.2570
October 31, 2021	1.2437
September 30, 2021	1.2671
August 31, 2021	1.2603
July 31, 2021	1.2529

The daily average exchange rate on September 15, 2022 as reported by the Bank of Canada for the conversion of USD into CAD was USD$1.00 equals CAD$1.32.

2

PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this Prospectus. This summary does not contain all of the information that may be important to you. You should read and carefully consider the following summary together with the entire Prospectus, including the sections of this Prospectus entitled "Risk Factors" and "Operating and Financial Review and Prospects" and our consolidated financial statements and the related notes included elsewhere in this Prospectus, before deciding to invest in our securities.

Overview of the Company

KWESST Micro Systems Inc. develops and commercializes next-generation technology solutions that deliver a tactical advantage for military, public safety agencies and personal defense markets.  Our core mission is to protect and save lives.

We focus on three niche market segments as follows:

Non-Lethal

Our goal is to provide professionals and consumers with reliable and safer, non-lethal alternatives to the use of firearms.  Our products are designed to offer our customers effective solutions for personal, family and community protection that do not require the use of lethal force, and are intended for both the consumer and security professional markets.

In the consumer market, our products are designed to provide civilians who face potential threats from would-be assailants with an effective, non-lethal tool to deter would-be assailants and to escape harm's way.

In the professional market, our products are designed to provide domestic and international law enforcement agencies, corrections and custodial officers, private security professionals, private investigators and other professional security users with a reliable, non-lethal option to address threats and resolve conflicts without the need to resort to lethal force.

Our non-lethal product suite includes the following:

• PARA OPS, our innovative, patent-pending cartridge-based firing platform system, intended to provide more reliable non-lethal choices (single-shot and multi-shot) for consumers and law enforcement agencies; and
• A line of projectiles that are fired by PARA OPS devices, including solid slug (kinetic), inert color powder, and irritant pepper powder.
• ARWEN less-lethal launchers and ammunition for law enforcement agencies, used primarily for riot control and police tactical teams during high-risk arrests against potentially armed or violent persons.  ARWEN products have been in the marketplace for over 30 years.

The stage of development for our non-lethal product suite is as follows:

• PARA OPS: We have finalized the development of our single-shot PARA OPS device and we are currently in the low-rate initial production ("LRIP") to provide samples to potential customers and strategic partners. We expect to finalize our sales, marketing and distribution plan by the end of Q4 of fiscal year 2022, ending September 30, 2022 ("Fiscal 2022") and begin the commercialization phase during our first quarter ending December 31, 2022 of fiscal year 2023 (i.e., October 1, 2022 to September 30, 2023) ("Fiscal 2023"). by initially targeting law enforcement agencies in which we are currently selling the ARWEN product line.  We are in the prototype phase for the multi-shot PARA OPS device, which we expect to complete and begin LRIP during Q1 Fiscal 2023.

• ARWEN: Both our ARWEN ACE (single-shot launcher) and ARWEN 37 (multi-shot launcher) are in full production, along with the related ammunition.  Our current sales and marketing efforts are primarily through tradeshows in the United States and Canada, pro bono training and direct sales to our existing law enforcement agency customers.

For further details on our non-lethal products, refer to Business Overview - Principal Products and Services. 

3

Digitization

We offer proprietary next-generation real-time situational awareness solutions for both the military and civilian markets. In the military market, our signature proprietary product, Tactical and Situational Control System ("TASCS"), offers an app that networks soldiers on the ground with each other through their smart devices so they can receive and share situational awareness information from any source including drones.  Further, we extend the TASCS app to "Joint Fires" applications (Joint Fires is a common terminology used in military for fires produced during the employment of forces from two or more components in a coordinated action toward a common objective) on indirect fire weapons like mortars, grenade launchers, heavy machine guns, rocket launchers, artillery and more. Effectively, we convert these "dumb" legacy weapon systems to "smart" precision weapon systems without any modification to the weapon or ammunition.

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 became aware of 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 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. Whether it is a wildfire, active shooter scenario or a natural disaster, they need to know what they are walking into and where their resources are located. They also need to communicate and collaborate in real-time - across teams and information sources and often across departments.

We entered the civilian public safety market by launching our Critical Incident Management System ("CIMS") for enhanced public safety. Our CIMS solution integrates emergency operations, incident command post, incident commanders, and all responders whether mobile or dismounted. Our CIMS architecture is a native cloud-based Microsoft environment (MS Azure) integrated with the Team Awareness Kit ("TAK"). This provides key stakeholders with seamless fusion and sharing of crucial real-time position location, imagery, and time-sensitive emergency services data and information for effective and coordinated delivery of emergency services, including rescue, fire suppression, emergency medical care, law enforcement, and other forms of hazard control and mitigation.

The stage of development for our digitization products and services is as follows:

• TASCS Indirect Fire Modules System ("TASCS IFM"): We have completed the development for TASCS IFM for the 81mm mortar system and have conducted extensive user testing with the United States military in the past year.  We are also marketing this product to the Canadian forces and expect to conduct trials over the next twelve months. At this time, we do not expect further development unless funded by the military customer.  We will proceed to production only upon receiving a customer order.

• CIMS: Leveraging from our TAK integration experience with military customers, we are currently offering CIMS services to the public safety market.  In July 2022, we won our first contract with CounterCrisis Technology Inc. to co-implement a national Ground Search and Rescue Incident Command System for Public Safety Canada, with the Ontario Provincial Police as technical advisory stakeholder for this project.

Sales and marketing efforts for our digitization products is primarily through tradeshows and direct sales to military and public safety markets. Further details on our digitization products, refer to Business Overview - Principal Products and Services. 

4

Counter-Threat

We offer proprietary next-generation counter-threat solutions to protect against hostile enemy lasers, electronic detection and drones.  Our patented Phantom product is a miniaturized electronic warfare device with the ability to emulate the electronic communications of North Atlantic Treaty Organization ("NATO") countries to spoof adversaries as to the location of NATO forces.  Due to its small size, it can be easily deployed by soldiers at the tactical level or by drones in an area of operation, or mounted on light tactical vehicles. Our Battlefield Laser Detection System ("BLDS") product suite specifically addresses a current NATO need to protect against laser threats: lasers used to "paint" or "lase" ground personnel to target them for attack, or weaponized lasers intended to cause direct injury to personnel from a high-energy laser beam itself.  With our latest product under development, referred to as GhostNet, we believe it will provide an effective solution to counter-measure against hostile drones including loitering munitions that can hover for hours waiting for a designed target.  Military and Homeland Security agencies are seeking additional options of stopping drones kinetically but without collateral damage.

The stage of development for our counter-threat product suite is as follows:

• BLDS: We have completed the operational prototype development of our vehicle and squad laser detection product suite.  We are currently conducting sensitivity and environmental testing in preparation for customer orders at which stage we will then move the operational prototypes to production. 

• Phantom: We have completed the development of Phantom Electromagnetic Spectrum Operations ("EMSO") operational prototypes. We have tested, and are currently undergoing testing, EMSO with the United States military.  This may lead to further development to be funded by the military customer, upon receiving their specific requirements.  We will proceed to production only upon receiving a customer order.

• GhostNet: We are currently in the concept and designing phase. 

Sales and marketing efforts for our counter-threat products are primarily through tradeshows and direct sales to military. Further details on our counter-threat products, refer to Business Overview - Principal Products and Services. 

Our Market Opportunity

Non-Lethal

According to Allied Market Research: Non-Lethal Market, May 2021, the global non-lethal weapons market was approximately USD$7.4 billion in 2020 and is projected to reach USD$12.5 billion in 2028 (a 7.4% compound annual growth rate). Today, competitors are offering either high-energy cartridge systems that can be lethal (e.g. Taser) or air-based devices (e.g. Byrna ® HD brand) that are often unreliable and high maintenance based on our Executive Chairman's former experience with a non-lethal company in the United States. Our PARA OPS devices provide a unique market solution addressing these weaknesses.  Our devices are based on a low-energy cartridge system with projectile velocity (kinetic energy) well below the lethal threshold, providing a reliable, low-maintenance device for consumers and law enforcement agencies.  Based on the above global non-lethal market size, even if we win 1% global market share this represents a revenue opportunity of over USD$74 million per annum recurring.  We plan to initially focus our sales effort in the United States in the law enforcement market via distributors, an e-commerce platform and approved Federal Firearms License ("FFL") distributors.

In December 2021, we expanded our non-lethal business with the acquisition of Police Ordinance Company Inc. an Ontario (Canada) corporation ("Police Ordnance"), the owner of the ARWEN launchers sold worldwide to law enforcement agencies. A key objective of our acquisition of ARWEN was to secure a ready channel to a base of prospective law enforcement customers for PARA OPS.  In addition, the preview of PARA OPS products at the 2022 ShotSHOW in January 2022, and other events and discussions since then, elicited enquiries from various law enforcement agencies.  Initial pre-production samples of the PARA OPS single shot product are expected to be available before the end of Fiscal 2022 and we plan to contact these law enforcement agencies and others to arrange demonstrations for feedback before commencing full production.

As well, PARA OPS has been introduced and demonstrated to influential former police officers including Daniel V. Garcia (former Chief of Police, Phoenix AZ and Deputy Chief of Police, Dallas TX), and Brandon Tatum (former Tucson police officer), who have been and will be advocating PARA OPS with the law enforcement community, based on their experience with less-lethal products in service with their former agencies.   

5

Digitization

On the military front, a top priority for the U.S. and its allies, is to modernize the soldier on the ground with a digital networked common operating picture to reduce combat casualties and enable greater operational effectiveness. Our proprietary TASCS solution specifically addresses this market need. In Fiscal 2022, we successfully completed the integration of our TASCS IFM with an 81 mm mortar system for a United States military customer. Additional live demonstrations took place this summer in response to customer requests, which we expect will then lead to customer acceptance and future orders.

Further, in November 2021, we entered into a master agreement with General Dynamics Mission System ("GDMS") (the "Master Agreement") to support the development of digitization solutions for the Canadian military in which we will assist GDMS in the development of an initial prototype system that networks soldiers with information from various sources in real time, including the location of friendly forces and adversaries, and facilitates more effective, coordinated fire. We have delivered timely on the first phase of the project in June 2022, and we expect to begin the second phase in July 2022.  Management has estimated the total contract value at approximately $1 million over 12 months from the date of the Master Agreement.

Additionally, public safety agencies across the United States and abroad are seeking to implement digital solutions that can improve responder safety and incident management.  According to Accenture, digital transformation presents one of the biggest challenges for public safety agencies. Globally, the public safety and security market was USD$435 billion in 2021 and is expected to reach USD$868 billion by 2028, growing at a CAGR of 10.4%, according to Fortune Business Insights.

Counter-Threats

In today's warfare, there is a greater need to provide innovative counter-threat solutions at the tactical edge (i.e. the frontline operations at the level of soldiers and armored vehicles). Our Phantom and BLDS are two product lines that are focused on addressing this need to save soldier lives. According to Fortune Business Insights: Electronic Warfare, June 2021, the global electronic warfare market size is projected to reach USD$33.5 billion by 2028, a 5.24% CAGR from 2021. 

The addressable market for miniaturized tactical electronic warfare devices such as our Phantom is new and therefore undefined.  In Fiscal 2022, General Dynamics Land Systems ("GDLS") selected our Phantom system to be incorporated into their next-generation armored vehicle for a bid proposal to a United States military customer for up to 500 armored vehicles, a requirement for the bid proposal.  While GDLS is currently the incumbent, there is no assurance that it will win this bid; however, if they do, we are very well positioned to win a large order for our Phantom.  The U.S. government plans to announce the winner in 2023. Further, in Q4 of fiscal year 2021 ("Fiscal 2021"), we partnered with Alare Technologies ("Alare") in the United States, a system design development engineering firm, to assist us with the development of our GhostNet to address the emerging market demand for counter-loitering munitions with no collateral damage.

6

Competitive Strengths

We believe the following strengths distinguish us from our competitors and position us well to take a leadership position in the non-lethal market and significant success in the military and security forces market:

• Experienced senior management: Our Executive Chairman has over 30 years of experience in the non-lethal market, including as founder of SimunitionTM, the world-leading non-lethal combat training munitions system, and as the former Chairman and CEO of United Tactical Systems based in the United States (owner of the non-lethal PepperBall brand).  Further, he, along with our President and CEO and other members of senior management have collectively over 100 years' experience in the defense industry while serving in the military and working for defense contractors.

• Diversified business model: With a mix of anticipated non-lethal product sales (shorter sales cycle than the military market) and large military contracts, we offer a more diversified business platform than competitors in either the non-lethal or defense market. 

• Recurring business: While military contracts have longer sales cycle, once awarded, they tend to be for multiple years, providing a reliable source of recurring business.  Further, within our non-lethal business line, we will be able to sell to the same customer projectiles / ammunitions over the lifetime of their product, providing a good source of recurring revenue.

• Non-lethal cartridge-based system: Our patent-pending, proprietary cartridge-based PARA OPS system is innovative and could disrupt the non-lethal market because it specifically addresses the shortfalls from "air-powered" devices and dangerous high-energy cartridge systems currently offered in the marketplace.

• Teaming with OEMs for military contracts: By teaming with global defense Original Equipment Manufacturers ("OEMs") as we have done in Fiscal 2022 with General Dynamics Mission Systems ("GDMS") and GDLS for certain product lines, we are in a better position to indirectly win significant multi-year contracts.  OEMs are effectively integrators who look for technology partners like us to fill their technology gaps when bidding for a military contract.

• Teaming with OEMs for non-lethal applications: With our proprietary cartridge-based firing platform for non-lethal devices, we have an opportunity to partner with competitors for "white-labeling" our technology to complement their air-based product suites.

• Market synergies in non-lethal: With the recent acquisition of Police Ordnance in December 2021, we have immediate access to its law enforcement sales channel to cross-sell PARA OPS.

• Outsourced scalable model: While we continue to develop and research innovative technologies internally, we will outsource our production to a ready supply chain of proven vendors to provide scalability without taking any significant capital expenditure risks.

Growth Strategies

We believe the following are the key pillars for our growth strategy:

• Commercialization of PARA OPS: Over the next three to six months, we plan to offer our PARA OPS devices (single-shot and multi-shot) to both the professional and consumers markets with an initial focus in the United States. This will provide a new source of revenue to us including recurring revenue from the sale of projectiles. We expect to drive most of our PARA OPS revenue through our upcoming e-commerce website and to a lesser extent from licensed distributors in the United States. Over time, we expect to expand to other international markets.

• OEM partnerships for revenue growth: In addition to GDMS and GDLS, we are in discussions with other potential OEMs for strategic partnerships to accelerate our go-to-market for our Digitization and Counter-Threat product solutions for the military and security markets.

• Law enforcement penetration: We see an attractive opportunity to increase ARWEN market penetration with law enforcement agencies internationally with increased marketing spend, coupled with the cross-selling opportunity for our non-lethal PARA OPS devices.

• Strategic acquisitions: We have successfully integrated two assets and one business acquisition over the last two years.  We expect to continue to acquire complementary acquisitions that are a strategic fit and attractively priced to accelerate our growth plans.

• War in Ukraine: We have observed significant military budget spending increases by various NATO countries in response to the current war in Ukraine.  We believe this positions us well to receive new orders for our Digitization and Counter-Threat products during the remainder of Fiscal 2022 and into Fiscal 2023.

7

Risk Factors

Our business is subject to a number of risks which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" in deciding whether to invest in our securities. These risks include but are not limited to the following:

•You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

•Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively.

•The market price of our Common Shares may be adversely impacted by the release of certain of our securities that are currently escrowed if the holders immediately trade these securities upon release.

•We have no operating experience as a publicly traded company in the United States.

•We will incur significantly increased costs and devote substantial management time as a result of operating as a United States public company.

•Global inflationary pressure may result in lower gross margins on our future product sales if we are unable to pass on the related increase in cost to our customers through an increase in the price of our products.

•Due the current global supply chain challenges, we may incur higher costs or unavailability of components, materials, and accessories.

•Our inability to comply with Nasdaq's continued listing requirements could result in our Common Shares and Warrants being delisted, which could affect the market price and liquidity of our securities and reduce our ability to raise capital.

•We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our securities less attractive to investors.

•There can be no certainty that we will ever achieve or sustain profitability or positive cash flow from our operating activities.

•Our ability to generate substantial revenue growth, or to sustain any revenue growth that is achieved.

•COVID-19, global economic turmoil, and other regional economic conditions may present a wide range of potential issues or disruptions in our business and the business of third parties who we depend on or might depend in the future for materials and manufacturing.

•Reliance on third-party suppliers may create risks related to our potential inability to obtain an adequate supply of components or materials and reduced control over pricing and timing of delivery of components and materials.

•We will be reliant on information technology systems and may be subject to damaging cyber-attacks.

•Protecting and defending against intellectual property claims may have a material adverse effect on our business.

•Our business is subject to certain risks inherent in international business, many of which are beyond our control.

•Our directors, officers or members of management may have conflicts of interest and it may not be possible for foreign investors to enforce actions against us, and our directors and officers.

•Our insurance policies may be inadequate to fully protect us from material judgments and expenses.

•We are subject to extensive government regulation in the United States for our products and may not be able to comply with changes in government policies and legislation.

•Rapidly changing technology and evolving industry standards could result in product obsolescence or short product life cycles.

•If we are unable to satisfy the requirements of Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley") or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned.

•We may lose foreign private issuer status in the future, which could result in additional costs and expenses.

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Implications of Being an Emerging Growth Company

As a company with less than USD$1.07 billion in revenue for our last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, as amended (the "JOBS Act"). An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include:

• reduced executive compensation disclosure;

• exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; and

• an exemption from the auditor attestation requirement under Section 404 of Sarbanes-Oxley in the assessment of the emerging growth company's internal control over financial reporting.

We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least USD$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than USD$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which would occur if the market value of our Common Shares that are held by non-affiliates exceeds USD$700 million. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

Foreign Private Issuer Status

We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

• we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;

• for interim reporting, we are permitted to comply solely with our home country requirements, which may be less rigorous than the rules that apply to domestic public companies;

• we are not required to provide the same level of disclosure on certain issues, such as executive compensation;

• we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;

• we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; and

• we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction.

Corporate Information

We are a corporation domiciled in Canada and were incorporated under the Business Corporations Act (British Columbia) (the "BCBCA") on November 28, 2017. Our registered and head office is located at 2900 - 550 Burrard Street, Vancouver, British Columbia V6C 0A3 and our principal place of business is located at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, Canada, K2M 2A8. Our internet site is https://www.kwesst.com; our telephone number is (613) 319-0537.

Our registered agent in the United States is C T Corporation System, located at 1015 15^th Street N.W., Suite 1000 and its telephone number is (202)572-3133.

9

THE OFFERING

Issuer	KWESST Micro Systems Inc.
Common Units offered by us	Up to 2,323,232 Common Units, each Common Unit consisting of one Common Share and one Warrant, with each Warrant exercisable for one Common Share. The Warrants offered as part of the Common Units are exercisable immediately, at an exercise price of USD$   , equal to 125% of the public offering price of one Common Unit, and expire five years from the date of issuance.  The securities contained in the Common Units are immediately separable and will be issued separately in this offering.   This Prospectus also relates to the offering of the Common Shares issuable upon exercise of the Warrants. A holder of Warrants will not have the right to exercise any portion of a Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder prior to issuance, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days' prior notice from the holder to us.
Pre-Funded Units offered by us	We are also offering to those purchasers, if any, whose purchase of Common Units in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, Pre-funded Units in lieu of Common Units. Each Pre-funded Unit will consist of a Pre-funded Warrant to purchase one Common Share at an exercise price of USD$0.01, per share and one Warrant.  The purchase price of each Pre-funded Unit is equal to the price per Common Unit being sold to the public in this offering, minus USD$0.01. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time. For each Pre-funded Unit we sell, the number of Common Units we are offering will be decreased on a one-for-one basis. Because we will issue one Warrant as part of each Common Unit or Pre-funded Unit, the number of Warrants sold in this offering will not change. The Pre-funded Warrants are subject to the Warrant Exercise Limitation.  This Prospectus also relates to the offering of the Common Shares issuable upon exercise of the Pre-funded Warrants. Neither Company insiders nor Company affiliates have indicated an intention to purchase Pre-funded Units.

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Underwriter's over-allotment option	We have granted a 45-day option to the underwriter, exercisable one or more times in whole or in part, to purchase up to an additional 348,484 Common Shares, representing 15% of the Common Shares sold in the IPO, and/or up to 348,484 Pre-funded Warrants, representing 15% of the Pre-funded Warrants sold in the IPO, and/or up to 348,484 Warrants, representing 15% of the Warrants sold in the IPO, in each case, solely to cover over-allotments, if any. The Over-Allotment Option purchase price to be paid per additional Common Share or Pre-funded Warrant by the underwriter shall be equal to the public offering price of one Common Unit or one Pre-funded Unit, as applicable less underwriting discount, and the purchase price to be paid per additional Warrant by the underwriter shall be USD$0.00001.
Common Shares to be outstanding after this offering(1)	3,676,370 Common Shares (or 4,024,854 Common Shares if the underwriter exercises its option to purchase additional Common Units in full). Including the Canadian Offering based on an assumed offering price of USD$4.95 per Canadian Unit, 4,282,430 Common Shares (or 4,630,914 Common Shares if the underwriter exercises its option to purchase additional Common Units in full).
Symbol and Listing	We have applied for listing of our Common Shares and Warrants on the Nasdaq Capital Market under the symbol “KWE” and “KWESW”, respectively. No assurance can be given that our application will be approved. In addition, we do not intend to apply for the listing of the Common Units, Pre-funded Units or Pre-funded Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Pre-funded Warrants will be limited. Our Common Shares are quoted on the OTCQB under the stock symbol of “KWEMF”, are listed on the TSXV under the stock symbol “KWE.V” and listed on the Frankfurt Stock Exchange under the symbol of “62U”.

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Use of proceeds	We expect to receive approximately USD$9.5 million in net proceeds from the sale of securities offered by us in this offering (approximately USD$11.1 million if the underwriter exercises its Over-Allotment Option in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us of approximately USD$2.0 million, based on an assumed offering price of USD$4.95 per Common Unit and USD$4.94 per Pre-funded Unit. We expect to receive approximately USD$2.3 million in additional net proceeds from the sale of securities in the Canadian Offering, after deducting estimated underwriting discounts and commissions and estimated Canadian Offering expenses payable by us of approximately USD$0.7 million, based on an assumed offering price of USD$4.95 per Canadian Unit. We expect to receive approximately USD$11.8 million (approximately USD$13.4 million if the underwriter exercises its Over-Allotment Option in full) in combined net proceeds from this offering and the Canadian Offering, after deducting estimated underwriting discounts and commissions and estimated expenses payable by us in connection with this Offering and the Canadian Offering of approximately USD$2.7 million. If the Over-Allotment Option is exercised solely in full for Common Shares or Pre-Funded Warrants, we will receive total approximate gross proceeds of USD$1.6 million, after underwriting discount of 7.5% and if the Over-Allotment Option is exercised solely in full for Warrants, will receive total approximate gross proceeds of USD$3.48. We intend to use the net proceeds from this offering and the Canadian Offering for working capital (including commercial roll-out of PARA OPS in the United States), repayment of outstanding loans, and other general corporate purposes. We may also use of a portion of the net proceeds from this offering for acquisitions or strategic investments in complementary businesses or technologies.  We have not allocated specific amounts of net proceeds for any of these purposes.
Lock-up	Our directors, executive officers, and certain shareholders who own 5% or more of our outstanding Common Shares have agreed with the underwriter to not offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities for a period of ninety (90) from the date of the offering. See Underwriting for additional information.
Risk Factors	Investing in our securities involves a high degree of risk. See Risk Factors in this Prospectus for a discussion of factors you should carefully consider before investing in our securities.

(1)The number of Common Shares shown above to be outstanding after this offering is based on 1,353,138 Common Shares outstanding as of September 8, 2022 and excludes as of such date:

• 335,428 warrants to purchase 335,428 Common Shares at a weighted average exercise price of $31.00 (USD$24.25) per share;

• 100,863 Common Shares issuable upon the exercise of outstanding but unexercised stock options to purchase Common Shares, under our Long-Term Performance Incentive Plan as approved by our shareholders on March 31, 2022 (“LTIP”) at a weighted average exercise price of $48.00 (USD$37.55) per share;

• 62,606 Common Shares issuable upon the conversion of 37,156 restricted share units (“RSUs”), 20,800 performance share units (“PSUs”), and 4,650 share appreciation rights (“SARs”), under our LTIP;

• Up to 2,323,232 Common Shares issuable upon the exercise of the Warrants;

• Up to 2,323,232 Common Shares issuable upon the exercise of the Pre-funded Warrants;

• Up to 116,162 Common Shares issuable upon the exercise of the Underwriter Warrants;

• Up to 42,424 Common Shares issuable upon the exercise of the Canadian Compensation Options (as defined below); and

• Up to approximately 44,444 Common Shares upon the repayment of the Second Loan (as defined below) by way of issuance of Common Shares if we elect to make application for such issuance with the TSX Venture Exchange and if such application if approved.

Implementation of the Up-Listing will require us to take certain actions in order to comply with the Initial Listing Requirements under Nasdaq Rules 5505(a) and 5505(b)(1) including a Reverse Split of our Common Shares in order to meet the minimum bid price of USD$4.00 per share.

12

NON-IFRS FINANCIAL MEASURES

In this Prospectus, we have presented earnings before interest, taxes, depreciation and amortization ("EBITDA") and EBITDA that has been adjusted for the removal of 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 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 by 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.

13

SUMMARY FINANCIAL DATA

The following tables provide a summary consolidated financial data and should be read in conjunction with our consolidated financial statements, the related notes and other financial information included elsewhere in this Prospectus and the section of this Prospectus entitled Operating and Financial Review and Prospects. We have derived the following selected financial information from our audited consolidated financial statements for the fiscal year ended December 31, 2019, the fiscal period ended September 30, 2020, the fiscal year ended September 30, 2021, and unaudited condensed consolidated interim financial statements for the three and nine months ended June 30, 2021 and 2022. As an early-stage company, our historical results will not be indicative of the results to be expected in the future, and the results for any interim period are not necessarily indicative expected in any full year.

($ in thousands, except per share)
Consolidated Statements of  Operations and Comprehensive Loss Data		Year ended December 31, 2019			Nine months ended September 30, 2020			Year ended September 30, 2021			Nine months ended June 30, 2021 (Unaudited)			Nine months ended June 30, 2022 (Unaudited)
REVENUE	$	509		$	862		$	1,276		$	1,115		$	466
Cost of sales		(85	)		(247	)		(799	)		(718	)		(405	)
Gross profit		424			614			477			397			60
Gross margin %		83%			71%			37%			36%			13%
Operating expenses		1,438			4,106			9,679			6,754			7,953
Operating loss		(1,014	)		(3,491	)		(9,203	)		(6,356	)		(7,892	)
NET LOSS		(1,147	)		(3,537	)		(9,315	)		(6,431	)		(8,133	)
Net finance costs		245			61			108			61			304
Depreciation		102			104			141			88			225
EBITDA LOSS (1)		(800	)		(3,372	)		(9,067	)		(6,282	)		(7,604	)
Non-cash M&A costs (2)		-			1,514			-			-			-
Stock-based compensation		-			283			2,463			1,399			1,876
Professional fees relating to U.S. financing		-			-			-			-			500
Gain on acquisition		-			-			-			-			(42	)
Fair value adjustments		(113	)		(29	)		-			-			-
Foreign exchange loss (gain)		1			14			4			14			(23	)
Loss on disposal		-			-			1			-			1
ADJUSTED EBITDA LOSS (1)		(912	)		(1,590	)		(6,599	)		(4,869	)		(5,292	)
Loss per Common Share, Basic and Diluted, as reported	$	0.07		$	0.11		$	0.21		$	0.15		$	0.16
Loss per Common Share, Basic and Diluted (3)	$	2.80		$	4.40		$	8.40		$	6.00		$	6.40

^{(1)EBITDA Loss and Adjusted EBITDA Loss are non-IFRS financial measures. 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.}

^{(2)M&A means merger and acquisition.}

^{(3)After giving effect to the Reverse Split.}

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The following as adjusted consolidated statements of financial position as of June 30, 2022, gives effect to (i) the sale by us of 2,323,232 Common Units (assuming no sale of any Pre-funded Units) offered by us in this Prospectus (excluding the underwriter’s Over-Allotment Option), after deducting the estimated underwriting discounts and other offering expenses and (ii) the sale by us of 2,323,232 Common Units (assuming no sale of any Pre-funded Units) offered by us in this Prospectus (excluding the underwriter’s Over-Allotment Option), after deducting the estimated underwriting discounts and other offering expenses, and including the sale by us of 606,060 Canadian Units offered in the Canadian Offering (excluding the Canadian Underwriter’s Compensation Options), after deducting the estimated underwriting discounts and other Canadian Offering expenses.

(CAD$ in thousands)
Consolidated Statements of Financial Position Data		September 30, 2021			June 30, 2022 (Unaudited)			June 30, 2022 As adjusted for the IPO (Unaudited)			June 30, 2022 As adjusted for the IPO and Canadian Offering (Unaudited)
Cash	$	2,688		$	190		$	12,591		$	15,569
Working capital		2,896			(3,094	)		9,308			12,285
Total assets		8,718			6,522			18,925			21,902
Total liabilities		2,594			5,531			5,531			5,531
Accumulated deficit		(15,389	)		(23,522	)		(23,522	)		(23,522	)
Total shareholders' equity (deficit)	$	6,124		$	992		$	13,393		$	16,370

15

RISK FACTORS

There are a number of risks that may have a material and adverse impact on our future operating and financial performance and could cause our operating and financial performance to differ materially from the estimates described in our forward-looking statements. These include widespread risks associated with any form of business and specific risks associated with our business and our involvement in the defense technology industry.

This section describes risk factors identified as being potentially significant to us. In addition, other risks and uncertainties not discussed to date or not known to management could have material and adverse effects on the valuation of our securities, existing business activities, financial condition, results of operations, plans and prospects.

Risks Related to This Offering

You will experience immediate and substantial dilution as a result of this offering.

You will incur immediate and substantial dilution as a result of this offering. After giving effect to the assumed sale by us of 2,323,232 Common Units (2,929,292 Common Units when combined with the 606,060 Canadian Units offered in the Canadian Offering) at an assumed public offering price of USD$4.95 per Common Unit (assuming no sale of any Pre-funded Units in lieu of Common Units and with an estimated offering price range for the Common Units between USD$4.13 and USD$5.74), excluding the exercise of the underwriter’s Over-Allotment Option to purchase additional Common Shares, Warrants and Pre-funded Warrants, and after deducting underwriting discounts, commissions and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of USD$3.07 per Common Share and USD$2.80 per Common Share, when combined with the Canadian Offering (see Dilution).

In addition, you may experience further dilution (i) if the underwriter exercises its Over-Allotment Option to purchase additional Common Shares and/or Warrants and/or Pre-funded Warrants, (ii) upon the exercise of the Underwriter Warrants issued to the underwriter, (iii) upon the exercise of the Warrants included in the Common Units, (iv) upon the exercise of the Pre-Funded Warrants and/or Warrants included in the Pre-funded Units, if applicable, (v) upon the exercise of the Canadian Warrants included in the Canadian Units and/or (vi) upon the exercise of the Canadian Warrants included in the Canadian Units issued to the Canadian Underwriter in connection with the Canadian Compensation Options.

Management will have broad discretion as to the use of the proceeds from this offering, and may not use the proceeds effectively.

Our management will have broad discretion as to the use of the net proceeds from any offering by us and could use them for purposes other than those contemplated at the time of this offering. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for our company.

We have no operating experience as a publicly traded company in the United States.

We have no operating experience as a publicly traded company in the United States. Although the individuals who now constitute our management team have experience managing a publicly-traded company, there is no assurance that the past experience of our management team will be sufficient to operate our company as a publicly traded company in the United States, including timely compliance with the disclosure requirements of the SEC. Following the completion of this offering, we will be required to develop and implement internal control systems and procedures in order to satisfy the periodic and current reporting requirements under applicable SEC regulations and comply with the Nasdaq listing standards. These requirements will place significant strain on our management team, infrastructure and other resources. In addition, our management team may not be able to successfully or efficiently manage our company as a United States public reporting company that is subject to significant regulatory oversight and reporting obligations.

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We will incur significantly increased costs and devote substantial management time as a result of operating as a United States public company.

As a United States public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company or as a Canadian public company. For example, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404, which involve annual assessments of a company's internal controls over financial reporting. We plan to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function. Furthermore, we expect the premium for director & officer insurance will increase significantly due to a more litigious environment in the United States. At this time, we cannot reasonably predict or estimate the amount of additional costs that we may incur as a result of becoming a United States public company or the timing of such costs.

In connection with our potential Nasdaq listing of the Common Shares and Warrants, as a foreign private issuer, we intend to follow certain home country corporate governance practices instead of certain Nasdaq corporate governance requirements applicable to United States domestic companies.

As a foreign private issuer whose securities may be listed on Nasdaq, we are permitted to follow certain home country corporate governance practices instead of certain corporate governance requirements of Nasdaq. We intend to follow the TSXV listing rules in respect of private placements instead of Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as issuances that will result in a change of control, certain transactions other than a public offering involving issuances of a 20% or greater interest in us and certain acquisitions of the stock or assets of another company) and the minimum quorum requirement for a shareholders meeting. Under Nasdaq listing rules, the required minimum quorum for a shareholders meeting is 33 1/3% of the outstanding Common Shares. Under Canadian law and pursuant to our notice of articles, a quorum shall be present at a shareholder meeting if two or more holders of Common Shares representing at least 5% of the total number of voting rights attaching to the said Common Shares entitled to be voted at the meeting are present or represented by proxy. Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq corporate governance rules for domestic issuers.

Our inability to comply with Nasdaq's continued listing requirements could result in our Common Shares or Warrants being delisted, which could affect the market price and liquidity of our securities and reduce our ability to raise capital.

We have applied for listing of our Common Shares on Nasdaq under the stock symbol "KWE" and the Warrants to be sold in this offering under the symbol "KWESW". No assurance can be given that our listing application will be approved. However, if such listing is approved, upon completion of this offering, we will be required to meet certain qualitative and financial tests to maintain the listing of our Common Shares and Warrants on Nasdaq. If we do not maintain compliance with Nasdaq's continued listing requirements within specified periods and subject to permitted extensions, our Common Shares or Warrants may be recommended for delisting (subject to any appeal we would file). No assurance can be provided that we will comply with these continued listing requirements. If our Common Shares or Warrants were delisted, it could be more difficult to buy or sell our Common Shares or Warrants and to obtain accurate quotations, and the price of our securities could suffer a material decline. Delisting would also impair our ability to raise capital.

Risks Relating to Our Business

We are an early-stage company.

We are an early-stage company and as such, we are subject to many risks including under-capitalization, cash shortages, and limitations with respect to personnel, financial and other resources and the lack of revenue. There is no assurance that we will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of our early stage of operations. Our prospects must be considered speculative in light of the risks, expenses, and difficulties frequently encountered by companies in their early stages of operations, particularly in the highly competitive and rapidly evolving markets in which we operate. To attempt to address these risks, we must, among other things, successfully implement our business plan, marketing, and commercialization strategies, respond to competitive developments, and attract, retain, and motivate qualified personnel. A substantial risk is involved in investing in us because, as a smaller commercial enterprise that has fewer resources than an established company, our management may be more likely to make mistakes, and we may be more vulnerable operationally and financially to any mistakes that may be made, as well as to external factors beyond our control.

17

We currently have negative operating cash flows.

Since inception, we have generated significant negative cash flow from operations, financed in great part through equity financing. There can be no certainty that we will ever achieve or sustain profitability or positive cash flow from our operating activities. In addition, our working capital and funding needs may vary significantly depending upon a number of factors including, but not limited to:

•progress of our manufacturing, licensing, and distribution activities;

•collaborative license agreements with third parties;

•opportunities to license-in beneficial technologies or potential acquisitions;

•potential milestone or other payments that we may make to licensors or corporate partners;

•technological and market consumption and distribution models or alternative forms of proprietary technology for game-changing applications in the military and homeland security market that affect our potential revenue levels or competitive position in the marketplace;

•the level of sales and gross profit;

•costs associated with production, labor, and services costs, and our ability to realize operation and production efficiencies;

•fluctuations in certain working capital items, including product inventory, short-term loans, and accounts receivable, that may be necessary to support the growth of our business; and

•expenses associated with litigation.

There is no guarantee that we will ever become profitable. To date, we have generated limited revenues and a large portion of our expenses are fixed, including expenses related to facilities, equipment, contractual commitments and personnel. With the anticipated commercialization for certain of our product offerings during Fiscal 2023, we expect our net losses from operations will improve. Our ability to generate additional revenues and potential to become profitable will depend largely on the timely productization of our products, coupled with securing timely, cost-effective outsourced manufacturing arrangements and marketing our products. There can be no assurance that any such events will occur or that we will ever become profitable. Even if we achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time, we may be unable to continue our business.

Global inflationary pressure may have an adverse impact on our gross margins and our business.

Since December 31, 2021, we have experienced increases in global inflation, resulting in an increase in cost for some of the raw materials (batons / custom chemicals and casings) that we source to manufacture the ammunition for our ARWEN launchers. However, this increase in cost had a small negative impact to the overall gross margin earned from the sales of ARWEN ammunition (our current gross margin for ammunition is greater than 30% excluding indirect costs).

As we are not yet in the production phase for digitization and counter-threat business lines, we do not currently procure large volume of raw materials and therefore the current inflation is negligible for these business lines except for labor costs relating to research and development ("R&D") activities. During Fiscal 2022 we incurred significant payroll cost increases for some of our employees in order to retain and hire engineers given the strong local demand for experienced software and hardware engineers.  While we believe we will be able to pass on this inflation cost to our prospect military customers, there is no assurance that we will succeed.  Accordingly, continued inflationary pressure may have an adverse impact on our gross margins and could have a material adverse effect on our business, financial condition, results of operations or cash flows.

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The coronavirus may adversely impact our business.

As of the date of this Prospectus, markets, governments and health organizations around the world continue to work to contain the outbreak of the coronavirus ("COVID-19"). COVID-19 may present a wide range of potential issues or disruptions in our business and the business of third parties who we depend on or might depend in the future for materials and manufacturing, most of which we are not able to know the full extent of at the time of this Prospectus. These disruptions could include disruptions of our ability to receive timely materials, manufacture our products, or distribute our products, as well as closures of our primary facility in Ottawa, Ontario or the facilities of our suppliers, manufacturers, and customers. Any disruption of the business of our suppliers, manufacturers, or customers would likely impact our sales and operating results. Additionally, a significant outbreak of epidemic, pandemic, or contagious diseases (including COVID-19) could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products. Any of these events could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

While COVID-19 has not had a material impact to our business to date, the following is a summary of what we believe may impact our future business given the persistency of COVID-19: disruptions to business operations resulting from quarantines of employees, customers, manufacturers and other third-party service providers in areas affected by the outbreak; disruptions to business operations resulting from travel restrictions, including travel to industry tradeshows; and uncertainty around the duration of the virus' impact.

Despite the global vaccination efforts underway, the extent to which COVID-19 could impact our operations, financial condition, results of operations, and cash flows is highly uncertain and cannot be predicted. Negative financial results, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, or a recession, could have a material adverse effect on our liquidity and ability to obtain financing in the future.

Moreover, if a pandemic, epidemic, or outbreak of an infectious disease, including COVID-19, or other public health crisis were to affect our facilities, staff, auditors, or advisors, our business could be adversely and materially affected. Such a pandemic could result in mandatory social distancing, travel bans, and quarantine restrictions, and this may limit access to our employees and professional advisors, and consequently may hamper our efforts to comply with our filing obligations with regulatory authorities.

We may not be able to successfully execute our business plan.

The execution of our business plan poses many challenges and is based on a number of assumptions. We may not be able to successfully execute our business plan. If we experience significant cost overruns, or if our business plan is more costly than we anticipate, certain activities may be delayed or eliminated, resulting in changes or delays to our current plans. Also, we may be compelled to secure additional funding (which may or may not be available or available at conditions unfavorable to us) to execute our business plan. We cannot predict with certainty our future revenues or results from our operations. If the assumptions on which our revenues or expenditures forecasts are based change, the benefits of our business plan may change as well. In addition, we may consider expanding our business beyond what is currently contemplated in our business plan. Depending on the financing requirements of a potential business expansion, we may be required to raise additional capital through the issuance of equity or debt. If we are unable to raise additional capital on acceptable terms, we may be unable to pursue a potential business expansion.

A significant portion of our revenues are non-recurring.

A significant portion of our revenue for Fiscal 2021 was prior to commercial production of TASCS IFM and considered to be non-recurring. While we expect to reach commercialization stage for certain product offerings during Fiscal 2023, there is no assurance we will succeed.

With the completion of the PARA OPS system technology acquisition in April 2021 (see Business Overview), we expect to launch the commercialization of our non-lethal PARA OPS devices during Fiscal 2023 which we anticipate will drive product revenue on a monthly basis with the use of distributors and an e-commerce platform. However, there is no assurance that we will successfully complete timely the productization of our PARA OPS or obtain market acceptance of these products. See Business Overview - Government Regulations.

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There is uncertainty with respect to our revenue growth.

There can be no assurance that we can generate substantial revenue growth, or that any revenue growth that is achieved can be sustained. Revenue growth that we have achieved or may achieve may not be indicative of future operating results. In addition, we may further increase our operating expenses in order to fund higher levels of research and development, increase our sales and marketing efforts and increase our administrative resources in anticipation of future growth. To the extent that increases in such expenses precede or are not subsequently followed by increased revenues, our business, operating results and financial condition will be materially adversely affected.

We may not be able to fully develop our products, which could prevent us from ever becoming profitable.

If we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to fully develop market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market. A failure by us to achieve a low-cost structure through economies of scale or improvements in manufacturing processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.

We may experience delays in product sales due to marketing and distribution capabilities.

In order to successfully commercialize our products, we must continue to develop our internal marketing and sales force with technical expertise and with supporting distribution capabilities or arrange for third parties to perform these services. In order to successfully commercialize any of our products, we must have an experienced sales and distribution infrastructure. The continued development of our sales and distribution infrastructure will require substantial resources, which may divert the attention of our management and key personnel and defer our product development and commercialization efforts. To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others.

Additionally, in marketing our products, we would likely compete with companies that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, we may be unable to compete successfully against these companies. We may not be able to do so on favorable terms.

In the event we fail to develop substantial sales, marketing and distribution channels, or to enter into arrangements with third parties for those purposes, we will experience delays in product sales, which could have a material adverse effect on prospects, results of operations, financial condition and cash flows.

There is no assurance that our products will be accepted in the marketplace or that we will turn a profit or generate immediate revenues.

There is no assurance as to whether our products will be accepted in the marketplace. While we believe our products address customer needs, the acceptance of our products may be delayed or not materialize. We have incurred and anticipate incurring substantial expenses relating to the development of our products, the marketing of our products and initial operations of our business. Our revenues and possible profits will depend upon, among other things, our ability to successfully market our products to customers. There is no assurance that revenues and profits will be generated.

Strategic alliances may not be achieved or achieve their goals.

To achieve a scalable operating model with minimal capital expenditures, we plan to rely upon strategic alliances with OEMs for the manufacturing and distribution of our products. There can be no assurance that such strategic alliances can be achieved or will achieve their goals.

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We are dependent on key suppliers for our ARWEN product line.

We are only be able to purchase certain key components of our products from a limited number of suppliers for our ARWEN product line within our non-lethal business line. As of the date of this Prospectus, we do not have any commercial or financial contracts with any key suppliers who we have procured raw materials from.  Procurement is done in the form of individual, non-related standard purchase orders. As a result, there is no contract in place to ensure sufficient quantities are available timely on favorable terms and consequently this could result in possible lost sales or uncompetitive product pricing. The ongoing COVID-19 pandemic could adversely impact the supply chain relating to these components. 

We may incur higher costs or unavailability of components, materials and accessories.

As we expect to commercialize certain of our product lines in Fiscal 2022, we may depend on certain domestic and international suppliers for the delivery of components and materials used in the assembly of our products and certain accessories including ammunition, used with our products. Further, any reliance on third-party suppliers may create risks related to our potential inability to obtain an adequate supply of components or materials and reduced control over pricing and timing of delivery of components and materials. We currently have no long-term agreements with any of our suppliers and there is no guarantee the supply will not be interrupted.

In light of the current global supply chain challenges caused by COVID-19 and Russia's invasion of Ukraine, components used in the manufacture of our products may be delayed, become unavailable or discontinued. Any delays may take weeks or months to resolve. Further, parts obsolescence may require us to redesign our product to ensure quality replacement components. While we have not been impacted significantly from the above events to date, there is no assurance that we will not experience significant setback in operations if the global supply chain challenges worsen or continue to persist for a longer period of time.  Accordingly, supply chain delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition or results of operations.

Additionally, our shipping costs and the timely delivery of our products could be adversely impacted by a number of factors which could reduce the profitability of our operations, including: higher fuel costs, potential port closures, customs clearance issues, increased government regulation or changes for imports of foreign products into Canada, delays created by terrorist attacks or threats, public health issues and pandemics and epidemics, national disasters or work stoppages, and other matters. Any interruption of supply for any material components of our products could significantly delay the shipment of our products and have a material adverse effect on our revenues, profitability, and financial condition.

We rely upon a limited number of third parties for manufacturing, shipping, transportation, logistics, marketing and sales of our products.

We rely on third parties to ship, transport, and provide logistics for our products. Further, we plan on relying on third parties to manufacture, market and sell our PARA OPS system products. Our dependence on a limited number of third parties for these services leaves us vulnerable due to our need to secure these parties' services on favorable terms. Loss of, or an adverse effect on, any of these relationships or failure of any of these third parties to perform as expected could have a material and adverse effect on our business, sales, results of operations, financial condition, and reputation.

We may be subject to product liability proceedings or claims.

We may be subject to proceedings or claims that may arise in the ordinary conduct of the business, which could include product and service warranty claims, which could be substantial. Product liability for us is a major risk as some of our products will be used by military personnel in theaters-of-war (for the Tactical and Counter-Threat product offerings) and by consumers and law enforcement (for the non-lethal systems). The occurrence of product defects due to non-compliance of our manufacturing specifications and the inability to correct errors could result in the delay or loss of market acceptance of our products, material warranty expense, diversion of technological and other resources from our product development efforts, and the loss of credibility with customers, manufacturers' representatives, distributors, value-added resellers, systems integrators, original equipment manufacturers and end-users, any of which could have a material adverse effect on our business, operating results and financial conditions. To mitigate product liability risk, our products will be sold with a liability disclaimer for misuse of the product.

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If we are unable to successfully design and develop or acquire new products, our business may be harmed.

To maintain and increase sales we must continue to introduce new products and improve or enhance our existing products or new products. The success of our new and enhanced products depends on many factors, including anticipating consumer preferences, finding innovative solutions to consumer problems or acquiring new solutions through mergers and acquisitions, differentiating our products from those of our competitors, and maintaining the strength of our brand. The design and development of our products as well as acquisitions of other businesses. 

Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.

To ensure adequate inventory supply, we forecast inventory needs and often place orders with our manufacturers before we receive firm orders from our retail partners or customers. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product.

If we underestimate the demand for our products, we or our suppliers may not be able to scale to meet our demand, and this could result in delays in the shipment of our products and our failure to satisfy demand, as well as damage to our reputation and retail partner relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margins. In addition, failures to accurately predict the level of demand for our products could cause a decline in sales and harm our results of operations and financial condition.

In addition, we may not be able to accurately forecast our results of operations and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies and develop and market new products for which we have no or limited historical data. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results. Our lack of historical data related to new products makes it particularly difficult to make forecasts related to such products. The lead times and reliability of our suppliers has been inconsistent as a result of the COVID-19 pandemic and may be affected by global events in the future. These effects are expected to last through the remainder of the pandemic. Pandemic related variances require a very quick pivot and adjustments to the supply chain, production and marketing. If we are unable to make these changes quickly or at all our inventory, production and sales may be materially affected.

Failure to accurately forecast our results of operations and growth rate could cause us to make poor operating decisions that we may not be able to correct in a timely manner. Consequently, actual results could be materially different than anticipated. Even if the markets in which we compete expand, we cannot assure you that our business will grow at similar rates, if at all.

Undetected flaws may be discovered in our products.

There can be no assurance that, despite testing by us, flaws will not be found in our products and services, resulting in loss of, or delay in, market acceptance. We may be unable, for technological or other reasons, to introduce products and services in a timely manner or at all in response to changing customer requirements. In addition, there can be no assurance that while we are attempting to finish the development of our technologies, products and services, a competitor will not introduce similar or superior technologies, products and services, thus diminishing our advantage, rendering our technologies, products and services partially or wholly obsolete, or at least requiring substantial re-engineering in order to become commercially acceptable. Failure by us to maintain technology, product and service introduction schedules, avoid cost overruns and undetected errors, or introduce technologies, products and services that are superior to competing technologies, products and services would have a materially adverse effect on our business, prospects, financial condition, and results of operations.

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We will be reliant on information technology systems and may be subject to damaging cyber-attacks.

We use third parties for certain hardware, software, telecommunications and other information technology ("IT") services in connection with our operations. Our operations depend, in part, on how well we and our suppliers protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations. Moreover, failure to meet the minimum cybersecurity requirements for defense contracts may disqualify us from participating in the tendering process. To date, we have not experienced any losses relating to cyber-attacks or other information security breaches, but there can be no assurance that we will not incur such losses in the future. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities. 

In certain circumstances, our reputation could be damaged.

Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. Reputational risk for us is a major risk as some of our products will be used by military personnel in theaters-of-war or by law enforcement personnel. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views regarding us and our activities, whether true or not. Although we believe that we operate in a manner that is respectful to all stakeholders and that we take care in protecting our image and reputation, we do not ultimately have direct control over how we are perceived by others. Reputational loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our projects, thereby having a material adverse impact on financial performance, financial condition, cash flows and growth prospects.

Our results of operations are difficult to predict and depend on a variety of factors.

There is no assurance that the production, technology acquisitions, and the commercialization of proprietary technology for game-changing applications in the military, security forces and personal defense markets will be managed successfully. Any inability to achieve such commercial success could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects. In addition, the comparability of results may be affected by changes in accounting guidance or changes in our ownership of certain assets. Accordingly, the results of operations from year to year may not be directly comparable to prior reporting periods. As a result of the foregoing and other factors, the results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future period.

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

Our ability to compete depends, in part, upon successful protection of our intellectual property. While we have some patents and trademarks, we also rely on trade secrets to protect our technology, which is inherently risky. Going forward, we will attempt to protect proprietary and intellectual property rights to our technologies through available copyright and trademark laws, patents and licensing and distribution arrangements with reputable international companies in specific territories and media for limited durations. Despite these precautions, existing copyright, trademark and patent laws afford only limited practical protection in certain countries where we distribute our products. As a result, it may be possible for unauthorized third parties to copy and distribute our products or certain portions or applications of our intended products, which could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects.

Litigation may also be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation, infringement or invalidity claims could result in substantial costs and the diversion of resources and could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects.

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We face risks from doing business internationally.

Our commercialization strategies for our products include sales efforts outside Canada and deriving revenues from international sources. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control.

These risks may include:

•laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;

•anti-corruption laws and regulations such as the Foreign Corrupt Practices Act that impose strict requirements on how we conduct our foreign operations and changes in these laws and regulations;

•changes in local regulatory requirements, including restrictions on content and differing cultural tastes and attitudes;

•international jurisdictions where laws are less protective of intellectual property and varying attitudes towards the piracy of intellectual property;

•financial instability and increased market concentration of buyers in foreign markets;

•the instability of foreign economies and governments;

•fluctuating foreign exchange rates;

•the spread of communicable diseases in such jurisdictions, which may impact business in such jurisdictions; and

•war and acts of terrorism.

Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-Canadian sources, which could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects. Protection of electronically stored data is costly and if our data is compromised in spite of this protection, we may incur additional costs, lost opportunities, and damage to our reputation.

We maintain information in digital form as necessary to conduct our business, including confidential and proprietary information and personal information regarding our employees.

Data maintained in digital form is subject to the risk of intrusion, tampering, and theft. We develop and maintain systems to prevent this from occurring, but it is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering, and theft cannot be eliminated entirely, and risks associated with each of these acts remain. In addition, we provide confidential information, digital content and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, monitor the protections employed by these third parties, there is a risk that data systems of these third parties may be compromised. If our data systems or data systems of these third parties are compromised, our ability to conduct our business may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished and we may lose revenue as a result of unlicensed use of our intellectual property. A breach of our network security or other theft or misuse of confidential and proprietary information, digital content or personal employee information could subject us to business, regulatory, litigation, and reputation risk, which could have a materially adverse effect on our business, financial condition, and results of operations.

Our success depends on management and key personnel.

Our success depends largely upon the continued services of our executive officers and other key employees. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. If we are unable to attract and retain top talent, our ability to compete may be harmed. Our success is also highly dependent on our continuing ability to identify, hire, train, retain and motivate highly qualified personnel. Competition for highly skilled executives and other employees is high in our industry, especially from larger and better capitalized defense and security companies. We may not be successful in attracting and retaining such personnel. Failure to attract and retain qualified executive officers and other key employees could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows.

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Our directors, officers or members of management may have conflicts of interest.

Certain of our directors, officers, and other members of management serve (and may in the future serve) as directors, officers, and members of management of other companies and therefore, it is possible that a conflict may arise between their duties as one of our directors, officers or members of management and their duties as a director, officer or member of management of such other companies. Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors' and officers' conflicts of interest or in respect of any breaches of duty by any of our directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the BCBCA and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law. 

It may not be possible for foreign investors to enforce actions against us, and our directors and officers.

We are a corporation organized under the laws of the Province of British Columbia and our Canadian subsidiaries are organized under the laws of the Province of Ontario and our United States subsidiaries are organized under the laws of Delaware. All of our directors and executive officers reside principally in Canada. Because all or a substantial portion of our assets and the assets of these persons are located in Canada, it may not be possible for foreign investors, including United States investors, to effect service of process from outside of Canada upon us or those persons, or to realize in the United States upon judgments of United States courts predicted upon civil liabilities under the Exchange Act or other United States laws. Furthermore, it may not be possible to enforce against us foreign judgments obtained in courts outside of Canada based upon the civil liability provisions of the securities laws or other laws in those jurisdictions.

Any disruption at our places of business could delay revenues or increase our expenses.

Most of our operations are conducted at locations in the Province of Ontario. We maintain a significant business development operation in the United States, through our contractual relationship with SageGuild, LLC ("SageGuild") (see History and Development of the Company - Principal Capital Expenditures and Divestitures). A natural disaster, such as a fire, flood or earthquake, could cause substantial delays in our operations, damage or destroy our offices, and cause us to incur additional expenses.

In addition, because we do not maintain "key person" life insurance on any of our executive officers, employees or consultants, any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition, and results of operations.

Our internal computer systems are vulnerable to damage and failure.

Despite the implementation of security measures and backup storage, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Any system failure, accident or security breach that causes interruption in our operations could result in a material disruption of our projects. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability as a result. In addition, our technology program may be adversely affected and the further development of our technology may be delayed. We may also incur additional costs to remedy the damages caused by these disruptions or security breaches.

25

Business interruptions could adversely affect our operations.

Our operations are vulnerable to outages and interruptions due to fire, floods, power loss, telecommunications failures, and similar events beyond our control. Although we have developed certain plans to respond in the event of a disaster, there can be no assurance that they will be effective in the event of a specific disaster. Any losses or damages incurred by us could have a material adverse effect on our business and results of operations.

We are subject to risks associated with possible acquisitions, licensing, business combinations, or joint ventures.

While to date we have mainly focused on developing our own products, from time to time, we could be engaged in discussions and activities with respect to possible business and/or technology acquisitions or licensing, sale of assets, business combinations, or joint ventures with the view of either complementing or expanding our internally developed products. These acquisitions and licensing activities are not crucial to our long-term business success. The anticipated benefit from any of the transactions we may pursue may not be realized as expected. Regardless of whether any such transaction is consummated, the negotiation of a potential transaction and the integration of the acquired business or technology, acquired or licensed, could incur significant costs and cause diversion of management's time and resources. Any such transaction could also result in impairment of goodwill and other intangibles, development write-offs, and other related expenses. Such transactions may pose challenges in the consolidation and integration of information technology, accounting systems, personnel, and operations. We may have difficulty managing the combined entity in the short term if we experience a significant loss of management personnel during the transition period after a significant acquisition. We may also have difficulty managing the product development and commercialization following a technology acquisition or licensing. No assurance can be given that expansion, licensing or acquisition opportunities will be successful, completed on time, or that we will realize expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects. 

Claims against us relating to any acquisition, licensing or business combination may necessitate seeking claims against the seller for which the seller may not indemnify us or that may exceed the seller's or licensor's indemnification obligations.

There may be liabilities assumed in any technology acquisition or licensing or business combination that we did not discover or that we underestimated in the course of performing our due diligence. Although a seller or licensor generally will have indemnification obligations to us under a licensing, acquisition or merger agreement, these obligations usually will be subject to financial limitations, such as general deductibles and maximum recovery amounts, as well as time limitations. There is no assurance that our right to indemnification from any seller or licensors will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the amount of any undiscovered or underestimated liabilities that we may incur. Any such liabilities could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects.

Growth may cause pressure on our management and systems.

Our future growth may cause significant pressure on our management, and our operational, financial, and other resources and systems. Our ability to manage our growth effectively will require that we implement and improve our operational, financial, manufacturing, and management information systems, hire new personnel and then train, manage, and motivate these new employees. These demands may require the hiring of additional management personnel and the development of additional expertise within the existing management team. Any increase in resources devoted to production, business development, and distribution efforts without a corresponding increase in our operational, financial, and management information systems could have a material adverse effect on our business, financial condition, and results of operations.

We may infringe intellectual property rights of third parties.

For certain of our product lines, we have elected to protect our technology and products as trade secrets as opposed to seeking patent protection. We may, in future, elect to seek patent protection for some of our future products. While we believe that our products and other intellectual property do not infringe upon the proprietary rights of third parties, our commercial success depends, in part, upon us not infringing intellectual property rights of others. A number of our competitors and other third parties have been issued or may have filed patent applications or may obtain additional patents and proprietary rights for technologies similar to those utilized by us. Some of these patents may grant very broad protection to the owners of the patents. While we have engaged external intellectual property legal counsels to undertake an extensive review of existing third-party patents and prepare our patent applications for some of our products(see Business Overview), there is no assurance that their reviews and conclusion will not prevail if challenged by a third party of an alleged infringement of their intellectual properties. We may become subject to claims by third parties that our technology infringes their intellectual property rights due to the growth of products in our target markets, the overlap in functionality of those products and the prevalence of products. We may become subject to these claims either directly or through indemnities against these claims that we provide to end-users, manufacturer's representatives, distributors, value-added resellers, system integrators and original equipment manufacturers. Litigation may be necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. Some of our competitors have, or are affiliated with companies having, substantially greater resources than we and these competitors may be able to sustain the costs of complex intellectual property litigation to a greater degree and for a longer period of time than us. Regardless of their merit, any such claims could be time consuming to evaluate and defend, result in costly litigation, cause product shipment delays or stoppages, divert management's attention and focus away from the business, subject us to significant liabilities and equitable remedies, including injunctions, require that we enter into costly royalty or licensing agreements and require that we modify or stop using infringing technology.

We may be prohibited from developing or commercializing certain technologies and products unless we obtain a license from a third party. There can be no assurance that we will be able to obtain any such license on commercially favorable terms or at all. If we do not obtain such a license, we could be required to cease the sale of certain of our products.

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Risks Relating to Our Industry

The following risks relate specifically to Digitization and Counter-Threat business lines:

We are subject to extensive government regulation in the United States for our products designed for the military market.

Our customers in the United States are global defense contractors and they are subject to various United States government regulations which some may be passed on to us in order for them to be compliant. The most significant regulations and regulatory authorities that may affect our future business include the following:

•the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation and administration of, and performance under, United States government contracts;

•the Truth in Negotiations Act, which requires certification and disclosure of all factual cost and pricing data in connection with contract negotiations;

•the False Claims Act and the False Statements Act, which impose penalties for payments made on the basis of false facts provided to the government and on the basis of false statements made to the government, respectively;

•the Foreign Corrupt Practices Act, which prohibits United States companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantage; and

•laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes or determined to be "controlled unclassified information" and the exportation of certain products and technical data.

Our failure to comply with applicable regulations, rules and approvals; changes in the United States government's interpretation of such regulations, rules and approvals as have been and are applied to our contracts, proposals or business or misconduct by any of our employees could result in the imposition of fines and penalties, the loss of security clearances, a decrease in profitability, or the loss of our subcontract contracts with United States defense contractors generally, any of which could harm our business, financial condition and results of operations.

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A decline in the United States and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue.

Since inception, most of our revenue was driven by contracts from the United States government, through United States prime defense contractors. Our results of operations could be adversely affected by government spending caps or changes in government budgetary priorities, as well by delays in the government budget process, program starts, or the award of contracts or orders under existing contracts. As a result, the market for our military solution may be impacted due to shifts in the political environment and changes in the government and agency leadership positions under the new United States administration. If annual budget appropriations or continuing resolutions are not enacted timely, we could face United States government shutdown, which could adversely impact our business and our ability to receive indirectly timely payment from United States government entities on future contracts. 

United States government contracts are generally not fully funded at inception and contain certain provisions that may be unfavorable to us.

We have entered into defense contracts with United States prime defense contractors, which it in turns transact directly with the United States government.

United States government contracts typically involve long lead times for design and development, and are subject to significant changes in contract scheduling. Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years. Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations. The termination or reduction of funding for a government program would result in a loss of anticipated future revenue attributable to that program. In addition, United States government contracts generally contain provisions permitting termination, in whole or in part, at the government's convenience or for contractor default.

The actual receipt of revenue on future awards subcontracted to us may never occur or may change because a program schedule could change or the program could be cancelled, or a contract could be reduced, modified or terminated early.

While our remaining subcontract with the United States prime defense contractor was fully funded at September 30, 2021, we are exposed to the above risk for future United States government related contracts.

We may not be able to comply with changes in government policies and legislation.

The manufacture, sale, purchase, possession and use of weapons, ammunitions, firearms, and explosives are subject to federal, provincial and foreign laws. If such regulation becomes more expansive in the future, it could have a material adverse effect on our business, operating results, financial condition, and cash flows. New legislation, regulations, or changes to or new interpretations of existing regulation could impact our ability to manufacture or sell our products and our projectiles, or limit their market, which could impact our cost of sales and demand for our products. Similarly changes in laws related to the domestic or international use of chemical irritants by civilians or law enforcement could impact both our cost of sales and the size of our reachable market.

We may be subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of our products, technology, operations, and markets. For example, the development, production, exportation, importation, and transfer of our products and technology is subject to Canadian and provincial laws. Further, as we plan to conduct business in the United States, we will also be subject to United States and foreign export control, sanctions, customs, import and anti-boycott laws and regulations, including the Export Administration Regulations (the "EAR") (collectively, "Trade Control Laws"). If one or more of our products or technology, or the parts and components we buy from others, is or become subject to the International Traffic in Arms Regulations (the "ITAR") or national security controls under the EAR, this could significantly impact our operations, for example by severely limiting our ability to sell, export, or otherwise transfer our products or technology, or to release controlled technology to foreign person employees or others in the United States or abroad. We may not be able to retain licenses and other authorizations required under the applicable Trade Control Laws. The failure to satisfy the requirements under the Trade Control Laws, including the failure or inability to obtain necessary licenses or qualify for license exceptions, could delay or prevent the development, production, export, import, and/or in-country transfer of our products and technology, which could adversely affect our revenues and profitability.

Failure by us, our employees, or others working on our behalf to comply with the applicable government policies and regulations could result in administrative, civil, or criminal liabilities, including fines, suspension, debarment from bidding for or performing government contracts, or suspension of our export privileges, which could have a material adverse effect on us.

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The following risk relates specifically to PARA OPS business line:

We will be subject to regulation in the United States for our non-lethal systems.

While our PARA OPS devices are non-lethal (based on the kinetic energy of our projectiles), these are automatically classified as form of a firearm under the United States Bureau of Alcohol, Tobacco and Firearms ("ATF") rules and regulations because we use pyrotechnic based primers in our proprietary ammunition cartridges. We have therefore self-classified our .67 caliber PARA OPS single shot device as not only a firearm, but a "destructive device" in accordance with the ATF regulations. We intend to self-classify our other PARA OPS devices as a form of a firearm under ATF regulations until such time we have found an alternative for primers (i.e., a non-pyrotechnic gas generator) to launch our projectiles, and therefore be subject to ATF regulations. We are currently reviewing an alternative to replace the primer.  While we are confident of identifying an alternative by the end of Q1 Fiscal 2023 in order to offer "non-firearm" PARA OPS devices to the consumers market, there is no assurance that we will succeed and consequently this may adversely affect our future revenues and related results of operations, business, prospects, and financial condition.  Further, in the event we have implemented an alternative to replace the primer and then self-classify our PARA OPS devices as "non-firearm", there is no assurance that the ATF may not contest our self-classification, which could result in discontinuing sales to consumers with no firearm license where required by state law. Accordingly, this could also adversely affect our future revenues and related results of operations, business, prospects, and financial condition.

Because our business model relies on outsourced production, we have no plans of becoming a firearm manufacturer in the United States but rather to continue to partner with a FFL manufacturer for the production and distribution of our PARA OPS products. Accordingly, post commercialization in the United States the burden to comply with ATF rules and regulations applicable to the manufacturing and distribution process will be with our FFL business partners.  Our primary risk of governmental interruption of manufacturing and distribution therefore lies within the operations and attendant internal control environment of our FFL business partners. 

Furthermore, with respect to transfers to end users (government, military, or consumer), the obligation to comply with ATF rules and regulations and any applicable state laws resides with the downstream FFL wholesaler/distributor/retailer  and any penalties levied upon such parties do not flow up the distribution chain. 

See Business Overview - Government Regulation - Non-Lethal for a summary of relevant regulation in the United States for our non-lethal business line. 

The following risks apply to all business lines:

Rapid technological development could result in obsolescence or short product life cycles of our products.

The markets for our products are characterized by rapidly changing technology and evolving industry standards, which could result in product obsolescence or short product life cycles. Accordingly, our success is dependent upon our ability to anticipate technological changes in the industries we serve and to successfully identify, obtain, develop and market new products that satisfy evolving industry requirements. There can be no assurance that we will successfully develop new products or enhance and improve our existing products or that any new products and enhanced and improved existing products will achieve market acceptance. Further, there can be no assurance that competitors will not market products that have perceived advantages over our products or which render the products currently sold by us obsolete or less marketable.

We must commit significant resources to developing, testing and demonstrating new products before knowing whether our investments will result in products the market will accept. To remain competitive, we may be required to invest significantly greater resources than currently anticipated in research and development and product enhancement efforts, and result in increased operating expenses.

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Our industry is highly competitive.

The industry for military and security forces and personal defense is highly competitive and composed of many domestic and foreign companies. We have experienced and expect to continue to experience, substantial competition from numerous competitors whom we expect to continue to improve their products and technologies. Competitors may announce and introduce new products, services or enhancements that better meet the needs of end-users or changing industry standards, or achieve greater market acceptance due to pricing, sales channels or other factors. With substantially greater financial resources and operating scale than we do currently, certain competitors may be able to respond more quickly than us to changes in end-user requirements and devote greater resources to the enhancement, promotion and sale of their products. Such competition could adversely affect our ability to win new contracts and sales. 

Since we operate in evolving markets, our business and future prospects may be difficult to evaluate.

Our technological solutions are in new and rapidly evolving markets. The military, civilian public safety, professional and personal defense markets we target are in early stages of customer adoption. Accordingly, our business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for our products and services will develop and/or increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following:

•generate sufficient revenue to obtain and/or maintain profitability;

•acquire and maintain market share;

•achieve or manage growth in operations;

•develop and renew contracts;

•attract and retain additional engineers and other highly-qualified personnel;

•successfully develop and commercially market products and services;

•adapt to new or changing policies and spending priorities of governments and government agencies; and

•access additional capital when required or on reasonable terms.

If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.

Uncertainty related to exportation could limit our operations in the future.

We must comply with Canadian federal and provincial laws regulating the export of our products. In some cases, explicit authorization from the Canadian government is needed to export certain products. The export regulations and the governing policies applicable to our business are subject to change. We cannot provide assurance that such export authorizations will be available for our products in the future. To date, compliance with these laws has not significantly limited our operations, but could significantly limit them in the future. Noncompliance with applicable export regulations could potentially expose us to fines, penalties and sanctions. If we cannot obtain required government approvals under applicable regulations, we may not be able to sell our products in certain international jurisdictions, which could adversely affect our business, prospects, financial condition and results of operations.

Global economic turmoil and regional economic conditions in the United States could adversely affect our business.

In addition to the risks pertaining to COVID-19 disclosed above, global economic turmoil may cause a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, levels of intervention from the United States federal government and other foreign governments, decreased consumer confidence, overall slower economic activity, and extreme volatility in credit, equity, and fixed income markets. A decrease in economic activity in the United States or in other regions of the world in which we do business could adversely affect demand for our products, thus reducing our revenues and earnings. A decline in economic conditions could reduce sales of our products.

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Risks Relating to Our Financial Condition

We face substantial capital requirements and financial risk.

To be successful, our business requires a substantial investment of capital. The production, acquisition, and distribution of proprietary technology for game-changing applications in the military and security forces and personal defense markets require substantial capital. A significant amount of time may elapse between our expenditure of funds and the receipt of revenues. This may require a significant portion of funds from equity, credit, and other financing sources to fund the business. There can be no assurance that these arrangements will continue to be successfully implemented or will not be subject to substantial financial risks relating to the production, acquisition, and distribution of proprietary technology for game-changing applications in the military and security forces and personal defense markets. In addition, if demand increases through internal growth or acquisition, there may be an increase to overhead and/or larger up-front payments for production and, consequently, these increases bear greater financial risks. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity, and prospects. 

We may require additional capital which may result in dilution to existing shareholders.

We may need to engage in additional equity or debt financings to secure additional funds to fund our working capital requirement and business growth. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of the Common Shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which might make it more difficult for us to obtain additional capital and to pursue business opportunities.

We can provide no assurance that sufficient debt or equity financing will be available on reasonable terms or at all to support our business growth and to respond to business challenges and failure to obtain sufficient debt or equity financing when required could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows.

Over the short-term, we expect to incur operating losses and generate negative cash flow until we can produce sufficient revenues to cover our costs. We may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. There are substantial uncertainties associated with our ability to achieving and sustaining profitability. We expect our current cash position will be reduced due to future operating losses and working capital requirements, and we cannot provide certainty as to how long our cash position will last or that we will be able to access additional capital if and when necessary.

Exercise of options or warrants or vesting of restricted stock units will have a dilutive effect on your percentage ownership and will result in a dilution of your voting power and an increase in the number of Common Shares eligible for future resale in the public market, which may negatively impact the trading price of our Common Shares. 

The release of securities currently held in escrow may adversely impact the price of our Common Shares or Warrants.

The market price of our Common Shares or Warrants may be adversely impacted by the release of certain of our securities that are currently escrowed if the holders immediately trade these securities upon release. These securities are currently issued and outstanding but restricted from trading. These will be released from escrow in lots on pre-determined dates.

As of the date of this Prospectus, we have 3,613 Common Shares subject to escrow conditions pursuant to the CPC Escrow Agreement (as defined below), 87,500 Company 2024 Warrants (as defined below) subject to escrow conditions pursuant to the Surplus Security Escrow Agreement (as defined below), 252,651 Common Shares subject to escrow conditions pursuant to the Surplus Security Escrow Agreement (as defined below), 39,375 Common Shares subject to escrow conditions pursuant to the Value Security Escrow Agreement (as defined below), and 39,375 Company 2024 Warrants subject to escrow conditions pursuant to the Value Security Escrow Agreement (as defined below) (collectively, the “Escrowed Securities”). The Escrowed Securities will be released in lots 68,468 Common Shares and 31,875 Company 2024 Warrants on September 18, 2022, 68,468 Common Shares and 31,875 Company 2024 Warrants on March 18, 2023, and 158,701 Common Shares and 63,125 Company 2024 Warrants on September 18, 2023. See Escrowed Securities and Material Contracts.

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We may need to divest assets if there is insufficient capital.

If sufficient capital is not available, we may be required to delay, reduce the scope of, eliminate or divest one or more of our assets or products, any of which could have a material adverse effect on our business, financial condition, prospects, or results of operations.

We have broad discretion over the use of net proceeds from future capital raises.

We will have broad discretion over the use of the net proceeds from any future capital raises. Because of the number and variability of factors that will determine our use of such proceeds, the ultimate use might vary substantially from the planned use. Investors may not agree with how we allocate or spend the proceeds from future capital raises. We may pursue collaborations that ultimately do not result in an increase in the market value of the Common Shares and that instead increase our losses. 

Currency fluctuations may have a material effect on us.

Fluctuations in the exchange rate between the United States dollar, other currencies and the Canadian dollar may have a material effect on our results of operations. To date, we have not engaged in currency hedging activities. To the extent that we may seek to implement hedging techniques in the future with respect to our foreign currency transactions, there can be no assurance that we will be successful in such hedging activities.

Unavailability of adequate director and officer insurance could make it difficult for us to retain and attract qualified directors and could also impact our liquidity.

We have directors and officers liability ("D&O") insurance we believe to be adequate to cover risk exposure for us and our directors and officers, who we indemnify to the full extent permitted by law, there is no guaranty that such coverage will be adequate in the event of litigation.

Our coverage needs for D&O insurance may change or increase in the future for various reasons including changes in our market capitalization, changes in trading volume or changes in the listing rules of exchanges or marketplaces on which our securities may trade from time to time. There is no guaranty that such coverage will be available or available at reasonable rates. Further, our current D&O insurance policy will not cover us if we list to a national listing in the United States, such as Nasdaq, as we currently plan. While we intend to seek new D&O insurance before completing the Up-Listing and to increase our D&O coverage as needed in the future, there can be no assurance that we will be able to do so at reasonable rates or at all, or in amounts adequate to cover expenses and liability should litigation occur. Without adequate D&O insurance, the costs of litigation including amounts we would pay to indemnify our officers and directors should they be subject to legal action based on their service to us could have a material adverse effect on our financial condition, results of operations and liquidity. Further, if we are unable to obtain adequate D&O insurance in the future for any reason, we may have difficultly retaining and attracting talented and skilled directors and officers, which could adversely affect our business, and may be unable to list our Common Shares on a national exchange in the United States, which could impact the liquidity and value of our stock.

Our insurance policies may be inadequate to fully protect us from material judgments and expenses.

We require insurance coverage for a number of risks, including business interruption, environmental matters and contamination, personal injury and property damage as well as general aviation liability coverage. Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all. A successful product liability claim could result in substantial cost to us. If insurance coverage is unavailable or insufficient to cover any such claims, our financial resources, results of operations and prospects could be adversely affected.

Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management's attention and resources, which could have a negative impact on our business, prospects, financial condition and results of operations.

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Risks Relating to the Ownership of our Securities

An investment in our securities involves significant risks.

Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business and operations and cause the trading price of our securities to decline. If any of the following or other risks occur, our business, prospects, financial condition, results of operations and cash flows could be materially adversely impacted. In that event, the trading price of our securities could decline and security holders could lose all or part of their investment. There is no assurance that risk management steps taken will avoid future loss due to the occurrence of the risks described below or other unforeseen risks. 

The market price of our securities may be volatile.

The market price for our securities may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including, but not limited to, the following: (i) actual or anticipated fluctuations in our quarterly results of operations; (ii) recommendations by securities research analysts; (iii) changes in the economic performance or market valuations of other issuers that investors deem comparable to us; (iv) departure of executive officers or other key personnel; (v) issuances or anticipated issuances of additional Common Shares; (vi) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; and (vii) news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets. Financial markets have historically experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of public entities and that have, in many cases, been unrelated to the operating performance, underlying asset values or prospects of such entities. Accordingly, the market price of our securities may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, the trading price of the Common Shares may be materially adversely affected.

There can be no assurance of active market for the Common Shares.

The Common Shares are listed on the TSXV since September 22, 2020, quoted on the OTCQB since February 4, 2021 and listed on the Frankfurt Stock Exchange since March 29, 2022. Following our planned listing of our Common Shares and Warrants sold in this offering on Nasdaq, our Common Shares will no longer be quoted on the OTCQB. There can be no assurance that we will succeed in listing the Common Shares or Warrants on Nasdaq. Further, there can be no assurance an active and liquid market for the Common Shares or Warrants will be maintained. The Warrants to be sold in this offering are not listed on an exchange or marketplace.

Approximately 0.3 million or 22% of the outstanding Common Shares as of September 8, 2022, subject to regulatory escrow imposed by the TSXV in connection with the Amalgamation (as defined below). These escrow and restrictions will gradually be lifted over a period ending on September 18, 2024. See Share Capital - Escrowed Securities.

If an active public market is not maintained, our shareholders may have difficulty selling the Common Shares or Warrants.

We are selling a substantial number of Common Shares and Warrants to purchase Common Shares in this offering, which could cause the price of our Common Shares to decline.

In this offering, we will sell up to 2,323,232 Common Shares (assuming no exercise by the underwriter of its Over-Allotment option and no purchase of Pre-funded Warrants) and up to 2,929,292 (excluding the Canadian Underwriter’s Canadian Compensation Options) Common Shares including the concurrent Canadian Offering. Additionally, we are selling Warrants to purchase Common Shares equal to the number of Common Shares being sold in the offering (assuming no purchase of Pre-funded Warrants and no exercise by the underwriter of its Over-Allotment Option). The existence of the potential additional Common Shares in the public market, or the perception that such additional shares may be in the market, could adversely affect the price of our Common Shares. We cannot predict the effect, if any, that market sales of those Common Shares or the availability of those Common Shares for sale will have on the market price of our Common Shares. Any decline in the price of a Common Share may also have a negative effect on the price in the market of a Warrant.

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There is no public market for either the Warrants or the Pre-funded Warrants being sold in this offering.

There is no established public trading market for either the warrants or the pre-funded warrants being sold in this offering. We intend to list the Warrants on Nasdaq, however there is no assurance that any market will develop. We will not list the Pre-funded Warrants on any securities exchange or nationally recognized trading system, including Nasdaq. Therefore, we do not expect a market to ever develop for the Pre-funded Warrants. Without an active market, the liquidity of the Pre-funded Warrants will be limited.

The Warrants and Pre-funded Warrants are speculative in nature.

Neither the Warrants nor the Pre-funded Warrants confer any rights of Common Share ownership on their respective holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire Common Shares at a fixed price. Commencing on the date of issuance, holders of the Warrants may exercise their right to acquire the Common Shares and pay the stated exercise price per share prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. Commencing on the date of issuance, holders of the Pre-funded Warrants may exercise their right to acquire the Common Shares and pay the stated exercise price per share until exercised in full. There can be no assurance that the market price of our Common Shares will ever equal or exceed the exercise price of the Warrants offered by this prospectus, and if so, the Warrants would expire without value.

The Warrants included in the Units and Pre-Funded Units are expected to be listed on Nasdaq separately upon the pricing of this offering, and may provide investors with an arbitrage opportunity that could adversely affect the trading price of our Common Shares.

Because the Units and Pre-Funded Units will never trade as a unit, and the Warrants are expected to be traded on Nasdaq, investors may be provided with an arbitrage opportunity that could depress the price of our Common Shares.

In the event that our Common Share price does not exceed the exercise price of the Warrants or the Pre-funded Warrants during the period when the Warrants or the Pre-funded Warrants are exercisable, as applicable, such warrants may not have any value.

Until holders of the Warrants and the Pre-funded Warrants acquire Common Shares upon exercise thereof, holders of the Warrants and Pre-funded Warrants will have no rights with respect to our Common Shares. Upon exercise of the Pre-funded Warrants, such holders will be entitled to exercise the rights of a common shareholder only as to matters for which the record date occurs after the exercise date.

There is no assurance that any of the Warrants will be exercised and we will receive the exercise proceeds therefrom.

The Warrants have an exercise price above the price of a Common Share. If the price of our Common Shares does not exceed the Warrant exercise price, then it is unlikely that the Warrants will be exercised. The Warrants will expire on the fifth anniversary of their issuance, which if they expire without being exercised the Company will not receive any proceeds therefrom.

Additionally, for the Warrants to be exercised for cash, we must keep an effective registration statement available for issuance of the Common Shares issuable on exercise of the Warrants. If we fail to maintain an effective registration statement, then the Warrants may be exercised on a cashless basis, and we will not receive any cash amount from their exercise.

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If we are unable to satisfy the requirements of Sarbanes-Oxley or our internal controls over financial reporting are not effective, the reliability of our financial statements may be questioned.

We will become subject to the requirements of Sarbanes-Oxley if the registration statement of which this Prospectus is a part is declared effective by the SEC. Section 404 of Sarbanes-Oxley ("Section 404") requires companies subject to the reporting requirements of United States securities laws to complete a comprehensive evaluation of their internal controls over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures and our management will be required to assess and issue a report concerning our internal controls over financial reporting. Pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, we will be classified as an "emerging growth company." Under the JOBS Act, emerging growth companies are exempt from certain reporting requirements, including the independent auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. Under this exemption, our independent auditor will not be required to attest to and report on management's assessment of our internal controls over financial reporting during a five year transition period, except in the event this is accelerated if we lose our status as an "emerging growth company". We will need to prepare for compliance with Section 404 by strengthening, assessing and testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, we believe that our business will grow both domestically and internationally, organically and through acquisitions, in which case our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During the course of our testing, management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner to meet the deadline imposed by Sarbanes-Oxley. If management cannot favorably assess the effectiveness of our internal controls over financial reporting, or our independent registered public accounting firm identifies material weaknesses in our internal controls, investor confidence in our financial results may weaken, and the market price of our securities may suffer.

 Our status as an "emerging growth company."

We will be an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act), and will continue to qualify as an emerging growth company until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of USD$1.07 billion (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous three-year period, issued more than USD$1 billion in non-convertible debt; and (d) the date on which we are deemed to be a "large accelerated filer", as defined in Rule 12b-2 under the Exchange Act. We will qualify as a large accelerated filer (and would cease to be an emerging growth company) at such time when on the last business day of our second fiscal quarter of such year the aggregate worldwide market value of our common equity held by non-affiliates is USD$700 million or more.

For so long as we remain an emerging growth company, we are permitted to, and intend to, rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404. We cannot predict whether investors will find our securities less attractive because we rely upon certain of these exemptions. If some investors find the securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile. On the other hand, if we no longer qualify as an emerging growth company, we would be required to divert additional management time and attention from development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact our business, financial condition and results of operations.

We may lose foreign private issuer status in the future, which could result in significant additional costs and expenses.

We may in the future lose foreign private issuer status if a majority of the Common Shares are held in the United States and if we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status, such as if: (i) a majority of the directors or executive officers are United States citizens or residents; (ii) a majority of assets are located in the United States; or (iii) the business is administered principally in the United States. The regulatory and compliance costs to us under United States securities laws as a United States domestic issuer will be significantly more than the costs incurred as an SEC foreign private issuer. If we are not a foreign private issuer, we would be required to file periodic and current reports and registration statements on United States domestic issuer forms with the SEC, which are generally more detailed and extensive than the forms available to foreign private issuers. In addition, we may lose the ability to rely upon exemptions from corporate governance requirements that are available to foreign private issuers.

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FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus constitute "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 may conduct business in the future;
• our expansion into domestic and international markets;
• our ability to attract customers and clients;
• 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 strategic relationships with third parties;
• our anticipated trends and challenges in the markets in which we operate;
• governance of us as a public company; and
• expectations regarding future developments of products and our ability to bring these products to market.

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:

• limited operating history;
• failure to realize growth strategy;
• failure to complete transactions or realize anticipated benefits;
• reliance on key personnel;
• regulatory compliance;
• competition;
• changes in laws, regulations and guidelines;
• demand for our products;
• fluctuating prices of raw materials;
• pricing for products;
• ability to supply sufficient product;
• expansion to other jurisdictions;
• damage to our reputation;
• operating risk and insurance coverage;
• negative operating cash flow;
• management of growth;
• product liability;
• product recalls;
• environmental regulations and risks;
• ownership and protection of intellectual property;
• constraints on marketing products;
• reliance on management;
• fraudulent or illegal activity by our employees, contractors and consultants;
• breaches of security at our facilities or in respect of electronic documents and data storage and risks related to breaches of applicable privacy laws;
• government regulations with regards to COVID-19, employee health and safety regulations;
• the duration and impact of COVID-19, and including variants of COVID-19, on our operations;
• regulatory or agency proceedings, investigations and audits;
• additional capital requirements to support our operations and growth plans, leading to further dilution to shareholders;
• conflicts of interest;
• litigation;
• risks related to United States' and other international activities;
• risks related to security clearances and risks relating to the ownership of our securities, such as potential volatility in the price of our securities; and
• no assurance of an active market for Common Shares and Warrants.

Although the forward-looking statements contained in this Prospectus 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 conditions and customer demand.

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CAPITALIZATION AND INDEBTEDNESS

The following table presents our unaudited capitalization and indebtedness as of June 30, 2022, in accordance with IFRS as well as the as adjusted capitalization and indebtedness as of June 30, 2022, reflecting the effect of (i) the sale by us of 2,323,232 Common Units (assuming no sale of any Pre-funded Units) offered by us in this prospectus (excluding the underwriter’s Over-Allotment Option) at the assumed public offering price of USD$4.95 per Common Unit (with an estimated offering price range for the Common Units between USD$4.13 and USD$5.74), after deducting the estimated underwriting discounts and other offering expenses and (ii) the sale by us of 2,323,232 Common Units (assuming no sale of any Pre-funded Units) offered by us in this prospectus (excluding the underwriter’s Over-Allotment Option) at the assumed public offering price of USD$4.95 per Common Unit (with an estimated offering price range for the Common Units between USD$4.13 and USD$5.74), after deducting the estimated underwriting discounts and other offering expenses, and including the sale by us of 606,060 Canadian Units offered in the Canadian Offering (excluding the Canadian Underwriter’s Compensation Options), after deducting the estimated underwriting discounts and other Canadian Offering expenses. You should read this table in conjunction with the sections of this Prospectus entitled Operating and Financial Review and Prospects, Financial Statements and the related notes and other financial information contained elsewhere in this Prospectus.

	As of June 30, 2022
(CAD$ in thousands)			Actual			As adjusted for IPO			As adjusted for IPO and Canadian Offering
Debt:
Lease obligations		$	292		$	292		$	292
Unsecured borrowings (1)			1,668			1,668			1,668
Total debt			1,960			1,960			1,960
Equity:
Share capital (2)			19,166			31,568			34,545
Warrants			1,902			1,902			1,902
Contributed surplus			3,474			3,474			3,474
Accumulated other comprehensive gain			(28	)		(28	)		(28	)
Accumulated deficit			(23,522	)		(23,522	)		(23,522	)
Total equity			992			13,393			16,370
TOTAL CAPITALIZATION		$	2,952		$	15,353		$	18,330

1)Excludes USD$400,000 unsecured loans issued on August 29, 2022.

2)Excludes CAD$344,000 Common Shares issued on July 14, 2022, in connection with the closing of a non-brokered private placement of 40,000 units (post-Reverse Split).  Each unit comprised of one Common Share and one warrant.

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Each USD$1.00 increase (decrease) in the assumed public offering price would increase (decrease) shareholder’s equity after this offering by approximately USD$2.1 million or USD$2.7 million including the Canadian Offering (excluding the Canadian Underwriter’s Compensation Options) (or USD$2.4 million or USD$3.0 million including the Canadian Offering if the underwriter exercises its Over-Allotment Option in full), assuming the number of Common Shares we sell, as set forth on the cover page of this Prospectus, remains the same, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, and further assuming no sale of any Pre-funded Warrants. Similarly, each increase (decrease) of  100,000 Common Shares offered by us would increase (decrease) our shareholder’s equity by USD$0.5 million, assuming the assumed public offering price remains the same and after deducting underwriting discounts and commissions.

The information in the above table for the actual information and as adjusted basis as of June 30, 2022, excludes as of such date:

• 317,175 warrants to purchase 317,175 Common Shares at a weighted average exercise price of $32.40 (USD$25.35) per share;

• 105,242 Common Shares issuable upon the exercise of outstanding but unexercised stock options to purchase Common Shares, under our LTIP, at a weighted average exercise price of $54.80 (USD$42.87) per share;

• 63,649 Common Shares issuable upon the conversion of 38,199 RSUs, 20,800 PSUs, and 4,650 SARs, under our LTIP;

• Up to 2,323,232 Common Shares issuable upon the exercise of the Warrants;

• Up to 2,323,232 Common Shares issuable upon the exercise of the Pre-funded Warrants;

• Up to 116,162 Common Shares issuable upon the exercise of the Underwriter Warrants; and

• Up to 42,424 Common Shares issuable upon the exercise of the Canadian Compensation Options.

USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately USD$9.5 million or USD$11.8 million including the Canadian Offering, assuming we sell only Common Units in this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on as the assumed public offering price of USD$4.95 per Common Unit (with an estimated offering price range for the Common Units between USD$4.13 and USD$5.74). If the underwriter exercises its Over-Allotment Option in full, excluding the exercise of Warrants, we estimate that the net proceeds to us from this offering will be approximately USD$11.1million or USD$13.4 million including the Canadian Offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the Over-Allotment Option is exercised solely in full for Common Shares or Pre-Funded Warrants, we will receive total approximate net proceeds of USD$1.6 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and if the Over-Allotment Option is exercised solely in full for Warrants, will receive total approximate net proceeds of USD$3.48.

We expect to use the net proceeds from this offering, including the Canadian Offering, for working capital (including commercial roll-out of PARA OPS in the United States), repayment of outstanding loans, and other general corporate purposes. We may also use a portion of the net proceeds from this offering for acquisitions or strategic investments in complementary businesses or technologies. We do not currently have any plans for any such acquisitions or investments.  We have not allocated specific amounts of net proceeds for any of these purposes.

Each USD$1.00 increase (decrease) in the assumed public offering price of USD$4.95 per Common Unit would increase (decrease) net proceeds to us by approximately USD$2.1 million or USD$2.7 million including the Canadian Offering (or USD$2.4 million or USD$3.0 million including the Canadian Offering if the underwriter exercises its Over-Allotment Option in full), assuming the number of Common Shares we sell, as set forth on the cover page of this Prospectus, remains the same, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, and further assuming no sale of any Pre-funded Warrants. Similarly, each increase (decrease) of 100,000 Common Shares offered by us would increase (decrease) the net proceeds to us by USD$0.5 million, assuming the assumed public offering price remains the same and after deducting underwriting discounts and commissions.

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INFORMATION ON THE COMPANY

Business Overview

We develop and commercialize next-generation technology solutions that deliver a tactical advantage for military, public safety agencies and personal defense markets. Our core mission is to protect and save lives.

Principal Products and Services

The following is a summary of our main product and service categories for each business line:

Non-Lethal	Digitization	Counter-Threat
PARA OPS products: Non-reciprocating devices: A single-shot device A five-shot flashlight device 2 gauge shotgun Reciprocating devices Replica pistol AR style Ammunitions ARWEN products: Single shot 37mm launcher Multi-round 37mm launcher Ammunitions	Products: TASCS IFM TASCS NORS Services: ATAK Centre of Excellence Critical Incident Management System ("CIMS")	Products: Battlefield Laser Defense System ("BLDS") Phantom Electronic Warfare device GhostNet Counter-Drone system

Non-Lethal Products

Non-reciprocating PARA OPS devices

We are in the LRIP phase for the .67 caliber single shot and expect to complete our sales, marketing and distribution plan by the end of Q4 Fiscal 2022 (i.e., September 30, 2022) and begin the commercialization phase during our first quarter of Fiscal 2023, which ends December 31, 2022; whereas we are in in the prototype phase for the .67 multi-shot devices, with LRIP planned for Q1 Fiscal 2023 and commercialization in Q2 Fiscal 2024.  Both will be offered to the professional and personal defense markets, including our proprietary projectiles for these devices.

(Single shot)	(Multi-shot with laser)

(Proprietary cartridge and projectile)

We will offer three types of payload for projectiles based on customer needs:

• solid slug for practice or pain compliance,
• inert colored powder for practice or realistic close quarters combat simulation, and
• incapacitating irritant pepper powder for operation use.

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Reciprocating PARA OPS devices

We plan to begin the design and prototype of PARA OPS high-capacity automatic pistols and carbines (referred as reciprocating devices) for non-lethal operations and force-on-force training in Q1 Fiscal 2023. 

See below for further details of our projected product development cycle and estimated additional investment to reach full commercialization for our PARA OPS devices.

ARWEN launchers

As a result of the Police Ordinance Acquisition, we are currently selling the following ARWEN products and related ammunition to law enforcement agencies:

(Multi-shot launcher)	(Single-shot launcher)

Digitization

For the Digitization business line, our products share the same core technology platforms in order to develop and deliver integrated solutions to our clients who operate in the primarily dismounted domain (i.e., away from supporting platforms such as vehicles, aircraft and armored vehicles):

• Micro Integrated Sensor Software Technology ("MISST") a proprietary integration of miniaturized sensors, optics, ballistics and software that provides an advancement in affordable smart systems and mission capability. Current applications and offerings of the MISST technology enable: (i) a real-time networked situational awareness for soldiers and their weapons systems, and (ii) smart management of ordnance systems.  MISST also provides solutions for countering drone attacks and countermeasures against weaponized lasers in our Counter-Threat business line.

• Android Team Awareness Kit ("ATAK"). ATAK is a United States government owned situational awareness software application that is hosted on Android end user devices. Based on our observation, ATAK is becoming the de facto standard in the United States, Canada, and NATO for software based situational awareness and as a command and control battle management application in the dismounted domain. While the base software is United States Government owned and is available at no cost, being able to develop specific plug-ins and secure tactical networks is beyond the capacity of most user organizations. We have the experience and expertise to offer ATAK integration and networking services to 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 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. Whether it is a wildfire, active shooter scenario or a natural disaster, they need to know what they're walking into and where their resources are located. They also need to communicate and collaborate in real-time - across teams and information sources and often across departments.

We entered the civilian public safety market by launching our CIMS for enhanced public safety. A critical incident is any situation that requires swift, decisive action involving multiple components in response to and occurring outside of the normal routine business activities of a public safety response, which generally involves the police department, the fire department, and can also involve the Office of Emergency Management.  The primary goal of addressing a critical incident is the resource management of first responders, equipment, and the integration of communications and technology. Our CIMS is a digital technology solution that addresses this need by integrating emergency operations, incident command post, incident commanders, and all responders whether mobile or dismounted. Our CIMS architecture is a native cloud-based Microsoft environment (MS Azure) integrated with Team Awareness Kit ("TAK"). This provides key stakeholders with seamless fusion and sharing of crucial real-time position location, imagery, and time-sensitive emergency services data and information for effective and coordinated delivery of emergency services, including rescue, fire suppression, emergency medical care, law enforcement, and other forms of hazard control and mitigation.

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Counter Threats

We offer the following proprietary next-generation counter-threat solutions to protect against hostile enemy lasers, electronic detection, and drones.

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The following is a summary of our Digitization main products that are ready for commercialization in Fiscal 2022:

Other products under development

In Q4 Fiscal 2021, we partnered with Alare in the United States to establish the technical feasibility of a kinetic system to neutralize small Unmanned Aircraft Systems ("UAS") to neutralize small UAS and loitering munitions without collateral damage.  The nature of our contract with Alare is of a short-term consulting agreement in which we agree to pay for engineering services as rendered. Further details of this drone project, referred as GhostNet, remain confidential for security and competitive reasons at the present time.  We discontinued further investment in another drone project under development, referred as GreyGhost, which was a licensed technology with AerialX Drone Solutions Inc. ("AerialX") providing a kinetic interceptor that could use multiple methods to engage target drones.  To date, AerialX has not successfully delivered a functional prototype and as a result we redirected our investment to the above GhostNet project, a niche market which we are well positioned to leverage using our specialized counter-threat knowledge and technology.

We have also started the development of Shot Counter which is largely based on the same sensor technology as the TASCS, and which can be incorporated into a firearm in order to count the number of rounds fired by the weapon. It is a small device that fits inside the pistol grip of most weapons, and functions with no user input for up to ten years on a single battery. Today we have reached the concept design; but, we have not yet built a prototype.

Over the last three financial years we have made significant investment to further advance our product development and position ourselves with OEM partners for expected commercialization during Fiscal 2023. We also concluded two acquisitions, the PARA OPS and Phantom solutions. At the moment, only the ARWEN product line is considered to be in full production.

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The following table provides an update of our current product development cycle by product line and estimated timeline by quarter (fiscal year ended September 30^th) to reach production:

	Concept & Design	Prototype(1)	Market Testing(2)	Pre- Production(3)	Commercialization(4)
PARA OPS– single shot device			Q4 FY22	Q4 FY22	Q1 FY23
PARA OPS– multi-shot device		Q4 FY22	Q4 FY22	Q1 FY23	Q2 FY23
PARA OPS – reciprocating devices	Q1 FY23	Q1 FY23	Q2FY23	Q2 FY23	Q3 FY23
TASCS IFM					To Be Determined
BLDS					To Be Determined
Phantom					To Be Determined

Notes:

(1)Includes prototype Version 1 (V1), integration, and testing.

(2)Includes field testing and prototype V2.

(3)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.

(4)Subject to market demand for KWESST's product.

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.

The following table provides management's estimate of the additional investment to reach commercialization, excluding our existing internal engineering labor costs:

	Concept & Design	Prototype	Market Testing	Pre-production	Total
Single shot PARA OPS (non-reciprocating devices)	N/A	N/A	N/A	$25,000	$25,000
Multi-shot PARA OPS (non-reciprocating devices)	N/A	N/A	$50,000	$150,000	$200,000
PARA OPS (reciprocating devices)	N/A	$125,000	$50,000	$175,000	$350,000
TASCS IFM	N/A	N/A	N/A	Funded (1)	Funded (1)
BLDS	N/A	N/A	N/A	$50,000	$50,000
Phantom	N/A	N/A	N/A	$100,000 (2)	$100,000
TOTAL	$Nil	$125,000	$100,000	$500,000	$725,000

Notes:

(1)Funded by customer orders.

(2)We are in the process of enhancing our existing Phantom units following feedback received from invitation-only United States military trials that took place during August 2022.

Refer to Liquidity and Capital Resources, for our current available liquidity and capital resources to fund the above.

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Principal Markets

Our total revenues by category of activity and geographic market for each of the last three financial years were as follows:

		Year ended September 30, 2021		Nine months ended September 30, 2020		Year ended December 31, 2019
Major products / service lines
TASCS System	$	1,255,982	$	835,097	$	472,749
Other		19,822		26,820		36,399
	$	1,275,804	$	861,917	$	509,148
Primary geographical markets
United States	$	1,238,063	$	835,097	$	472,749
Canada		37,741		26,820		36,399
	$	1,275,804	$	861,917	$	509,148

Market Opportunities

Non-Lethal

According to Allied Market Research: Non-Lethal Market, May 2021, the global non-lethal weapons market was approximately USD$7.4 billion in 2020 and is projected to reach USD$12.5 billion in 2028 (a 7.4% compound annual growth rate). We plan to target the following two markets, with an initial focus in the United States:

• Professional market:

Our main focus in the short-term is the professional market in the United States as it represents a major opportunity for our non-lethal security products. According to the U.S. Bureau of Labor Statistics, in the United States there are nearly 917,000 police officers, detectives and criminal investigators. Cases involving police shootings and deaths related to the use of conductive energy devices have increased in the United States. According to The Washington Post, there have been over 6,300 shootings in the United States since 2015 involving police.

A Reuters report estimates that at least 1,000 people have died as a result of being stunned by conductive energy devices in the United States. In over 150 of those deaths, the conductive energy device was determined to be a cause or a contributing factor.

There are several other security-related occupations which we believe are potential customers for our non-lethal products. These include 800,000 private security guards, 346,000 corrections officers and 90,000 private detectives, according to the U.S. Bureau of Labor Statistics. We believe that our PARA OPS products could play a meaningful role in addressing the tragic increase in school shooting events. According to the Naval Postgraduate School's Center for Homeland Defense and Security, there have been approximately 460 shooting events in K-12 schools during the last five years. We believe our non-lethal security products offer school personnel important options to create a tactical advantage in school shootings without using lethal firearms.

According to the U.S. Department of Education, there are over 132,000 elementary and secondary schools and nearly 6,000 colleges and universities in the United States. We believe there is an opportunity to utilize our products to enhance school safety.

Other public spaces such as grocery stores, houses of worship, bars and nightclubs, concert venues, sporting arenas and public transportation centers are also confronted with increased security challenges. Each of these locations represents an opportunity for us as they could improve security without introducing lethal firearms into crowded civilian environments by equipping their employees and security personnel with our non-lethal products.

Other market opportunities that we intend to further explore include the international professional market, realistic force-on-force training for military and police, realistic high-action gaming and animal control, both in the United States and internationally.

The principal market for the ARWEN product line of non-lethal systems is law enforcement, primarily in Canada and United States.

• Consumer market:

According to Gallup and United States Census Bureau, as at January 2022, there are approximately 82 million gun owners in the United States. We believe our PARA OPS devices will offer gun owners and members of their households a safer, personal defense option, without the risk of loss of human life.

In addition to personal defense, we believe we have an opportunity to disrupt the recreational market - specifically for paintball guns, which are air-based devices rather than cartridge-based (see below, Business Overview - Competitive Conditions). According to market research by Statista, the paintball gun market size in the United States was $1.3 billion in 2020.

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Digitization

The principal market for our digitization business lines is primarily among military and public safety agencies in countries that are members of NATO, as well as Australia and New Zealand. As the largest purchaser and user of military and public safety products, the United States is our primary focus, followed by the other NATO member countries, and to a lesser extent, the Middle and Far East.

In addition to increased military spending in the United States and other members of NATO, another important trend that we have observed is an increase in funding within the military for projects related to precision munitions for weapons already in use by the military (legacy weapons) to further enhance survivability of soldiers and their operational effectiveness. Our TASCS products are expected to benefit from these trends by transforming "dumb" legacy weapons into "smart" weapons (with better accuracy).

For our CIMS offering, our principal market is public safety agencies, primarily in Canada and United States. Public safety agencies across the United States are seeking to implement digital solutions that can improve responder safety and incident management. According to Accenture, digital transformation presents one of the biggest challenges for public safety agencies. Globally, the public safety and security market was USD$435 billion in 2021 and is expected to reach USD$868 billion by 2028, growing at a CAGR of 10.4%, according to Fortune Business Insights.

The major factors fueling the public safety market include rising instances of mass shooting, natural disasters, terrorist activities and security breaches as well as increasing law enforcement requirements for public safety and investments in public safety measures for smart cities.

Counter Threat

Our BLDS and Phantom products were developed expressly to address the health and safety threats from weaponized and/or targeting laser devices by adversaries in the field.

We are also in the counter unmanned aircraft system ("Counter-UAS") market including loitering munitions. The proliferation of small hostile drones continues to be a growing worldwide problem for military forces, sensitive facilities, and public security agencies. Most counter-drone systems are electronic, designed to detect, identify, track and, if possible, disrupt the communications protocols of drones to prevent completion of their mission. Increasingly, however, drones are being developed by adversaries that are difficult or impossible to disrupt electronically.  Military and Homeland Security agencies are therefore seeking alternatives for stopping drones kinetically but without collateral damage.  We are working with Alare Technologies Inc. to develop a proprietary drone to address this opportunity.

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Competitive Conditions

Non-lethal

We expect our competition for non-lethal PARA OPS products will primarily be manufacturers of:

• handheld CO2-powered launchers of chemical irritant projectiles, including Byrna Technologies Inc. (which sells products under the Byrna® HD brand), United Tactical Systems, LLC (which sells products under the PepperBall brand), and FN Herstal;
• conductive energy devices, including Axon Enterprises, Inc. (which sells the TASER device); and
• remote restraint devices, including Wrap Technologies Inc.

Our competitive advantage is principally our proprietary system consisting of:

• a low energy cartridge system with a cartridge casing that generates spin to a projectile, a far more reliable platform than air-based launchers;
• inexpensive firing platforms in any design that fire only our PARA OPS;
• different payloads in the projectile for various applications; and
• velocities and muzzle energy far below the "lethal" threshold.

Our Executive Chairman was the inventor of PARA OPS. He was previously the founder of Simunition, a manufacturer of non-lethal training ammunition, since sold to General Dynamics. Further, he was also the CEO and Executive Chairman of United Tactical Systems, LLC, a company offering public-safety products for law enforcement, military and personal defense (owns the PepperBall brand). Accordingly, he brings a wealth of market knowledge to us. Additionally, our President and CEO has almost 20 years of firearms manufacturing experience. He was previously the General Manager of Colt Canada (the Canadian division of the American firearms manufacturer). In August 2021, we also hired a senior Technical Manager with over 17 years of firearms manufacturing, he previously held senior roles at Colt Canada including most recently R&D Manager and Product Support Engineering. While we do not build lethal firearms, this experience is very relevant for building our PARA OPS business.

Many air-powered (CO2-powered) devices are complex and less reliable, specifically:

• ambient temperature causes performance to vary, especially in colder weather;
• synthetic seals and "O" rings dry out and can cause catastrophic failures; and
• such devices entail long logistics tails (for example, heavy air tanks, compressors and spare parts).

We have filed a patent application with the U.S. Patent and Trademark Office ("USPO") for our proprietary cartridge-based firing system and are developing additional filings.

For the ARWEN's product line, our primary competitors are the following:

• DEFTEC / Safariland's 40 mm LTM launchers; and
• ALS (a Pacem Defense Company)'s single shot 37mm and 40mm launchers and 40mm multi-shot launchers.

A further market advantage is the access to the law enforcement market through our ownership of ARWEN, and the strength of its brand, which has been selling non-lethal systems to law enforcement agencies internationally for over 30 years.

Digitization and Counter-Threat

Our competition for digitization and counter threat business lines is primarily:

• R&D labs funded by the U.S. Department of Defense for developing systems like TASCS;
• Fabrique Nationale Herstal S.A. for their remote weapon stations (although these do not offer high angular resolution like TASCS); and
• known developers of electronic decoy systems including Motorola (Tactical TV Decoys), Synchopated Engineering (Mockingbird RF Signal Emulator), and CACI Systemware (MAGPIE).

We are currently not aware of any major direct competitors for our BLDS technology.

Our competitive advantage is the significant experience that our team of engineers and technicians have in soldier systems (which we consider to be any device that a soldier carries onto the battlefield, ranging from a communications device to a sensor), weapons, and sensor fields. Our expertise in the field of networked weapons has been recognized by the United States military who requested that we participate in the NATO working group tasked with developing standards and requirements for these types of networked weapons.

We are also not aware of any major direct competitors for our CIMS.

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Seasonality

We do not expect our non-lethal business line will be exposed to seasonality. While our Digitization and Counter-Threat business lines may be affected by national military budgets, as well as federal, state and local government spending, we expect the various customers having different spending cycles will mitigate our potential cyclicality exposure.

Manufacturing and Availability of Raw Materials

Non-lethal

We have currently outsourced the engineering work for the PARA OPS devices to a third party, with oversight by us. We plan to lease new office and lab space in the Kitchener-Waterloo area (Ontario) during the first quarter of Fiscal 2023, likely less than 10,000 square foot facility.  To achieve a scalable operating model with minimal capital expenditures, we plan to rely upon strategic alliances with OEMs for the manufacturing and distribution of our PARA OPS products.

For the ARWEN launchers, these are currently manufactured in Toronto (Ontario) area in a combined manufacturing and training facility of approximately 5,000 square feet (see Property, Plants and Equipment).  The current lease is on a month-to-month basis. 

Today, we are not aware of material sourcing issues or pricing volatility of raw materials, except for price volatility for certain components to manufacture ARWEN ammunition that will be required for our non-lethal business line (see Risk Factors - We Are Dependent on Key Suppliers for our ARWEN Product Line).

With the COVID-19 pandemic and global supply chain challenges, it is not possible to predict whether this could eventually materially impact our sourcing and pricing of our key raw materials for our non-lethal business line.

Digitization and Counter-Threat

Today we have assembled a team of engineers, technicians and advisors that have significant experience in soldier systems (which we consider to be any device that a soldier carries onto the battlefield, ranging from a communications device to a sensor), weapons, and sensor fields. It is this combination of disparate knowledge sets that enables us to integrate and develop innovative solutions. We leverage from this same pool of talent to deploy CIMS solutions for the public safety market.

Except for GhostNet, all the product development is done at our facility in Ottawa (see below, Property, Plants and Equipment). For as long as market demand justifies a low rate of production quantities, we will internally produce these products. Once demand reaches quantities necessitating commercial-level production quantities, we will outsource our production to companies specifically suited to producing each particular product. We are not aware of any material regulatory approvals that are required for us to outsource production.

Today, we are not aware of material sourcing issues or pricing volatility of key components for our Digitization and Counter-Threat business lines. However, with the COVID-19 pandemic, it is not possible to predict whether this could eventually materially impact our sourcing and pricing of our key raw materials.

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Marketing Plans and Strategies

Non-lethal

Initially we plan to sell our PARA OPS to the professional market which includes law enforcement agencies and then to the consumer market through an e-commerce store and a network of distributors. As announced on September 28, 2021, we entered into a strategic partnership with Stryk Group USA to assist us with the branding strategy and the creation and implementation of a website, coupled with the planning, communication, and marketing of our presence at the 2022 Shot Show to be held in Las Vegas, Nevada on January 18-21 of 2022.  In February 2022, we have discontinued our partnership with Stryk Group USA in favor of a team of outside experts under our direct control. In February 2022, we retained the services of Orchid Advisors LLC ("Orchid Advisors") for the commercialization of PARA OPS product line (see below Government Regulations).

For the ARWEN launchers, we plan to continue direct sales to law enforcement agencies, with marketing via tradeshows and social media/web-based.

Digitization and Counter-Threat

For digitization and counter-threat products, we plan to market through direct customer contact, tradeshows, demonstrations, and web-based marketing. Currently, we are planning to attending the following tradeshows:

Tradeshow	Location	Date of Event	Estimated Costs
CANSEC	Ottawa, Ontario	June 2022	$52,000
Eurosatory	Paris, France	June 2022	$70,000
Close Combat Symposium	Shrivenham, England	July 2022	$17,600
Ontario Tactical Advisory Board	Collingwood, Ontario	May 2022	$6,000
Silent Swarm	Grayling, Michigan	August 2022	$27,000
AUSA	Washington, DC	October 2022	$48,500
EW Symposium	Shrivenham, England	November 2022	$17,000
Best Defense	London, Ontario	November 2022	$9,000
Shot Show	Las Vegas, Nevada	January 2023	$125,000

Proprietary Protection

Non-lethal

On February 11, 2022, we filed United States patent application No. 17/669,420 claiming priority to a provisional patent serial 63/148,163 by the USPO for our PARA OPS system.

We have the following active trademarks:

Trademark	Country	Application # / Registration #	Status / Registration Date
PARA OPS	United States	97/248,319	Pending
ARWEN	Canada	TMA657,575	January 31, 2006
ARWEN	Great Britain	UK00001247086	July 27, 1985
ARWEN	Singapore	T9105613J	June 8, 1991
ARWEN	United States	1,404,833	August 12, 1986

Digitization

While we rely significantly on trade secrets to protect our internally developed technologies, we currently have the following patent regarding our digitization business lines:

Product line	Country	Application #	File Date	Title	Status
TASCS IFM	International	PCT/CA2021/050993	Filed on July 19, 2021 which claims the benefit of 63/054,435	Methods and Systems for Digital Image-Referenced Indirect Target Aiming	Published as W02022/016260 Applicant is KWESST Inc.

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Counter Threat

While we rely significantly on trade secrets to protect our internally developed technologies, we currently have the following patent and pending patent applications regarding our counter-threat business lines:

Product line	Country	Application #	File Date	Title	Status
Phantom	United States	16/686,095	Filed on November 15, 2019 which claims the benefit of 62/657,706	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Issued as Patent No. 10,969,467 (assigned to KWESST Inc.)
Phantom	United States	16/116,914	Filed on August 30, 2018 which claims the benefit of 62/657,706	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Issued as Patent No. 11,096,243 (assigned to KWESST Inc.)
Phantom	United States	17/163,546	Filed on January 31, 2021 which claims benefit of 16/116,914	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Pending
Phantom	United States	17/405,021	Filed on August 17, 2021 which claims the benefit of 16/116,914	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Pending
Phantom	International	PCT/CA2021/050038	Filed on January 15, 2021	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Pending (assigned to KWESST Inc.)
Phantom	Canada	3,106,716	Filed on January 21, 2021	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Pending (assigned to KWESST Inc.)
Phantom	Australia	2021200556	Filed on January 29, 2021	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy	Pending (assigned to KWESST Inc.)

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We also have the following pending trademark applications:

Trademark	Country	Application #	File Date	Status
GreyGhost	Canada	2,044,815	August 10, 2020	Pending
GreyGhost	United States	90/114,280	August 14, 2020	Pending
Phantom	Canada	2,047,424	August 24, 2020	Pending
Phantom	United States	90/135,612	August 25, 2020	Pending
	Canada	2,063,763	November 12, 2020	Pending
	United States	90/518,212	February 8, 2021	Pending

Government Regulations

Non-lethal

United States

In February 2022, we retained the services of Orchid Advisors to assist us with the classification and ATF compliance for our PARA OPS devices.  Orchid Advisors is a FFL compliance solutions firm headquartered in Hartford, Connecticut.

Based on Orchid Advisor's interpretation of the ATF rules and regulations, we have self-classified the .67 caliber version of the PARA OPS devices as a "destructive device," providing us with the ability to go to market much sooner than waiting for ATF classification ruling. Under the ATF rules, a manufacturer must determine whether the device is a firearm and therefore be subject to ATF regulation and if it is a firearm whether it is subject to National Firearms Act of 1934 ("NFA") regulations.

To be considered a regulated firearm in the United States, the device must be: (i) a weapon that (ii) will or is designed to expel a projectile (iii) by the action of an explosive. Although primers in ammunition cartridges are exempt from control under the explosives regulations as administered by ATF, they are still considered an "explosive" for the purposes of the firearm definition.  Because we use primers in the ammunition cartridges for our PARA OPS devices, we have decided to self-classify our PARA OPS devices as a form of firearm in the United States pending any different eventual classification by the ATF. 

As the PARA OPS product line is identified as a firearm in the United States, it must be determined whether an additional level of control is imposed by the NFA. Under NFA regulations, there are only two possible types of NFA firearm that PARA OPS could be defined as: (1) a "any other weapon" ("AOW") or (2) a "destructive device".  Sale of either of these to consumers is permissible but requires a lengthy approval process conducted by the ATF (the background check process on the consumer); whereas sale to law enforcement agencies, military bodies, or government agencies is a more expedient approval process (usually less than 7 days). Further, the AOW classification requires only a $5 transfer tax to consumers whereas a destructive device classification results in a $200 transfer tax to consumers (such tax being borne by the consumer). While our PARA OPS is non-lethal (the kinetic energy of our projectile is well below lethal threshold), we have determined that the current version of our PARA OPS devices are "destructive devices" because the measurement of the bore of our device is currently in excess of the one-half inch in diameter, the maximum size for AOW.

As a result, initial sales of our PARA OPS devices in the United States are expected to come primarily from law enforcement agencies until we reduce the bore of our device to less than one-half inch in diameter for the consumer market. In July 2022, we entered into a consulting agreement with an FFL engineering firm in the United States to finalize the prototype for the PARA OPS multi-shot device, including LRIP anticipated for Q1 Fiscal 2023, in addition to producing pre-production samples of the PARA OPS single shot device during Q4 Fiscal 2022.  We are currently developing a new version of PARA OPS device to meet the AOW firearm classification in order to reduce the tax burden on a consumer purchasing the PARA OPS devices.  We expect to commercially launch this AOW version during Fiscal 2023.  The distribution of our PARA OPS in the United States will be done directly with FFL distributors/firearm dealers for civilian sales.  Today, all 50 states of the United States allow civilians to own a firearm subject to the firearm laws of the state (which vary by state).  We expect the sales of our PARA OPS devices will position us well for significant recurring revenues through the sale of subsequent ammunition over the next 12 months (see Risk Factors - We have Significant Non-Recurring Revenue).

For the non-lethal ARWEN products, we maintain a Firearm Business License issued by the Chief Firearms Office of the Ontario Ministry of the Solicitor General and we are also registered under the Controlled Goods Program in Canada. For further information, see Digitization and Counter Threat. Additionally, we maintain a Federal Explosives License/Permit for the manufacturing of explosives and a Federal Firearms License for manufacturer and sale of destructive devices, both issued by the ATF in the United States.  All sales of our ARWEN launchers are made directly to law enforcement agencies.

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Rest of the World

As our current focus is commercializing PARA OPS in the United States, we have not begun analyzing the related government regulations for the rest of the world.

Digitization and Counter-Threat

Firearm Business License

In Canada, we maintain a firearm business license (the "Firearm Business License") with the Chief Firearms Officer of the Ontario Ministry of Solicitor General for our following business activities:

• Manufacture, modification and assembly: prohibited weapons, ammunition, restricted firearms, prohibited devices, prohibited ammunition, prohibited handguns, non-restricted firearms, prohibited firearms;
• Retail sales (including consignment sales): restricted firearms and non-restricted firearms;
• Consignment sales: prohibited firearms including prohibited handguns;
• Gunsmithing: prohibited firearms, prohibited handguns, non-restricted firearms, restricted firearms;
• Transportation of inventory: prohibited firearms, ammunition, prohibited handguns, non-restricted firearms, prohibited ammunition, prohibited devices, restricted firearms, prohibited weapons;
• Storage of firearms: restricted firearms, non-restricted firearms, prohibited firearms, prohibited handguns.
• Export: ammunition, prohibited handguns, non-restricted firearms, prohibited ammunition, prohibited firearms, prohibited weapons, prohibited devices;
• Possession for the purpose of instruction: restricted firearms, ammunition, non-restricted firearms, prohibited handguns.
• Import: prohibited firearms, non-restricted firearms, prohibited devices, prohibited ammunition, ammunition, prohibited weapons, prohibited handguns and restricted firearms.

The Firearm Business License is delivered for the purposes of: (i) the performance of a contract entered into by the Government of Canada, the government of a province, the government of a municipality acting on behalf of a police force, or a police force, or by a person acting on behalf of such a government or a police force; and (ii) the development, modification or testing of a prohibited firearm, prohibited weapon, prohibited device or prohibited ammunition, or any component or part thereof, for the purpose of training, or supplying goods or training materials used in the training of, a public officer as defined in subsection 117.07(2) of the Criminal Code (Canada), who is acting in the course of his or her duties or employment.

As of the date of this Prospectus, we are fully compliant with all the conditions under which the Firearm Business License is delivered and maintained.

We have applied for and received a Firearms Business License that covers off any potential scenario that we may from time to time be involved in which such a license would be required. We are currently not in the retail or consignment sale of firearms and do not expect to be in this type of business.

For greater clarity, we use real firearms in the development and testing of our products as well as in training users on their use. Any device such as the TASCS IFM or TASCS NORS must be developed and tested on the weapon platforms for which it is designed. The Shot Counter is designed to work on automatic weapons in military and police inventories. These types of weapons are classified as prohibited and are solely utilized in the development and testing of the product. Replica systems are utilized for static demonstration, trade shows and other non-firing events.

We procure ammunition such as those required for mortars, grenade launchers and others weapon types to conduct testing and evaluation. On occasion, we may need to export ammunition in support of demonstrations.

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Controlled Goods Program

In Canada, an individual or organization must register in the Controlled Goods Program with the Public Services and Procurement Canada if they need to:

• examine, possess or transfer controlled goods (munitions);
• transfer controlled goods outside of Canada; or
• receive bid solicitation documents containing controlled goods or controlled technology.

We are registered in the Controlled Goods Program and believe we are in compliance as of the date of this Prospectus.

Drone Regulations

In Canada

New regulations regarding drones in Canada by Transport Canada came into effect on June 1, 2019. The regulations, published in the Canadian Aviation Regulations (Part IX), introduce requirements and rules based on the weight of the remotely piloted aircraft ("RPA") and the intended operation. The new regulations apply to RPAs that: weigh 250 grams (g) up to and including 25 kilograms (kg) and are operated within the drone pilot's visual-line-of-sight.

The regulations introduce three categories of drones operations: basic ("Basic RPAs"), advanced ("Advanced RPAs") and all others that do not fall into these two categories. The categories are based on distance from bystanders and on airspace rules. The regulations focus on foundational issues such as aircraft making and registration, pilot knowledge and certification, airworthiness of the aircraft and flight rules.

As of the date of this Prospectus, we discontinued our investment in the Canadian drone project and therefore we are no longer subject to the above regulations.

In the United States

As our current focus is commercializing PARA OPS in the United States, we have not begun analyzing the related government regulations for the Counter-UAS market in the United States.

Economic Dependence

As an early-stage company, the revenue stream in Fiscal 2021 for the TASCS system was concentrated on one United States military customer. We recognized 98.3% of the total revenue (US $0.8 million) for this United States military customer during Fiscal 2021 (see Operating and Financial Review and Prospects, Critical Accounting Estimates).  We have delivered the remaining milestone and recognized the remaining 2.7% of the total revenue during the first quarter of Fiscal 2022. While we expect follow-on orders for our TASCS IFM 81mm mortar system during Fiscal 2023, there is no assurance of such orders.

Since September 30, 2021, we have further diversified our revenue base as a result of the Police Ordnance Acquisition.  Additionally, on December 1, 2021, we entered into a master professional services agreement (the “MPSA”) with GDMS to support the development of digitization solutions for future Canadian land C41SR programs under Strong, Secure, Engaged: Canada’s Defence Policy. This includes TAK integration and CIMS services over 12 months. The MPSA serves as the master agreement and governs the basic terms and conditions for all future statements of work (“SOW”) but does not in itself give rise to financial rights or obligations for either GDMS or us nor does it ensure that a future SOW will be awarded. Accordingly, there are no material terms in the MPSA except for the termination provision. At its sole discretion, GDMS may terminate the MPSA and/or a SOW by written notice to us. Under such event, GDMS will be liable for work rendered or expenses incurred prior to the effective date of such termination for which payment has not been made to us. GDMS may also terminate the MPSA immediately in the event of default (as defined in the GDMS). Concurrently with entering in the MPSA, we entered into a SOW with GDMS for the first phase of the project (“GDMS SOW No. 1”) which was delivered by the end of Q3 Fiscal 2022 and fully collected.  GDMS accounted for 55.9% and 63.9% of our Q3 and year-to-date (“YTD”) Fiscal 2022 consolidated revenue, respectively. Based on recent discussions with GDMS, we expect to enter into a SOW before the end of Q4 Fiscal 2022 and another SOW in Q2 Fiscal 2023, for an aggregate value of approximately $0.4 million. With the anticipated commercial launch of PARA OPS product line in Fiscal 2023 and continued product sales from the ARWEN launchers, we anticipate our total consolidated revenue will continue to diversify with various customers, resulting in less dependence on limited customers to drive positive cash flows and profitability.

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Foreign Operations

We established office space in Stafford, Virginia to conduct United States business development activities and anticipated light assembly and distribution for our non-lethal, Digitization, and Counter-Threat business lines.

History and Development of the Company

Corporate Overview

KWESST Micro Systems Inc. is a corporation domiciled in Canada and was incorporated under the BCBCA on November 28, 2017. We develop and commercialize next-generation tactical systems for military, security, and personal defense markets. Key market segments and solutions addressed by our proprietary solutions are:

(i)non-lethal products with broad application in the professional  and personal defense,

(ii)modernized digitization of tactical teams for shared real-time situational awareness in the military and civilian markets, and

(iii)counter-measures against threats such as drones, lasers and electronic detection for the military market.

Our business activities are carried on by our wholly-owned subsidiaries as listed in Intercorporate Relationships.

Our registered and head office is located at 2900 - 550 Burrard Street, Vancouver, British Columbia V6C 0A3 and our principal place of business is located at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, Canada, K2M 2A8.

Our Common Shares are listed on the TSXV under the stock symbol of "KWE" and the Frankfurt Stock Exchange under the stock symbol of "62U". and quoted on the OTCQB under the stock symbol of "KWEMF".

Following the closing of the Qualifying Transaction on September 17, 2020 (as defined below) pursuant to the policies of the TSXV, we changed our fiscal year end from December 31^st to September 30^th.

The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our internet site is https://www.kwesst.com; our telephone number is (613)319-0537.

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Intercorporate Relationships

The following chart illustrates our wholly-owned subsidiaries:

KWESST U.S. Holdings Inc.

On May 2, 2022, we incorporated a wholly-owned United States holding subsidiary in Delaware (United States). 

KWESST Public Safety Systems U.S. Inc.

On May 2, 2022, we incorporated a wholly-owned United States subsidiary in Delaware (United States), for the PARA OPS product line in the United States (see Business Overview). 

KWESST Defense Systems U.S. Inc. (formerly KWESST U.S., Inc.)

On January 28, 2021, we incorporated a wholly-owned United States subsidiary in Delaware (United States), named KWESST U.S., Inc., and established an office in Stafford, Virginia (United States) to further pursue Digitization and Counter-Threat business opportunities in the United States.  On June 3, 2022, we amended the certificate of incorporation of the subsidiary to change the name to KWESST Defense Systems U.S. Inc.

KWESST Public Safety Systems Canada Inc.

On April 6, 2022, we incorporated a wholly-owned subsidiary in Ontario (Canada), for the PARA OPS business line in Canada (see Business Overview). 

2720178 Ontario Inc. and Police Ordnance Company Inc.

On December 15, 2021, we acquired 2720178 Ontario Inc., which owns all of the issued and outstanding shares of Police Ordnance Company Inc., a company incorporated in Ontario (Canada) (see Principal Capital Expenditures and Divestitures).  These are wholly-owned subsidiaries of KWESST.

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KWESST Inc.

On April 24, 2017, we incorporated a company in Ontario (Canada) named KWESST Inc. for the Digitization and Counter-Threat business lines.

On September 17, 2020, pursuant to the Qualifying Transaction (as defined below), KWESST Inc. amalgamated with 2751530 Ontario Ltd. ("Subco"), with the amalgamated company retaining the name of "KWESST Inc."

Events in the Development of the Business

All share-related information presented in this section gives effect to the Reverse Split.

Inception to 2019 Highlights

KWESST was formed in April 2017 by Jeffrey MacLeod, our President & CEO and director and promoter. KWESST was founded to pursue advanced projects within the defense and security fields. We opened our offices in Ottawa, Ontario in May of 2017 and began development of what would become our core technology, TASCS.  Our TASCS consists of a sensor package mounted to a soldier weapon and a display running a user interface program typically known as the Battlefield Management System ("BMS").

Between May and September of 2017, we developed the first-generation prototype of the sensor package forming part of TASCS, combined with a basic BMS system. KWESST started to collaborate with a United States military drone supplier, AeroVironment, Inc. ("AeroVironment").

In March 2018, we successfully integrated AeroVironment's drone data feed into KWESST's TASCS.

From April 20, 2018 to December 14, 2018, KWESST completed several financings (collectively "KWESST 2018 Financing") in the amount of $940,255 by way of revenue sharing agreements, related party loans and 10% convertible debentures to fund our working capital requirements.

2019 Highlights

On April 12, 2019, we won our first contract with AeroVironment valued initially at USD$100,000, which was subsequently amended to USD$360,000 on August 6, 2019, to integrate our TASCS IFM with AeroVironment's Augmented Weapon Sight technology for the preproduction development of 60mm and 81mm mortar and machine gun mounts.

On October 1, 2019, we entered into an executive service agreement with DEFSEC Corporation ("DEFSEC") in which its CEO, David Luxton, agreed to serve as our Executive Chairman (refer to Compensation for remuneration information).

On October 24, 2019, we completed a private placement of Common Shares for gross proceeds of $1,015,000 at a price of $8 per share, resulting in the issuance of 126,875 Common Shares (the “October 2019 Private Placement”).

On October 24, 2019, the revenue sharing agreements and convertible debentures that we issued as part of the KWESST 2018 Financing were settled by the issuance of: (i) 77,612 Common Shares, and (ii) $234,515 in principal amount of convertible notes, bearing interest at a rate of 10% per annum (the "KWESST 2019 Convertible Notes").

On November 18, 2019, we entered into a non-exclusive licensing agreement (the "AerialX Licensing Agreement") with AerialX and licensed a technology required to manufacture, operate and use a drone whose principal function and purpose is to act as a projectile to intercept aerial threats using kinetic force (the "Licensed Technology").

During the quarter ended December 31, 2019, we started developing proprietary laser defense products to protect ground forces from a portable laser attack weapon developed and produced by a foreign adversary.

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Fiscal 2020 Highlights

On January 30, 2020, we completed a private placement of 65,625 Common Shares at a price of $16 per Common Share for gross proceeds of $1,050,000.

On March 1, 2020, we entered into a consulting agreement with SageGuild to provide United States business development support to facilitate the integration of our solutions/services into the U.S. Department of Defense markets. The monthly consulting fee comprised of cash and 762 Common Shares at a price of $20 per share. In preparation for a go-public transaction, the Common Shares issuable in satisfaction of the consulting fee were amended to stock options starting from May 31, 2020, in which the exercise price was satisfied by services rendered by SageGuild.

On March 25, 2020, we completed a private placement of 21,143 Common Shares at a price of $20 per Common Shares for gross proceeds of $422,875.

On April 30, 2020, Foremost Ventures Corp. ("Foremost"), together with its wholly owned subsidiary, Subco, entered into an amalgamation agreement ("Amalgamation Agreement") with KWESST Inc. pursuant to which Subco and KWESST Inc. agreed to amalgamate (the "Amalgamation") to complete an arm's length qualifying transaction, in accordance with the policies of the TSXV (the "Qualifying Transaction" or "QT").

On April 25, 2020, AeroVironment amended our 2019 contract to USD$635,000 to provide increased capability to the AWS system. This generated approximately $530,000 of revenue in fiscal year 2020 ("Fiscal 2020").

On May 8, 2020, we issued an aggregate amount of $1,115,034 in convertible notes comprised of (i) $1,081,504 in principal amount of convertible notes convertible at $18 per Common Share, bearing interest at a rate of 15% per annum (“KWESST May 2020 Private Placement Convertible Notes”) and (ii) a convertible note with a principal amount of $33,530 issued to a third party for services rendered in connection with the private placement, all of which convertible notes (including accrued interest thereon) were automatically converted into 65,230 Common Shares upon closing of the Qualifying Transaction on September 17, 2020. Additionally, as an inducement, the note holders were entitled to receive 25% of the principal amount in the form of Common Shares based on a stock price of $18 per share, resulting in the issuance of 15,020 Common Shares concurrently with the above conversion event.

On June 12, 2020, we entered into a technology agreement (the "GhostStep Technology Purchase Agreement") with SageGuild pursuant to which KWESST acquired GhostStep technology. We have since rebranded it as Phantom. The total purchase consideration was valued at approximately $482,000. For further information, see below, Principal Capital Expenditures and Divestitures.

On July 9, 2020, KWESST issued 110,238 subscription receipts of KWESST at $28 per subscription receipt for aggregate gross proceeds of approximately $3,087,138, before share issuance costs. As part of the Qualifying Transaction, in September 2020, the 110,238 subscription receipts were converted into Common Shares of KWESST, which were subsequently cancelled, and Common Shares were issued in exchange therefor.

On July 20, 2020, we won a contract with a United States military customer valued at USD$405,000 to integrate our TASCS IFM with a mortar system.

On September 17, 2020, KWESST completed the Qualifying Transaction with Foremost. The Amalgamation was structured as a three-cornered amalgamation and, as a result, the amalgamated corporation, named "KWESST Inc.", became a wholly owned subsidiary of Foremost, which changed its name to "KWESST Micro Systems Inc.". Immediately following the completion of the Amalgamation, there were 1,031,654 Common Shares outstanding, and the former shareholders of KWESST Inc., along with the holders of the subscription receipts and convertible notes of KWESST Inc., owned approximately 97.8% of the issued and outstanding Common Shares. This constituted a reverse acquisition for accounting purposes under IFRS.

On September 22, 2020, the Common Shares began trading on the TSXV under the stock symbol "KWE".

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Fiscal 2021 Highlights

On December 16, 2020, following successful trials, a United States military customer awarded a follow-on order of USD$799,000 with new hardware and software requirements coupled with additional military trials.

On January 14, 2021, we entered into a definitive technology purchase agreement (the "DEFSEC Purchase Agreement") to acquire the Low Energy Cartridge technology from DEFSEC, a proprietary non-lethal cartridge-based firing system (rebranded as the "PARA OPS" system) for a total purchase consideration of approximately $2.9 million, subject to closing conditions. For further information, see below, Principal Capital Expenditures and Divestitures.

On February 4, 2021, the Common Shares commenced quotation on the OTCQB under the stock symbol "KWEMF."

On April 5, 2021, KWESST and AerialX entered into an amended and restated license agreement in which we obtained exclusive rights to gain exclusive rights to manufacture, operate, and use its drone for the C-UAS (Counter Unmanned Aerial Systems) market, for the United States Department of Defense and Canada's Department of National Defense. For further information, see below, Principal Capital Expenditures and Divestitures.

On April 29, 2021, we completed a private placement of 89,401 units at a price of $50 per unit for gross proceeds of $4,470,071 (the “April 2021 Private Placement”), as amended in August 2021. Each unit consisted of one Common Share and one Common Share purchase warrant, exercisable at a price of $70 per share for a period of 24 months. Following this closing, we also closed the acquisition of the PARA OPS system on same day.

On July 9, 2021, we held our first live demonstration of the PARA OPS system in Whistler, British Columbia. Following this successful live demonstration, on July 12, 2021, we announced details of our commercialization road map for the PARA OPS system, including the unveiling our products at the 2022 SHOT Show® in Las Vegas, Nevada to be held on January 18-21, 2022.

On July 21, 2021, we announced that Brandon Tatum agreed to be our strategic advisor and advocate for the LEC System. Mr. Tatum is a former Tucson Police Officer and runs a successful You-Tube channel called "The Officer Tatum", with over 1.9 million subscribers, as well as other social media platforms and a nationally syndicated radio show on the Salem Radio Network.

On August 31, 2021, the Common Share purchase warrants issued in the April 2021 Private Placement were listed for trading on the TSXV under the stock symbol "KWE.WT."

On September 16, 2021, we completed a private placement of 1,875 units at a price of $80 per unit at a price of $80 per unit for gross proceeds of $1,500,000 (the “September 2021 Private Placement”). Each unit consisted of one Common Share and one Common Share purchase warrant, exercisable at a price of $94 per share for a period of 24 months.

On September 28, 2021, we announced our strategic partnership with Stryk Group USA for the commercialization of our PARA OPS system in the United States.

Year-to-date Fiscal 2022 Highlights

On October 4, 2021, we announced the introduction to market our Phantom electronic battlefield decoy, including advanced negotiation with a global defense contractor to provide Phantom units as part of the contractor tender for armored vehicles to a large North Atlantic Treaty Organization ("NATO") customer. There are only two bidders that have qualified for this opportunity.

On October 13, 2021, we announced that we are accelerating the readiness of deployable and man-wearable BLDS for first deliveries available by end of Q1 Fiscal 2022, following military interest from a number of NATO land and Special Operation Forces at the signature European defense show, DESI, which took place in London, UK, on September 13 to 18, 2021.  While no deliveries took place in the first nine months of Fiscal 2022, we continue to be in active discussion for a first order with a NATO country for two vehicle-mounted versions of the BLDS for Special Forces light patrol vehicles for delivery before end of Fiscal 2022.

On November 12, 2021, we announced that GDLS selected KWESST's Phantom electronic battlefield decoy as part of its ongoing efforts to develop a next generation multi-million domain mobile capability at the tactical level. If GDLS wins the contract with their United States military customer, we have estimated the potential value for this contract to KWESST could be more than USD $40 million, depending on the number of Phantom units per military vehicle and final pricing based on volume. The United States military customer is expected to announce the winner of the tender for 400-500 next generation military vehicles in calendar 2023. Accordingly, there is no assurance that we will be awarded this contract or if we are, what the value of such contract will be to KWESST.

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On November 15, 2021, we conducted live fire demonstration of our initial non-lethal cartridge-based single shot device for investors near Toronto, Ontario, including an opportunity for these investors to use the devices. Further, on January 14, 2022, we announced the unveiling of our non-lethal cartridge-based products under the brand PARA OPS at the 2022 SHOT Show® in Las Vegas held on January 18^th to 21^st 2022.

On November 23, 2021, in connection with an updated capital markets strategy, we submitted our initial application to list our Common Shares on Nasdaq. We believe that, if successful, a Nasdaq listing can broaden investor awareness for KWESST's Common Shares, with a view to supporting shareholder value.

On December 2, 2021, we announced that we engaged the New York-based public relations firm AMW Public Relations to lead our public relations, brand strategy, and media communication initiatives.

On December 8, 2021, our United States military customer accepted the delivery of the final milestone of the US $0.8 million relating to the integration of our TASCS IFM with the 81 mortar system. Final payment was received in January 2022. While we expect follow-on customer orders for this solution during Fiscal 2023, there is no assurance of such orders.

On December 14 and 16, 2021, we announced that we signed a Master Services Agreement with GDMS - Canada  to support the development of digitization solutions for future Canadian land C4ISR programs. We estimate the contract's value to KWESST to be up to $1.0 million over the next 12 months.

On December 15, 2021, we completed the non-cash acquisition of Police Ordnance Company Inc. - see below Principal Capital Expenditures and Divestitures for further details. On January 10, 2022, we announced that Police Ordnance Company Inc. received orders from law enforcement agencies for approximately $0.4 million in ARWEN products, all have since been delivered as of the date of this Prospectus. However, as most of the shipments related to open customer orders at the acquisition date, these were not recorded as revenue during the quarter but rather as a reduction of intangible assets in accordance with IFRS.

At the 2022 SHOT Show® held in Las Vegas from January 18^th to 21^st 2022, we showcased our initial PARA OPS single shot device. Since this event, we have continued to make further improvements to this device based on positive feedback from the SHOT Show®. As of the date of this Prospectus, we have finalized the design of the single shot device and are in the process of producing small quantities for market testing prior to commercial launch this summer. We are also in the process of optimizing the design of our multi-shot device for market testing in June 2022 and commercial launch soon after. Our initial sales focus will be law enforcements (see below Proprietary Protection - Government Regulations).

On February 11, 2022, we filed United States patent application No. 17/669,420 claiming priority to a provisional patent serial 63/148,163 by the USPO for our PARA OPS system.

On March 11, 2022, we closed a non-secured and non-convertible loan financing transaction with a syndicate of lenders for aggregate loan proceeds of $1.8 million and an additional $0.2 million on March 15, 2022, for a gross total of $2.0 million (the "Unsecured Loans"). The Unsecured Loans bear interest at a rate of 9.0% per annum, compounded monthly and not in advance, and have a maturity of thirteen months, with KWESST having the option to repay the whole or any part of the Unsecured Loans, without penalty or premium, at any time prior to the close of business on the maturity date. The principal amount is due only at maturity.  As part of the terms of the Unsecured Loans, we issued an aggregate of 25,000 bonus Common Shares to the lenders. These Common Shares were issued pursuant to prospectus exemptions of applicable Canadian securities laws and therefore subject to a four-month plus one day trading restriction. 

On March 29, 2022, the Common Shares commenced trading on the Frankfurt Stock Exchange under the stock symbol "62U." We believe this listing will provide us with the opportunity to further increase our investor base globally, improve our stock liquidity, and promote KWESST to the European financial markets.

We announced on April 4, 2022, with the war in Ukraine, that we are currently actioning a number of NATO and non-NATO country requests for quotations of our Phantom electronic decoy and laser detection products.  While we are confident that this activity will generate sales orders before the end of Fiscal 2022, there is no assurance that we will be successful.

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On April 22, 2022, we issued 1,531 Common Shares to the selling shareholders of Police Ordnance as a result of achieving the performance milestone as defined in the share purchase agreement.

On April 25, 2022, we announced that we engaged RedChip Companies ("RedChip") to lead our investor relations efforts in the United States, in advance of our pending Nasdaq listing. Headquartered in Orlando, Florida, RedChip provides investor relations, financial media, and research for microcap and small-cap stocks.

On July 6, 2022, we won our first CISM related contract and entered into a three-year contract with Counter-Crisis Technology Inc. to design, develop, and implement a significant component of a national Ground Search and Rescue Incident Command System for Public Safety Canada, with the Ontario Provincial Police as technical advisory stakeholder for this project. The total contract value is approximately $0.7 million, net of in-kind contributions of $76,000, over three years of services commencing in late July 2022.  Either party may, at any time and for any reason, terminate the contract for convenience upon at least 30 business days’ notice.  In the event of termination for convenience, we may recover only the actual cost of work completed to the date of termination in approved units of work or percentage of completion.

On July 14, 2022, we closed a non-brokered private placement, resulting in the issuance of 40,000 units of KWESST, at a price of $8.60 per unit, for aggregate gross proceeds of $0.34 million. Each unit consisted of one Common Share and one-half Common Share purchase warrant, exercisable at a price of $11.40 per share for a period of 24 months. Certain of our directors and officers participated in the amount of $87,500.

On August 29, 2022, we announced that we closed two non-secured loans in the amount of USD$200,000 per loan with a third party lender for an aggregate amount of USD$400,000. The first non-secured loan of USD$200,000 bears interest of 6% per annum and will mature on August 31, 2023.  In connection with the first non-secured loan, we issued 7,418 bonus shares (post Reverse Split) to the lender.  The second non-secured loan of USD$200,000 (the “Second Loan”) bears interest of 6% per annum and will mature on August 31, 2023. For both loans, the repayment will be 110% of its principal and both loans are senior to our other unsecured indebtedness. The Second Loan contains certain provisions allowing us to apply to the TSX Venture Exchange to repay the principal amount by issuing Common Shares in accordance with the rules and regulations of the TSX Venture Exchange.

On September 13, 2022, we announced the commencement of the Canadian Offering following the filing of a preliminary short form base PREP prospectus with the securities regulatory authorities in each of the provinces of Canada, except Québec.

Principal Capital Expenditures and Divestitures

We made the following capital expenditures over the last three financial years and year-to-date Fiscal 2022. All share-related information presented in this section gives effect to the Reverse Split.

Year-to-date Fiscal 2022

• On December 15, 2021, we acquired 2720178 Ontario Inc., an Ontario (Canada) corporation, which owns all of the issued and outstanding shares of Police Ordnance, herein referred as the "Police Ordnance Acquisition". Located in Bowmanville, Ontario, with ancillary operations in Florida, Police Ordnance owns all intellectual properties to the ARWEN product line of non-lethal systems, and a proprietary line of 37 mm non-lethal cartridges designed for riot control and tactical teams.  Police Ordnance has law enforcement customers across Canada, the United States, and abroad. The Police Ordnance Acquisition provides us with a strategic opportunity to leverage its law enforcement customer base to accelerate growth within our specialty ordnance business (see Business Overview).

• On December 15, 2021, the closing date of the Police Ordnance Acquisition, the fair value of the purchase consideration was $0.6 million, which comprised of: (i) 6,939 Common Shares, (ii) 5,000 Common Share purchase warrants exercisable at a price of $68.80 per share and expiring on December 15, 2024; and (ii) 1,531 Common Shares contingent on fulfilment of a financial milestone, which was met in April 2022 resulting in the issuance of these Common Shares. At this time the purchase price allocation remains preliminary as certain inventory and intangible asset valuation assessments are ongoing. We expect to finalize the allocation in Q4 2022. While this acquisition is expected to be accretive based on historical results, we do not expect it will have a material impact to our overall consolidated results of operations, financial condition, and/or cash flows over the next twelve months.

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Fiscal 2021:

• On January 14, 2021, we entered into a purchase agreement with DEFSEC to acquire the LEC System the “DEFSEC Purchase Agreement”). The transaction closed on April 29, 2021 (the “DEFSEC Closing Date”), following the April 2021 Private Placement. DEFSEC is an Ottawa-based based private company owned by David Luxton, our Executive Chairman. The purchase consideration was approximately $2.9 million comprising of 25,000 Common Shares, 12,500 Common Share purchase warrants, and the fair value of the minimum annual royalty payments over a ten-year period. Each Common Share purchase warrant entitles the holder to purchase one Common Share, at a price of $28 per share. These warrants will expire on April 29, 2026. Under the DEFSEC Purchase Agreement, we agreed to pay a 7% royalty on future annual sales of the PARA OPS products, subject to minimum annual royalty payments over a ten-year period. Refer to Note 4(a) of the audited financial statements for Fiscal 2021 for further details.

• On April 5, 2021, we entered into an amended and restated AerialX Licensing Agreement with AerialX in which we obtained exclusive rights to the Licensed Technology for the United States Department of Defense and Canada’s Department of National Defense for a period of two years from the date upon which AerialX will meet certain technical milestones (the “Technical Milestones”). In consideration for the exclusivity, we issued 2,500 Common Shares to AerialX. We also agreed to issue an additional 2,500 Common Shares and 7,500 Common Shares upon AerialX achieving the Technical Milestones and certain financial milestones, respectively. Additionally, we agreed to pay a variable 8%-15% royalty. Refer to Note 26 of the audited financial statements of Fiscal 2021 for further details.

Fiscal 2020:

• On June 12, 2020, we entered into a technology purchase agreement with SageGuild pursuant to which we acquired the GhostStep® Technology (referred to hereinafter as “Phantom”). The Phantom technology is a portable, soldier or air deployable electronic battlefield decoy. The purchase consideration was $0.5 million, which was comprised of: (i) USD$0.1 million cash, (ii) 17,425 Common Shares, and (iii) 18,750 Common Share purchase warrants exercisable at a price of $20 per share and expiring on January 15, 2023. Additionally, we agreed to pay a 20% royalty on the first USD$3.0 million of Phantom sales and 5% thereafter up to a maximum royalty payment of USD$20.0 million, with no minimum guaranteed annual royalty payment. Refer to Note 4 of the audited financial statements of Fiscal 2021 for further details.

Year 2019:

• On November 18, 2019, we entered into the AerialX Licensing Agreement with AerialX to have a non-exclusive right to manufacture, operate, and use AerialX's technology for the Counter Unmanned Aerial Systems market, which was amended and restated on April 5, 2021.

Advisers

Our United States legal counsel is Dorsey & Whitney LLP, with a business address at 161 Bay Street, Suite 4310, Toronto, Ontario, Canada M5J 2S1.

Our Canadian legal counsel is Fasken Martineau DuMoulin S.E.N.C.R.L., s.r.l, with a business address at 800 Victoria Square, Suite 3500, Montréal, Québec, Canada, H4Z 1E9.

Auditors

KPMG LLP, Chartered Professional Accountants, are currently and have been our independent auditors since March 31, 2021. KMPG LLP audited our consolidated financial statements for the year ended September 30, 2021. The business address of KPMG LLP is 150 Elgin Street, Suite 1800, Ottawa, Ontario, K2P 2P8. KPMG LLP are registered with both the Canadian Public Accountability Board and the United States Public Company Accounting Oversight Board.

Kreston GTA LLP, Chartered Professional Accountants, audited our consolidated financial statements for the nine months ended September 30, 2020, and the year ended December 31, 2019. The business address of Kreston GTA LLP is 8953 Woodbine Avenue, Markham, Ontario, L3R 0J9. Kreston GTA LLP are registered with both the Canadian Public Accountability Board and the United States Public Company Accounting Oversight Board.

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Organizational Structure

See History and Development of the Company - Intercorporate Relationships.

Property, Plants and Equipment

We do not own any real estate property. We operate from leased premises in two different locations, as detailed in the following table:

Location	Area (approx.)	Premise Use	Expiry Date
155 Terence Matthews, Unit#1, Ottawa, Ontario, Canada	7,200 sq. ft.	Corporate offices and administration, Research and Development	April 30, 2026 (renewal extension of 5 years)
10 Center Street, Suite 201, Stafford, Virginia, United States	2,000 sq. ft.	Sales and Marketing	October 31, 2022
2370 Nash Road, Bowmanville, Ontario, Canada	5,000 sq. ft.	Manufacturing and distribution of non-lethal ARWEN products	Month-to-month

At June 30, 2022, the carrying value of our total tangible fixed assets was approximately $0.9 million held in Ottawa, Ontario, Canada.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Certain share-related information presented in this section gives effect to the Reverse Split.

Operating Results

The following discussion of our financial condition, changes in financial conditions and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements as at and for the three and nine months ended June 30, 2022, and our audited consolidated financial statements as at and for the year ended September 30, 2021, the nine months ended September 30, 2020, and the year ended December 31, 2019, in each case, together with the related notes (see section titled, Financial Statements). Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

The following discussion contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements. See the Forward-Looking Statements at the beginning of this Prospectus.

Overview and Outlook

We are an early commercial-stage technology company focused on the development and commercialization of next-generation tactical systems that meet the requirements of military and security forces and personal defense.

In the last two financial years and for the nine months ended June 30, 2022, we have significantly expanded our business through one business combination and two asset acquisitions to complement our product offerings (refer to History and Development of the Company). The following are the key market segments and solutions address by our solutions:

• non-lethal systems with broad application, including law enforcement and personal defense;
• modernized digitization of tactical forces for shared situational awareness and targeting; and
• counter-measures against threats such as drones, lasers, and electronic detection.

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Since inception, we have primarily generated revenues from pre-commercialization contracts with two United States military customers for our TASCS solution. More recently, we were awarded a USD$0.8 million contract to integrate TASCS IFM with an 81mm mortar system for a United States military customer. We held successful military exercises for this product in California in September 2021. Based on subsequent positive feedback from the United States military customer, we expect follow-on orders in Fiscal 2023. Additionally, on October 4, 2021, we announced our market introduction of our Phantom electronic decoy, enabling us to bid for a contract with GDMS, which could be valued over USD$40 million with a global defense contractor. The successful tender will be announced in late 2023. Further, we have begun LRIP for the single-shot PARA OPS business line and plan to go to market in Fiscal 2023.  Accordingly, we believe we are in a good position to generate significant revenue from a new source over the next 12 months, with continued volatility in our quarterly revenue for Fiscal 2023.

Our expenses grew dramatically over the last fiscal year compared to the prior two financial years primarily due to making a significant investment throughout our organization to position ourselves for success, coupled with one-time costs for going public in Canada (see Results of Operations - The Year Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020 - Operating Expenses). We expect our expenses will continue to grow in Fiscal 2022, particularly for commercializing our PARA OPS and marketing efforts in the United States to grow our market share. Further, during YTD Fiscal 2022, due to the current global inflation we have experienced some increases in cost for certain raw materials that we source for the production of ARWEN ammunition, coupled with an increase of 6% to the annual payroll costs for our engineering group due to strong local demand for skilled, experienced engineers. However, we have observed recent layoffs from in our local technology market and therefore we believe the labor market may soften over the next twelve months.  As of the date of this Prospectus, our operations and business goals have not been materially affected by the current global supply chain disruptions nor from the disruption caused by Russia's invasion of Ukraine.  Except for the ARWEN product line, raw materials for our products are accessible from various suppliers and therefore we do not believe a persistent global supply chain dislocation will materially impact our operations over the next twelve months. It is difficult at this time to predict whether costs of raw materials will continue to increase in the light of the global supply chain disruptions; however, we expect to be able to pass on these incremental costs to customers. 

Our financial strategy to date has been to raise sufficient capital through securities offerings in order to fund our working capital requirements, product development, and business growth strategies. As our commercialization efforts increase, we may need to raise additional capital. See Liquidity and Capital Resources, for more information.

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Results of Operations - Three and Nine Months Ended June 30, 2022, and 2021

The following selected financial information is taken from the unaudited condensed consolidated interim financial statements for the three and nine months ended June 30, 2022, and 2021 ("Q3 Fiscal 2022 FS"), see Financial Information.

		Three months ended June 30,						Nine months ended June 30,
(Unaudited)		2022			2021(1)			2022			2021(1)
Revenue	$	282,432		$	521,724		$	466,148		$	1,115,757
Cost of sales		(238,350	)		(315,273	)		(405,841	)		(718,309	)
Gross profit		44,082			206,451			60,307			397,448
Gross margin %		15.6%			39.6%			12.9%			35.6%
Operating Expenses
General and administrative		1,322,730			1,236,988			3,410,887			2,909,349
Selling and marketing		851,705			882,261			2,931,460			2,195,647
R&D		350,689			678,622			1,610,445			1,648,711
Total operating expenses		2,525,124			2,797,871			7,952,792			6,753,707
Operating loss		(2,481,042	)		(2,591,420	)		(7,892,485	)		(6,356,259	)
Other expenses
Gain on acquisition		41,869			-			41,869			-
Net finance costs		(184,177	)		(27,780	)		(304,298	)		(60,857	)
Foreign exchange gain (loss)		22,901			(9,025	)		22,602			(14,189	)
Loss on disposals		-			-			(1,165	)		-
Net loss	$	(2,600,449	)	$	(2,628,225	)	$	(8,133,477	)	$	(6,431,305	)
EBITDA loss	$	(2,336,150	)	$	(2,587,006	)	$	(7,603,871	)	$	(6,281,964	)
Adjusted EBITDA loss(2)	$	(1,532,263	)	$	(2,057,558	)	$	(5,291,673	)	$	(4,868,894	)
Loss per share - basic and diluted, as reported	$	(0.05	)	$	(0.06	)	$	(0.16	)	$	(0.15	)
Weighted average common shares, basic, as reported		51,988,774			46,016,645			50,288,043			43,126,552
Loss per share, basic and diluted, post Reverse Split	$	(2.00	)	$	(2.40	)	$	(6.40	)	$	(6.00	)
Weighted average common shares, basic, post Reverse Split		1,299,719			1,150,416			1,257,201			1,078,163

^{(1)See Note 2(f) of the Q3 Fiscal 2022 FS.}

^{(2)EBITDA and Adjusted EBITDA are non-IFRS measures.}

In the following table, we reconciled the EBITDA and Adjusted EBITDA to the most comparable IFRS financial measure:

		Three months ended June 30,						Nine months ended June 30,
(Unaudited)		2022			2021			2022			2021
Net loss as reported under IFRS	$	(2,600,449	)	$	(2,628,225	)	$	(8,133,477	)	$	(6,431,305	)
Net finance  costs		184,177			27,780			304,298			60,857
Depreciation and amortization		80,122			13,439			225,308			88,484
EBITDA loss		(2,336,150	)		(2,587,006	)		(7,603,871	)		(6,281,964	)
Other adjustments:
Stock-based compensation		524,931			520,423			1,875,392			1,398,881
Professional fees relating to U.S. financing		343,726			-			500,112			-
Gain on acquisition		(41,869	)		-			(41,869	)		-
Foreign exchange loss (gain)		(22,901	)		9,025			(22,602	)		14,189
Loss on disposals		-			-			1,165			-
Adjusted EBITDA loss	$	(1,532,263	)	$	(2,057,558	)	$	(5,291,673	)	$	(4,868,894	)

Note: EBITDA and Adjusted EBITDA are non-IFRS measures

For Q3 and YTD Fiscal 2022, KWESST's net loss was $2.6 million and $8.1 million, respectively. While the results Q3 Fiscal 2022 remained relatively consistent with the comparable prior period, the YTD Fiscal 2022 net loss increased by $1.7 million over the comparable prior period, primarily due to lower revenue and higher operating expenses driven by higher headcount and related share-based awards, and increased sales and marketing efforts. Additionally, we incurred higher professional fees relating to our Nasdaq listing application and the prospectus and related registration statement with respect to this offering, coupled with financing efforts in the United States (see below).

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Most of the adjustments to EBITDA relate to non-cash share-based compensation and professional fees incurred in an effort to raise at least USD$7.0 million of capital via a brokered private placement in the United States, which we did not close due to very challenging global equity market conditions where the S&P 500 index and Nasdaq index declined by approximately 20.6% and 29.5%, respectively from January 1, 2022, to June 30, 2022. To preserve our remaining liquidity for near-term working capital, certain professional firms involved in this financing have agreed to defer the timing of payment until we complete an initial public offering on Nasdaq, which remains subject to SEC's acceptance of our Form F-1 Registration Statement and Nasdaq's approval of our listing on its exchange. The increase in share-based compensation in Q3 Fiscal 2022 compared to the same comparable prior period was primarily driven by 16,955 RSUs and 30,000 PSUs granted to officers and consultants near and at the end of Q2 Fiscal 2022, net of 10,000 PSUs forfeited during the current quarter due to not achieving one of the performance milestones as established by the independent directors of our Board. This also contributed to the increase in the YTD Fiscal 2022 share-based compensation compared to the same period in Fiscal 2021, coupled with an increase in expense for the stock units issued to key business consultants in Q4 Fiscal 2021 and Q1 Fiscal 2022 earned over 12 months.

Revenue and Gross Profit

		Three months ended June 30,			Change		Nine months ended June 30,			Change
(Unaudited)		2022		2021	%		2022		2021	%
Digitization	$	157,900	$	497,792	-68%	$	314,515	$	1,080,933	-71%
ARWENTM		100,684		-	N/A		111,176		-	N/A
Training and services		23,495		-	N/A		39,169		-	N/A
Other		353		23,932	-99%		1,288		34,824	-96%
Total revenue	$	282,432	$	521,724	-46%	$	466,148	$	1,115,757	-58%
Gross profit	$	44,082	$	206,451		$	60,307	$	397,448
Gross margin		15.6%		39.6%			12.9%		35.6%

Total revenue declined by 46% and 58% during Q3 Fiscal 2022 and YTD Fiscal 2022, respectively, compared to same periods in Fiscal 2021. Revenue for Digitization product line declined by 68% and 71% for Q3 Fiscal 2022 and YTD Fiscal 2022, respectively, primarily due to the timing of expected contracts and a smaller contract awarded by General Dynamic Mission Systems Canada in Q1 Fiscal 2022, compared to the USD$0.8 million contract awarded by a US military customer in the same quarter in Fiscal 2021 delivered throughout Fiscal 2021. The new ARWEN product line is as a result of the Police Ordnance Acquisition made in late Q1 Fiscal 2022. The Q3 Fiscal 2022 and YTD Fiscal 2022 ARWEN revenue excludes $0.2 million and $0.3 million, respectively for deliveries of ARWEN products for open customer orders at the closing of the Police Ordnance Acquisition which were recognized as a reduction of intangible assets.

While ARWEN product sales have contributed significantly to our YTD Fiscal 2022 revenues, we expect that this product line will represent a small percentage of our consolidated revenue in Fiscal 2023 and thereafter. 

We expect revenue to ramp up over the next few quarters with new anticipated military contracts, coupled with the pending commercial launch of our PARA OPS, with LRIP shipments of the PARA OPS products expected to commence in September 2022. We anticipate transitioning from LRIP to full production with strategic U.S. manufacturing and distribution partners in Q1 Fiscal 2023.

Gross margin was lower for the three and nine months ended June 30, 2022, compared to the same prior periods, primarily due to negative gross margin earned on training and services on TASCS IFM and on ARWEN products provided to military and law enforcement agencies during Q3 Fiscal 2022 to drive business development for future sales opportunities, which resulted in additional ARWEN orders during the quarter for shipment in Q4 Fiscal 2022. Excluding the impact of this negative margin on training and services, our gross margin would have been 33.53% and 26.99% for Q2 Fiscal 2022 and YTD Fiscal 2022, respectively. Our gross profit will continue to fluctuate from quarter-to-quarter with the anticipated new product mix and sales volume.

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Operating Expenses (OPEX)

		Three months ended June 30,			Change		Nine months ended June 30,			Change
(Unaudited)		2022		2021(1)	%		2022		2021(1)	%
General and administrative ("G&A")	$	1,322,730	$	1,236,988	7%	$	3,410,887	$	2,909,349	17%
Selling and marketing ("S&M")		851,705		882,261	-3%		2,931,460		2,195,647	34%
Research and development ("R&D")		350,689		678,622	-48%		1,610,445		1,648,711	-2%
Total operating expenses	$	2,525,124	$	2,797,871	-10%	$	7,952,792	$	6,753,707	18%

^{(1)See Note 2(f) of the Q3 Fiscal 2022 FS.}

Total OPEX decreased by 10% or $0.3 million for the current quarter over the comparable prior period driven by a 48% reduction in R&D spend due to allocating some of our engineers to revenue-related activities and other projects in which we capitalized development costs (included in intangible assets). This was partially offset by a 7% increase in G&A driven primarily by higher professional fees relating to our US financing effort during Q3 Fiscal 2022 (see above Adjusted EBITDA). This was partially offset by no licensing expense incurred in the current quarter, compared to $0.3 million in Q3 Fiscal 2021 in connection with our amended licensing agreement with AerialX.

Total OPEX increased by 18% or $1.2 million for YTD Fiscal 2022 over the comparable prior period, including $0.5 million of additional share-based compensation or 7.1 percentage points of the total increase. Excluding share-based compensation (non-cash item), total OPEX was $6.1 million for YTD Fiscal 2022 compared to $5.4 million for YTD Fiscal 2021. The increase was driven by the following factors:

• G&A increased by 17% or $0.5 million, primarily due augmenting the senior management team with two full-time executives and recruiting independent directors and other staff, which led to an increase in total personnel costs including $0.1 million of additional share-based compensation over YTD Fiscal 2021. Additionally, as noted above for the Q3 Fiscal 2022 increase in G&A, we incurred higher professional fees which was partially offset by no licensing expense with AerialX in the current quarter compared to Q3 Fiscal 2021.

• S&M increased by 34% or $0.7 million; however, excluding share-based compensation S&M increased by $0.4 million. This increase was primarily due to attending various investor conferences in the United States and engaging strategic advisors during Fiscal 2022. This included The Officer Tatum LLC who joined us in July 2021 as our strategic advisor and advocate for our PARA OPS product line for law enforcement and personal defense in the United States; the engagement of STRYK Group in September 2021 to assist us with the commercialization of our PARA OPS product line up to January 2022; the engagement of AMW Public Relations in November 2021 to lead our United States public relations, brand strategy and media communications initiatives; and the engagement of Orchid Advisors to assist us with ATF compliance for our PARA OPS product line. Additionally, our S&M personnel costs increased as result of the Police Ordinance Acquisition. Partially offsetting this increase in S&M, we reduced our spend in external investor relations and social media promotions.

Net Finance Costs

Total finance costs for Q3 Fiscal 2022 and YTD Fiscal 2022 were $0.2 million and $0.3 million respectively, a 563% and 400% increase over the comparable prior periods primarily due to the accretion and interest costs relating to the Unsecured Loans and the accretion cost of the discounted royalties payable to DEFSEC Corporation for the PARA OPS technology acquisition.

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Results of Operations - Fiscal Periods Ended September 30, 2021 and 2020, and December 31, 2019

The following selected financial information is taken from the audited financial statements for the year ended September 30, 2021, the nine months ended September 30, 2020, and the year ended December 31, 2019.

		Year ended September 30,			Nine months ended September 30,			Year ended December 31,		Change 2021 vs 2020 (1)		Change 2020 vs 2019 (1)
		2021			2020			2019			%		%
Revenue	$	1,275,804		$	861,917		$	509,148		11	%	126	%
Cost of sales		(798,888	)		(247,113	)		(85,101	)	142	%	287	%
Gross profit		476,916			614,804			424,047
Gross margin %		37.4	%		71.3	%		83.3	%	-39.9	%	-12.0	%
Operating Expenses
General and administrative		4,057,167			2,723,861			397,990		12	%	813	%
Selling and marketing		3,484,159			564,266			36,681		363	%	1951	%
R&D		2,138,138			817,584			1,003,705		96	%	9	%
Total operating expenses		9,679,464			4,105,711			1,438,376		77	%	281	%
Operating loss		(9,202,548	)		(3,490,907	)		(1,014,329	)	98	%	359	%
Loss on derivatives		-			29,463			113,178		-100	%	-65	%
Net finance costs		(107,751	)		(61,397	)		(245,147	)	32	%	-67	%
Foreign exchange loss		(3,742	)		(13,937	)		(982	)	-80	%	1792	%
Loss on disposals		(1,331	)		-			-
Net loss	$	(9,315,372	)	$	(3,536,778	)	$	(1,147,280	)	98	%	311	%
EBITDA	$	(9,066,631	)	$	(3,371,984	)	$	(799,991	)	102	%	462	%
Adjusted EBITDA	$	(6,599,351	)	$	(1,589,723	)	$	(912,187	)	211	%	132	%
Earnings (loss) per share - basic and diluted, as reported	$	(0.21	)	$	(0.11	)	$	(0.07	)	40	%	114	%
Weighted average common shares - basic, as reported		44,290,536			30,844,129			17,430,077		44	%	77	%
Earnings (loss) per share - basic and diluted, post Reverse Split	$	(8.40	)	$	(4.40	)	$	(2.80	)	43	%	110	%
Weighted average common shares - basic, post Reverse Split		1,107,263			771,103			435,752		44	%	77	%

Note:

(1)To calculate the change, we have annualized the results of operations for the nine months ended September 30, 2020. While annualized results are not indicative of actual 12-month results, we believe this is more relevant and useful information to readers to compare results year over year.

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In the following table, we reconciled the EBITDA and Adjusted EBITDA to the most comparable IFRS financial measure:

		Year ended September 30,			Nine months ended September 30,			Year ended December 31,
		2021			2020			2019
Net loss as reported under IFRS	$	(9,315,372	)	$	(3,536,778	)	$	(1,147,280	)
Net finance costs		107,751			61,397			245,147
Depreciation and amortization		140,990			103,397			102,142
EBITDA loss		(9,066,631	)		(3,371,984	)		(799,991	)
Other adjustments:
Non-cash M&A costs		-			1,514,703			-
Stock-based compensation		2,462,207			283,084			-
Fair value adjustments on derivatives		-			(29,463	)		(113,178	)
Foreign exchange loss		3,742			13,937			982
Loss on disposal		1,331			-			-
Adjusted EBITDA loss	$	(6,599,351	)	$	(1,589,723	)	$	(912,187	)

In Fiscal 2021, we incurred a net loss as reported under IFRS of $9.3 million, an increase in net loss of $5.8 million over Fiscal 2020. Over the last three financial years, our net loss substantially increased primarily due to scaling up our operations with additional headcount, increasing our investment in product development, going public in Canada, and making a significant investment in promoting and increasing awareness of our company and our new product offerings. While our revenue base has increased over the last three fiscal years, we have not reached the commercialization level to support these significant investments throughout our organization. We expect revenue to increase significantly starting from Q4 Fiscal 2022 as we begin to commercialize certain of our products that are currently under development, including, to a lesser extent new product sales from the acquisition of Police Ordnance.

Over the last three financial years, the adjustments made to our EBITDA loss were primarily driven by non-cash mergers and acquisitions ("M&A") costs, share-based compensation, and fair value adjustments on derivatives.

• The non-cash M&A costs incurred in Fiscal 2020 relate to the listing expense incurred in the reverse acquisition, coupled with related performance bonus settled in Common Shares (see Note 4(b) of our audited consolidated financial statements for Fiscal 2021).

• We implemented our stock option plan during the quarter ended March 31, 2020, which was subsequently replaced by our LTIP on March 31, 2021 (see Compensation - Equity Compensation Plan). The significant increase in share-based compensation in Fiscal 2021 over Fiscal 2020 is mainly due to granting a higher volume of options at a higher fair value per option, coupled with the timing of the grants and shorter vesting provision for certain grants. We granted 92,725 options at a weighted average fair value per option of $28.59, compared to 51,375 options at a weighted average fair value per option at $9.20. We also began to grant RSUs, PSUs, and SARs to our executive officers, employees, and consultants. The increase in grants was driven by the increase in headcount, including two executive officers, coupled with the recruiting of new independent directors. We also compensated certain consultants and promotors with restricted stock units and performance stock units. See Note 16(c) of our audited consolidated financial statements for Fiscal 2021 for further financial information.

• The fair value gain on derivatives recognized in Fiscal 2020 and year ended December 31, 2019 ("Fiscal 2019") relates to the fair value remeasurement on the conversion feature for the convertible notes issued in 2019. These convertible notes, including accrued interest, were subsequently converted into Common Shares upon the closing of our Qualifying Transaction in September 2020.

Financial Overview

Revenue

Since inception, our revenue was driven from the sale of product demonstration units to the United States military customers, including training. Because our performance obligations under the contract with the United States military customer were satisfied over time during Fiscal 2021, we recognized revenue over time using the percentage of completion method. We calculated this based on costs incurred to date relative to total estimated costs at completion.

With the expected commercial launch of our PARA OPS devices during Q4 Fiscal 2022, we expect revenue for these devices will be generated through the wholesale distribution of our products to dealers / distributors and through an e-commerce portal to consumers. We expect the transfer of control for our PARA OPS devices to take place at shipment and accordingly, revenue will be recognized at that point in time. As a result, coupled with a new service revenue stream for the ATAK integration services for prospective customers, we expect product revenue to accelerate from Q4 Fiscal 2022.  Accordingly, we expect our quarterly revenue will continue to fluctuate significantly for the remainder of Fiscal 2022 and in Fiscal 2023.

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Cost of Sales / Gross Profit

Cost of sales include cost of finished goods, freight, and direct overhead expenses.

We expect our gross profit will continue to fluctuate from quarter-to-quarter with the anticipated new product mix and sales volume.

Operating Expenses

Our operating expenses are presented by function as follows: general and administration ("G&A"), selling and marketing ("S&M"), and R&D.

G&A expenses consist of corporate personnel costs, various management and administrative support functions, insurance, regulatory and other public company costs, professional fees relating to corporate matters, corporate advisory consulting costs, M&A related costs, depreciation and amortization expenses, and occupancy costs related to G&A costs.

S&M expenses consist of business development costs related to the market development activities and product commercialization, marketing support function, depreciation and amortization expenses and investor relations support function.

R&D expenses consist of costs incurred in performing R&D activities, including new product development, continuous product development, materials and supplies, personnel costs, external engineering consulting, patent procurement costs, depreciation and amortization expenses, and occupancy costs related to R&D activity. These costs are net of Canadian investment tax credits for qualified Scientific Research and Experimental Development ("SR&ED") projects.

Finance Costs

Our finance costs are primarily comprised of interest and accretion expenses relating to the borrowings and accrued royalties payable relating to the acquired LEC System technology. From this total, we net interest income and the gain from the Canadian government subsidy relating to the COVID-19 loan program (which we refer to as the "CEBA Term Loan").

The Year Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Revenue

We earned $1.3 million in revenue for Fiscal 2021, compared to $0.9 million for Fiscal 2020. On an annualized basis, our total revenue increased by 11% over the prior year mainly due to one large contract with a United States military customer relating to our TASCS IFM system. At the end of Fiscal 2021, we estimated approximately 98.3% completion on this large contract and have fully delivered the remaining performance obligation since September 30, 2021.

For both Fiscal 2021 and 2020, our TASCS IFM revenue was concentrated with two United States military customers.

Gross Profit

Our gross profit was $0.5 million for Fiscal 2021, or gross margin of 37%, compared to $0.6 million for Fiscal 2020 with gross margin of 71%. The fluctuation in gross profit / margin is due to our pre-commercialization phase. Further, the contract that was awarded to us in Fiscal 2021 was significantly more complex in nature, requiring significant judgement during the bidding process in estimating the engineering labor hours to meet the customer requirements. We incurred more engineering labor hours than anticipated, which contributed to the lower gross margin in Fiscal 2021.

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Operating Expenses ("OPEX")

Total operating expenses were $9.7 million for Fiscal 2021, compared to $4.1 million for Fiscal 2020. Excluding M&A costs, on an annualized basis total operating expenses increased by 185% driven primarily by growth in G&A, S&M and R&D.

• G&A increased by 12% on an annualized basis; however, excluding the M&A costs, our G&A increased by 161% primarily due to augmenting the senior management team with two executives and recruiting independent directors, which led to a significant increase in personnel costs, including share-based compensation. Further, as a result of becoming a public company in Canada late in Fiscal 2020, we are now incurring significantly more regulatory costs and director and officer insurance premium costs.

• S&M increased by 362% on an annualized basis primarily due to making an investment in promoting and increasing awareness about us and our product offerings, including the recruitment of Brandon Tatum, through his private company The Officer Tatum LLC, as our advisor and advocate for our LEC System for law enforcement and personal defense in the United States in advance of our commercial launch of the LEC System anticipated for January 2022. We compensate Officer Tatum primarily in non-cash consideration, RSUs and PSUs. Additionally, we made further investments in business development by recruiting consultants in the United States and in Canada to promote our product offerings.

• Excluding the investment tax credits ("ITCs"), R&D increased by 88% on an annualized basis primarily due to an increase in headcount to accelerate product development. We recognized $0.2 million and $0.1 million of ITCs in Fiscal 2021 and 2020, respectively, relating to qualified SR&ED projects. Recognition takes place only once we have completed our analysis on whether certain R&D projects qualify for SR&ED ITCs with the assistance of our external tax professionals.

Finance Costs

Net finance costs increased marginally in Fiscal 2021 mainly due to the accretion cost on the accrued royalties liability relating to the acquisition of the LEC System.

Foreign Exchange Loss

Due to small net USD exposure, we reported an immaterial foreign exchange loss for Fiscal 2021 and 2020.

Net Loss

We incurred a net loss of $9.3 million or $8.40 per basic share, post Reverse Split for Fiscal 2021 ($0.21 as reported), compared to the net loss of $3.5 million or $4.40 per basic share, post Reverse Split for Fiscal 2020 ($0.11 as reported). The increase in net loss was primarily due to investments made to drive marketing and promotional activities about us and our product offerings, accelerating product development, and recruiting talent to position ourselves for success.

The Nine Months Ended September 30, 2020 compared to the Year Ended December 31, 2019

Revenue

We earned $0.9 million in revenue for Fiscal 2020, compared to $0.5 million for Fiscal 2019. On an annualized basis, Fiscal 2020 total revenue increased by 126% over the prior year mainly due to an increase in demonstration sales for our TASCS IFM system with two United States military customers.

Gross Profit

Our gross profit was $0.6 million for Fiscal 2020, with a gross margin of 71%, compared to $0.4 million for Fiscal 2019 with gross margin of 83%. The fluctuation in gross profit and gross margin is due to our pre-commercialization phase.

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Operating Expenses

Total operating expenses were $4.1 million for Fiscal 2020, compared to $1.4 million for Fiscal 2019. Excluding M&A costs, on an annualized basis total operating expenses increased by 136% driven by growth in G&A, and S&M. With the additional capital raised in the fourth calendar quarter of 2019, coupled with additional capital raised in Fiscal 2020, we were in a position to invest and scale our operations.

• G&A increased by 813% on an annualized basis due to significant investment in positioning ourselves to be a successful public company, resulting in higher personnel costs, consulting fees and professional fees.

• S&M increased by 1951% on an annualized basis due to making an investment in United States business development by entering into a consulting agreement with SageGuild, coupled with increased expenditure on tradeshows.

• Excluding ITCs, R&D increased by 26% on an annualized basis to accelerate product development. We recognized $0.1 million of ITCs in Fiscal 2020 relating to qualified SR&ED projects from the prior year. Recognition took place in Fiscal 2020 after we completed our analysis on the qualification of certain R&D projects for SR&ED ITCs. We have since collected the ITCs from the Canadian government.

Finance Costs

For Fiscal 2020, we incurred gross finance costs of $0.1 million, compared to $0.2 million in Fiscal 2019. The decrease was primarily due to a large accretion charge in Fiscal 2019 from the conversion of the 2018 convertible notes to KWESST 2019 Convertible Notes. The KWESST 2019 Convertible Notes were subsequently converted into Common Shares in September 2020.

We also recognized approximately $20,000 of interest income and gain on termination of lease obligations, net of the above gross finance costs in Fiscal 2020.

Foreign Exchange Loss

Due to small net USD exposure, we reported an immaterial foreign exchange loss for Fiscal 2020 and Fiscal 2019.

Net Loss

We incurred a net loss of $3.5 million or $4.40 per basic share, post Reverse Split for Fiscal 2020 ($0.11, as reported), compared to the net loss of $1.1 million or $2.80 per basic share, post Reverse Split for Fiscal 2019 ($0.07, as reported). The increase in net loss was primarily due to scaling-up our operations for growth, increasing R&D activities, and incurring non-recurring charges for going public in Canada.

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Quarterly Results of Operations

The following tables summarize selected unaudited consolidated financial data for each of the last eight quarters for which such information is available. The summary financial information provided below is derived from our interim financial statements for each such quarter and are prepared under IFRS. These quarterly operating results are not necessarily indicative of our operating results for a full fiscal year or any future period. Our quarterly results of operations have been and will continue to be volatile until we have successfully commercialized our product offerings.

($ in thousands, except per share)	September 2020 (Q4 FY20)			December 2020 (Q1 FY21)			March 2021 (Q2 FY21)			June 2021 (Q3 FY21)			September 2021 (Q4 FY21)			December 2021 (Q1 FY22)			March 2022 (Q2 FY22)			June 2022 (Q3 FY22)
Revenue	$	213		$	146		$	448		$	522		$	160		$	17		$	166		$	282
Cost of sales	$	95		$	72		$	332		$	315		$	80		$	25		$	142		$	238
Gross profit	$	118		$	74		$	116		$	207		$	80		$	(8	)	$	24		$	44
Gross margin %		55.1	%		55.1	%		26.0	%		39.6	%		49.7	%		(45.9	)%		14.6	%		15.6	%
Operating expenses	$	2,392		$	1,580		$	2,376		$	2,798		$	2,925		$	3,196		$	2,231		$	2,525
Operating loss	$	(2,274	)	$	(1,506	)	$	(2,260)		$	(2,591	)	$	(2,845	)	$	(3,204	)	$	(2,207	)	$	(2,481	)
Other income (expenses)	$	248		$	(21	)	$	(17	)	$	(37	)	$	(38	)	$	(39	)	$	(83	)	$	(119	)
Net income (loss)	$	(2,026	)	$	(1,527	)	$	(2,277	)	$	(2,628	)	$	(2,883	)	$	(3,243	)	$	(2,290	)	$	(2,600	)
Net finance costs (income)	$	(45	)	$	18		$	15		$	28		$	19		$	48		$	72		$	184
Depreciation and amortization	$	15		$	39		$	35		$	13		$	53		$	72		$	73		$	81
EBITA loss	$	(2,056	)	$	(1,470	)	$	(2,227	)	$	(2,587	)	$	(2,811	)	$	(3,123	)	$	(2,145	)	$	(2336	)
Other adjustments:
Non-cash M&A costs	$	1,515		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Stock-based compensation	$	137		$	274		$	605		$	555		$	998		$	928		$	423		$	525
Professional fees relating to U.S. financing	$	-		$	-		$	-		$	-		$	-		$	112		$	44		$	344
Gain on acquisition	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	(42	)
Fair value adjustments on derivatives	$	(178	)	$	-		$	-		$	-		$	-		$	-		$	-		$	-
Foreign exchange loss (gain)	$	9		$	3		$	(5	)	$	15		$	(19	)	$	(9	)	$	9		$	(24	)
Loss on disposal	$	-		$	-		$	-		$	-		$	1		$	-		$	1		$
Adjusted EBITDA (loss)	$	(573	)	$	(1,193	)	$	(1,627	)	$	(2,017	)	$	(1,831	)	$	(2,204	)	$	(1,712	)	$	(1,532	)
Earnings (loss) per share - basic and diluted, as reported	$	(0.07	)	$	(0.04	)	$	(0.05	)	$	(0.06	)	$	(0.06	)	$	(0.07	)	$	(0.05	)	$	(0.05	)
Weighted average common shares – basic, as reported		33,025			41,392			42,142			46,016			47,746			49,022			49,868			51,989
Earnings (loss) per share - basic and diluted, post Reverse Split	$	(2.80	)	$	(1.60	)	$	(2.00	)	$	(2.40	)	$	(2.40	)	$	(2.80	)	$	(2.00	)	$	(2.00	)
Weighted average common shares - basic, post Reverse Split		825			1,034			1,053			1,150			1,193			1,225			1,246			1,299

Note: due to preparing the table in thousands, there may be rounding differences.

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Governmental Regulations, Laws, and Local Practices

Please see the discussion of governmental regulations, laws and local practices in Business Overview - Government Regulations . See also Risk Factors - The Company may Experience Difficulties Complying with Applicable Regulations.

Liquidity and Capital Resources

Overview

Our primary sources of capital to date have been from security offerings, exercise of stock options and warrants, and, to a lesser extent, pre-commercial revenue. As at June 30, 2022, our cash position was $0.2 million, a decrease of $2.5 million since September 30, 2021 primarily due to incurring a net operating loss for YTD Fiscal 2022, offset primarily by an increase in cash from the net proceeds of the Unsecured Loans financing in March 2022 and exercise of warrants.

For YTD Q3 Fiscal 2022, we had capital expenditures of $0.6 million compared to $0.03 million in the comparable prior period.  The increase was primarily due to product development (where capitalized), coupled with an increase in R&D equipment purchases, partially offset by net cash acquired from the Police Ordnance Acquisition.  In Fiscal 2021, we had capital expenditures of $0.9 million, compared to $0.5 million for the nine months ended September 30, 2020, most of which we invested in R&D equipment, product development (where capitalized), office furniture and equipment, computer equipment, and leasehold improvements at our corporate office. Our capital expenditures in Fiscal 2019 were negligible due to limited capital at the time.

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Our working capital was a negative $3.1 million at June 30, 2022, compared to $2.9 million at September 30, 2021, and at September 30, 2020. Working capital is calculated as follows: current assets less current liabilities. This decrease was mainly driven by our net operating loss for YTD Fiscal 2022, which was partially offset by the net proceeds from the Unsecured Loans and net assets assumed from the Police Ordnance Acquisition.

Based on management's projection, including the offering pursuant to this Prospectus, we believe that we have sufficient capital to fund our working capital, contractual obligations, and commitments over the next 12 months.  However, we may require additional capital to fund our commercialization efforts in the United States for the launch of the PARA OPS product line and/or any major customer orders for our Digitization and Counter-Threat product lines.  Potential sources of capital may include additional equity and/or debt financings.  In our view, the availability of capital will be affected by, among other things, capital market conditions, the success of our PARA OPS system commercialization efforts, timing for winning new customer contracts, potential acquisitions, and other relevant considerations (see Risk Factors). 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.

Recent Sources and Uses of Financing

Equity and Debt Offerings

For year-to-date Fiscal 2022, we conducted the following offerings:

• On March 11, 2022, we closed a non-secured and non-convertible loan financing with various lenders in an aggregate amount of $1.8 million, which was upsized to $2.0 million on March 15, 2022. The Unsecured Loans bear interest at a rate of 9.0% per annum, compounded monthly and not in advance, and have a maturity of thirteen months, with us having the option to repay the whole or any part of the Unsecured Loans, without penalty or premium, at any time prior to the close of business on the maturity date. The principal amount is due only at maturity.  As part of the terms of the Unsecured Loans, we issued an aggregate of 25,000 Common Shares to the lenders as a bonus.  These Common Shares were issued pursuant to prospectus exemptions of applicable securities laws and therefore subject to a Canadian four-month plus one day trading restriction.  The use of proceeds was for working capital purposes.

• On July 14, 2022, we closed a non-brokered private placement of $0.3 million, resulting in the issuance of 40,000 units of KWESST (“July 2022 Units”), at a price of $8.60 per July 2022 Unit (the “Issue Price”), for aggregate gross proceeds of $0.3 million (the “July 2022 Offering”). Each July 2022 Unit is comprised of one common share and one-half common share purchase warrant (the “July 2022 Warrants”). Each July 2022 Warrant entitles its holder to acquire one additional common share of KWESST at a price of $11.40 for a period of 24 months from the closing date. Accordingly, we issued 20,000 July 2022 Warrants under the July 2022 Offering. There was no finder fee paid in this private placement. The proceeds from the July 2022 Offering will be used to fund our working capital requirements. All securities issued in connection with the July 2022 Offering are subject to a statutory hold period in Canada expiring four months and one  day from the closing of the Offering. We have received final acceptance by the TSX Venture Exchange. In connection with the July 2022 Offering, certain of our directors and officers (the “Insiders”) purchased 10,174 Units for a total consideration of $87,500. The issuance of Units to the Insiders constitutes a related party transaction but is exempt from the formal valuation and minority approval requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101”) as KWESST’s securities are not listed on any stock exchange identified in Section 5.5(b) of MI 61-101 and neither the fair market value of the units issued to the Insiders, nor the fair market value of the entire private placement, exceeds 25% of our market capitalization.

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For Fiscal 2021, we raised gross proceeds of $6.0 million from closing the April 2021 Private Placement and September 2021 Private Placement (together, the "2021 Financings"). The total share offering costs (cash and non-cash) were $0.8 million.  See Use of Proceeds from Fiscal 2021 and Fiscal 2020 Financings.

For Fiscal 2020, we raised gross proceeds of $5.7 million primarily from equity and convertible note offerings. The total offering costs (cash and non-cash) were $0.7 million. See Use of Proceeds from Fiscal 2021 and Fiscal 2020 Financings.

For Fiscal 2019, we raised gross proceeds $1.0 million as a result of closing the October 2019 Private Placement. The share offering costs were immaterial.  The use of proceeds was for working capital purposes.

Refer to Note 16 of our audited consolidated financial statements for Fiscal 2021 (see Financial Statements), for further details on the above equity offerings related to Fiscal 2021, 2020 and 2019.

Use of Proceeds from Fiscal 2021 and Fiscal 2020 Financings

The following table shows the net proceeds from the 2021 Financings plus the remaining working capital on April 29, 2021 (immediately after closing the April 2021 Private Placement) available to fund future working capital, product development, repayment loans and other investments:

Available Funds
Net proceeds from April 2021 Private Placement	$	4,009,223
Working capital on April 29, 2021		235,345
		4,244,568
Net proceeds from September 2021 Private Placement		1,459,270
Proforma available funds from April 29, 2021	$	5,703,838

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The following table provides an approximate breakdown of the funds we spent up to June 30, 2022, from the proceeds raised in September 2020 plus the working capital available at that time, coupled with the above 2021 available funds:

		2020 Financing							2021 Financing
Use of Proceeds (1)		Expected Allocation of Net Proceeds (2)		Estimated and Unaudited Actual Use of Funds from September 1, 2020 to April 28, 2021		Proceeds Unspent as at April 28, 2021			Expected Allocation of Net Proceeds		Estimated and Unaudited Actual Use of Funds from April 29, 2021 to June 30, 2022		Proceeds Unspent as at June 30, 2022
Products development: (3)
TASCS NORS (formerly TASCS Sniper)	$	150,000	$	15,210	$	134,790		$	-	$	-	$	-
TASCS IFM (4)		150,000		623,953		(473,953	)		400,000		311,085		88,915
BLDS		575,000		74,874		500,126			200,000		264,373		(64,373	)
Shot Counter		120,000		-		120,000			-		-		-
Phantom		150,000		134,743		15,257			500,000		574,913		(74,913	)
GreyGhost		250,000		91,284		158,716			200,000		15,840		184,160
ATAK		-		-		-			500,000		285,186		214,814
PARA OPS		-		-		-			500,000		571,606		(71,606	)
Total products development		1,395,000		940,064		454,936			2,300,000		2,023,003		276,997
Other specific allocations:
Costs related to complete QT		150,000		145,560		4,440			-		-		-
Broker commissions and fees relating to QT		189,520		189,520		-			-		-		-
Repayment of CEO and employee loans		114,049		31,252		82,797			191,600		191,600		-
Repayment of unsecured borrowings		-		-		-			310,527		310,527		-
Marketing costs		345,000		832,852		(487,852	)		-		-		-
Prepaid royalties to DEFSEC (5)		150,000		-		150,000			150,000		150,000		-
Total allocated proceeds		2,343,569		2,139,248		204,321			2,952,127		2,675,130		276,997
Unallocated proceeds for working capital		1,746,237		1,715,213		31,024			2,516,366		2,793,363		(276,997	)
Transferred to 2021 Financing for working capital		-		235,345		(235,345	)		235,345		235,345		-
Total use of proceeds	$	4,089,806	$	4,089,806	$	-		$	5,703,838	$	5,703,838	$	-

Notes:

(1)Excludes non-cash transactions settled in Common Shares.

(2)As disclosed in our Filing Statement dated August 28, 2020, as filed on SEDAR (www.sedar.com).

(3)Includes concept & design, initial prototype, market testing, and pre-production including a few demo units. Costs includes internal labor costs, outsourced engineering costs, and materials (no overhead allocation).

(4)Net of customer funding of $1.0 million up to June 30, 2022.

(5)In connection with the PARA OPS system acquisition.

Changes in Use of Proceeds

During Fiscal 2021, we allocated more funds to the TASCS IFM product line as a result of winning an additional contract with a United States military customer following the trials/testing held in September and November 2020. These trials provided us with constructive feedback for further enhancements to the TASCS IFM mortar system in advance of the extensive United States military exercises that took place in September and October 2021, which were also successful based on positive feedback received from the United States military customer. We also reallocated some of the funds to marketing to further promote and increase awareness about us and our product offerings. At April 28, 2021 (immediately prior to the closing of the April 2021 Private Placement) we had $235,345 remaining proceeds from the September 2020 Private Placement, which we have allocated to the 2021 Financings table as part of the unallocated working capital. Going forward, we will report only on the remaining funds from the 2021 Financings in accordance with applicable securities laws. 

While management intends to invest the remaining available funds as shown under the 2021 Financings in the above table; there may be circumstances where, for sound business reasons, a reallocation of funds may be advisable.

CEBA Term Loan

In April 2020, we entered into a $40,000 term loan agreement with TD Canada Trust under the Canada Emergency Business Account program administered by the Federal Government of Canada. In December 2020, the Canadian Federal Government amended the CEBA Term Loan program to increase it to $60,000. Accordingly, our indebtedness increased to $60,000.

This amendment also resulted in extending the interest-free period on the CEBA Term Loan to December 31, 2022. Thereafter, we may exercise the option for a three (3) year term extension, subject to a 5% annual interest rate during the extension period. As an inducement for early repayment, if we repay the CEBA Term Loan by December 31, 2022, $20,000 will be forgiven.

As a result of the Police Ordnance Acquisition, we assumed an additional $30,000 CEBA Term Loan based on the same terms as above.  If repaid by December 31, 2022, $10,000 will be forgiven.

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Cash Flow

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.

The following table provides a summary of cash inflows and outflows by activity for the respective periods:

		Nine months ended June 30, 2022 (Unaudited)			Nine months ended June 30, 2021 (Unaudited)			Year ended September 30, 2021			Nine months ended September 30, 2020			Year ended December 31, 2019
Cash inflows (outflows) by activity:
Operating activities	$	(3,947,752	)	$	(4,718,229	)	$	(6,255,213	)	$	(1,791,654	)	$	(1,093,556	)
Investing activities		(614,028	)		(299,909	)		(1,073,192	)		(390,972	)		(20,190	)
Financing activities		2,063,262			4,376,504			6,942,750			5,234,771			1,135,361
Net cash inflows (outflows)	$	(2,498,518	)	$	(641,634	)	$	(385,655	)	$	3,052,145		$	21,615

Nine months ended June 30, 2022, and 2021

Cash used by operating activities

We have funded our operating activities primarily from additional equity and debt financing for both periods in Fiscal 2022 and 2021. For the nine months ended June 30, 2022, total cash flow used in operating activities decreased by 16% compared to the same period in Fiscal 2021 primarily due to deferring payments with certain vendors (primarily professional firms) to conserve cash for near-term working capital. However, we expect this to reverse for the next quarter as we honor our payment commitments with these vendors coupled with an increase in cash outflows for the launch of PARA OPS in the United States and additional inventories across all three business lines.

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Cash used by investing activities

Cash flow used in investing activities increased in YTD Fiscal 2022 compared to YTD Fiscal 2021 mainly due to $0.8 million in capitalized development costs and $0.2 million in additions to capital assets, partially offset by net cash acquired from the Police Ordnance Acquisition.

Cash provided by financing activities

The $2.3 million decrease in cash provided by financing activities in YTD Fiscal 2022 over YTD Fiscal 2021 was primarily driven lower capital raised. In YTD Fiscal 2021, we raised net proceeds of $4.0 million from equity issuance in a brokered private placement; whereas, for YTD Fiscal 2022 we raised net proceeds of $2.0 million from Unsecured Loans (see below). We also benefited from higher volume of exercised stock options, offset partially by repayment of related party loans, during YTD Fiscal 2021.

Fiscal periods ended September 30, 2021, 2020 and December 31, 2019

Cash used by operating activities

With the additional capital raised during Fiscal 2021, we continued to invest significantly across the organization and product development (refer to Operating Results - Results of Operations). As an early-stage company with various products in the pipeline (pre-commercialization phase), our revenue remains low and insufficient to cover the increase in our overhead costs, professional fees, advertising and promotion costs, and R&D costs. As a result, cash flow used in operating activities was $1.5 million and $6.3 million for Q4 Fiscal 2021 and for the full Fiscal 2021, respectively, compared to $0.2 million and $1.8 million for the comparable prior periods, respectively.

Cash used by investing activities

Cash flow used in investing activities for Fiscal 2021 was higher than in the prior two financial years, mainly due significant investment made in sales demonstration units for TASCS IFM, and to a lesser extent to a $0.15 million deposit made to DEFSEC as an advance on future royalties. The $0.4 million investment in Fiscal 2020 includes investments in capitalized developments projects and the cash consideration for the acquisition of the Phantom system from SageGuild.

Cash flow used in investing activities for Q4 Fiscal 2021 was higher than the comparable prior period mainly due to our significant investment made in sales demonstration units for TASCS IFM.

Cash provided by financing activities

The $1.7 million increase in cash provided by financing activities in Fiscal 2021 over Fiscal 2020 was primarily driven by $1.8 million of proceeds from exercised of stock options and warrants over the comparable period in light of the favorable movement in the price of the Common Shares since going public in Canada. In Fiscal 2021, we raised net proceeds of $5.4 million from equity offerings, slightly ahead of the $5.3 million raised in the prior period. We also repaid $0.2 million of related party loans during Fiscal 2021, compared to $0.08 million in the prior period (see Major Shareholders and Related Party Transactions - Related Party Transactions). In Q4 Fiscal 2021, we generated $0.8 million additional cash compared to Q4 Fiscal 2020 due to exercise of options and warrants.

The financing activities in Fiscal 2019, benefited from $1 million non-brokered private placement during the fourth quarter of 2019.

Contractual Commitments and Obligations

Our remaining operating lease commitments are for office premises, which will expire in March 2026. Further, we have committed to minimum annual royalty payments to DEFSEC for the LEC System acquisition (see Operating Results - Significant Expenses and Other Events section above).

At June 30, 2022, our contractual obligations and commitments were as follows:

Payment due:		Total		Within 1 Year		1 to 3 years		3 to 5 years
Minimum royalty commitments	$	2,500,000	$	150,000	$	350,000	$	2,000,000
Borrowings		2,090,000		2,090,000		--		-
Accounts payable and accrued liabilities		2,263,7022		2,263,7022		-		-
Lease obligations		351,000		93,600		187,200		70,200
Other commitments		12,886		12,886		-		-
Short-term rental obligations		10,574		10,574		-		-
Total contractual obligations	$	7,228,162	$	4,620,762	$	537,200	$	2,070,200

Research and Development, Patents and Licenses, etc.

Our R&D expenses are comprised of costs incurred in performing R&D activities, including new product development, continued product enhancement, materials and supplies, salaries and benefits (including share-based compensation), engineering consulting costs, patent procurement costs, and estimated R&D-related facility costs. Where we qualify for Canadian investment tax credits for qualified scientific research and experimental development expenditures, we record this income as a reduction of R&D expenses.

Additionally, we capitalize development costs only if development costs can be measured reliably, the product or process is technically or commercially feasible, future economic benefits are probable, and we have the intention and sufficient resources to complete the development and to use or sell the asset. This was case for our TASCS IFM development efforts during the nine months ended September 30, 2021. We subsequently transferred this capitalized development cost to inventory (work-in-process) during the first quarter of our fiscal 2021 as a result of winning a follow-on order from the United States military customer, which included delivery of our TASCS IFM prototype for 81mm mortar system.  For the nine months ended June 30, 2022, we capitalized development costs for our Phantom and PARA OPS systems (see Note 7 of the Q3 Fiscal 2022 FS in section titled Financial Statements).

For a description of our patents and product development in progress, please see Business Overview - Proprietary Protection.

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Critical Accounting Estimates

The following is a summary of critical accounting policies, requiring management to make significant estimates and assumptions:

Revenue

Historically, revenue recognition did not require significant management judgement as delivery of performance obligations under contracts with customers was done generally within the same quarter. However, with the USD $0.8 million contract awarded to us from the United States military customer during the first quarter of Fiscal 2021 with delivery of performance obligations over several quarters, we have revised our accounting policy to address this as follows:

Revenue is recognized upon transfer of control of products or services to customers at an amount that reflects the transaction price we expect to receive in exchange for the products or services. Our contracts with customers may include the delivery of multiple products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The accounting for a contract or contracts with a customer that contain multiple performance obligations requires us to allocate the contract or contracts transaction price to the identified distinct performance obligations.

Revenue from contracts with customers is recognized, for each performance obligation, either over a period of time or at a point in time, depending on which method reflects the transfer of control of the goods or services underlying the particular obligation to the customer.

For performance obligations satisfied over time, we recognize revenue over time using an input method, based on costs incurred to date relative to total estimated costs at completion, to measure progress toward satisfying such performance obligation (for non-recurring engineering services, the input method is based on hours). Under this method, costs that do not contribute to our performance in transferring control of goods or services to the customer are excluded from the measurement of progress toward satisfying the performance obligation. In certain other situations, we might recognize revenue at a point in time, when the criteria to recognize revenue over time are not met. In any event, when the total anticipated costs exceed the total anticipated revenues on a contract, such loss is recognized in its entirety in the period it becomes known. For the contract awarded in Fiscal 2021, we recognized revenue over time based on estimated hours to deliver the performance obligations under the contract. At September 30, 2021, we have estimated the percentage of completion at 98.3% based on our estimate of the remaining hours to complete our performance obligations under the contract, with the remaining recognized during the first quarter of Fiscal 2021.

We may enter into contractual arrangements with a customer to deliver services on one project with respect to more than one performance obligation, such as non-recurring engineering, procurement, and training. When entering into such arrangements, we allocate the transaction price by reference to the stand-alone selling price of each performance obligation. Accordingly, when such arrangements exist on the same project, the value of each performance obligation is based on its stand-alone price and recognized according to the respective revenue recognition methods described above. For example, for non-recurring engineering services rendered over a contract period the revenue is recognized using the percentage of completion method; whereas for training services the revenue is recognized after the training is delivered (i.e. point in time).

We account for a contract modification, which consists of a change in the scope or price (or both) of a contract, as a separate contract when the remaining goods or services to be delivered after the modification are distinct from those delivered prior to the modification and the price of the contract increases by an amount of consideration that reflects our stand-alone selling price of the additional promised goods or services. When the contract modification is not accounted for as a separate contract, we recognize an adjustment to revenue on a cumulative catch-up basis at the date of contract modification. There was no contract modification in Fiscal 2021.

The timing of revenue recognition often differs from performance payment schedules, resulting in revenue that has been earned but not billed. These amounts are included in unbilled receivables. At September 30, 2021, we had $0.3 million of unbilled receivable. Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of contract liabilities. There was no outstanding contract liability at September 30, 2021.  At June 30, 2022, we had no outstanding contracts with unbilled receivable and contract liability.

When a contract includes a significant financing component, the value of such component is excluded from the transaction price and is recognized separately as finance income or expense, as applicable.

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Accounting for acquisitions and contingent consideration

During YTD Fiscal 2022, Fiscal 2021 and 2020, we acquired technology assets, which were recorded at fair value. Refer to Note 4 of the unaudited consolidated financial statements for the three and nine months ended June 30, 2022, and Note 4 of the audited consolidated financial statements of Fiscal 2021 for further details.

Areas of significant estimation in connection with the acquisition of the PARA OPS system included:

• the determination of the discount rate for the present value of the minimum annual royalty payments to DEFSEC; and
• the volatility assumption used in the Black Scholes option model to estimate the fair value of the warrants issued to DEFSEC given our short history as a public company (see below - Accounting for share-based compensation).

Areas of significant estimation in connection with the acquisition of the Phantom included:

• the fair value of our Common Shares and warrants issued to SageGuild because we were a private company at the time of the asset acquisition; and
• the accounting for the contingent annual payments.

Areas of significant estimation in connection with the Police Ordnance Acquisition included:

• the estimated fair value of raw and work-in-progress inventories and intangible assets for the purchase price allocation, which remains under management review (to be finalized by September 30, 2022); and
• the volatility assumption used in the Black Scholes option model to estimate the fair value of the warrants issued to the selling shareholders given our short history as a public company.

Impairment of long-lived assets

We review property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognized the carrying value of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, referred as the cash generating unit ("CGU").

In accordance with IFRS, if the sum of the undiscounted expected future cash flows from a long-lived asset is less than the carrying value of that asset, then we recognize an asset impairment charge. The impairment charge is determined based on the excess of the asset's carrying value over its fair value, which generally represents the discounted future cash flows from that asset.

Because we are an early-stage defense technology company, management exercises significant judgment in establishing key assumptions and estimates to determine the recoverable amount of our CGU, including future cash flows based on historical and budgeting operating results, growth rates, tax rates, and appropriate after-tax discount rates. The actual results may vary and may cause significant adjustments in future periods.

Impairment of non-financial assets

We review non-financial assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may be impaired. If the recoverable amount of the respective non-financial asset is less than our carrying amount, it is considered to be impaired. Management exercises significant judgement in estimating the recoverable amount for non-financial assets (see Impairment of long-lived assets).

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Accounting for share-based compensation

We measure share-based compensation at fair value. A key input in the Black Scholes option model is the volatility assumption in our Common Shares. Due to our limited trading history, management has established a relevant peer group of listed companies and selected the weighted average of their volatilities over a period of three to five years, where available. Starting in Fiscal 2021, we have commenced to incorporate a percentage of our stock volatility in the overall calculation of the volatility assumption. We expect to solely rely on our stock volatility by the end of Fiscal 2023 to estimate the fair value of share-based compensation as well as for warrants.

Accounting for Unsecured Loans

Due to the issuance of bonus Common Shares as part of the Unsecured Loans transaction, we are required to allocate the $2 million gross proceeds between the bonus Common Shares and the debt component based on their relative fair value.  To measure the fair value of the Unsecured Loans, we used the income approach and estimated a market discount rate of 22% to discount the future cash flows of the Unsecured Loans resulting in an estimated fair value of $1.63 million.  Accordingly, we allocated $1.63 million of the $2 million to Unsecured Loans and $0.37 million to share capital for the bonus Common Shares issued.

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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

All share-related information presented in this section gives effect to the Reverse Split.

Directors and Senior Management

The following table sets forth the name of each of our directors and executive officers, as well as such individual's place of residence, position with us, principal business activities performed outside those with us and period of service as a director (if applicable).

Directors and Executive Officers

Name	Position With KWESST Micro	Age	Principal Business Activity Outside KWESST Micro	Director/Officer Since
David Luxton Ontario, Canada	Executive Chairman and Director	71	N/A	October 24, 2019(1)
Jeffrey MacLeod Ontario, Canada	President, CEO, Director and Promoter	62	N/A	April 24, 2017(1)
Paul Mangano (2) Maine, United States	Director	65	Founder and Owner, Surculus Advisors LLC and General Manager, Steiner Optics Inc. (up to April 2022)	September 17, 2020
Paul Fortin (2) Ontario, Canada	Director	55	Senior Associate, David Pratt & Associates and Independent Advisor	September 17, 2020
John McCoach (2) British Columbia, Canada	Director	64	Director and Chairman of the Audit Committee, Xybion Digital Inc.; Director, Principal Technologies Inc.; Vice Chairman, Royal Canadian Marine Search and Rescue	November 28, 2017(3)
Steven Archambault Ontario, Canada	Chief Financial Officer, Vice President, Corporate Services & Compliance, and Interim Corporate Secretary	51	N/A	October 1, 2020
Rick Bowes Ontario, Canada	Vice President, Operations of Digitization & Counter-Threat Products	60	N/A	April 12, 2021

Notes:

(1)Date on which the individual became a director of KWESST.

(2)A member of the Audit Committee. Mr. McCoach is Chair of the Audit Committee.

(3)Date on which the individual became a director of Foremost.

The following are brief biographies of our directors and executive officers.

David Luxton, Executive Chairman and Director

David Luxton is an entrepreneur in the defense and security industry. He is a former Canadian infantry officer, and former senior official with the Canadian and British governments. In 1990 he founded Simunition, a business that develops and sells simulated munitions for realistic close quarters combat training for military and law enforcement. Between 2003 and 2009, he led the expansion of the Allen-Vanguard Corporation, a company in the IED countermeasures business, from approximately $3,000,000 to approximately $300,000,000 in annual revenues, then served as Chairman from 2010 to October 2021. Between 2015 and 2018, he was the Executive Chairman of United Tactical Systems, LLC, a company offering non-lethal products for law enforcement, military and personal defense. From 2003 to the date of this Prospectus, he has been President & Owner of DEFSEC, a company that specializes in strategic transactions in the defense and security industry. Furthermore, from 2016 to 2020, he was a Senior Strategic Advisor to the University of Ottawa. Since 2019, he has been the Executive Chairman of KWESST. He holds a SMDP postgraduate studies from the University of Oxford. He entered into a confidentiality and non-disclosure agreement through his consulting agreement with us on October 1, 2019.

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Jeffrey MacLeod, President, Chief Executive Officer, Director and Promoter

Jeffrey MacLeod is an experienced defense industry executive with over 20 years of experience in the small arms and advanced soldier system fields. By establishing us, he aimed to develop software and hardware systems, such as the TASCS, to take existing legacy weapons and fully integrate them into a soldier system. Prior to founding KWESST, from 2008 to 2017, Jeffrey was the General Manager of Colt, a company producing small firearms for the Canadian military. Jeffrey has a Bachelor's degree in mechanical engineering from the Technical University of Nova Scotia (now DalTech) and a Master's degree in Military Vehicle Technology from the Royal Military College of Science (U.K). He is a Professional Engineer registered in the Province of Ontario. He entered into a confidentiality and non-disclosure agreement with us through his employment contract on October 1, 2019.

Steven Archambault - Chief Financial Officer, Vice President, Corporate Services and Compliance, and Interim Corporate Secretary

Mr. Archambault is an experienced finance executive with over 20 years' experience with private and public companies. He began his career as a CPA, CA with Ernst & Young LLP, followed by senior finance positions at AXIS Capital Holdings Limited, a global insurer and reinsurer listed on the New York Stock Exchange. Prior to joining us as of October 1, 2020, Mr. Archambault has been acting as a virtual CFO consultant since September 2019. From January 2018 to September 2019, he served as the CFO of Eureka 93 Inc. (formerly LiveWell Canada Inc.) listed on TSXV and subsequently on Canadian Securities Exchange. Prior to this role, Mr. Archambault held the positions of President and CFO of International Datacasting Corporation and Group CFO of Novra, and immediately prior to Novra's acquisition of IDC, he was the CFO of IDC (listed then on the TSXV) from December 2013 and Acting CEO from February 2016 to July 2016. Mr. Archambault graduated from the University of Ottawa with a Bachelor of Commerce, Honors. He has entered into a confidentiality and non-disclosure agreement with us on October 1, 2020.

Rick Bowes - Vice President, Operations of Digitization & Counter-Threat Products

Rick Bowes is an experienced defense industry executive with over 20 years of experience. Prior to joining us in April 2021, Mr. Bowes founded Cardinal Defence Consulting Inc. in 2018 and has since been offering consulting services to the defense industry. From 2016 to 2018, he served as the Vice President of Defense at ADGA Group. Over the course of his career, Mr. Bowes held various senior roles with defense contractors such as General Dynamics Canada, DRS Technologies Canada (now Leonardo DRS), ATCO Frontec and ADGA Group Inc., and he had a distinguished career as a senior officer in the Canadian Army, retiring in 2003 as a Lieutenant Colonel. He is a graduate of Royal Military College of Canada, and served in various operational and staff roles in the Canadian military and on secondment to the British Army. As an armor officer, Mr. Bowes served with various units such as Lord Strathcona's Horse (Royal Canadians) and the Canadian Airborne Regiment Battle Group across Canada and in deployed operations in Bosnia-Herzegovina with the UN Protection Force and the NATO Stabilization Force (SFOR). He was also part of the planning team for Canada's participation in the NATO Kosovo Force (KFOR) mission in 1999. He has entered into a confidentiality and non-disclosure agreement with us on April 13, 2021.

Paul Mangano - Director

Prior to being invited to join our board of directors ("Board"), Mr. Mangano founded and owned Surculus Advisors LLC since 2016, a boutique management consulting firm providing advice, leadership, specialized expertise and transaction consultation services to the industrial and high-tech sectors including aerospace, defense and security. From August 2020 to April 2022, he was the General Manager of Steiner Optics Inc., a division of Beretta. Prior to forming Surculus Advisors LLC, from 2006 to 2015, he served as the President of L-3 Communication's Public Safety & Sporting business unit. Mr. Mangano graduated with a BA in Economics from Harvard University and an MBA in High Technology from Northeastern University.

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Paul Fortin - Director

Prior to being invited to join our Board, Paul Fortin was the director of international business development at Borden Ladner Gervais LLP, a full-service law firm, from 2011 to 2019. Since March 2020, he has been working with David Pratt & Associates as a Senior Associate and is an independent advisor within the defense and security industry. Mr. Fortin graduated from Carleton University with a Bachelor's degree in Political Science and from Algonquin College with a specialization in Product Marketing Management.

John McCoach - Director

Prior to being invited to join our Board, John McCoach held multiple senior positions in various companies, including seven years as the President of the TSXV. John McCoach was a member of the Capital Markets Authority Implementation Organization Board of Directors from 2016 to 2021. Mr. McCoach is an independent director and the current Audit Committee Chairman of Xybion Digital Inc. since November 2021. Furthermore, since 2018 he has been a director of Principal Technologies Inc. (formerly Connaught Ventures Inc.) since July 2020. He also served as Interim CEO and as a director of Foremost Ventures Corp., a position he held from 2018 until the Qualifying Transaction with KWESST Inc.  Finally, Mr. McCoach is an active crew member, and Vice Chairman of, Royal Canadian Marine Search and Rescue.

Compensation

Compensation for Fiscal 2021

The aggregate amount of compensation that we paid during the year ended September 30, 2021, directly and indirectly, including directors' fees, to our named executive officers and directors in their capacity as such, was $696,512.

In accordance with the TSXV policies, the following individuals are considered our named executive officers (collectively, "NEOs" and each, an "NEO") for the purposes of disclosure in this section:

(a)each individual who, during any part of the most recently completed financial year, served as our Chief Executive Officer ("CEO"), including any individual performing functions similar to a CEO;

(b)each individual who, during any part of the most recently completed financial year, served as our Chief Financial Officer ("CFO"), including any individual performing functions similar to a CEO;

(c)each of our three most highly compensated executive officers, or the three compensated officers acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was more than $150,000 for the fiscal year ended September 30, 2021; and

(d)each individual who would be a NEO under paragraph (c) but for the fact the individual was not one our executive officers and was not acting acting in a similar capacity as of September 30, 2021.

Compensation Philosophy and Objectives

Our current executive compensation program is designed to provide short and long-term rewards to our executives that are consistent with individual and corporate performance and their contribution to our short and long-term objectives. Our objectives with respect to compensation of executive officers are to provide compensation levels necessary to attract and retain high quality executives, and to motivate key executives to contribute to our interests. These objectives are to be met by the principal components of our executive compensation program, which has been focused on a combination of base compensation, cash bonus remuneration, and long-term incentives in the form of stock options or other security-based compensation.

The executive compensation program adopted by us and applied to our executive officers is designed to:

(a)attract and retain qualified and experienced executives who will contribute to our growth and success;

(b)ensure that the compensation of our executive officers provides a competitive base compensation package and a strong link between corporate performance and compensation; and

(c)motivate executive officers to enhance long-term shareholder value, with current compensation being weighted toward at-risk long-term incentives in the form of options and other security-based incentives so as to foster alignment with the interests of our shareholders and stakeholders.

We do not believe that our compensation programs encourage excessive or inappropriate risk taking because: (i) our employees receive both fixed and variable compensation, and the fixed portion (salary) provides a steady income regardless of Common Share value, which allows employees to focus on our business; and (ii) our LTIP encourages a long-term perspective due to the vesting provisions, which is generally at least over two (2) years. We believe that our compensation program is appropriately structured and balanced to motivate our employees and reward the achievement of annual performance goals, as well as the achievement of long-term growth in shareholder value.

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Compensation Governance and Process

We have relied on the experience of our Board in setting our executive compensation philosophy and appropriate levels of compensation for our NEOs.

Today, we do not have a separate Compensation Committee. Our Board assumes responsibility for the oversight over the compensation of directors and executives, including:

• review and approval our remuneration and compensation policies, including short and long-term incentive compensation plans and equity-based plans, bonus plans, pension plans (if any), our LTIP and grants, and benefit plans;
• sole authority to retain and terminate any compensation consultant to assist in the evaluation of director compensation, including sole authority to approve fees and other terms of the retention;
• review and approve at least annually all compensation arrangements for our senior executives;
• review and approve at least annually all compensation arrangements for our directors; and
• review the executive compensation sections disclosed in our management information circular distributed to shareholders in respect of our annual, and any special, meetings of shareholders.

While David Luxton and Jeffrey MacLeod work with our Board in making recommendations regarding our overall compensation policies and plan as well as specific level of compensation for the other NEOs, they are recused from any Board deliberations and decisions in respect to their own personal compensation. Their respective current fixed compensation was set prior to going public in Canada.

Elements of Compensation

Our executive compensation program consists of three principal components: base salaries, annual incentive compensation and benefits, and long-term compensation.

Base Salaries

Base salaries are intended to reflect an executive officer's position within our corporate structure, his or her years of experience and level of responsibility, and salary norms in the sector and general marketplace. Accordingly, decisions with respect to base salary levels for executive officers are not based on objective identifiable performance measures but for the most part are determined by reference to competitive market information for similar roles and levels of responsibility, coupled with subjective performance factors such as leadership, commitment, accountability, industry experience, and contributions. Our view is that a competitive base salary is a necessary element for retaining qualified executive officers, as it creates a meaningful incentive for individuals to remain with us and not be unreasonably susceptible to recruiting efforts by our competitors.

In determining the base salary compensation of each NEO, the Board considers: (i) recruiting and retaining executives critical to our success and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and our shareholders; and (iv) rewarding performance, both on an individual basis and with respect to operations in general.

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Annual Incentive Compensation and Benefits

Our Board will consider whether it is appropriate and in our best interests to award discretionary cash bonus to the NEOs for the most recently completed fiscal year and, if so, the amount. Discretionary cash bonuses are awarded to recognize the achievement of annual corporate objectives and to recognize contributions that enhance our intrinsic value.

The following is a summary of the maximum annual incentive compensation as a percentage of base salary / annual consulting fee, for the NEOs based on their respective employment / consulting agreements, at the sole discretion of the Board:

Position	Maximum Annual Incentive Compensation (Percentage of Base Salary)
Executive Chairman	200%
President and CEO	Not specified
CFO, VP, Corporate Services & Compliance, and Interim Corporate Secretary	50%
VP Operations - Digitization and Counter-Threat Products	50%

We have not established explicit goals / milestones for our NEOs for Fiscal 2022 for the annual cash incentive compensation. We have set financial milestones for the vesting of 15,000 PSUs awarded to each of the Executive Chairman and the President & CEO on March 31, 2022. See Operating and Financial Review and Prospects.

Long-Term Compensation

The long-term component of compensation for our NEOs, consists of (i) stock options ("Options"), (ii) RSUs, (iii) deferred share units ("DSUs" and collectively with the Options, RSUs, PSUs and SARs, the "Security-Based Compensation Awards"), (iv) SARs and/or (v) PSUs. This component of compensation is intended to reinforce management's commitment to long-term improvements in our performance.

Our Board believes that incentive compensation in the form of Security-Based Compensation Awards which vest over time, is and has been beneficial and necessary to attract and retain NEOs. Furthermore, the Board believes Security-Based Compensation Awards are an effective long-term incentive vehicle because they are directly tied to our share price over a longer period and therefore motivates NEOs to deliver sustained long-term performance and increase shareholder value, and have a time horizon that aligns with long-term corporate goals.

In determining individual equity-based grants, the Board considers the experience, responsibilities and performance of each recipient of an award under the LTIP. Previous grants are also taken into consideration during the grant process.

Benefits Plans

The NEOs are entitled to life insurance, health and dental benefits.

We do not maintain a pension plan or retirement benefit plan for the NEOs.

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Performance Graph

The following graph illustrates the cumulative return to our shareholders based on a $100 investment in the Common Shares from September 22, 2020, the date we went public in Canada, to September 30, 2021, and for the nine months ended June 30, 2022, as compared to the cumulative total return on the Standard & Poor's / TSXV Composite Index for the same period, assuming the reinvestment of cash distributions and/or dividends:

Summary Compensation Table

The following table provides information concerning the total compensation paid to the NEOs for the year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019.

									Non-equity incentive plan compensation
Name	Fiscal Year		Salary		Share-based Awards (1)		Option- based Awards (2)		Annual Incentive Plans		Long-term Incentive Plans		All Other Compensation		Total Compensation
David Luxton Executive Chairman and Director (3)	2021	$	180,000	$	237,300	$	58,000	$	-	$	-	$	-	$	475,300
	2020	$	110,769	$	-	$	-	$	5,000	$	-	$	-	$	115,769
	2019	$	32,343	$	-	$	-	$	-	$	-	$	-	$	32,343
Jeffrey MacLeod President & CEO and Director	2021	$	160,000	$	237,300	$	58,000	$	-	$	-	$	-	$	455,300
	2020	$	110,769	$	-	$	-	$	5,000	$	-	$	-	$	115,769
	2019	$	32,343	$	-	$	-	$	-	$	-	$	-	$	32,343
Steven Archambault CFO and VP, Corporate Services and Compliance (4)	2021	$	192,733	$	24,999	$	301,000	$	-	$	-	$	-	$	518,732
	2020	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	2020	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Paul Kania Former CFO (5)	2021	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	2020	$	50,000	$	-	$	38,750	$	-	$	-	$	-	$	88,750
	2019	$	16,000	$	-	$	-	$	-	$	-	$	-	$	16,000
Richard Bowes VP, Operations of Digitization & Counter-Threat Products(6)	2021	$	78,419	$	24,999	$	301,000	$	-	$	-	$	-	$	404,418
	2020	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Notes:

(1)Represents the grant value of RSU awards, based the closing price of the Common Shares on the TSXV on the grant date.

(2)Represents the grant value of the option awards, using the Black-Scholes option model. For the key inputs used in this valuation mode, refer to Note 16 of the audited financial statements for Fiscal 2021 (see Compensation - Outstanding Equity Awards at September 30, 2021).

(3)Effective October 1, 2019, we entered into a professional services agreement with DEFSEC Corporation, a private company owned by Mr. Luxton. The compensation payable to Mr. Luxton is paid to his private company, DEFSEC Corporation.

(4)Mr. Archambault joined as our CFO on a part-time basis on October 1, 2020, transitioned to full-time on April 1, 2021. He also took on the role of VP, Corporate Services and Compliance in October 2021.

(5)Through his private company, PLK Accounting and Finance Inc., Mr. Kania provided CFO services from November 4, 2019, to September 30, 2020.

(6)Through his private company, Cardinal Defense Consulting Inc, Mr. Bowes provided part-time virtual VP Operation services from January 25, 2021, to April 9, 2021. Effective April 12, 2021, Mr. Bowes joined as an executive officer.

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Employment and Consulting Agreements

The following summarizes the key salient terms of the employment and consulting agreements between us and our NEOs in force as of September 30, 2021.

David Luxton: On October 1, 2019, we entered into a professional services agreement with DEFSEC Corporation, a private holding company owned by Mr. Luxton, in which he agreed to serve as our Executive Chairman for an annual fee of $120,000 per year and raising to $150,000 per year upon a going public transaction. This agreement was amended effective August 1, 2020, whereby the annual fee was adjusted to $180,000 per year. Mr. Luxton is entitled to an annual incentive bonus up to 200% of his annual fee at the Board's sole discretion. This agreement will expire on December 31, 2022. We have the right to terminate his consulting agreement with six (6) month notice period, subject to termination benefits (see Compensation - Potential Termination and Change of Control Benefits).

Jeffrey MacLeod: On October 1, 2019, we entered into an employment agreement with Mr. MacLeod to serve as our President and CEO with an initial base salary of $140,000 per year and raising to $160,000 upon a going public transaction. Because Mr. MacLeod's principal residence is based in West Montrose, Ontario, his employment agreement includes a $1,000 per month housing allowance for accommodations in Ottawa, Ontario while working at our corporate office. For Fiscal 2019, Mr. MacLeod collected a lower base salary to help us conserve cash to fund our working capital requirements. Further, he did not receive any housing allowance in the last three financial years. Mr. MacLeod is entitled to an annual incentive bonus at the Board's sole discretion and five weeks of vacation per year. His employment agreement will expire on September 30, 2022. We have the right to terminate his consulting agreement with six (6) month notice period, subject to termination benefits (see Compensation - Potential Termination and Change of Control Benefits).

Steven Archambault: On October 1, 2020, we entered into a part-time employment agreement with Mr. Archambault to serve as our part-time CFO for a monthly salary of $9,950 based on two business days per week, subject to adjustment for extra business days as defined in the agreement. On April 1, 2021, we amended his employment agreement to serve as our full-time CFO with an annual base salary of $180,000, of which $25,000 is to be in the form of RSUs and $155,000 in cash. These RSUs will be granted each year on April 1^st, vesting over the next 12 months. Mr. Archambault is entitled to an annual incentive bonus up to 50% of his annual base salary at the Board's sole discretion and four weeks of vacation per year. Mr. Archambault also assumed the role of Vice President, Corporate Services and Compliance starting in October 2021. We have the right to terminate his employment agreement with 30 days' notice, subject to termination benefits (see Compensation - Potential Termination and Change of Control Benefits).

Richard Bowes: On April 12, 2021, we entered into an employment agreement with Mr. Bowes to serve as Vice President of Operations, Digitization and Counter-Threat Products with an annual base salary of $180,000, of which $25,000 is to be in the form of RSUs and $155,000 in cash. These RSUs will be granted each year on April 1^st, vesting over the next 12 months. Mr. Bowes is entitled to an annual incentive bonus up to 50% of his annual base salary at the Board's sole discretion and four weeks of vacation per year. We have the right to terminate his employment agreement with 30 days' notice, subject to termination benefits (see Compensation - Potential Termination and Change of Control Benefits).

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Outstanding Equity Awards at September 30, 2021

The following table sets forth information concerning the outstanding equity awards of each of the directors and NEOs as of September 30, 2021.

	Option-based awards							Share-based awards
	Fiscal year award granted	Number of securities underlying unexercised options		Option exercise price	Option expiration date		Value of unexercised in the- money options(1)	Number of shares or units of shares that have not vested		Market or payout value of share-based awards that have not vested (2)		Market or payout value of vested share-based awards not paid out or distributed
David Luxton (3)	2021	2,500	$	50.00	7/2/2026	$	72,000	3,750	$	295,500	$	-
Jeff MacLeod (4)	2021	2,500	$	50.00	7/2/2026	$	72,000	5,250	$	413,700	$	-
Steven Archambault (5)	2021	5,000	$	78.00	8/25/2026	$	4,000	363	$	28,634	$	-
		1,250	$	28.00	11/20/2025	$	63,500	-	$	-	$	-
		6,250	$	30.00	10/1/2025	$	305,000	-	$	-	$	-
Richard Bowes (6)	2021	2,500	$	78.00	8/25/2026	$	2,000	363	$	28,634	$	-
		7,500	$	51.60	4/29/2026	$	204,000	-	$	-	$	-
		2,500	$	68.80	1/25/2021	$	25,000	-	$	-	$	-
Total		30,000				$	747,500	18,688	$	766,468	$	-

Notes:

(1)Based on the difference between the exercise price of the option and $78.80, the closing price of the Common Shares on the TSXV on September 30, 2021.

(2)Based on $78.80, the closing price of the Common Shares on the TSXV on September 30, 2021.

(3)The grants were made to Mr. Luxton's private company, DEFSEC Corporation. His 2021 stock option grant will vest over two (2) years and his RSU grant will vest over one (1) year.

(4)Mr. MacLeod's 2021 stock option grant will vest over two (2) years and his RSU grant will vest over one (1) year.

(5)Mr. Archambault's 2021 stock option grants will vest as follows: a) 5,000 options and 6,250 options over (2) years, and b) 50,000 options vested immediately. His RSU grant will vest over twelve (12) months.

(6)Mr. Bowes' 2021 stock option grants will vest as follows: a) 2,500 options over one (1) year, and b) 7,500 options and 2,500 options over two (2) years.

There was no exercise of stock options during Fiscal 2021.

Value Vested or Earned During the Year

The table below sets out the value of incentive awards that vested during the year ended September 30, 2021.

Name		Option-based awards - value vested during Fiscal 2021 (1)		Share-based awards - value vested during Fiscal 2021 (2)		Non-equity incentive plan compensation - value earned during Fiscal 2021
David Luxton	$	-	$	-	$	-
Jeff MacLeod	$	-	$	-	$	-
Steven Archambault	$	41,125	$	10,514	$	-
Richard Bowes	$	9,500	$	10,514	$	-

Notes:

(1)Amounts represent the difference between the exercise price and the closing price of the Common Shares on the TSXV on the vesting date.

(2)Amounts represent the number of vested RSUs multiplied by the closing price of the Common Shares on the TSXV on the vesting date.

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Potential Termination and Change of Control Benefits

All outstanding equity compensation is forfeited / cancelled if we terminate a NEO's employment / consulting agreement for cause. Further, in the event a NEO voluntarily resigns from his employment / consulting with us, any unpaid annual incentive and unvested equity compensation are forfeited in accordance with our LTIP.

We have agreements with the NEOs that set out the terms of their employment / consulting and what they are entitled to in connection with a termination of employment or change of control. These agreements include non-solicitation, confidentiality, and ownership of intellectual property provisions to protect our interests.

The table below sets out what the NEOs are entitled to under the different termination scenarios under their respective agreements in effect as at September 30, 2021:

	Notice Period (months)		Termination Without Cause (pre-Change of Control)		Termination Without Cause in Connection with Change of Control
David Luxton
Base fee	6	$	180,000	$	270,000	(1)
Value of unvested options		$	72,000	$	72,000
Value of unvested RSUs		$	295,500	$	295,500
TOTAL		$	547,500	$	637,500
Jeffrey MacLeod
Base pay	6	$	160,000	$	240,000	(1)
Value of unvested options		$	72,000	$	72,000
Value of unvested RSUs		$	413,700	$	413,700
TOTAL		$	645,700	$	725,700
Steven Archambault
Base pay	1	$	90,000	$	90,000	(2)
Value of unvested options		$	331,375	$	331,375
Value of unvested RSUs		$	28,634	$	28,634
TOTAL		$	450,009	$	450,009
Richard Bowes
Base pay	1	$	45,000	$	45,000	(2)
Value of unvested options		$	221,500	$	221,500
Value of unvested RSUs		$	28,634	$	28,634
TOTAL		$	295,134	$	295,134

Notes:

(1)If within 24 months of, or in anticipation within 6 months of, change of control.

(2)If within 3 months of, or in anticipation within 3 months of, change of control.

A change of control is commonly defined in each of the respective agreements as:

a)the sale of all or substantially all of our outstanding Common Shares for cash or securities of an entity not managed by our management team and that are determined by our Board to be liquid for all of our shareholders ("Liquid Unrelated Issuer");

b)a merger, amalgamation, arrangement or other similar transaction involving us where the holders of our Common Shares receive cash or securities of a Liquid Unrelated Issuer, but do not immediately thereafter own securities of the successor corporation which entitle them to cash more than 50% of the votes attaching to all shares in the capital of the successor corporation;

c)the sale of all or substantially all of our assets followed by a liquidating distribution to the holders of our Common Shares of cash or securities of a Liquid Unrelated Issuer;

provided that our Board shall have the right, in its absolute discretion, to deem any transaction not enumerated above to be a change of control. For greater clarity, a sale or transfer of founders shares between related parties, and/or an initial going public transaction of any kind shall not constitute a change of control.

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Compensation of Independent Directors

In prior financial years, we made no cash compensation to the directors. In December 2020, our Board approved the following cash compensation for the independent directors effective October 1, 2020:

• $5,000 per quarter; and
• $2,500 per quarter for the Chair of the Audit Committee.

The following table sets out the total compensation for our independent directors who served at any time during the year ended September 30, 2021.

Name	Fees Earned		Stock Awards (1)		Option Awards (2)		Non-equity Incentive Plan Compensation		All Other Compensation		Total Compensation
John McCoach	$	30,000	$	-	$	110,000	$	-	$	-	$	140,000
Paul Fortin	$	20,000	$	-	$	110,000	$	-	$	-	$	130,000
Paul Mangano	$	20,000	$	-	$	110,000	$	-	$	-	$	130,000
Elisabeth Preston(3)	$	15,000	$	-	$	261,000	$	-	$	-	$	276,000

Notes

(1)Represents the grant value of RSU awards, based on the closing price of the Common Shares on the TSXV on the grant date.

(2)Represents the grant value of the option awards, using the Black-Scholes option model. For the key inputs used in this valuation mode, refer to Note 16 of the audited financial statements for the year ended September 30, 2021.

(3)Mrs. Preston retired from the Board on May 18, 2022.

Outstanding Equity Awards at September 30, 2021

The following table shows all compensation securities granted to our independent directors during Fiscal 2021.

	Option-based awards										Share-based awards
	Fiscal Year award granted		Number of securities underlying unexercised options (1)		Option exercise price		Option expiration date		Value of unexercised in the money options(2)		Number of shares or units of shares that have not vested		Market or payout value of share-based awards that have not vested (3)		Market or payout value of vested share-based awards not paid out or distributed
John McCoach		2021		6,250	$	38.80		12/15/2025	$	250,000		-	$	-	$	-
		2018		535	$	18.80		6/15/2023	$	32,142		-	$	-	$	-
Paul Fortin		2021		6,250	$	38.80		12/15/2025	$	250,000		-	$	-	$	-
Paul Mangano		2021		6,250	$	38.80		12/15/2025	$	250,000		-	$	-	$	-
Elisabeth Preston		2021		7,500	$	71.20		2/23/2026	$	57,000		-	$	-	$	-
Total				26,785					$	839,142		-	$	-	$	-

Notes:

(1)The 2021 stock option grants to the directors vest over two (2) years. The 2018 stock option granted to Mr. McCoach has fully vested.

(2)Based on the difference between the exercise price of the option and $78.80, the closing price of the Common Shares on the TSXV on September 30, 2021.

(3)Based on $78.80, the closing price of the Common Shares on the TSXV on September 30, 2021.

There was no exercise of options during Fiscal 2021.

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Equity Compensation Plans

On February 10, 2021, our Board adopted a new LTIP, which was approved by our shareholders on March 31, 2021 and on April 9, 2021 by the TSXV.  Our LTIP was subsequently amended to conform with the new TSXV policy issued on November 24, 2021 in relation to security based compensation.  Our shareholders approved this amended LTIP on March 31, 2022, which was subsequently approved by the TSXV on April 14, 2022.

The maximum number of Common Shares issuable under our LTIP for stock options is 10% of our issued and outstanding Common Shares, subject to adjustment or increase pursuant to the terms of the LTIP. Any stock options that have been cancelled, repurchased, expired, or exercised will again be available under the LTIP. At June 30, 2022, we had 105,242 outstanding stock options, leaving 24,351 stock options available for future grants.

Additionally, the maximum number of Common Shares issuable under our LTIP in respect of RSUs, DSUs, SARs, and PSUs (collectively “Share Units”) is 105,668. At June 30, 2022, we had 63,649 outstanding Share Units, and 27,629 Share Units available for future grants. Refer to Note 12 of our Q3 Fiscal 2022 FS.

The following is a summary of the salient terms of the equity-based awards available under our amended LTIP. For a more fulsome disclosure of our LTIP, a copy of our amended LTIP is available on SEDAR website at www.sedar.com.

Stock Options

Key Employees, Directors, Consultants and Persons performing Investor Relations Services (as such terms are defined in the LTIP) are eligible to receive grants of stock options to acquire Common Shares at the time of employment or contract, if applicable, and thereafter as determined by the Board.

Restricted Share Units

Key Employees, Directors and Consultants, are eligible to receive grants of RSUs, entitling the holder to receive one Common Share for each RSU, subject to restrictions as the Board may, in its sole discretion, establish in the applicable award agreement. The Board believes the granting of RSUs creates long-term incentive, a sense of ownership and an alignment of the recipients' interests with those of our shareholders and stakeholders. The granting of RSUs is intended to reward those executives who are responsible for our management and growth and to encourage such executives to develop a long-term vision for us to operate in a manner to maximize shareholder value. By using vesting periods for RSUs in addition to other restrictions, this compensation element is also designed to support long term retention of valuable Key Employees and Directors as well as provide an incentive for the achievement of specific milestones, if applicable.

Performance Share Units

Key Employees, Directors, and Consultants are eligible to receive grants of PSUs, entitling the holder to receive one Common Share for each PSU, subject to the achievement or attainment of specific performance criteria ("Performance Criteria") within a specific period ("Performance Cycle"). The number of PSUs and the Performance Criteria which must be satisfied in order for the PSUs to vest and the Performance Cycle in respect of such PSUs shall be specified in the applicable award agreement. The Board believes the granting of the PSUs incentivizes the attainment of specific goals which support our overall strategies and creates a sense of ownership and an alignment of the recipients' interests with those of our shareholders and stakeholders. The granting of PSUs is intended to reward those executives who are responsible for our management and growth and to encourage such executives to develop a long-term vision for us to operate in a manner to maximize shareholder value. By using vesting periods for PSUs in addition to other restrictions, this compensation element is also designed to support long-term retention of valuable employees as well as provide an incentive for the achievement of specific milestones, if applicable.

Deferred Share Units

Key Employees and Directors are eligible to receive grants of DSUs. Directors may elect to receive any part or all of their fees payable in respective of their position as a director as DSUs. Each holder of a DSU is entitled to receive one Common Share for each DSU. The Board believes the granting of DSUs creates long-term incentive, a sense of ownership and an alignment of the recipients' interests with those of our shareholders and Stakeholders. The granting of DSUs is intended to reward directors who are responsible for oversight of our management and growth and to encourage such directors to maintain a long-term vision for us to operate in a manner to maximize shareholder value.

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Stock Appreciation Rights

Key Employees, Directors, and Consultants are eligible to receive grants of SARs, entitling the recipient to receive a payment in Common Shares equal to the current market price less the grant price of the SAR as determined by the Board at the time of the grant for each SAR. Notwithstanding the foregoing, the Board may, in its sole discretion, satisfy payment of the entitlement in cash rather than in Common Shares. The granting of SARs is intended to reward those executives who are responsible for our management and growth and to encourage such executives to develop a long-term vision for us to operate in a manner to maximize shareholder value. By using vesting periods for SARs, this compensation element is also designed to support long-term retention of valuable employees as well as provide an incentive for the achievement of specific milestones, if applicable.

Vesting Provision

No award issued under the LTIP, other than Options, may vest before the date that is one year following the date it is granted or issued. Notwithstanding this provision, vesting may be accelerated for a Participant who dies or who ceases to be an eligible Participant under the LTIP in connection with a change of control, take-over bid, RTO, or other similar transaction. 

For Options grants to Investor Relations service providers, vesting must be over a period of not less than one year, with no more than 25% of such options vesting in any three months.

Modification of an Award

Any adjustment, other than as noted in section 4.3 Anti-Dilution of the LTIP, to award granted or issued under our LTIP must be subject to the prior acceptance of the TSXV, including adjustments related to an amalgamation, merger, arrangement, reorganization, spin-off, dividend, or recapitalization.

Further, any decrease in the exercise price of or extension to stock options granted to individuals that are Insiders at the time of the proposed amendment is subject to disinterested shareholder approval.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the securities authorized for issuance under our LTIP as of July 31, 2022.

Equity Compensation Plans Information
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants or rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining to be issued under Equity Compensation Plans (excluding securities listed in column (a)) (c)
LTIP	Share units: 63,649 Options: 106,492	Share units: $nil Options: $49.20	Share units: 27,629 Options: 23,281
Equity Compensation Plans not approved by the holders	n/a	n/a	n/a

Board Practices

Each of our directors will hold office until the next annual general meeting of our shareholders or until his or her office is earlier vacated, in accordance with our Articles of Incorporation (the "Articles") and the BCBCA. Each of our officers serves at the pleasure of our Board. Please also refer to Directors and Senior Management above for further details regarding the periods of service of each of our current directors and officers.

As of September 30, 2021, we did not have any service contracts with any of our independent directors.

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Board Nomination

The identification of potential candidates for nomination as our directors is carried out by all directors, who are encouraged to participate in the identification and recruitment of new directors. Potential candidates are primarily identified through referrals and business contacts.

Audit Committee

The Audit Committee's Charter

Our directors have adopted a Charter for the Audit Committee, which sets out the Audit Committee's mandate, organization, powers and responsibilities. As we are considered a "venture issuer" for the purposes of applicable Canadian securities laws, it is exempted from certain requirements pertaining to committee composition and reporting obligations. The full text of our Audit Committee Charter is available on request from us.

Composition of the Audit Committee

The members of the Audit Committee are John McCoach (Chairman), Paul Fortin, and Paul Mangano. All members are independent (as defined in National Instrument 52-110 - Audit Committees ("NI 52-110") adopted by the Canadian Securities Administrators), and all members are financially literate (as defined in NI 52-110). The Audit Committee meets regularly on at least a quarterly basis. The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board.

Relevant Education and Experience

All of the Audit Committee members are senior-level professionals with experience in financial matters; each has a broad understanding of accounting principles used to prepare financial statements and varied experience as to general application of such accounting principles. Further, John McCoach has served on other Audit Committees of reporting issuers and was previously the President of the TSXV.

For further relevant education and experience of Messrs. McCoach, Fortin, and Mangano, refer to their respective biographies in Directors, Senior Management and Employees.

Audit Committee Oversight

At no time during this past fiscal year have any recommendations by the Audit Committee respecting the appointment and/or compensation of our external auditors not been adopted by the Board.

Pre-Approval Policies and Procedures

Under its charter, the Audit Committee is required to pre-approve all non-audit services to be performed by the external auditors in relation to us, together with approval of the engagement letter for such non-audit services and estimated fees thereof. The pre-approval process for non-audit services will also involve a consideration of the potential impact of such services on the independence of the external auditors.

Employees

The following table sets forth the number of employees we had at the end of each fiscal period:

Year	Full Time	Part Time	Total
Fiscal 2019	6	nil	6
Fiscal 2020	10	nil	10
Fiscal 2021	17	0.6	17.6
Q3 Fiscal 2022	18	0.6	18.6

None of our employees are members in a labor union.

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Share Ownership

As of September 8, 2022, our directors and executive officers, as a group, beneficially owned a total of 504,075 Common Shares, representing beneficial ownership of 28.45% of the Common Shares.

The table below sets forth the number of Common Shares beneficially owned by our directors and executive officers as of September 8, 2022. The persons listed below are deemed to be the beneficial owners of Common Shares underlying options, RSUs, and warrants that are exercisable within 60 days from the above date, including “out-of-the money” options. The percentages shown below are based on 1,353,138 outstanding Common Shares as of September 8, 2022, plus 418,503 Common Shares underlying options, RSUs and warrants that are exercisable within 60 days for the indicated beneficial owner for an aggregate total of 1,771,643.

Shareholdings of Directors and Executive Officers

Name of Beneficial Owner	Common Shares held	Exercisable Options	RSUs	Exercisable Warrants	Number of Common Shares Beneficially Owned	Percent of Outstanding Common Shares
David Luxton (1)	110,375	1,250	1,875	58,885	172,385	9.73%
Jeffrey MacLeod (2)	247,381	1,250	5,250	21,000	274,881	15.52%
John McCoach	3,322	6,785	-	353	10,461	0.59%
Paul Mangano	8,068	6,250	-	20	14,338	0.81%
Paul Fortin	175	6,250	-	20	6,445	0.36%
Steven Archambault	4,186	10,000	1,829	1,711	17,727	1.00%
Richard Bowes	665	6,250	922	-	7,838	0.44%
Total	374,172	38,035	9,876	81,989	504,075	28.45%

Notes:

(1)Includes 109,416 Common Shares, 1,250 exercisable options, 1,875 RSUs, and 58,860 exercisable warrants held by his private company, DEFSEC Corporation.

(2)Common Shares are held by his private company, 2573685 Ontario Inc. Exercisable options and warrants are held by Mr. MacLeod.

Refer to section titled, Compensation, for the details of the options held by our directors and executive officers as at September 30, 2021. We have since not granted any further options.

We do not have any other equity arrangements for involving employees in our capital, except for the grant of Security-Based Compensation Awards pursuant to our LTIP at the discretion of the Board.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

To our best knowledge, the following are our only shareholders that beneficially own, directly or indirectly, or exercise control over, shares carrying more than 5% of the outstanding voting rights attached to our Common Shares as at September 8, 2022.

Name of Shareholder	Number of Common Shares	Percentage of Common Shares
2573685 Ontario Inc.(1)	247,381	18.3%
DEFSEC Corporation (2)	110,374	8.2%
SOL Global Investments Corp. (3)	119,250	8.8%

Notes:

(1)A private holding company owned 50% by our President and CEO and 50% by his spouse.

(2)Includes 38,357 Common Shares held by our Executive Chairman.

(3)A holding company listed on the Canadian Securities Exchange (stock symbol: SOL). As reported on www.sedi.ca.

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Major changes in the last three years in the percentage ownership of persons who beneficially own 5% of the outstanding voting rights attached to our Common Shares were:

• On April 29, 2021, as a result of acquiring PARA OPS from DEFSEC, we issued 25,000 Common Shares (and 12,500 warrants exercisable for Common Shares). DEFSEC’s equity ownership in us increased accordingly.
• On September 10, 2021, SOL Global Investments Corp. announced its equity ownership of our Common Shares for the first time, reporting 9.6% equity ownership and 10.3% on a partially diluted basis. On December 31, 2021, SOL Global Investments Corp held 135,000 Common Shares and 10,000 million warrants exercisable for Common Shares. On March 9, 2022, SOL Global Investments announced that it had reduced their Common Share holdings in KWESST to less than 10% of our total outstanding Common Shares.

Our major shareholders do not have different voting rights from other shareholders. At June 30, 2022 there were a total of 55 record holders of our Common Shares, of which nine record holders were resident in the United States, holding a total of 21,058 Common Shares, based on available information. This number represents approximately 1.6% of our total issued and outstanding Common Shares at that date.

We are a publicly owned company, and our Common Shares are owned by Canadian residents, United States residents, and residents of other countries. To our knowledge, we are not directly owned or controlled by another corporation, any foreign government or any other natural or legal person(s), whether severally or jointly. We are not aware of any arrangement, the operation of which may result in a change of control of us.

Related Party Transactions

To our knowledge, none of our directors or executive officers, nor any of our subsidiaries or insiders, nor any of our shareholders owning more than 10% of our voting shares, and no person with ties to any of the aforementioned, nor any member of the same group, has had or expects to have an interest in any transactions concluded since the beginning of Fiscal 2019 that has had or could have a material impact on us, or in any projected transactions, except as described below.

DEFSEC Purchase Agreement

The entering into the DEFSEC Purchase Agreement by us was considered to be a "related-party transaction" for purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") and Policy 5.9 - Protection of Minority Security Holders in Special Transactions of the TSXV. We relied on exemptions from the formal valuation and minority shareholder approval requirements available under MI 61-101. We were exempt from the formal valuation requirement in section 5.4 of MI 61-101 in reliance on sections 5.5(a) and (b) of MI 61-101 as the fair market value of the transaction was not more than the 25% of our market capitalization, and no securities of ours were listed or quoted for trading on prescribed stock exchanges or stock markets. Additionally, we were exempt from minority shareholder approval requirement in section 5.6 of MI 61- 101 in reliance on section 5.7(a) as the fair market value of the transaction was not more than the 25% of our market capitalization. The transaction was reviewed and approved by our independent directors and we obtained approval from over 51% of disinterested shareholders. Further, on February 19, 2021, the TSXV conditionally approved this asset acquisition. We closed the LEC Technology acquisition shortly after closing the April 2021 Private Placement.

Employment and Consulting Agreements

We have entered into a professional services agreement with DEFSEC to obtain Executive Chairman services from David Luxton and employment agreements with Jeffrey MacLeod, Steven Archambault and Richard Bowes (see Compensation - Employment and Consulting Agreements).

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Voting Agreement

On September 14, 2020, we entered into a voting agreement with Messrs. Luxton and MacLeod, pursuant to which Messrs. Luxton and MacLeod agreed to vote the voting securities of us they own and exercise voting control over to ensure that the following individuals are members of our Board of Directors: Mr. Luxton, Mr. MacLeod, one person nominated by Mr. Luxton who is from the capital markets industry, one independent person nominated by Mr. Luxton and one independent person nominated by Mr. MacLeod. Further, Messrs. Luxton and MacLeod irrevocably appointed our President as their proxy and granted our President power of attorney to vote their voting securities in a manner described in the voting agreement should either Mr. Luxton or Mr. MacLeod fail to vote or attempt to vote in a manner inconsistent with the voting agreement. This voting agreement expired on March 31, 2022.

Related Party Loans

During Fiscal 2021, we repaid all prior related party loans. Refer to Note 11 of the audited consolidated financial statements for Fiscal 2021 for further details.  There were no new related party loans for YTD Fiscal 2022 except for $74,000 of Unsecured Loans provided by certain directors and officers (Messrs. Luxton, Mangano, Fortin, McCoach, and Archambault). See Liquidity and Capital Resources - Recent Sources and Uses of Financing.

Other Related Party Transactions

From January 28, 2021, to June 24, 2022, the CEO and sole shareholder of SageGuild agreed to serve as director for our United States subsidiary, KWESST Defense Systems U.S. Inc, and as a result SageGuild was a related party to KWESST for this period. We previously entered into a consulting agreement with SageGuild in March 2020 to provide business development services in the United States. This consulting agreement, including compensation, was not modified as a result of the above. At the time, SageGuild was not a related party and the terms of this consulting agreement were negotiated at arm's length. From January 1, 2021, to September 30, 2021, the total compensation (cash and share-based) amounted to $339,309.  For the three and nine months ended June 30, 2022 the total compensation was $81,761 and $251,809 respectively.  Effective June 24, 2022, our Executive Chairman replaced SageGuild's CEO as the acting CEO and director for KWESST Defense Systems U.S. Inc. and therefore from this date SageGuild is no longer a related party.

For other immaterial related party transactions, refer to Note 11 of the audited consolidated financial statements for Fiscal 2021 and Note 9 of Q3 Fiscal 2022 FS.

FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Financial Statements

See section titled, Financial Statements.

Our unaudited consolidated financial statements as at and for the three and nine months ended June 30, 2022, and 2021, our audited consolidated financial statements as at and for the year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019, as required under this section, are attached hereto and found immediately following the text of this Prospectus. The audit reports of Kreston GTA LLP and KPMG LLP are included therein immediately preceding the financial statements and schedules.

Legal Proceedings

We are not and have not been a party to any legal proceedings and are not aware of any such proceedings known to be contemplated.

Dividend Policy

We have not, for any of the three most recently completed fiscal years or our current fiscal year, declared or paid any dividends on our Common Shares, and do not currently have a policy with respect to the payment of dividends. For the foreseeable future, we anticipate that we will not pay dividends but will retain future earnings and other cash resources for the operation and development of our business. The payment of dividends in the future will depend on our earnings, if any, our financial condition, and such other factors as our directors consider appropriate.

Significant Changes

Except as otherwise disclosed in this Prospectus, there have been no significant changes in our financial condition since the most recent audited consolidated financial statements for the year ended September 30, 2021, and the unaudited consolidated interim financial statements for the three and nine months ended June 30, 2022.

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MARKET FOR OUR COMMON SHARES

Our Common Shares are listed and posted for trading on the TSXV under the trading stock symbol "KWE.V," are quoted on the OTCQB under the stock symbol "KWEMF" and listed on the Frankfurt Stock Exchange under the stock symbol of "62U".  We have applied to list our Common Shares and the Warrants being sold as part of this offering on Nasdaq under the symbols "KWE" and "KWESW," respectively. Such listing is dependent upon this Prospectus being declared effective as well as our meeting all the necessary listing requirements of Nasdaq.

There is no established trading market for the Pre-funded Warrants. We do not expect a market for such securities to develop. In addition, we do not intend to apply for the listing of the Pre-funded Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Pre-funded Warrants will be limited.

As of September 8, 2022, our authorized capital consisted of an unlimited number of Common Shares and consisted of 1,353,138 Common Shares outstanding, after giving effect to the Reverse Split, and there were approximately 61 record holders of our Common Shares. Our Common Shares are issued in registered form and the transfer of our Common Shares is managed by our transfer agent, TSX Trust Company, 301 - 100 Adelaide St. W., Toronto, ON, M5H 4H1 (Tel: (416) 342-1091). The Warrants being sold in the offering will be in Warrants will be issued in electronic book-entry form to the investors and the warrant agent is Continental Stock Transfer & Trust.

For additional details regarding our Common Shares see Share Capital and for additional details regarding the Warrants see Warrants.

DILUTION

All share-related information presented in this section gives effect to the Reverse Split.

If you invest in our Common Shares in this offering, your interest will be diluted to the extent of the difference between the public offering price per Common Share (assuming no value is attributed to the Warrants and no Pre-funded Warrants are sold in the offering) and the as adjusted net tangible book value per Common Share immediately after the closing of this offering (assuming no value is attributed to the Warrants and no Pre-funded Warrants are sold in the offering). Net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding Common Shares. Our net tangible book value of our Common Shares as of June 30, 2022 was negative USD$2.7 million, or USD($2.08) per share, using the exchange rate of USD$1.00 per CAD$1.2783 on June 30, 2022.

After giving further effect to the Reverse Split, the net proceeds from our sale of 2,323,232 Common Shares in this offering (2,929,292 including the Canadian Offering) at the assumed public offering price of USD$4.95 per share (with an estimated offering price range for the Common Units between USD$4.13 and USD$5.74), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2022, would have been USD$6.8 million, or USD$1.88 per share (USD$9.1 million or USD$2.15 including the Canadian Offering), assuming no value is attributed to the Warrants and no Pre-funded Warrants are sold in the offering. This represents an immediate increase in as adjusted net tangible book value of USD$3.96 per share (USD$4.23 including the Canadian Offering) to our existing shareholders and an immediate dilution of USD$3.07 per share (USD$2.80 per share including the Canadian Offering) to investors purchasing Common Shares in this offering.

We calculate dilution per share to new investors by subtracting the as adjusted net tangible book value per share from the public offering price paid by the new investor. The following table illustrates the dilution to new investors on a USD per share basis:

		IPO			IPO and Canadian Offering
Assumed public offering price per share	$	4.95		$	4.95
Historical net tangible book value per share as of June 30, 2022	$	(2.08	)	$	(2.08	)
Increase in as adjusted net tangible book value per share attributable to this offering	$	3.96		$	4.23
As adjusted net tangible book value per share after this offering	$	1.88		$	2.15
Dilution in as adjusted net tangible book value per share in this offering	$	3.07		$	2.80

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The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A USD$1.00 increase in the assumed initial public offering price of USD$4.95 to USD$5.95 per share (assuming no value is attributed to the Warrants and no Pre-funded Warrants are sold in the offering) would increase our as adjusted net tangible book value as of June 30, 2022, after this offering by USD$4.55 per share (USD$4.33 per share including the Canadian Offering), and would increase dilution to new investors by USD$2.48 per share (USD$2.70 per share including the Canadian Offering). An increase of 100,000 in the number of shares we are offering would increase our as adjusted net tangible book value as of June 30, 2022, after this offering by USD$4.04 per share, and would decrease dilution to new investors by USD$3.00 per share, assuming the assumed initial public offering price per share remains the same (assuming no value is attributed to the warrants and no Pre-funded Warrants are sold in the offering).

If the underwriter’s Over-Allotment Option is exercised in full, the as adjusted net tangible book value per share after giving effect to this offering, assuming the public offering price of USD$4.95, would be USD$2.12 per share (USD$2.34 per share including the Canadian Offering), representing an immediate increase to existing shareholders of USD$4.20 per share (USD$4.42 per share including the Canadian Offering), and immediate dilution to new investors in this offering of USD$2.83 per share (USD$2.61 per share including the Canadian Offering).

The following table summarizes, on the as adjusted basis described above as of June 30, 2022, the differences between the existing shareholders and the new investors in this offering with respect to the number of shares, including shares represented by shares purchased from us, the total consideration paid to us and the average price per share based on an assumed public offering price of USD$4.95 per share before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

	Shares Issued		Total Consideration			Average Price Per
	Number	Percent	Amount (USD$)	Percent		Share (USD$)
Existing shareholders	1,304,678	31%	16,481,099	53%	$	12.63
IPO investors	2,323,232	55%	11,500,000	37%	$	4.95
Canadian investors	606,060	14%	3,000,000	10%	$	4.95
Total	4,233,970	100%	30,981,099	100%	$	7.32

The foregoing calculations as of September 8, 2022:

• assumes no exercise by the underwriter of its Over-Allotment Option;

• assumes no exercise of the Underwriter Warrants;

• assumes no exercise of Canadian Compensation Options;

• assumes no exercise of any of the Warrants sold in the offering, including any Pre-funded Warrants in lieu of Common Shares;

• excludes 335,428 warrants to purchase 335,428 Common Shares at a weighted average exercise price of $31.00 (USD$24.25) per share;

• excludes 100,863 Common Shares issuable upon the exercise of outstanding but unexercised stock options to purchase our Common Shares, under our LTIP, at a weighted average exercise price of $48.00 (USD$37.55) per share; and

• excludes 62,606 Common Shares issuable upon the conversion of 37,156 RSUs, 20,800 PSUs, and 4,650 SARs under our LTIP.

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SHARES ELIGIBLE FOR FUTURE SALE

All share-related information presented in this section gives effect to the Reverse Split.

Future sales of substantial amounts of our Common Shares and/or Warrants in the public market, or the perception that such sales may occur, could adversely affect market prices prevailing from time to time. The majority of the outstanding Common Shares have been outstanding for many years and will be available for sale at any time after this offering. Therefore, there may be sales of substantial amounts of our Common Shares in the public market after the completion of this offering, which may adversely affect the prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, 3,676,370 Common Shares and 2,658,660 Warrants will be outstanding (or 4,282,430 Common Shares and 3,264,720 Warrants including the Canadian Offering), assuming that no Pre-funded Warrants are sold in the offering. Of these securities, 2,323,232 Common Shares (or 2,671,716 Common Shares if the underwriter exercises in full its Over-Allotment Option) and all the Warrants sold in this offering will be freely transferable without restriction or further registration under the Securities Act, except for any Common Shares or Warrants purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Of the Common Shares that will be outstanding, approximately 1,353,138 Common Shares and approximately 335,428 warrants, exercisable for a like number of Common Shares are “restricted shares” as defined in Rule 144. Restricted Common Shares may be sold in the public market only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144. As a result of the 90-day lock-up period described below, the Common Shares subject to lock-up arrangements will be available for sale in the public market only after 90 days from the date of this Prospectus (generally subject to resale limitations).

Rule 144

In general, a person who has beneficially owned restricted Common Shares for at least six months would be entitled to sell such securities, provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, the sale (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale (iii) we have filed all reports and other materials required by the Exchange Act during the preceding 12 months and (iv) one year has elapsed from the initial filing of this Prospectus with the SEC. Persons who have beneficially owned restricted shares of our Common Shares for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, the sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of the following:

• 1% of the number of Common Shares then outstanding, which will equal approximately 30,439 Common Shares immediately after this offering; or
• the average weekly trading volume of our Common Shares on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;

provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and that such sales must also comply with the manner of sale and notice provisions of Rule 144, to the extent applicable.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases Common Shares from us in connection with a compensatory stock plan or other written agreement executed prior to the completion of this offering is eligible to resell those Common Shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

Lock-up Agreements

The Company, each of our directors and executive officers, and certain shareholders who own 5% or more of our outstanding Common Shares have agreed not to or are otherwise restricted in their ability to offer, pledge, sell, contract to sell, grant any option to purchase, or otherwise dispose of our Common Shares, Warrants, or any securities convertible into or exchangeable or exercisable for Common Shares, or to enter into any hedge or other arrangement or any transaction that transfers, directly or indirectly, the economic consequence of ownership of the Common Shares, for a period of 90 days after the date of this Prospectus, without the prior written consent of the underwriter. Notwithstanding the foregoing, prior written consent is not required for securities purchased in open market transactions after the IPO, transfers of securities as bona fide gifts, transfers of securities to a charity or educational institution and certain transfers made by corporations, partnerships, business entities and trusts. See Underwriting. The underwriter does not have any present intention or arrangement to release any Common Shares subject to lock-up arrangements prior to the expiration of the 90-day lock-up period.

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UNDERWRITING

We have entered into an underwriting agreement, dated,    2022, with ThinkEquity LLC, acting as the sole book-running manager and underwriter. Subject to the terms and conditions of the underwriting agreement, the underwriter has agreed to purchase, and we have agreed to sell to it, the number of Common Shares, Pre-funded Warrants and Warrants listed next to its name at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this Prospectus and as indicated below:

Underwriter:	Number of Shares and Warrants	Number of Pre-funded Warrants and Warrants
ThinkEquity LLC
Total:

The underwriting agreement provides that the obligations of the underwriter to pay for and accept delivery of the Common Shares, Pre-funded Warrants and Warrants offered by this Prospectus are subject to various conditions and representations and warranties, including the approval of certain legal matters by its counsel and other conditions specified in the underwriting agreement. The Common Shares, Pre-funded Warrants and Warrants are offered by the underwriter, subject to prior sale, when, as and if issued to and accepted by the underwriter. The underwriter reserves the right to withdraw, cancel or modify the offer to the public and to reject orders in whole or in part. The underwriter is obligated to take and pay for all of the Common Shares, Pre-funded Warrants and Warrants offered by this Prospectus if any such securities are taken.

We have agreed to indemnify the underwriter and certain of its affiliates and controlling persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), among others, against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriter may be required to make in respect thereof.

Discounts and Commissions

The underwriter proposes to offer the Common Shares, Pre-funded Warrants and Warrants directly to the public at the public offering prices set forth on the cover page of this Prospectus. After the offering to the public, the offering prices and other selling terms may be changed by the underwriter without changing the proceeds we will receive from the underwriter. Any Common Shares, Pre-funded Warrants and Warrants sold by the underwriter to securities dealers will be sold at the public offering price less a selling concession not in excess of USD$    per Common Share.

The following table summarizes the public offering price, underwriting commissions and proceeds before expenses to us. The underwriting commissions are 7.5% of the public offering price. We have also agreed to pay a non-accountable expense allowance to the underwriter equal to 1% of the gross proceeds received at the closing of the offering.

	Per Share and Warrant	Per Pre- funded Warrant and Warrant	Total Without Over-Allotment Option	Total With Full Over-Allotment Option
Public offering price
Underwriting discount (7.5%)
Non-accountable expense allowance (1%)
Proceeds, before expenses, to us

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We have also agreed to pay certain of the underwriter's expenses relating to the offering, including the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, in an amount not to exceed USD$3,000; the fees and expenses of the underwriter's legal counsel not to exceed USD$125,000; the USD$29,500 cost associated with the use of Ipreo's book building, prospectus tracking and compliance software for the Offering; up to USD$5,000 for data services and communications expenses; up to USD$5,000 of underwriter's actual accountable "road show" expenses; and up to USD$30,000 of the underwriter's market making and trading, and clearing firm settlement expenses for the Offering. Notwithstanding the foregoing,  the aggregate expenses reimbursable by the Company to the underwriter pursuant to this paragraph shall not to exceed USD$150,000 without the Company's prior written consent. Our total estimated expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, are approximately USD$1.0 million.

Over-Allotment Option

We have granted a 45-day option to the underwriter, exercisable one or more times in whole or in part, to purchase up to an additional 348,484 Common Shares, representing 15% of the Common Shares sold in the IPO, and/or up to 348,484 Pre-funded Warrants, representing 15% of the Pre-funded Warrants sold in the IPO and/or up to 348,484 Warrants, representing 15% of the Warrants sold in the IPO, in each case, solely to cover over-allotments, if any.  The purchase price to be paid per additional Common Share or Pre-funded Warrant by the underwriter shall be equal to the public offering price of one Common Unit or one Pre-funded Unit, as applicable less underwriting discount, and the purchase price to be paid per additional Warrant by the underwriter shall be USD$0.00001.

Underwriter Warrants

Upon closing of this offering, we have agreed to issue to the underwriter, or its designees, as compensation, Underwriter Warrants to purchase up to 116,162 Common Shares, which is equal to 5% of the aggregate number of Common Shares (or in lieu thereof the Pre-funded Warrants) sold in this offering. The Underwriter Warrants will be exercisable at a per share exercise price equal to 125% of the public offering price Common Unit in this offering. The Underwriter Warrants are exercisable at any time and from time to time, in whole or in part, during the four year period commencing 180 days from the effective date of the registration statement of which this Prospectus is a part.

The Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). The underwriter (or permitted assignees under Rule 5110(e)(2)) will not sell, transfer, assign, pledge, or hypothecate these Warrants or the Common Shares underlying these Warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Warrants or the underlying Common Shares for a period of 180 days from the effective date of the registration statement. In addition, the Underwriter Warrants provide for registration rights upon request, in certain cases. The one-time demand registration right provided will not be greater than five years from the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8)(C). The unlimited piggyback registration right provided will not be greater than seven years from the effective date of the registration statement in compliance with FINRA Rule 5110(g)(8)(D). We will bear all fees and expenses attendant to registering the Common Shares issuable on exercise of the Underwriter Warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of Common Shares issuable upon exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the Underwriter Warrant exercise price or underlying Common Shares will not be adjusted for issuances of Common Shares at a price below the Underwriter Warrants' exercise price.

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Discretionary Accounts

The underwriter does not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

Lock-Up Agreements

We, our executive officers and directors, and certain of our shareholders, have agreed pursuant to "lock-up" agreements not to, or are subject to other restrictions so that they may not, without the prior written consent of the underwriter, directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any Common Shares (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of), enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of our Common Shares, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Common Shares or securities convertible into or exercisable or exchangeable for Common Shares or any other of our securities or publicly disclose the intention to do any of the foregoing for a period of 90 days from the date of this Prospectus. Notwithstanding the foregoing, prior written consent is not required for securities purchased in open market transactions after the IPO, transfers of securities as bona fide gifts, transfers of securities to a charity or educational institution and certain transfers made by corporations, partnerships, business entities and trusts. 

Right of First Refusal

We have granted the underwriter a right of first refusal, for a period of twelve (12) months from the closing of the offering, to act as sole and exclusive investment banker, book-runner, financial advisor, underwriter and/or placement agent, at the underwriter's sole and exclusive discretion, for each and every future public and private equity and debt offering, including all of our equity linked financings (each, a "Subject Transaction"), or any successor (or any of our subsidiaries), on terms and conditions customary to the underwriter for such Subject Transactions.

Price Stabilization, Short Positions and Penalty Bids

In order to facilitate the offering of our securities, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. In connection with the offering, the underwriter may purchase and sell our securities in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriter of a greater number of securities than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the underwriter option to purchase additional securities in the offering. The underwriter may close out any covered short position by either exercising the Over-Allotment Option to purchase securities or purchasing securities in the open market. In determining the source of securities to close out the covered short position, the underwriter will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option to purchase securities. "Naked" short sales are sales in excess of the Over-Allotment Option to purchase securities. The underwriter must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of our securities in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of securities made by the underwriter in the open market before the completion of the offering.

The underwriter makes no representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

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Electronic Offer, Sale and Distribution of Securities

A prospectus in electronic format may be made available on the websites maintained by the underwriter. The underwriter may agree to allocate a number of securities for sale to online brokerage account holders. Other than the prospectus in electronic format, the information on the underwriter's website and any information contained in any other website maintained by the underwriter is not part of this Prospectus or the registration statement of which this prospectus forms a part.

Other Relationships

From time to time, the underwriter and/or its affiliates may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which it will receive customary fees and commissions. However, except as disclosed in this Prospectus, we have no present arrangements with the underwriter or any of its affiliates for any further services.

Pricing of the Offering

The public offering price was determined by negotiations between us and the underwriter. Among the factors considered in determining the public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. Neither we nor the underwriter can assure investors that an active trading market for the securities will develop or that, after the offering, the securities will trade in the public market at or above the public offering price. 

Offer Restrictions Outside the United States

Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities offered by this Prospectus in any jurisdiction where action for that purpose is required. The securities offered by this Prospectus may not be offered or sold, directly or indirectly, nor may this Prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this Prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this Prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Australia

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.

China

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

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European Economic Area—Belgium, Germany, Luxembourg and Netherlands

The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

• to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

• to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);

• to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the Company or any underwriter for any such offer; or

• in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.

France

This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code Monétaire et Financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 ;and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1; and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

Ireland

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

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Israel

The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be affected only in compliance with the Israeli securities laws and regulations.

Italy

The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, or “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

• to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and

• in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

• Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

• made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and

• in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.

Japan

The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.

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Portugal

This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Sweden

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Switzerland

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).

This document is personal to the recipient only and not for general circulation in Switzerland.

United Kingdom

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Canadian Underwriting Agreement

In connection with the Canadian Offering, we have agreed to pay the Canadian Underwriter a cash commission equal to 7.0% of the gross proceeds from the sale of the Canadian Units. We have also agreed to issue to the Canadian Underwriter as additional consideration for the Canadian Offering, that number of non-transferable options as is equal to 7.0% of the Canadian Units sold pursuant to the Canadian Offering (the “Canadian Compensation Options”). Each Canadian Compensation Option is exercisable to purchase one Canadian Unit at the Offering Price for a period of 24 months from the closing date of the Canadian Offering. The Canadian Underwriter has not been granted an over-allotment option in connection with the Canadian Offering.

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DESCRIPTION OF SECURITIES

Common Units

Each Common Unit being offered in this offering consists of one Common Share and one Warrant, each Warrant exercisable for one Common Share. The Common Shares and Warrants that are part of the Common Units are immediately separable and will be issued separately in this offering, although they will have been purchased together in this offering.

Pre-funded Units

Each Pre-funded Unit being offered in this offering consists of one Pre-funded Warrant and one Warrant, each Pre-funded Warrant and Warrant is exercisable for one Common Share. The Pre-funded Warrants and Warrants that are part of the Pre-funded Units are immediately separable and will be issued separately in this offering, although they will have been purchased together in this offering.

Share Capital

Authorized Capital

We are authorized to issue an unlimited number of Common Shares, without par value. As of June 30, 2022, there were 1,304,677 Common Shares outstanding after giving effect to the Reverse Split. Refer to Information on the Company - History and Development of the Company, for the equity offerings we have made over the last three financial years.

A reconciliation of the number of Common Shares outstanding at the beginning and end of Fiscal 2021 can be found in Note 16(a) of our audited consolidated financial statements for Fiscal 2021 and for the nine months ended June 30, 2022 can be found in Note 12(a) of our Q3 Fiscal 2022 FS.

We also have disclosed the rights, preferences and restrictions attached to our Common Shares under, Memorandum and Articles of Association.

Stock Options

As of June 30, 2022, there were options outstanding to purchase a total of 105,242 of Common Shares after giving effect to the Reverse Split, which have been issued to our directors, officers, employees, and consultants pursuant to the terms and conditions of our LTIP, which is described in detail under Compensation - Equity Compensation Plan. The number of options, expiry date and exercise prices of options granted to our directors and officers are presented in Share Ownership.

Escrowed Securities

Except as otherwise described below, to our knowledge and as of the date of this Prospectus, none of the Common Shares are being held in escrow. The holders of the escrowed Common Shares have voting power over such securities.  Once released by the TSX Trust Company, the holders also have dispositive power over such securities.

Designation of Class	Number of securities held in escrow (11)	Percentage of class(1)
Common Shares(2)	3,613 (3)	0.3%
Company 2024 Warrants(4)	87,500 (5)	6.7%
Common Shares(4)	252,651 (6)(7)	19.4%
Common Shares(8)	39,375 (9)	3.0%
Company 2024 Warrants(8)	39,375 (10)	3.0%

Notes:

(1)Based on the number of outstanding Common Shares as of June 30, 2022.

(2)Common Shares subject to escrow conditions pursuant to a CPC escrow agreement between Foremost and TSX Trust Company under TSXV Policy 2.4 - Capital Pool Companies dated May 2, 2018 (the "CPC Escrow Agreement").

(3)Deposited with TSX Trust Company, acting as escrow agent. These Common Shares will be released from escrow as to:

No. of Securities (11)	% of Escrowed Securities	Release Date
1,204	15% of the escrowed Common Shares	September 18, 2022
1,204	15% of the escrowed Common Shares	March 18, 2023
1,204	15% of the escrowed Common Shares	September 18, 2023

Includes 1,204 escrowed Common Shares held by a director.

(4)Securities deposited in escrow pursuant to a surplus security escrow agreement between us and TSX Trust Company dated September 17, 2020 as a result of the qualifying transaction following the Amalgamation (the "Surplus Security Escrow Agreement").

(5)Deposited with TSX Trust Company, acting as escrow agent. These Company 2024 Warrants will be released from escrow as to:

No. of Securities (11)	% of Escrowed Securities	Release Date
18,750	15% of the escrowed Company 2024 Warrants	September 18, 2022
18,750	15% of the escrowed Company 2024 Warrants	March 18, 2023
50,000	40% of the escrowed Company 2024 Warrants	September 18, 2023

Includes 52,500 and 17,500 escrowed Warrants, after giving effect to the Reverse Split, to be released to DEFSEC Corp. (private company owned by our Executive Chairman), 2573685 Ontario Inc. (private company owned by our President and CEO and his spouse),

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(6)Deposited with TSX Trust Company, acting as escrow agent. These Common Shares will be released from escrow as to:

No. of Securities (11)	% of Escrowed Common Shares	Release Date
54,139	15% of the escrowed Common Shares	September 18, 2022
54,139	15% of the escrowed Common Shares	March 18, 2023
144,372	40% of the escrowed Common Shares	September 18, 2023

(7)  Includes 62,392, 182,879, and 5,630 escrowed Common Shares to be released to DEFSEC Corp. , 2573685 Ontario Inc., and Paul Mangano (director), respectively, after giving effect to the Reverse Split..  For greater clarity, these are included in the beneficial ownership table in Directors, Senior Management, and Employees – Share Ownership.

(8)Securities deposited in escrow pursuant to a value security escrow agreement between us and TSX Trust Company dated September 17, 2020 as a result of the qualifying transaction following the Amalgamation (the "Value Security Escrow Agreement").

(9)Deposited with TSX Trust Company, acting as escrow agent. These securities have been or will be released from escrow as to:

No. of Securities (11)	% of Escrowed Securities	Release Date
13,125	15% of the escrowed Common Shares	September 18, 2022
13,125	15% of the escrowed Common Shares	March 18, 2023
13,125	15% of the escrowed Common Shares	September 18, 2023

(10)Deposited with TSX Trust Company, acting as escrow agent. These securities have been or will be released from escrow as to:

No. of Securities (11)	% of Escrowed Securities	Release Date
13,125	15% of the escrowed Company 2024 Warrants	September 18, 2022
13,125	15% of the escrowed Company 2024 Warrants	March 18, 2023
13,125	15% of the escrowed Company 2024 Warrants	September 18, 2023

(11)after giving effect to the Reverse Split.

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Warrants to be Issued in this Offering

The following is a brief summary of certain terms and conditions of the Warrants to be issued in this offering and are subject in all respects to the provisions contained in the Warrants.

Form. The Warrants will be issued in electronic book-entry form to the investors. You should review a copy of the form of warrant, which is filed as an exhibit to the registration statement of which this Prospectus forms a part, for a complete description of the terms and conditions applicable to the Warrants.

Exercisability. The Warrants are exercisable at any time after their original issuance, and at any time up to the date that is five years after their original issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the Common Shares underlying the Warrants under the Securities Act is effective and available for the issuance of such shares, by payment in full in immediately available funds for the number of Common Shares purchased upon such exercise. If a registration statement registering the issuance of the Common Shares underlying the Warrants under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Common Shares determined according to the formula set forth in the Warrant. No fractional Common Shares will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.

Exercise Limitation. A holder will not have the right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder prior to issuance, 9.99%) of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days' prior notice from the holder to us.

Exercise Price. The exercise price per whole Common Share purchasable upon exercise of the Warrants is expected to be USD$    per Common Share. The exercise price is also subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our Common Shares and also upon any distributions of assets, including cash, stock or other property to our shareholders.

Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Common Shares to the holder upon exercise of the Warrants, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Warrants.

Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.

Exchange Listing. We have applied for the listing of the Warrants offered in this offering on Nasdaq under the symbol "KWESW". No assurance can be given that such listing will be approved or that a trading market will develop.

Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our Common Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Shares, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.

Rights as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder's ownership of shares of our Common Shares, the holder of a Warrant does not have the rights or privileges of a holder of our Common Shares, including any voting rights, until the holder exercises the Warrant.

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Pre-funded Warrants

The following summary of certain terms and provisions of the Pre-funded Warrants that are being offered hereby in lieu of a Common Share is not complete and is subject to, and qualified in its entirety by, the provisions of the Pre-funded Warrant, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of Pre-funded Warrant for a complete description of the terms and conditions of the Pre-funded Warrants.

Duration and Exercise Price. Each Pre-funded Warrant offered hereby will have an initial exercise price per share equal to USD$0.01. The Pre-funded Warrants will be immediately exercisable and may be exercised at any time until the Pre-funded Warrants are exercised in full or they expire. The exercise price and number of Common Shares issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our Common Shares and the exercise price.

Exercisability. The Pre-funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of Common Shares purchased upon such exercise (except in the case of a cashless exercise as discussed below). There is no expiration date for the Pre-funded Warrants. A holder (together with its affiliates) may not exercise any portion of the Pre-funded Warrant to the extent that the holder would own more than 4.99% (or at the election of the holder prior to the issuance of any Pre-funded Warrants, 9.99%) of the outstanding Common Shares immediately after exercise. Any holder may increase such percentage to any percentage not in excess of 9.99% upon at least 61 days' prior notice to us. No fractional Common Shares will be issued in connection with the exercise of a Pre-funded Warrant. In lieu of fractional Common Shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price of such Pre-funded Warrant or round up to the next whole share.

Cashless Exercise. In lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Pre-funded Warrants.

Fundamental Transaction. In the event of a fundamental transaction, as described in the Pre-funded Warrants and generally including any reorganization, recapitalization or reclassification of our Common Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common Shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Shares, the holders of the Pre-funded Warrants will be entitled to receive upon exercise of the Pre-funded Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-funded Warrants immediately prior to such fundamental transaction.

Transferability. Subject to applicable laws, a Pre-funded Warrant may be transferred at the option of the holder upon surrender of the Pre-funded Warrant to us together with the appropriate instruments of transfer.

Exchange Listing. We do not intend to list the Pre-funded Warrants on any securities exchange or nationally recognized trading system.

Rights as a Shareholder. Except as otherwise provided in the Pre-funded Warrants or by virtue of such holder's ownership of Common Shares, the holders of the Pre-funded Warrants do not have the rights or privileges of holders of our Common Shares, including any voting rights, until they exercise their Pre-funded Warrants.

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ADDITIONAL INFORMATION

Memorandum and Articles of Association

Incorporation

The Company was incorporated on November 28, 2017 pursuant to the provisions of the BCBCA under the name "Foremost Ventures Corp." On September 4, 2020, the Company changed its name to "KWESST Micro Systems Inc."

Our registered and records office address is located at Suite 1510 - 789 West Pender Street, Vancouver, British Columbia, V6C 1H2, Canada. Our head office is located at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, K2M 2A8, Canada.

Objects and Purposes

The Articles of the Company (the "Articles") do not contain a limitation on objects and purposes. 

Directors

Article 17 of the Articles deals with a directors' disclosable interest (as defined in the BCBCA) in contracts or transactions into which the Company has entered or proposes to enter. Article 17.2 provides that a director who holds such a disclosable interest is not entitled to vote on any directors' resolution to approve such contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

Pursuant to the BCBCA, a director holds a disclosable interest in a contract or transaction if (a) the contract or transaction is material to the Company, (b) the Company has entered, or proposes to enter, into the contract or transaction, and (c) the director has a material interest in the contract or transaction or the director is a director or senior officer of, or has a material interest in, a person who has a material interest in the contract or transaction. Pursuant to the BCBCA, a director does not have a disclosable interest in a number of prescribed situations, including without limitation in respect of a contract or transaction merely because the contract or transaction relates to the remuneration of the director in that person's capacity as a director of the Company.

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to the Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the BCBCA, for any other purpose. The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be set at two directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

Article 8 of the Articles deals with borrowing powers. The Company, if authorized by the directors, may: (i) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; (ii) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; (iii) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and (iv) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

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Qualifications of Directors

The Articles do not specify a retirement age for directors.

Directors are not required to own any Common Shares of the Company.

Section 124 of the BCBCA provides that an individual is not qualified to become or act as a director of a company if that individual is:

1.under the age of 18 years;

2.found by a court, in Canada or elsewhere, to be incapable of managing the individual's own affairs;

3.an undischarged bankrupt; or

4.convicted in or out of the Province of British Columbia of an offence in connection with the promotion, formation or management of a corporation or unincorporated business, or of an offence involving fraud, unless:

a.the court orders otherwise;

b.5 years have elapsed since the last to occur of:

i.the expiration of the period set for suspension of the passing of sentence without a sentence having been passed;

ii.the imposition of a fine;

iii.the conclusion of the term of any imprisonment; and

iv.the conclusion of the term of any probation imposed; or

c.a pardon was granted or issued, or a record suspension ordered, under the Criminal Records Act (Canada) and the pardon or record suspension, as the case may be, has not been revoked or ceased to have effect.

A director who ceases to be qualified to act as a director of the Company must promptly resign.

Section 120 of the BCBCA provides that every company must have at least one director, and a public company must have at least three directors.

Rights, Preference and Restrictions

Holders of Common Shares are entitled to receive notice of any meeting of shareholders of the Company, to attend and to cast one vote per share at such meetings. Holders of Common Shares are also entitled to receive on a pro rata basis such dividends, if any, as and when declared by the Board at its discretion from funds legally available therefor and upon the liquidation, dissolution, or winding up of the Company are entitled to receive on a pro rata basis, the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions, and conditions attaching to any other series or class of shares ranking senior in priority. Common Shares do not carry any pre-emptive, subscription, redemption, conversion rights, sinking fund provisions, liability to further capital calls by the Company, or provisions discriminating against any existing or prospective holder of Common Shares as a result of such shareholder owning a substantial number of Common Shares.

The rights of shareholders of the Company may be altered only with the approval of the holders of two thirds or more of the Common Shares voted at a meeting of the Company's shareholders called and held in accordance with the Articles and applicable law.

Shareholder Meetings

The BCBCA provides that: (i) a general meeting of shareholders must be held in the Province of British Columbia, unless otherwise provided in the Company's Articles or as approved by ordinary resolution of shareholders; (ii) the Company must hold an annual general meeting of shareholders not later than 15 months after the last preceding annual general meeting and once in every calendar year; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at a meeting of shareholders, the directors may set a date as the record date for that determination, provided that such date shall not precede by more than 2 months (or, in the case of a general meeting requisitioned by shareholders under the BCBCA, by more than 4 months) or be less than 21 days before the date on which the meeting is to be held; (iv) a quorum for the transaction of business at a meeting of shareholders of the Company is the quorum established by the Articles (Article 11.3 of the Articles provide that the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of Common Shares entitled to vote at the meeting, are present in person; (v) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purpose of transacting any business that may be transacted at a general meeting; and (vi) the Court may, on its own motion or on the application of the Company, upon the application of a director or the application of a shareholder entitled to vote at the meeting: (a) order that a meeting of shareholders be called, held and conducted in a manner that the Court considers appropriate; and (b) give directions it considers necessary as to the call, holding and conduct of the meeting.

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Limitations on Ownership of Securities

Except as provided in the Investment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote the Common Shares under the laws of Canada or the Province of British Columbia or in the Company's constating documents.

Change in Control

There are no provisions in the Company's constating documents or under applicable corporate law that would have the effect of delaying, deferring or preventing a change in the control of the Company, or that would operate with respect to any proposed merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries.

Ownership Threshold

There are no provisions in the Company's constating documents or under applicable corporate law requiring share ownership to be disclosed. Securities legislation in Canada requires that shareholder ownership (as well as ownership of an interest in, or right or obligation associated with, a related financial instrument of a security of the Company) must be disclosed once a person beneficially owns or has control or direction over, directly or indirectly, securities of a reporting issuer carrying more than 10% of the voting rights attached to all the reporting issuer's outstanding voting securities. This threshold is higher than the 5% threshold under United States securities legislation at which shareholders must report their share ownership.

Changes to Capital

There are no conditions imposed by the Articles governing changes in the capital where such conditions are more significant than is required by the corporate laws of the Province of British Columbia for as long as the Company is a public company. Otherwise, Section 26.3 of the Articles provides that no share or designated security may be sold, transferred or otherwise disposed of without the consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

Description of Capital Structure

Our authorized share structure consists of an unlimited number of Common Shares without par value, of which 1,304,677 Common Shares were issued and outstanding as of June 30, 2022, after giving effect to the Reverse Split. All of the issued Common Shares are fully paid and non-assessable Common Shares in the capital of the Company. The Company does not own any of its Common Shares.

Exchange Controls

Canada has no system of exchange controls. There are no Canadian governmental laws, decrees, or regulations relating to restrictions on the repatriation of capital or earnings of the Company to non-resident investors. There are no laws in Canada or exchange control restrictions affecting the remittance of dividends or other payments made by the Company in the ordinary course to non-resident holders of the Common Shares by virtue of their ownership of such Common Shares, except as discussed below under section Material United States Federal Income Tax Consequences and Material Canadian Federal Income Tax Considerations.

There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require that a "non-Canadian" not acquire "control" of the Company without prior review and approval by the Minister of Innovation, Science and Economic Development , where applicable thresholds are exceeded. The acquisition of one-third or more of the voting shares of the Company would give rise a rebuttable presumption of an acquisition of control, and the acquisition of more than fifty percent of the voting shares of the Company would be deemed to be an acquisition of control. In addition, the Investment Canada Act provides the Canadian government with broad discretionary powers in relation to national security to review and potentially prohibit, condition or require the divestiture of, any investment in the Company by a non-Canadian, including non-control level investments. "Non-Canadian" generally means an individual who is neither a Canadian citizen nor a permanent resident of Canada within the meaning of the Immigration and Refugee Protection Act (Canada) who has been ordinarily resident in Canada for not more than one year after the time at which he or she first became eligible to apply for Canadian citizenship, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.

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MATERIAL CONTRACTS

We are a party to the following contracts which management currently considers to be material to the Company and our assets and operations.

• Amalgamation Agreement
• DEFSEC Purchase Agreement
• GhostStep Technology Purchase Agreement
• CPC Escrow Agreement
• Surplus Security Escrow Agreement
• Value Security Escrow Agreement
• Unsecured Loan Agreement - March 2022
• GDMS MPSA
• GDMS SOW No. 1
• CounterCrisis Technology Subcontractor Agreement
• Unsecured Loan Agreements - August 2022

The terms and conditions of these material contracts are described below.

Amalgamation Agreement

See Note 4(b) of the audited consolidated financial statements for Fiscal 2021.

DEFSEC Purchase Agreement

See Note 4(a) of the audited consolidated financial statements for Fiscal 2021.

GhostStep Technology Purchase Agreement

See Note 4(c) of the audited consolidated financial statements for Fiscal 2021.

CPC Escrow Agreement

Upon completion of the initial public offering of Foremost on the TSXV on June 15, 2018, the Common Shares for the insiders of Foremost were subject to a three-year escrow period, to be released in in the manner described in the section Additional Information - Share Capital - Escrowed Securities.

Surplus Security Escrow Agreement

Pursuant to the TSXV Policy 5.4, at the closing of the QT certain holders of our Common Shares were subject to a three-year escrow, to be released in in the manner described in the section Additional Information - Share Capital - Escrowed Securities.

In the event we graduate from Tier 2 to Tier 1 on the TSXV, then the escrowed securities will be subject to accelerated releases in accordance with TSXV policy.

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Value Security Escrow Agreement

Pursuant to the TSXV Policy 5.4, at closing of the QT certain holders of our Common Shares were subject to a three-year escrow, to be released in in the manner described in the section Additional Information - Share Capital - Escrowed Securities.

In the event we graduate from Tier 2 to Tier 1 on the TSXV, then the escrowed securities will be subject to accelerated releases in accordance with TSXV policy.

Unsecured Loan Agreement – March 2022

In March 2022, we entered into loan agreements with a syndicate of lenders for gross proceeds of $2 million, bearing interest at a rate of 9% per annum, compounded monthly and not in advance, and maturing in thirteen months from closing date. As an inducement, we issued an aggregate of 25,000 bonus Common Shares (post Reverse Split) to the lenders. For further information, see Operating and Financial Review and Prospects - Liquidity and Capital Resources.

GDMS MPSA

On December 1, 2021, we entered into a Master Professional Services Agreement with General Dynamic Mission Systems – Canada. See Operating and Financial Review and Prospects – Economic Dependence.

GDMS SOW No. 1

On December 1, 2021, we entered into Schedule B-1 to Master Professional Services Agreement - Statement of Work No. (1) with General Dynamic Mission Systems – Canada. See Operating and Financial Review and Prospects – Economic Dependence.

CounterCrisis Technology Subcontractor Agreement

On July 6, 2022, we entered into a three-year contract with CounterCrisis Technology to co-implement a national Ground Search and Rescue Incident Command System for Public Safety Canada, with the Ontario Provincial Police as technical advisory stakeholder for this project. See Events in the Development of the Business - Year-to-date Fiscal 2022 Highlights.

Unsecured Loan Agreement – August 2022

On August 29 2022, we entered into two unsecured loan agreements in the amount of USD$200,000 per loan with a third party lender for aggregate amount of USD$400,000, bearing interest at a rate of 6% per annum, compounded monthly and not in advance, and maturing in twelve months from closing date. For further information, see Information on the Company - Events in the Development of the Business.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Dorsey & Whitney LLP, which is attached as Exhibit 8.1 to the Registration Statement of which this Prospectus forms a part, the following is a summary of the material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of Common Units or Pre-funded Units acquired pursuant to this offering, the acquisition, ownership, and disposition of Common Shares acquired as part of the Common Units, the acquisition, ownership, and disposition of Pre-funded Warrants acquired as part of the Pre-funded Units, the exercise, disposition, and lapse of Warrants acquired as part of the Common Units or Pre-funded Units, the acquisition, ownership, and disposition of Common Shares received upon exercise of the Pre-funded Warrants, and the acquisition, ownership, and disposition of Common Shares received upon exercise of the Warrants (the "Warrant Shares").

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition of Common Units or Pre-funded Units pursuant to this offering. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants and Warrant Shares. This summary also does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares.

No ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to U.S. Holders as discussed in this summary. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

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Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (whether final, temporary, or proposed) promulgated under the Code, published rulings of the IRS, published administrative positions of the IRS and U.S. court decisions, that are in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

U.S. Holder

For purposes of this summary, the term "U.S. Holder" means a beneficial owner of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares acquired pursuant to this offering that is for U.S. federal income tax purposes:

• a citizen or individual resident of the Common United States;
  
  
• a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the Common United States, any state thereof or the District of Columbia;
  
  
• an estate whose income is subject to U.S. federal income taxation regardless of its source; or
• a trust that (1) is subject to the primary supervision of a court within the Common United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

Transactions Not Addressed

This summary does not address the tax consequences of transactions effected prior or subsequent to, or concurrently with, any purchase of Common Units or Pre-funded Units pursuant to this Prospectus (whether or not any such transactions are undertaken in connection with the purchase of Common Units or Pre-funded Units pursuant to this Prospectus).

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U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers or dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities); (i) are S corporations (and shareholders thereof); (j) are subject to special tax accounting rules; (k) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of our outstanding shares; (l) are U.S. expatriates or former long-term residents of the U.S.; (m) are subject to taxing jurisdictions other than, or in addition to, the Common United States; or (n) are subject to the alternative minimum tax. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares.

If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants or Warrant Shares, the U.S. federal income tax consequences to such entity or arrangement and the owners of such entity or arrangement generally will depend on the activities of such entity or arrangement and the status of such owners. This summary does not address the tax consequences to any such entity or arrangement or owner. Owners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants and Warrant Shares.

U.S. Federal Income Tax Consequences of the Acquisition of Common Units or Pre-funded Units

For U.S. federal income tax purposes, the acquisition by a U.S. Holder of a Common Unit will be treated as the acquisition of one Common Share and one Warrant. The purchase price for each Common Unit will be allocated between these two components in proportion to their relative fair market values at the time the Common Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Common Unit will establish a U.S. Holder's initial tax basis for U.S. federal income tax purposes in the Common Share and one Warrant that comprise each Common Unit.

For this purpose, we will allocate USD$    of the purchase price for the Common Unit to the Common Share and USD$    of the purchase price for each Common Unit to the Warrant. However, the IRS will not be bound by such allocation of the purchase price for the Common Units, and therefore, the IRS or a U.S. court may not respect the allocation set forth above.  Each U.S. Holder should consult its own tax advisor regarding the allocation of the purchase price for the Common Units.

For U.S. federal income tax purposes, the acquisition by a U.S. Holder of a Pre-funded Unit will be treated as the acquisition of one Pre-funded Warrant and one Warrant. The purchase price for each Pre-funded Unit will be allocated between these two components in proportion to their relative fair market values at the time the Pre-funded Unit is purchased by the U.S. Holder. This allocation of the purchase price for each Pre-funded Unit will establish a U.S. Holder's initial tax basis for U.S. federal income tax purposes in the Pre-funded Warrant and one Warrant that comprise each Pre-funded Unit.

For this purpose, we will allocate USD$    of the purchase price for the Pre-funded Unit to the Pre-funded Warrant and USD$    of the purchase price for each Pre-funded Unit to the Warrant. However, the IRS will not be bound by such allocation of the purchase price for the Pre-funded Units, and therefore, the IRS or a U.S. court may not respect the allocation set forth above.  Each U.S. Holder should consult its own tax advisor regarding the allocation of the purchase price for the Pre-funded Units.

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Treatment of Pre-funded Warrants

Although it is not entirely free from doubt, we believe that a Pre-funded Warrant should be treated as a separate class of our common shares for U.S. federal income tax purposes and a U.S. Holder of Pre-funded Warrants should generally be taxed in the same manner as a holder of Common Shares except as described below. Accordingly, no gain or loss should be recognized upon the exercise of a Pre-funded Warrant and, upon exercise, the holding period of a Pre-funded Warrant should carry over to the Common Shares received. Similarly, the tax basis of the Pre-funded Warrant should carry over to the Common Shares received upon exercise, increased by the exercise price of $0.01 per share. However, such characterization is not binding on the IRS, and the IRS may treat the Pre-funded Warrants as warrants to acquire Common Shares. If so, the amount and character of a U.S. Holder's gain with respect to an investment in Pre-funded Warrants could change, and a U.S. Holder may not be entitled to make the "QEF Election" or "Mark-to-Market Election" described below with respect to the Pre-funded Warrants to mitigate PFIC consequences in the event that the Company is classified as a PFIC. Accordingly, each U.S. Holder should consult its own tax advisor regarding the risks associated with the acquisition of a Pre-funded Warrant pursuant to this offering (including potential alternative characterizations). The balance of this discussion generally assumes that the characterization described above is respected for U.S. federal income tax purposes.

Passive Foreign Investment Company Rules

If the Company were to constitute a "passive foreign investment company" within the meaning of Section 1297 of the Code (a "PFIC") for any year during a U.S. Holder's holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares.  Based on current business plans and financial expectations, the Company expects that it should not be a PFIC for its current tax year and expects that it should not be a PFIC for the foreseeable future.  No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested.  PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually.  Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.  Consequently, there can be no assurance that the Company has never been, is not, and will not become a PFIC for any tax year during which U.S. Holders hold Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares.

In addition, U.S. Holders of PFICs are required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require, which filing obligation would generally commence in the first tax year in which the Company is classified as a PFIC and in which such U.S. Holder holds Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares.  In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax.  U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.

In general, the Company will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the "income test") or (b) 50% or more of the value of the Company's assets either produce passive income or are held for the production of passive income (the "asset test"), based on the quarterly average of the fair market value of such assets.  "Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income" generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.  In addition, for purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.

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Under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of the Company which is also a PFIC (a ''Subsidiary PFIC''), and will be subject to U.S. federal income tax on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the shares of such Subsidiary PFIC.

If the Company were a PFIC in any tax year and a U.S. Holder held Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, such holder generally would be subject to special rules under Section 1291 of the Code with respect to "excess distributions" made by the Company on the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares and with respect to gain from the disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares.  An "excess distribution" generally is defined as the excess of distributions with respect to the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder's holding period for the Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares, as applicable.  Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares ratably over its holding period for the Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, as applicable.  Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including, without limitation, the "QEF Election" under Section 1295 of the Code and the "Mark-to-Market Election" under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.  Under proposed Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock of a PFIC (such as the Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code that apply to "excess distributions" and dispositions described above.  However, under the proposed Treasury Regulations, for the purposes of the PFIC rules, the holding period for any Warrant Shares acquired upon the exercise of a Warrant will begin on the date a U.S. Holder acquires the Common Units or Pre-funded Units (and not the date the Warrants are exercised).  This will impact the availability, and consequences, of the QEF Election and Mark-to-Market Election with respect to the Warrant Shares.  Thus, a U.S. Holder will have to account for Warrant Shares, Pre-Funded Warrants and Common Shares under the PFIC rules and the applicable elections differently.  In addition, a QEF Election may not be made with respect to the Warrants and it is unclear whether the Mark-to-Market Election may be made with respect to the Warrants.

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any Subsidiary PFIC.

Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult with their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of Common Units, Pre-funded Units, Common Shares, Pre-funded Warrants, Warrants, or Warrant Shares, and the availability of certain U.S. tax elections under the PFIC rules.

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U.S. Federal Income Tax Consequences of the Exercise and Disposition of Warrants

The following discussion describes the general rules applicable to the ownership and disposition of the Warrants but is subject in its entirety to the special rules described above under the heading Passive Foreign Investment Company Rules.

Exercise of Warrants

A U.S. Holder should not recognize gain or loss on the exercise of a Warrant and related receipt of a Warrant Share (unless cash is received in lieu of the issuance of a fractional Warrant Share). A U.S. Holder's initial tax basis in the Warrant Share received on the exercise of a Warrant should be equal to the sum of (a) such U.S. Holder's tax basis in such Warrant plus (b) the exercise price paid by such U.S. Holder on the exercise of such Warrant. It is unclear whether a U.S. Holder's holding period for the Warrant Share received on the exercise of a Warrant would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant. If we are a PFIC, a U.S. Holder's holding period for the Warrant Share for PFIC purposes will begin on the date on which such U.S. Holder acquired its Common Units.

In certain limited circumstances, a U.S. Holder may be permitted to undertake a cashless exercise of Warrants into Warrant Shares. The U.S. federal income tax treatment of a cashless exercise of Warrants into Warrant Shares is unclear, and the tax consequences of a cashless exercise could differ from the consequences upon the exercise of a Warrant described in the preceding paragraph. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of Warrants.

Disposition of Warrants

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Warrant in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's tax basis in the Warrant sold or otherwise disposed of.  Subject to the PFIC rules discussed above, any such gain or loss generally will be a capital gain or loss, which will be long-term capital gain or loss if the Warrant is held for more than one year.  Deductions for capital losses are subject to complex limitations under the Code.

Expiration of Warrants Without Exercise

Upon the lapse or expiration of a Warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder's tax basis in the Warrant. Any such loss generally will be a capital loss and will be long-term capital loss if the Warrants are held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.

Certain Adjustments to the Warrants

Under Section 305 of the Code, an adjustment to the number of Warrant Shares that will be issued on the exercise of the Warrants, or an adjustment to the exercise price of the Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder's proportionate interest in the "earnings and profits" or our assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to the shareholders).  Adjustments to the exercise price of Warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the Warrants should generally not be considered to result in a constructive distribution.  Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property.  (See more detailed discussion of the rules applicable to distributions made by us at Distributions on Common Shares, Pre-funded Warrants and Warrant Shares below).

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General Rules Applicable to U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares. Pre-funded Warrants and Warrant Shares

The following discussion describes the general rules applicable to the ownership and disposition of the Common Shares, Pre-funded Warrants and Warrant Shares, but is subject in its entirety to the special rules described above under the heading Passive Foreign Investment Company Rules.

Distributions on Common Shares, Pre-funded Warrants and Warrant Shares

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share, Pre-funded Warrant or Warrant Share (as well as any constructive distribution on a Warrant as described above) will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current and accumulated "earnings and profits", as computed under U.S. federal income tax principles. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds our current and accumulated "earnings and profits", such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Shares, Pre-funded Warrants or Warrant Shares and thereafter as gain from the sale or exchange of such Common Shares, Pre-funded Warrants or Warrant Shares (see "Sale or Other Taxable Disposition of Common Shares, Pre-funded Warrants and/or Warrant Shares" below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by us with respect to the Common Shares, Pre-funded Warrants or Warrant Shares will constitute ordinary dividend income. Dividends received on Common Shares, Pre-funded Warrants or Warrant Shares generally will not be eligible for the "dividends received deduction" generally applicable to corporations.  Subject to applicable limitations and provided we are eligible for the benefits of the Tax Treaty or the Common Shares are readily tradable on a Common United States securities market, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

Sale or Other Taxable Disposition of Common Shares, Pre-funded Warrants and/or Warrant Shares

Upon the sale or other taxable disposition of Common Shares, Pre-funded Warrants or Warrant Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's tax basis in such Common Shares, Pre-funded Warrants or Warrant Shares sold or otherwise disposed of. Gain or loss recognized on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the Common Shares, Pre-funded Warrants or Warrant Shares have been held for more than one year.  Preferential tax rates may apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

Additional Tax Considerations

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign currency or on the sale, exchange or other taxable disposition of Common Shares, Pre-funded Warrants, Warrants or Warrant Shares generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time).  If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

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Foreign Tax Credit

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares, Pre-funded Warrants or Warrant Shares (or with respect to any constructive dividend on the Warrants) generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid.  Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder's income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid or accrued (whether directly or through withholding) by a U.S. Holder during a year.  The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder's particular circumstances.  Accordingly, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.

Information Reporting; Backup Withholding Tax

Under U.S. federal income tax laws certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person. U. S. Holders may be subject to these reporting requirements unless their Common Shares, Pre-funded Warrants, Warrants, and Warrant Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial.  U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file IRS Form 8938.

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of the Common Shares, Pre-funded Warrants, Warrants and Warrant Shares generally may be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that it has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as U.S. Holders that are corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON UNITS, PRE-FUNDED UNITS, COMMON SHARES, PRE-FUNDED WARRANTS, WARRANTS, AND WARRANT SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

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MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Units and Pre-Funded Units acquired pursuant to this offering by a holder who, at all relevant times, (a) for the purposes of the Income Tax Act (Canada) (the "Tax Act"), (i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm's length with, and is not affiliated with, the Company, (iii) beneficially owns Common Shares, Warrants and Pre-Funded Warrants, (collectively, the "Securities"), as the case may be, as capital property, (iv) does not use or hold the Securities in the course of carrying on, or otherwise in connection with, a business or a part of a business carried on or deemed to be carried on in Canada, and (v) is not a "registered non-resident insurer" or "authorized foreign bank" within the meaning of the Tax Act, or other holder of special status, and (b) for the purposes of the Canada-United States Income Tax Convention (1980), as amended (the "Convention"), is a resident of the U.S., has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment or fixed base in Canada, and is a qualifying person or otherwise qualifies for the full benefits of the Convention. Securities will generally be considered to be capital property to a holder unless such Securities are held in the course of carrying on a business of buying or selling securities or an adventure or concern in the nature of trade. Holders who meet all the criteria in clauses (a) and (b) are referred to herein as a "U.S. Holder" or "U.S. Holders."

This summary does not deal with special situations, such as the particular circumstances of traders or dealers or holders who have entered or will enter into a "derivative forward agreement" (as defined in the Tax Act) in respect of any of the Securities. Such holders and other holders who do not meet the criteria in clauses (a) and (b) should consult their own tax advisors.

This summary is based upon the current provisions of the Tax Act and the regulations thereunder (the "Regulations") and counsel's understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the "CRA") made publicly available prior to the date hereof. It also takes into account all proposed amendments to the Tax Act and the Regulations publicly released by the Minister of Finance (Canada) (the "Tax Proposals") prior to the date hereof, and assumes that all such Tax Proposals will be enacted as currently proposed. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder and no representation with respect to the federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. The tax consequences to a U.S. Holder will depend on the holder's particular circumstances. Accordingly, U.S. Holders should consult with their own tax advisors for advice with respect to their own particular circumstances.

Currency Conversion

In general, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Securities must be converted into Canadian dollars based on the applicable exchange rate quoted by the Bank of Canada for the relevant day or such other rate of exchange that is acceptable to the CRA.

Allocation of Cost

A U.S. Holder who acquires Common Units or Pre-Funded Units, as the case may be, will be required to allocate the purchase price paid for each Common Unit or Pre-Funded Unit on a reasonable basis between the Common Share and the Warrant comprising each Common Unit, or between the Pre-Funded Warrant and the Warrant comprising each Pre-Funded Unit, as applicable, in order to determine their respective costs to such U.S. Holder for the purposes of the Tax Act.

Exercise or Expiry of Warrants

No gain or loss will be realized by a U.S. Holder of a Warrant or Pre-Funded Warrant upon the exercise of such Warrant or Pre-Funded Warrant for Common Shares. When a Warrant or Pre-Funded Warrant is exercised, the U.S. Holder's cost of the Common Share acquired thereby will be equal to the adjusted cost base of the Warrant or Pre-Funded Warrant to such U.S. Holder, plus the amount paid by such U.S. Holder on the exercise of the Warrant or Pre-Funded Warrant. For the purpose of computing the adjusted cost base to a U.S. Holder of the Common Shares acquired on the exercise of a Warrant or Pre-Funded Warrant, the cost of such Common Shares must be averaged with the adjusted cost base to such U.S. Holder of all other Common Shares (if any) held by the U.S. Holder as capital property immediately prior to the exercise of such Warrant.

Generally, the expiry of an unexercised Warrant or Pre-Funded Warrant will give rise to a capital loss equal to the adjusted cost base to the U.S. Holder of such expired Warrant or Pre-Funded Warrant.

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Dividends

Amounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment, or in satisfaction of, dividends on the Common Shares to a U.S. Holder will be subject to Canadian withholding tax. Under the Convention, the rate of Canadian withholding tax on dividends paid or credited by the Company to a U.S. Holder that beneficially owns such dividends is generally 15% unless the beneficial owner is a company that owns at least 10% of the Company's voting stock at that time, in which case the rate of Canadian withholding tax is reduced to 5%.

Dispositions

Upon the disposition of a Security (but not upon the exercise of a Warrant or Pre-Funded Warrant), a U.S. Holder will realize a capital gain (or capital loss) in the taxation year of the disposition equal to the amount by which the U.S. Holder's proceeds of disposition, net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base to the U.S. Holder of the particular Security immediately before the disposition or deemed disposition.

A U.S. Holder will not be subject to tax under the Tax Act in respect of any capital gain realized by such U.S. Holder on a disposition of Securities, unless such Securities constitute "taxable Canadian property" (as defined in the Tax Act) of the U.S. Holder at the time of disposition and the U.S. Holder is not entitled to relief under the Convention.

Provided that the Common Shares are listed on a designated stock exchange for purposes of the Tax Act (which currently includes the NASDAQ) at the time of the disposition, the Securities, will generally not constitute taxable Canadian property of a U.S. Holder, unless: (a) at any time during the 60-month period immediately preceding the disposition or deemed disposition of the Security (as applicable): (i) 25% or more of the issued shares of any class or series of the share capital of the Company were owned by, or belonged to, one or any combination of (x) the U.S. Holder, (y) persons with whom the U.S. Holder did not deal at arm's length (within the meaning of the Tax Act) and (z) partnerships in which the U.S. Holder or a person referred to in (y) holds a membership interest directly or indirectly through one or more partnerships; and (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of: (A) real or immovable property situated in Canada, (B) Canadian resource property (as defined in the Tax Act), (C) timber resource property (as defined in the Tax Act), and (D) options in respect of, or interests in, or for civil law rights in, property described in any of (A) through (C) above, whether or not such property exists; or (b) the Security (as applicable) is deemed under the Tax Act to be taxable Canadian property.

If a Security is taxable Canadian property to a U.S. Holder, any capital gain realized on the disposition or deemed disposition of such Security may not be subject to Canadian federal income tax pursuant to the terms of the Convention. U.S. Holders whose Securities may be taxable Canadian property should consult their own tax advisors.

LEGAL MATTERS

Dorsey & Whitney LLP, Toronto, Ontario, is acting as counsel to our Company regarding U.S. securities law and tax matters. Fasken Martineau DuMoulin LLP, Montréal, Québec, is acting as counsel to our Company regarding Canadian securities law matters and has provided an opinion on the validity of the securities being offered pursuant to this Prospectus. Dentons US LLP, New York, New York, is acting as counsel for the underwriter.

EXPERTS

KPMG LLP, our current independent accountant, has consented to the inclusion of its report with respect to KWESST Micro Systems Inc.'s consolidated financial statements as at and for the year ended September 30, 2021, in this Prospectus, in the form and context in which they are included, and has authorized the contents of that part of the Registration Statement. The audit report covering the September 30, 2021, consolidated financial statements contains an explanatory paragraph that states that the Company's significant losses and negative operating cash flows raise substantial doubt about the entity's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. Further information regarding KPMG LLP is provided under the subheading titled Auditors.

Kreston GTA LLP, our previous independent accountant, has consented to the inclusion of its reports with respect to KWESST Micro Systems Inc.'s consolidated financial statements as at and for nine months ended September 30, 2020, and the year ended December 31, 2019, in this Prospectus, in the form and context in which they are included, and has authorized the contents of that part of the Registration Statement. Further information regarding Kreston GTA LLP is provided under the subheading titled Auditors.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a number of financial risks arising through the normal course of business, including interest rate risk, foreign currency risk, credit risk, and liquidity risk. Refer to Note 22 of our audited consolidated financial statements for Fiscal 2021 (for the year ended September 30, 2021) and Note 20 of our audited consolidated financial statements for Fiscal 2020 (for nine months ended September 30, 2020, and the year ended December 31, 2019). There were no material changes in these risks for the three and nine months ended June 30, 2022.

FINANCIAL STATEMENTS

Our consolidated financial statements are stated in Canadian dollars and are prepared in accordance with IFRS, as issued by the IASB. The following financial statements are attached hereto and found immediately following the text of this Prospectus.

• Unaudited condensed consolidated interim financial statements of KWESST Micro Systems Inc. for the three and nine months ended June 30, 2022 and 2021, together with the notes thereto.
• Audited consolidated statements of financial position of KWESST Micro Systems Inc. as at September 30, 2021, 2020 and December 31, 2019, and the consolidated statements of net loss and comprehensive loss, consolidated statements of changes in shareholder's equity and cash flows for the periods then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
• Report of KPMG LLP, Independent Registered Public Accounting Firm, on the consolidated statements of financial position of KWESST Micro Systems Inc. as of September 30, 2021 and the related consolidated statements of loss and comprehensive loss, changes in shareholders' equity, and cash flows for the year ended September 30, 2021, and the related notes the preceding financial statements, dated November 24, 2021.
• Report of Kreston GTA LLP, Independent Registered Public Accounting Firm, on consolidated statements of financial position of KWESST Micro Systems Inc. as of September 30, 2020 and December 31, 2019, and the related consolidated statements of loss and comprehensive loss, changes in shareholders' equity, and cash flows for the nine month ended September 30, 2020 and year ended December 31, 2019, and the related notes the preceding financial statements, dated November 22, 2021.

CHANGE IN COMPANY'S CERTIFYING ACCOUNTANT

Shortly after going public in Canada in September 2020, the newly formed Audit Committee undertook a review of external audit services, including a tender for the Company's annual audit and interim quarterly reviews.  Following this tender review, our Audit Committee selected KPMG LLP as the Company's independent auditors and approved by our Board of Directors, subject to shareholder's approval at the March 31, 2021, Annual and Special Meeting of Shareholders.  Our shareholders approved the appointment of KPMG LLP on March 31, 2021 as well as their reappointment at the March 31, 2022 Annual and Special Meeting of Shareholders.

Accordingly, Kreston GTA LLP ("Kreston") was not proposed for reappointment and resigned, effective on March 31, 2021.

The audit report of Kreston did not contain any adverse opinion or disclaimer of opinion and did not express any reservation or modified opinion in its reports for the two (2) most recently completed fiscal years of the Corporation, nor for the period from the most recently completed period for which Kreston issued an audit report in respect of the Corporation and the date of this Notice.  Further, for the two (2) most recent fiscal years and any subsequent interim period preceding their resignation: there were no disagreements with Kreston on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

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Additionally, for the two (2) most recent fiscal years and any subsequent interim period preceding their resignation:

• Kreston has not advised us that the internal controls necessary for us to develop reliable financial statements do not exist;
• Kreston has not advised us that information has to come to Kreston's attention that has led it to no longer be able to rely on management's representations, or that has made it unwilling to be associated with the financial statements prepared by management;
• Kreston has not advised us of the need to expand significantly the scope of its audit, nor that information has come to their attention during our two most recent fiscal years and any subsequent interim period preceding Kreston's resignation, that if further investigated may: (i) materially impact the fairness or reliability of either: a previously issued audit report or the underlying financial statements; or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that may prevent it from rendering an unqualified audit report on those financial statements); or (ii) cause it to be unwilling to rely on management's representations or be associated with our financial statements; and due to Kreston's resignation, or for any other reason, Kreston did not so expand the scope of its audit or conduct such further investigation; or
• Kreston has not advised us that information has come to their attention that it has concluded materially impacts the fairness or reliability of either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to Kreston's satisfaction, would prevent it from rendering an unqualified audit report on those financial statements); and due to Kreston's resignation, or for any other reason, the issue has not been resolved to their satisfaction prior to its resignation.

KPMG LLP accepted the appointment effective April 6, 2021. Additionally, during the preparation of our consolidated financial statements for the fiscal year ended September 30, 2020, we sought advice from KPMG LLP between December 3, 2020, and January 14, 2021, on the application of the relevant IFRS standard for the acquisition of GhostStep® technology and the reverse acquisition relating to our Amalgamation with Foremost. However, KPMG LLP's role was limited to assisting management in interpreting the accounting guidance under IFRS 3, Business Combination and IFRS 2, Share-based Payment.  KPMG LLP did not provide an accounting opinion on these transactions; management was ultimately responsible for the accounting analysis and conclusion which was audited by its independent auditors then, Kreston.  Further, there was no matter that was either the subject of a disagreement or a reportable event in which we consulted with KPMG LLP.

EXPENSES OF THIS OFFERING

The estimated expenses payable by us in connection with the offering described in this Prospectus (other than the underwriting discounts and commissions) will be as set forth in the table below, including the Canadian Offering. With the exception of the SEC registration fee, the FINRA filing fee, and Nasdaq listing fee, all amounts are estimates. All such expenses will be borne by us.

Item	IPO		IPO and Canadian Offering (1)
SEC registration fee	USD$	2,200	2,200
FINRA filing fee	USD$	10,000	10,000
Nasdaq listing fee	USD$	75,000	75,000
Printing and engraving expenses	USD$	100,000	115,000
Legal fees and expenses	USD$	400,000	746,500
Accounting fees and expenses	USD$	170,000	258,500
Miscellaneous expenses	USD$	340,000	390,000
Total	USD$	1,097,200	1,597,200

(1)For Canadian related expenses, we converted Canadian denominated expenses using an exchange rate of at a rate of USD$1.30 equals CAD$1.00. 

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INTERESTS OF EXPERTS AND COUNSEL

None of the named experts or legal counsel was employed on a contingent basis, owns an amount of shares in our company which is material to that person, or has a material, direct or indirect economic interest in our company or that depends on the success of the offering.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

WHERE YOU CAN FIND MORE INFORMATION

This Prospectus and the related exhibits are available for viewing at the offices of KWESST Micro Systems Inc., 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, Canada, K2M 2A8, telephone: (613) 241-1849.

Additional information relating to us may be found on SEDAR, the system for electronic document analysis and retrieval, at www.sedar.com. Upon effectiveness of the registration statement of which this Prospectus forms a part, we will be subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements will be filing reports with the SEC. Those other reports or other information may be inspected without charge at the locations described below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will furnish to the SEC, under cover of a current report on Form 6-K, unaudited quarterly financial information.

Reports filed with, and other information furnished to, the SEC are available from the SEC's Electronic Data Gathering and Retrieval System (EDGAR) at www.sec.gov.

We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto, to which reference is hereby made. With respect to each contract, agreement or other document filed as an exhibit to the registration statement, reference is made to such exhibit for a more complete description of the matter involved. The registration statement and the exhibits thereto filed by us with the SEC may be inspected at the public reference facility of the SEC listed above.

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INDEX TO FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Interim Financial Statements for the Three and Nine Months Ended June 30, 2022, and 2021
Condensed Consolidated Interim Statements of Financial Position	F-3
Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss	F-4
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity	F-5
Condensed Consolidated Interim Statements of Cash Flows	F-6
Notes to the Condensed Consolidated Interim Financial Statements	F-7
Consolidated Financial Statements for the Year Ended September 30, 2021, Nine Months Ended September 30, 2020, and Year Ended December 31, 2019
Independent Auditors' Reports	F-25
Consolidated Statements of Financial Position	F-26
Consolidated Statements of Net Loss and Comprehensive Loss	F-27
Consolidated Statements of Changes in Shareholders' Equity	F-28
Consolidated Statements of Cash Flows	F-29
Notes to the Consolidated Financial Statements	F-30
Consolidated Financial Statements for the Nine Months Ended September 30, 2020, and Year Ended December 31, 2019
Independent Auditors' Reports	F-77
Consolidated Statements of Financial Position	F-79
Consolidated Statements of Net Loss and Comprehensive Loss	F-80
Consolidated Statements of Changes in Shareholders' Equity	F-81
Consolidated Statements of Cash Flows	F-82
Notes to the Consolidated Financial Statements	F-83

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Condensed Consolidated Interim Financial Statements of

KWESST MICRO SYSTEMS INC.

Three and nine months ended June 30, 2022, and 2021

(Unaudited - Expressed in Canadian dollars)

KWESST MICRO SYSTEMS INC.

Table of Contents for the three and nine months ended June 30, 2022

	Page
FINANCIAL STATEMENTS
Condensed Consolidated Interim Statements of Financial Position	F-3
Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss	F-4
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity	F-5
Condensed Consolidated Interim Statements of Cash Flows	F-6
Notes to the Condensed Consolidated Interim Financial Statements	F-7-F-22

KWESST MICRO SYSTEMS INC.

Condensed Consolidated Interim Statements of Financial Position

At June 30, 2022 and September 30, 2021

(Unaudited)

In Canadian dollars	Notes		June 30,  2022			September 30, 2021
ASSETS
Cash		$	189,587		$	2,688,105
Restricted short-term investment			30,000			30,000
Trade and other receivables	5		194,481			699,251
Inventories	6		445,000			90,299
Prepaid expenses and other			280,518			548,042
Current assets			1,139,586			4,055,697
Property and equipment			892,896			903,649
Right-of-use assets			222,652			266,214
Deposit			23,024			21,367
Intangible assets	7		4,244,253			3,470,919
Non-current assets			5,382,825			4,662,149
Total Assets		$	6,522,411		$	8,717,846
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities	8 and 9	$	2,263,702		$	1,127,202
Accrued royalties liability	4		150,000			-
Lease obligations			67,450			32,288
Borrowings	10		1,752,865			-
Current liabilities			4,234,017			1,159,490
Accrued royalties liability	4		1,072,976			1,105,756
Lease obligations			224,410			275,621
Borrowings	10		-			53,251
Non-current liabilities			1,297,386			1,434,628
Total Liabilities			5,531,403			2,594,118
Shareholders' Equity
Share capital	12(a)		19,165,734			17,215,068
Warrants	12(b)		1,902,055			1,848,389
Contributed surplus	12(c)		3,473,768			2,458,211
Accumulated other comprehensive loss			(28,123	)		(8,991	)
Accumulated deficit			(23,522,426	)		(15,388,949	)
Total Shareholders' Equity			991,008			6,123,728
Total Liabilities and Shareholders' Equity		$	6,522,411		$	8,717,846

See Note 2(a) Going concern and Note 18 Commitments and contingencies.

See accompanying notes to the unaudited condensed consolidated interim financial statements.

On behalf of the Board of Directors:
(signed) _________, John McCoach, Director	(signed) _________, David Luxton, Director

F-3

KWESST MICRO SYSTEMS INC.

Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss

Three and nine months ended June 30, 2022 and 2021

(Unaudited)

In Canadian dollars	Notes		Three Months Ended June 30, 2022			Three Months Ended June 30, 2021			Nine Months Ended June 30, 2022			Nine Months Ended June 30, 2021
Revenue	14	$	282,432		$	521,724		$	466,148		$	1,115,757
Cost of sales			(238,350	)		(315,273	)		(405,841	)		(718,309	)
Gross profit			44,082			206,451			60,307			397,448
Operating expenses	2(f)
General and administrative			1,322,730			1,236,988			3,410,887			2,909,349
Selling and marketing			851,705			882,261			2,931,460			2,195,647
Research and development, net			350,689			678,622			1,610,445			1,648,711
Total operating expenses			2,525,124			2,797,871			7,952,792			6,753,707
Operating loss			(2,481,042	)		(2,591,420	)		(7,892,485	)		(6,356,259	)
Other income and expenses
Gain on acquisition	4		41,869			-			41,869			-
Net finance costs	15		(184,177	)		(27,780	)		(304,298	)		(60,857	)
Foreign exchange gain (loss)			22,901			(9,025	)		22,602			(14,189	)
Loss on disposals			-			-			(1,165	)		-
Total other income and expenses			(119,407	)		(36,805	)		(240,992	)		(75,046	)
Net loss		$	(2,600,449	)	$	(2,628,225	)	$	(8,133,477	)	$	(6,431,305	)
Other comprehensive loss:
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation differences			(34,171	)		-			(19,132	)		-
Total comprehensive loss		$	(2,634,620	)	$	(2,628,225	)	$	(8,152,609	)	$	(6,431,305	)
Net loss per share
Basic and diluted		$	(0.05	)	$	(0.06	)	$	(0.16	)	$	(0.15	)
Weighted average number of shares outstanding
Basic and diluted	13		51,988,774			46,016,645			50,288,043			43,126,552

See accompanying notes to the unaudited condensed consolidated interim financial statements.

F-4

KWESST MICRO SYSTEMS INC.

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity 

Nine months ended June 30, 2022, and 2021

(Unaudited)

In Canadian dollars	Notes		Share capital			Contingent shares			Warrants			Contributed surplus			Translation reserve			Deficit			Total Shareholders' Equity
Balance, September 30, 2020		$	9,374,563		$	-		$	277,170		$	306,708		$	-		$	(6,073,577	)	$	3,884,864
Shares issued to settle debt			63,949			-			-			-			-			-			63,949
Warrants exercised			220,220			-			(102,991	)		-			-			-			117,229
Shares and warrants issued on asset acquisition			1,427,000			-			425,000			-			-			-			1,852,000
Shares and warrants issued for cash			3,571,418			-			848,654			-			-			-			4,420,072
Stock options exercised			736,419			-			-			(203,516	)		-			-			532,903
Share offering costs			(693,905	)		-			-			233,057			-			-			(460,848	)
Share-based compensation	12(c)		-			-			-			1,398,881			-			-			1,398,881
Shares for vested RSUs			2,883			-			-			(2,883	)		-			-			-
Net loss	12		-			-			-			-			-			(6,431,305	)		(6,431,305	)
Balance, June 30, 2021		$	14,702,547		$	-		$	1,447,833		$	1,732,247		$	-		$	(12,504,882	)	$	5,377,745
Balance, September 30, 2021		$	17,215,068		$	-		$	1,848,389		$	2,458,211		$	(8,991	)	$	(15,388,949	)	$	6,123,728
Shares issued to settle debt			19,000			-			-			-			-			-			19,000
Shares and warrants issued on acquisition	4		377,503			83,319			132,000			-			-			-			592,822
Contingent shares converted to common shares	4		83,319			(83,319	)		-			-			-			-			-
Warrants exercised			277,098			-			(61,173	)		-			-			-			215,925
Warrants expired			-			-			(17,161	)		17,161			-			-			-
Share-based compensation	12(c)		-			-			-			1,875,392			-			-			1,875,392
Shares for vested RSUs and PSUs			854,181			-			-			(854,181	)		-			-			-
Vested RSUs and PSUs repurchased for withholding taxes			-			-			-			(22,815	)		-			-			(22,815	)
Shares issued for unsecured loans	10		365,888			-			-			-			-			-			365,888
Share offering costs			(26,323	)		-			-			-			-			-			(26,323	)
Other comprehensive loss			-			-			-			-			(19,132	)		-			(19,132	)
Net loss			-			-			-			-			-			(8,133,477	)		(8,133,477	)
Balance, June 30, 2022		$	19,165,734		$	-		$	1,902,055		$	3,473,768		$	(28,123	)	$	(23,522,426	)	$	991,008

See accompanying notes to the unaudited condensed consolidated interim financial statements.

F-5

KWESST MICRO SYSTEMS INC.

Condensed Consolidated Interim Statements of Cash Flows

Nine months ended June 30, 2022, and 2021

(Unaudited)

In Canadian dollars	Notes		Nine months ended June 30, 2022			Nine months ended June 30, 2021
OPERATING ACTIVITIES
Net loss		$	(8,133,477	)	$	(6,431,305	)
Items not affecting cash:
Depreciation and amortization			225,308			88,484
Share-based compensation	12(c)		1,875,392			1,398,881
Gain on acquisition	4		(41,869	)		-
Net finance costs			304,298			60,857
Loss on disposals			1,165			-
Shares for amended license			-			137,000
Impairment of intangible assets			-			55,376
Changes in non-cash working capital items	17		1,886,747			1,610
Interest paid			(65,316	)		(29,132	)
Cash used in operating activities			(3,947,752	)		(4,718,229	)
INVESTING ACTIVITIES
Additions of property and equipment			(172,158	)		(119,909	)
Investments in intangible assets	7		(764,067	)		-
Recognition of open orders from acquisition	7		159,650			-
Cash acquired on acquisition	4		162,547			-
Deposit for advanced royalties			-			(150,000	)
Purchase of restricted short-term investment			-			(30,000	)
Cash flows used in investing activities			(614,028	)		(299,909	)
FINANCING ACTIVITIES
Proceeds from borrowings	10		2,000,000			326,000
Repayment of borrowings			-			(306,000	)
Payments of deferred financing fees			(74,055	)		-
Payments of share offering costs			(26,323	)		(460,848	)
Repayments to related party loans			-			(218,276	)
Repayments of lease obligations			(29,470	)		(34,576	)
Proceeds from the issuance of common shares			-			4,420,072
Proceeds from exercise of warrants			215,925			117,229
Proceeds from exercise of stock options			-			532,903
Repurchase of vested RSUs and PSUs for withholding taxes			(22,815	)		-
Cash flows provided by financing activities			2,063,262			4,376,504
Net change in cash during the period			(2,498,518	)		(641,634	)
Cash, beginning of period			2,688,105			3,073,760
Cash, end of period		$	189,587		$	2,432,126

See Note 17 Supplemental cash flow information.

See accompanying notes to the unaudited condensed consolidated interim financial statements.

F-6

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

1.Corporate information

KWEEST Micro Systems Inc. (the "Company", "KWESST", "we", "our", and "us") was incorporated on November 28, 2017, under the laws of the Province of British Columbia. Our registered office is located at 550 Burrard Street, Suite 2900, Vancouver, British Columbia, Canada and our corporate office is located at Unit 1, 155 Terrence Matthews Crescent, Ottawa, Ontario, Canada. We have representative offices in the following foreign locations: Washington DC (United States), London (United Kingdom), and Abu Dhabi (United Arab Emirates).

We develop and commercialize next-generation technology solutions that deliver a tactical advantage for military, public safety agencies and personal defense markets.  Our core mission is to protect and save lives.

KWESST's common stock is listed on the TSX-Venture Exchange ("TSX-V'') under the stock symbol of KWE and on the OTCQB® Venture Market under the stock symbol of KWEMF and on the Frankfurt Stock Exchange under the stock symbol of 62U.

2.Basis of preparation

(a)Going concern

These unaudited condensed consolidated interim financial statements have been prepared assuming KWESST will continue as a going concern.

As an early-stage company, we have not yet reached commercial production 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. We have incurred approximately $8.1 million net loss and negative operating cash flows of approximately $3.9 million for the nine months period ended June 30, 2022 (nine months ended June 2021 - $6.4 million net loss and negative operating cash flows of $4.7 million). 

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 and the ability to raise additional debt or equity financing, as required. There are various risks and uncertainties affecting our future financial position and its performance including, but not limited to:

• The market acceptance and rate of commercialization of our product offerings;
• Ability to successfully execute our business plan;
• Ability to raise additional capital at acceptable terms;
• General local and global economic conditions, including the ongoing COVID-19 pandemic.

Our strategy to mitigate these material risks and uncertainties is to execute timely a business plan 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 our business plan 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 they are required in the future. Accordingly, there are material risks and uncertainties that may cast significant doubt about our ability to continue as a going concern.

These 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.

F-7

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

(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").  They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") and should be read in conjunction with our annual consolidated financial statements for the year ended September 30, 2021. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in our financial position and performance since the last annual consolidated financial statements as at and for the year ended September 30, 2021.

These unaudited condensed consolidated interim financial statements were authorized for issue by our Board of Directors on August 11, 2022.

(c)Basis of consolidation

These unaudited condensed consolidated interim financial statements incorporate the financial statements of KWESST 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 year are recognized from the date of acquisition or effective date of disposal as applicable. All intercompany transactions and balances have been eliminated.

At June 30, 2022, we have the following wholly-owned subsidiaries:

	Location	Equity %
KWESST Inc.	Ottawa, Canada	100%
2720178 Ontario Inc.	Bowmanville, Canada	100%
Police Ordnance Company Inc.	Bowmanville, Canada	100%
KWESST U.S. Holdings Inc.	Delaware, Canada	100%
KWESST Defense Systems U.S. Inc.	Virginia, United States	100%
KWESST Public Safety Systems U.S. Inc.	Virginia, United States	100%
KWESST Public Safety Systems Canada Inc.	Ottawa, Canada	100%

(d)Functional and presentation currency

These financial statements are presented in Canadian dollars ("CAD"), KWESST's functional currency and presentation currency.

(e)Basis of measurement

The consolidated financial statements have been prepared on the 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)Comparative figures

For the year ended September 30, 2021, we changed the presentation of our expenses in the consolidated statements of net loss and comprehensive loss from by nature to by function.  We made this change in presentation to provide more relevant financial information to facilitate peer benchmarking, particularly with peers in the United States. As a result, our operating expenses for the three and nine months ended June 30, 2022 and 2021 are now presented as follows: general and administration ("G&A"), selling and marketing ("S&M"), and research and development, net ("R&D").

F-8

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

(g)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 significant effects on the amounts recognized in these consolidated financial statements are the same as disclosed in Note 2(g) of the consolidated financial statements for the year ended September 30, 2021, with the addition of the following:

• Note 4 - acquisition of Police Ordnance: whether the purchase price allocation applied to the consideration transferred and assumptions used as inputs in determining the fair value of net assets acquired is reasonable.

• Note 10 - unsecured loans: whether the estimated market discount rate used to estimate the fair value of the unsecured loans is reasonable.

Estimates

Information about assumptions and estimation uncertainties at June 30, 2022 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(g) of the consolidated financial statements for the year ended September 30, 2021.

COVID-19 Uncertainties

While COVID-19 has not had a material impact to our business to date, the following is a summary of what we believe may impact our future business given the persistency of COVID-19: disruptions to business operations resulting from quarantines of employees, customers, manufacturers and other third-party service providers in areas affected by the outbreak; disruptions to business operations resulting from travel restrictions, including travel to industry tradeshows; and uncertainty around the duration of the virus' impact.

Despite the global vaccination efforts underway, the extent to which COVID-19 could impact our operations, financial condition, results of operations, and cash flows is highly uncertain and cannot be predicted. Negative financial results, uncertainties in the market, and a tightening of credit markets, caused by COVID-19, or a recession, could have a material adverse effect on our liquidity and ability to obtain financing in the future.

3.Significant accounting policies

During the three and nine months ended June 30, 2022, the accounting policies in these condensed consolidated interim financial statements are the same as those applied in our consolidated financial statements as at and for the year ended September 30, 2021.

F-9

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

4.Acquisitions

Acquisition in Current Fiscal Year

On December 15, 2021, we acquired 2720178 Ontario Inc., an Ontario (Canada) corporation, which owns all of the issued and outstanding shares of Police Ordnance Company Inc., an Ontario (Canada) corporation (together, "Police Ordnance"), herein referred as the "Police Ordnance Acquisition". Located in Bowmanville, Ontario, with ancillary operations in Florida, Police Ordnance owns all intellectual properties to the ARWEN^TM product line of launchers, and a proprietary line of 37 mm cartridges designed for riot control and tactical teams.  Police Ordnance has law enforcement customers across Canada, the United States, and abroad. The Police Ordnance Acquisition provides us with a strategic opportunity to leverage its law enforcement customer base to accelerate growth within its specialty ordnance business.

Consideration Transferred:

The purchase consideration comprised of the following:

	Number		Fair Value
Common shares	277,576	$	377,503
Warrants	200,000	$	132,000
Contingent shares	61,264	$	83,319
Total fair value purchase consideration		$	592,822

The warrants are exercisable at $1.72 each and will expire on December 15, 2024.

We issued the 61,264 contingent common shares to the sellers in April 2022 following the fulfillment of the financial milestone as defined in the share purchase agreement.

We have estimated the fair value as follows:

• Common shares: based on KWESST's closing stock price on December 15, 2021.
• Warrants: based on using the Black Scholes option model with the following key inputs: a) exercise price of $1.72, underlying stock price of $1.36, risk free rate of 1.04%, expected life of three years, and expected volatility of 84.7%.
• Contingent shares: based on KWESST's closing stock price on December 15, 2021, and high probability of achieving the financial milestone as defined in the share purchase agreement.

The net cash inflow as at the closing of the acquisition was as follows:

Cash assumed on acquisition	$	162,547
less: consideration paid in cash		-
Net cash inflow on acquisition	$	162,547

F-10

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

Net Assets Acquired:

The purchase consideration was allocated to Police Ordnance's net assets as follows:

Total purchase consideration at fair value	$	592,822
Police Ordnance's net assets:
Cash		162,547
Trade and other receivables		104,432
Inventories		343,655
Intangible assets		165,596
Accounts payable and accrued liabilities		82,963
Corporate tax liability		32,338
Borrowings		26,238
Net assets at fair value	$	634,691
Gain on acquisition	$	41,869

The fair value of inventories in the above allocation continues to be under review due to the need for additional information related to certain specialized raw materials. In addition, we are completing our identification and assessment of intangible assets acquired in connection with the business combination, if any. This will be finalized by September 30, 2022.

Impact on KWESST's Results of Operations:

The results of operations of Police Ordnance are included in these unaudited condensed consolidated interim statements of net loss and comprehensive loss from December 16, 2021. If the acquisition had occurred on October 1, 2021, management estimates that Police Ordnance would have contributed approximately $341,500 and $623,800 of revenue and approximately $51,600 and $2,500 of net profit to KWESST's operating results for the three and nine months ended June 30, 2022, respectively. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same if the acquisition had occurred on October 1, 2021.

KWESST incurred acquisition-related costs of $2,304 which are recorded as an expense in the unaudited condensed consolidated interim statements of net loss and comprehensive loss as part of general and administrative expenses. Share offering costs of $4,150 in relation to the acquisition are recorded against share capital on the unaudited condensed consolidated interim statements of financial position.

Acquisition in Prior Fiscal Year

On April 29, 2021, we acquired the Low Energy Cartridge technology from DEFSEC, a proprietary non-lethal cartridge-based firing system (subsequently branded as PARA OPS^TM system). This technology acquisition includes all intellectual property rights for the PARA OPS^TM system.  With this acquisition, we will target the following four market segments that currently use a variety of dated "non-lethal" or "less-lethal" systems:

(i)public order (riots and control of dangerous subjects);

(ii)military and law enforcement training (realistic force-on-force training);

(iii)personal defence (home, car, boat, RV, camping, hiking); and

(iv)high-action gaming.

As DEFSEC is a private company owned by our Executive Chairman, this asset acquisition is a related party transaction.  We relied on exemptions from the formal valuation and minority shareholder approval requirements available under Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions.  However, we obtained approval from over 51% disinterested shareholders as well as from the TSX-V prior to closing the acquisition.

F-11

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

The purchase consideration consisted of:

• 1,000,000 common shares of KWESST; and
• 500,000 warrants to purchase our common shares at $0.70 each; 25% vesting on the first anniversary of the closing of the acquisition and 25% per annum thereafter. These warrants will expire on April 29, 2026.

Additionally, we will pay 7% royalty on annual sales of the PARA OPS^TM system to DEFSEC, net of taxes and duties, up to a maximum of $10 million, subject to minimum annual royalty payments starting in 2022. At closing of the acquisition, we made an upfront payment of $150,000 as an advance on future royalty payments. 

The minimum annual royalty payments are as follows:

Date		Amount
April 29 2023	$	150,000
April 29 2024	$	150,000
April 29 2025	$	200,000
April 29 2026	$	200,000
April 29 2027	$	250,000
April 29 2028	$	250,000
April 29 2029	$	300,000
April 29 2030	$	300,000
April 29 2031	$	350,000
April 29 2032	$	350,000
Total	$	2,500,000

The royalty payment obligation of the Purchase Agreement ("Agreement") will expire in 20 years unless terminated earlier under the terms set out in the Agreement.  At our sole discretion, we may terminate this Agreement for convenience, including if market conditions for sales of the PARA OPS^TM system become unfavorable subject 60 day's prior written notice.  Upon termination, we will be fully released and discharged by DEFSEC including the outstanding future royalties and any unvested warrants shall be immediately cancelled.  In return, we will return all intellectual property rights relating to the PARA OPS^TM system to DEFSEC.

The purchase price allocation was determined as follows:

	Number		Fair Value
Common shares	1,000,000	$	1,290,000
Warrants	500,000	$	425,000
Minimum royalty payments		$	1,191,219
Total		$	2,906,219
Identifiable intangible assets
Technology asset		$	2,906,219

We estimated the fair value as follows:

• Common shares: based on KWESST's closing stock price on April 29, 2021.

F-12

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

• Warrants: based on using the Black Scholes option model with the following key inputs: a) exercise price of $0.70, underlying stock price of $1.29, risk free rate of 0.48%, expected life of three years, and expected volatility of 80%.
• Minimum royalty payments: based on the income approach, specifically discounted cash flows, using a discount rate of 13.7% per annum.

During the three and nine months ended June 30, 2022, we recorded $40,393 and $113,899, respectively, of accretion cost relating to the discounted minimum royalty payments, which is included in net finance costs in the condensed consolidated interim statement of net loss and comprehensive loss (three and nine months ended June 30, 2021 - $25,567 and $25,567, respectively). As at June 30, 2022, $1,222,976 of accrued royalties liability was outstanding (2021 - $1,105,756).

5.Trade and other receivables

The following table presents trade and other receivables for KWESST:

		June 30, 2022		September 30, 2021
Trade receivables	$	94,083	$	-
Unbilled revenue		-		308,728
Sales tax recoverable		100,398		183,761
Investment tax credits refundable		-		206,762
Total	$	194,481	$	699,251

There was no impairment of trade and other receivables during the three and nine months ended June 30, 2022 (2021 - $nil).

The following table presents changes in unbilled receivables:

		June 30, 2022			September 30, 2021
Balance, beginning of period	$	308,728		$	-
Revenue in excess of billings, net of amounts transferred to trade receivables		-			308,728
Transferred to trade receivables		(308,728	)		-
Balance, end of period	$	-		$	308,728
Current	$	-		$	308,728
Non-current	$	-		$	-

6.Inventories

The following table presents a breakdown of inventories:

		June 30, 2022		September 30, 2021
Finished goods	$	66,594	$	-
Work-in-progress		18,843		-
Raw materials		359,563		90,299
Total	$	445,000	$	90,299

There was no impairment of inventories during the three and nine months ended June 30, 2022 (2021 - $nil).

F-13

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

7.Intangible assets

The following table presents intangible assets for KWESST:

Cost		PhantomTM System		PARA OPSTM System(1)		Patent		ARWENTM			Total
Balance at September 30, 2021	$	564,700	$	2,906,219	$	-	$	-		$	3,470,919
Additions		365,947		372,658		28,783		-			767,388
Acquisition  (Note 4)		-		-		-		165,596			165,596
Recognition of open orders (2)		-		-		-		(159,650	)		(159,650	)
Balance at June 30, 2022	$	930,647	$	3,278,877	$	28,783	$	5,946		$	4,244,253

(1)In January 2022, we have branded the technology known as the Low Energy Cartridge system as PARA OPS^TM system.

(2)This represents the open customer orders at the time of the acquisition measured at fair value, which were subsequently delivered to customers during the period. 

The balance at June 30, 2022 for Phantom^TM and PARA OPS^TM represents the acquired technology asset (i.e. intellectual properties), coupled with additional capitalized development costs. As both product lines have not yet reached commercialization, no amortization charge was recorded for the three and nine months ended June 30, 2022 (2021 - $nil).  The patent relates to the PARA OPS^TM system. Management anticipates the estimated useful life to be five years for both technology assets subsequent to the expected commercialization date and the estimated useful life of the patent will be determined subsequent to the approval of the patent.

For the three and nine months ended June 30, 2022, management concluded there was no impairment on the intangible assets (three and nine months ended June 30, 2021 - $nil and $55,376, respectively).

8.Accounts payable and accrued liabilities

The following table presents the accounts payable and accrued liabilities for KWESST:

		June 30, 2022		September 30, 2021
Trade payable	$	1,354,235	$	620,041
Accrued liabilities		661,426		384,239
Salary and vacation payable		248,041		122,922
Total	$	2,263,702	$	1,127,202

9. Related party transactions

In November 2019, KWESST hired SageGuild LLC to assist us in promoting our product offerings in the United States.  From January 28, 2021 to June 24, 2022, the CEO and sole shareholder of SageGuild LLC agreed to serve as director of KWESST Defense Systems U.S. Inc. and as a result SageGuild LLC was a related party to KWESST for this period. The total cash and share-based remuneration amounted to $81,761 and $251,809 for the three and nine months ended June 30, 2022, respectively (three and nine months ended June 30, 2021: $111,269 and $226,797, respectively). Except for the cash consideration recorded at the exchange amount, the share-based compensation was recorded at fair value.

At June 30, 2022, $90,758 (September 30, 2021 - $23,187) was owed to directors and officers for business expense reimbursements and wages, which was included in accounts payable and accrued liabilities.  Additionally, $74,000 of borrowings were owed to directors and officers at June 30, 2022 for their participation in the Unsecured Loans financing (see Note 10).

F-14

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

10.Borrowings

There were no changes to KWESST's RBC Credit Facility since September 30, 2021, which consists of a $30,000 corporate credit card program collateralized by the short-term investment.

The following is a reconciliation of borrowings since September 30, 2021:

		CEBA Term Loan		Unsecured Loans			Total
Balance, September 30, 2021	$	53,251	$	-		$	53,251
Assumed from acquisition (Note 4)		26,238		-			26,238
Issuance at fair value		-		1,634,112			1,634,112
Deferred financing fees		-		(74,055	)		(74,055	)
Net borrowings		79,489		1,560,057			1,639,546
Accrued interest and accretion expense		5,818		162,652			168,470
Interest paid		-		(55,151	)		(55,151	)
Balance, June 30, 2022	$	85,307	$	1,667,558		$	1,752,865
Current	$	85,307	$	1,667,558		$	1,752,865
Non-current		-		-			-
Total	$	85,307	$	1,667,558		$	1,752,865

On March 11, 2022, we closed a non-secured loan financing with various lenders in an aggregate amount of $1,800,000 and an additional $200,000 on March 15, 2022, for a total of $2,000,000 (the "Unsecured Loans"). Certain directors and officers participated in this financing for an aggregate amount of $74,000. The Unsecured Loans bear interest at a rate of 9.0% per annum, compounded monthly and not in advance, and have a maturity of thirteen months, with KWESST having the option to repay the whole or any part of the Unsecured Loans, without penalty or premium, at any time prior to the close of business on the maturity date. The principal amount is due only at maturity.  As part of the terms of the Unsecured Loans, we issued an aggregate of 1,000,000 bonus common shares to the lenders. These common shares were issued pursuant to prospectus exemptions of applicable securities laws and therefore subject to a four-month plus one day trading restriction. 

As a result of issuing common shares and debt for a total combined cash consideration of $2,000,000, we allocated the gross proceeds to these two financial instruments based on their relative fair value.  To measure the fair value of the Unsecured Loans, we used the income approach and estimated a market discount rate of 22% to discount the future cash flows of the Unsecured Loans resulting in an estimated fair value of $1,634,112.  Accordingly, we allocated $1,634,112 of the $2,000,000 to Unsecured Loans and $365,888 to share capital for the bonus common shares issued (see Note 12(a)).

The total offering costs were $90,636, $74,055 of which was allocated to deferred financing fees and $16,581 allocated to share offering costs. The deferred financing fees are recognized as a reduction of the gross borrowings to be accreted over the life of the Unsecured Loans as a financing cost and the share offering costs were recognized as a reduction to common shares.

As the Unsecured Loans mature in April 2023, we presented these as current borrowings in the consolidated financial position.

F-15

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

11.Contract liabilities

The following is a reconciliation of contract liabilities since September 30, 2021:

		Contract liabilities
Balance, September 30, 2021	$	-
Additions		300,340
Revenue recognized		(300,340	)
Balance, June 30, 2022	$	-

12.Share capital and Contributed Surplus

a)Share capital

Authorized

KWESST 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, 2021:

	Number		Amount
Balance at September 30, 2021	48,965,631	$	17,215,068
Issued for  acquisition (Note 4)	277,576	$	377,503
Issued for conversion of contingent shares (Note 4)	61,264	$	83,319
Issued for debt settlements	10,000	$	19,000
Issued for exercise of warrants	1,330,000	$	277,098
Issued for conversion of share units	542,636	$	854,181
Issued for bonus shares relating to borrowings (Note 10)	1,000,000	$	365,888
Less: share offering costs for the period		$	(26,323	)
Balance at June 30, 2022	52,187,107	$	19,165,734

Refer to Note 20 (a) Subsequent Event for share issuances subsequent to June 30, 2022.

b)Warrants

The following is a summary of changes in outstanding warrants since September 30, 2021:

	Number of warrants			Weighted average exercise price
Outstanding at September 30, 2021	13,901,640		$	0.74
Issued (Note 4)	200,000		$	1.72
Exercised	(1,330,000	)	$	0.26
Expired	(84,622	)	$	0.45
Outstanding at June 30, 2022	12,687,018		$	0.81
Exercisable at June 30, 2022	12,062,018		$	0.92

F-16

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

The following table provides additional information on the total outstanding warrants at June 30, 2022:

	Number outstanding		Fair value (1)	Expiry Date
Founders' warrants:
Exercise price of $0.20	5,520,000	$	1,013	January 1, 2024
Exercise price of $0.20	1,900,000	$	18,865	June 14, 2024
GhostStep's warrants:
Exercise price of $0.50	250,000	$	60,000	January 15, 2023
April 2021 equity financing:
Exercise price of $1.75	3,274,657	$	785,918	April 29, 2023
Exercise price of $1.75	40,000	$	9,600	August 25, 2023
LEC's warrants:
Exercise price of $0.70	500,000	$	425,000	April 29, 2026
September 2021 equity financing:
Exercise price of $2.35	750,000	$	390,000	September 16, 2023
Broker warrants:
Exercise price of $0.70	69,862	$	14,259	July 9, 2022
Exercise price of $1.75	137,499	$	33,000	April 29, 2023
Exercise price of $2.00	45,000	$	32,400	September 16, 2023
Acquisition of Police Ordnance (Note 4):
Exercise price of $1.72	200,000	$	132,000	December 15, 2024
	12,687,018	$	1,902,055

^{(1)Fair value is calculated based on the grant date fair value and number outstanding at June 30, 2022 and therefore it does not represent the fair value at June 30, 2022.}

The fair value for the warrants issued during the nine months ended June 30, 2022, was determined using the Black-Scholes option model and key inputs:

		Acquisition of POC
Exercise Price	$	1.72
Stock price	$	1.36
Volatility		84.7%
Dividend Yield		Nil
Risk-free interest rate		1.04%
Expected life		3
Weighted average fair value per warrant	$	0.66

Refer to Note 20 (a) Subsequent Event for warrants issued subsequent to June 30, 2022.

c)Contributed Surplus 

Share-based compensation

For the three and nine months ended June 30, 2022, KWESST recorded stock-based compensation expenses of $524,931 and $1,875,392, respectively (2021: $520,423 and $1,398,881, respectively). 

F-17

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

(i)Stock Options

The following is summary of changes in outstanding options since September 30, 2021.

	Number of options			Weighted average exercise price
Outstanding at September 30, 2021	4,167,516		$	1.37
Granted	365,000			1.64
Forfeited	(322,813	)		1.65
Outstanding at June 30, 2022	4,209,703		$	1.37
Options exercisable at June 30, 2022	3,242,703		$	1.28

At June 30, 2022, there were 981,254 stock options available for grant under KWESST's LTIP.

For the options granted during the nine months ended June 30, 2022, the per share weighted-average fair value of stock options was $0.89 using the Black-Scholes option model with the following weighted-average assumptions:

Stock price	$1.24 to $1.81
Exercise price	$1.24 to $1.81
Volatility	85.21%
Dividend yield	Nil
Risk-free interest rate	1.15%
Expected life (years)	3.00
Weighted-average fair value per option	$    0.89

Amended Stock option grants

There were no amended stock option grants during the nine months ended June 30, 2022.

During the nine months ended June 30, 2021, the Board approved the acceleration of vesting for 385,500 options and the cancellation of 250,000 options. This resulted in an additional share-based compensation charge of $65,813.

(ii)Share Units

The following is summary of changes in share units since September 30, 2021.

	RSUs		PSUs		SARs	Total
Outstanding at September 30, 2021	1,139,072		200,000		150,000	1,489,072
Granted	750,784		1,256,000		36,000	2,042,784
Vested and converted to common shares	(356,036	)	(186,600	)	-	(542,636	)
Vested and repurchased for withholding taxes	(5,846	)	(17,400	)	-	(23,246	)
Forfeited	-		(420,000	)	-	(420,000	)
Outstanding at June 30, 2022	1,527,974		832,000		186,000	2,545,974

At June 30, 2022, there were 1,105,193 Share Units available for grant under KWESST's LTIP.

F-18

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

13.Earnings (loss) per share

The following table summarizes the calculation of the weighted average basic number of basic and diluted common shares to calculate the earnings (loss) per share as reported in the condensed consolidated interim statements of net loss and comprehensive loss:

	Three months ended June 30, 2022	Three months ended June 30, 2021	Nine months ended June 30, 2022	Nine months ended June 30, 2021
Issued common shares,  beginning of period	51,484,343	42,507,387	48,965,631	41,266,176
Weighted average effect of shares issued from:
Acquisition of Police Ordnance (Note 4)	-	-	200,304	-
Exercise of options	-	54,816	-	484,936
Exercise of warrants	160,000	-	543,241	253,502
Debt settlements	-	-	9,084	66,364
Conversion of stock units	297,462	1,954	157,229	499
Conversion of contingent shares (Note 4)	46,969	-	15,484	-
Issuance of bonus shares (Note 10)	-	-	397,070	-
Private placements	-	2,460,310	-	803,061
Asset acquisitions	-	888,667	-	227,106
Amended license	-	103,511	-	24,908
Weighted average number of basic common shares	51,988,774	46,016,645	50,288,043	43,126,552
Dilutive securities:			-	-
Stock options	-	-	-	-
Warrants	-	-	-	-
Weighted average number of dilutive common shares	51,988,774	46,016,645	50,288,043	43,126,552

At June 30, 2022 and 2021, all dilutive securities were anti-dilutive because of KWESST's net loss for the above periods.

14.Revenue

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 June 30, 2022		Three months ended June 30, 2021		Nine months ended June 30, 2022		Nine months ended June 30, 2021
Major products / service lines
Digitization	$	157,900	$	497,792	$	314,515	$	1,080,933
ARWENTM		100,684		-		111,176		-
Training and services		23,495		-		39,169		-
Other		353		23,932		1,288		34,824
	$	282,432	$	521,724	$	466,148	$	1,115,757
Primary geographical markets
United States	$	27,607	$	497,252	$	48,658	$	1,080,393
Canada		254,825		24,472		417,490		35,364
	$	282,432	$	521,724	$	466,148	$	1,115,757
Timing of revenue recognition
Products and services transferred over time	$	181,395	$	497,252	$	353,684	$	1,080,393
Products transferred at a point in time		101,037		24,472		112,464		35,364
	$	282,432	$	521,724	$	466,148	$	1,115,757

F-19

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

At June 30, 2022, our total contracted not yet recognized revenue was $nil (2021 - $146,542).

For the three and nine months ended June 30, 2022, one customer accounted for 55.91% and 63.90% of the total revenue (2021 - one customer accounted for 95.31% and 96.83%, respectively).

15.Net finance costs

The following table presents a breakdown of net finance costs for the following periods:

		Three months ended June 30, 2022			Three months ended June 30, 2021			Nine months ended June 30, 2022			Nine months ended June 30, 2021
Interest expense from:
Borrowings (interest and accretion expense)	$	134,563		$	4,666		$	162,652		$	12,336
Accrued royalties liability - accretion expense		40,393			25,567			113,899			25,567
Lease obligations		7,562			(2,891	)		23,590			25,916
Other		2,709			1,042			7,668			3,784
Total interest expense		185,227			28,384			307,809			67,603
Interest income		(1,050	)		(604	)		(3,511	)		(6,746	)
Net finance costs	$	184,177		$	27,780		$	304,298		$	60,857

 16.Financial instruments

Financial risk management

We are exposed to a number of financial risks arising through the normal course of business as well as through its financial instruments. Our overall business strategies, tolerance of risk and general risk management philosophy are determined by the directors in accordance with prevailing economic and operating conditions.

For the three and nine months ended June 30, 2022, there were no material changes to KWESST's financial risks as disclosed in Note 22 of the audited consolidated financial statements for the year ended September 30, 2021.

At June 30, 2022, our contractual obligations were as follows: 

Payment due:		Total		Within 1 Year		1 to 3 years		3 to 5 years
Minimum royalty commitments	$	2,500,000	$	150,000	$	350,000	$	2,000,000
Borrowings		2,090,000		2,090,000		-		-
Accounts payable and accrued liabilities		2,263,702		2,263,702		-		-
Lease obligations		351,000		93,600		187,200		70,200
Other commitments		12,886		12,886		-		-
Short-term rental obligations		10,574		10,574		-		-
Total contractual obligations	$	7,228,162	$	4,620,762	$	537,200	$	2,070,200

At June 30, 2022, we had negative $3,094,431 (September 30, 2021 - positive $2,896,207) in working capital (current assets less current liabilities). 

F-20

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

17.  Supplemental cash flow information

The following table presents changes in non-cash working capital:

		Nine months ended June 30, 2022			Nine months ended June 30, 2021
Trade and other receivables	$	609,202		$	23,580
Inventories		(11,046	)		(442,074	)
Prepaid expenses and other		386,904			36,979
Accounts payable and accrued liabilities		934,025			(876,121	)
Contract liabilities		-			(7,053	)
Corporate taxes payable		(32,338	)		-
Deposits		-			150,000
Accrued royalties liability		-			1,116,299
	$	1,886,747		$	1,610

The following is a summary of non-cash items that were excluded from the Statements of Cash Flows for the nine months ended June 30, 2022:

• $83,319 fair value of 61,264 contingent shares settled via common shares;
• $19,000 debt settlement via common shares;
• $61,173 fair value of warrants exercised and transferred to share capital from warrants; and
• $125,000 for 250,000 warrants exercised in connection with the GhostStep^TM acquisition in June 2020.

The following is a summary of non-cash items that were excluded from the Statements of Cash Flows for the nine months ended June 30, 2021:

• $63,949 debt settlement via common shares;
• $125,000 for 250,000 exercised warrants in connection with the GhostStep^TM acquisition in June 2020; 
• $102,991 fair value of warrants exercised and transferred to share capital;
• $203,516 fair value of options exercised and transferred to share capital from contributed surplus;
• $1,715,000 fair value of common shares and warrants issued for the acquisition of the PARA OPS^TM system;
• $137,000 fair value of common shares issued for the amended and restated license agreement with AerialX; and
• $169,832 share offering costs relating to the Broker Compensation Options.

18.Commitments and contingencies

There was no significant change to the commitments and contingencies as disclosed in Note 26 of the audited consolidated financial statements for the year ended September 30, 2021.

19.Segmented information

Our Executive Chairman has been identified as the chief operating decision maker. The Executive Chairman evaluates our performance and allocates resources based on the information provided by our internal management system at a consolidated level.  We have determined that we have only one operating segment.

At June 30, 2022, and 2021, all of KWESST's property and equipment are located in Canada, including the right-of-use assets.

F-21

KWESST MICRO SYSTEMS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Three and nine months ended June 30, 2022, and 2021
(Expressed in Canadian dollars, except share amounts)

20.  Subsequent events

a)Non-brokered private placement

On July 14, 2022, we closed a non-brokered private placement, resulting in the issuance of 1,600,000 units of KWESST ("July 2022 Units"), at a price of $0.215 per July 2022 Unit (the "Issue Price"), for aggregate gross proceeds of $344,000 (the "July 2022 Offering").

Each July 2022 Unit is comprised of one common share and one-half common share purchase warrant (the "Warrants"). Each Warrant entitles its holder to acquire one additional common share of KWESST at a price of $0.285 for a period of 24 months from the closing date.  Accordingly, we issued 800,000 Warrants under the July 2022 Offering. There was no finder fee paid in this private placement.

Certain of our directors and officers (the "Insiders") purchased 406,975 Units for a total consideration of $87,500. The issuance of Units to the Insiders constitutes a related party transaction but is exempt from the formal valuation and minority approval requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") as KWESST's securities are not listed on any stock exchange identified in Section 5.5(b) of MI 61-101 and neither the fair market value of the units issued to the Insiders, nor the fair market value of the entire private placement, exceeds 25% of our market capitalization.

All securities issued in connection with the July 2022 Offering are subject to a statutory hold period in Canada expiring four (4) months and one (1) day from the closing of the Offering. We received final acceptance by the TSX Venture Exchange.

F-22

Consolidated Financial Statements of

KWESST MICRO SYSTEMS INC.

Year ended September 30, 2021,

Nine months ended September 30, 2020, and

Year ended December 31, 2019

(Expressed in Canadian Dollars)

F-23

KWESST MICRO SYSTEMS INC.

Table of contents for the year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019

	Page
Independent Auditor's Report	F-25
FINANCIAL STATEMENTS
Consolidated Statements of Financial Position	F-26
Consolidated Statements of Net Loss and Comprehensive Loss	F-27
Consolidated Statements of Changes in Shareholders' Equity	F-28
Consolidated Statements of Cash Flows	F-29
Notes to the Consolidated Financial Statements	F-30

F-24

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of

KWESST Micro Systems Inc.

Opinion

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
KWESST Micro Systems Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of KWESST Micro Systems Inc. (the Company) as of September 30, 2021, the related consolidated statements of net loss and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes  (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021, and its financial performance and its cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standard Board.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(a) to the consolidated financial statements, the Company has incurred significant losses and negative cash flows from operations since inception that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2(a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. 

/s/ KPMG LLP

We have served as the Company’s auditor since 2021

Ottawa, ON
November 24, 2021

F-25

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Financial Position
At September 30, 2021, September 30, 2020, and December 31, 2019

In Canadian dollars	Notes		September 30, 2021			September 30, 2020			December 31, 2019
						(Adjusted - see Note 8)
ASSETS
Cash		$	2,688,105		$	3,073,760		$	21,615
Restricted short-term investment	12		30,000			-			-
Trade and other receivables	5		699,251			480,917			219,803
Inventories	6		90,299			-			-
Prepaid expenses and other			548,042			441,837			54,075
Current assets			4,055,697			3,996,514			295,493
Property and equipment	7		903,649			174,644			70,122
Right-of-use assets	8		266,214			327,576			184,472
Deposit	8		21,367			19,341			-
Intangible assets	9		3,470,919			644,702			-
Other assets	26		-			150,000			150,000
Non-current assets			4,662,149			1,316,263			404,594
Total Assets		$	8,717,846		$	5,312,777		$	700,087
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities	10	$	1,127,202		$	818,274		$	198,687
Lease obligations	13		32,288			44,128			85,468
Related party loans	11		-			218,276			289,828
Borrowings	12		-			32,273			-
Contract liabilities	14		-			7,053			-
Financial derivative liabilities	22		-			-			29,463
Current liabilities			1,159,490			1,120,004			603,446
Accrued royalties liability	4(a)		1,105,756			-			-
Lease obligations	13		275,621			307,909			117,218
Borrowings	12		53,251			-			-
Convertible notes	15		-			-			210,819
Non-current liabilities			1,434,628			307,909			328,037
Total Liabilities			2,594,118			1,427,913			931,483
Shareholders' Equity
Share capital	16(a)		17,215,068			9,374,563			2,284,353
Warrants	16(b)		1,848,389			277,170			21,050
Contributed surplus	16(c)		2,458,211			306,708			-
Accumulated other comprehensive loss			(8,991	)		-			-
Accumulated deficit			(15,388,949	)		(6,073,577	)		(2,536,799	)
Total Shareholders' Equity			6,123,728			3,884,864			(231,396	)
Total Liabilities and Shareholders' Equity		$	8,717,846		$	5,312,777		$	700,087

See Note 2(a) Going concern and Note 26 Commitments and contingencies.
See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors:
(signed) John McCoach, Director	(signed) David Luxton , Director

F-26

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Net Loss and Comprehensive Loss
Year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019

In Canadian dollars	Notes		Year ended September 30, 2021			Nine months ended September 30, 2020			Year ended December 31, 2019
						(Adjusted - see Note 8)
Revenue	18	$	1,275,804		$	861,917		$	509,148
Cost of sales			(798,888	)		(247,113	)		(85,101	)
Gross profit			476,916			614,804			424,047
Operating expenses
General and administrative	4(d)		4,057,167			2,723,861			397,990
Selling and marketing			3,484,159			564,266			36,681
Research and development, net	21(a)		2,138,138			817,584			1,003,705
Total operating expenses	19		9,679,464			4,105,711			1,438,376
Operating loss			(9,202,548	)		(3,490,907	)		(1,014,329	)
Other income (expenses)
Fair value adjustments on derivatives	22		-			29,463			113,178
Net finance costs	20		(107,751	)		(61,397	)		(245,147	)
Foreign exchange loss			(3,742	)		(13,937	)		(982	)
Loss on disposals			(1,331	)		-			-
Total other expenses			(112,824	)		(45,871	)		(132,951	)
Net loss		$	(9,315,372	)	$	(3,536,778	)	$	(1,147,280	)
Other comprehensive loss:
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences			(8,991	)		-			-
Total comprehensive loss		$	(9,324,363	)	$	(3,536,778	)	$	(1,147,280	)
Net loss per share
Basic and diluted		$	(0.21	)	$	(0.11	)	$	(0.07	)
Weighted average number of shares outstanding
Basic and diluted	17		44,290,536			30,844,129			17,430,077

See accompanying notes to consolidated  financial statements.

F-27

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Changes in Shareholders' Equity 
Year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019

In Canadian dollars																		Total Shareholders' Equity
	Notes		Share capital			Warrants			Contributed surplus			Translation reserve			Deficit
Balance, December 31, 2018		$	200		$	-		$	-		$	-		$	(1,389,519	)	$	(1,389,319	)
Shares issued for cash	16(a)		1,014,948			-			-			-			-			1,014,948
Shares issued for debt	16(a)		1,269,205			1,192			-			-			-			1,270,397
Warrants issued for debt	16(b)		-			19,858			-			-			-			19,858
Net loss			-			-			-			-			(1,147,280	)		(1,147,280	)
Balance, December 31, 2019		$	2,284,353		$	21,050		$	-		$	-		$	(2,536,799	)	$	(231,396	)
Shares and warrants issued for cash	16(a),(b)		4,568,013			76,120			-			-			-			4,644,133
Shares for converted debt and interest	16(a)		1,583,881			-			-			-			-			1,583,881
Shares issued for performance incentive	16(a)		731,500			-			-			-			-			731,500
Shares from Foremost's QT	4(b)		628,949			-			41,155			-			-			670,104
Shares and warrants issued on asset acquisition	4(c)		167,280			180,000			-			-			-			347,280
Stock options exercised	16(c)		78,080			-			(17,531	)		-			-			60,549
Shares for consulting services	16(a)		32,393			-			-			-			-			32,393
Share-based compensation	16(c)		-			-			283,084			-			-			283,084
Share offering costs	16(a)		(699,886	)		-			-			-			-			(699,886	)
Net loss	8		-			-			-			-			(3,536,778	)		(3,536,778	)
Balance, September 30, 2020 (adjusted)		$	9,374,563		$	277,170		$	306,708		$	-		$	(6,073,577	)	$	3,884,864
Shares for debt settlements	16(a)		63,866			-			-			-			-			63,866
Warrants exercised	16(b)		815,307			(175,741	)		-			-			-			639,566
Shares and warrants issued on asset acquisition	4(a)		1,290,000			425,000			-			-			-			1,715,000
Shares for amended license	26(a)		137,000			-			-			-			-			137,000
Shares and warrants issued for cash	16(a),(b)		4,721,818			1,280,654			-			-			-			6,002,472
Stock options and warrants exercised	16(c)		1,639,695			41,306			(531,263	)		-			-			1,149,738
Share-based compensation	16(c)		-			-			2,462,207			-			-			2,462,207
Restricted share units vested	16(c)		12,498			-			(12,498	)		-			-			-
Share offering costs	16(a)		(839,679	)		-			233,057			-			-			(606,622	)
Other comprehensive loss			-			-			-			(8,991	)		-			(8,991	)
Net loss			-			-			-			-			(9,315,372	)		(9,315,372	)
Balance, September 30, 2021		$	17,215,068		$	1,848,389		$	2,458,211		$	(8,991	)	$	(15,388,949	)	$	6,123,728

See accompanying notes to consolidated financial statements.

F-28

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Cash Flows
Year ended September 30, 2021, nine months ended September 30, 2020, and year ended December 31, 2019

In Canadian dollars			Notes		Year ended September 30, 2021			Nine months ended  September 30, 2020			Year ended December 31, 2019
								(Adjusted  - see Note 8)
OPERATING ACTIVITIES
	Net loss			$	(9,315,372	)	$	(3,536,778	)	$	(1,147,280	)
	Items not affecting cash:
		Depreciation and amortization	7, 8, 27		140,990			103,397			102,142
		Impairment of intangible assets	9		55,376			-			-
		Share-based compensation	16(c)		2,462,207			283,084			-
		Shares issued  for M&A advisory and consulting services			-			763,893			-
		Shares for amended license	26(a)		137,000			-			-
		Fair value adjustments on derivative liabilities	22		-			(29,463	)		(113,178	)
		Non-cash listing expense	4(b)		-			814,703			-
		Net finance costs	20		107,751			61,217			230,858
		Loss on disposals			1,331			-			-
	Changes in non-cash working capital items		23		198,484			(245,095	)		(141,575	)
	Interest paid				(42,980	)		(6,612	)		(24,523	)
Cash used in operating activities					(6,255,213	)		(1,791,654	)		(1,093,556	)
INVESTING ACTIVITIES
	Acquisition of property and equipment		7		(809,964	)		(133,927	)		(20,190	)
	Investments in intangible assets		9		(83,228	)		(163,230	)		-
	Deposit for advanced royalties		4(a)		(150,000	)		-			-
	Deposit for long-term office lease				-			(38,212	)		-
	Purchase of restricted short-term investment		12		(30,000	)		-			-
	Acquisition of technology asset		4(c)		-			(134,192	)		-
	Cash acquired on closing of Foremost		4(b)		-			78,589			-
Cash flows used in investing activities					(1,073,192	)		(390,972	)		(20,190	)
FINANCING ACTIVITIES
	Proceeds from the issuance of common shares and warrants		16(a)		6,002,472			4,355,171			1,014,948
	Payments of share offering costs		16(a)		(606,622	)		(164,716	)		-
	Proceeds from convertible notes		16(a)		-			1,081,504			-
	Proceeds from borrowings		12		326,000			40,000			-
	Repayment of borrowings		12		(306,000	)		-			(10,747	)
	Repayments to related party loans		11		(218,276	)		(80,000	)		(70,513	)
	Proceeds from related party loans		11		-			-			310,684
	Repayments of lease obligations		13		(44,128	)		(58,188	)		(77,367	)
	Repayments of convertible notes		15		-			-			(31,644	)
	Proceeds from exercise of warrants		16(b)		680,872			-			-
	Proceeds from exercise of stock options		16(c)		1,108,432			61,000			-
Cash flows provided by financing activities					6,942,750			5,234,771			1,135,361
Net change in cash during the period					(385,655	)		3,052,145			21,615
Cash, beginning of period					3,073,760			21,615			-
Cash, end of period				$	2,688,105		$	3,073,760		$	21,615

See Note 23 Supplemental cash flow information.

See accompanying notes to consolidated  financial statements.

F-29

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

1.Corporate information

KWEEST Micro Systems Inc. (the "Company" or "KWESST") was incorporated on November 28, 2017, under the laws of the Province of British Columbia. The Company's registered office is located at 550 Burrard Street, Suite 2900, Vancouver, British Columbia, Canada. Its corporate office is located at Unit 1, 155 Terrence Matthews Crescent, Kanata, Ontario, Canada. It also has representative offices in the following foreign locations: Washington DC (United States), London (United Kingdom), and Abu Dhabi (United Arab Emirates).

KWESST develops and commercializes next-generation tactical systems. Key market segments and solutions addressed by KWESST technologies are: (i) breakthrough technology in non-lethal systems with broad application, including law enforcement and personal defence, (ii) modernized digitization of tactical forces for shared situational awareness and targeting, and (iii) counter-measures against threats such as drones, lasers and electronic detection.

KWESST's common stock is listed on the TSX-Venture Exchange ("TSX-V'') under the stock symbol of KWE and on the OTCQB® Venture Market under the stock symbol of KWEMF.

Following the closing of the Qualifying Transaction ("QT") pursuant to the policies of the TSX Venture Exchange ("TSX-V") - see Note 4 (b), KWESST changed its fiscal year end to September 30^th from December 31^st to be aligned with the U.S. government fiscal year, a key market for KWESST. Accordingly, these consolidated financial statements presented herein are for the fiscal year ended September 30, 2021, with comparatives for the nine months ended September 30, 2020, and year ended December 31, 2019.

2.Basis of preparation

(a)Going concern

These consolidated financial statements have been prepared assuming KWESST 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, KWESST has not yet reached commercial production of its products and has incurred significant losses and negative operating cash flows from inception that have primarily been funded from financing activities. KWESST incurred $9.3 million net loss and negative operating cash flows of approximately $6.3 million for the year ended September 30, 2021 (2020 - $3.5 million net loss and negative operating cash flows of $1.8 million; 2019 - $1.1 million net loss and negative operating cash flows of $1.1 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 and the ability to raise additional debt or equity financing, as required. There are various risks and uncertainties affecting KWESST's future financial position and its performance including, but not limited to:

• The market acceptance and rate of commercialization of the KWESST's product offerings;
• Ability to successfully execute its business plan;
• Ability to raise additional capital at acceptable terms;
• General local and global economic conditions, including the ongoing COVID-19 pandemic.

F-30

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

KWESST's strategy to mitigate these material risks and uncertainties is to execute timely a business plan 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 the Company’s business plan could have a material adverse effect on the Company’s financial condition and/or financial performance. There is no assurance that that the Company will be able to raise additional capital as they are required in the future. Accordingly, there are material risks and uncertainties that may cast significant doubt about KWESST’s ability to continue as a going concern.

These consolidated 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 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee ("IFRIC"). 

The consolidated financial statements were authorized for issue by the Board of Directors on November 23, 2021.

(c)Principles of consolidation

These consolidated financial statements incorporate the financial statements of KWESST and the entities it controls.

Control is achieved where KWESST has 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 the Company's 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 the Company until the date on which control ceases. Profit or loss of subsidiaries acquired during the year are recognized from the date of acquisition or effective date of disposal as applicable. All intercompany transactions and balances have been eliminated.

At September 30, 2021, the Company has the following wholly-owned subsidiaries:

	Location	Equity %
KWESST Inc.	Kanata, Canada	100%
KWESST U.S. Inc.	Virginia, United States	100%

(d)Functional and presentation currency

The consolidated financial statements are presented in Canadian dollars ("CAD"), which is the functional currency of KWESST and its subsidiaries unless otherwise stated.

(e)Measurement basis

The consolidated financial statements have been prepared on the 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-31

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

(f)Comparative figures

For the year ended September 30, 2021, KWESST changed the presentation of its expenses in the consolidated statements net loss and comprehensive loss from by nature to by function.  KWESST made this change in presentation to provide more relevant financial information to facilitate peer benchmarking, particularly with peers in the United States. As a result, KWESST operating expenses are now presented as follows:  general and administration ("G&A"), selling and marketing ("S&M"), and net research and development ("R&D").

G&A expenses consist of corporate personnel costs, various management and administrative support functions, insurance, regulatory and other public company costs, professional fees relating to corporate matters, corporate advisory consulting costs, M&A related costs, depreciation and amortization expenses, and occupancy costs related to G&A costs.

S&M expenses consist of business development costs related to the market development activities and product commercialization, marketing support function, depreciation and amortization expenses and investor relations support function.

R&D expenses consist of costs incurred in performing R&D activities, including new product development, continuous product development, materials and supplies, personnel costs, external engineering consulting, patent procurement costs, depreciation and amortization expenses, and occupancy costs related to R&D activity. These costs are net of Canadian investment tax credits for qualified Scientific Research and Experimental Development ("SR&ED") projects.

As this change constitutes a change in accounting policy, KWESST has restated the presentation of the comparative expenses to conform with the current year's expense presentation.

This resulted in no change to the previously reported total operating expenses for the nine months ended September 30, 2020, and the year ended December 31, 2019. Refer to Note 19 for disclosure of expenses by nature.

(g)Use of judgments and estimates

The preparation of the consolidated 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.

The current COVID-19 pandemic has significantly impacted health and economic conditions globally. While the COVID-19 has limited KWESST's ability to travel to foreign markets for business development during the year ended September 30, 2021, it has not significantly impacted KWESST's operations, including product development and delivery on customer contracts.  However, impacts related to COVID-19 pandemic are expected to continue to pose risks to KWESST for the foreseeable future and could have a significant impact to KWESST's business, operations or financial performance in a manner that is difficult for management to predict.

Judgments

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in these consolidated financial statements is included in the following notes:

F-32

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

• Note 4(a) - acquisition of LEC System: whether the estimated discount rate used to discount the minimum royalty payments is reasonable, and the reasonability of the volatility assumption used in the Black Scholes option model to estimate the fair value of the warrants issued to DEFSEC.

• Note 4(c) - acquisition of GhostStep® Technology: whether the fair value of KWESST's common shares and warrants issued was reasonable, and inputs used in accounting for the contingent annual payments.

• Note 16(c) - share-based compensation: whether the determination of KWESST's stock volatility, forfeiture rate, and expected life are reasonable in light of its limited operating history, all significant inputs in the valuation model to fair value options granted;

• Note 16(c) - broker compensation options: whether the Monte Carlo valuation model and number of simulations are reasonable to estimate the fair value of these options, coupled with the volatility assumption;

Estimates

Information about assumptions and estimation uncertainties at September 30, 2021 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:

• Note 5 - unbilled receivable: estimated percentage of completion for determining revenue recognition and related unbilled receivable amount;
• Note 9 - impairment test of intangible assets: key assumptions underlying recoverable amounts; and
• Note 21 - recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax losses carried forward can be utilized.

3.Significant accounting policies

(a)Revenue recognition

Revenue is recognized upon transfer of control of products or services to customers at an amount that reflects the transaction price KWESST expects to receive in exchange for the products or services. KWESST's contracts with customers may include the delivery of multiple products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The accounting for a contract or contracts with a customer that contain multiple performance obligations requires KWESST to allocate the contract or contracts transaction price to the identified distinct performance obligations based on the stand-alone selling price of each performance obligation.

F-33

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Revenue from contracts with customers is recognized, for each performance obligation, either over a period of time or at a point in time, depending on which method reflects the transfer of control of the goods or services underlying the particular obligation to the customer.

For performance obligations satisfied over time, KWESST recognizes revenue over time using an input method, based on costs incurred to date relative to total estimated costs at completion, to measure progress toward satisfying such performance obligation (for non-recurring engineering services, the input method is based on hours). Under this method, costs that do not contribute to the performance of KWESST in transferring control of goods or services to the customer are excluded from the measurement of progress toward satisfying the performance obligation. In certain other situations, KWESST might recognize revenue at a point in time, when the criteria to recognize revenue over time are not met. In any event, when the total anticipated costs exceed the total anticipated revenues on a contract, such loss is recognized in its entirety in the period it becomes known.

KWESST may enter into contractual arrangements with a customer to deliver services on one project with respect to more than one performance obligation, such as non-recurring engineering, procurement, and training. When entering into such arrangements, KWESST allocates the transaction price by reference to the stand-alone selling price of each performance obligation. Accordingly, when such arrangements exist on the same project, the value of each performance obligation is based on its stand-alone price and recognized according to the respective revenue recognition methods described above.  For example, for non-recurring engineering services rendered over a contract period the revenue is recognized using the percentage of completion method; whereas for training services the revenue is recognized after the training is delivered (i.e. point in time).

KWESST accounts for a contract modification, which consists of a change in the scope or price (or both) of a contract, as a separate contract when the remaining goods or services to be delivered after the modification are distinct from those delivered prior to the modification and the price of the contract increases by an amount of consideration that reflects KWESST's stand-alone selling price of the additional promised goods or services. When the contract modification is not accounted for as a separate contract, KWESST recognizes an adjustment to revenue on a cumulative catch-up basis at the date of contract modification.

The timing of revenue recognition often differs from performance payment schedules, resulting in revenue that has been earned but not billed. These amounts are included in unbilled receivables. Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of contract liabilities.

When a contract includes a significant financing component, the value of such component is excluded from the transaction price and is recognized separately as finance income or expense, as applicable.

(b)Financial instruments

KWESST recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of the instrument.

Trade and other receivables without a significant financing component are initially measured at the transaction price. All other financial assets and financial liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss ("FVTPL")) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

All financial assets are recognized and de-recognized on trade date.

F-34

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Financial assets are recognized at fair value and subsequently classified and measured at:

a)Amortized cost;

b)Fair value through other comprehensive income ("FVOCI"); or

c)Fair value though profit or loss ("FVTPL").

KWESST determines the classification of its financial assets on the basis of both the business model for managing the financial assets and the contractual cash flows characteristics of the financial asset. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets.

A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest of the principal amount outstanding. Financial assets classified at amortized cost are measured using the effective interest method. At September 30, 2021 KWESST classified the following as amortized cost:

• Cash
• Restricted short-term investment
• Trade and other receivables
• Lease deposit (non-current other asset)

All financial assets not classified and measured at amortized cost or FVOCI are measured at FVTPL. At September 30, 2021 KWESST did not have financial assets classified as FVOCI or FVTPL.

Expected credit losses

KWESST measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as KWESST's past experience of collecting payments, the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables, financial difficulty of the borrower, and it becoming probable that the borrower will enter bankruptcy or financial re-organization.

Financial assets are written off when there is no reasonable expectation of recovery.

Financial liabilities

Financial liabilities are recognized at fair value and subsequently classified and measured at amortized cost or fair value though profit or loss ("FVTPL").

KWESST determines the classification of its financial liabilities at initial recognition. The Company has classified the following as amortized costs:

• Accounts payable and accrued liabilities
• Related party loans
• Borrowings
• Lease obligations
• Convertible notes

Financial liabilities at amortized cost are measured using the effective interest rate method.

F-35

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

At September 30, 2020 and December 31, 2019, KWESST classified financial derivative liabilities as FVTPL. Accordingly, fair value is remeasured at each reporting period with the fair value adjustment recognized in profit or loss. There was no outstanding financial derivative liability at September 30, 2021.

For convertible notes, these are initially segregated into their debt and equity components or derivative liability components at the date of issue, in accordance with the substance of the contractual agreements. The conversion feature of the convertible notes is presumed to be classified as a derivative financial liability unless it meets all the criteria to recognize as equity instrument under IAS 32.

De-recognition of financial liabilities

KWESST de-recognizes financial liabilities when its obligations are discharged, cancelled or they expire.

(c)Inventories

KWESST's inventories may consist of raw materials, work-in-progress ("WIP"), and finished goods. Inventories are measured at the lower of cost and net realizable value, with cost being determined using the weighted average cost method. The cost of WIP and finished goods includes the cost of raw materials, direct labour, and overhead. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. At each reporting period, management estimates the provision for obsolete and slow-moving inventory which may be reversed in subsequent periods, should the value subsequently be recovered.

(d)Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the fair value of consideration given to acquire or construct an asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use along with the future cost of dismantling and removing the asset. These assets are depreciated over their estimated useful lives using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.

The following table provides a summary of estimated useful lives for KWESST's property and equipment:

	Rate
Computer equipment	3 years
Computer software	3 years
Office furniture and equipment	5 years
R&D equipment	5 years
Sales demo equipment	2 years
Leasehold improvements	Shorter of useful life or remaining term of lease

At the end of each reporting period, KWESST reviews the carrying amounts of its property and equipment to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash flows of other assets or groups of assets (the "cash-generating unit, or CGU"). If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

F-36

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(e)Leases

At inception of a contract, KWESST assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

KWESST recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease obligation is measured at the present value of the lease payments that are not paid at the commencement date of the lease, discounted using its incremental borrowing rate of 10% at the time. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if KWESST is reasonably certain to exercise that option.  Lease terms range from 3 to 6 years for offices and printer. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, KWESST's incremental borrowing rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in KWESST's estimate of the amount expected to be payable under a residual value guarantee, or if KWESST changes its assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying value of the right-of-use asset or, is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

KWESST has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

(f)Intangible assets

(i)Research and development ("R&D") costs

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and KWESST has the intention and sufficient resources to complete the development and to use or sell the asset. The expenditure capitalized in respect of development activities includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditures are recognized in profit or loss when incurred.

F-37

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

(ii)Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(iii)Amortization

Amortization is a systematic allocation of the amortizable amount of an intangible asset of its useful life. The amortizable amount is the cost of the asset less its estimated residual value. KWESST recognizes in profit or loss on a sales-based rate over the estimated useful lives of the intangible assets from the date they are available for use, since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in each asset. Where a sales-based rate could not be determined, the straight-line approach is used.

Internally generated intangible assets are not systematically amortized as long as they are not available for use i.e. they are not yet on site or in working condition for their intended use. Accordingly, intangible assets such as development costs are tested for impairment at least once a year, until such date as they are available for use.

(iv)Impairment

All intangible assets are periodically reviewed for impairment. The estimated present value of future cash flows associated with the intangible asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset's original effective interest rate, and the resulting loss is directly recognized in profit or loss for the period.

(g)Provisions

A provision is recognized if, as a result of a past event, KWESST has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability. The unwinding of the discount is recognized as a finance cost.

(h)Income taxes

Income tax expense comprises current income tax expense and deferred income tax expense. Current and deferred income taxes are recognized as an expense and included in profit or loss for the period, except to the extent that the tax arises from a transaction which is recognized in other comprehensive income or directly in shareholder's deficiency.

Current income tax

Current tax expense is the amount of income taxes payable (recoverable) in respect of the taxable income (tax loss) for a period. Current liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates that have been enacted or substantively enacted by the end of the reporting period.

F-38

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Deferred income tax

Deferred tax assets and liabilities are recognized for the temporary differences between transactions and carrying amounts of assets and liabilities that have been included in the consolidated financial statements and the amounts used for taxation purposes. Deferred income taxes are provided for using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities and for certain carry-forward items. Deferred income tax assets are recognized only to the extent that it is probable that the deferred income tax assets will be realized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting period. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment or substantive enactment. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and KWESST intends to settle its current tax assets and liabilities on a net basis.

Investment tax credits

Investment tax credits relating to scientific research and experimental development expenditures are recorded in the fiscal period the qualifying expenditures are incurred based on management's interpretation of applicable legislation in the Income Tax Act of Canada. Credits are recorded provided there is reasonable assurance that the tax credit will be realized. Credits claimed are subject to review by the Canada Revenue Agency.

Credits claimed in connection with R&D activities are accounted for using the cost reduction method. Under this method, assistance and credits relating to the acquisition of equipment is deducted from the cost of the related assets, and those relating to current expenditures, which are primarily salaries and related benefits, are included in the determination of profit or loss as a reduction of the R&D expenses.

(i)Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions are in the normal course of business and have commercial substance.

(j)Share-based compensation

KWESST has a Long-Term Incentive Plan ("LTIP") in which it may grant stock options, restricted share units ("RSUs"), performance stock units ("PSUs"), deferred stock units ("DSUs"), and stock appreciation rights ("SARs") to directors, employees and consultants. KWESST measures share-based compensation at fair value for all share-based awards granted under the LTIP.

F-39

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Equity-settled service award

The grant date fair value of equity-settled share-based awards is recognized as an expense on a straight-line basis over the requisite service period, with a corresponding increase in equity, over the vesting period of the awards. For stock options, the grant date fair value is determined using the Black-Scholes option model (see Note 16(c) for key inputs used in this model). For share units, the grant date fair value is based on KWESST's closing stock price. Each tranche of an award is considered a separate award with its own vesting period and grand date fair value. The amount recognized as an expense is adjusted for estimated forfeitures.

Equity-settled performance award

The accounting for equity-settled performance award is the same as above, except compensation expense is subject to periodic adjustment based on the achievement of establishment performance criteria. 

Modified award

Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified and if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employees as measured at the date of acquisition.

(k)Foreign currency

Foreign currency transactions

The financial statements of KWESST and its Canadian wholly-owned subsidiary are measured using CAD as the functional currency. Transactions in currencies other than in CAD are translated at the exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated to the functional currency at the rates prevailing at that date. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise. Non-monetary items carried at fair value that are denominated in foreign currencies are translated to the functional currency at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the rates at the date of the transaction and are not subsequently retranslated.

Foreign operations

The financial statements of KWESST U.S. Inc. are measured using the United States dollar ("USD") as its functional currency. Assets and liabilities have been translated into USD using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which cases the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in shareholders' equity.

(l)Earnings (loss) per share

Basic earnings (loss) per share is computed using net earnings (loss) over the weighted average number of common shares outstanding during the period. KWESST uses the treasury stock method to compute the dilutive effect of options, warrants, and similar instruments. Under this method, the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants, and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the period.

However, the calculation of diluted loss per share excludes the effects of various conversions and exercises of convertible debt, options and warrants that would be anti-dilutive.

F-40

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

(m)Reverse acquisition

KWESST was a capital pool company, which did not constitute a business as defined under IFRS 3 - Business Combination at the time of the QT and is therefore not within the scope of IFRS 3 (see Note 4(b)). However, the QT has some features of a reverse acquisition under IFRS 3. In the absence of a Standard that specifically applies to the QT, KWESST applied by analogy the guidance in IFRS 3 for reverse acquisitions in accordance with IAS 8 accounting policies, changes in accounting estimates and errors.

Application of the reverse acquisitions guidance by analogy results in the private operating entity KWESST Inc. being identified as the accounting acquirer, and the listed non-operating entity KWESST being identified as the accounting acquiree. The accounting acquirer is deemed to have issued shares to obtain control of the accounting acquiree KWESST. Because the QT is not within the scope of IFRS 3, KWESST accounted for it as an asset acquisition and the consideration as a share-based payment transaction which was accounted for in accordance with IFRS 2 - Share-based Payment.

According to IFRS 2, any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree's identifiable net assets represents a service received by the accounting acquirer. Regardless of the level of monetary or non-monetary assets owned by the non-listed operating entity, the entire difference was considered to be payment for a service of a stock exchange listing for its shares, and that no amount should be considered a cost of raising capital. The service received in the form of a stock exchange listing does not meet the definition of an intangible asset because it is not identifiable in accordance with IAS 38 Intangible Assets (it is not separable) and does not meet the definition of an asset that should be recognized in accordance with other Standards and the Conceptual Framework, therefore the services received was recognized as listing expense (included in merger & acquisition costs in the consolidated statements of net loss and comprehensive loss).

(n)Cash and cash equivalents

Cash and cash equivalents include cash investments in interest-bearing accounts and term deposits which can readily be redeemed for cash without penalty or are issued for terms of three months or less from dated of acquisition.

New accounting standards issued

Amendments to IAS 8, Accounting Policies, Changes to Accounting Estimates and Errors

On February 12, 2021, the IASB issued amendments to IAS 8, Accounting Policies, Changes to Accounting Estimates and Errors, in which it introduces a new definition of "accounting estimates". These amendments are designed to clarify the distinction between changes in accounting estimate and changes in accounting policies and the correction of errors. Specifically, accounting estimates are now defined as "monetary amounts in financial statements that are subject to measurement uncertainty".

The amendments become effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. KWESST has early adopted these amendments for the year ended September 30, 2021, which resulted in no impact to its financial position, results of operations and cash flows.

F-41

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

4.Acquisitions

a)LEC System

On April 29, 2021, KWESST acquired the Low Energy Cartridge technology from DEFSEC, a proprietary non-lethal cartridge-based firing system (herein referred as the "LEC System"). This technology acquisition includes all intellectual property rights for the LEC System. With this acquisition, KWESST will target the following four market segments that currently use a variety of dated "non-lethal" or "less-lethal" systems:

(i)public order (riots and control of dangerous subjects);

(ii)military and law enforcement training (realistic force-on-force training);

(iii)personal defence (home, car, boat, RV, camping, hiking); and

(iv)high-action gaming.

As DEFSEC is a private company owned by KWESST's Executive Chairman, this asset acquisition is a related party transaction. KWESST relied on exemptions from the formal valuation and minority shareholder approval requirements available under Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions. However, KWESST obtained approval from over 51% disinterested shareholders as well as from the TSX-V prior to closing the acquisition.

The purchase consideration consisted of:

• 1,000,000 common shares of KWESST; and
• 500,000 warrants to purchase KWESST's common shares at $0.70 each; 25% vesting on the first anniversary of the closing of the LEC Technology acquisition and 25% per annum thereafter. These warrants will expire on April 29, 2026.

Additionally, KWESST will pay 7% royalty on annual sales of the LEC System to DEFSEC, net of taxes and duties, up to a maximum of $10 million, subject to minimum annual royalty payments starting in 2023. At closing of the acquisition, KWESST made an upfront payment of $150,000 as an advance on royalties owed for the first anniversary of the closing date.

The following represents the future minimum annual royalty payments starting from the second anniversary of the closing date:

Date		Amount
April 29 2023	$	150,000
April 29 2024	$	150,000
April 29 2025	$	200,000
April 29 2026	$	200,000
April 29 2027	$	250,000
April 29 2028	$	250,000
April 29 2029	$	300,000
April 29 2030	$	300,000
April 29 2031	$	350,000
April 29 2032	$	350,000
Total	$	2,500,000

The royalty payment obligation of the Purchase Agreement ("Agreement") will expire in 20 years unless terminated earlier under the terms set out in the Agreement. At its sole discretion, KWESST may terminate this Agreement for convenience, including if market conditions for sales of the LEC System become unfavorable subject 60 day's prior written notice. Upon termination, KWESST will be fully released and discharged by DEFSEC including the outstanding future royalties and any unvested warrants shall be immediately cancelled. In return, KWESST will return all intellectual property rights relating to the LEC System to DEFSEC.

F-42

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The purchase price was determined as follows:

	Number		Fair Value
Common shares	1,000,000	$	1,290,000
Warrants	500,000	$	425,000
Minimum royalty payments		$	1,191,219
Total		$	2,906,219
Identifiable intangible assets
Technology asset		$	2,906,219

KWESST estimated the fair value as follows:

• Common shares: based on KWESST's closing stock price on April 29, 2021.
• Warrants: based on using the Black Scholes option model with the following key inputs: a) exercise price of $0.70, underlying stock price of $1.29, risk free rate of 0.48%, expected life of three years, and expected volatility of 80%.
• Minimum royalty payments: based on the income approach, specifically discounted cash flows, using a discount rate of 13.7% per annum.

During the year ended September 30, 2021, KWESST recorded $64,537 of accretion cost relating to the discounted minimum royalty payments, which is included in net finance costs (see Note 20).

b)Reverse acquisition

On September 17, 2020, Foremost Ventures Corp. ("Foremost") completed the QT with KWESST Inc. pursuant to the policies of the TSX-V. Prior to the completion of the QT, Foremost effected a consolidation of its outstanding common shares on the basis of one post-consolidation common share for every 4.67 pre-consolidation common shares. The QT was done by way of a three-cornered amalgamation (the "Amalgamation") pursuant to which, among other things:

(i)KWESST Inc. amalgamated with a wholly-owned subsidiary of Foremost, incorporated for the purposes of the Amalgamation, pursuant to the provisions of the Business Corporations Act (Ontario),

(ii)Foremost changed its name to KWESST Micro Systems Inc., and

(iii)all of the outstanding common shares of KWESST Inc. (the "KWESST Shares") were cancelled and, in consideration the holders thereof received post-consolidation common shares of KWESST Micro Systems Inc. on the basis of one KWESST Micro System Inc. share for each KWESST Share.

Immediately following the QT, there were 41,266,176 shares of KWESST outstanding, of which 40,367,678 were held by the former shareholders of KWESST Inc. (representing approximately 97.8% of the outstanding shares of the Company) and 898,498 were held by the shareholders of Foremost prior to the QT. Accordingly, this transaction was accounted for as a reverse acquisition where KWESST Inc. was deemed to be the acquirer for accounting purposes.

The reverse acquisition of Foremost was accounted for under IFRS 2, Share-based Payment. Accordingly, the fair value of the purchase consideration was accounted for at the fair value of the equity instruments granted by the shareholders of KWESST Inc. to the shareholders and option holders of Foremost.

The following represents management's estimate of the fair value of the net assets acquired and total consideration transferred at September 17, 2020, the closing date of the QT.

F-43

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Number of common shares issued to Foremost shareholders		898,498
KWESST's stock price at closing of reverse acquisition (1)	$	0.70
Common shares	$	628,949
Options		41,155
Total consideration transferred	$	670,104

^{(1)At closing, the subscription receipts issued by KWESST Inc. on July 9, 2020 pursuant to a brokered private placement (the "KWESST Subscription Receipts"), were automatically converted, into shares of KWESST. The private placement which was completed through PI Financial Corp. as agent, consisted of 4,409,553 KWESST Subscription Receipts issued at $0.70 per KWESST Subscription Receipt for gross proceeds of about $3.1 million before share issuance costs. See Note 16(a).}

The total fair value consideration was allocated to Foremost's net assets as follows:

Total fair value consideration	$	670,104
Foremost's net assets (liabilities):
Cash	$	78,589
Other receivables		1,900
Accounts payable and accrued liabilities		(225,088	)
Net assets (liabilities) at fair value		(144,599	)
Residual balance allocated to listing expense (included in M&A costs)		814,703
Total	$	670,104

The results of operations of Foremost are included in these consolidated statements of comprehensive loss from September 17, 2020.

The listing expense of $814,703 is a non-cash item - see consolidated statements of cash flows.

In addition, 1,000,000 common shares with fair value of $700,000 were issued to two M&A / capital market advisors for successfully assisting KWESST to complete the QT.

c)GhostStep® Technology

On June 12, 2020, KWESST acquired the GhostStep® Technology from SageGuild LLC ("SageGuild"). The GhostStep® Technology has since been rebranded by KWESST as the Phantom^TM, a tactical multi-function electromagnetic spectrum system. The Phantom^TM System can generate numerous radio signals across multiple bands simultaneously, move itself around the battlefield, and function as a radio-relay while performing its main role of deception.

The purchase consideration consisted of:

(i)USD $100,000 (CAD $134,192) at closing;

(ii)140,000 common shares of KWESST at closing; and

(iii)either the payment of USD $100,000 in cash or the issuance of 557,000 common shares of KWESST, at KWESST's sole discretion, upon the completion of KWESST's Qualifying Transaction ("QT").

In addition, KWESST agreed to:

(iv)make annual payments ("Yearly Payments") to SageGuild of $125,000 on each of December 31, 2020, 2021 and 2022, subject to certain conditions;

(v)issue 750,000 warrants to SageGuild exercisable at $0.50 per share and expiring on January 15, 2023 (the "SageGuild Warrants"); and

(vi)pay royalties up to USD $20 million.

F-44

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The SageGuild Warrants will vest in equal tranches of 250,000 warrants on each of December 31, 2020, 2021 and 2022. KWESST has the right to apply the Yearly Payments against the exercise price of the Warrants. Further, in the event the consulting agreement with SageGuild is terminated, any remaining Yearly Payments will be terminated and the remaining unvested SageGuild Warrants will be cancelled. As the contingent Yearly Payments and SageGuild Warrants are directly linked, management combined these as "contingent consideration" for the purchase price allocation noted below. At December 31, 2020, KWESST issued 250,000 common shares for the 250,000 vested warrants (a non-cash transaction).

Additionally, KWESST will pay SageGuild royalties at a rate of 20% on amounts received in consideration of the grant of licenses and on sales of the Phantom^TM System up to USD $3 million. Thereafter, the royalty rate will decrease to 5%. The obligation to pay royalties will terminate automatically once KWESST has paid SageGuild a total of USD $20 million in royalties. The Purchase Agreement became effective on June 12, 2020 and will continue in full force and effect until the earliest of (i) June 12, 2040 or (ii) the date of the expiration of the last of the patents or any of the patents (which are expected to be valid for a period of seventeen years from the date of issuance) related to improvements of the Phantom^TM System to which SageGuild, or its principal Mr. Jeffrey M. Dunn, materially contributes, unless terminated earlier in accordance with the terms and conditions of the agreement.

In the event KWESST is in default of payment of any royalty payment as outlined above for a period of 30 days, SageGuild may terminate the agreement and KWESST will be required to, among other things, transfer the Phantom^TM System back to SageGuild.

The purchase price allocation was determined as follows:

	Number		Fair Value
Cash		$	134,192
Common shares	140,000	$	33,600
Cash or common share issuance (1)	555,700	$	133,680
Contingent consideration		$	180,000
Total		$	481,472
Identifiable intangible assets
Technology asset		$	481,472

^{(1)In September 2020, KWESST elected to issue 557,000 common shares rather than to pay USD $100,000.}

KWESST estimated the fair value as follows:

• Common shares: as KWESST was a private company at the time, there was no active market for its common shares. Management estimated the fair value of these shares based on the USD $100,000 cash or 557,000 common shares election available under the purchase agreement, which the two parties negotiated at arm's length. This implied a fair value of $0.24 per common share at the time of the closing of the asset acquisition.
• Contingent consideration: as previously noted above, the contingent consideration (Yearly Payments and SageGuild Warrants) is effectively future common share issuances subject to the consulting agreement with SageGuild remaining effective at each anniversary year (the service vesting period). Management assumed the entire 750,000 warrants will be converted to common shares over the next three years. Consistent with the above, management applied the estimated $0.24 per common share to the contingent 750,000 common shares issuance, for a total fair value of $180,000.

F-45

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Because there is no minimum royalty payment under the Purchase Agreement, the future royalties were not included in the purchase price allocation. Royalties will be recognized at the time revenue is earned.

d)M&A costs

Included in KWESST's general and administrative costs are the following total M&A costs:

		Year ended September 30, 2021		Nine months ended September 30, 2020		Year ended December 31, 2019
Non-cash listing expense (1)	$	-	$	814,703	$	-
Non-cash performance share bonus  (1)		-		700,000		-
Professional fees		10,041		47,160		-
Total	$	10,041	$	1,561,863	$	-

^{1)Relates to the Reverse Acquisition transaction as noted in part (b)}

5.Trade and other receivables

The following table presents trade and other receivables for KWESST:

		September 30, 2021		September 30, 2020		December 31, 2019
				(Adjusted - see Note 8)
Trade receivables	$	-	$	209,169	$	1,191
Unbilled revenue		308,728		-		-
Sales tax recoverable		183,761		144,423		55,684
Investment tax credits refundable		206,762		127,325		162,928
Total	$	699,251	$	480,917	$	219,803

There was no impairment of trade and other receivables during the year ended September 30, 2021 (2020 - $nil, 2019 - $nil).

The following table presents changes in unbilled receivables:

		2021		2020		2019
Balance, beginning of period	$	-	$	-	$	-
Revenue in excess of billings, net of amounts transferred to    trade accounts receivable		308,728		-		-
Amounts written off		-		-		-
Balance, end of period	$	308,728	$	-	$	-
Current	$	308,728	$	-	$	-
Non-current	$	-	$	-	$	-

F-46

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

6.     Inventories

The following table presents a breakdown of inventories:

		September 30, 2021		September 30, 2020		December 31, 2019
Raw materials		90,299		-		-
Total	$	90,299	$	-	$	-

There was no impairment of inventories during the year ended September 30, 2021 (2020 - $nil, 2019 - $nil).

7.Property and equipment

The following is summary of changes in property and equipment for KWESST:

Cost		Computer equipment			Computer software			Office furniture and equipment			R&D equipment			Leasehold improvements			Sales demo equipment		Total
Balance, December 31, 2018	$	-		$	8,145		$	31,873		$	41,379		$	8,607		$	-	$	90,004
Additions		14,073			-			908			5,209			-			-		20,190
Balance, December 31, 2019	$	14,073		$	8,145		$	32,781		$	46,588		$	8,607		$	-	$	110,194
Additions		18,734			-			49,060			7,046			59,090			-		133,930
Disposals		-			-			-			-			(8,607	)		-		(8,607	)
Balance, September 30, 2020	$	32,807		$	8,145		$	81,841		$	53,634		$	59,090		$	-	$	235,517
Additions		30,778			-			11,211			165,030			58,147			548,626		813,792
Disposals		(3,828	)		(8,145	)		(2,936	)		(724	)		-			-		(15,633	)
Balance at September 30, 2021	$	59,757		$	-		$	90,116		$	217,940		$	117,237		$	548,626	$	1,033,676
Accumulated depreciation		Computer equipment			Computer software			Office furniture and equipment			R&D equipment			Leasehold improvements			Sales demo equipment		Total
Balance, December 30, 2018	$	-		$	3,396		$	9,587		$	5,256		$	2,498		$	-	$	20,737
Depreciation for the year		241			2,715			6,556			8,102			1,721			-		19,335
Balance, December 30, 2019	$	241		$	6,111		$	16,143		$	13,358		$	4,219		$	-	$	40,072
Depreciation for nine months		5,821			1,526			6,149			7,478			8,434			-		29,408
Disposals		-			-			-			-			(8,607	)		-		(8,607	)
Balance, September 30, 2020	$	6,062		$	7,637		$	22,292		$	20,836		$	4,046		$	-	$	60,873
Depreciation for the year		13,966			508			18,759			17,462			12,489			16,444		79,628
Disposals		(1,630	)		(8,145	)		(687	)		(12	)		-			-		(10,474	)
Balance at September 30, 2021	$	18,398		$	-		$	40,364		$	38,286		$	16,535		$	16,444	$	130,027
Carrying value at December 31, 2019	$	13,832		$	2,034		$	16,638		$	33,230		$	4,388		$	-	$	70,122
Carrying value at September 30, 2020	$	26,745		$	508		$	59,549		$	32,798		$	55,044		$	-	$	174,644
Carrying value at September 30, 2021	$	41,359		$	-		$	49,752		$	179,654		$	100,702		$	532,182	$	903,649

F-47

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

8.Right-of-use assets

The following table presents right-of-use assets for KWESST:

		Offices			Printer			Total
Balance at December 31, 2018	$	254,159		$	13,120		$	267,279
Depreciation		(76,248	)		(6,559	)		(82,807	)
Balance at December 31, 2019	$	177,911		$	6,561		$	184,472
Additions		571,604			-			571,604
Termination		(139,787	)		-			(139,787	)
Depreciation		(92,567	)		(3,282	)		(95,849	)
Balance at September 30, 2020 (as previously reported)		517,161			3,279			520,440
Correction of an error		(192,864	)		-			(192,864	)
Balance at September 30, 2020 (as adjusted)		324,297			3,279			327,576
Depreciation		(58,083	)		(3,279	)		(61,362	)
Balance at September 30, 2021	$	266,214		$	-		$	266,214

During the year ended September 30, 2021, management made an adjustment for a correction in the application of IFRS 16, Leases, to the new office lease entered in the prior year, whereby future variable payments were erroneously included in the calculation of the lease obligations. The following summarizes the effects of this correction to the prior year's comparatives.

Consolidated statements of financial position as at September 30, 2020:

		Previously Reported			Adjustment			Adjusted
Trade and other receivables	$	479,291		$	1,626		$	480,917
Right-of-assets	$	520,440		$	(192,864	)	$	327,576
Deposit (non-current)	$	22,337		$	(2,996	)	$	19,341
Total assets	$	5,507,011		$	(194,234	)	$	5,312,777
Lease obligations (current)	$	78,358		$	(34,230	)	$	44,128
Lease obligations (non-current)	$	496,394		$	(188,485	)	$	307,909
Total liabilities	$	1,650,628		$	(222,715	)	$	1,427,913
Deficit	$	(6,102,058	)	$	28,481		$	(6,073,577	)
Consolidated statements of net loss and comprehensive loss for the nine months ended September 30, 2020:
		Previously Reported (1)			Adjustment			Adjusted
General and administrative expenses	$	2,740,779		$	(16,918	)	$	2,723,861
Net finance costs	$	72,960		$	(11,563	)	$	61,397
Net loss and comprehensive loss	$	(3,565,259	)	$	28,481		$	(3,536,778	)

(1) Adjusted for the change in presentation - see Note 2(f).

F-48

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Condensed consolidated interim statements of changes in shareholders' equity (deficit) for the nine months ended September 30, 2020:

		Previously Reported			Adjustment		Adjusted
Deficit	$	(6,102,058	)	$	28,481	$	(6,073,577	)
Total shareholders' equity (deficit)	$	3,856,383		$	28,481	$	3,884,864

 In connection with the lease entered in the prior year, KWESST made a total deposit of $33,726 to be released only at the end of this lease. This was initially recorded at fair value, discounted using the implied interest rate in the lease. At September 30, 2021, $21,367 (2020 - $19,341) was the carrying value and reported as non-current deposit in the consolidated statements of financial position.

9.Intangible assets

The following table presents intangible assets for KWESST:

Cost		TASCS System			PhantomTM System		LEC System		Total
Balance at December 31, 2019	$	-		$	-	$	-	$	-
Additions		163,230			481,472		-		644,702
Balance at September 30, 2020	$	163,230		$	481,472	$	-	$	644,702
Additions		-			83,228		2,906,219		2,989,447
Transferred to cost of sales		(107,854	)		-		-		(107,854	)
Impairment charge		(55,376	)		-		-		(55,376	)
Balance at September 30, 2021	$	-		$	564,700	$	2,906,219	$	3,470,919

As the technology assets have not yet reached commercialization, no amortization charge was recorded for the year ended September 30, 2021 (2020 - $nil, 2019 - $nil). At September 30 2021, management concluded there was no impairment on the Phantom System and LEC System (2020 - $nil, 2019 - $nil).  Management anticipates the estimated useful life of five years for both technology assets.

For the additions during the year ended September 30, 2021, and the nine months ended September 30, 2020, refer to Note 4.

10.Accounts payable and accrued liabilities

The following table presents the accounts payable and accrued liabilities for KWESST:

		September 30, 2021		September 30, 2020		December 31, 2019
Trade payable	$	620,041	$	493,027	$	126,481
Accrued liabilities		384,239		188,265		29,822
Salary and vacation payable		122,230		65,722		-
Payroll taxes payable		692		67,229		29,343
Other		-		4,031		13,041
Total	$	1,127,202	$	818,274	$	198,687

F-49

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

11. Related party transactions

Key management personnel compensation

Key management personnel are those having authority and responsibility for planning, directing and controlling the activities of KWESST directly or indirectly, including any directors (executive and nonexecutive) of KWESST. The key management personnel of KWESST are the executive management team and Board of Directors, who collectively control approximately (31.5%) of the issued and outstanding common shares of KWESST at September 30, 2021 (2020 - 38.0%; 2019 - 71.8%).

Key management personnel compensation comprised the following:

		Year ended September 30, 2021		Nine months ended September 30, 2020		Year ended December 31, 2019
Wages and benefits	$	427,252	$	165,769	$	48,343
Consulting fees		180,000		145,000		30,000
Directors compensation		85,000		-		-
Share-based compensation		988,716		24,959		-
Total	$	1,680,968	$	335,728	$	78,343

The consulting fees relate to compensation paid to KWESST’s Executive Chairman (via his private corporation, DEFSEC Corp) and for the prior periods the consulting fees also include the former Chief Financial Officer.

Related party loans

The following table summarizes the related party loans.

		CEO loan (1)			Employee loan			Loans from investors			Total
Balance, December 31, 2018	$	612,171		$	81,253		$	191,789		$	885,213
Additions		309,912			-			772			310,684
Transferred to convertible notes		-			-			(192,561	)		(192,561	)
Converted into common shares		(649,500	)		-			-			(649,500	)
Converted into warrants		(19,858	)		-			-			(19,858	)
Repayment of loans		(45,513	)		(25,000	)		-			(70,513	)
Accrued interest		22,706			3,657			-			26,363
Balance, December 31, 2019	$	229,918		$	59,910		$	-		$	289,828
Accrued interest		7,174			1,274			-			8,448
Repayment of loans		(30,000	)		(50,000	)		-			(80,000	)
Balance, September 30, 2020	$	207,092		$	11,184		$	-		$	218,276
Accrued interest		4,513			68			-			4,581
Repayment of loans		(211,605	)		(11,252	)		-			(222,857	)
Balance, September 30, 2021	$	-		$	-		$	-		$	-

^{(1)Includes a loan held by 2573685 Ontario Inc., the parent company at the time (co-owned by the CEO and his spouse).}

F-50

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The CEO and employee loans accrued interest at TD Bank prime plus 1.55% and 5%, respectively. As noted in the above table, all related party loans have been repaid during the year ended September 30, 2021.

Other related party transactions:

• In April 2021, two directors and the CFO of the Company participated in the brokered private placement (see Note 16(a)); collectively, they purchased 72,000 Units for a total consideration of $90,000.  This transaction was recorded at fair value.

• In November 2019, KWESST hired SageGuild LLC to assist the Company in promoting its product offerings in the United States. In January 2021, the Acting CEO and sole shareholder of SageGuild LLC agreed to serve as director of KWESST U.S. Inc. and as a result SageGuild LLC became a related party to KWESST. The total cash and share-based remuneration amounted to $296,318 and $42,991 for business development costs from January 1, 2021, to September 30, 2021, respectively.  Except for the cash consideration recorded at the exchange amount, the share-based compensation was recorded at fair value (see Note 16(c)).

• Two directors of KWESST were investors in the 2019 convertible notes, in which KWESST incurred finance costs of $6,585 on these convertible notes for the nine months ended September 30, 2020. These were converted to common shares of KWESST in September 2020, based on the conversion rate as defined in the convertible note agreement

• The lease for a 3-D printer was with a private company owned by KWESST's President and CEO and his spouse (see Note 13). This transaction was recorded at the exchange amount.

• On October 23, 2019, $192,561 Subscription for Revenue Sharing issued in 2018 was reclassified as convertible notes (see Note 15).

At September 30, 2021, September 30, 2020 and December 31, 2019, there was no outstanding amount in accounts payable and accrued liabilities due to officers and directors of KWESST.

12.Borrowings

		CEBA Term Loan			Unsecured Loan			Total
Balance, December 31, 2019	$	-		$	-		$	-
Additional borrowings		40,000			-			40,000
Gain on government grant		(9,096	)		-			(9,096	)
Accrued interest		1,369			-			1,369
Balance, September 30, 2020	$	32,273		$	-		$	32,273
Additional borrowings		20,000			306,000			326,000
Gain on government grant		(3,514	)		-			(3,514	)
Accrued interest		4,492			4,527			9,019
Repayment		-			(310,527	)		(310,527	)
Balance, September 30, 2021	$	53,251		$	-		$	53,251
Current	$	-		$	-		$	-
Non-current		53,251			-			53,251
Total	$	53,251		$	-		$	53,251

F-51

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

CEBA Term Loan

In December 2020, the Canadian Federal Government amended the CEBA Term Loan program to increase the loan amount by $20,000 to $60,000. KWESST borrowed $40,000 in the nine-month period ended September 30, 2020, and an additional $20,000 during the current year. Additionally, effective January 1, 2021, the outstanding balance of the CEBA Term Loan was automatically converted to a 2-year interest free term loan. Accordingly, KWESST has presented this loan as non-current borrowings at September 30, 2021. The CEBA Term loan was initially recorded at fair value, discounted based on KWESST's estimated incremental borrowing rate of 10%. This resulted in recording a gain on government grant of $3,514 for the year ended September 30, 2021 (2020 - $9,096).

The CEBA Term Loan may be repaid at any time without notice or the payment of any penalty. If the CEBA Term Loan is repaid on or before December 31, 2022, $20,000 shall be forgiven. If on December 31, 2022, KWESST exercises the option for a 3-year term extension, a 5% annual interest will be applied on any balance remaining during the extension period.

KWESST has not recorded the potential forgivable amount at September 30, 2021 and 2020.

RBC Credit Facility

KWESST maintains corporate credit cards for its key employees and a foreign exchange line of credit with Royal Bank of Canada ("RBC"). To provide security, KWESST entered into a cash collateral agreement for $30,000 and a general security agreement providing a first lien on all assets. The $30,000 was invested in a short-term guaranteed investment certificate.

Unsecured Loan

On February 24, 2021, KWESST entered into an unsecured loan agreement with a private fund managed by a KWESST shareholder to borrow $306,000 for general corporate purposes. The interest rate on this loan was 0.5% per month. On May 27, 2021, KWESST repaid the loan, including accrued interest, for a total of $310,527.

13.Lease obligations

During the nine months ended September 30, 2020, KWESST terminated an office lease and entered into a long-term office lease contract. The office lease includes the right to renew for an additional five years following its expiry on April 30, 2026. Management has not included the renewal option because it was deemed too uncertain whether KWESST would renew at this time.

Under the new office lease, KWESST benefits from the following lease inducements:

• Free rent from inception (March 1, 2020) to November 1, 2020; and
• Free rent from November 1, 2021, to March 1, 2022.

When measuring the lease obligation, the Company discounted the remaining lease payments using the incremental estimated borrowing rate of Company of 10% per annum at the time of closing the new lease agreement.

F-52

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The following table presents lease obligations for KWESST:

		Offices			Printer			Total			Current Portion		Non-current portion
Balance, December 31, 2018	$	266,292		$	13,761		$	280,053		$	77,367	$	202,686
Lease payments (including interest)		(94,270	)		(7,620	)		(101,890	)		-		-
Interest expense		23,441			1,082			24,523			-		-
Balance, December 31, 2019	$	195,463		$	7,223		$	202,686		$	85,468	$	117,218
Addition		347,640			-			347,640			-		-
Termination		(157,315	)		-			(157,315	)		-		-
Lease payments (including interest)		(62,816	)		(7,620	)		(70,436	)		-		-
Interest expense		29,065			397			29,462			-		-
Balance, September 30, 2020 (as adjusted)	$	352,037		$	-		$	352,037		$	44,128	$	307,909
Lease payments (including interest)		(78,000	)		-			(78,000	)		-		-
Interest expense		33,872			-			33,872			-		-
Balance at September 30, 2021	$	307,909		$	-		$	307,909		$	32,288	$	275,621

Refer to Note 8 regarding the correction of an error in the application of IFRS 16.

The termination of the former lease resulted in the de-recognition of the lease obligation and related unamortized book value of the right-of-use asset, resulting in a gain of $17,527. This was included in the net finance costs for the nine months ended September 30, 2020 (see Note 20).

The following table presents the contractual undiscounted cash flows for the lease obligations:

		September 30, 2021		September 30, 2020		December 31, 2019
Less than one year	$	62,400	$	78,000	$	101,890
One to five years		327,600		390,000		125,693
Total	$	390,000	$	468,000	$	227,583

14.Contract Liabilities

The following table presents the changes in contract liabilities:

		September 30, 2021			September 30, 2020		December 31, 2019
Balance, beginning of period	$	7,053		$	-	$	-
Amounts invoiced and revenue deferred		-			7,053		-
Recognition of deferred revenue included in the balance at the beginning of period		(7,053	)		-		-
Balance, end of period	$	-		$	7,053	$	-

F-53

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

15. Convertible notes

The following table presents the changes in KWESST's convertible notes:

		September 30, 2021		September 30, 2020			December 31, 2019
Balance, beginning of period	$	-	$	210,819		$	521,515
Transfer from related party loans (note 11)		-		-			192,561
Less fair value of conversion feature (note 22)		-		-			(30,688	)
Repayment		-		-			(31,644	)
Accrued interest		-		16,769			74,707
Accretion expense		-		28,130			105,265
Converted into common shares (note 16)		-		(255,718	)		(620,897	)
Balance, end of period	$	-	$	-		$	210,819

2020 Activities

As disclosed in Note 4(b), a Liquidity Event occurred which resulted in the conversion of the $255,718 outstanding convertible note, including accrued interest up to Liquidity Event, into 456,639 common shares (see Note 16).

2019 Activities

On October 23, 2019, KWESST converted $560,007 of debt and $60,890 of interest into 3,104,486 common shares at a price of $0.20 relating to all debts noted above and repaid $31,644 debt by cash. The remaining $234,515 was issued as new convertible debentures at a rate of 10% per annum and due on October 23, 2021 (the "2019 Convertible Notes"). Upon the occurrence of a Liquidity Event, the 2019 Convertible Notes will automatically convert into common shares of the Company at a conversion rate equal to a 20% discount to the value assigned to the common shares of the Company under such Liquidity Event for the entire amount of the principal amount plus all accrued interest.

"Liquidity Event" means either (1) the completion of an initial public offering which results in the common shares of the Company being listed and posted for trading or quoted on any of the Toronto Stock Exchange, the TSX Venture Exchange, the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the London Stock Exchange or any successor exchange or market thereto; or (2) the closing of a merger, amalgamation plan of arrangement or other transaction or series of related transactions resulting in the holders of Common shares receiving consideration in securities listed on a Qualified Exchange.

16.Share capital and Contributed Surplus

a)Share capital

Authorized

KWESST is authorized to issue an unlimited number of common shares.

F-54

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Issued Common Shares

	September 30, 2021				September 30, 2020				December 31, 2019
	Number		Amount		Number		Amount		Number		Amount
Balance, beginning of period	41,266,176	$	9,374,563		26,879,686	$	2,284,353		200	$	200
Issued in brokered private placement	3,576,057	$	3,611,818		4,409,553	$	3,087,138		-	$	-
Issued for exercise of stock options	1,273,671	$	1,292,015		122,000	$	78,080		-	$	-
Issued for asset acquisition	1,000,000	$	1,290,000		697,000	$	167,280		-	$	-
Issued in private placement	750,000	$	1,110,000		3,486,750	$	1,480,875		5,075,000	$	1,014,948
Issued for exercise of warrants	726,575	$	815,307		-	$	-		-	$	-
Issued for exercise of broker compensation options	172,108	$	347,680		-	$	-		-	$	-
Issued for amended license	100,000	$	137,000		-	$	-		-	$	-
Issued for debt settlements	91,356	$	63,866		-	$	-		-	$	-
Issued for share units	9,688	$	12,498		-	$	-		-	$	-
Issued for conversion of 15% 2020 converted notes	-	$	-		3,210,050	$	1,328,163		-	$	-
Issued for performance bonus	-	$	-		1,045,000	$	731,500		-	$	-
Shares from Foremost's QT (Note 4(b))	-	$	-		898,498	$	628,949		-	$	-
Issued for conversion of 10% 2019 converted notes	-	$	-		456,639	$	255,718		-	$	-
Issued for consulting services	-	$	-		61,000	$	32,393		-	$	-
Issued for directors converted loans	-	$	-		-	$	-		8,000,000	$	181,308
Issued for parent company converted loans	-	$	-		-	$	-		10,700,000	$	467,000
Issued for converted debt and accrued interest	-	$	-		-	$	-		3,104,486	$	620,897
Less: share offering costs for the year	-	$	(839,679	)	-	$	(699,886	)	-	$	-
Balance, end of period	48,965,631	$	17,215,068		41,266,176	$	9,374,563		26,879,686	$	2,284,353

2021 Activities

Brokered Private Placement

In April 2021, KWESST closed its previously announced over-subscribed brokered private placement, resulting in the issuance of 3,576,057 units ("Units") of KWESST, at a price of $1.25 per Unit (the "Issue Price"), for aggregate gross proceeds of $4,470,071 (the "April 2021 Offering"), as amended in August 2021.

Under the April 2021 Offering, KWESST sold a total of 3,576,057 units at a price of $1.25 per Unit. Each Unit is comprised of one common share of the Company and one common share purchase warrant ("April 2021 Warrant"). Each April 2021 Warrant is exercisable to acquire one common share at a price of $1.75 each for a period of 24 months from the closing of the April 2021 Offering ("Closing Date"). If at any time after four (4) months and one (1) day following the Closing Date, the trading price of KWESST common stock on the TSX Venture Exchange is equal to or exceeds $3.00 for a period of 10 consecutive trading days, as evidenced by the price at the close of market, KWESST shall be entitled to notify the holders of the April 2021 Warrants of its intention to force the exercise of the April 2021 Warrants. Upon receipt of such notice, the holders of April 2021 Warrants shall have 30 days to exercise the April 2021 Warrants, failing which the April 2021 Warrants will automatically expire. Directors and officers of KWESST purchased 72,000 Units for a total consideration of $90,000.

In connection with this Offering, management has concluded the Unit qualified as an equity instrument under IAS 32, Financial Instruments: Presentation. Furthermore, management used the residual method to allocate the $1.25 consideration between common shares and the April 2021 Warrants. Because the April 2021 Warrants include an accelerator provision for expiration, management used the Barrier option model to estimate the fair value of these April 2021 Warrants at $0.24 each. As a result, $1.01 of the $1.25 consideration was allocated to common shares and is reflected in the above table of outstanding common shares.

F-55

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The total cash and non-cash share offering costs were $630,680 for the Offering, including cash commission of $288,405 paid to the Agents and $233,057 of Compensation Options granted to the Agents (see part (c) Contributed Surplus).

Asset Acquisition

In April 2021, following the closing of the brokered private placement, KWESST closed on the acquisition of the LEC System technology resulting in the issuance of 1 million common shares and 500,000 warrants (see Note 4(a)). Management estimated a fair value of $0.85 per warrant, using the Black-Scholes option model (see below - Warrants).

Private Placement

In September 2021, KWESST closed a non-brokered private placement, resulting in the issuance of 750,000 units ("September Units") of KWESST, at a price of $2.00 per September Unit (the "Issue Price"), for aggregate gross proceeds of $1,500,000 (the "September 2021 Offering").

Under the September 2021 Offering, each September Unit is comprised of one common share and one Warrant Share exercisable at a price of $2.35 each for a period of 24 months from September 16, 2021 ("September 2021 Warrants"). If at any time after four months and one day following September 16, 2021, the trading price of KWESST common stock on the TSX-V is equal to or exceeds $4.60 for a period of 3 consecutive trading days, as evidenced by the price at the close of market, KWESST will be entitled to notify the holders of Warrants of its intention to force the exercise of the Warrants. Upon receipt of such notice, the holders of Warrants shall have 30 days to exercise the Warrants, failing which the Warrants will automatically expire.

KWESST paid cash commissions to Haywood Securities Inc. in the amount of $90,000 and granted 45,000 broker warrants ("September 2021 Broker Warrants"). Each September 2021 Broker Warrant is exercisable to acquire one common share at a price of $2.00 for a period of 24 months from the closing of the September 2021 Offering. Management estimated a fair value of $0.72 per warrant, using the Black-Scholes option model (see below - Warrants).

In connection with this private placement, management has concluded the September Unit qualified as an equity instrument under IAS 32, Financial Instruments: Presentation. Furthermore, management used the residual method to allocate the $2.00 consideration between the common share and the Warrant. Because the warrant includes an accelerator provision for expiration, management used the Barrier option model to estimate the fair value of these September 2021 Warrants at $0.52 each. As a result, $1.48 of the $2.00 consideration was allocated to common shares and is reflected in the above table of outstanding common shares at September 30, 2021.

The total cash and non-cash share offering costs were $130,730 for this private placement.

Amended License

In April 2021, KWESST issued 100,000 common shares for the exclusivity with AerialX as disclosed in Note 20.

Debt for Equity Settlement

In December 2020, KWESST settled the following liabilities with its common shares:

• $47,000 of legal fees for 67,142 common shares; and
• $16,866 of online advertising services for 24,214 common shares.

F-56

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

2020 Activities

Brokered Private Placements

In September 2020, KWESST closed a brokered private placement led by PI Financial Corp., resulting in the issuance of 4,409,553, at $0.70 each, for aggregate gross proceeds of $3,086,687. The total share offering costs were $325,887, settled in cash and warrants.

2020 Convertible Notes

In May 2020, KWESST Inc. closed on approximately $1.1 million gross proceeds from the issuance of unsecured convertible notes ("2020 Notes"), with automatic conversion upon a Liquidity Event including the listing of KWESST on the TSX-V.  In connection with these 2020 Notes, the note holders earned interest at a rate of 15% per annum. Additionally, as an inducement, the note holders also received 25% of the principal amount in the form of KWESST common shares based on a stock price of $0.45, resulting in the issuance 600,839 at the QT.

In light of KWESST going public in September 2020, resulting in the automatic conversion of these 2020 Notes, management concluded that under IAS 38 the recognition of these 2020 Notes should be accounted for as equity and not debt.  At the QT, these 2020 Notes were converted to 2,477,851 common shares. Because the 2020 Notes were treated as equity instruments, the total accrued interest of $59,112 was not recognized in the profit or loss. This accrued interest was converted to 131,360 common shares at QT. In connection with this private placement, KWESST incurred $58,065 of offering costs settled in cash and warrants.

Private Placements

In January 2020, KWESST closed a non-brokered private placement, resulting in the issuance of 2,625,000 common shares of KWESST, at $0.40 each, for aggregate gross proceeds of $1,050,000.

In March 2020, KWESST closed a non-brokered private placement, resulting in the issuance of 845,750 common shares of KWESST, at $0.50 each, for aggregate gross proceeds of $422,875.

In June 2020, KWESST closed a non-brokered private placement, resulting in the issuance of 16,000 common shares of KWESST, at $0.50 each, for aggregate gross proceeds of $8,000.

Performance Share Bonus

During the quarter ended September 30, 2020, KWESST settled performance bonuses in the form of 45,000 common shares. Additionally, KWESST awarded 500,000 common shares each to two M&A / capital market advisors for successfully assisting KWESST to complete a QT, in accordance with their respective consulting agreement.

Shares from Foremost

As part of the reverse acquisition, KWESST assumed 898,498 common shares previously issued by Foremost (see Note 4(b)).

2019 Convertible Notes

In September 2020, as a result of the completion of the QT (see Note 4 (b)) all the 2019 Convertible Notes and accrued interest were automatically converted to 456,639 common shares of KWESST.

F-57

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Asset Acquisition

As disclosed in Note 4(c), KWESST issued 697,000 common shares to acquire the Phantom^TM System technology.

2019 Activities

Related Party Loans

During the year ended December 31, 2019, the directors and the parent of KWESST Inc. agreed to convert certain loans to common shares as follows:

• On January 1, 2019, the directors converted $32,500 of loans into 6,500,000 of units of KWESST ("2019 Units") at a conversion price of $0.005 per 2019 Unit. Each 2019 Unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire a common share at a price of $0.2 per share and with an expiry date of June 14, 2024. The $32,500 has been prorated to common shares and warrants based on their relative fair values determined by Black-Scholes pricing model with $31,308 were allocated to common shares and $1,192 were allocated to the attached warrants.
• On March 5, 2019, the parent company converted $467,000 of loans into 10,700,000 of shares at a conversion price of $0.04364 per share.
• On August 7, 2019, the directors converted $150,000 of loans into 1,500,000 of shares at a conversion price of $0.10 per share.

2018 Convertible Notes

On October 23, 2019, KWESST converted $560,007 of convertible notes and $60,890 of interest into 3,104,486 common shares at a price of $0.20 (Note 8).

Private Placement

On October 24, 2019, KWESST closed a non-brokered private placement raising $1,014,948 at a value of $0.20, issuing 5,075,000 shares.

b)Warrants

The following reflects the warrant activities for KWESST:

	September 30, 2021				September 30, 2020			December 31, 2019
	Number of warrants			Weighted average exercise price	Number of warrants		Weighted average exercise price	Number of warrants		Weighted average exercise price
Outstanding, beginning of period	9,585,050		$	0.24	8,500,000	$	0.20	-	$	-
Issued during the period	5,043,165		$	1.73	1,085,050	$	0.54	8,500,000	$	0.20
Exercised during the period	(726,575	)	$	1.05	-	$	-	-	$	-
Outstanding, end of period	13,901,640		$	0.74	9,585,050	$	0.24	8,500,000	$	0.20
Exercisable, end of period	12,901,640		$	0.75	8,835,050	$	0.22	8,500,000	$	0.20

F-58

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The following table provides additional information on the total outstanding warrants at September 30, 2021:

		Number outstanding		Fair value	Expiry Date
Founders' warrants:
	Exercise price of $0.20	6,500,000	$	1,192	January 1, 2024
	Exercise price of $0.20	2,000,000	$	19,858	June 14, 2024
GhostStep's warrants:
	Exercise price of $0.50	500,000	$	120,000	January 15, 2023
April 2021 equity financing:
	Exercise price of $1.75	3,274,657	$	785,918	April 29, 2023
	Exercise price of $1.75	40,000	$	9,600	August 25, 2023
LEC's warrants:
	Exercise price of $0.70	500,000	$	425,000	April 29, 2026
September 2021 equity financing:
	Exercise price of $2.35	750,000	$	390,000	September 16, 2023
Broker warrants:
	Exercise price of $0.45	84,622	$	17,162	May 8, 2022
	Exercise price of $0.70	69,862	$	14,259	July 9, 2022
	Exercise price of $1.75	137,499	$	33,000	April 29, 2023
	Exercise price of $2.00	45,000	$	32,400	September 16, 2023
		13,901,640	$	1,848,389

^{(1)Fair value is calculated based on the grant date fair value and number outstanding at September 30, 2021. It does not represent the fair value at September 30, 2021.}

The fair value for the warrants issued during the year ended September 30, 2021, was determined by the following valuation models and key inputs:

		Barrier Option Model				Black-Scholes Option Model
		April 2021 warrants		September 2021 warrants		September 2021 broker warrants		LEC warrants
Exercise Price	$	1.75	$	2.35	$	2.00	$	0.70
Stock price	$	1.01	$	2.14	$	2.14	$	0.40
Volatility		80%		80%		80%		0%
Dividend Yield		Nil		Nil		Nil		Nil
Risk-free interest rate		0.31%		0.26%		0.26%		69.00%
Barrier (accelerator on life of warrants)	$	3.00	$	4.60		N/A		N/A
Rebate	$	1.25	$	2.00		N/A		N/A
Expected life		2		1		1		3
Weighted average fair value per warrant	$	0.24	$	0.52	$	0.72	$	0.85

F-59

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The fair value for the warrants issued during nine months ended September 30, 2020, was determined using the Black-Scholes option model using the following inputs:

		Warrants @ $0.40		Warrants @ $0.45		Warrants @ $0.70
Stock price	$	0.40	$	0.50	$	0.70
Volatility		68%		68%		67%
Dividend Yield		Nil		Nil		Nil
Risk-free interest rate		1.47%		0.27%		0.29%
Expected life		2		2		2
Estimated fair value per warrant	$	0.15	$	0.20	$	0.26

The fair value for the warrants issued during the year ended December 31, 2019, was determined using the Black-Scholes option model using the following inputs:

		Warrants @ $0.20
Stock price	$	0.044
Volatility		66.75%
Dividend Yield		Nil
Risk-free interest rate		1.40%
Expected life		5
Weighted average fair value per warrant	$	0.0099

c)Contributed Surplus

Contributed surplus consists of the broker compensation options 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.

Broker Compensation Options

The April 2021 Offering was completed by PI Financial Corp., the lead agent and sole bookrunner (the "Lead Agent"), and other dealers (the "Agents"). As consideration for the services provided by the Agents in connection with the April 2021 Offering, the Agents received: (a) a cash commission of $288,405; and (b) 230,734 compensation options (the "Compensation Options"). Each Compensation Option is exercisable to acquire one unit of KWESST (a "Compensation Option Unit") at a price equal to $1.25 for a period of two years after the closing of the Offering. Each Compensation Option Unit is comprised of one Common Share and one Common Share purchase warrant (a "Compensation Option Warrant"). Each Compensation Option Warrant is exercisable to acquire one Common Share (a "Compensation Option Warrant Share") at a price of $1.75 per Compensation Option Warrant Share for a period of 24 months from the closing of the Offering.

Based on the structure of the Compensation Option, management estimated its fair value using the Monte Carlo method. Management estimated a fair value of $1.10 per Compensation Option.  The following were key inputs used in the Monte Carlo simulation: estimated life of 2 years, underlying stock price of $1.29, exercise price of Compensation Option of $1.25, exercise price of Compensation Option Warrant of $1.75, estimated volatility of 80%, risk free rate of 0.31%, and discount for lack of marketability of 0%.

F-60

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Accordingly, KWESST recorded $233,057 of Compensation Options in contributed surplus, with an equal offset to share offering costs (a non-cash transaction).

During the year ended September 30, 2021, the Agents have exercised 172,118 Compensation Option Units for total gross proceeds of $215,148. At September 30, 2021, the total outstanding Compensation Option Units was 58,616.

Share-based compensation

On March 31, 2021, KWESST shareholders approved the Company's Long-Term Incentive Plan (the "LTIP"), replacing the former Stock Option Plan, to retain a competitive compensation structure for its directors, executives, employees, consultants, and service providers. The LTIP allows for the issuance of stock options ("Options"), restricted share units ("RSUs"), deferred share units ("DSUs"), share appreciation rights ("SARs"), and performance stock units ("PSUs") - collectively referred as Compensation Securities. The TSX-V accepted the filing of the LTIP on April 9, 2021.

Under the LTIP, the aggregate maximum number of common shares available for issuance from treasury at any given time shall not exceed 10% of the outstanding common shares as of the date of Compensation Securities, subject to adjustment or increase of such number pursuant to the terms of the LTIP. Any Options that have been cancelled, repurchased, expired, or exercised will again be available under the LTIP. The maximum number of common shares issuable under the LTIP in respect RSUs, DSUs, SARs, and PSUs (herein referred as "Share Units") shall not exceed 4,226,737 shares. The LTIP is subject to annual shareholder approval at the Annual General and Special Meeting.

(i)Stock Options

At September 30, 2021, there were 729,049 stock options available for grant under KWESST's LTIP.

The following is summary of changes in outstanding stock options for the respective periods:

	Number of options			Weighted average exercise price
Outstanding at December 31, 2019	-		$	-
Granted	2,055,000		$	0.65
Options from the Foremost QT (see Note 4(b))	85,714		$	0.47
Exercised	(122,000	)	$	0.50
Outstanding at September 30, 2020	2,018,714		$	0.65
Granted	3,709,125		$	1.49
Exercised	(1,273,573	)	$	0.72
Cancelled	(286,750	)	$	0.69
Outstanding at September 30, 2021	4,167,516		$	1.37
Options exercisable at September 30, 2021	1,844,328		$	1.25

During the year ended September 30, 2021, KWESST granted 3,709,125 (2020 - 2,055,000, 2019 - nil) options to directors, officers, employees and consultants at a weighted average exercise price of $1.49 (2020 - 0.65, 2019 - $nil). At September 30, 2021, the weighted average remaining vesting period was 1.82 years (2020 - 0.87 years).

F-61

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

For the options granted during the year ended September 30, 2021, and the nine months ended September 30, 2020, the per share weighted-average fair value of stock options was $0.72 and $0.23, respectively, using the Black-Scholes option model with the following weighted-average assumptions:

		2021		2020
Volatility		76.46%		67.71%
Dividend yield		Nil		Nil
Risk-free interest rate		0.35%		0.65%
Expected life (years)		2.26		3.38
Weighted-average fair value per option	$	0.72	$	0.23

For the year ended September 30, 2021, KWESST recorded stock-based compensation expenses of $1,854,240 (2020 - $283,084, 2019 - $nil) related to the vesting of options.

The following table summarizes information about stock options outstanding at September 30, 2021:

Range of exercise prices	Number outstanding	Weighted average remaining contractual life		Weighted average outstanding strike price	Exercisable	Remaining exercisable contractual life		Weighted average exercisable strike price
$0.25 to $0.70	640,578	3.56	$	0.67	523,703	3.59	$	0.67
$0.71 to $1.15	1,087,813	4.21	$	0.93	500,000	4.16	$	0.92
$1.16 to $1.60	646,875	4.63	$	1.29	125,000	4.55	$	1.33
$1.61 to $2.05	1,442,250	4.33	$	1.83	508,125	3.97	$	1.76
$2.06 to $2.50	350,000	4.48	$	2.23	187,500	4.35	$	2.28
	4,167,516	4.24	$	1.37	1,844,328	3.99	$	1.25

KWESST did not grant any stock options for the year ended December 31, 2019.

Amendment to stock option grants

During the year ended September 30, 2021, the Board approved the acceleration of vesting for 385,500 options and the cancellation of 250,000 options. This contributed an additional stock-based compensation charge of $65,813 (included in the above total share-based compensation expenses).

(ii)Share Units

At September 30, 2021, there were 2,727,977 Share Units available for grant under KWESST's LTIP.

F-62

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

During the year ended September 30, 2021, the Board granted the following Share Units:

	RSUs		PSUs	SARs	Total
Outstanding at September 30, 2020	-		-	-	-
Granted	1,148,760		200,000	150,000	1,498,760
Vested and converted	(9,688	)	-	-	(9,688	)
Outstanding at September 30, 2021	1,139,072		200,000	150,000	1,489,072

RSUs:

Each RSU entitles the holder to receive one common share in the future, based on continued service during the applicable period.

During the year ended September 30, 2021, KWESST granted 398,760 to directors and officers and 750,000 to consultants. The weighted-average grant date fair value of the RSUs granted in 2021 was $1.51 per unit  (2020 – $nil, 2019 - $nil). The weighted average vesting period for the outstanding RSUs is 0.69 years . KWESST recorded share-based compensation of $204,386 (2020 - $nil, 2019 - $nil) related to the RSUs.

PSUs:

Each PSU entitles the holder to receive one common share in the future, based on the achievement of established performance criteria and continued service during the applicable performance period.

During the year ended September 30, 2021, KWESST granted 50,000 PSUs to an employee and 150,000 PSUs to a consultant. The weighted-average grant date fair value of the PSUs granted in 2021 was $1.50 per unit

(2020 - $nil, 2019 - $nil). The weighted average vesting period for the outstanding PSUs is 0.40 years. KWESST recorded share-based compensation of $171,924 (2020 - $nil, 2019 - $nil) related to the PSUs.

SARs:

Each SAR entitles the holder to receive cash or common share at the discretion of the Company in the future, based on continued service during the applicable period. The amount of the cash payment or the value of common shares is determined based on the increase of the share price of KWESST between the grant date and the exercise date. Because KWESST intends to always settle in common shares, KWESST accounts for SARs as equity-settled awards.

During the year ended September 30, 2021, KWESST granted 150,000 SARs to a consultant at an exercise price of $1.65 each. KWESST recorded share-based compensation of $30,657 (2020 - $nil, 2019 - $nil) related to the SARs. The SARs will expire on July 20, 2022.

(iii)Share-based Compensation

The following table presents a breakdown of total share-based compensation expense by function:

		Year ended September 30, 2021		Nine months ended September 30, 2020		Year ended December 31, 2019
General and administrative	$	1,425,111	$	160,267	$	-
Selling and marketing		754,167		42,700		-
Research and development, net		282,929		80,117		-
Total share-based compensation	$	2,462,207	$	283,084	$	-

F-63

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

17.Earnings (loss) per share

The following table summarizes the calculation of the weighted average basic number of basic and diluted common shares:

	Year ended September 30, 2021	Nine months ended September 30, 2020	Year ended December 31, 2019
Issued common shares,  beginning of period	41,266,176	26,879,686	200
Effect of shares issued from:
Private placements	1,526,692	3,196,518	-
Exercise of options	638,292	31,282	-
Asset acquisitions	421,918	89,055	-
Exercise of warrants	306,776	-	-
Debt settlements	72,664	-	-
Amended license agreement	43,836	-	-
Exercise of broker options	11,979	-	-
Conversion of stock units	2,203	-	-
Conversion of convertible notes, including  interest	-	498,810	1,523,849
Services rendered	-	96,081	-
Qualifying transaction	-	52,697	-
Conversion of directors converted loans	-	-	7,082,192
Conversion of parent company converted loans	-	-	8,823,836
Weighted average number of basic common shares	44,290,536	30,844,129	17,430,077
Dilutive securities:
Stock options	-	-	-
Warrants	-	-	-
Weighted average number of dilutive common shares	44,290,536	30,844,129	17,430,077

At September 30, 2021, September 30, 2020, and December 31, 2019 , all the stock options and warrants were anti-dilutive because of KWESST’s net loss for both periods.

18.Revenue

a)Revenue streams

KWESST generates revenue from the sale of products to its customers.

b)Disaggregation of revenue from contracts with customers

In the following table, revenue from contacts with customers is disaggregated by primary geographical market, major products and service lines, and timing of revenue recognition.

F-64

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

		Year ended September 30, 2021		Nine months ended September 30, 2020		Year ended December 30, 2019
Major products / service lines
Digitization systems	$	1,255,982	$	835,097	$	472,749
Other		19,822		26,820		36,399
	$	1,275,804	$	861,917	$	509,148
Primary geographical markets
United States	$	1,238,063	$	835,097	$	472,749
Canada		37,741		26,820		36,399
	$	1,275,804	$	861,917	$	509,148
Timing of revenue recognition
Products and services transferred over time	$	1,238,063	$	835,097	$	472,749
Products transferred at a point in time		37,741		26,820		36,399
	$	1,275,804	$	861,917	$	509,148

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 September 30, 2021, KWESST's contracted not yet recognized revenue was $16,545 (2020 - $233,193, 2019 - $nil), of which 100% of this amount is expected to be recognized over the next 12 months.

For the year ended September 30, 2021, one customer accounted for the revenue based in the United States (2020 - two customers, 2019 - one customer).

19.Expenses by nature

The following table presents a breakdown of expenses by nature for the following periods:

		Year ended September 30, 2021			Nine months ended  September 30, 2020			Year ended December 31, 2019
					(Adjusted - see Note 8)
Employee benefits	$	4,746,316		$	1,161,071		$	800,455
Advertising and promotion		1,914,630			220,946			23,181
Consulting fees		1,138,782			620,295			144,400
R&D consulting and material costs, net		482,348			100,483			170,852
Professional fees		722,457			190,398			97,840
Other expenses		497,120			106,007			44,578
Royalty and license costs		287,000			-			-
Travel and conferences		246,418			112,360			64,414
Depreciation and amortization		196,156			103,396			102,143
Merger and acquisition costs		22,255			1,561,860			-
Total expenses		10,253,482			4,176,816			1,447,863
Allocation to cost of sales:
Employee benefits		(574,018	)		(71,105	)		(9,487	)
Total operating expenses		9,679,464		$	4,105,711		$	1,438,376

F-65

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

20. Net finance costs

The following table presents a breakdown of net finance costs for the following periods:

			Year ended September 30,			Nine months ended September 30,			Year ended December 31,
			2021			2020			2019
						(Adjusted - see Note 8)
Interest expense from:
	Accretion cost - accrued royalties liability	$	64,537		$	-			-
	Lease obligations		33,872			31,242			24,523
	Related party loans		4,581			8,448			26,363
	Unsecured  loan		4,527			-			-
	CEBA term loan		4,481			-			-
	2019 convertible notes		-			44,899			179,972
	2020 convertible notes		-			-			-
	Other		4,115			5,885			14,289
Total interest expense			117,804			90,474			245,147
Interest income			(6,539	)		(2,454	)		-
Gain on termination of lease obligation			-			(17,527	)		-
Gain on government grant			(3,514	)		(9,096	)		-
Net finance costs		$	107,751		$	61,397		$	245,147

21. Income taxes

a)Reconciliation of effective income tax rate

KWESST's effective income tax rate differs from the statutory rate of 26.5% that would be obtained by applying the combined Canadian basic federal and provincial income tax rate to loss before income taxes. These differences result from the following:

		Year ended September 30, 2021			Nine months ended September 30, 2020			Year ended December 31,  2019
					(Adjusted - see Note 8)
Loss before income taxes	$	(9,315,372	)		(3,536,778	)		(1,147,280	)
Expected statutory tax rate		26.5%			26.5%			26.5%
Expected tax recovery resulting from loss		(2,468,574	)		(937,246	)		(304,029	)
Increase (reduction) in income taxes resulting from:
Non-deductible expenses		654,956			275,273			28,115
Foreign operations subject to different tax rates		3,593
Unrecognized temporary differences		1,826,279			661,973			275,914
Prior year differences		(16,254	)		-			-
	$	-		$	-		$	-

F-66

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

KWESST claims research and development deductions and related Investment Tax Credits ("ITC") for tax purposes based on management's interpretation of the applicable legislation in the Income Tax Act of Canada. These claims are subject to audit by the Canada Revenue Agency ("CRA") and any adjustments that results could affect ITCs recorded in the consolidated financial statements. The following table shows the breakdown of R&D expenses, net of ITCs:

		Year ended September 30, 2021			Nine months ended September 30,  2020			Year ended September 30, 2021
					(Adjusted - see Note 8)
R&D expenses	$	2,369,145		$	944,909		$	1,003,705
Less:
Investment tax credits		(231,007	)		(127,325	)		-
R&D expenses, net		2,138,138			817,584			1,003,705

b)Deferred tax balances

The following tables deferred tax assets (liabilities) have been recognized in the consolidated financial statements:

	Balance at September 30, 2020		Recognized in profit or loss		Recognized in Equity	Balance at September 30, 2021
Deferred tax assets (liabilities):
Net operating loss carryforwards	48,045		(48,045	)	-	-
Impairment provision	(48,045	)	48,045		-	-
	-		-		-	-
	Balance at December 31, 2019		Recognized in profit or loss		Recognized in Equity	Balance at September 30, 2020
Deferred tax assets (liabilities):
Net operating loss carryforwards	-		48,045		-	48,045
Impairment provision	-		(48,045	)	-	(48,045	)
	-		-		-	-

At December 31, 2019, the deferred tax assets (liabilities) recognized the consolidated financial statements were $nil.

c)Unrecognized net deferred tax assets

Deferred taxes reflect the impact of loss carryforwards and of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by enacted tax laws. However, KWESST has not recorded net deferred tax assets at September 30, 2021, September 30, 2020 and December 31, 2019, due to the uncertainty involved in determining whether these deferred tax assets will be realized upon expiration due to KWESST's limited history and operating losses since its inception.

F-67

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

The following is a summary of KWESST's unrecognized deductible temporary differences:

	Balance at September 30, 2021	Balance at September 30, 2020	Balance at December 31, 2019
Net operating loss carryforwards	9,429,436	4,279,494	2,111,531
Share issuance costs	1,810,927	1,496,239	17,281
Intangibles and development costs	780,607	-	-
Scientific research and development expenditures	1,789,571	218,235	170,940
Other	104,793	46,891	22,106
	13,915,334	6,040,859	2,321,858

d)Available net operating losses

At September 30, 2021, KWESST has the following net operating losses in Canada available to reduce future year's taxable income which expire as follows:

Year of Expiry		Amount
2036	$	512,163
2037		744,022
2038		1,174,797
2039		1,732,039
2040 and thereafter		5,266,415
	$	9,429,436

e)Available research and development investment tax credits

The Company has the following research and development investment tax credits available to reduce future years' income taxes payable which expire as follows:

Year of Expiry		Amount
2037	$	13,361
2038		6,742
2039		-
2040 and thereafter		329,283
	$	349,386

22.Financial instruments

Fair value of financial instruments

The fair values of KWESST's cash, restricted short-term investment, trade and other receivables, accounts payable and accrued liabilities, deposit (included in non-current other assets), and related party loans approximate carrying value because of the short-term nature of these instruments.

F-68

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

Under IFRS, the levels of fair value hierarchy is as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not observable market data (unobservable inputs).

The lease deposit, lease obligations, accrued royalties liability, and borrowings were recorded at fair value at initial recognition.  The fair value measurement for these were Level 2. Subsequently, these were measured at amortized cost and accreted to their nominal value over their respective terms. At September 30, 2021, the fair value for accrued royalties liability approximates its carrying value as the 13.7% discount rate used at inception continues to reflect a reasonable market discount rate at September 30, 2021.  Using the same market discount rate, the fair value of the borrowings was $49,825 at September 30, 2021.

In connection with the issuance of the 2018 debentures and 2019 convertible notes (see note 15), management determined that the conversion feature was a financial derivative liability, requiring fair value remeasurement at each reporting period. Management used the Black-Scholes option model to remeasure the estimated fair value of the financial derivative liabilities (Level 2). 

The following table shows the movement of the financial derivative liabilities in 2019 and 2020:

		Total
Balance at December 31, 2018	$	111,953
Adjustment upon debentures converted to common shares		(111,953	)
Financial derivative liability on initial recognition		30,688
Remeasurement		(1,225	)
Balance at December 31, 2019		29,463
Adjustment upon convertible notes converted to common shares		(29,463	)
Balance at September 30, 2020	$	-

Financial risk management

KWESST is exposed to a number of financial risks arising through the normal course of business as well as through its financial instruments. KWESST's overall business strategies, tolerance of risk and general risk management philosophy are determined by the directors in accordance with prevailing economic and operating conditions.

(a)Interest rate risk

Interest rate risk is the risk that the fair value of cash flows of a financial instrument will fluctuate because of changes in market interest rates. At September 30, 2021, KWESST's indebtedness was interest free. Accordingly, KWESST has no interest rate risk.

(b)Foreign currency risk

Foreign currency risk is the risk that the future cash flows or fair value of KWESST's financial instruments that are denominated in a currency that is not KWESST's functional currency will fluctuate due to a change in foreign exchange rates.

F-69

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

For the year ended September 30, 2021 and nine months ended September 30 2020, KWESST's revenue was substantially denominated in US dollar driven by contracts with U.S. prime contractors in the defense sector. KWESST also procures certain raw materials denominated in US dollar for product development. Accordingly, KWESST is exposed to the US dollar currency. Where a natural hedge cannot be achieved, a  significant change in the US dollar currency could have a significant effect on KWESST's financial performance, financial position and cash flows. Currently, KWESST does not use derivative instruments to hedge its US dollar exposure.

At September 30, 2021, KWESST had the following net US dollar exposure:

		Total USD
Net liabilities in U.S. subsidiary	$	6,221
US denominated:
Assets	$	268,178
Liabilities		(74,720	)
Net US dollar exposure	$	187,237
Impact to profit  or loss if 5% movement in the US dollar	$	9,362

During the year ended September 30, 2021, KWESST recorded foreign exchange loss of $3,742 (2020 - $13,937, 2019 - $982).

(c)Credit risk

Credit risk is the risk of financial loss to KWESST if a counterparty to a financial instrument fails to meet its contractual obligations. KWESST's credit risk exposure is limited to cash, and trade and other receivables. Refer to Note 5 for the breakdown of KWESST's trade and other receivables. KWESST enters into contracts with large, financially sound US general contractors, which mitigates the credit risk. At September 30, 2021, KWESST had no outstanding trade receivable. The remaining receivable is due from the Canadian Federal and Provincial Government for sales tax recoverable and investment tax credits.

(d)              Liquidity risk

Liquidity risk is the risk that KWESST will be unable to meet its financial obligations as they become due. KWESST's objective is to ensure that it has sufficient cash to meet its near-term obligation when they become due, under both normal and stressed condition, without incurring unacceptable losses or risking reputational damage to KWESST. A key risk in managing liquidity is the degree of uncertainty in KWESST's cash flows due to its early stage in operations and the need for additional capital to fund its business strategies (see Note 2(a)).

At September 30, 2021, our contractual obligations were as follows:

  

Payment due:		Total		Within 1 Year		1 to 3 years		3 to 5 years
Minimum royalty commitments	$	2,500,000	$	-	$	150,000	$	2,350,000
Accounts payable and accrued liabilities		1,067,924		1,067,924		-		-
Lease obligations		390,000		62,400		187,200		140,400
Other commitments		101,928		101,928		-		-
Borrowings		60,000		-		60,000		-
Total contractual obligations	$	4,119,852	$	1,232,252	$	397,200	$	2,490,400

At September 30, 2021, KWESST had $2.7 million in cash and $2.9 million in working capital (current assets less current liabilities).

F-70

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

23. Supplemental cash flow information

The following table presents changes in non-cash working capital:

		Year ended September 30, 2021			Nine months ended September 30, 2020			Year ended December 31, 2019
Trade and other receivables	$	(218,334	)	$	(257,588	)	$	(41,465	)
Inventories		17,555			-			-
Prepaid expenses and other		(106,205	)		(387,762	)		(36,629	)
Other assets		-			-			(150,000	)
Accounts payable and accrued liabilities		(828,698	)		393,202			86,519
Contract liabilities		(7,053	)		7,053			-
Deposits		150,000			-			-
Accrued royalties liability		1,191,219			-			-
	$	198,484		$	(245,095	)	$	(141,575	)

The following is a summary of non-cash items that were excluded from the consolidated statements of cash flows for the year ended September 30, 2021:

• $63,866 debt settlement via common shares;
• $125,000 for 250,000 exercised warrants in connection with the GhostStep^TM acquisition (Note 4(c));
• $102,991 fair value of warrants exercised and transferred to share capital;
• $203,516 fair value of options exercised and transferred to share capital from contributed surplus;
• $1,715,000 fair value of common shares and warrants issued for the acquisition of the LEC System (Note 4(a)),
• $137,000 fair value of common shares issued for the amended and restated license agreement with AerialX (Note 26(a));
• $169,832 share offering costs relating to the Broker Compensation Options (Note 16(a)); and
• $3,828 non-cash consideration for computer equipment acquired.

The following is a summary of non-cash items that were excluded from the consolidated statements of cash flows for the nine months ended September 30, 2020:

• $358,178 of right-of-use asset and lease obligations relating to the new office lease;
• $139,787 of right-of-use asset and $157,315 lease obligations de-recognized from KWESST's consolidated financial position relating to the former lease office;
• $347,280 of KWESST's common shares and warrants for the asset acquisition of GhostStep^TM Technology;
• $255,718 of convertible notes, including accrued interest, settled in KWESST's common shares;
• $322,779 of share offering costs settled in KWESST's common shares;
• $41,155 of options adjustment due to QT (see note 4(b)); and
• $17,531 fair value of options exercised and transferred to KWESST's common shares.

The following is a summary of non-cash items that were excluded from the consolidated statements of cash flows for the twelve months ended December 31, 2019:

• $1,290,255 common shares and warrants for settlement of loans.

F-71

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

24. Segmented information

KWESST's Executive Chairman has been identified as the chief operating decision maker. The Executive Chairman evaluates the performance of KWESST and allocates resources based on the information provided by its internal management system at a consolidated level. KWESST has determined that it has only one operating segment.

At September 30, 2021, September 30, 2020 and December 31, 2019, all of KWESST's property and equipment are located in Canada, including the right-of-use assets.

25. Capital management

KWESST's objective in managing its capital is to safeguard its ability to continue as a going concern and to sustain future development of the business. The Company's senior management is responsible for managing the capital through regular review of financial information to ensure sufficient resources are available to meet operating requirements and investments to support its growth strategy. The Board of Directors is responsible for overseeing this process. From time to time, KWESST could issue new common shares or debt to maintain or adjust its capital structure. KWESST is not subject to any externally imposed capital requirements.

KWESST's capital is composed of the following:

		September 30, 2021			September 30, 2020			December 31, 2019
Debt:
Lease obligations	$	307,909		$	352,037		$	202,686
Related party loans		-			218,276			289,828
Borrowings		53,251			32,273			-
Convertible notes		-			-			210,819
Equity:
Share capital		17,215,068			9,374,563			2,284,353
Warrants		1,848,389			277,170			21,050
Contributed surplus		2,458,211			306,708			-
Accumulated other comprehensive loss		(8,991	)		-			-
Accumulated deficit		(15,388,949	)		(6,073,577	)		(2,536,799	)
Total capital	$	6,484,888		$	4,487,450		$	471,937

26.Commitments and contingencies

a)AerialX Drone Solutions ("AerialX")

On April 5, 2021, KWESST entered into an amended and restated licensing agreement with AerialX to gain exclusive rights to manufacture, operate, and use its drone for the C-UAS (Counter Unmanned Aerial Systems) market, specifically for the United States Department of Defense and Canada's Department of National Defence for a period of two years from the date upon which AerialX will meet certain technical milestones. In consideration for this exclusivity, KWESST has issued 100,000 common shares to AerialX ("Exclusive License Shares"). Based on KWESST's closing stock price of $1.37 on April 23, 2021 (TSX-V approval date), the fair value for these shares was $137,000. KWESST recorded the $137,000 fair value as a license cost for the year ended September 30, 2021, with an equal offset to KWESST's share capital.

F-72

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

In addition to the Exclusive License Shares, KWESST also agreed to issue an additional 100,000 common shares upon AerialX achieving the technical milestones. For the year ended September 30, 2021, Aerial X has not delivered on the technical milestones and therefore no recognition was made.

Additionally, KWESST also agreed to issue up to 300,000 common shares subject to achieving the following performance milestones:

# of Common Shares	Milestones
75,000	$3 million in sales
100,000	$9 million in sales
125,000	$18 million in sales

The amended and restated licensing agreement also changed the terms of the annual minimum royalty payment to AerialX. The initial minimum royalty payment is not due prior to the first anniversary year of the Prototype Date, which is defined under the agreement as the date upon which a functioning prototype is received by KWESST.

Under this agreement, KWESST will pay a royalty ranging from 8% to 15% of sales of AerialX technology, subject to the following minimum payments:

• 1^st anniversary: $150,000
• 2^nd anniversary: $200,000
• 3^rd anniversary: $300,000
• 4^th anniversary: $400,000
• 5^th anniversary: $500,000

In accordance with the original agreement dated November 18, 2019, in the first quarter of Fiscal 2020 KWESST made a payment of $150,000 as an advance for future royalty payments (the "Advance"). This Advance was recorded as a non-current deposit in the audited consolidated statements of financial position at December 31, 2019 and September 30, 2020. During the year ended September 30, 2021, management performed a recoverability review of all KWESST's financial assets, including this Advance. Management made the recoverability assessment on the Advance based on anticipated future sales of the licensed technology. While KWESST continues to work with AerialX on this project, management has concluded the timing and volume of future sales of the licensed drone was uncertain at this stage given AerialX has not yet met the technological milestones. Accordingly, KWESST took a charge to net loss. This charge is included in general and administrative expenses in the condensed consolidated interim statements of net loss and comprehensive loss.

Under the amended and restated licensing agreement, KWESST will continue to have non-exclusive worldwide license. This agreement will expire on April 30, 2026.

b)STRYK Group USA, LLC ("STRYK")

On September 24, 2021, KWESST entered into a services agreement with STRYK to obtain branding and website management services over a period of four months from the date upon which the agreement was signed. These services are focused on strategic promotional activities related to the LEC System. Under the agreement, KWESST has committed to future minimum payments of $101,928, due within the next fiscal year.

F-73

KWESST MICRO SYSTEMS INC.

Notes to Consolidated Financial Statements

Year ended September 30, 2021, nine months ended September 30, 2020, and

year ended December 31, 2019

(Expressed in Canadian dollars, except share amounts)

27. Depreciation and Amortization

The following table presents total depreciation and amortization expense of property and equipment and right-of-use assets by function:

		2021		2020		2019
General and administrative	$	95,310	$	89,307	$	91,084
Selling and marketing		16,443		-		-
Research and development		29,237		14,090		11,058
Total depreciation and amortization	$	140,990	$	103,397	$	102,142

F-74

Condensed Interim Consolidated Financial Statements of

KWESST MICRO SYSTEMS INC.

Nine months ended September 30, 2020, and

Twelve months ended December 31, 2019

(Expressed in Canadian Dollars)

F-75

KWESST MICRO SYSTEMS INC.

Table of Contents for the Nine months Ended September 30, 2020 and twelve months ended December 31, 2019

	Page
Independent Auditor's Report	F-77
FINANCIAL STATEMENTS
Consolidated Statements of Financial Position	F-79
Consolidated Statements of Net Loss and Comprehensive Loss	F-80
Consolidated Statements of Changes in Shareholders' Equity	F-81
Consolidated Statements of Cash Flows	F-82
Notes to the Consolidated Financial Statements	F-83

F-76

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of KWESST Micro Systems Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of KWESST Micro Systems Inc. (the "Company") as of September 30, 2020 and December 31, 2019, and the related consolidated statements of loss and comprehensive loss, changes in shareholders' equity, and cash flows for the nine month ended September 30, 2020 and twelve months ended December31, 2019, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and December 31, 2019, and its financial performance and its cash flows for the periods then ended, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standards Board.

Correction in the application of IFRS 16 Leases

As discussed in Note 8, the consolidated financial statements for the nine months ended September 30, 2020 have been adjusted for a correction in the application of IFRS 16 Leases.

Material Uncertainty Related to Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2(a) to the consolidated financial statements, the Company has incurred significant losses and negative cash flows from operations since inception that raise substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2(a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified in respect of this matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Kreston GTA LLP | 8953 Woodbine Avenue, Markham, Ontario, Canada, L3R 0J9, T. 905.474.5593 | www.krestongta.com

A member of Kreston International | A global network of independent accounting firms

F-77

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 26(b) to the consolidated financial statements, subsequent to the fiscal year 2020, the Company has completed an asset acquisition transaction with a related party under common control by issuance of common shares and share purchase warrants of the Company. Our opinion is not modified in respect of this matter.

We served as the Company's auditor since 2019.

/s/ Kreston GTA LLP

Chartered Professional Accountants

Licensed Public Accountants

November 22, 2021

Markham, Canada

Kreston GTA LLP | 8953 Woodbine Avenue, Markham, Ontario, Canada, L3R 0J9, T. 905.474.5593 | www.krestongta.com

A member of Kreston International | A global network of independent accounting firms

F-78

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Financial Position
At September 30, 2020 and December 31, 2019

In Canadian dollars	Note		September 30, 2020			December 31, 2019
			(Adjusted - See Note 8)			(As restated - see Note 25)
ASSETS
Cash		$	3,073,760		$	21,615
Trade and other receivables	5		480,917			219,803
Prepaid expenses and other			441,837			54,075
Current assets			3,996,514			295,493
Property and equipment	6		174,644			70,122
Right-of-use assets	8		327,576			184,472
Deposits	8		19,341			-
Intangible assets	7		644,702			-
Other assets	25		150,000			150,000
Non-current assets			1,316,263			404,594
Total Assets		$	5,312,777		$	700,087
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued liabilities	9	$	818,274		$	198,687
Lease obligations	12		44,128			85,468
Related party loans	10		218,276			289,828
Borrowings	11		32,273			-
Deferred revenue	13		7,053			-
Financial derivative liabilities	14		-			29,463
Current liabilities			1,120,004			603,446
Lease obligations	12		307,909			117,218
Convertible notes	15		-			210,819
Non-current liabilities			307,909			328,037
Total Liabilities			1,427,913			931,483
Shareholders' Equity (Deficit)
Share capital	16		9,374,563			2,284,353
Contributed surplus	16		583,878			21,050
Accumulated deficit			(6,073,577	)		(2,536,799	)
Total Shareholders' equity (deficit)			3,884,864			(231,396	)
Total Liabilities and Shareholders' Equity (Deficit)		$	5,312,777		$	700,087

See Note 2(a) Going concern and Note 24 Commitments and contingencies.

See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors:
(signed) John McCoach, Director	(signed) David Luxton, Director

F-79

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Net Loss and Comprehensive Loss
For the nine months ended September 30, 2020 and the twelve months ended December 31, 2019

In Canadian dollars	Note		Nine Months ended September 30, 2020			Twelve months ended December 31, 2019
			(Adjusted  - see Note 8)			(As restated - see Note 25)
Revenue	18	$	861,917		$	509,148
Cost of sales			(247,113	)		(85,101	)
Gross profit			614,804			424,047
Operating expenses
General and administrative	4, 10, 16		2,723,861			397,990
Selling and marketing			564,266			36,681
Research and development, net			817,584			1,003,705
Total operating expenses			4,105,711			1,438,376
Operating loss			(3,490,907	)		(1,014,329	)
Other income (expenses)
Fair value adjustments on derivatives	14		29,463			113,178
Net finance costs	10, 12, 15		(61,397	)		(245,147	)
Foreign exchange gain (loss)			(13,937	)		(982	)
Total other income (expenses)			(45,871	)		(132,951	)
Loss before income taxes			(3,536,778	)		(1,147,280	)
Income tax recovery:	19
Current tax recovery			-			-
Deferred tax recovery			-			-
Net loss and comprehensive loss		$	(3,536,778	)	$	(1,147,280	)
Net Loss per share
Basic and diluted		$	(0.11	)	$	(0.07	)
Weighted average number of shares outstanding
Basic and diluted	17		30,844,129			17,430,077

See accompanying notes to consolidated financial statements. 

F-80

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Changes in Shareholders' Equity
For the nine months ended September 30, 2020 and the twelve months ended December 31, 2019

In Canadian dollars		Common Shares					Contributed Surplus								Total Shareholders' Equity
[Refer to Note 16]	Other Notes	Number Issued		Share Capital			Warrants		Options			Deficit
Balance, December 31, 2018		200	$	200		$	-	$	-		$	(1,389,519	)	$	(1,389,319	)
Shares issued for cash		5,075,000		1,014,948			-		-			-			1,014,948
Shares issued for debt		21,804,486		1,269,205			1,192		-			-			1,270,397
Warrants issued for debt		-		-			19,858		-			-			19,858
Net loss	25	-		-			-		-			(1,147,280	)		(1,147,280	)
Balance, December 31, 2019		26,879,686	$	2,284,353		$	21,050	$	-		$	(2,536,799	)	$	(231,396	)
Shares and warrants issued in a brokered private placement		4,409,553		3,087,138			60,340		-			-			3,147,478
Shares for converted debt and interest		3,666,689		1,583,881			-		-			-			1,583,881
Shares and warrants issued in non-brokered private placements		3,486,750		1,480,875			15,780		-			-			1,496,655
Shares issued for performance incentive		1,045,000		731,500			-		-			-			731,500
Shares from Foremost's qualifying transaction	4(a)	898,498		628,949			-		41,155			-			670,104
Shares and warrants issued on acquisition of technology asset	4(b)	697,000		167,280			180,000					-			347,280
Stock options exercised		122,000		78,080			-		(17,531	)		-			60,549
Shares for consulting services		61,000		32,393			-					-			32,393
Share-based payments		-		-					283,084			-			283,084
Share offering costs		-		(699,886	)		-					-			(699,886	)
Net loss		-		-			-					(3,536,778	)		(3,536,778	)
Balance, September 30, 2020		41,266,176	$	9,374,563		$	277,170	$	306,708		$	(6,073,577	)	$	3,884,864

See accompanying notes to consolidated financial statements.

F-81

KWESST MICRO SYSTEMS INC.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2020 and the twelve months ended December 31, 2019

In Canadian dollars			Note		Nine months ended September 30, 2020			Twelve months ended December 31, 2019
					(Adjusted - See Note 8)			(As restated - see Note 25)
OPERATING ACTIVITIES
	Net loss			$	(3,536,778	)	$	(1,147,280	)
	Items not affecting cash:
		Depreciation and amortization	6, 8		103,397			102,142
		Share-based compensation	17		283,084			-
		Shares for M&A advisory and consulting services			763,893			-
		Fair value adjustments on derivative liabilities	14		(29,463	)		(113,178	)
		Non-cash listing expense (included in M&A costs)	4(a)		814,703			-
		Net finance costs			61,217			230,858
	Changes in non-cash working capital items		21		(245,095	)		(141,575	)
	Interest paid				(6,612	)		(24,523	)
Cash used in operating activities					(1,791,654	)		(1,093,556	)
INVESTING ACTIVITIES
	Acquisition of property and equipment		6		(133,927	)		(20,190	)
	Acquisition of technology asset		4(b)		(163,230	)		-
	Investments in development projects		9		(38,212	)		-
	Deposit for long-term office lease				(134,192	)		-
	Cash acquired on closing of Foremost		4(a)		78,589			-
Cash flows used in investing activities					(390,972	)		(20,190	)
FINANCING ACTIVITIES
	Proceeds from the issuance of common shares		16		4,355,171			1,014,948
	Proceeds from convertible notes and converted to equity		17		1,081,504			-
	Payments of share offering costs		17		(164,716	)		-
	Proceeds from borrowings		11		40,000			-
	Repayment of borrowings				-			(10,747	)
	Repayments to related party loans		10		(80,000	)		(70,513	)
	Proceeds from related party loans		10		-			310,684
	Repayments of lease obligations		12		(58,188	)		(77,367	)
	Repayments of convertible notes		15		-			(31,644	)
	Proceeds from exercise of stock options		16		61,000			-
Cash flows provided by financing activities					5,234,771			1,135,361
Net change in cash during the period					3,052,145			21,615
Cash, beginning of period					21,615			-
Cash, end of period				$	3,073,760		$	21,615

See Note 21 for supplemental cash flow information

See accompanying notes to consolidated financial statements.

F-82

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

1.Corporate information

KWEEST Micro Systems Inc. (the "Company" or "KWESST"), formerly Foremost Ventures Corp. (''Foremost''), was incorporated on November 28, 2017, under the laws of the Province of British Columbia. The Company's registered office is located at 550 Burrard Street, Suite 2900, Vancouver, British Columbia, Canada. Its corporate office is located at Unit 1, 155 Terrence Matthews Crescent, Ottawa, Ontario, Canada.

On September 17, 2020, Foremost completed a Qualifying Transaction ("the QT") with KWESST Inc., a private company, was incorporated under the laws of the Province of Ontario on April 24, 2017. The QT constituted a reverse acquisition in accordance with IFRS as the shareholders of KWESST Inc. took control of Foremost (Note 4(a)). At the time of the QT, Foremost did not constitute a business as defined under IFRS 3 - Business Combinations, and therefore the QT was accounted for as an asset acquisition. As KWESST Inc. was deemed to be the acquirer for accounting purposes, the resulting consolidated statements of financial position was presented as a continuance of KWESST Inc.'s operations at their historical carrying values, and the comparative figures presented are those of KWESST Inc. The results of operations, the cash flows, and the assets and liabilities of Foremost have been included in these consolidated financial statements since September 17, 2020.

Following the QT, KWESST, pursuant to Section 4.8(2) of National Instrument 51-102, provided notice that KWESST has changed its fiscal year end to September 30th from December 31st. Accordingly, these consolidated financial statements presented herein are as at and for the nine months ended September 30, 2020 with comparatives as at and for the twelve months ended December 31, 2019.

KWESST develops and markets innovative products to create ''intelligent tactical systems'' and proprietary technology for game-changing applications in the military and homeland security market. KWESST's core technology has multiple applications based on its micro integrated sensor software technology, or MISST, a proprietary integration of miniaturized sensors, optics, ballistics and software that provides an advancement in affordable smart systems and mission capability.

KWESST's common stock is listed on the TSX-Venture Exchange (''TSX-V'') under the stock symbol of KWE.

2.Basis of preparation

(a)Going concern

These consolidated financial statements have been prepared assuming KWESST will continue as a going concern.

As an early-stage company, KWESST has incurred significant losses and negative operating cash flows from inception that have primarily been funded from financing activities. The Company incurred approximately $3.5 million net loss and negative operating cash flows of approximately $1.8 million for the nine months period ended September 30, 2020 (2019 - $1.1 million net loss and negative operating cash flows of $1.1 million for 12 months). At September 30, 2020, KWESST had a working capital of $2.9 million (December 31, 2019 - working capital deficiency of $0.3 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, achieving sustained profitability and the ability to raise additional debt or equity financing, if required, to fund its working capital requirements. There are various risk and uncertainties affecting KWESST's operating including, but not limited to:

F-83

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

• The market acceptance and rate of commercialization of the KWESST's offerings;
• Ability to successfully execute its business plan;
• Ability to raise additional capital at acceptable terms;
• General local and global economic conditions, including the ongoing COVID-19 pandemic, certain of which are beyond the Company's control.

KWESST's strategy to mitigate these risks and uncertainties is to execute timely a business plan 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. There are no guarantees that the funds raised will be sufficient to sustain KWESST's ongoing operations beyond twelve months or that additional debt or equity financing will be available to the Company or available at acceptable terms. Failure to implement the Company's business plan could have a material adverse effect on the Company's financial condition and/or financial performance. Accordingly, there are material risks and uncertainties that cast significant doubt about KWESST's ability to continue as a going concern.

These consolidated financial statements do not include any adjustments or disclosures that would be required if assets are not realized and liabilities and commitments are not settled in the normal course of operations. If KWESST is unable to continue as a going concern, then the carrying value of certain assets and liabilities would require revaluation to a liquidation basis, which could differ materially on the values presented in the financial statements.

(b)Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (''IFRS'') as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee ("IFRIC''). 

The consolidated financial statements were authorized for issue by the Board of Directors on January 28, 2021.

(b)Principles of consolidation

These consolidated financial statements incorporate the financial statements of KWESST and the entity it controls.

Control is achieved where KWESST has 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 the Company's 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 the Company until the date on which control ceases. Profit or loss of subsidiaries acquired during the year are recognized from the date of acquisition or effective date of disposal as applicable. All intercompany transactions and balances have been eliminated.

At September 30, 2020, the Company has one wholly-owned subsidiary: KWESST Inc.

(c)Functional and presentation currency

The consolidated financial statements are presented in Canadian dollars ("CAD"), which is the functional currency of KWESST and its subsidiary.

F-84

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

(d)Measurement basis

The consolidated financial statements have been prepared on the 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.

(e)Comparative figures

Certain comparative figures in the consolidated statements of net loss and comprehensive loss have been reclassified to conform with the current period's presentation.

(f)Use of estimates and judgments

The preparation of the consolidated 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.

The continuing uncertainty around the outbreak of the novel coronavirus ("COVID-19"') pandemic required the use of judgements and estimates in the preparation of the consolidated financial statements for the nine months ended September 30, 2020. The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant impact to the reported amounts of assets, liabilities, revenue and expenses in these and any future financial statements.

Critical judgments that management has made in applying KWESST's accounting policies that the most significant effect on the amounts recognized in the consolidated financial statements include: assessment of KWESST's ability to continue as a going concern (Note 2(a)); and determination of the functional currency of the principal operations of KWESST(Note 2(c)).

Significant areas having estimation uncertainty in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements:

Revenue recognition

To date, substantially all of the Company's revenue arise from providing customized tactical system solutions to customers at an amount that reflects the consideration KWESST expects to receive in exchange for the system offering.

The timing of revenue recognition often differs from contract payment milestones, resulting in revenue that has been earned but not billed. These amounts are included in unbilled receivables. Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of deferred revenue. At September 30, 2020, management determined there was no unbilled receivables.

Fair value of acquired intangible assets

KWESST estimates the fair value of technology acquired based on observable market inputs. Because KWESST Inc. was a private company at the time of closing the GhostStep® Technology acquisition (see Note 4(b)), the common shares issued under this transaction were not actively trading on a stock exchange. Accordingly, management measured the fair value of the common shares based on the cash versus shares election available under the purchase agreement. Specifically, KWESST Inc. had the sole discretion to pay USD $100,000 (CAD $134,192) or issue 557,000 common shares to SageGuild. This implies a fair value of $0.24 per common share of KWESST Inc. at the time of closing the transaction.

F-85

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Accordingly, for the purpose of estimating the fair value of the warrants issued under this transaction (see contingent consideration below), management used $0.24 as the underlying stock price for one of the key inputs in the Black-Scholes pricing model.

Contingent consideration

The GhostStep® Technology acquisition included contingent consideration in which KWESST Inc. issued 750,000 warrants to SageGuild which are cancellable if service condition is not met (see Note 4(b)). The rights granted under warrants shall vest and be exercisable as to 250,000 warrants on each of December 31, 2020, 2021, and 2022 if service condition is met. Subject to the service condition being met, on each of these three vesting dates, SageGuild shall be deemed to have exercised 250,000 warrants for an aggregate purchase price of $125,000.

Under IFRS, the contingent consideration is classified as either a financial liability or equity based on the feature of the contingent consideration and how the number of shares to be issued is determined. Where a fixed number of shares either will or will not be issued depending on future events, the contingent consideration meets the definition of equity. The SageGuild warrants were classified as equity and the subsequent settlement will also be accounted for within equity. The contingent consideration is required to be recognized at the acquisition date fair value even if it is not deemed to be probable of payment at the date of the acquisition.

Treatment of development costs

Costs to develop products are capitalized to the extent that the criteria for recognition as intangible assets in IAS 38, Intangible Assets are met. Those criteria require that the product is technically and economically feasible, which management assessed based on the attributes of the development project, perceived user needs, industry trends, and expected future economic conditions. Management considers these factors in aggregate and applies significant judgment to determine whether the product is feasible.

Impairment of intangible assets

At September 30, 2020, the intangible assets relates primarily the GhostStep® Technology recorded at its fair value at the acquisition date (see Note 8). Because the GhostStep® Technology is pre-commercial stage with no similar technology in the current marketplace, there is significant management judgement in projecting anticipated global market demand, pricing, and gross profit for this electronic decoy technology; all key inputs in management's discounted cash flow model to determine the recoverable amount. An impairment loss is recognized if the recoverable amount of the asset is less than the carrying amount.

Useful lives of property and equipment

As KWESST is an early-stage company, it has limited operating history to estimate the useful lives of property and equipment. Management made estimates based on anticipated use. Further, management has determined the residual value of these assets to be nil. At September 30, 2020, management concluded there was no evidence of a change in the useful lives of property and equipment.

Fair value of share-based payments and warrants

Because KWESST Inc. has limited operating history and was a private company at the time of granting stock options and issuing warrants during the nine months ended September 30, 2020, management exercised significant judgement in estimating the fair value of stock options and warrants. Fair value is estimated using the Black-Scholes pricing model, which requires management to make significant judgment principally on the following key inputs: expected life of the stock option and volatility of the underlying share price. For share-based payment, management must also apply an estimated forfeiture rate to the calculated fair value, which is subject to significant judgement due to the Company's limited history.

F-86

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

3.Significant accounting policies

KWESST used the following significant accounting policies for the preparation of the consolidated financial statements. These policies have been applied to the comparative period.

(a)Revenue recognition

KWESST determines the amount of revenue to be recognized through application of the following five-step process:

(i)Identification of the contract, or contracts with a customer;

(ii)Identification of the performance obligations in the contract;

(iii)Determination of the transaction price;

(iv)Allocation of the transaction price to the performance obligations in the contract; and

(v)Recognition of revenue when or as the Company satisfies the performance obligations.

For contracts with payment milestones, Management estimates the percentage of completion and records unbilled revenue.

KWESST also recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the costs to be recoverable. Management has determined that sales commissions meet the requirements to be capitalized. Capitalized contract acquisition costs are amortized consistent with the pattern of transfer to the customer for the goods and services to which the asset relates. KWESST applies the practical expedient available under IFRS 15 and does not capitalize incremental costs of obtaining contracts if the amortization period is one year or less.

(b)Financial instruments

KWESST recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of the instrument.

Trade and other receivables without a significant financing component are initially measured at the transaction price. All other financial assets and financial liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (''FVTPL'')) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

All financial assets are recognized and de-recognized on trade date.

Financial assts are recognized at fair value and subsequently classified and measured at:

a)Amortized cost;

b)Fair value through other comprehensive income (''FVOCI''); or

F-87

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

c)Fair value though profit or loss (''FVTPL'').

KWESST determines the classification of its financial assets on the basis of both the business model for managing the financial assets and the contractual cash flows characteristics of the financial asset. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets.

A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest of the principal amount outstanding. At September 30, 2020, KWESST classified the following as amortized cost:

• Cash
• Trade and other receivables
• Lease deposit (non-current other asset)

All financial assets not classified and measured at amortized cost or FVOCI are measured at FVTPL. At September 30, 2020, KWESST did not have financial assets classified as FVOCI or FVTPL.

Expected credit losses

KWESST measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as KWESST's past experience of collecting payments, the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables, financial difficulty of the borrower, and it becoming probable that the borrower will enter bankruptcy or financial re-organization.

Financial assets are written off when there is no reasonable expectation of recovery.

Financial liabilities

Financial liabilities are recognized at fair value and subsequently classified and measured at

amortized cost or fair value though profit or loss (''FVTPL'').

KWESST determines the classification of its financial liabilities at initial recognition. The Company has classified the following as amortized costs:

• Accounts payable and accrued liabilities
• Related party loans
• Borrowings
• Lease obligations
• Convertible notes

Financial liabilities at amortized cost are measured using the effective interest rate method.

At September 30, 2020 and December 31, 2019, KWESST classified financial derivative liabilities as FVTPL.  Accordingly, fair value is remeasured at each reporting period with the fair value adjustment recognized in profit or loss. There was no outstanding financial derivative liability at September 30, 2020.

F-88

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

De-recognition of financial liabilities

KWESST de-recognizes financial liabilities when its obligations are discharged, cancelled or they expire.

(c)Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the fair value of consideration given to acquire or construct an asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use along with the future cost of dismantling and removing the asset. These assets are depreciated over their estimated useful lives using the straight-line method as this most closely reflects the expected pattern of consumption o the future economic benefits. Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.

The following table provides a summary of estimated useful lives for KWESST's property and equipment:

Property and equipment	Rate
Computer equipment	5 years
Computer software	3 years
Office furniture and equipment	5 years
R&D equipment	5 years
Leasehold improvements	Shorter of useful life or remaining term of lease

At the end of each reporting period, KWESST reviews the carrying amounts of its property and equipment to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash flows of other assets or groups of assets (the ''cash-generating unit, or CGU''). If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(d)Leases

At inception of a contract, KWESST assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

KWESST recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease obligation is measured at the present value of the remaining lease payments as of January 1, 2018, discounted using its incremental borrowing rate of 10%. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if KWESST is reasonably certain to exercise that option.  Lease terms range from 3 to 6 years for offices and printer. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

F-89

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, KWESST's incremental borrowing rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in KWESST's estimate of the amount expected to be payable under a residual value guarantee, or if KWESST changes its assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying value of the right-of-use asset or, is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

KWESST has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.

(e)Intangible assets

(i)Research and development ("R&D'') costs

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss when incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and KWESST has the intention and sufficient resources to complete the development and to use or sell the asset. The expenditure capitalized in respect of development activities includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditures are recognized in profit or loss when incurred.

(ii)Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(iii)Amortization

Amortization is a systematic allocation of the amortizable amount of an intangible asset of its useful life. The amortizable amount is the cost of the asset less its estimated residual value. KWESST recognizes in profit or loss on a sales-based rate over the estimated useful lives of the intangible assets from the date they are available for use, since this method most closely reflect the expected pattern of consumption of the future economic benefits embodied in each asset. Where a sales-based rate could not be determined, the straight-line approach is used.

F-90

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Internally generated intangible assets are not systematically amortized as long as they are not available for use i.e. they are not yet on site or in working condition for their intended use. Accordingly, intangible assets such as development costs are tested for impairment at least once a year, until such date as they are available for use.

(iv)Impairment

All intangible assets are periodically reviewed for impairment. The estimated present value of future cash flows associated with the intangible asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset's original effective interest rate, and the resulting loss is directly recognized in profit or loss for the period.

(f)Provisions

A provision is recognized if, as a result of a past event, KWESST has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability. The unwinding of the discount is recognized as a finance cost.

(g)Convertible notes

KWESST's convertible notes are segregated into their debt and equity components or derivative liability components at the date of issue, in accordance with the substance of the contractual agreements.

The conversion feature of the convertible notes is presumed to be classified as a derivative financial liability unless it meets all the criteria to recognize as equity instrument under IAS 32, Financial Instruments: Presentation. One of the criteria is that the conversion option exchanges a fixed amount of shares for a fixed amount of cash ("fixed for fixed").

If the conversion feature meets the fixed for fixed criteria, the conversion option will be classified as equity components. Equity instruments are instruments that evidence a residual interest in the assets of an entity after deducting all of its liabilities. Therefore, when the initial carrying amount of the convertible notes is allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. The sum of the carrying amounts assigned to the liability and equity components on initial recognition is always equal to the fair value that would be ascribed to the instrument as a whole. No gain or loss arises from initially recognizing the components of the instrument separately.

If the conversion feature does not meet the fixed for fixed criteria, the conversion option will be recorded as derivative financial liability, which must be separately accounted for at fair value on initial recognition. The carrying amount of the debt component, on initial recognition, is recalculated as the difference between the proceeds of the convertible notes as a whole and the fair value of the derivative financial liabilities. Subsequent to initial recognition, the derivative financial liability is re-measured at fair value at the end of each reporting period with changes in fair value recognized in the consolidated statements of comprehensive loss for each reporting period, while the debt component is accreted to the face value of the debt using the effective interest method.

F-91

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Incremental costs incurred in respect of raising capital or debt are charged against the equity or debt proceeds raised, unless the instrument to which the transaction costs relate is classified as held for trading, in which case the incremental costs are expensed to profit or loss immediately.

(h)Income taxes

Income tax expense comprises current income tax expense and deferred income tax expense. Current and deferred income taxes are recognized as an expense and included in profit or loss for the period, except to the extent that the tax arises from a transaction which is recognized in other comprehensive income or directly in shareholder's deficiency.

Current income tax

Current tax expense is the amount of income taxes payable (recoverable) in respect of the taxable income (tax loss) for a period. Current liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax

Deferred tax assets and liabilities are recognized for the temporary differences between transactions that have been included in the consolidated financial statements or income tax returns. Deferred income taxes are provided for using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between that the tax and financial statement bases of assets and liabilities and for certain carry-forward items. Deferred income tax assets are recognized only to the extent that, in the opinion of management, it is probable that the deferred income tax assets will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting period. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment or substantive enactment. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and KWESST intends to settle its current tax assets and liabilities on a net basis.

Investment tax credits

Investment tax credits relating to scientific research and experimental development expenditures are recorded in the fiscal period the qualifying expenditures are incurred based on management's interpretation of applicable legislation in the Income Tax Act of Canada. Credits are recorded provided there is reasonable assurance that the tax credit will be realized. Credits claimed are subject to review by the Canada Revenue Agency.

Credits claimed in connection with R&D activities are accounted for using the cost reduction method. Under this method, assistance and credits relating to the acquisition of equipment is deducted from the cost of the related assets, and those relating to current expenditures, which are primarily salaries and related benefits, are included in the determination of profit or loss as a reduction of the R&D expenses.

F-92

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

(i)Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions are in the normal course of business and have commercial substance.

(j)Share-based payments

KWESST records share-based compensation related to its stock options and certain warrants granted from the Company. Stock-based compensation for stock options and warrants are measured at fair value using a Black Scholes option-pricing model. The market value of KWESST's shares on the date of the grant is used to determine the fair value of options and warrants. Each tranche of an award is considered a separate award with its own vesting period and grand date fair value. Compensation cost is recognized as employee benefits expense over the vesting period in which employees unconditionally become entitled to the award. The amount recognized as an expense is adjusted to reflect only the number of awards for which related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date.

Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified and if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employees as measured at the date of acquisition.

(k)Foreign currency

Transactions in foreign currencies are translated to the respective functional currencies of KWESST at the exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in other than the functional currency are translated at the exchange rates in effect at the reporting date. Non-monetary items that are measured in terms of historical cost in other than the functional currency are translated using the exchange rate at the date of the transaction. The resulting exchange gains and losses are recognized in profit or loss.

(l)Earnings (loss) per share

Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period. KWESST uses the treasury stock method to compute the dilutive effect of options, warrants, and similar instruments. Under this method, the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants, and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the period.

However, the calculation of diluted loss per share excludes the effects of various conversions and exercises of convertible debt, options and warrants that would be anti-dilutive.

F-93

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

(m)Reverse acquisition

KWESST was a capital pool company, which did not constitute a business as defined under IFRS 3 - Business Combination at the time of the QT and is therefore not within the scope of IFRS 3. However, the QT has some features of a reverse acquisition under IFRS 3. In the absence of a Standard that specifically applies to the QT, KWESST applied by analogy the guidance in IFRS 3 for reverse acquisitions in accordance with IAS 8 accounting policies, changes in accounting estimates and errors.

Application of the reverse acquisitions guidance by analogy results in the private operating entity KWESST Inc. being identified as the accounting acquirer, and the listed non-operating entity KWESST being identified as the accounting acquiree. The accounting acquirer is deemed to have issued shares to obtain control of the accounting acquiree KWESST. Because the QT is not within the scope of IFRS 3, KWESST accounted for it as an asset acquisition and the consideration as a share-based payment transaction which was accounted for in accordance with IFRS 2 - Share-based Payment.

According to IFRS 2, any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree's identifiable net assets represents a service received by the accounting acquirer. Regardless of the level of monetary or non-monetary assets owned by the non-listed operating entity, the entire difference was considered to be payment for a service of a stock exchange listing for its shares, and that no amount should be considered a cost of raising capital. The service received in the form of a stock exchange listing does not meet the definition of an intangible asset because it is not identifiable in accordance with IAS 38 Intangible Assets (it is not separable) and does not meet the definition of an asset that should be recognized in accordance with other Standards and the Conceptual Framework, therefore the services received was recognized as listing expense (included in merger & acquisition costs in the consolidated statements of net loss and comprehensive loss).

New accounting standards issued but not yet in effect

Classification of liabilities as current or non-current (Amendments to IAS 1)

The IASB has published Classification of Liabilities as Current or Non-Current (Amendments to IAS 1), which clarified the guidance on whether a liability should be classified as either current or non-current. The amendments were as follows:

(i)Clarified that the classification of liabilities as current or non-current should only be based on rights that are in place at the end of the reporting period.

(ii)Clarified that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability; and

(iii)Made clear that settlement includes transfers to the counterparty of cash, equity instruments, other assets or services that result in extinguishment of the liability.

This new guidance is effective for annual periods beginning on or after January 1, 2022. Earlier application is permitted. KWESST has not yet assessed the impact of adoption of this guidance. Further, there is currently a proposal outstanding that would defer the effective date until January 1, 2023.

F-94

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

4.Acquisitions

a)Reverse acquisition

On September 17, 2020, Foremost completed the QT with KWESST Inc. pursuant to the policies of the TSX Venture Exchange (''TSX-V''). Prior to the completion of the QT, Foremost effected a consolidation of its outstanding common shares on the basis of one post-consolidation common share for every 4.67 pre-consolidation common shares. The QT was done by way of a three-cornered amalgamation (the "Amalgamation") pursuant to which, among other things:

(i)KWESST Inc. amalgamated with a wholly-owned subsidiary of Foremost, incorporated for the purposes of the Amalgamation, pursuant to the provisions of the Business Corporations Act (Ontario),

(ii)Foremost changed its name to KWESST Micro Systems Inc., and

(iii)all of the outstanding common shares of KWESST Inc. (the "KWESST Shares") were cancelled and, in consideration therefor, the holders thereof received post-consolidation common shares of KWESST Micro Systems Inc. on the basis of one KWESST Micro System Inc. share for each KWESST Share.

Immediately following the QT, there were 41,266,176 shares of KWESST outstanding, of which 40,367,678 were held by the former shareholders of KWESST Inc. (representing approximately 97.8% of the outstanding shares of the Company) and 898,498 were held by the shareholders of Foremost prior to the QT. Accordingly, this transaction was accounted for as a reverse acquisition where KWESST Inc. is deemed to be the acquirer for accounting purposes.

The reverse acquisition of Foremost was accounted for under IFRS 2, Share-based Payment. Accordingly, the fair value of the purchase consideration was accounted for at the fair value of the equity instruments granted by the shareholders of KWESST Inc. to the shareholders and option holders of Foremost.

The following represents management's estimate of the fair value of the net assets acquired and total consideration transferred at September 17, 2020, the closing date of the QT.

Number of common shares issued to Foremost shareholders		898,498
KWESST's stock price at closing of reverse acquisition (1)	$	0.70
Common shares	$	628,949
Options		41,155
Total consideration transferred	$	670,104

(1)At closing, the subscription receipts issued by KWESST Inc. on July 9, 2020 pursuant to a brokered private placement (the "KWESST Subscription Receipts"), were automatically converted, into shares of KWESST. The private placement which was completed through PI Financial Corp. as agent, consisted of 4,409,553 KWESST Subscription Receipts issued at $0.70 per KWESST Subscription Receipt for gross proceeds of about $3.1 million before share issuance costs. See Note 16.

F-95

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

The total fair value consideration was allocated to Foremost's net assets as follows: 

Total fair value consideration	$	670,104
Foremost's net assets (liabilities):
Cash	$	78,589
Other receivables		1,900
Accounts payable and accrued liabilities		(225,088	)
Net assets (liabilities) at fair value		(144,599	)
Residual balance allocated to listing expense (included in M&A costs)		814,703
Total	$	670,104

The results of operations of Foremost are included in these consolidated statements of comprehensive loss from September 17, 2020.

The listing expense of $814,703 is a non-cash item - see consolidated statements of cash flows.

In addition, 1,000,000 common shares with fair value of $700,000 were issued to two M&A / capital market advisors for successfully assisting KWESST to complete the QT. One of the two advisors is a related party (Note 16).

b)Asset acquisition

On June 12, 2020, KWESST Inc. entered into the GhostStep Technology Purchase Agreement (the "Purchase Agreement") with SageGuild LLC ("SageGuild") pursuant to which KWESST Inc. acquired the GhostStep® Technology.  Management determined that this transaction did not meet the definition of a business under IFRS 3 and therefore this transaction was accounted for as an asset acquisition.

The total purchase consideration ("Purchase Price") comprised of:

(i)a cash payment made on June 12, 2020 in the amount of USD $100,000 (CAD $134,192);

(ii)the issuance on June 12, 2020 of 140,000 common shares of KWESST; and

(iii)either the payment of USD $100,000 in cash or the issuance of 557,000 common shares of KWESST at a deemed price of $0.50 per common share (CAD $278,500), at KWESST's sole discretion, upon the completion of KWESST's QT.

As a result of completing the QT, KWESST Inc. has elected to issue 557,000 common shares to SageGuild.

In addition to the Purchase Price, pursuant to the Purchase Agreement KWESST Inc. has:

(i)agreed to make annual payments ("Yearly Payments") to SageGuild of $125,000 on each of December 31, 2020, 2021 and 2022, subject to certain conditions; and

(ii)issued 750,000 warrants to SageGuild exercisable at $0.50 per share and expiring on January 15, 2023 (the "Warrants") - see Notes 16.

The Warrants will vest in equal tranches of 250,000 warrants on each of December 31, 2020, 2021 and 2022. KWESST has the right to apply the Yearly Payments against the exercise price of the Warrants.

F-96

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Accordingly, the total purchase consideration amounted to:

Cash consideration	$	134,192
Share issuance with no condition		33,600
Elected share issuances		133,680
Contingent consideration		180,000
Totall purchase consideration	$	481,472

The above total purchase consideration was recognized as intangible assets (see Note 8).

In addition to the above total purchase consideration, KWESST Inc. has agreed to pay SageGuild royalties at a rate of 20% on amounts received in consideration of the grant of licenses and on sales of the GhostStep® Technology until KWESST has paid SageGuild a total of USD $3 million in royalties. Once KWESST has paid SageGuild a total of USD $3 million in royalties, the royalty rate will decrease to 5%. The obligation to pay royalties will terminate automatically once KWESST has paid SageGuild a total of USD $20 million in royalties. The Purchase Agreement became effective on June 12, 2020 and will continue in full force and effect until the earliest of (i) June 12, 2040 or (ii) the date of the expiration of the last of the patents or any of the patents (which are expected to be valid for a period of seventeen years from the date of issuance) related to improvements of the GhostStep® Technology to which SageGuild, or its principal Mr. Jeffrey M. Dunn, materially contributes, unless the terminated earlier in accordance with the terms and conditions of the agreement.

In the event KWESST is in default of payment of any royalty payment as outlined above for a period of 30 days, SageGuild may terminate the agreement and KWESST will be required to, among other things, transfer the GhostStep® Technology back to SageGuild.

KWESST Inc. did not have any sales during the nine months ended September 30, 2020 that would have triggered royalty payments payable to SageGuild.

5.Trade and other receivables

The following table presents trade and other receivables for KWESST:

		September 30, 2020		December 31, 2019
Trade receivables	$	209,169	$	1,191
Sales tax recoverable		144,423		55,684
Investment tax credits refundable		127,325		162,928
Total	$	480,917	$	219,803

There was no impairment of trade and other receivables during the nine months ended September 30, 2020 (2019 - $nil).

F-97

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

6.Property and equipment

The following is summary of changes in property and equipment for KWESST:

Cost		Computer equipment		Computer software		Office furniture and equipment		R&D equipment		Leasehold improvements			Total property and equipment
Balance at December 31, 2018	$	-	$	8,145	$	32,781	$	40,471	$	8,607		$	90,004
Additions		14,073		-		-		6,117		-			20,190
Disposals		-		-		-		-		-			-
Balance at December 31 2019	$	14,073	$	8,145	$	32,781	$	46,588	$	8,607		$	110,194
Additions		18,734		-		49,060		7,046		59,090			133,930
Disposals		-		-		-		-		(8,607	)		(8,607	)
Balance at September 30, 2020	$	32,807	$	8,145	$	81,841	$	53,634	$	59,090		$	235,517
Accumulated depreciation		Computer equipment		Computer software		Office furniture and equipment		R&D equipment		Leasehold improvements			Total property and equipment
Balance at December 31, 2018	$	-	$	3,396	$	9,672	$	5,172	$	2,497		$	20,737
Amortization for 12 months		241		2,715		6,471		8,186		1,722			19,335
Balance at December 31, 2019	$	241	$	6,111	$	16,143	$	13,358	$	4,219		$	40,072
Amortization for 9 months		5,821		1,526		6,149		7,478		8,434			29,408
Disposals		-		-		-		-		(8,607	)		(8,607	)
Balance at September 30, 2020	$	6,062	$	7,637	$	22,292	$	20,837	$	4,045		$	60,873
Carrying value at December 31, 2019	$	13,832	$	2,034	$	16,638	$	33,229	$	4,389		$	70,122
Carrying value at September 30, 2020	$	26,745	$	508	$	59,549	$	32,797	$	55,045		$	174,644

7.Intangible assets

The following table presents intangible assets for KWESST:

		Development Costs		Technology Asset		Total
Cost
Balance at December 31, 2019	$	-	$	-	$	-
Additions		163,230		-		163,230
Additions through acquisition (Note 4)		-		481,472		481,472
Balance at September 30, 2020	$	163,230	$	481,472	$	644,702

During the nine months ended September 30, 2020, KWESST capitalized development costs of $163,230 in connection with a funded development project to support a U.S. military customer, featuring KWESST's signature Tactical Awareness and Situational Control System ("TASCS") - see Note 26 (a).

As disclosed in Note 4(b), KWESST acquired technology assets of $481,272, comprising intellectual property rights, including trademark rights, of the GhostStep® Technology, an electronic decoy system. Management has estimated a useful life of five years; however, as this technology has not yet reached commercialization, no amortization charge was recorded for the nine months period ended September 30, 2020.

F-98

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

8.Right-of-use assets

The following table presents right-of-use assets for KWESST:

		Offices			Printer			Total
Balance at December 31, 2018	$	254,159		$	13,120		$	267,279
Depreciation		(76,248	)		(6,559	)		(82,807	)
Balance at December 31, 2019	$	177,911		$	6,561		$	184,472
Additions		571,604			-			571,604
Termination		(139,787	)		-			(139,787	)
Depreciation		(92,567	)		(3,282	)		(95,849	)
Balance at September 30, 2020 (as previously reported)		517,161			3,279			520,440
Correction of an error		(192,864	)		-			(192,864	)
Balance at September 30, 2020 (as adjusted)	$	324,297		$	3,279		$	327,576

During the nine months ended September 30, 2020, KWESST terminated an office lease agreement due to breach of contract by the former landlord and de-recognized the related right-of-use asset and lease obligations (see Note 12). As a result, KWESST entered into a new office lease agreement with a 74-month lease term starting from March 1, 2020. In connection with this new lease, KWESST made a total deposit of $33,726 to be released only at the end of this lease. This deposit was initially recorded at fair value, discounted using the implied interest rate in the lease. At September 30, 2020, $19,341 was the carrying value and reported as non-current deposit in the consolidated statements of financial position.

Subsequently, during the year ended September 30, 2021, management made an adjustment for a correction in the application of IFRS 16, Leases, to the new office lease entered in the prior year, whereby future variable payments were erroneously included in the calculation of the lease obligations. The following summarizes the effects of this correction to the prior year's comparatives.

Consolidated statements of financial position as at September 30, 2020:

		Previously Reported			Adjustment			Adjusted
Trade and other receivables	$	479,291		$	1,626		$	480,917
Right-of-assets	$	520,440		$	(192,864	)	$	327,576
Deposit (non-current)	$	22,337		$	(2,996	)	$	19,341
Total assets	$	5,507,011		$	(194,234	)	$	5,312,777
Lease obligations (current)	$	78,358		$	(34,230	)	$	44,128
Lease obligations (non-current)	$	496,394		$	(188,485	)	$	307,909
Total liabilities	$	1,650,628		$	(222,715	)	$	1,427,913
Deficit	$	(6,102,058	)	$	28,481		$	(6,073,577	)

Consolidated consolidated interim statements of changes in shareholders' equity (deficit) for the nine months ended September 30, 2020:

		Previously Reported			Adjustment		Adjusted
Deficit	$	(6,102,058	)	$	28,481	$	(6,073,577	)
Total shareholders' equity (deficit)	$	3,856,383		$	28,481	$	3,884,864

F-99

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

9.Accounts payable and accrued liabilities

The following table presents the accounts payable and accrued liabilities for KWESST:

		September 30, 2020		December 31, 2019
Trade payable	$	493,027	$	126,481
Accrued liabilities		188,265		29,822
Payroll taxes payable		67,229		-
Salary and vacation payable		65,722		29,343
Other		4,031		13,041
Total	$	818,274	$	198,687

10.Related party transactions

Key management personnel compensation

Key management personnel are those having authority and responsibility for planning, directing and controlling the activities of KWESST directly or indirectly, including any directors (executive and nonexecutive) of KWESST. The key management personnel of KWESST are the executive management team and Board of Directors, who collectively control approximately 38% of the issued and outstanding common shares of KWESST at September 30, 2020.

Key management personnel compensation comprised the following:

		Nine months ended  September 30, 2020		Twelve ended December 31, 2019
Wages and benefits	$	165,769	$	48,343
Consulting fees		145,000		30,000
Directors compensation		-		-
Share-based compensation		24,959		-
Total	$	335,728	$	78,343

The consulting fees relate to compensation paid to KWESST's Executive Chairman (via his private corporation, DEFSEC Corporation), including a one-time $15,000 payment for prior year expenses in accordance with the consulting agreement.

Related party loans

The following table summarizes the related party loans.

F-100

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

		Loans from CEO(1)			Employee loan (2), (5)			Loans from investors (3), (4)			Total
Balance at December 31, 2018	$	612,171		$	81,253		$	191,789		$	885,213
Additions		309,912			-			772			310,684
Transferred to convertible debentures		-			-			(192,561	)		(192,561	)
Converted into common shares		(649,500	)		-			-			(649,500	)
Converted into warrants		(19,858	)		-			-			(19,858	)
Repayment of loans		(45,513	)		(25,000	)		-			(70,513	)
Accrued interest		22,706			3,657			-			26,363
Balance at December 31, 2019	$	229,918		$	59,910		$	-		$	289,828
Repayment of loans		(30,000	)		(50,000	)		-			(80,000	)
Accrued interest		7,174			1,274			-			8,448
Balance at September 30, 2020	$	207,092		$	11,184		$	-		$	218,276

^{(1)In prior years, KWESST's CEO and his spouse (major shareholders) advanced funds to KWESST to fund its working capital requirements. The loans are due on demand and accrue annual interest at TD Bank prime plus 1.55%.}

^{(2)In prior years, KWESST borrowed funds from an employee to fund its working capital requirements. The loan bears interest at 5% per annum and is due upon demand. This loan was fully repaid during the first quarter of fiscal 2021.}

^{(3)On April 20, 2018, KWESST issued two Subscriptions for Revenue Sharing in the principal amount of $50,000 each to an investor. An additional amount of $26,961 was invested to the Company on December 14, 2018. The total loan of $126,960 and was subsequently reclassified as convertible notes on October 23, 2019 (see Note 15).}

^{(4)On June 5, 2018, KWESST issued a Subscription for Revenue Sharing in the principal amount of $64,829 (USD$50,000) to one of KWESST's officer. This loan was subsequently reclassified as convertible debentures on October 23, 2019 (see Note 15).}

Other related party transactions during the nine months ended September 30, 2020:

• Two directors of KWESST were investors in the 2019 convertible notes (see Note 15), in which KWESST incurred interest expense of $6,585 on these two convertible notes. This interest expense was converted to KWESST common shares.
• KWESST hired a consulting firm to provide capital markets advisory services, including assistance to complete KWESST's Qualifying Transaction with Foremost (see Note 4 (a)) and to raise capital. This consulting firm is also a significant shareholder and holds 1,500,000 warrants and 200,000 options of KWESST, including securities held by the owner of this firm.  Total cash and share-based remuneration amounted to $494,325.
• The lease for the 3-D printer was with a private company owned by KWESST's President and CEO and his spouse (see Note 12).

At September 30, 2020 and December 31, 2019, there was no outstanding amount in accounts payable and accrued liabilities due to officers and directors of KWESST.

11.Borrowings

In April 2020, KWESST was approved and received a $40,000 term loan with TD Bank under the Canada Emergency Business Account (''CEBA Term Loan'') program funded by the Government of Canada. The CEBA Term Loan is non-interest and can be repaid at any time without penalty. KWESST has recorded a fair value of $30,904 at inception, discounted using its incremental borrowing rate of 10%. The difference of $9,096 between the fair value and the total amount of CEBA Term Loan received has been recorded as a gain on government grant for the nine months period ended September 30, 2020. See Note 26(a).

F-101

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

12.Lease obligations

During the nine months ended September 30, 2020, KWESST terminated an office lease and entered into a long-term office lease contract. The office lease includes the right to renew for an additional five years following its expiry on April 30, 2026. Management has not included the renewal option because it was deemed too uncertain whether KWESST would renew at this time.

Under the new office lease, KWESST benefits from the following lease inducements:

• Free rent from inception (March 1, 2020) to November 1, 2020; and

• Free rent from November 1, 2021, to March 1, 2022.

When measuring the lease obligation, the Company discounted the remaining lease payments using the incremental estimated borrowing rate of Company of 10% per annum at the time of closing the new lease agreement.

The following table presents lease obligations for KWESST: 

		Offices			Printer			Total			Current Portion		Non-current portion
Balance, December 31, 2018	$	266,292		$	13,761		$	280,053		$	77,367	$	202,686
Lease payments (including interest)		(94,270	)		(7,620	)		(101,890	)		-		-
Interest expense		23,441			1,082			24,523			-		-
Balance, December 31, 2019	$	195,463		$	7,223		$	202,686		$	85,468	$	117,218
Addition		347,640			-			347,640
Termination		(157,315	)		-			(157,315	)
Lease payments (including interest)		(62,816	)		(7,620	)		(70,436	)
Interest expense		29,065			397			29,462
Balance, September 30, 2020 (as adjusted)	$	352,037		$	-		$	352,037		$	44,128	$	307,909

Refer to Note 7 regarding the correction of an error in the application of IFRS 16.

The termination of the former lease resulted in the de-recognition of the lease obligation and related unamortized book value of the right-of-use asset, resulting in a gain of $17,527. This was included in the net finance costs for the nine months ended September 30, 2020.

The following table presents the contractual undiscounted cash flows for the lease obligations:

		September 30, 2020		December 31, 2019
Less than one year	$	78,000	$	101,890
One to five years		390,000		125,693
Total	$	468,000	$	227,583

F-102

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

13.Deferred revenue

The following table presents the changes in deferred revenue:

		September 30, 2020		December 31, 2019
Balance, beginning of period	$	-	$	-
Amounts invoiced and revenue deferred		7,053		-
Recognition of deferred revenue included in the balance at the beginning of period		-		-
Balance, end of period	$	7,053	$	-

14.Financial derivative liabilities

In connection with the issuance of the 2019 Convertible Notes (see Note 15), management determined that the conversion feature was a financial derivative liability which is remeasured at fair value at each reporting period (see Note 20).

The following table summarizes the financial derivative liabilities:

		Total
Balance at December 31, 2018	$	111,953
Fair value adjustment when notes were converted into common shares		(111,953	)
Fair value of financial derivative liabilities on initial recognition		30,688
Fair value adjustment		(1,225	)
Balance at December 31, 2019		29,463
Fair value adjustment		(29,463	)
Balance at September 30, 2020	$	-

15.Convertible notes

The following table presents the convertible notes for KWESST:

Balance at December 31, 2018	$	521,515
Related party loans transferred to convertible notes (Note 10)		192,561
Converted into common shares (Note 16)		(620,897	)
Repayment of debt		(31,644	)
Less fair value of conversion feature		(30,688	)
Accrued interest		74,707
Accretion expenses		105,265
Balance at December 31, 2019		210,819
Accrued interest		16,769
Accretion expenses		28,130
Converted in common shares (Note 16)		(255,718	)
Balance at September 30, 2020	$	-

F-103

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Activities in 2019

During the year ended December 31, 2018, KWESST issued convertible notes to investors in the total principal amount of $601,961 bearing an interest of 10% per annum.

On October 23, 2019, KWESST converted $560,007 of debt and $60,890 of interest into 3,104,486 common shares at a price of $0.20 relating to all debts noted above and repaid $31,644 debt by cash. The remaining $234,515 was issued as new convertible debentures at a rate of 10% per annum and due on October 23, 2021. Upon the occurrence of a Liquidity Event, the new convertible note will automatically convert into common shares of KWESST at a conversion rate equal to a 20% discount to the value assigned to the common shares of KWESST under such Liquidity Event for the entire amount of the principal amount plus all accrued interest.

"Liquidity Event" means either (1) the completion of an initial public offering which results in the common shares of KWESST being listed and posted for trading or quoted on any of the Toronto Stock Exchange, the TSX Venture Exchange, the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the London Stock Exchange or any successor exchange or market thereto; or (2) the closing of a merger, amalgamation plan of arrangement or other transaction or series of related transactions resulting in the holders of common shares receiving consideration in securities listed on a Qualified Exchange.

The conversion feature of convertible debentures is presumed to be classified as a derivative financial liability unless it meets all the criteria to recognize as equity instrument under IAS 32 - Financial Instruments: Presentation. One of criteria is that the conversion feature exchanges a fixed amount of shares for a fixed amount of cash ("fixed for fixed"). The convertible debentures are convertible to % of the shares of the Company on a fully diluted basis which is not a fixed amount of shares, therefore the fixed for fixed criteria is not met. As such, the conversion feature was classified as financial derivative liabilities instead of an equity instrument. KWESST separated the convertible debentures into two components at initial recognition, with the debt carried at amortized cost, and the conversion feature carried at fair value as financial derivative liabilities.

Activities in 2020

As disclosed in Note 4(a), a Liquidity Event occurred which resulted in the conversion of the $255,718 outstanding convertible note, including accrued interest up to Liquidity Event, into 456,639 common shares.

16.Share capital and Contributed Surplus

Share capital

Authorized

KWESST is authorized to issue an unlimited number of common shares.

F-104

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Issued Common Shares

	Number		Issued Price		Amount
Outstanding at December 2018	200	$	1.000	$	200
Issued for directors converted loans (1)	6,500,000	$	0.005		31,308
Issued for parent company converted loans (2)	10,700,000	$	0.044		467,000
Issued for directors converted loans (3)	1,500,000	$	0.100		150,000
Issued for converted debt and accrued interest (4)	3,104,486	$	0.200		620,897
Issued in private placement (5)	5,075,000	$	0.200		1,014,948
Outstanding at December 31, 2019	26,879,686			$	2,284,353
Issued in private placement (6)	2,625,000	$	0.400		1,050,000
Issued in private placement (6)	845,750	$	0.500		422,875
Issued in asset acquisition (7)	697,000	$	0.240		167,280
Issued for converted debt and accrued interest (8)	456,639	$	0.560		255,718
Issued for new converted debt and accrued interest (9)	3,210,050	$	0.414		1,328,163
Issued in private placement (10)	16,000	$	0.500		8,000
Issued for consulting services (11)	61,000	$	0.531		32,393
Issued for exercise of stock options (12)	122,000	$	0.640		78,080
Issued for performance bonus (13)	1,045,000	$	0.700		731,500
Issued in brokered private placement (14)	4,409,553	$	0.700		3,087,138
Shares from Foremost's QT  (15)	898,498	$	0.700		628,949
Outstanding at September 30, 2020	41,266,176			$	10,074,449
Less: share offering costs					(699,886	)
Total share capital at September 30, 2020				$	9,374,563

2019 Activities

(1)During the first quarter of 2019, the directors converted $32,500 of loans into 6,500,000 of units of KWESST Inc. (''Units''). Each Unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire a common share at a price of $0.20 per share and with an expiry date of June 14, 2024.

(2)During the first quarter of 2019, the corporate shareholder of KWEEST Inc. converted $467,000 of loans into 10,700,000 common shares.

(3)During the third quarter of 2019, the directors converted $150,000 of loans into 1,500,000 common shares.

(4)During the third quarter of 2019, KWESST Inc. converted $560,007 of debt and $60,890 of interest into 3,104,486 common shares.

(5)During the third quarter of 2019, KWESST Inc. closed a non-brokered private placement raising $1,014,948 at a value of $0.20 per share by issuing 5,075,000 common shares.

2020 Activities

(6)During the first quarter of 2020, KWESST Inc. closed a non-brokered private placement, raising gross proceeds of $1,050,000 at $0.40 per share and another non-brokered private placement raising gross proceeds of $422,875 at $0.50 per share. Total share offering costs amounted to $45,283.

F-105

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

(7)See Note 4(b).

(8)See Note 15.

(9)During the second quarter of fiscal 2020, KWESST Inc. closed on approximately $1.1 million gross proceeds from a non-brokered private placement for unsecured convertible notes, with automatic conversion upon a Liquidity Event including the listing of the Company on the TSX-V.  In light of the Company going public during the third quarter of fiscal 2020, resulting in the automatic conversion of these notes, management concluded that under IAS 38 the recognition of these notes should be equity and not debt.  At the QT, these convertible notes were converted to 2,477,851 common shares. In connection with these notes, the note holders earned interest at a rate of 15% per annum. Because the notes were treated as equity instruments, the total accrued interest of $59,112 was not recognized in the profit or loss. This accrued interest was converted to 131,360 common shares at QT. Additionally, as an inducement, the note holders also received 25% of the principal amount in the from KWESST common shares based on a stock price of $0.45, resulting in the issuance 600,839. In connection with this private placement, KWESST incurred $58,065 of offering costs settled in cash and warrants.

(10)During the second quarter of fiscal 2020, KWESST issued 16,000 common shares under a non-brokered private placement.

(11)During the second quarter of fiscal 2020, KWESST issued 61,000 common shares as settlement for consulting services rendered.

(12)See below - Stock Options.

(13)During the third quarter, KWESST settled performance bonuses in the form of 45,000 common shares. Additionally, KWESST awarded 500,000 common shares each to two M&A / capital market advisors for successfully assisting KWESST to complete a QT, in accordance with their respective consulting agreement. One of the two advisors is a related party (see Note 10).

(14)During the third quarter and as part of the QT, KWESST closed a brokered private placement led by PI Financial Corp., resulting in gross proceeds of $3,086,687 before share offering costs of $325,887 settled in both cash and warrants.

(15)See Note 4(a).

Warrants

The following reflects the warrant activities for KWESST:

	# of Warrants		Exercise price		Fair Value	Weighted average remaining life (years)	Expiry Date
Warrants outstanding at December 31 2018	-	$	-	$	-	-
Granted	6,500,000	$	0.20	$	1,192	3.25	January 1 2024
Granted	2,000,000	$	0.20	$	19,858	3.71	June 14 2024
Warrants outstanding at December 31, 2019	8,500,000	$	0.20	$	1,192
Issued in private placement	15,000	$	0.40	$	2,265	1.33	January 30 2022
Issued in private placement	84,622	$	0.45	$	13,515	1.60	May 8 2022
Issued in asset acquisition (see Note 4)	750,000	$	0.50	$	180,000	2.29	Jan 15 2023
Issued in private placement	235,428	$	0.70	$	60,340	1.77	July 9 2022
Warrants outstanding at Sept 30, 2020	9,585,050				257,312	3.22

F-106

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

2019 Activities:

Warrants were issued to major shareholders, which a portion was subsequently reallocated to the Executive Chairman's controlling company (DEFSEC) and strategic advisor (See Note 10). Management determined that the estimated fair value for 6.5 million warrants issued on January 1, 2019, was insignificant. For the remaining two million warrants, management estimated the fair value for these warrants using the Black-Sholes pricing model with the following inputs:

		Warrants @ $0.20
Stock price	$	0.044
Volatility		66.75%
Dividend Yield		Nil
Risk-free interest rate		1.40%
Expected life		5
Weighted average fair value per warrant	$	0.0099

2020 Activities:

In connection with private placements, warrants were issued as compensation to brokers and consultants. Additionally, KWESST issued 750,000 warrants to SageGuild LLC in connection with the technology acquisition.

Management estimated fair value of the warrants using the Black-Scholes pricing model with the following key inputs:

		Warrants @ $0.40		Warrants @ $0.45		Warrants @ $0.70
Stock price	$	0.40	$	0.50	$	0.70
Volatility		68%		68%		67%
Dividend Yield		Nil		Nil		Nil
Risk-free interest rate		1.47%		0.27%		0.29%
Expected life		2		2		2
Estimated fair value per warrant	$	0.15	$	0.20	$	0.26

Stock options

KWESST has a rolling stock option plan (the ''Plan'') that authorizes the Board of Directors to grant incentive stock options to directors, officers, consultants and employees, whereby a maximum of 10% of the issued common shares are reserved for issuance under the Plan. Under this Plan, the exercise price of each option may not be less than the market price of KWESST's shares at the date of grant. The maximum term for options is five years. Options are granted periodically and generally vest over two years.

F-107

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

The following table shows the status of the Plan:

	Number of options			Weighted average exercise price
Outstanding at December 31, 2019	-		$	-
Granted	2,055,000		$	0.65
Options from the Foremost QT (see Note 4(b))	85,714		$	0.47
Exercised	(122,000	)	$	0.50
Outstanding at September 30, 2020	2,018,714		$	0.65
Options exercisable at September 30, 2021	523,214		$	0.60

The following table presents information about stock options outstanding at September 30, 2020:

Range of exercise prices	Number outstanding	Weighted average remaining contractual life	Number exercisable
$0.47	85,712	2.71	85,712
$0.50	183,000	0.67	-
$0.65	925,000	4.42	231,250
$0.70	825,000	4.79	206,250
	2,018,712		523,212

At September 30, 2020, there were 2,107,904 stock options available for grant under the Plan.

During 2020, KWESST granted 2,055,000 options (2019 - nil) and recorded stock-based compensation expenses of $283,084 (2019 - $nil) related to the vesting of options. The per share weighted-average fair value of stock options granted in 2020 was $0.23 on the date of grant using the Black-Scholes option model with the following weighted-average assumptions:

Stock price	$0.40 to $0.70
Exercise price	$0.40 to $0.70
Volatility	67.71%
Dividend yield	Nil
Risk-free interest rate	0.65%
Expected life (years)	3.38
Weighted-average fair value per option	$                        0.23

Management estimated a forfeiture rate of nil%, except for an option grant of 500,000 at $0.70 each where forfeiture rate was set at 50% based information available subsequent to September 30, 2020.

F-108

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

17.Earnings (loss) per share

The following table summarizes the calculation of the weighted average basic number of basic and diluted common shares:

	Nine months ended September 30, 2020	Twelve months ended December 31, 2019
Issued common shares,  beginning of period	26,879,686	200
Effect of shares issued from:
Conversion of directors converted loans	-	7,082,192
Conversion of parent company converted loans	-	8,823,836
Exercise of options	31,282	-
Conversion of convertible notes, including  interest	498,810	1,523,849
Issuance for services	96,081	-
Issuance for technology acquisition (Note 4 (b))	89,055	-
Issuance of for equity private placements	3,196,555	-
Qualifying transaction (Note 4(a))	52,659	-
Weighted average number of basic common shares	30,844,129	17,430,077
Dilutive securities:
Stock options	-	-
Warrants	-	-
Weighted average number of dilutive common shares	30,844,129	17,430,077

At September 30, 2020 and December 31, 2019, all the stock options and warrants were anti-dilutive because of KWESST's net loss for both periods.

18.Revenue

The following table presents the key streams of revenue for KWESST:

		Nine months ended September 30, 2020		Twelve months ended December 31, 2019
Systems	$	835,097	$	472,749
Other		26,820		36,399
	$	861,917	$	509,148

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 September 30, 2020, KWESST's contracted not yet recognized revenue was $233,193, of which 100% of this amount is expected to be recognized over the next 12 months.

F-109

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

19.Income tax recovery

a)Reconciliation of effective income tax rate

KWESST's effective income tax rate differs from the statutory rate of 26.5% that would be obtained by applying the combined Canadian basic federal and provincial income tax rate to loss before income taxes. These differences result from the following:

		Nine months ended September 30, 2020			Twelve months ended December 31, 2019
		(Adjusted  - see Note 8)			(Restated - see Note 25)
Loss before income taxes	$	(3,536,778	)		(1,147,280	)
Expected statutory tax rate		26.5%			26.5%
Expected tax recovery resulting from loss		(937,246	)		(304,029	)
Increase (reduction) in income taxes resulting from:
Non-deductible expenses		275,273			28,115
Unrecognized temporary differences		661,973			275,914
	$	-		$	-

KWESST claims research and development deductions and related Investment Tax Credits ("ITC") for tax purposes based on management's interpretation of the applicable legislation in the Income Tax Act of Canada. These claims are subject to audit by the Canada Revenue Agency ("CRA") and any adjustments that results could affect ITCs recorded in the consolidated financial statements. During the nine months ended September 30, 2020, KWESST recognized estimated investment tax credits of $127,325 for the current period and the twelve months ended December 31, 2019. This was presented as a reduction to R&D consulting and material costs in the consolidated statements of net loss and comprehensive loss.

b)Deferred tax balances

The following tables deferred tax assets (liabilities) have been recognized in the consolidated financial statements:

		Balance at December 31, 2019		Recognized in profit or loss			Recognized in equity		Balance at September 30, 2020
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	-	$	48,045		$	-	$	48,045
Intangible assets		-		(48,045	)				(48,045	)
	$	-	$	-		$	-	$	-

F-110

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

c)Unrecognized net deferred tax assets

Deferred taxes reflect the impact of loss carryforwards and of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by enacted tax laws. However, KWESST has not recorded net deferred tax assets at September 30, 2020 and December 31, 2019, due to the uncertainty involved in determining whether these deferred tax assets will be realized upon expiration due to KWESST's limited history and operating losses since its inception.

The following is a summary of KWESST's unrecognized deductible temporary differences:

		Balance at		Balance at
		September 30,		December 31,
		2020		2019
Net operating loss carryforwards	$	4,279,494	$	2,111,531
Share issuance costs		1,496,239		17,281
Scientific research and development expenditures		218,235		170,940
Other		46,891		22,106
	$	6,040,859	$	2,321,858

d)Available net operating losses

At September 30, 2020, KWESST has the following net operating losses in Canada available to reduce future year's taxable income which expire as follows: 

Year of expiry		Amount
2036	$	512,163
2037		611,677
2038		1,174,797
2039		1,829,518
2040		332,641
	$	4,460,796

20.Financial instruments

Fair value of financial instruments

The fair values of KWESST's cash, trade and other receivables, accounts payables and accrued liabilities, lease deposits (included in non-current other assets), related parties, and convertible notes approximate carrying value because of the short-term nature of these instruments.

The lease deposits, convertible notes, and lease obligations were recorded at fair value at initial recognition. Subsequently, these were measured at amortized cost and accreted to their nominal value over their respective terms.

F-111

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

Financial derivative liabilities are the only instruments classified as a Level 2 in the fair value hierarchy, as a result of measuring its fair value at each reporting date using the Black-Scholes pricing model. Under IFRS, the levels of fair value hierarchy is as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not observable market data (unobservable inputs).

Financial risk management

The Company is exposed to a number of financial risks arising through the normal course of business as well as through its financial instruments. The Company's overall business strategies, tolerance of risk and general risk management philosophy are determined by the directors in accordance with prevailing economic and operating conditions.

(a)Interest rate risk

Interest rate risk is the risk that the fair value of cash flows of a financial instrument will fluctuate because of changes in market interest rates. KWESST's related party loans have fixed interest rate terms and therefore KWESST is not exposed to interest rate risk.

(b)Foreign currency risk

Foreign currency risk is the risk that the future cash flows or fair value of the Company's financial instruments that are denominated in a currency that is not KWESST's functional currency will fluctuate due to a change in foreign exchange rates.

For the nine months ended September 30 2020, KWESST's revenue was substantially denominated in US dollar driven by contracts with U.S. prime contractors in the defense sector. Accordingly, KWESST is exposed to the US dollar currency. A significant change in the US dollar currency could have a significant effect on KWESST's financial performance, financial position and cash flows. Currently, KWESST does not use derivative instruments to hedge its US dollar exposure.

At September 30, 2020, KWESST had the following net US dollar exposure:

		Total USD
Assets	$	222,262
Liabilities		(88,019	)
Net exposure at September 30, 2020	$	134,243
Impact to profit  or loss if 5% movement in the US dollar	$	6,712

During the nine months ended September 30, 2020, KWESST recorded foreign exchange loss of $13,937 (12 months in 2019: $982 loss)

F-112

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

(c)Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. KWESST's credit risk exposure is limited to cash, and trade and other receivables. Refer to Note 5 for the breakdown of KWESST's trade and other receivables. KWESST enters into contracts with large, financially sound US general contractors, which mitigates the credit risk. Since September 30, 2020, KWESST has fully collected from the U.S. customer. The remaining receivable is due from the Canadian Federal and Provincial Government for sales tax recoverable and investment tax credits.

(d) Liquidity risk

Liquidity risk is the risk that KWESST will be unable to meet its financial obligations as they become due. KWESST's objective is to ensure that it has sufficient cash to meet its near term obligation when they become due, under both normal and stressed condition, without incurring unacceptable losses or risking reputational damage to KWESST. A key risk in managing liquidity is the degree of uncertainty in KWESST's cash flows due to its early stage in operations and the need for additional capital to fund its business strategies (see Note 2(a)).

At September 30, 2020, KWESST had approximately $3.1 million cash and $2.9 million in working capital (current assets less current liabilities).

21.Supplemental cash flow information

The following table presents changes in non-cash working capital:

		Nine months ended September 30, 2020			Twelve months ended December 31, 2019
					(As restated - see Note 25)
Trade and other receivables	$	(257,588	)	$	(41,465	)
Prepaid expenses and other		(387,762	)		(36,629	)
Other assets		-			(150,000	)
Accounts payable and accrued liabilities		393,202			86,519
Deferred revenue		7,053			-
	$	(245,095	)	$	(141,575	)

The following is a summary of non-cash items that were excluded from the consolidated statements of cash flows for the nine months ended September 30, 2020:

• $358,178 of right-of-use asset and lease obligations relating to the new office lease;
• $139,787 of right-of-use asset and $157,315 lease obligations de-recognized from KWESST's consolidated financial position relating to the former lease office;
• $347,280 of KWESST's common shares and warrants for the asset acquisition of GhostStep® Technology;
• $255,718 of convertible notes, including accrued interest, settled in KWESST's common shares;
• $322,779 of share offering costs settled in KWESST's common shares;
• $41,155 of options adjustment due to QT (see note 4(a)); and
• $17,531 fair value of options exercised and transferred to KWESST's common shares.

F-113

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

The following is a summary of non-cash items that were excluded from the consolidated statements of cash flows for the twelve months ended December 31, 2019:

• $1,290,255 common shares and warrants for loans.

22.Segmented information

KWESST's Executive Chairman has been identified as the chief operating decision maker. The Executive Chairman evaluates the performance of the Company and allocates resources based on the information provided by KWESST's internal management system at a consolidated level. KWESST has determined that it has only one operating segment.

Geographic information

The following table presents external revenue on a geographic basis:

		Nine months ended September 30, 2020		Twelve months ended December 31, 2019
United States	$	835,097	$	472,749
Canada		26,820		36,399
	$	861,917	$	509,148

All of KWESST's property and equipment are located in Canada, including the right-of-use assets.

Concentration of customers information

For the nine months ended September 30, 2020, two customers accounted for the revenue based in the United States. For the twelve months ended December ended December 31, 2019, one customer accounted for the revenues based in United States.

23.Capital management

KWESST's objective in managing its capital is to safeguard its ability to continue as a going concern and to sustain future development of the business. The Company's senior management is responsible for managing the capital through regular review of financial information to ensure sufficient resources are available to meet operating requirements and investments to support its growth strategy. The Board of Directors is responsible for overseeing this process. From time to time, KWESST could issue new common shares or debt to maintain or adjust its capital structure. KWESST is not subject to any externally imposed capital requirements.

F-114

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

KWESST's capital is composed of the following:

		September 30, 2020			December 31, 2019
		(Adjusted - See Note 8)
Debt:
Related party loans	$	218,276		$	289,828
Borrowings		32,273			-
Lease obligations		352,037			202,686
Convertible notes		-			210,819
Equity:
Share capital		9,374,563			2,284,353
Contributed surplus		583,878			21,050
Accumulated deficit		(6,073,577	)		(2,536,799	)
	$	4,487,450		$	471,937

24.Commitments and contingencies

a)Minimum royalties

On November 18, 2019, KWESST entered into a non-exclusive license agreement with a third party for its product named DroneBullet, a drone whose principal function and operation is acting as a projectile to intercept aerial threats using kinetic force.  Under this license agreement, KWESST will pay 8% royalty on annual sales of the DroneBullet to the third party, subject to the following minimum annual payments.

• $150,000 for March 31, 2020 to December 31, 2020;
• $200,000 for January 1, 2021 to December 31, 2021;
• $300,000 for January 1, 2022 to December 31, 2022;
• $400,000 for January 1, 2023 to December 31, 2023; and
• $500,000 for January 1, 2024 to December 31, 2024.

In accordance with this license agreement, KWESST paid $150,000 advanced royalty to the third party in 2019 (see Note 25). Due to delays in completing a fully functional DroneBullet, the third party delayed its minimum annual royalty payment. In light of this delay, KWESST and the third party are currently renegotiating the contract to amend certain terms, including the timing for the first minimum annual payment.

This agreement will expire on March 31, 2025. The agreement was amended subsequent to September 30, 2020 (see Note 26(c)).

25.Restatement of previously reported audited financial statements

Subsequent to the issuance of the previously reported audited financial statements for the year ended December 31, 2019, management discovered an error with the accounting for a $150,000 advanced royalty paid to a third party. This advanced royalty payment was an advance on future royalty payments under the licencing agreement (see Note 24) and therefore this payment should have been recognized as non-current other asset rather than a charge to profit or loss. It is classified as non-current because the application of the advanced royalty is limited to sales royalties in excess of the minimum annual royalties, subject to a maximum of $50,000 per year.

F-115

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

The following tables summarizes the effects of the adjustments described above.

Line item on the consolidated statements of financial position and consolidated statement of changes in shareholders' equity:

		As at					As at
		December 31, 2019			Adjustment		December 31, 2019
		(Previously Reported)					(As restated)
Other assets	$	-		$	150,000	$	150,000
Non-current assets	$	254,594		$	150,000	$	404,594
Total assets	$	550,087		$	150,000	$	700,087
Deficit	$	(2,686,799	)	$	150,000	$	(2,536,799	)
Total shareholders' equity (deficit)	$	(381,396	)	$	150,000	$	(231,396	)
Total liabilities and shareholders' equity (deficit)	$	550,087		$	150,000	$	700,087

Line item on the consolidated statements of net loss and comprehensive loss:

		Year ended						Year ended
		December 31, 2019			Adjustment			December 31, 2019
		(Previously Reported)						(As restated)
General and administrative expenses	$	171,273		$	(150,000	)	$	21,273
Total operating expenses	$	295,493		$	(150,000	)	$	145,493
Operating loss	$	(1,164,329	)	$	150,000		$	(1,014,329	)
Loss before income taxes	$	(1,297,280	)	$	150,000		$	(1,147,280	)
Net loss and comprehensive loss	$	(1,297,280	)	$	150,000		$	(1,147,280	)
Net loss per share	$	(0.07	)	$	150,000		$	(0.07	)

Line item on the consolidated statements of cash flows:

		Year ended						Year ended
		December 31, 2019			Adjustment			December 31, 2019
		(Previously Reported)						(As restated)
Net loss per share	$	(1,297,280	)	$	150,000		$	(1,147,280	)
Changes in non-cash working capital items	$	8,425		$	(150,000	)	$	(141,575	)

This non-current asset of $150,000 was subsequently written off.

F-116

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

26.Subsequent Events

a)Borrowings

In December 2020, the Canadian Federal Government amended the CEBA Term Loan program to increase the loan amount by $20,000 to $60,000. KWESST has increased its borrowings accordingly. Additionally, effective January 1, 2021, the outstanding balance of the CEBA Term Loan was automatically converted to a 2-year interest free term loan.

The CEBA Term Loan may be repaid at any time without notice or the payment of any penalty. If 75% of the CEBA Term Loan is repaid on or before December 31, 2022, the repayment of the remaining 25% shall be forgiven. If on December 31, 2022, KWESST exercises the option for a 3-year term extension, a 5% annual interest will be applied on the any balance remaining during the extension period.

b)Technology acquisition

Subsequently on April 29, 2021, KWESST acquired the Low Energy Cartridge technology from DEFSEC, a proprietary non-lethal cartridge-based firing system (herein referred as the "LEC System"). This technology acquisition includes all intellectual property rights for the LEC System. As DEFSEC is a private company owned by KWESST's Executive Chairman, this asset acquisition is a related party transaction.

The purchase consideration consisted of:

• 1,000,000 common shares of KWESST; and
• 500,000 warrants to purchase KWESST's common shares at $0.70 each; 25% vesting on the first anniversary of the closing of the LEC Technology acquisition and 25% per annum thereafter. These warrants will expire on April 29, 2026.

Additionally, KWESST will pay 7% royalty on annual sales of the LEC System to DEFSEC, net of taxes and duties, up to a maximum of $10 million, subject to minimum annual royalty payments starting in 2023.

The royalty payment obligation of the Purchase Agreement ("Agreement") will expire in 20 years unless terminated earlier under the terms set out in the Agreement.

c)Amended and restated licensing agreement

As disclosed in Note 24(a), KWESST entered into a licensing agreement with a third party, AerialX Drone Solutions ("AerialX").

Subsequently on April 5, 2021, KWESST entered into an amended and restated licensing agreement with AerialX for a period of two years from the date upon which AerialX will meet certain technical milestones. In consideration, KWESST has issued 100,000 common shares to AerialX ("Exclusive License Shares"). Based on KWESST's closing stock price of $1.37 on April 23, 2021 (TSX-V approval date), the fair value for these shares was $137,000.

F-117

KWESST MICRO SYSTEMS INC.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2020 and twelve months ended December 31, 2019
(Expressed in Canadian dollars, except share and per share amounts)

d)Share capital activities

In April 2021, KWESST closed a brokered private placement, resulting in the issuance of 3,576,057 units of KWESST, at a price of $1.25 per unit for aggregate gross proceeds of $4,470,071. Each issued unit is comprised of one common share of the Company and one common share purchase warrant. Each Warrant is exercisable to acquire one common share at a price of $1.75 each for a period of 24 months from the closing date. If at any time after four (4) months and one (1) day following the closing date, the trading price of KWESST common stock on the TSX Venture Exchange is equal to or exceeds $3.00 for a period of 10 consecutive trading days, as evidenced by the price at the close of market, KWESST shall be entitled to notify the holders of the Warrants of its intention to force the exercise of the Warrants. Upon receipt of such notice, the holders shall have 30 days to exercise the Warrants, failing which the Warrants will automatically expire.

The following provides a summary of share capital activities since September 30, 2020:

	Number		Amount
Outstanding at September 30, 2020	41,266,176	$	9,374,563
Issued in brokered private placement	3,576,057	$	3,611,818
Issued for exercise of stock options	1,273,671	$	1,292,015
Issued for asset acquisition	1,000,000	$	1,290,000
Issued in private placement	750,000	$	1,110,000
Issued for exercise of warrants	726,575	$	815,307
Issued for exercise of broker compensation options	172,108	$	347,680
Issued for amended license	100,000	$	137,000
Issued for debt settlements	91,356	$	63,866
Issued for share units	9,688	$	12,498
Less: share offering costs for the year	-	$	(839,679	)
Outstanding at September 30, 2021	48,965,631	$	17,215,068

F-118

Up to 2,323,232 Common Units, Each Consisting of a Common Share and a Warrant to Purchase One Common Share

Up to 2,323,232 Pre-funded Units, Each Consisting of a Pre-funded Warrant to Purchase One Common Share and a Warrant to Purchase One Common Share

KWESST Micro Systems Inc.

PRELIMINARY PROSPECTUS

ThinkEquity

        , 2022

Through and including    , 2022 (the 25^th day after the date of this Prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6. Indemnification of Directors and Officers.

Section 160 of the BCBCA authorizes companies to indemnify past and present directors, officers and certain other individuals for the liabilities incurred in connection with their services as such (including costs, expenses and settlement payments) in an eligible proceeding, unless such individual did not act honestly and in good faith with a view to the best interests of the company or, in the case of an eligible proceeding other than a civil proceeding, if such individual did not have reasonable grounds for believing his or her conduct in respect of which the proceeding was brought was lawful. In the case of a suit by or on behalf of the corporation or an associated corporation, a court must approve the indemnification.

Our Notice of Articles provide that we shall indemnify past and present directors against all eligible penalties to which such person is or may be liable, and we will, after the final disposition of an eligible proceeding, pay the expenses actually and reasonable incurred by such person in respect of that proceeding.

On February 25, 2022, we entered into agreements with our directors and certain officers (each an "Indemnitee" under such agreements) to indemnify the Indemnitee, to the fullest extent permitted by law and subject to certain limitations, against all liabilities, costs, charges and expenses reasonably incurred by an Indemnitee in an action or proceeding to which the Indemnitee was made a party by reason of the Indemnitee being an officer or director of (i) our company or (ii) an organization of which our company is a shareholder or creditor if the Indemnitee serves such organization at our request.

We maintain insurance policies relating to certain liabilities that our directors and officers may incur in such capacities.

Item 7. Recent sales of unregistered securities.

The following information relates to all securities issued or sold by us within the past three years and not registered under the Securities Act, adjusted for the Reverse Split. The issuances of securities described below were exempt from registration under the Securities Act in reliance on Regulation S promulgated under the Securities Act regarding sales by an issuer in offshore transactions, Regulation D under the Securities Act, Rule 701 under the Securities Act and/or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering.

	Party	Principal Agent's name	Principal Agent's commission	Nature of Transaction	Security Type	Proceeds	Security or Exercise Price	Total number of securities
YTD Fiscal 2022
2022-08-25	Investors	ThinkEquity LLC	USD$32,000	Private placement	Common	$            51,932	$       7.00	7,418
2022-07-14	Investors	N/A	N/A	Private placement	Common	$          344,000	$       8.60	40,000
2022-07-14	Investors	N/A	N/A	Private placement	Warrant	N/A	$       11.40	20,000
2022-04-22	Police Ordnance	N/A	N/A	Non-cash M&A: contingent consideration earned	Common	N/A	$      54.40	1,531
2022-04-19	Investors	N/A	N/A	Exercise of warrants	Common	$           40,000	$       8.00	5,000
2022-03-30	Investors	N/A	N/A	Exercise of warrants	Common	$           40,000	$       8.00	5,000

II-1

2022-03-29	Investors	N/A	N/A	Exercise of warrants	Common	$             8,000	$       8.00	1,000
2022-03-28	Investors	N/A	N/A	Exercise of warrants	Common	$             8,000	$       8.00	1,000
2022-03-18	Investors	N/A	N/A	Exercise of warrants	Common	$           95,000	$       8.00	11,875
2022-03-15	Investors	N/A	N/A	Exercise of warrants	Common	$           25,000	$       8.00	3,125
2022-03-15	Investors	PI Financial	$           7,020	Private placement	Common	$         237,827	$      14.64	16,250
2022-03-11	Investors	PI Financial	$           3,780	Private placement	Common	$         128,061	$      14.64	8,750
2021-12-31	SageGuild	N/A	N/A	Exercise of warrants	Common	$         125,000	$      20.00	6,250
2021-12-15	Police Ordnance	N/A	N/A	Non-cash M&A	Common	N/A	$      54.40	6,939
2021-12-15	Police Ordnance	N/A	N/A	Non-cash M&A	Warrant	N/A	$      68.80	5,000
2021-10-25	Vendor (accredited)	N/A	N/A	Non-cash debt settlement	Common	N/A	$      76.00	250
Fiscal 2021
2021-09-22	Broker	N/A	N/A	Exercise of compensation options	Common	$           43,261	$      50.00	865
2021-09-22	Broker	N/A	N/A	Exercise of warrants	Common	$           60,566	$      70.00	865
2021-09-20	Investors	N/A	N/A	Exercise of warrants	Common	$         151,200	$      70.00	2,160
2021-09-17	Investors	N/A	N/A	Exercise of warrants	Common	$         218,400	$      70.00	3,120
2021-09-16	Investors	N/A	N/A	Exercise of warrants	Common	$           87,850	$      70.00	1,255
2021-09-16	Investors	Haywood Financial	$         90,000	Private placement	Common	$      1,500,000	$      80.00	18,750
2021-09-16	Investors	Haywood Financial	N/A	Private placement	Warrant	N/A	$      94.00	18.750
2021-09-16	Broker	Haywood Financial	N/A	Private placement	Warrant	N/A	$      80.00	1,125
2021-09-08	Broker	N/A	N/A	Exercise of compensation options	Common	$           19,964	$      50.00	399
2021-08-31	Broker	N/A	N/A	Exercise of compensation options	Common	$           29,339	$      50.00	586
2021-08-30	Broker	N/A	N/A	Exercise of compensation options	Common	$         122,571	$      50.00	2,451
2021-08-25	Broker	N/A	N/A	Exercise of warrants	Common	$                929	$      28.00	33
2021-08-25	Investors	N/A	N/A	Private placement	Common	$           50,000	$      50.00	1,000
2021-08-25	Investors	N/A	N/A	Private placement	Warrant	N/A	$      70.00	1,000
2021-08-17	Broker	N/A	N/A	Exercise of warrants	Common	$             2,730	$      28.00	97

II-2

2021-07-13	Broker	N/A	N/A	Exercise of warrants	Common	$             1,008	$      28.00	36
2021-04-29	DEFSEC	N/A	N/A	Non-cash asset acquisition	Common	N/A	$      51.60	25,000
2021-04-30	DEFSEC	N/A	N/A	Non-cash asset acquisition	Warrant	N/A	$      20.00	12,500
2021-04-29	Investors	PI Financial	$       288,405	Brokered private placement	Common	$      4,420,071	$      50.00	88,401
2021-04-29	Investors	PI Financial	N/A	Brokered private placement	Warrant	N/A	$      70.00	88,401
2021-04-29	Broker	PI Financial	N/A	Brokered private placement	Compensation option	N/A	$      50.00	5,768
2021-04-23	AerialX	N/A	N/A	Non-cash asset acquisition	Common	N/A	$      54.80	2,500
2021-02-23	Broker	N/A	N/A	Exercise of warrants	Common	$           41,654	$      28.00	1,487
2021-02-23	Broker	N/A	N/A	Exercise of warrants	Common	$             9,006	$      28.00	321
2021-02-22	Advisor	N/A	N/A	Exercise of warrants	Common	$             6,000	$      16.00	375
2021-02-12	Broker	N/A	N/A	Exercise of warrants	Common	$             1,499	$      28.00	53
2021-02-08	Broker	N/A	N/A	Exercise of warrants	Common	$           25,479	$      28.00	909
2021-02-04	Broker	N/A	N/A	Exercise of warrants	Common	$             5,727	$      28.00	204
2021-01-29	Broker	N/A	N/A	Exercise of warrants	Common	$                619	$      28.00	22
2021-01-28	Broker	N/A	N/A	Exercise of warrants	Common	$           27,245	$      28.00	973
2020-12-31	SageGuild	N/A	N/A	Exercise of warrants	Common	$         125,000	$      20.00	6,250
2020-12-14	Vendors	N/A	N/A	Non-cash debt settlement	Common	N/A	$      28.00	2,283
Fiscal 2020
2020-09-14	Advisors	N/A	N/A	Non-cash bonus	Common	N/A	$      28.00	25,000
2020-09-14	Investors	PI Financial	$       164,800	Brokered private placement	Common	$      3,087,138	$      28.00	110,238
2020-09-14	Broker	PI Financial		Brokered private placement	Warrant	N/A	$      28.00	5,885
2020-09-14	2020 Note holders	N/A	N/A	Non-cash conversion of convertible notes and commitment fee	Common	N/A	$      18.00	80,251

II-3

2020-09-14	2019 Note holders	N/A	N/A	Non-cash conversion of convertible notes	Common	N/A	$      22.40	10,402
2020-09-14	2019 Note holder	N/A	N/A	Non-cash conversion of convertible notes	Common	N/A	$      22.40	1,013
2020-09-14	SageGuild	N/A	N/A	Election made re non-cash asset acquisition in June 2020	Common	N/A	$       9.60	13,925
2020-07-14	Advisor	N/A	N/A	Non-cash bonus	Common	N/A	$      28.00	875
2020-07-13	Advisor	N/A	N/A	Non-cash bonus	Common	N/A	$      28.00	250
2020-06-12	SageGuild	N/A	N/A	Non-cash asset acquisition	Common	N/A	$       9.60	3,500
2020-06-13	SageGuild	N/A	N/A	Non-cash asset acquisition	Warrant	N/A	$      20.00	18,750
2020-06-12	Investors	N/A	N/A	Private placement	Common	$             8,000	$      20.00	400
2020-06-12	Consultant	N/A	N/A	Non-cash settlement for two months of services rendered	Common	N/A	$      21.20	1,525
2020-05-08	Advisors	N/A	N/A	Service rendered	Warrant	N/A	$      18.00	2,115
2020-03-25	Investors	N/A	N/A	Private placement	Common	$         422,875	$      20.00	21,143
2020-01-30	Investors	N/A	N/A	Private placement	Common	$      1,050,000	$      16.00	65,625
2020-01-30	Advisor	N/A	N/A	Service rendered	Warrant	N/A	$      16.00	375
Year 2019
2019-10-24	Investors	N/A	N/A	Private placement	Common	$      1,015,000	$      8.00	126,875
2019-10-24	Investors	N/A	N/A	Non-cash conversion of revenue sharing and debt agreements	Common	N/A	$      8.00	70,583
2019-10-24	Investor	N/A	N/A	Non-cash conversion of revenue sharing and debt agreements	Common	N/A	$      8.00	7,030
2019-08-17	Directors	N/A	N/A	Non-cash conversion of shareholder loans	Common	N/A	$      4.00	37,500

II-4

Additionally, we have also granted compensatory securities under our LTIP as follows:

• Nine months ended June 30, 2022: 9,125 stock options with a weighted average exercise price of $65.6 each; 18,769 RSUs, 31,400 PSUs, and 900 SARs.

• Fiscal year ended September 30, 2021: 92,728 with a weighted average exercise price of $59.60 each; 28,719 RSUs, 5,000 PSUs, and 3,750 SARs.

• Fiscal period ended September 30, 2020: 51,375 with a weighted average exercise price of $26.00 each.

• Year ended December 31, 2019: none

For further details, refer to Financial Statements section of this registration statement.

Item 8. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this registration statement:

Exhibit No.	Description
1.1*	Form of Underwriting Agreement
1.2*	Form of Underwriting Agreement for Canadian Offering
3.1	Notice of Articles
3.2	Articles of Amendment, as updated September 4, 2020
4.1*	Form of Underwriter Warrant
4.2*	Form of Warrant Agency Agreement for Warrants
4.3*	Form of Warrant (included in Exhibit 4.2)
4.4*	Form of Pre-funded Warrant
4.5*	Form of Warrant Indenture for Canadian Warrants
4.6*	Form of Warrant Certificate for Canadian Warrants (included in Exhibit 4.5)
4.7*	Form of Canadian Compensation Option Certificate
5.1*	Opinion of Fasken Martineau DuMoulin LLP
5.2*	Opinion of Dorsey & Whitney LLP
8.1*	Tax Opinion of Dorsey & Whitney LLP
9.1	Voting Agreement among KWESST Micro Systems Inc., David Luxton, and Jeff MacLeod, dated September 14, 2020
10.1	Amalgamation Agreement among KWESST Micro Systems Inc., Foremost Ventures Corp. and 2751530 Ontario Ltd., dated April 30, 2020
10.2	Definitive Technology Purchase Agreement between KWESST Micro Systems Inc. and DEFSEC Corporation, dated January 15, 2021
10.3	GhostStep Technology Purchase Agreement, between KWESST Micro Systems Inc. and SageGuild, LLC, dated June 12, 2020
10.4	CPC Escrow Agreement between Foremost Ventures Corp. and TSX Trust Company, dated May 2, 2018
10.5	Surplus Security Escrow Agreement between KWESST Micro Systems Inc. and TSX Trust Company, dated September 17, 2020
10.6	Value Security Escrow Agreement between KWESST Micro Systems Inc. and TSX Trust Company, dated September 17, 2020
10.7	Common Share Purchase Warrant Indenture between KWESST Micro Systems Inc. and TSX Trust Company, dated April 29, 2021
10.8	First Supplemental Warrant Indenture between KWESST Micro Systems Inc. and TSX Trust Company, dated August 25, 2021
10.9	Long-Term Performance Incentive Plan, effective March 31, 2022

II-5

10.10	Form of Unsecured Loan Agreement, dated March 2022
10.11	Professional Services Agreement among KWESST Inc., DEFSEC Corporation and David Luxton, dated October 1, 2019
10.12	Employment Contract between KWEEST Inc. and Jeffrey Macleod, dated September 1, 2019
10.13	Employment Contract between KWESST Micro Systems Inc. and Steve Archambault, dated April 1, 2021
10.14	Employment Contract between KWESST Micro Systems Inc. and Rick Bowes, dated April 12, 2021
10.15†	Master Professional Services Agreement between KWESST Inc. and General Dynamics Land Systems – Canada Corporation doing business as General Dynamics Mission Systems – Canada, dated December 1, 2021
10.16†	Schedule B-1 to Master Professional Services Agreement - Statement of Work No. (1) between KWESST Micro Systems Inc. and General Dynamics Land Systems – Canada Corporation doing business as General Dynamics Mission Systems – Canada, dated December 1, 2021
10.17	Subcontractor Agreement between KWESST Micro Systems Inc. and CounterCrisis Tech, dated July 6, 2022
10.18†	Form of Unsecured Loan Agreement, dated August 2022
21.1	List of Subsidiaries of KWESST Micro Systems Inc.
23.1	Consent of Kreston GTA LLP
23.2	Consent of KPMG LLP
23.3*	Consent of Fasken Martineau DuMoulin LLP (included in Exhibit 5.1)
23.4*	Consent of Dorsey & Whitney LLP (included in Exhibit 5.2)
24.1	Power of Attorney (included on signature page of the Registration Statement on Form F-1 filed with the Commission on August 16, 2022)
107	Filing Fee Table

*To be filed by amendment.

†Portions of this exhibit have been omitted in accordance with the rules of the SEC. KWESST Micro Systems Inc. agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

Item 9. Undertakings.

The undersigned registrant hereby undertakes to provide to the Underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

i.To include any prospectus required by Section 10(a)(3) of the Securities Act;

ii.To reflect in the prospectus any facts or events arising after the effective date of the registration statement(or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement;

iii.To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

II-6

(2)That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;

(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

(4)To file a post-effective amendment to the registration statement to include any financial statements required by "Item 8.A.of Form 20-F (17 CFR 249.220f)" at the start of any delayed offering or throughout a continuous offering.

(5)That, for the purpose of determining liability under the Securities Act to any purchaser: if the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use

(6)For the purposes of determining liability under the Securities Act of 1933 to any purchaser in the initial distributions of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

i.Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

ii.Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

iii.The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

iv.Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(7)Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

II-7

(1)For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-8

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Ottawa, Province of Ontario, Canada, on this 16^th day of September, 2022.

KWESST MICRO SYSTEMS INC.
By:	/s/ Jeffrey MacLeod
	Jeffrey MacLeod
	Chief Executive Officer and Director

II-9

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

SIGNATURE	TITLE	DATE
/s/ Jeffrey MacLeod		September 16, 2022
Jeffrey MacLeod	Chief Executive Officer (Principal Executive Officer), Director
/s/ Steven Archambault		September 16, 2022
Steven Archambault	Chief Financial Officer (Principal Financial and Accounting Officer)
*		September 16, 2022
David Luxton	Executive Chairman and Director
*		September 16, 2022
John McCoach	Director
*		September 16, 2022
Paul Fortin	Director
*		September 16, 2022
Paul Mangano	Director

*By:      /s/Jeffrey MacLeod           

Name:    Jeffrey MacLeod

Title:      Attorney-in-Fact

II-10

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

Pursuant to the requirements of the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of KWESST Micro Systems Inc., has signed this registration statement on September 16, 2022.

Authorized United States Representative

/s/ Paul Mangano
Name:	Paul Mangano
Title:	Authorized Representative in the United States and Director

II-11

EX-3.1

FOREMOST VENTURES CORP.

(the "Company")

The Company has as its articles the following articles.

Full name and signature of a director	Date of signing
"Azim Dhalla"	November 28, 2017
Azim Dhalla

Incorporation:  BC1142900

FOREMOST VENTURES CORP.

(the "Company")

TABLE OF CONTENTS

Contents

1.INTERPRETATION	10
1.1.Definitions	10
1.2.Business Corporations Act and Interpretation Act Definitions Applicable	10
2.SHARES AND SHARE CERTIFICATES	10
2.1.Authorized Share Structure	10
2.2.Form of Share Certificate	10
2.3.Shareholder Entitled to Certificate or Acknowledgment	11
2.4.Delivery by Mail	11
2.5.Replacement of Worn Out or Defaced Certificate or Acknowledgement	11
2.6.Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment	11
2.7.Splitting Share Certificates	11
2.8.Certificate Fee	12

2.9.Recognition of Trusts	12
3.ISSUE OF SHARES	12
3.1.Directors Authorized	12
3.2.Commissions and Discounts	12
3.3.Brokerage	12
3.4.Conditions of Issue	12
3.5.Share Purchase Warrants and Rights	13
4.SHARE REGISTERS	13
4.1.Central Securities Register	13
4.2.Closing Register	13
5.SHARE TRANSFERS	13
5.1.Registering Transfers	13
5.2.Form of Instrument of Transfer	14
5.3.Transferor Remains Shareholder	14
5.4.Signing of Instrument of Transfer	14
5.5.Enquiry as to Title Not Required	14
5.6.Transfer Fee	14
6.TRANSMISSION OF SHARES	14
6.1.Legal Personal Representative Recognized on Death	14
6.2.Rights of Legal Personal Representative	15
7.PURCHASE OF SHARES	15
7.1.Company Authorized to Purchase Shares	15
7.2.Purchase When Insolvent	15
7.3.Sale and Voting of Purchased Shares	15
8.BORROWING POWERS	15

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9.ALTERATIONS	16
9.1.Alteration of Authorized Share Structure	16
9.2.Special Rights and Restrictions	17
9.3.Change of Name	17
9.4.Other Alterations	17
10.MEETINGS OF SHAREHOLDERS	17
10.1.Annual General Meetings	17
10.2.Resolution Instead of Annual General Meeting	17
10.3.Calling of Meetings of Shareholders	17
10.4.Notice for Meetings of Shareholders	18
10.5.Record Date for Notice	18
10.6.Record Date for Voting	18
10.7.Failure to Give Notice and Waiver of Notice	18
10.8.Notice of Special Business at Meetings of Shareholders	18
11.PROCEEDINGS AT MEETINGS OF SHAREHOLDERS	19
11.1.Special Business	19
11.2.Special Majority	20
11.3.Quorum	20
11.4.One Shareholder May Constitute Quorum	20
11.5.Other Persons May Attend	20
11.6.Requirement of Quorum	20
11.7.Lack of Quorum	20
11.8.Lack of Quorum at Succeeding Meeting	21
11.9.Chair	21
11.10.Selection of Alternate Chair	21

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11.11.Adjournments	21
11.12.Notice of Adjourned Meeting	21
11.13.Decisions by Show of Hands or Poll	21
11.14.Declaration of Result	22
11.15.Motion Need Not Be Seconded	22
11.16.Casting Vote	22
11.17.Manner of Taking Poll	22
11.18.Demand for Poll on Adjournment	22
11.19.Chair Must Resolve Dispute	22
11.20.Casting of Votes	23
11.21.Demand for Poll	23
11.22.Demand for Poll Not to Prevent Continuance of Meeting	23
11.23.Retention of Ballots and Proxies	23
12.VOTES OF SHAREHOLDERS	23
12.1.Number of Votes by Shareholder or by Shares	23
12.2.Votes of Persons in Representative Capacity	23
12.3.Votes by Joint Holders	23
12.4.Legal Personal Representatives as Joint Shareholders	24
12.5.Representative of a Corporate Shareholder	24
12.6.Proxy Provisions Do Not Apply to All Companies	25
12.7.Appointment of Proxy Holders	25
12.8.Alternate Proxy Holders	25
12.9.When Proxy Holder Need Not Be Shareholder	25
12.10.Deposit of Proxy	25
12.11.Validity of Proxy Vote	26

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12.12.Form of Proxy	26
12.13.Revocation of Proxy	27
12.14.Revocation of Proxy Must Be Signed	27
12.15.Production of Evidence of Authority to Vote	27
13.DIRECTORS	27
13.1.First Directors; Number of Directors	27
13.2.Change in Number of Directors	28
13.3.Directors' Acts Valid Despite Vacancy	28
13.4.Qualifications of Directors	28
13.5.Remuneration of Directors	28
13.6.Reimbursement of Expenses of Directors	28
13.7.Special Remuneration for Directors	28
13.8.Gratuity, Pension or Allowance on Retirement of Director	29
14.ELECTION AND REMOVAL OF DIRECTORS	29
14.1.Election at Annual General Meeting	29
14.2.Consent to be a Director	29
14.3.Failure to Elect or Appoint Directors	29
14.4.Places of Retiring Directors Not Filled	30
14.5.Directors May Fill Casual Vacancies	30
14.6.Remaining Directors Power to Act	30
14.7.Shareholders May Fill Vacancies	30
14.8.Additional Directors	30
14.9.Ceasing to Be a Director	31
14.10.Removal of Director by Shareholders	31
14.11.Removal of Director by Directors	31

5

15.ALTERNATE DIRECTORS	31
15.1.Appointment of Alternate Director	31
15.2.Notice of Meetings	32
15.3.Alternate for More Than One Director Attending Meetings	32
15.4.Consent Resolutions	32
15.5.Alternate Director Not an Agent	32
15.6.Revocation of Appointment of Alternate Director	32
15.7.Ceasing to Be an Alternate Director	32
15.8.Remuneration and Expenses of Alternate Director	33
16.POWERS AND DUTIES OF DIRECTORS	33
16.1.Powers of Management	33
16.2.Appointment of Attorney of Company	33
17.DISCLOSURE OF INTEREST OF DIRECTORS	33
17.1.Obligation to Account for Profits	33
17.2.Restrictions on Voting by Reason of Interest	34
17.3.Interested Director Counted in Quorum	34
17.4.Disclosure of Conflict of Interest or Property	34
17.5.Director Holding Other Office in the Company	34
17.6.No Disqualification	34
17.7.Professional Services By Director or Officer	34
17.8.Director or Officer in Other Corporations	34
18.PROCEEDINGS OF DIRECTORS	35
18.1.Meetings of Directors	35
18.2.Voting at Meetings	35
18.3.Chair of Meetings	35

6

18.4.Meetings by Telephone or Other Communications Medium	35
18.5.Calling of Meetings	36
18.6.Notice of Meetings	36
18.7.When Notice Not Required	36
18.8.Meeting Valid Despite Failure to Give Notice	36
18.9.Waiver of Notice of Meetings	36
18.10.Quorum	36
18.11.Validity of Acts Where Appointment Defective	37
18.12.Consent Resolutions in Writing	37
19.EXECUTIVE AND OTHER COMMITTEES	37
19.1.Appointment and Powers of Executive Committee	37
19.2.Appointment and Powers of Other Committees	38
19.3.Obligations of Committees	38
19.4.Powers of Board	38
19.5.Committee Meetings	38
20.OFFICERS	39
20.1.Directors May Appoint Officers	39
20.2.Functions, Duties and Powers of Officers	39
20.3.Qualifications	39
20.4.Remuneration and Terms of Appointment	39
21.INDEMNIFICATION	40
21.1.Definitions	40
21.2.Mandatory Indemnification of Directors and Former Directors	40
21.3.Indemnification of Other Persons	40
21.4.Non-Compliance with Business Corporations Act	40

7

21.5.Company May Purchase Insurance	40
22.DIVIDENDS	41
22.1.Payment of Dividends Subject to Special Rights	41
22.2.Declaration of Dividends	41
22.3.No Notice Required	41
22.4.Record Date	41
22.5.Manner of Paying Dividend	41
22.6.Settlement of Difficulties	41
22.7.When Dividend Payable	42
22.8.Dividends to be Paid in Accordance with Number of Shares	42
22.9.Receipt by Joint Shareholders	42
22.10.Dividend Bears No Interest	42
22.11.Fractional Dividends	42
22.12.Payment of Dividends	42
23.DOCUMENTS, RECORDS AND REPORTS	42
23.1.Recording of Financial Affairs	42
23.2.Inspection of Accounting Records	43
24.NOTICES	43
24.1.Method of Giving Notice	43
24.2.Deemed Receipt of Mailing	44
24.3.Certificate of Sending	44
24.4.Notice to Joint Shareholders	44
24.5.Notice to Trustees	44
25.SEAL	44
25.1.Who May Attest Seal	44

8

25.2.Sealing Copies	45
25.3.Mechanical Reproduction of Seal	45
26.PROHIBITIONS	45
26.1.Definitions	45
26.2.Application	46
26.3.Consent Required for Transfer of Shares or Designated Securities	46
27.SPECIAL RIGHTS AND RESTRICTIONS ATTACHING TO THE COMMON SHARES	46
27.1.Voting Rights	46
27.2.Dividend Rights on Common Shares	46
27.3.Dissolution	46

9

FOREMOST VENTURES CORP.

(the "Company")

ARTICLES OF INCORPORATION

1.INTERPRETATION

1.1.Definitions

In these Articles, unless the context otherwise requires:

(a)"board of directors", "directors" and "board" mean the directors or sole director of the Company for the time being;

(b)"Business Corporations Act" means the Business Corporations Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;

(c)"legal personal representative" means the personal or other legal representative of the shareholder;

(d)"registered address" of a shareholder means the shareholder's address as recorded in the central securities register;

(e)"seal" means the seal of the Company, if any.

1.2.Business Corporations Act and Interpretation Act Definitions Applicable

The definitions in the Business Corporations Act and the definitions and rules of construction in the Interpretation Act, with the necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as if they were an enactment.  If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles.  If there is a conflict between these Articles and the Business Corporations Act, the Business Corporations Act will prevail.

2.SHARES AND SHARE CERTIFICATES

2.1.Authorized Share Structure

The authorized share structure of the Company consists of shares of the class or classes and series, if any, described in the Notice of Articles of the Company.

2.2.Form of Share Certificate

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act.

10

2.3.Shareholder Entitled to Certificate or Acknowledgment

Each shareholder is entitled, without charge, to (a) one share certificate representing the shares of each class or series of shares registered in the shareholder's name or (b) a non-transferable written acknowledgment of the shareholder's right to obtain such a share certificate, provided that in respect of a share held jointly by several persons, the Company is not bound to issue more than one share certificate and delivery of a share certificate for a share to one of several joint shareholders or to one of the shareholders' duly authorized agents will be sufficient delivery to all.

2.4.Delivery by Mail

Any share certificate or non-transferable written acknowledgment of a shareholder's right to obtain a share certificate may be sent to the shareholder by mail at the shareholder's registered address and neither the Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because the share certificate or acknowledgement is lost in the mail or stolen.

2.5.Replacement of Worn Out or Defaced Certificate or Acknowledgement

If the directors are satisfied that a share certificate or a non-transferable written acknowledgment of the shareholder's right to obtain a share certificate is worn out or defaced, they must, on production to them of the share certificate or acknowledgment, as the case may be, and on such other terms, if any, as they think fit:

(a)order the share certificate or acknowledgment, as the case may be, to be cancelled; and

(b)issue a replacement share certificate or acknowledgment, as the case may be.

2.6.Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment

If a share certificate or a non-transferable written acknowledgment of a shareholder's right to obtain a share certificate is lost, stolen or destroyed, a replacement share certificate or acknowledgment, as the case may be, must be issued to the person entitled to that share certificate or acknowledgment, as the case may be, if the directors receive:

(a)proof satisfactory to them that the share certificate or acknowledgment is lost, stolen or destroyed; and

(b)any indemnity the directors consider adequate.

2.7.Splitting Share Certificates

If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder's name two or more share certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the share certificate so surrendered, the Company must cancel the surrendered share certificate and issue replacement share certificates in accordance with that request.

11

2.8.Certificate Fee

There must be paid to the Company, in relation to the issue of any share certificate under Articles 2.5, 2.6 or 2.7, the amount, if any and which must not exceed the amount prescribed under the Business Corporations Act, determined by the directors.

2.9.Recognition of Trusts

Except as required by law or statute or these Articles, no person will be recognized by the Company, as holding any share upon any trust, and the Company is not bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or fraction of a share or (except as by law or statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the shareholder.

3.ISSUE OF SHARES

3.1.Directors Authorized

Subject to the Business Corporations Act and the rights of the holders of issued shares of the Company, the Company may issue, allot, sell or otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices (including any premium at which shares with par value may be issued) that the directors may determine.  The issue price for a share with par value must be equal to or greater than the par value of the share.

3.2.Commissions and Discounts

The Company may at any time pay a reasonable commission or allow a reasonable discount to any person in consideration of that person purchasing or agreeing to purchase shares of the Company from the Company or any other person or procuring or agreeing to procure purchasers for shares of the Company.

3.3.Brokerage

The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of its securities.

3.4.Conditions of Issue

Except as provided for by the Business Corporations Act, no share may be issued until it is fully paid.  A share is fully paid when:

(a)consideration is provided to the Company for the issue of the share by one or more of the following:

(i)past services performed for the Company;

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(ii)property;

(iii)money; and

(b)the value of the consideration received by the Company equals or exceeds the issue price set for the share under Article 3.1.

3.5.Share Purchase Warrants and Rights

Subject to the Business Corporations Act, the Company may issue share purchase warrants, options and rights upon such terms and conditions as the directors determine, which share purchase warrants, options and rights may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or created by the Company from time to time.

4.SHARE REGISTERS

4.1.Central Securities Register

As required by and subject to the Business Corporations Act, the Company must maintain in British Columbia a central securities register.  The directors may, subject to the Business Corporations Act, appoint an agent to maintain the central securities register.  The directors may also appoint one or more agents, including the agent which keeps the central securities register, as transfer agent for its shares or any class or series of its shares, as the case may be, and the same or another agent as registrar for its shares or such class or series of its shares, as the case may be.  The directors may terminate such appointment of any agent at any time and may appoint another agent in its place.

4.2.Closing Register

The Company must not at any time close its central securities register.

5.SHARE TRANSFERS

5.1.Registering Transfers

A transfer of a share of the Company must not be registered unless:

(a)a duly signed instrument of transfer in respect of the share has been received by the Company;

(b)if a share certificate has been issued by the Company in respect of the share to be transferred, that share certificate has been surrendered to the Company; and

(c)if a non-transferable written acknowledgment of the shareholder's right to obtain a share certificate has been issued by the Company in respect of the share to be transferred, that acknowledgment has been surrendered to the Company.

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5.2.Form of Instrument of Transfer

The instrument of transfer in respect of any shares of the Company must be either in the form, if any, on the back of the Company's share certificates or in any other form that may be approved by the directors from time to time.

5.3.Transferor Remains Shareholder

Except to the extent that the Business Corporations Act otherwise provides, the transferor of shares is deemed to remain the holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.

5.4.Signing of Instrument of Transfer

If a shareholder, or his or her duly authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in the written acknowledgements deposited with the instrument of transfer:

(a)in the name of the person named as transferee in that instrument of transfer; or

(b)if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.

5.5.Enquiry as to Title Not Required

Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgement of a right to obtain a share certificate for such shares.

5.6.Transfer Fee

There must be paid to the Company, in relation to the registration of any transfer, the amount, if any, determined by the directors.

6.TRANSMISSION OF SHARES

6.1.Legal Personal Representative Recognized on Death

In case of the death of a shareholder, the legal personal representative, or if the shareholder was a joint holder, the surviving joint holder, will be the only person recognized by the Company as having any title to the shareholder's interest in the shares.  Before recognizing a person as a legal personal representative, the directors may require proof of appointment by a court of competent jurisdiction, a grant of letters probate, letters of administration or such other evidence or documents as the directors consider appropriate.

14

6.2.Rights of Legal Personal Representative

The legal personal representative has the same rights, privileges and obligations that attach to the shares held by the shareholder, including the right to transfer the shares in accordance with these Articles, provided the documents required by the Business Corporations Act and the directors have been deposited with the Company.

7.PURCHASE OF SHARES

7.1.Company Authorized to Purchase Shares

Subject to Article 7.2, the special rights and restrictions attached to the shares of any class or series and the Business Corporations Act, the Company may, if authorized by the directors, purchase or otherwise acquire any of its shares at the price and upon the terms specified in such resolution.

7.2.Purchase When Insolvent

The Company must not make a payment or provide any other consideration to purchase or otherwise acquire any of its shares if there are reasonable grounds for believing that:

(a)the Company is insolvent; or

(b)making the payment or providing the consideration would render the Company insolvent.

7.3.Sale and Voting of Purchased Shares

If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by the Company, it:

(a)is not entitled to vote the share at a meeting of its shareholders;

(b)must not pay a dividend in respect of the share; and

(c)must not make any other distribution in respect of the share.

8.BORROWING POWERS

The Company, if authorized by the directors, may:

(a)borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

15

(b)issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;

(c)guarantee the repayment of money by any other person or the performance of any obligation of any other person; and

(d)mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

9.ALTERATIONS

9.1.Alteration of Authorized Share Structure

(a)Subject to Article 9.2 and the Business Corporations Act, the Company may by directors' resolution:

(i)subdivide or consolidate all or any of its unissued, or fully paid issued, shares;

(ii)if the Company is authorized to issue shares of a class of shares with par value:

(a)decrease the par value of those shares; or

(b)if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

(iii)change all or any of its unissued, or fully paid issued, shares with par value into shares without par value or any of its unissued shares without par value into shares with par value;

(iv)alter the identifying name of any of its shares; or

(v)otherwise alter its shares or authorized share structure when required or permitted to do so by the Business Corporations Act.

(b)Subject to Article 9.2 and the Business Corporations Act, the Company may by directors' resolution:

(i)create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

(ii)increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established.

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9.2.Special Rights and Restrictions

Subject to the Business Corporations Act, the Company may by ordinary resolution:

(a)create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or

(b)vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.

9.3.Change of Name

The Company may by directors' resolution authorize an alteration of its Notice of Articles in order to change its name or adopt or change any translation of that name.

9.4.Other Alterations

If the Business Corporations Act does not specify the type of resolution and these Articles do not specify another type of resolution, the Company may by ordinary resolution alter these Articles.

10.MEETINGS OF SHAREHOLDERS

10.1.Annual General Meetings

Unless an annual general meeting is deferred or waived in accordance with the Business Corporations Act, the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual reference date at such time and place as may be determined by the directors.

10.2.Resolution Instead of Annual General Meeting

If all the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution.  The shareholders must, in any unanimous resolution passed under this Article 10.2, select as the Company's annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.

10.3.Calling of Meetings of Shareholders

The directors may, whenever they think fit, call a meeting of shareholders.

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10.4.Notice for Meetings of Shareholders

The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:

(a)if and for so long as the Company is a public company, 21 days;

(b)otherwise, 10 days.

10.5.Record Date for Notice

The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders.  The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months.  The record date must not precede the date on which the meeting is held by fewer than:

(a)if and for so long as the Company is a public company, 21 days;

(b)otherwise, 10 days.

If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.6.Record Date for Voting

The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders.  The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months.  If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.7.Failure to Give Notice and Waiver of Notice

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting.  Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.

10.8.Notice of Special Business at Meetings of Shareholders

If a meeting of shareholders is to consider special business within the meaning of Article 11.1, the notice of meeting must:

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(a)state the general nature of the special business; and

(b)if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:

(i)at the Company's records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and

(ii)during statutory business hours on anyone or more specified days before the day set for the holding of the meeting.

11.PROCEEDINGS AT MEETINGS OF SHAREHOLDERS

11.1.Special Business

At a meeting of shareholders, the following business is special business:

(a)at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;

(b)at an annual general meeting, all business is special business except for the following:

(i)business relating to the conduct of or voting at the meeting;

(ii)consideration of any financial statements of the Company presented to the meeting;

(iii)consideration of any reports of the directors or auditor;

(iv)the setting or changing of the number of directors;

(v)the election or appointment of directors;

(vi)the appointment of an auditor;

(vii)the setting of the remuneration of an auditor;

(viii)business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;

(ix)any other business which, under these Articles or the Business Corporations Act, may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

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11.2.Special Majority

The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.

11.3.Quorum

Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.

11.4.One Shareholder May Constitute Quorum

If there is one shareholder entitled to vote at a meeting of shareholders:

(a)the quorum is one person who is, or who represents by proxy, that shareholder, and

(b)that shareholder, present in person or by proxy, may constitute the meeting.

11.5.Other Persons May Attend

The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.

11.6.Requirement of Quorum

No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum need not be present throughout the meeting.

11.7.Lack of Quorum

If, within one-half hour from the time set for the holding of a meeting of shareholders, a quorum is not present:

(a)in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and

(b)in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.

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11.8.Lack of Quorum at Succeeding Meeting

If, at the meeting to which the meeting referred to in Article 11.7(b) was adjourned, a quorum is not present within one-half hour from the time set for the holding of the meeting, the person or persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the meeting constitute a quorum.

11.9.Chair

The following individual is entitled to preside as chair at a meeting of shareholders:

(a)the chair of the board, if any; or

(b)if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.

11.10.Selection of Alternate Chair

If, at any meeting of shareholders, there is no chair of the board or president present within 15 minutes after the time set for holding the meeting, or if the chair of the board and the president are unwilling to act as chair of the meeting, or if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting, the directors present must choose one of their number to be chair of the meeting or if all of the directors present decline to take the chair or fail to so choose or if no director is present, the shareholders entitled to vote at the meeting who are present in person or by proxy may choose any person present at the meeting to chair the meeting.

11.11.Adjournments

The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

11.12.Notice of Adjourned Meeting

It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.

11.13.Decisions by Show of Hands or Poll

Subject to the Business Corporations Act, every motion put to a vote at a meeting of shareholders will be decided on a show of hands unless a poll, before or on the declaration of the result of the vote by show of hands, is directed by the chair or demanded by at least one shareholder entitled to vote who is present in person or by proxy.

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11.14.Declaration of Result

The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting.  A declaration of the chair that a resolution is carried by the necessary majority or is defeated is, unless a poll is directed by the chair or demanded under Article 11.13, conclusive evidence without proof of the number or proportion of the votes recorded in favour of or against the resolution.

11.15.Motion Need Not Be Seconded

No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.

11.16.Casting Vote

In case of an equality of votes, the chair of a meeting of shareholders does not, either on a show of hands or on a poll, have a second or casting vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

11.17.Manner of Taking Poll

Subject to Article 11.18, if a poll is duly demanded at a meeting of shareholders:

(a)the poll must be taken:

(i)at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs; and

(ii)in the manner, at the time and at the place that the chair of the meeting directs;

(b)the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and

(c)the demand for the poll may be withdrawn by the person who demanded it.

11.18.Demand for Poll on Adjournment

A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.

11.19.Chair Must Resolve Dispute

In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the dispute, and his or her determination made in good faith is final and conclusive.

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11.20.Casting of Votes

On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

11.21.Demand for Poll

No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

11.22.Demand for Poll Not to Prevent Continuance of Meeting

The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.

11.23.Retention of Ballots and Proxies

The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted at the meeting, and, during that period, make them available for inspection during normal business hours by any shareholder or proxy holder entitled to vote at the meeting.  At the end of such three month period, the Company may destroy such ballots and proxies.

12.VOTES OF SHAREHOLDERS

12.1.Number of Votes by Shareholder or by Shares

Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint shareholders under Article 12.3:

(a)on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote on the matter has one vote; and

(b)on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder and may exercise that vote either in person or by proxy.

12.2.Votes of Persons in Representative Capacity

A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.

12.3.Votes by Joint Holders

If there are joint shareholders registered in respect of any share:

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(a)any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or

(b)if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.

12.4.Legal Personal Representatives as Joint Shareholders

Two or more legal personal representatives of a shareholder in whose sole name any shares is registered are, for the purposes of Article 12.3, deemed to be joint shareholders.

12.5.Representative of a Corporate Shareholder

If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:

(a)for that purpose, the instrument appointing a representative must:

(i)be received at the registered office of the Company or at any other place specified in the notice calling the meeting for the receipt of proxies at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(ii)be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting;

(b)if a representative is appointed under this Article 12.5:

(i)the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and

(ii)the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.

Evidence of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

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12.6.Proxy Provisions Do Not Apply to All Companies

If and for so long as the Company is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply, Articles 12.7 to 12.15 apply only insofar as they are not inconsistent with any securities legislation in any province or territory of Canada or in the federal jurisdiction of the United States or in any states of the United States that is applicable to the Company and insofar as they are not inconsistent with the regulations and rules made and promulgated under that legislation and all administrative policy statements, blanket orders and rulings, notices and other administrative directions issued by securities commissions or similar authorities appointed under that legislation.

12.7.Appointment of Proxy Holders

Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint one or more (but not more than five) proxy holders to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

12.8.Alternate Proxy Holders

A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

12.9.When Proxy Holder Need Not Be Shareholder

A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a proxy holder if:

(a)the person appointing the proxy holder is a corporation or a representative of a corporation appointed under Article 12.5;

(b)the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting; or

(c)the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and vote at the meeting.

12.10.Deposit of Proxy

A proxy for a meeting of shareholders must:

(a)be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

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(b)unless the notice provides otherwise, be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting.  A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.11.Validity of Proxy Vote

A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:

(a)at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(b)by the chair of the meeting, before the vote is taken.

12.12.Form of Proxy

A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair of the meeting:

[name of company]

(the "Company")

The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person, [name], as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Company to be held on [month, day, year] and at any adjournment of that meeting.

Number of shares in respect of which this proxy is given (if no number is specified, then this proxy is given in respect of all shares registered in the name of the shareholder):

_______________________

Signed [month, day, year]

_______________________

[Signature of shareholder]

_______________________

[Name of shareholder - printed]

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12.13.Revocation of Proxy

Subject to Article 12.14, every proxy may be revoked by an instrument in writing that is:

(a)received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(b)provided, at the meeting, to the chair of the meeting.

12.14.Revocation of Proxy Must Be Signed

An instrument referred to in Article 12.13 must be signed as follows:

(a)if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her legal personal representative or trustee in bankruptcy;

(b)if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative appointed for the corporation under Article 12.5.

12.15.Production of Evidence of Authority to Vote

The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

13.DIRECTORS

13.1.First Directors; Number of Directors

The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognized under the Business Corporations Act.  The number of directors, excluding additional directors appointed under Article 14.8, is set at:

(a)subject to paragraphs (b) and (c), the number of directors that is equal to the number of the Company's first directors;

(b)if the Company is a public company, the greater of three and the most recently set of:

(i)the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(ii)the number of directors set under Article 14.4;

(c)if the Company is not a public company, the most recently set of:

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(i)the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(ii)the number of directors set under Article 14.4.

13.2.Change in Number of Directors

If the number of directors is set under Articles 13.1 (b)(i) or 13.1 (c)(i):

(a)the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number;

(b)if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of directors up to that number contemporaneously with the setting of that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.

13.3.Directors' Acts Valid Despite Vacancy

An act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required under these Articles is in office.

13.4.Qualifications of Directors

A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.

13.5.Remuneration of Directors

The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine.  If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders.  That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.

13.6.Reimbursement of Expenses of Directors

The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.

13.7.Special Remuneration for Directors

If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or, if any director is otherwise specially occupied in or about the Company's business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.

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13.8.Gratuity, Pension or Allowance on Retirement of Director

Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

14.ELECTION AND REMOVAL OF DIRECTORS

14.1.Election at Annual General Meeting

At every annual general meeting and in every unanimous resolution contemplated by Article 10.2:

(a)the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board of directors consisting of the number of directors for the time being set under these Articles; and

(b)all the directors cease to hold office immediately before the election or appointment of directors under paragraph (a), but are eligible for re-election or reappointment.

14.2.Consent to be a Director

No election, appointment or designation of an individual as a director is valid unless:

(a)that individual consents to be a director in the manner provided for in the Business Corporations Act;

(b)that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director; or

(c)with respect to first directors, the designation is otherwise valid under the Business Corporations Act.

14.3.Failure to Elect or Appoint Directors

If:

(a)the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 10.2, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act; or

(b)the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 10.2, to elect or appoint any directors;

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then each director then in office continues to hold office until the earlier of:

(c)the date on which his or her successor is elected or appointed; and

(d)the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.

14.4.Places of Retiring Directors Not Filled

If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not reelected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to complete the number of directors for the time being set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose.  If any such election or continuance of directors does not result in the election or continuance of the number of directors for the time being set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.

14.5.Directors May Fill Casual Vacancies

Any casual vacancy occurring in the board of directors may be filled by the directors.

14.6.Remaining Directors Power to Act

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the Business Corporations Act, for any other purpose.

14.7.Shareholders May Fill Vacancies

If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

14.8.Additional Directors

Notwithstanding Articles 13.1 and 13.2, between annual general meetings or unanimous resolutions contemplated by Article 10.2, the directors may appoint one or more additional directors, but the number of additional directors appointed under this Article 14.8 must not at any time exceed:

(a)one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

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(b)in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this Article 14.8.

Any director so appointed ceases to hold office immediately before the next election or appointment of directors under Article 14.1(a), but is eligible for re-election or re-appointment.

14.9.Ceasing to Be a Director

A director ceases to be a director when:

(a)the term of office of the director expires;

(b)the director dies;

(c)the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or

(d)the director is removed from office pursuant to Articles 14.10 or 14.11.

14.10.Removal of Director by Shareholders

The Company may remove any director before the expiration of his or her term of office by special resolution.  In that event, the shareholders may elect, or appoint by ordinary resolution, a director to fill the resulting vacancy.  If the shareholders do not elect or appoint a director to fill the resulting vacancy contemporaneously with the removal, then the directors may appoint or the shareholders may elect, or appoint by ordinary resolution, a director to fill that vacancy.

14.11.Removal of Director by Directors

The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.

15.ALTERNATE DIRECTORS

15.1.Appointment of Alternate Director

Any director (an "appointor") may by notice in writing received by the Company appoint any person (an "appointee") who is qualified to act as a director to be his or her alternate to act in his or her place at meetings of the directors or committees of the directors at which the appointor is not present unless (in the case of an appointee who is not a director) the directors have reasonably disapproved the appointment of such person as an alternate director and have given notice to that effect to his or her appointor within a reasonable time after the notice of appointment is received by the Company.

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15.2.Notice of Meetings

Every alternate director so appointed is entitled to notice of meetings of the directors and of committees of the directors of which his or her appointor is a member and to attend and vote as a director at any such meetings at which his or her appointor is not present.

15.3.Alternate for More Than One Director Attending Meetings

A person may be appointed as an alternate director by more than one director, and an alternate director:

(a)will be counted in determining the quorum for a meeting of directors once for each of his or her appointors and, in the case of an appointee who is also a director, once more in that capacity;

(b)has a separate vote at a meeting of directors for each of his or her appointors and, in the case of an appointee who is also a director, an additional vote in that capacity;

(c)will be counted in determining the quorum for a meeting of a committee of directors once for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, once more in that capacity;

(d)has a separate vote at a meeting of a committee of directors for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, an additional vote in that capacity.

15.4.Consent Resolutions

Every alternate director, if authorized by the notice appointing him or her, may sign in place of his or her appointor any resolutions to be consented to in writing.

15.5.Alternate Director Not an Agent

Every alternate director is deemed not to be the agent of his or her appointor.

15.6.Revocation of Appointment of Alternate Director

An appointor may at any time, by notice in writing received by the Company, revoke the appointment of an alternate director appointed by him or her.

15.7.Ceasing to Be an Alternate Director

The appointment of an alternate director ceases when:

(a)his or her appointor ceases to be a director and is not promptly re-elected or re-appointed;

(b)the alternate director dies;

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(c)the alternate director resigns as an alternate director by notice in writing provided to the Company or a lawyer for the Company;

(d)the alternate director ceases to be qualified to act as a director; or

(e)his or her appointor revokes the appointment of the alternate director.

15.8.Remuneration and Expenses of Alternate Director

The Company may reimburse an alternate director for the reasonable expenses that would be properly reimbursed if he or she were a director, and the alternate director is entitled to receive from the Company such proportion, if any, of the remuneration otherwise payable to the appointor as the appointor may from time to time direct.

16.POWERS AND DUTIES OF DIRECTORS

16.1.Powers of Management

The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company.

16.2.Appointment of Attorney of Company

The directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these Articles and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill vacancies in, any committee of the directors, to appoint or remove officers appointed by the directors and to declare dividends) and for such period, and with such remuneration and subject to such conditions as the directors may think fit.  Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorney as the directors think fit.  Any such attorney may be authorized by the directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in him or her.

17.DISCLOSURE OF INTEREST OF DIRECTORS

17.1.Obligation to Account for Profits

A director or senior officer who holds a disclosable interest (as that term is used in the Business Corporations Act) in a contract or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Business Corporations Act.

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17.2.Restrictions on Voting by Reason of Interest

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

17.3.Interested Director Counted in Quorum

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.

17.4.Disclosure of Conflict of Interest or Property

A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty or interest as a director or senior office, must disclose the nature and extent of the conflict as required by the Business Corporations Act.

17.5.Director Holding Other Office in the Company

A director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

17.6.No Disqualification

No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of the Company in which a director is in any way interested is liable to be voided for that reason.

17.7.Professional Services By Director or Officer

Subject to the Business Corporations Act, a director or officer, or any person in which a director or officer has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such person is entitled to remuneration for professional services as if that director or officer were not a director or officer.

17.8.Director or Officer in Other Corporations

A director or officer may be or become a director, officer or employee of, or otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Business Corporations Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as a director, officer or employee of, or from his or her interest in, such other person.

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18.PROCEEDINGS OF DIRECTORS

18.1.Meetings of Directors

The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine.

18.2.Voting at Meetings

Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting does not have a second or casting vote.

18.3.Chair of Meetings

The following individual is entitled to preside as chair at a meeting of directors:

(a)the chair of the board, if any;

(b)in the absence of the chair of the board, the president, if any, if the president is a director; or

(c)any other director chosen by the directors if:

(i)neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting;

(ii)neither the chair of the board nor the president, if a director, is willing to chair the meeting; or

(iii)the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.

18.4.Meetings by Telephone or Other Communications Medium

A director may participate in a meeting of the directors or of any committee of the directors in person or by telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other.  A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation.  A director who participates in a meeting in a manner contemplated by this Article 18.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner.

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18.5.Calling of Meetings

A director may, and the secretary or an assistant secretary of the Company, if any, on the request of a director must, call a meeting of the directors at any time.

18.6.Notice of Meetings

Other than for meetings held at regular intervals as determined by the directors pursuant to Article 18.1, reasonable notice of each meeting of the directors, specifying the place, day and time of that meeting must be given to each of the directors and the alternate directors by any method set out in Article 24.1 or orally or by telephone.

18.7.When Notice Not Required

It is not necessary to give notice of a meeting of the directors to a director or an alternate director if:

(a)the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed, or is the meeting of the directors at which that director is appointed; or

(b)the director or alternate director, as the case may be, has waived notice of the meeting.

18.8.Meeting Valid Despite Failure to Give Notice

The accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director or alternate director, does not invalidate any proceedings at that meeting.

18.9.Waiver of Notice of Meetings

Any director or alternate director may send to the Company a document signed by him or her waiving notice of any past, present or future meeting or meetings of the directors and may at any time withdraw that waiver with respect to meetings held after that withdrawal.  After sending a waiver with respect to all future meetings and until that waiver is withdrawn, no notice of any meeting of the directors need be given to that director and, unless the director otherwise requires by notice in writing to the Company, to his or her alternate director, and all meetings of the directors so held are deemed not to be improperly called or constituted by reason of notice not having been given to such director or alternate director.

18.10.Quorum

The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be set at two directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

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18.11.Validity of Acts Where Appointment Defective

Subject to the Business Corporations Act, an act of a director or officer is not invalid merely because of an irregularity in the election or appointment or a defect in the qualification of that director or officer.

18.12.Consent Resolutions in Writing

A resolution of the directors or of any committee of the directors may be passed without a meeting:

(1)in all cases, if each of the directors entitled to vote on the resolution consents to it in writing; or

(2)in the case of a resolution to approve a contract or transaction in respect of which a director has disclosed that he or she has or may have a disclosable interest, if each of the other directors who are entitled to vote on the resolution consents to it in writing.

A consent in writing under this Article may be by signed document, fax, email or any other method of transmitting legibly recorded messages.  A consent in writing may be in two or more counterparts which together are deemed to constitute one consent in writing.  A resolution of the directors or of any committee of the directors passed in accordance with this Article 18.12 is effective on the date stated in the consent in writing or on the latest date stated on any counterpart and is deemed to be a proceeding at a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors that satisfies all the requirements of the Business Corporations Act and all the requirements of these Articles relating to meetings of the directors or of a committee of the directors.

19.EXECUTIVE AND OTHER COMMITTEES

19.1.Appointment and Powers of Executive Committee

The directors may, by resolution, appoint an executive committee consisting of the director or directors that they consider appropriate, and this committee has, during the intervals between meetings of the board of directors, all of the directors' powers, except:

(a)the power to fill vacancies in the board of directors;

(b)the power to remove a director;

(c)the power to change the membership of, or fill vacancies in, any committee of the directors; and

(d)such other powers, if any, as may be set out in the resolution or any subsequent directors' resolution.

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19.2.Appointment and Powers of Other Committees

The directors may, by resolution:

(a)appoint one or more committees (other than the executive committee) consisting of the director or directors that they consider appropriate;

(b)delegate to a committee appointed under paragraph (a) any of the directors' powers, except:

(i)the power to fill vacancies in the board of directors;

(ii)the power to remove a director;

(iii)the power to change the membership of, or fill vacancies Ill, any committee of the directors; and

(iv)the power to appoint or remove officers appointed by the directors; and

(c)make any delegation referred to in paragraph (b) subject to the conditions set out in the resolution or any subsequent directors' resolution.

19.3.Obligations of Committees

Any committee appointed under Articles 19.1 or 19.2 in the exercise of the powers delegated to it, must:

(a)conform to any rules that may from time to time be imposed on it by the directors; and

(b)report every act or thing done in exercise of those powers at such times as the directors may require.

19.4.Powers of Board

The directors may, at any time, with respect to a committee appointed under Articles 19.1 or 19.2:

(a)revoke or alter the authority given to the committee, or override a decision by the committee, except as to acts done before such revocation, alteration or overriding;

(b)terminate the appointment of, or change the membership of, the committee; and

(c)fill vacancies in the committee.

19.5.Committee Meetings

Subject to Article 19.3(a) and unless the directors otherwise provide in the resolution appointing the committee or in any subsequent resolution, with respect to a committee appointed under Articles 19.1 or 19.2:

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(a)the committee may meet and adjourn as it thinks proper;

(b)the committee may elect a chair of its meeting but, if no chair of a meeting is elected, or if at a meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their members to chair the meeting;

(c)a majority of the members of the committee constitutes a quorum of the committee; and

(d)questions arising at any meeting of the committee are determined by a majority of votes of the members present, and in the case of an equality of votes, the chair of the meeting does not have a second or casting vote.

20.OFFICERS

20.1.Directors May Appoint Officers

The directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time, terminate any such appointment.

20.2.Functions, Duties and Powers of Officers

The directors may, for each officer:

(a)determine the functions and duties of the officer;

(b)entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit; and

(c)revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.

20.3.Qualifications

No officer may be appointed unless that officer is qualified in accordance with the Business Corporations Act.  One person may hold more than one position as an officer of the Company.  Any person appointed as the chair of the board or as a managing director must be a director.  Any other officer need not be a director.

20.4.Remuneration and Terms of Appointment

All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the directors thinks fit and are subject to termination at the pleasure of the directors, and an officer may in addition to such remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity.

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21.INDEMNIFICATION

21.1.Definitions

In this Article 21:

(a)"eligible penalty" means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding;

(b)"eligible proceeding" means a legal proceeding or investigative action, whether current, threatened, pending or completed, in which a director, former director or alternate director of the Company (an "eligible party") or any of the heirs and legal personal representatives of the eligible party, by reason of the eligible party being or having been a director or alternate director of the Company:

(i)is or may be joined as a party; or

(ii)is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;

(c)"expenses" has the meaning set out in the Business Corporations Act.

21.2.Mandatory Indemnification of Directors and Former Directors

Subject to the Business Corporations Act, the Company must indemnify a director, former director or alternate director of the Company and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in respect of that proceeding.  Each director and alternate director is deemed to have contracted with the Company on the terms of the indemnity contained in this Article 21.2.

21.3.Indemnification of Other Persons

Subject to any restrictions in the Business Corporations Act, the Company may indemnify any person.

21.4.Non-Compliance with Business Corporations Act

The failure of a director, alternate director or officer of the Company to comply with the Business Corporations Act or these Articles does not invalidate any indemnity to which he or she is entitled under this Part.

21.5.Company May Purchase Insurance

The Company may purchase and maintain insurance for the benefit of any person (his or her heirs or legal personal representatives) who:

(a)is or was a director, alternate director, officer, employee or agent of the Company;

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(b)is or was a director, alternate director, employee or agent of a corporation at a time when the corporation is or was an affiliate of the Company;

(c)at the request of the Company, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity;

(d)at the request of the Company, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity;

against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position.

22.DIVIDENDS

22.1.Payment of Dividends Subject to Special Rights

The provisions of this Article 22 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.

22.2.Declaration of Dividends

Subject to the Business Corporations Act, the directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

22.3.No Notice Required

The directors need not give notice to any shareholder of any declaration under Article 22.2.

22.4.Record Date

The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend.  The record date must not precede the date on which the dividend is to be paid by more than two months.  If no record date is set, the record date is 5 p.m. on the date on which the directors pass the resolution declaring the dividend.

22.5.Manner of Paying Dividend

A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in anyone or more of those ways.

22.6.Settlement of Difficulties

If any difficulty arises in regard to a distribution under Article 22.5, the directors may settle the difficulty as they deem advisable, and, in particular, may:

(a)set the value for distribution of specific assets;

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(b)determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of all parties; and

(c)vest any such specific assets in trustees for the persons entitled to the dividend.

22.7.When Dividend Payable

Any dividend may be made payable on such date as is fixed by the directors.

22.8.Dividends to be Paid in Accordance with Number of Shares

All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

22.9.Receipt by Joint Shareholders

If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

22.10.Dividend Bears No Interest

No dividend bears interest against the Company.

22.11.Fractional Dividends

If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

22.12.Payment of Dividends

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or the person and to the address the shareholder or joint shareholders may direct in writing.  The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.

23.DOCUMENTS, RECORDS AND REPORTS

23.1.Recording of Financial Affairs

The directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the Business Corporations Act.

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23.2.Inspection of Accounting Records

Unless the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled to inspect or obtain a copy of any accounting records of the Company.

24.NOTICES

24.1.Method of Giving Notice

Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by anyone of the following methods:

(a)mail addressed to the person at the applicable address for that person as follows:

(i)for a record mailed to a shareholder, the shareholder's registered address;

(ii)for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class;

(iii)in any other case, the mailing address of the intended recipient;

(b)delivery at the applicable address for that person as follows, addressed to the person:

(i)for a record delivered to a shareholder, the shareholder's registered address;

(ii)for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class;

(iii)in any other case, the delivery address of the intended recipient;

(c)sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

(d)sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;

(e)physical delivery to the intended recipient.

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24.2.Deemed Receipt of Mailing

A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 24.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.

24.3.Certificate of Sending

A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 24.1, prepaid and mailed or otherwise sent as permitted by Article 24.1 is conclusive evidence of that fact.

24.4.Notice to Joint Shareholders

A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.

24.5.Notice to Trustees

A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:

(a)mailing the record, addressed to them:

(i)by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

(ii)at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or

(b)if an address referred to in paragraph (a)(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

25.SEAL

25.1.Who May Attest Seal

Except provided in Articles 25.2 and 25.3, the Company's seal, if any, must not be impressed on any record except when that impression is attested by the signatures of:

(a)any two directors;

(b)any officer, together with any director;

(c)if the Company only has one director, that director; or

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(d)any one or more directors or officers or persons as may be determined by the directors.

25.2.Sealing Copies

For the purpose of certifying under a seal a certificate of incumbency of the directors or officers of the Company or a true copy of any resolution or other document, despite Article 25.1, the impression of the seal may be attested by the signature of any director or officer.

25.3.Mechanical Reproduction of Seal

The directors may authorize the seal to be impressed by third parties on share certificates or bonds, debentures or other securities of the Company as they may determine appropriate from time to time.  To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are, in accordance with the Business Corporations Act or these Articles, printed or otherwise mechanically reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing the seal and the chair of the board or any senior officer together with the secretary, treasurer, secretary-treasurer, an assistant secretary, an assistant treasurer or an assistant secretary-treasurer may in writing authorize such person to cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the use of such dies.  Share certificates or bonds, debentures or other securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the seal impressed on them.

26.PROHIBITIONS

26.1.Definitions

In this Article 26:

(a)"designated security" means:

(i)a voting security of the Company;

(ii)a security of the Company that is not a debt security and that carries a residual right to participate in the earnings of the Company or, on the liquidation or winding up of the Company, in its assets; or

(iii)a security of the Company convertible, directly or indirectly, into a security described in paragraph (a) or (b);

(b)"security" has the meaning assigned in the Securities Act (British Columbia);

(c)"voting security" means a security of the Company that:

(i)is not a debt security, and

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(ii)carries a voting right either under all circumstances or under some circumstances that have occurred and are continuing.

26.2.Application

Article 26.3 does not apply to the Company if and for so long as it is a public company or a preexisting reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply.

26.3.Consent Required for Transfer of Shares or Designated Securities

No share or designated security may be sold, transferred or otherwise disposed of without the consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

27.SPECIAL RIGHTS AND RESTRICTIONS ATTACHING TO THE COMMON SHARES

27.1.Voting Rights

The common shares will be entitled to vote at all meetings of members of the Company except meetings at which only holders of a specified class of shares are entitled to vote.

27.2.Dividend Rights on Common Shares

The common shares will be entitled to a dividend from time to time as determined by the directors.

27.3.Dissolution

In the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its members for the purpose of winding up its affairs, the holders of the common shares will be entitled to receive the remaining property of the Company.

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EX-3.2

KWESST MICRO SYSTEMS INC.
(formerly FOREMOST VENTURES CORP.)

(the "Company")

The Company has as its articles the following articles.

Full name and signature of a director	Date of signing
"John McCoach"	September 4, 2020
John McCoach

Incorporation:  BC1142900

KWESST MICRO SYSTEMS INC.

(formerly FOREMOST VENTURES CORP.)

(the "Company")

TABLE OF CONTENTS

1.INTERPRETATION	10
1.1.Definitions	10
1.2.Business Corporations Act and Interpretation Act Definitions Applicable	10
2.SHARES AND SHARE CERTIFICATES	10
2.1.Authorized Share Structure	10
2.2.Form of Share Certificate	11
2.3.Shareholder Entitled to Certificate or Acknowledgment	11
2.4.Delivery by Mail	11
2.5.Replacement of Worn Out or Defaced Certificate or Acknowledgement	11
2.6.Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment	11
2.7.Splitting Share Certificates	11
2.8.Certificate Fee	12

2.9.Recognition of Trusts	12
3.ISSUE OF SHARES	12
3.1.Directors Authorized	12
3.2.Commissions and Discounts	12
3.3.Brokerage	12
3.4.Conditions of Issue	12
3.5.Share Purchase Warrants and Rights	13
4.SHARE REGISTERS	13
4.1.Central Securities Register	13
4.2.Closing Register	13
5.SHARE TRANSFERS	13
5.1.Registering Transfers	13
5.2.Form of Instrument of Transfer	14
5.3.Transferor Remains Shareholder	14
5.4.Signing of Instrument of Transfer	14
5.5.Enquiry as to Title Not Required	14
5.6.Transfer Fee	14
6.TRANSMISSION OF SHARES	15
6.1.Legal Personal Representative Recognized on Death	15
6.2.Rights of Legal Personal Representative	15
7.PURCHASE OF SHARES	15
7.1.Company Authorized to Purchase Shares	15
7.2.Purchase When Insolvent	15
7.3.Sale and Voting of Purchased Shares	15
8.BORROWING POWERS	16

9.ALTERATIONS	16
9.1.Alteration of Authorized Share Structure	16
9.2.Special Rights and Restrictions	17
9.3.Change of Name	17
9.4.Other Alterations	17
10.MEETINGS OF SHAREHOLDERS	17
10.1.Annual General Meetings	17
10.2.Resolution Instead of Annual General Meeting	17
10.3.Calling of Meetings of Shareholders	17
10.4.Notice for Meetings of Shareholders	18
10.5.Record Date for Notice	18
10.6.Record Date for Voting	18
10.7.Failure to Give Notice and Waiver of Notice	18
10.8.Notice of Special Business at Meetings of Shareholders	18
11.PROCEEDINGS AT MEETINGS OF SHAREHOLDERS	19
11.1.Special Business	19
11.2.Special Majority	20
11.3.Quorum	20
11.4.One Shareholder May Constitute Quorum	20
11.5.Other Persons May Attend	20
11.6.Requirement of Quorum	20
11.7.Lack of Quorum	20
11.8.Lack of Quorum at Succeeding Meeting	21
11.9.Chair	21
11.10.Selection of Alternate Chair	21
11.11.Adjournments	21

11.12.Notice of Adjourned Meeting	21
11.13.Decisions by Show of Hands or Poll	21
11.14.Declaration of Result	22
11.15.Motion Need Not Be Seconded	22
11.16.Casting Vote	22
11.17.Manner of Taking Poll	22
11.18.Demand for Poll on Adjournment	22
11.19.Chair Must Resolve Dispute	22
11.20.Casting of Votes	23
11.21.Demand for Poll	23
11.22.Demand for Poll Not to Prevent Continuance of Meeting	23
11.23.Retention of Ballots and Proxies	23
12.VOTES OF SHAREHOLDERS	23
12.1.Number of Votes by Shareholder or by Shares	23
12.2.Votes of Persons in Representative Capacity	23
12.3.Votes by Joint Holders	24
12.4.Legal Personal Representatives as Joint Shareholders	24
12.5.Representative of a Corporate Shareholder	24
12.6.Proxy Provisions Do Not Apply to All Companies	25
12.7.Appointment of Proxy Holders	25
12.8.Alternate Proxy Holders	25
12.9.When Proxy Holder Need Not Be Shareholder	25
12.10.Deposit of Proxy	25
12.11.Validity of Proxy Vote	26
12.12.Form of Proxy	26

12.13.Revocation of Proxy	27
12.14.Revocation of Proxy Must Be Signed	27
12.15.Production of Evidence of Authority to Vote	27
13.DIRECTORS	27
13.1.First Directors; Number of Directors	27
13.2.Change in Number of Directors	28
13.3.Directors' Acts Valid Despite Vacancy	28
13.4.Qualifications of Directors	28
13.5.Remuneration of Directors	28
13.6.Reimbursement of Expenses of Directors	28
13.7.Special Remuneration for Directors	28
13.8.Gratuity, Pension or Allowance on Retirement of Director	29
14.ELECTION AND REMOVAL OF DIRECTORS	29
14.1.Election at Annual General Meeting	29
14.2.Consent to be a Director	29
14.3.Failure to Elect or Appoint Directors	29
14.4.Places of Retiring Directors Not Filled	30
14.5.Directors May Fill Casual Vacancies	30
14.6.Remaining Directors Power to Act	30
14.7.Shareholders May Fill Vacancies	30
14.8.Additional Directors	30
14.9.Ceasing to Be a Director	31
14.10.Removal of Director by Shareholders	31
14.11.Removal of Director by Directors	31

15.ALTERNATE DIRECTORS	31
15.1.Appointment of Alternate Director	31
15.2.Notice of Meetings	31
15.3.Alternate for More Than One Director Attending Meetings	32
15.4.Consent Resolutions	32
15.5.Alternate Director Not an Agent	32
15.6.Revocation of Appointment of Alternate Director	32
15.7.Ceasing to Be an Alternate Director	32
15.8.Remuneration and Expenses of Alternate Director	33
16.POWERS AND DUTIES OF DIRECTORS	33
16.1.Powers of Management	33
16.2.Appointment of Attorney of Company	33
17.DISCLOSURE OF INTEREST OF DIRECTORS	33
17.1.Obligation to Account for Profits	33
17.2.Restrictions on Voting by Reason of Interest	33
17.3.Interested Director Counted in Quorum	34
17.4.Disclosure of Conflict of Interest or Property	34
17.5.Director Holding Other Office in the Company	34
17.6.No Disqualification	34
17.7.Professional Services By Director or Officer	34
17.8.Director or Officer in Other Corporations	34
18.PROCEEDINGS OF DIRECTORS	35
18.1.Meetings of Directors	35
18.2.Voting at Meetings	35
18.3.Chair of Meetings	35
18.4.Meetings by Telephone or Other Communications Medium	35

18.5.Calling of Meetings	36
18.6.Notice of Meetings	36
18.7.When Notice Not Required	36
18.8.Meeting Valid Despite Failure to Give Notice	36
18.9.Waiver of Notice of Meetings	36
18.10.Quorum	36
18.11.Validity of Acts Where Appointment Defective	37
18.12.Consent Resolutions in Writing	37
19.EXECUTIVE AND OTHER COMMITTEES	37
19.1.Appointment and Powers of Executive Committee	37
19.2.Appointment and Powers of Other Committees	38
19.3.Obligations of Committees	38
19.4.Powers of Board	38
19.5.Committee Meetings	38
20.OFFICERS	39
20.1.Directors May Appoint Officers	39
20.2.Functions, Duties and Powers of Officers	39
20.3.Qualifications	39
20.4.Remuneration and Terms of Appointment	39
21.INDEMNIFICATION	40
21.1.Definitions	40
21.2.Mandatory Indemnification of Directors and Former Directors	40
21.3.Indemnification of Other Persons	40
21.4.Non-Compliance with Business Corporations Act	40
21.5.Company May Purchase Insurance	40

22.DIVIDENDS	41
22.1.Payment of Dividends Subject to Special Rights	41
22.2.Declaration of Dividends	41
22.3.No Notice Required	41
22.4.Record Date	41
22.5.Manner of Paying Dividend	41
22.6.Settlement of Difficulties	41
22.7.When Dividend Payable	42
22.8.Dividends to be Paid in Accordance with Number of Shares	42
22.9.Receipt by Joint Shareholders	42
22.10.Dividend Bears No Interest	42
22.11.Fractional Dividends	42
22.12.Payment of Dividends	42
23.DOCUMENTS, RECORDS AND REPORTS	42
23.1.Recording of Financial Affairs	42
23.2.Inspection of Accounting Records	43
24.NOTICES	43
24.1.Method of Giving Notice	43
24.2.Deemed Receipt of Mailing	43
24.3.Certificate of Sending	44
24.4.Notice to Joint Shareholders	44
24.5.Notice to Trustees	44
25.SEAL	44
25.1.Who May Attest Seal	44
25.2.Sealing Copies	45

25.3.Mechanical Reproduction of Seal	45
26.PROHIBITIONS	45
26.1.Definitions	45
26.2.Application	46
26.3.Consent Required for Transfer of Shares or Designated Securities	46
27.SPECIAL RIGHTS AND RESTRICTIONS ATTACHING TO THE COMMON SHARES	46
27.1.Voting Rights	46
27.2.Dividend Rights on Common Shares	46
27.3.Dissolution	46

KWESST MICRO SYSTEMS INC.

(formerly FOREMOST VENTURES CORP.)

(the "Company")

ARTICLES OF AMENDMENT

1.INTERPRETATION

1.1.Definitions

In these Articles, unless the context otherwise requires:

(a)  "board of directors", "directors" and "board" mean the directors or sole director of the Company for the time being;

(b)  "Business Corporations Act" means the Business Corporations Act (British Columbia) from time to time in force and all amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;

(c)  "legal personal representative" means the personal or other legal representative of the shareholder;

(d)  "registered address" of a shareholder means the shareholder's address as recorded in the central securities register;

(e)  "seal" means the seal of the Company, if any.

1.2.Business Corporations Act and Interpretation Act Definitions Applicable

The definitions in the Business Corporations Act and the definitions and rules of construction in the Interpretation Act, with the necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as if they were an enactment.  If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles.  If there is a conflict between these Articles and the Business Corporations Act, the Business Corporations Act will prevail.

2.SHARES AND SHARE CERTIFICATES

2.1.Authorized Share Structure

The authorized share structure of the Company consists of shares of the class or classes and series, if any, described in the Notice of Articles of the Company.

2.2.Form of Share Certificate

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act.

2.3.Shareholder Entitled to Certificate or Acknowledgment

Each shareholder is entitled, without charge, to (a) one share certificate representing the shares of each class or series of shares registered in the shareholder's name or (b) a non-transferable written acknowledgment of the shareholder's right to obtain such a share certificate, provided that in respect of a share held jointly by several persons, the Company is not bound to issue more than one share certificate and delivery of a share certificate for a share to one of several joint shareholders or to one of the shareholders' duly authorized agents will be sufficient delivery to all.

2.4.Delivery by Mail

Any share certificate or non-transferable written acknowledgment of a shareholder's right to obtain a share certificate may be sent to the shareholder by mail at the shareholder's registered address and neither the Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because the share certificate or acknowledgement is lost in the mail or stolen.

2.5.Replacement of Worn Out or Defaced Certificate or Acknowledgement

If the directors are satisfied that a share certificate or a non-transferable written acknowledgment of the shareholder's right to obtain a share certificate is worn out or defaced, they must, on production to them of the share certificate or acknowledgment, as the case may be, and on such other terms, if any, as they think fit:

(a)  order the share certificate or acknowledgment, as the case may be, to be cancelled; and

(b)  issue a replacement share certificate or acknowledgment, as the case may be.

2.6.Replacement of Lost, Stolen or Destroyed Certificate or Acknowledgment

If a share certificate or a non-transferable written acknowledgment of a shareholder's right to obtain a share certificate is lost, stolen or destroyed, a replacement share certificate or acknowledgment, as the case may be, must be issued to the person entitled to that share certificate or acknowledgment, as the case may be, if the directors receive:

(a)  proof satisfactory to them that the share certificate or acknowledgment is lost, stolen or destroyed; and

(b)  any indemnity the directors consider adequate.

2.7.Splitting Share Certificates

If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder's name two or more share certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the share certificate so surrendered, the Company must cancel the surrendered share certificate and issue replacement share certificates in accordance with that request.

2.8.Certificate Fee

There must be paid to the Company, in relation to the issue of any share certificate under Articles 2.5, 2.6 or 2.7, the amount, if any and which must not exceed the amount prescribed under the Business Corporations Act, determined by the directors.

2.9.Recognition of Trusts

Except as required by law or statute or these Articles, no person will be recognized by the Company, as holding any share upon any trust, and the Company is not bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or fraction of a share or (except as by law or statute or these Articles provided or as ordered by a court of competent jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the shareholder.

3.ISSUE OF SHARES

3.1.Directors Authorized

Subject to the Business Corporations Act and the rights of the holders of issued shares of the Company, the Company may issue, allot, sell or otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices (including any premium at which shares with par value may be issued) that the directors may determine.  The issue price for a share with par value must be equal to or greater than the par value of the share.

3.2.Commissions and Discounts

The Company may at any time pay a reasonable commission or allow a reasonable discount to any person in consideration of that person purchasing or agreeing to purchase shares of the Company from the Company or any other person or procuring or agreeing to procure purchasers for shares of the Company.

3.3.Brokerage

The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of its securities.

3.4.Conditions of Issue

Except as provided for by the Business Corporations Act, no share may be issued until it is fully paid.  A share is fully paid when:

(a)  consideration is provided to the Company for the issue of the share by one or more of the following:

(i)past services performed for the Company;

(ii)property;

(iii)money; and

(b)  the value of the consideration received by the Company equals or exceeds the issue price set for the share under Article 3.1.

3.5.Share Purchase Warrants and Rights

Subject to the Business Corporations Act, the Company may issue share purchase warrants, options and rights upon such terms and conditions as the directors determine, which share purchase warrants, options and rights may be issued alone or in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or created by the Company from time to time.

4.SHARE REGISTERS

4.1.Central Securities Register

As required by and subject to the Business Corporations Act, the Company must maintain in British Columbia a central securities register.  The directors may, subject to the Business Corporations Act, appoint an agent to maintain the central securities register.  The directors may also appoint one or more agents, including the agent which keeps the central securities register, as transfer agent for its shares or any class or series of its shares, as the case may be, and the same or another agent as registrar for its shares or such class or series of its shares, as the case may be.  The directors may terminate such appointment of any agent at any time and may appoint another agent in its place.

4.2.Closing Register

The Company must not at any time close its central securities register.

5.SHARE TRANSFERS

5.1.Registering Transfers

A transfer of a share of the Company must not be registered unless:

(a)  a duly signed instrument of transfer in respect of the share has been received by the Company;

(b)  if a share certificate has been issued by the Company in respect of the share to be transferred, that share certificate has been surrendered to the Company; and

(c)  if a non-transferable written acknowledgment of the shareholder's right to obtain a share certificate has been issued by the Company in respect of the share to be transferred, that acknowledgment has been surrendered to the Company.

5.2.Form of Instrument of Transfer

The instrument of transfer in respect of any shares of the Company must be either in the form, if any, on the back of the Company's share certificates or in any other form that may be approved by the directors from time to time.

5.3.Transferor Remains Shareholder

Except to the extent that the Business Corporations Act otherwise provides, the transferor of shares is deemed to remain the holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.

5.4.Signing of Instrument of Transfer

If a shareholder, or his or her duly authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in the written acknowledgements deposited with the instrument of transfer:

(a)  in the name of the person named as transferee in that instrument of transfer; or

(b)  if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.

5.5.Enquiry as to Title Not Required

Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgement of a right to obtain a share certificate for such shares.

5.6.Transfer Fee

There must be paid to the Company, in relation to the registration of any transfer, the amount, if any, determined by the directors.

6.TRANSMISSION OF SHARES

6.1.Legal Personal Representative Recognized on Death

In case of the death of a shareholder, the legal personal representative, or if the shareholder was a joint holder, the surviving joint holder, will be the only person recognized by the Company as having any title to the shareholder's interest in the shares.  Before recognizing a person as a legal personal representative, the directors may require proof of appointment by a court of competent jurisdiction, a grant of letters probate, letters of administration or such other evidence or documents as the directors consider appropriate.

6.2.Rights of Legal Personal Representative

The legal personal representative has the same rights, privileges and obligations that attach to the shares held by the shareholder, including the right to transfer the shares in accordance with these Articles, provided the documents required by the Business Corporations Act and the directors have been deposited with the Company.

7.PURCHASE OF SHARES

7.1.Company Authorized to Purchase Shares

Subject to Article 7.2, the special rights and restrictions attached to the shares of any class or series and the Business Corporations Act, the Company may, if authorized by the directors, purchase or otherwise acquire any of its shares at the price and upon the terms specified in such resolution.

7.2.Purchase When Insolvent

The Company must not make a payment or provide any other consideration to purchase or otherwise acquire any of its shares if there are reasonable grounds for believing that:

(a)  the Company is insolvent; or

(b)  making the payment or providing the consideration would render the Company insolvent.

7.3.Sale and Voting of Purchased Shares

If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by the Company, it:

(a)  is not entitled to vote the share at a meeting of its shareholders;

(b)  must not pay a dividend in respect of the share; and

(c)  must not make any other distribution in respect of the share.

8.BORROWING POWERS

The Company, if authorized by the directors, may:

(a)  borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;

(b)  issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as they consider appropriate;

(c)  guarantee the repayment of money by any other person or the performance of any obligation of any other person; and

(d)  mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.

9.ALTERATIONS

9.1.Alteration of Authorized Share Structure

(a)  Subject to Article 9.2 and the Business Corporations Act, the Company may by directors' resolution:

(i)subdivide or consolidate all or any of its unissued, or fully paid issued, shares;

(ii)if the Company is authorized to issue shares of a class of shares with par value:

(a)decrease the par value of those shares; or

(b)if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

(iii)change all or any of its unissued, or fully paid issued, shares with par value into shares without par value or any of its unissued shares without par value into shares with par value;

(iv)alter the identifying name of any of its shares; or

(v)otherwise alter its shares or authorized share structure when required or permitted to do so by the Business Corporations Act.

(b)  Subject to Article 9.2 and the Business Corporations Act, the Company may by directors' resolution:

(i)create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

(ii)increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established.

9.2.Special Rights and Restrictions

Subject to the Business Corporations Act, the Company may by ordinary resolution:

(a)  create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or

(b)  vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.

9.3.Change of Name

The Company may by directors' resolution authorize an alteration of its Notice of Articles in order to change its name or adopt or change any translation of that name.

9.4.Other Alterations

If the Business Corporations Act does not specify the type of resolution and these Articles do not specify another type of resolution, the Company may by ordinary resolution alter these Articles.

10.MEETINGS OF SHAREHOLDERS

10.1.Annual General Meetings

Unless an annual general meeting is deferred or waived in accordance with the Business Corporations Act, the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual reference date at such time and place as may be determined by the directors.

10.2.Resolution Instead of Annual General Meeting

If all the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution.  The shareholders must, in any unanimous resolution passed under this Article 10.2, select as the Company's annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.

10.3.Calling of Meetings of Shareholders

The directors may, whenever they think fit, call a meeting of shareholders.

10.4.Notice for Meetings of Shareholders

The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:

(a)  if and for so long as the Company is a public company, 21 days;

(b)  otherwise, 10 days.

10.5.Record Date for Notice

The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders.  The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months.  The record date must not precede the date on which the meeting is held by fewer than:

(a)  if and for so long as the Company is a public company, 21 days;

(b)  otherwise, 10 days.

If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.6.Record Date for Voting

The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders.  The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act, by more than four months.  If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

10.7.Failure to Give Notice and Waiver of Notice

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting.  Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.

10.8.Notice of Special Business at Meetings of Shareholders

If a meeting of shareholders is to consider special business within the meaning of Article 11.1, the notice of meeting must:

(a)  state the general nature of the special business; and

(b)  if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:

(i)at the Company's records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and

(ii)during statutory business hours on anyone or more specified days before the day set for the holding of the meeting.

11.PROCEEDINGS AT MEETINGS OF SHAREHOLDERS

11.1.Special Business

At a meeting of shareholders, the following business is special business:

(a)  at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;

(b)  at an annual general meeting, all business is special business except for the following:

(i)business relating to the conduct of or voting at the meeting;

(ii)consideration of any financial statements of the Company presented to the meeting;

(iii)consideration of any reports of the directors or auditor;

(iv)the setting or changing of the number of directors;

(v)the election or appointment of directors;

(vi)the appointment of an auditor;

(vii)the setting of the remuneration of an auditor;

(viii)business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;

(ix)any other business which, under these Articles or the Business Corporations Act, may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

11.2.Special Majority

The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.

11.3.Quorum

Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.

11.4.One Shareholder May Constitute Quorum

If there is one shareholder entitled to vote at a meeting of shareholders:

(a)  the quorum is one person who is, or who represents by proxy, that shareholder, and

(b)  that shareholder, present in person or by proxy, may constitute the meeting.

11.5.Other Persons May Attend

The directors, the president (if any), the secretary (if any), the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting.

11.6.Requirement of Quorum

No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum need not be present throughout the meeting.

11.7.Lack of Quorum

If, within one-half hour from the time set for the holding of a meeting of shareholders, a quorum is not present:

(a)  in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and

(b)  in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.

11.8.Lack of Quorum at Succeeding Meeting

If, at the meeting to which the meeting referred to in Article 11.7(b) was adjourned, a quorum is not present within one-half hour from the time set for the holding of the meeting, the person or persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the meeting constitute a quorum.

11.9.Chair

The following individual is entitled to preside as chair at a meeting of shareholders:

(a)  the chair of the board, if any; or

(b)  if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.

11.10.Selection of Alternate Chair

If, at any meeting of shareholders, there is no chair of the board or president present within 15 minutes after the time set for holding the meeting, or if the chair of the board and the president are unwilling to act as chair of the meeting, or if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting, the directors present must choose one of their number to be chair of the meeting or if all of the directors present decline to take the chair or fail to so choose or if no director is present, the shareholders entitled to vote at the meeting who are present in person or by proxy may choose any person present at the meeting to chair the meeting.

11.11.Adjournments

The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

11.12.Notice of Adjourned Meeting

It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.

11.13.Decisions by Show of Hands or Poll

Subject to the Business Corporations Act, every motion put to a vote at a meeting of shareholders will be decided on a show of hands unless a poll, before or on the declaration of the result of the vote by show of hands, is directed by the chair or demanded by at least one shareholder entitled to vote who is present in person or by proxy.

11.14.Declaration of Result

The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting.  A declaration of the chair that a resolution is carried by the necessary majority or is defeated is, unless a poll is directed by the chair or demanded under Article 11.13, conclusive evidence without proof of the number or proportion of the votes recorded in favour of or against the resolution.

11.15.Motion Need Not Be Seconded

No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.

11.16.Casting Vote

In case of an equality of votes, the chair of a meeting of shareholders does not, either on a show of hands or on a poll, have a second or casting vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

11.17.Manner of Taking Poll

Subject to Article 11.18, if a poll is duly demanded at a meeting of shareholders:

(a)  the poll must be taken:

(i)at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs; and

(ii)in the manner, at the time and at the place that the chair of the meeting directs;

(b)  the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and

(c)  the demand for the poll may be withdrawn by the person who demanded it.

11.18.Demand for Poll on Adjournment

A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.

11.19.Chair Must Resolve Dispute

In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the dispute, and his or her determination made in good faith is final and conclusive.

11.20.Casting of Votes

On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

11.21.Demand for Poll

No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

11.22.Demand for Poll Not to Prevent Continuance of Meeting

The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.

11.23.Retention of Ballots and Proxies

The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted at the meeting, and, during that period, make them available for inspection during normal business hours by any shareholder or proxy holder entitled to vote at the meeting.  At the end of such three month period, the Company may destroy such ballots and proxies.

12.VOTES OF SHAREHOLDERS

12.1.Number of Votes by Shareholder or by Shares

Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint shareholders under Article 12.3:

(a)  on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote on the matter has one vote; and

(b)  on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder and may exercise that vote either in person or by proxy.

12.2.Votes of Persons in Representative Capacity

A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.

12.3.Votes by Joint Holders

If there are joint shareholders registered in respect of any share:

(a)  any one of the joint shareholders may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or

(b)  if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.

12.4.Legal Personal Representatives as Joint Shareholders

Two or more legal personal representatives of a shareholder in whose sole name any shares is registered are, for the purposes of Article 12.3, deemed to be joint shareholders.

12.5.Representative of a Corporate Shareholder

If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:

(a)  for that purpose, the instrument appointing a representative must:

(i)be received at the registered office of the Company or at any other place specified in the notice calling the meeting for the receipt of proxies at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(ii)be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting;

(b)  if a representative is appointed under this Article 12.5:

(i)the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and

(ii)the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.

Evidence of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.6.Proxy Provisions Do Not Apply to All Companies

If and for so long as the Company is a public company or a pre-existing reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply, Articles 12.7 to 12.15 apply only insofar as they are not inconsistent with any securities legislation in any province or territory of Canada or in the federal jurisdiction of the United States or in any states of the United States that is applicable to the Company and insofar as they are not inconsistent with the regulations and rules made and promulgated under that legislation and all administrative policy statements, blanket orders and rulings, notices and other administrative directions issued by securities commissions or similar authorities appointed under that legislation.

12.7.Appointment of Proxy Holders

Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint one or more (but not more than five) proxy holders to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

12.8.Alternate Proxy Holders

A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

12.9.When Proxy Holder Need Not Be Shareholder

A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a proxy holder if:

(a)  the person appointing the proxy holder is a corporation or a representative of a corporation appointed under Article 12.5;

(b)  the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting; or

(c)  the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and vote at the meeting.

12.10.Deposit of Proxy

A proxy for a meeting of shareholders must:

(a)  be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice, or if no number of days is specified, two business days before the day set for the holding of the meeting; or

(b)  unless the notice provides otherwise, be provided, at the meeting, to the chair of the meeting or to a person designated by the chair of the meeting.  A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly recorded messages.

12.11.Validity of Proxy Vote

A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:

(a)  at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(b)  by the chair of the meeting, before the vote is taken.

12.12.Form of Proxy

A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair of the meeting:

[name of company]

(the "Company")

The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person, [name], as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Company to be held on [month, day, year] and at any adjournment of that meeting.

Number of shares in respect of which this proxy is given (if no number is specified, then this proxy is given in respect of all shares registered in the name of the shareholder):

___________________

Signed [month, day, year]

___________________

[Signature of shareholder]

_____________________

[Name of shareholder - printed]

12.13.Revocation of Proxy

Subject to Article 12.14, every proxy may be revoked by an instrument in writing that is:

(a)  received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or

(b)  provided, at the meeting, to the chair of the meeting.

12.14.Revocation of Proxy Must Be Signed

An instrument referred to in Article 12.13 must be signed as follows:

(a)  if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her legal personal representative or trustee in bankruptcy;

(b)  if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative appointed for the corporation under Article 12.5.

12.15.Production of Evidence of Authority to Vote

The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

13.DIRECTORS

13.1.First Directors; Number of Directors

The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognized under the Business Corporations Act.  The number of directors, excluding additional directors appointed under Article 14.8, is set at:

(a)  subject to paragraphs (b) and (c), the number of directors that is equal to the number of the Company's first directors;

(b)  if the Company is a public company, the greater of three and the most recently set of:

(i)the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(ii)the number of directors set under Article 14.4;

(c)  if the Company is not a public company, the most recently set of:

(i)the number of directors set by ordinary resolution (whether or not previous notice of the resolution was given); and

(ii)the number of directors set under Article 14.4.

13.2.Change in Number of Directors

If the number of directors is set under Articles 13.1 (b)(i) or 13.1 (c)(i):

(a)  the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number;

(b)  if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of directors up to that number contemporaneously with the setting of that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.

13.3.Directors' Acts Valid Despite Vacancy

An act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required under these Articles is in office.

13.4.Qualifications of Directors

A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.

13.5.Remuneration of Directors

The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine.  If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders.  That remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.

13.6.Reimbursement of Expenses of Directors

The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.

13.7.Special Remuneration for Directors

If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or, if any director is otherwise specially occupied in or about the Company's business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.

13.8.Gratuity, Pension or Allowance on Retirement of Director

Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

14.ELECTION AND REMOVAL OF DIRECTORS

14.1.Election at Annual General Meeting

At every annual general meeting and in every unanimous resolution contemplated by Article 10.2:

(a)  the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board of directors consisting of the number of directors for the time being set under these Articles; and (b all the directors cease to hold office immediately before the election or appointment of directors under paragraph (a), but are eligible for re-election or reappointment.

14.2.Consent to be a Director

No election, appointment or designation of an individual as a director is valid unless:

(a)  that individual consents to be a director in the manner provided for in the Business Corporations Act;

(b)  that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director; or

(c)  with respect to first directors, the designation is otherwise valid under the Business Corporations Act.

14.3.Failure to Elect or Appoint Directors

If:

(a)  the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 10.2, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act; or

(b)  the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 10.2, to elect or appoint any directors;

then each director then in office continues to hold office until the earlier of:

(c)  the date on which his or her successor is elected or appointed; and

(d)  the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.

14.4.Places of Retiring Directors Not Filled

If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not reelected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to complete the number of directors for the time being set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose.  If any such election or continuance of directors does not result in the election or continuance of the number of directors for the time being set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.

14.5.Directors May Fill Casual Vacancies

Any casual vacancy occurring in the board of directors may be filled by the directors.

14.6.Remaining Directors Power to Act

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or of summoning a meeting of shareholders for the purpose of filling any vacancies on the board of directors or, subject to the Business Corporations Act, for any other purpose.

14.7.Shareholders May Fill Vacancies

If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

14.8.Additional Directors

Notwithstanding Articles 13.1 and 13.2, between annual general meetings or unanimous resolutions contemplated by Article 10.2, the directors may appoint one or more additional directors, but the number of additional directors appointed under this Article 14.8 must not at any time exceed:

(a)  one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

(b)  in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this Article 14.8.

Any director so appointed ceases to hold office immediately before the next election or appointment of directors under Article 14.1(a), but is eligible for re-election or re-appointment.

14.9.Ceasing to Be a Director

A director ceases to be a director when:

(a)  the term of office of the director expires;

(b)  the director dies;

(c)  the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or

(d)  the director is removed from office pursuant to Articles 14.10 or 14.11.

14.10.Removal of Director by Shareholders

The Company may remove any director before the expiration of his or her term of office by special resolution.  In that event, the shareholders may elect, or appoint by ordinary resolution, a director to fill the resulting vacancy.  If the shareholders do not elect or appoint a director to fill the resulting vacancy contemporaneously with the removal, then the directors may appoint or the shareholders may elect, or appoint by ordinary resolution, a director to fill that vacancy.

14.11.Removal of Director by Directors

The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.

15.ALTERNATE DIRECTORS

15.1.Appointment of Alternate Director

Any director (an "appointor") may by notice in writing received by the Company appoint any person (an "appointee") who is qualified to act as a director to be his or her alternate to act in his or her place at meetings of the directors or committees of the directors at which the appointor is not present unless (in the case of an appointee who is not a director) the directors have reasonably disapproved the appointment of such person as an alternate director and have given notice to that effect to his or her appointor within a reasonable time after the notice of appointment is received by the Company.

15.2.Notice of Meetings

Every alternate director so appointed is entitled to notice of meetings of the directors and of committees of the directors of which his or her appointor is a member and to attend and vote as a director at any such meetings at which his or her appointor is not present.

15.3.Alternate for More Than One Director Attending Meetings

A person may be appointed as an alternate director by more than one director, and an alternate director:

(a)  will be counted in determining the quorum for a meeting of directors once for each of his or her appointors and, in the case of an appointee who is also a director, once more in that capacity;

(b)  has a separate vote at a meeting of directors for each of his or her appointors and, in the case of an appointee who is also a director, an additional vote in that capacity;

(c)  will be counted in determining the quorum for a meeting of a committee of directors once for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, once more in that capacity;

(d)  has a separate vote at a meeting of a committee of directors for each of his or her appointors who is a member of that committee and, in the case of an appointee who is also a member of that committee as a director, an additional vote in that capacity.

15.4.Consent Resolutions

Every alternate director, if authorized by the notice appointing him or her, may sign in place of his or her appointor any resolutions to be consented to in writing.

15.5.Alternate Director Not an Agent

Every alternate director is deemed not to be the agent of his or her appointor.

15.6.Revocation of Appointment of Alternate Director

An appointor may at any time, by notice in writing received by the Company, revoke the appointment of an alternate director appointed by him or her.

15.7.Ceasing to Be an Alternate Director

The appointment of an alternate director ceases when:

(a)  his or her appointor ceases to be a director and is not promptly re-elected or re-appointed;

(b)  the alternate director dies;

(c)  the alternate director resigns as an alternate director by notice in writing provided to the Company or a lawyer for the Company;

(d)  the alternate director ceases to be qualified to act as a director; or

(e)  his or her appointor revokes the appointment of the alternate director.

15.8.Remuneration and Expenses of Alternate Director

The Company may reimburse an alternate director for the reasonable expenses that would be properly reimbursed if he or she were a director, and the alternate director is entitled to receive from the Company such proportion, if any, of the remuneration otherwise payable to the appointor as the appointor may from time to time direct.

16.POWERS AND DUTIES OF DIRECTORS

16.1.Powers of Management

The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company.

16.2.Appointment of Attorney of Company

The directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these Articles and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill vacancies in, any committee of the directors, to appoint or remove officers appointed by the directors and to declare dividends) and for such period, and with such remuneration and subject to such conditions as the directors may think fit.  Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorney as the directors think fit.  Any such attorney may be authorized by the directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in him or her.

17.DISCLOSURE OF INTEREST OF DIRECTORS

17.1.Obligation to Account for Profits

A director or senior officer who holds a disclosable interest (as that term is used in the Business Corporations Act) in a contract or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Business Corporations Act.

17.2.Restrictions on Voting by Reason of Interest

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

17.3.Interested Director Counted in Quorum

A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.

17.4.Disclosure of Conflict of Interest or Property

A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty or interest as a director or senior office, must disclose the nature and extent of the conflict as required by the Business Corporations Act.

17.5.Director Holding Other Office in the Company

A director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

17.6.No Disqualification

No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of the Company in which a director is in any way interested is liable to be voided for that reason.

17.7.Professional Services By Director or Officer

Subject to the Business Corporations Act, a director or officer, or any person in which a director or officer has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such person is entitled to remuneration for professional services as if that director or officer were not a director or officer.

17.8.Director or Officer in Other Corporations

A director or officer may be or become a director, officer or employee of, or otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Business Corporations Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as a director, officer or employee of, or from his or her interest in, such other person.

18.PROCEEDINGS OF DIRECTORS

18.1.Meetings of Directors

The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine.

18.2.Voting at Meetings

Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting does not have a second or casting vote.

18.3.Chair of Meetings

The following individual is entitled to preside as chair at a meeting of directors:

(a)  the chair of the board, if any;

(b)  in the absence of the chair of the board, the president, if any, if the president is a director; or

(c)  any other director chosen by the directors if:

(i)neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting;

(ii)neither the chair of the board nor the president, if a director, is willing to chair the meeting; or

(iii)the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.

18.4.Meetings by Telephone or Other Communications Medium

A director may participate in a meeting of the directors or of any committee of the directors in person or by telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other.  A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation.  A director who participates in a meeting in a manner contemplated by this Article 18.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner.

18.5.Calling of Meetings

A director may, and the secretary or an assistant secretary of the Company, if any, on the request of a director must, call a meeting of the directors at any time.

18.6.Notice of Meetings

Other than for meetings held at regular intervals as determined by the directors pursuant to Article 18.1, reasonable notice of each meeting of the directors, specifying the place, day and time of that meeting must be given to each of the directors and the alternate directors by any method set out in Article 24.1 or orally or by telephone.

18.7.When Notice Not Required

It is not necessary to give notice of a meeting of the directors to a director or an alternate director if:

(a)  the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed, or is the meeting of the directors at which that director is appointed; or

(b)  the director or alternate director, as the case may be, has waived notice of the meeting.

18.8.Meeting Valid Despite Failure to Give Notice

The accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director or alternate director, does not invalidate any proceedings at that meeting.

18.9.Waiver of Notice of Meetings

Any director or alternate director may send to the Company a document signed by him or her waiving notice of any past, present or future meeting or meetings of the directors and may at any time withdraw that waiver with respect to meetings held after that withdrawal.  After sending a waiver with respect to all future meetings and until that waiver is withdrawn, no notice of any meeting of the directors need be given to that director and, unless the director otherwise requires by notice in writing to the Company, to his or her alternate director, and all meetings of the directors so held are deemed not to be improperly called or constituted by reason of notice not having been given to such director or alternate director.

18.10.Quorum

The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be set at two directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

18.11.Validity of Acts Where Appointment Defective

Subject to the Business Corporations Act, an act of a director or officer is not invalid merely because of an irregularity in the election or appointment or a defect in the qualification of that director or officer.

18.12.Consent Resolutions in Writing

A resolution of the directors or of any committee of the directors may be passed without a meeting:

(1)  in all cases, if each of the directors entitled to vote on the resolution consents to it in writing; or

(2)  in the case of a resolution to approve a contract or transaction in respect of which a director has disclosed that he or she has or may have a disclosable interest, if each of the other directors who are entitled to vote on the resolution consents to it in writing.

A consent in writing under this Article may be by signed document, fax, email or any other method of transmitting legibly recorded messages.  A consent in writing may be in two or more counterparts which together are deemed to constitute one consent in writing.  A resolution of the directors or of any committee of the directors passed in accordance with this Article 18.12 is effective on the date stated in the consent in writing or on the latest date stated on any counterpart and is deemed to be a proceeding at a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors that satisfies all the requirements of the Business Corporations Act and all the requirements of these Articles relating to meetings of the directors or of a committee of the directors.

19.EXECUTIVE AND OTHER COMMITTEES

19.1.Appointment and Powers of Executive Committee

The directors may, by resolution, appoint an executive committee consisting of the director or directors that they consider appropriate, and this committee has, during the intervals between meetings of the board of directors, all of the directors' powers, except:

(a) the power to fill vacancies in the board of directors;

(b)  the power to remove a director;

(c)  the power to change the membership of, or fill vacancies in, any committee of the directors; and

(d)  such other powers, if any, as may be set out in the resolution or any subsequent directors' resolution.

19.2.Appointment and Powers of Other Committees

The directors may, by resolution:

(a)  appoint one or more committees (other than the executive committee) consisting of the director or directors that they consider appropriate;

(b)  delegate to a committee appointed under paragraph (a) any of the directors' powers, except:

(i)the power to fill vacancies in the board of directors;

(ii)the power to remove a director;

(iii)the power to change the membership of, or fill vacancies Ill, any committee of the directors; and

(iv)the power to appoint or remove officers appointed by the directors; and

(c)  make any delegation referred to in paragraph (b) subject to the conditions set out in the resolution or any subsequent directors' resolution.

19.3.Obligations of Committees

Any committee appointed under Articles 19.1 or 19.2 in the exercise of the powers delegated to it, must:

(a)  conform to any rules that may from time to time be imposed on it by the directors; and

(b)  report every act or thing done in exercise of those powers at such times as the directors may require.

19.4.Powers of Board

The directors may, at any time, with respect to a committee appointed under Articles 19.1 or 19.2:

(a)  revoke or alter the authority given to the committee, or override a decision by the committee, except as to acts done before such revocation, alteration or overriding;

(b)  terminate the appointment of, or change the membership of, the committee; and

(c)  fill vacancies in the committee.

19.5.Committee Meetings

Subject to Article 19.3(a) and unless the directors otherwise provide in the resolution appointing the committee or in any subsequent resolution, with respect to a committee appointed under Articles 19.1 or 19.2:

(a)  the committee may meet and adjourn as it thinks proper;

(b) the committee may elect a chair of its meeting but, if no chair of a meeting is elected, or if at a meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their members to chair the meeting;

(c)  a majority of the members of the committee constitutes a quorum of the committee; and

(d)  questions arising at any meeting of the committee are determined by a majority of votes of the members present, and in the case of an equality of votes, the chair of the meeting does not have a second or casting vote.

20.OFFICERS

20.1.Directors May Appoint Officers

The directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time, terminate any such appointment.

20.2.Functions, Duties and Powers of Officers

The directors may, for each officer:

(a)  determine the functions and duties of the officer;

(b)  entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit; and

(c)  revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.

20.3.Qualifications

No officer may be appointed unless that officer is qualified in accordance with the Business Corporations Act.  One person may hold more than one position as an officer of the Company.  Any person appointed as the chair of the board or as a managing director must be a director.  Any other officer need not be a director.

20.4.Remuneration and Terms of Appointment

All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the directors thinks fit and are subject to termination at the pleasure of the directors, and an officer may in addition to such remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity.

21.INDEMNIFICATION

21.1.Definitions

In this Article 21:

(a)  "eligible penalty" means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an eligible proceeding;

(b)  "eligible proceeding" means a legal proceeding or investigative action, whether current, threatened, pending or completed, in which a director, former director or alternate director of the Company (an "eligible party") or any of the heirs and legal personal representatives of the eligible party, by reason of the eligible party being or having been a director or alternate director of the Company:

(i)is or may be joined as a party; or

(ii)is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;

(c)  "expenses" has the meaning set out in the Business Corporations Act.

21.2.Mandatory Indemnification of Directors and Former Directors

Subject to the Business Corporations Act, the Company must indemnify a director, former director or alternate director of the Company and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in respect of that proceeding.  Each director and alternate director is deemed to have contracted with the Company on the terms of the indemnity contained in this Article 21.2.

21.3.Indemnification of Other Persons

Subject to any restrictions in the Business Corporations Act, the Company may indemnify any person.

21.4.Non-Compliance with Business Corporations Act

The failure of a director, alternate director or officer of the Company to comply with the Business Corporations Act or these Articles does not invalidate any indemnity to which he or she is entitled under this Part.

21.5.Company May Purchase Insurance

The Company may purchase and maintain insurance for the benefit of any person (his or her heirs or legal personal representatives) who:

(a)  is or was a director, alternate director, officer, employee or agent of the Company;

(b)  is or was a director, alternate director, employee or agent of a corporation at a time when the corporation is or was an affiliate of the Company;

(c)  at the request of the Company, is or was a director, alternate director, officer, employee or agent of a corporation or of a partnership, trust, joint venture or other unincorporated entity;

(d)  at the request of the Company, holds or held a position equivalent to that of a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity; against any liability incurred by him or her as such director, alternate director, officer, employee or agent or person who holds or held such equivalent position.

22.DIVIDENDS

22.1.Payment of Dividends Subject to Special Rights

The provisions of this Article 22 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.

22.2.Declaration of Dividends

Subject to the Business Corporations Act, the directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

22.3.No Notice Required

The directors need not give notice to any shareholder of any declaration under Article 22.2.

22.4.Record Date

The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend.  The record date must not precede the date on which the dividend is to be paid by more than two months.  If no record date is set, the record date is 5 p.m. on the date on which the directors pass the resolution declaring the dividend.

22.5.Manner of Paying Dividend

A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in anyone or more of those ways.

22.6.Settlement of Difficulties

If any difficulty arises in regard to a distribution under Article 22.5, the directors may settle the difficulty as they deem advisable, and, in particular, may:

(a)  set the value for distribution of specific assets;

(b)  determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of all parties; and

(c)  vest any such specific assets in trustees for the persons entitled to the dividend.

22.7.When Dividend Payable

Any dividend may be made payable on such date as is fixed by the directors.

22.8.Dividends to be Paid in Accordance with Number of Shares

All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

22.9.Receipt by Joint Shareholders

If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

22.10.Dividend Bears No Interest

No dividend bears interest against the Company.

22.11.Fractional Dividends

If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

22.12.Payment of Dividends

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or the person and to the address the shareholder or joint shareholders may direct in writing.  The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.

23.DOCUMENTS, RECORDS AND REPORTS

23.1.Recording of Financial Affairs

The directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the Business Corporations Act.

23.2.Inspection of Accounting Records

Unless the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled to inspect or obtain a copy of any accounting records of the Company.

24.NOTICES

24.1.Method of Giving Notice

Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by anyone of the following methods:

(a)  mail addressed to the person at the applicable address for that person as follows:

(i)for a record mailed to a shareholder, the shareholder's registered address;

(ii)for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class;

(iii)in any other case, the mailing address of the intended recipient;

(b)  delivery at the applicable address for that person as follows, addressed to the person:

(i)for a record delivered to a shareholder, the shareholder's registered address;

(ii)for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class;

(iii)in any other case, the delivery address of the intended recipient;

(c)  sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

(d)  sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;

(e)  physical delivery to the intended recipient.

24.2.Deemed Receipt of Mailing

A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 24.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.

24.3.Certificate of Sending

A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 24.1, prepaid and mailed or otherwise sent as permitted by Article 24.1 is conclusive evidence of that fact.

24.4.Notice to Joint Shareholders

A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.

24.5.Notice to Trustees

A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:

(a)  mailing the record, addressed to them:

(i)by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

(ii)at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or

(b)  if an address referred to in paragraph (a)(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

25.SEAL

25.1.Who May Attest Seal

Except provided in Articles 25.2 and 25.3, the Company's seal, if any, must not be impressed on any record except when that impression is attested by the signatures of:

(a)  any two directors;

(b)  any officer, together with any director;

(c)  if the Company only has one director, that director; or

(d)  any one or more directors or officers or persons as may be determined by the directors.

25.2.Sealing Copies

For the purpose of certifying under a seal a certificate of incumbency of the directors or officers of the Company or a true copy of any resolution or other document, despite Article 25.1, the impression of the seal may be attested by the signature of any director or officer.

25.3.Mechanical Reproduction of Seal

The directors may authorize the seal to be impressed by third parties on share certificates or bonds, debentures or other securities of the Company as they may determine appropriate from time to time.  To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company, whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company are, in accordance with the Business Corporations Act or these Articles, printed or otherwise mechanically reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing the seal and the chair of the board or any senior officer together with the secretary, treasurer, secretary-treasurer, an assistant secretary, an assistant treasurer or an assistant secretary-treasurer may in writing authorize such person to cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the use of such dies.  Share certificates or bonds, debentures or other securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the seal impressed on them.

26.PROHIBITIONS

26.1.Definitions

In this Article 26:

(a)  "designated security" means:

(i)a voting security of the Company;

(ii)a security of the Company that is not a debt security and that carries a residual right to participate in the earnings of the Company or, on the liquidation or winding up of the Company, in its assets; or

(iii)a security of the Company convertible, directly or indirectly, into a security described in paragraph (a) or (b);

(b)  "security" has the meaning assigned in the Securities Act (British Columbia);

(c)  "voting security" means a security of the Company that:

(i)is not a debt security, and

(ii)carries a voting right either under all circumstances or under some circumstances that have occurred and are continuing.

26.2.Application

Article 26.3 does not apply to the Company if and for so long as it is a public company or a preexisting reporting company which has the Statutory Reporting Company Provisions as part of its Articles or to which the Statutory Reporting Company Provisions apply.

26.3.Consent Required for Transfer of Shares or Designated Securities

No share or designated security may be sold, transferred or otherwise disposed of without the consent of the directors and the directors are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

27.SPECIAL RIGHTS AND RESTRICTIONS ATTACHING TO THE COMMON SHARES

27.1.Voting Rights

The common shares will be entitled to vote at all meetings of members of the Company except meetings at which only holders of a specified class of shares are entitled to vote.

27.2.Dividend Rights on Common Shares

The common shares will be entitled to a dividend from time to time as determined by the directors.

27.3.Dissolution

In the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company among its members for the purpose of winding up its affairs, the holders of the common shares will be entitled to receive the remaining property of the Company.

EX-9.1

VOTING AGREEMENT

THIS VOTING AGREEMENT (this "Agreement"), is made as of this 14th day of September, 2020 between KWESST Inc., a corporation incorporated under the laws of the Province of Ontario (the "Company"), David Luxton ("Luxton"), an individual residing at ("MacLeod"), an individual residing and those certain shareholders of the Company listed on Schedule A (together with any subsequent shareholders, the "Shareholders").

RECITALS

A.The parties desire to enter into this Agreement to set forth their agreements and understandings with respect to how the Company's shares held by them will be voted on with respect to the election of directors of the Company.

NOW THEREFORE the parties agree as follows:

1.Voting Provisions Regarding Board of Directors.

1.1.Board Composition.  Each Shareholder agrees to vote, or cause to be voted, all Shares (as defined below) owned by such Shareholder, or over which such Shareholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of Shareholders at which an election of directors is held or pursuant to any written resolution of the Shareholders, the following persons shall be elected to the Board:

(a)David Luxton ("Luxton");

(b)Jeff MacLeod ("MacLeod");

(c)One person nominated by Luxton, such person to be from the capital markets industry;

(d)One independent board member to be nominated by Luxton; and

(e)One independent board member to be nominated by MacLeod.

For purposes of this Agreement, the term "Shares" means and includes any securities of the Company the holders of which are entitled to vote for members of the Board, including without limitation, all Common Shares, by whatever name called, now owned or subsequently acquired by a Shareholder, however acquired, whether through share splits, share dividends, reclassifications, recapitalizations, similar events or otherwise.

1.2.Removal of Board Members.  Each Shareholder also agrees to vote, or cause to be voted, all Shares owned by such Shareholder, or over which such Shareholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that:

(a)no director elected pursuant to Subsection 1.1 of this Agreement may be removed from office, other than for cause;

(b)any vacancies created by the resignation, removal or death of a director elected pursuant to Subsection 1.1 shall be filled pursuant to the provisions of this Section 1;

(c)upon the request of any party entitled to designate a director as provided in Subsection 1.1 to remove such director, such director shall be removed; and

(d)in case of death or incapacity of either Luxton and/or MacLeod, their successor(s) shall be nominated by a unanimous nomination of the remaining directors of the Company.

All Shareholders agree to execute any written resolutions required to perform the obligations of this Agreement

1.3.No Liability for Election of Recommended Directors.  No Shareholder shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Shareholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.

2.Remedies

2.1.Irrevocable Proxy and Power of Attorney.  Each Shareholder that is a party to this Agreement hereby constitutes and appoints as the proxies of that party and hereby grants a power of attorney to the President of the Company, with full power of substitution, with respect to the matters set forth herein, including, without limitation, election of persons as members of the Board in accordance with Section 1 hereto, and hereby authorizes each of them to represent and vote, if and only if the party (i) fails to vote, or (ii) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, all of such party's Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of this Agreement.  Each of the proxy and power of attorney granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Agreement terminates or expires pursuant to Section 3 hereof.  Each party hereto hereby revokes any and all previous proxies or powers of attorney with respect to the Shares and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 3 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any Person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein.

2.2.Specific Enforcement.  Each party acknowledges and agrees that each party hereto will be irreparably damaged if any of the provisions of this Agreement are not performed by the parties in accordance with their specific terms or are otherwise breached.  Accordingly, each of the Company and the Shareholders shall be entitled to an injunction to prevent breaches of this Agreement, and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of competent jurisdiction in the Province of Ontario

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2.3.Remedies Cumulative.  All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

3.Term. This Agreement shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earliest to occur of (a) the day immediately following the second annual general meeting of the Company after the execution of this Agreement; and (b) termination of this Agreement in accordance with Subsection 4.7 below.

4.Miscellaneous.

4.1.Transfers.  Each transferee or assignee of any Shares subject to this Agreement shall continue to be subject to the terms hereof.

4.2.Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

4.3.Governing Law.  This Agreement shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein.

4.4.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

4.5.Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

4.6.Notices.  All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient's next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt.  All communications shall be sent to the respective parties at their address as set forth on Schedule A, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Subsection 4.6.

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4.7.Consent Required to Amend, Terminate or Waive This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (a) the Company; and (b) the Shareholders.

4.8.Delays or Omissions.  No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

4.9.Severability.  The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

4.10.Entire Agreement.  This Agreement (including the Schedules hereto) constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.

4.11.Manner of Voting.  The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law.  For the avoidance of doubt, voting of the Shares pursuant to the Agreement need not make explicit reference to the terms of this Agreement.

4.12.Further Assurances.  At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have executed this Voting Agreement as of the date first written above.

	KWESST INC.
	By:	"Jeff MacLeod"
	Name:	Jeff MacLeod
	Title:	President and CEO
	DEFSEC CORPORATION
	By:	"David Luxton"
	Name:	David Luxton
	Title:	President
	2573685 ONTARIO INC.
	By:	"Jeff MacLeod"
	Name:	Jeff MacLeod
	Title:	President and CEO
"David Luxton"	"Jeffrey MacLeod"
David Luxton	Jeffrey MacLeod

SCHEDULE A

INVESTORS

Name and Address	Number of Shares
2573685 Ontario Inc.	10,450,200
DEFSEC Corp. 3                                               0	3,599,538

EX-10.1

AMALGAMATION AGREEMENT









FOREMOST VENTURES CORP.



AND



KWESST INC.



AND



2751530 ONTARIO LTD.
















APRIL 30, 2020

TABLE OF CONTENT

Article 1 GENERAL	1
1.1Defined Terms	1
1.2Schedules	9
Article 2 TRANSACTIONS	9
2.1Amalgamation	9
2.2New Foremost Directors and Officers	12
2.3New Foremost Name and Head Office	12
Article 3 AMALCO	12
3.1Name	12
3.2Registered Office	12
3.3Authorized Capital	13
3.4Number of Directors	13
3.5Directors and Officers	13
3.6By-Laws	13
3.7Restriction on Business	13
Article 4 REPRESENTATIONS AND WARRANTIES OF KWESST	13
4.1Organization and Good Standing	13
4.2Corporate Records	14
4.3Consents, Authorizations and Binding Effect	14
4.4Approvals	15
4.5Litigation and Compliance	15
4.6Compliance with Environmental Laws	16
4.7Insurance	17
4.8Financial Statements	17
4.9Taxes	17
4.10Contracts	18
4.11KWESST Information	19
4.12Finder's Fees	19
4.13Absence of Certain Changes	19
4.14Capitalization	20
4.15Licence and Title	21
4.16No Undisclosed Liabilities	21
4.17U.S. Securities Laws Matters	22
4.18Intellectual Property Representations and Warranties of KWESST.	22
Article 5 REPRESENTATIONS AND WARRANTIES OF FOREMOST AND SUBCO	24
5.1Organization and Good Standing	24
5.2Consents, Authorizations and Binding Effect	24
5.3Litigation and Compliance	26

5.4Public Filings; Financial Statements	27
5.5Taxes	28
5.6Contracts	29
5.7Absence of Certain Changes	30
5.8Subco	30
5.9Capitalization	31
5.10Licence and Title	31
5.11No Undisclosed Liabilities	32
5.12Due Diligence Investigations	32
5.13Brokers	32
5.14U.S. Securities Laws Matters	32
Article 6 COVENANTS OF KWESST	33
6.1Access	33
6.2Ordinary Course	33
6.3Closing Conditions	34
6.4Stock Exchange Listing	34
6.5KWESST Financing	35
6.6KWESST Meeting	35
Article 7 COVENANTS OF FOREMOST	35
7.1Access	35
7.2Ordinary Course	36
7.3Foremost Meeting	36
7.4Closing Conditions	36
7.5Filing Statement and Financial Statements	37
7.6Subco	37
Article 8 OTHER COVENANTS OF THE PARTIES	37
8.1Consents and Notices	37
8.2Filing Statement	37
8.3Public Statements	38
8.4Non-Solicitation	38
8.5Exemptions from Registration Requirements of U.S. Securities Laws	39
8.6Tax Deductions and Withholdings	40
Article 9 CONDITIONS TO OBLIGATIONS OF FOREMOST	41
9.1Conditions Precedent to Completion of the Transactions	41
Article 10 CONDITIONS TO OBLIGATIONS OF KWESST	42
10.1Conditions Precedent to Completion of the Transactions	42
Article 11 MUTUAL CONDITIONS PRECEDENT	44
11.1Mutual Conditions Precedent	44
Article 12 CLOSING	45
12.1Effective Date	45

12.2Closing	45
12.3Termination of this Agreement	46
12.4Survival of Representations and Warranties; Limitation	46
Article 13 MISCELLANEOUS	47
13.1Further Actions	47
13.2Expenses	47
13.3Entire Agreement	47
13.4Descriptive Headings	47
13.5Notices	47
13.6Governing Law	48
13.7Enurement and Assignability	49
13.8Confidentiality	49
13.9Waivers and Amendments	49
13.10Severability	49
13.11Currency	50
13.12Counterparts	50

AMALGAMATION AGREEMENT

THIS AGREEMENT made as of the 30^th day of April, 2020

BETWEEN:

FOREMOST VENTURES CORP., a corporation existing under the Business Corporations Act (British Columbia)

("Foremost")

AND:

KWESST INC., a corporation existing under the Business Corporations Act (Ontario)

("KWESST")

AND:

2751530 ONTARIO LTD., a corporation existing under the Business Corporations Act (Ontario)

("Subco")

(each, a "Party" and collectively, the "Parties")

RECITALS

A.Foremost is a capital pool company within the meaning of the policies of the TSX Venture Exchange.

B.The Parties have agreed, subject to the terms and conditions of this Agreement, to carry out a three-cornered amalgamation constituting the "Qualifying Transaction" of Foremost within the meaning of the policies of the TSX Venture Exchange.

NOW THEREFORE the Parties agree as follows:

ARTICLE 1
GENERAL

1.1Defined Terms

For the purposes of this Agreement (including the Recitals hereto), the following capitalized words and phrases shall have the following meanings, and grammatical variations of such terms shall have corresponding meanings:

"Affiliate" means a company that is affiliated with another company as described below.  A company is an "Affiliate" of another company if:

(i)one of them is the subsidiary of the other, or

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(ii)each of them is controlled by the same Person.

A company is "controlled" by a Person if:

(i)voting securities of the company are held, other than by way of security only, by or for the benefit of that Person, and

(ii)the voting securities, if voted, entitle the Person to elect a majority of the directors of the company.

A Person beneficially owns securities that are beneficially owned by:

(i)a company controlled by that Person, or

(ii)an Affiliate of that Person or an Affiliate of any company controlled by that Person.

"Agent" means PI Financial Corp.

"Agreement" means this Amalgamation Agreement, as it may be amended or supplemented at any time and from time to time after the date hereof.

"Amalco" means a corporation to be named KWESST Inc., the corporation resulting from Amalgamation.

"Amalco Shares" mean the common shares in the capital of Amalco.

"Amalgamation" means the amalgamation of Subco and KWESST pursuant the Business Corporations Act (Ontario) made in accordance with the terms and conditions of this Agreement.

"Articles of Amalgamation" means the articles of amalgamation giving effect to the Amalgamation in the form attached as Schedule "A" hereto.

"Articles of Amendment" means the articles of amendment giving effect to the change of name of Foremost to "KWESST Technologies Inc.", in the form attached as Schedule "B" hereto.

"Associate" shall have the meaning ascribed to such term in the Securities Act (Ontario).

"BCBCA" means the Business Corporations Act (British Columbia) as amended.

"Breaching Party" shall have the meaning ascribed to such term in Section 12.3(c).

"Business Day" means any day other than a Saturday or Sunday or a statutory holiday in Toronto, Ontario.

"Canadian Securities Laws" means the securities legislation in each of the provinces and territories of Canada and the respective regulations together with applicable published rules, regulations, policy statements and national instruments of the Canadian Securities Administrators.

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"Certificate of Amalgamation" means the certificate of amalgamation to be issued by the Director giving effect to the Amalgamation.

"Confidential Information" shall have the meaning ascribed to such term in Section 13.8.

"Consolidation Ratio" means the Issuance Price divided by $0.15.

"Constating Documents" means, in respect of a body corporate, the articles and the by-laws, or other charter documents, together with any amendments thereto or replacements thereof.

"Directed Selling Efforts" means directed selling efforts as that term is defined in Regulation S under the U.S. Securities Act.

"Director" means the registrar appointed under the OBCA.

"Dissenting Shareholders" means the KWESST Shareholders who exercise the right of dissent available to them in respect of the KWESST Amalgamation Resolution.

"Effective Date" means the date of the Certificate of Amalgamation.

"Effective Time" means 12:01 a.m. (Eastern time) on the Effective Date.

"Encumbrance" includes any mortgage, pledge, assignment, charge, lien, claim, security interest, adverse interest, adverse claim, other third party interest or encumbrance of any kind, whether contingent or absolute, and any agreement, option, right or privilege (whether by law, contract or otherwise) capable of becoming any of the foregoing.

"Escrow Release Conditions" means the conditions set forth in the Subscription Receipt Agreement providing for the automatic exchange of KWESST Subscription Receipts for KWESST Shares.

"Exchange Ratio" shall have the meaning ascribed to such term in Section 2.1(vi)(A).

"Existing KWESST Warrants" means the Existing KWESST 2022 Warrants, the Existing KWESST 2024 Warrants, and the KWESST Compensation Warrants.

"Existing KWESST 2022 Warrants" means the 15,000 currently outstanding share purchase warrants to purchase KWESST Shares exercisable at a price of $0.40 per KWESST Share on or before January 30, 2022.

"Existing KWESST 2024 Warrants" means the 8,500,000 currently outstanding share purchase warrants to purchase KWESST Shares exercisable at a price of $0.20 per KWESST Share on or before June 14, 2024.

"Filing Statement" means the filing statement of Foremost to be prepared in accordance with the requirements of the TSX-V.

"Final Exchange Bulletin" means the bulletin to be issued by the TSX-V evidencing final acceptance of the Qualifying Transaction of Foremost.

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"Foremost" means Foremost Ventures Corp., a corporation existing under the BCBCA.

"Foremost Agent's Options" means the currently outstanding broker options exercisable to acquire up to an aggregate of 200,000 common shares of Foremost, issued in connection with the initial public offering of Foremost.

"Foremost Board" means the board of directors of Foremost as may be constituted from time to time.

"Foremost Group" means, collectively, Foremost and Subco.

"Foremost Meeting" means the annual and special meeting to be called by Foremost promptly following the execution of the Agreement to, notably, obtain the approval of the Foremost Shareholders in connection with (i) the Foremost Share Consolidation under Section 2.1(i); (ii) the appointment of the New Directors under Section 2.2; (iii) the appointment of new auditors; and (iv) the change of name of Foremost under Section 2.3.

"Foremost Options" means the 400,000 currently outstanding options to purchase Foremost Shares.

"Foremost Replacement Options" shall have the meaning ascribed to such term in Section 2.1(vi)(C).

"Foremost Replacement Warrants" shall have the meaning ascribed to such term in Section 2.1(vi)(B).

"Foremost Securities Documents" shall have the meaning ascribed to such term in Section 5.4(i).

"Foremost Share Consolidation" means the consolidation of the common shares of Foremost prior to the Effective Date on a ratio equal to the Issuance Price divided by the Consolidation Ratio.

"Foremost Shareholders" means the holders of Foremost Shares.

"Foremost Shares" means the common shares in the capital of Foremost.

"Foremost Stock Option Plan" means the Foremost incentive stock option plan as of November 28, 2017 which provides that the Foremost Board may, from time to time, in its discretion, and in accordance with TSX-V requirements, grant to directors, officers, employees and consultants of Foremost, non-transferable options to purchase Foremost Shares;

"Governmental Authority" means any federal, provincial or local governmental entity, quasi-governmental authority, court, commission, board, bureau, agency or instrumentality, or any regulatory, administrative or other department or agency, or any political or other subdivision, department or branch of any of the foregoing having legal jurisdiction over the activity or Person in question and, for greater certainty, includes the TSX-V.

"IFRS" means International Financial Reporting Standards.

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"income tax" means any tax based on or measured by income (including without limitation, based on net income, gross income, income as specifically defined, earnings, profits or selected items of income, earnings or profits) and any interest, penalties and additions to tax with respect to any such tax (or any estimate or payment thereof).

"Intellectual Property" means:

(i)all inventions, arts, processes, compositions of matter, business methods, developments and improvements (whether or not patented or the subject of an application for patent, whether or not patentable and whether or not reduced to practice); and all improvements thereto;

(ii)all patents, pending patent applications and rights to file patent applications for the inventions referred to in paragraph (i);

(iii)all patent disclosures and invention disclosures; and all rights of priority, reissue, divisional, continuation or continuation-in-part applications, revisions, extensions and re-examinations in connection therewith;

(iv)all trade-marks, trade dress, logos, trade names, business names, corporate names and domain names; all translations, adaptations, derivations and combinations thereof; all goodwill associated therewith; and all applications, registrations and renewals in connection therewith;

(v)all copyrightable works and all copyrights; and all applications, registrations and renewals in connection therewith;

(vi)all mask works and all integrated circuit topographies; and all applications, registrations and renewals in connection therewith;

(vii)all industrial designs; and all applications, registrations and renewals in connection therewith;

(viii)all other intellectual and industrial property (whether or not registered or the subject of an application for registration and whether or not registrable);

(ix)all copies and tangible embodiments of any of the foregoing (in whatever form or medium); and

(x)all common law, statutory and contractual rights to the property and rights referred to in this definition.

"Issuance Price" means $0.75 per KWESST Subscription Receipt or any such price as agreed to in writing between KWESST and the Agent.

"ITA" means the Income Tax Act (Canada), as amended and all regulations thereunder.

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"KWESST" means KWESST Inc., a corporation existing under the Business Corporations Act (Ontario).

"KWESST Amalgamation Resolution" means the resolution of the shareholders of KWESST to be approved by the KWESST Shareholders at the KWESST Meeting in accordance with the OBCA and approving the Amalgamation and this Agreement.

"KWESST Board" means the board of directors of KWESST as it may be constituted from time to time.

"KWESST Business" means the business of providing defense proprietary software and equipment, conducted by KWESST as of the date hereof.

"KWESST Compensation Warrants" means the common share purchase warrants of KWESST to be issued to the Agent pursuant to the KWESST Financing.

"KWESST Convertible Notes" means $234,515.40 in principal amount of convertible notes of KWESST bearing interest at a rate of 10% per annum and with a maturity date of October 23^rd, 2021.

"KWESST Financing" means a brokered private placement of KWESST Subscription Receipts for a price per KWESST Subscription Receipt equal to the Issuance Price, such KWESST Subscription Receipts being issued in accordance with the terms and conditions set forth in the Subscription Agreements and the Subscription Receipt Agreement, to be completed by KWESST prior to the Effective Date, for minimum gross proceeds of $2,000,000, or any such amount agreed to in writing between KWESST and the Agent.

"KWESST Meeting" means the special meeting of KWESST Shareholders to be called by KWESST promptly following the execution of this Agreement, or a unanimous written resolution of the shareholders of KWESST in substitution thereof.

"KWESST Options" means the 925,000 currently outstanding employee options to purchase KWESST Shares exercisable on or before February 28^th, 2025 at a price of $0.65 per KWESST Share.

"KWESST Securities" shall have the meaning ascribed to such term in Section 4.14(iv).

"KWESST Subscription Receipts" means a minimum of 2,666,667 KWESST Subscription Receipts issued pursuant to the KWESST Financing, with each KWESST Subscription Receipt being automatically exchanged, without any further action by the holder of such KWESST Subscription Receipt, and for no additional consideration, for one (1) KWESST Share upon the satisfaction of the Escrow Release Conditions.

"KWESST Shareholders" means the holders of KWESST Shares.

"KWESST Shares" means the common shares in the capital of KWESST.

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"Letter of Intent" means the Letter of Intent dated March 2, 2020 between KWESST and Foremost related to the Amalgamation.

"Laws" means all laws, by-laws, rules, regulations, orders, ordinances, protocols, codes, instruments, policies, notices, directions and judgments or other requirements having the force of law of any Governmental Authority having jurisdiction over the matter and/or person then being referred to;

"Licensed Intellectual Property" means any Intellectual Property owned by a person other than KWESST and used by KWESST pursuant to a license, sub license, lease, sub-lease, royalty, conditional sale, strategic alliance or other similar arrangement.

"Material Adverse Change" or "Material Adverse Effect" means, with respect to either Party any change, effect, event, occurrence, condition or development that has or could reasonably be expected to have, individually or in the aggregate, a material and adverse impact on the business, operations, results of operations, assets, licenses, permits, concessions, rights or liabilities, capitalization or financial condition of such Party, other than any change, effect, event, occurrence or state of facts relating to the global economy or securities markets in general.

"New Directors" shall have the meaning ascribed to such term in Section 3.5.

"New Management" shall have the meaning ascribed to such term in Section 3.5.

"Non-Breaching Party" shall have the meaning ascribed to such term in Section 12.3(c).

"OBCA" means the Ontario Business Corporations Act as amended.

"Owned Intellectual Property" means any Intellectual Property owned by KWESST.

"Parties" and "Party" means the parties to this Agreement.

"Person" means any corporation, partnership, limited liability company or partnership, joint venture, trust, unincorporated association or organization, business, enterprise or other entity, any individual and any government.

"Post-Consolidation Foremost Share" means the common shares of Foremost after giving effect to the Foremost Share Consolidation.

"Post-Consolidation Foremost Option" shall have the meaning ascribed to such term in Section 2.1(ii).

"Qualifying Transaction" shall have the meaning ascribed thereto in Policy 2.4 of the TSX-V.

"Representatives" when used with respect to any Person, shall mean such Person's directors, officers, employees, representatives, agents, counsel and consultants.

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"Resulting Issuer" means an issuer that was formerly a CPC that exists upon issuance of the TSX-V Final Bulletin, which in this instance will be Foremost upon completion of the Qualifying Transaction.

"SEC" means the United States Securities and Exchange Commission.

"Subco" means 2751530 Ontario Ltd., a wholly owned subsidiary of Foremost created for the purpose of effecting the Amalgamation.:

"Subco Amalgamation Resolution" means the resolution of Foremost, as sole shareholder of Subco, passed in accordance with the OBCA and approving the Amalgamation and this Agreement.

"Subco Shares" means the common shares in the capital of Subco.

"Subscription Agreement" means a subscription agreement among KWESST and subscribers to KWESST Subscription Receipts to be entered into in connection with the KWESST Financing.

"Subscription Receipt Agreement" means the subscription receipt agreement to be entered into by KWESST, the Agent, and TMX Trust Company on the closing of the KWESST Financing.

"subsidiary" means, with respect to a specified corporation, any corporation of which more than fifty per cent (50%) of the outstanding shares ordinarily entitled to elect a majority of the board of directors thereof are at the time owned directly or indirectly by such specified corporation, and shall include any corporation in like relation to a subsidiary.

"tax" means any tax, levy, charge or assessment imposed by or due any Governmental Authority, together with any interest, penalties, and additions to tax relating thereto, including without limitation, any of the following:

(i)any income tax;

(ii)any franchise, sales, use and value added tax or any license or withholding tax; any payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, alternative or add-on minimum tax; and any customs duties or other taxes;

(iii)any tax on property (real or personal, tangible or intangible, based on transfer or gains);

(iv)any estimate or payment of any of tax described in the foregoing clauses (i) through (iv); and

(v)any interest, penalties and additions to tax with respect to any tax (or any estimate or payment thereof) described in the foregoing clauses (i) through (v).

"Termination Date" means November 30, 2020, or such other date as may agree to by the Parties.

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"Transactions" means the series of transactions among Foremost, Subco and KWESST made in accordance with Article 2 hereto.

"TSX-V" means the TSX Venture Exchange.

"TSX-V Final Bulletin" means the exchange bulletin which is issued following the closing of the Qualifying Transaction that evidences the final TSX-V approval of the Qualifying Transaction.

"United States" means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.

"U.S. Securities Act" means the United States Securities Act of 1933, as amended.

1.2Schedules

The following schedules are attached to and incorporated in this Agreement by this reference:

Schedule "A" - Articles of Amalgamation
Schedule "B" - Articles of Amendment
Schedule "C" - KWESST Disclosure Schedules
Schedule "D" - KWESST Options and Warrants
Schedule "E" - Foremost Options
Schedule "F" - Certificate of a U.S. KWESST Shareholder

ARTICLE 2
TRANSACTIONS

2.1Amalgamation

Subject to the terms and conditions of this Agreement, the following events or transactions shall occur and shall be deemed to occur in the following sequence without any further act or formality:

(i)Foremost Share Consolidation.  Prior to the Effective Time, Foremost shall complete the Foremost Share Consolidation.

(ii)Foremost Post Consolidation Options.  In connection with the Consolidation, the Foremost Options and Foremost Agent's Options outstanding immediately prior to the Foremost Share Consolidation will be exchanged for stock options (the "Post-Consolidation Foremost Options") to purchase such number of Post-Consolidation Foremost Shares equal to the quotient of (A) the number of Foremost Shares subject to the Foremost Options and Foremost Agent's Options immediately outstanding before the Foremost Share Consolidation divided by (B) the Consolidation Ratio, provided that if the foregoing would result in the issuance of a fraction of a Post-Consolidation Foremost Share on any particular exercise of Post-Consolidation Foremost Option, then the number of Post-Consolidation Foremost Shares otherwise issuable shall be rounded down to the nearest whole number of Post-Consolidation Foremost Shares.  The exercise price per Post-Consolidation Foremost Share subject to any such Post-Consolidation Foremost Option shall be an amount (rounded to the nearest fourth decimal place) equal to the product of (A) the exercise price per Foremost Share under the exchanged Foremost Option or Foremost Agent's Option immediately prior to the Effective Time and (B) the Consolidation Ratio (provided that the aggregate exercise price payable on any particular exercise of Post-Consolidation Foremost Options shall be rounded up to the nearest whole cent).  All terms and conditions of the Post-Consolidation Foremost Options, including the term to expiry, conditions to and manner of exercising, will be the same as the Foremost Options and Foremost Agent's Options for which they were exchanged, and shall be governed by the terms of the Foremost Stock Option Plan and any document evidencing a Foremost Option or Foremost Agent's Option shall thereafter evidence and be deemed to evidence any Post-Consolidation Foremost Option.

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(iii)Three-cornered Amalgamation.  At the Effective Time, the Parties shall merge by way of a "three-cornered amalgamation" as more specifically set out in Section 2.1(vi) herein.

(iv)Filing of Articles of Amalgamation.  Subco and KWESST shall complete and file the Articles of Amalgamation.

(v)Amalgamation.  Effective on the Effective Date, upon the issue of a Certificate of Amalgamation, Subco and KWESST shall be amalgamated and shall continue as one corporation.

(vi)Exchange of Securities.  At the Effective Time and as a result of the Amalgamation:

(A)Each holder of KWESST Shares outstanding immediately prior to the Effective Time shall receive one (1) Post-Consolidation Foremost Share for each one (1) KWESST Share held (the "Exchange Ratio"), following which all such KWESST Shares shall be cancelled.

(B)Each Existing KWESST Warrant outstanding immediately prior to the Effective Time shall be exchanged for a number of warrants issued by Foremost (the "Foremost Replacement Warrants"), equal to the Exchange Ratio multiplied by the number of common shares of KWESST subject to such Existing KWESST Warrant, each of which such Foremost Replacement Warrant would entitle the holder thereof to acquire one Post-Consolidation Foremost Share, at an exercise price per Foremost Share equal to the exercise price per common share of such Existing KWESST Warrant immediately prior to the Effective Time divided by the Exchange Ratio, provided that the aggregate number of such Foremost Replacement Warrants shall be rounded down to the nearest whole number and the exercise price of such Foremost Replacement Warrants shall be rounded up the nearest whole cent;

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(C)Each KWESST Option outstanding immediately prior to the Effective Time shall be exchanged for a number of options granted by Foremost (the "Foremost Replacement Options"), equal to the Exchange Ratio multiplied by the number of common shares of KWESST subject to such KWESST Option, each of which such Foremost Replacement Option would entitle the holder thereof to acquire one Post-Consolidation Foremost Share, at an exercise price per Foremost Share equal to the exercise price per common share of such KWESST Option immediately prior to the Effective Time divided by the Exchange Ratio, provided that the aggregate number of such Foremost Replacement Options shall be rounded down to the nearest whole number and the exercise price of such Foremost Replacement Options shall be rounded up the nearest whole cent;

(D)Foremost shall receive one (1) Amalco Share for each one (1) Subco Share held by Foremost, following which all such Subco Shares shall be cancelled.

(E)Foremost shall become the registered holder of the Amalco Shares and shall be entitled to receive a share certificate representing the number of Amalco Shares to which it is entitled, and Amalco will become a wholly-owned subsidiary of Foremost.

(vii)Dissenting Shareholders that exercise rights of dissent under section 181 of the OBCA in connection with the Amalgamation are entitled to be paid fair value for their KWESST Shares and will be deemed to have surrendered those KWESST Shares to KWESST for cancellation immediately before the Effective Date.

Dissenting Shareholders that exercise rights of dissent under section 185 of the OBCA in connection with the Amalgamation, but that, for any reason, are not entitled to be paid fair value for their KWESST Shares, will be deemed to have participated in the Amalgamation on the same basis as non-dissenting KWESST Shareholders, at the Effective Date, and will receive that number of KWESST Shares to which they are entitled under section 2.1(vi)(A).

(viii)Foremost Share Certificates.  At the Effective Time, the registered holders of KWESST Shares shall become the registered holders of the Foremost Shares to which they are entitled and the share certificates representing the KWESST Shares shall be deemed to be cancelled and, as soon as reasonably practicable following the Effective Time, the holders of such share certificates shall receive share certificates (or by direct registration system) representing the number of Foremost Shares to which they are entitled.

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2.2New Foremost Directors and Officers

At the Effective Time:

(i)All of the current directors and officers of Foremost and Subco shall resign without payment by or any liability to Foremost, KWESST, Subco or Amalco.

(ii)Each such director and officer shall execute and deliver a release in favour of Foremost, KWESST, Subco and Amalco, in a form acceptable to Foremost and KWESST, each acting reasonably.

(iii)The Foremost Board shall consist of the following five (5) directors (collectively, the "New Directors") and management of Foremost shall be comprised of the following persons (collectively, the "New Management"):

NAME	POSITION
Paul Fortin	Director
Paul Mangano	Director
Jeffrey MacLeod	President, CEO and Director
Paul Kania	CFO
David Edward Luxton	Director and Executive Chairman
John William McCoach	Director

2.3New Foremost Name and Head Office

On or prior to the Effective Date, Foremost will file the Articles of Amendment with the Director in order to change its name to KWESST Technologies Inc., or any other name acceptable to KWESST, and will change its head office to Suite 2900 550 Burrard Street, Vancouver, British Columbia, V6C 0A3.

ARTICLE 3
AMALCO

3.1Name

The name of Amalco shall be KWESST Inc. or any other name acceptable to KWESST.

3.2Registered Office

The address of the registered and records office of Amalco shall be Unit 1, 155 Terrence Matthews Crescent Ottawa Ontario K2M 2A8.

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3.3Authorized Capital

Amalco shall be authorized to issue an unlimited number of Amalco Shares.

3.4Number of Directors

The number of directors of Amalco shall be a minimum of one (1) and a maximum of ten (10).

3.5Directors and Officers

The directors and officers of Amalco shall be the following persons:

NAME	POSITION
Jeffrey McLeod	President and Director
Paul Kania	Secretary and Director
David Edward Luxton	Director

3.6By-Laws

The by-laws of Amalco shall, so far as applicable, be the by-laws of Subco until repealed, amended or altered.

3.7Restriction on Business

There shall be no restrictions on the business which Amalco is authorized to carry on.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF KWESST

KWESST represents and warrants to and in favour of Foremost and Subco as follows and acknowledges that Foremost and Subco are relying on such representations and warranties in connection with this Agreement and completing the transactions contemplated herein:

4.1Organization and Good Standing

(i)KWESST is a corporation duly organized, validly existing, and in good standing under the OBCA and is not a "reporting issuer" or equivalent under applicable Canadian securities legislation.

(ii)KWESST has no subsidiaries.

(iii)KWESST has the corporate power and authority to own, lease or operate its properties and to carry on its business as now conducted.

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(iv)KWESST is duly licensed, registered and qualified, in all material respects, and possesses all material certificates, authorizations, permits or licenses issued by the appropriate regulatory authorities in the jurisdictions necessary to enable its business to be carried on as now conducted and to enable its properties and assets to be owned, leased and operated as they are now, and all such licenses, registrations and qualifications are in good standing, in all material respects.

4.2Corporate Records

The corporate records and minute books of KWESST as required to be maintained by it under the OBCA are up-to-date, in all material respects, and contain complete and accurate minutes of all meetings of shareholders and the board of directors and any committees thereof and all resolutions consented to in writing.

4.3Consents, Authorizations and Binding Effect

(i)KWESST may execute, deliver and perform this Agreement without the necessity of obtaining any consent, approval, authorization or waiver, or giving any notice or otherwise, except:

(A)the filing of the Articles of Amalgamation with the Director pursuant to the OBCA;

(B)consents, approvals, authorizations and waivers, which have been obtained (or will be obtained prior to the Effective Date including the approval of KWESST Shareholders), and are unconditional and in full force and effect and notices which have been given on a timely basis; and

(C)those which, if not obtained or made, would not prevent or delay the consummation of the Transactions or otherwise prevent KWESST from performing its obligations under this Agreement and would not be reasonably likely to have a Material Adverse Effect on KWESST.

(ii)KWESST has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to complete the Transactions.

(iii)The KWESST Board has unanimously approved the Amalgamation and the execution, delivery and performance of this Agreement.

(iv)This Agreement has been duly executed and delivered by KWESST and constitutes a legal, valid, and binding obligation of KWESST, enforceable against it in accordance with its terms, except:

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(A)as may be limited by bankruptcy, reorganization, insolvency and similar laws of general application relating to or affecting the enforcement of creditors' rights or the relief of debtors; and

(B)that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

(v)The execution, delivery, and performance of this Agreement will not:

(A)constitute a violation of the articles or by-laws of KWESST;

(B)conflict with, result in the breach of or constitute a default or give to others a right of termination, cancellation, creation or acceleration of any obligation under or the loss of any material benefit under or the creation of any benefit or right of any third party under any material contract, material permit or material license to which KWESST is a party or as to which any of its property is subject which in any such case would have a Material Adverse Effect on KWESST;

(C)other than as disclosed in Schedule "C", give rise to any right of termination, or acceleration of indebtedness, or cause any indebtedness to come due before its stated maturity, in any case, or give rise to any rights of first refusal or change in control or influence or any restriction or limitation under any such material contract, material permit, or material license to which KWESST is a party or as to which any of its property is subject;

(D)constitute a violation of any law applicable or relating to KWESST or its business; or

(E)result in the creation of any lien upon any of the assets of KWESST.

4.4Approvals

Other than the consents specified in section 4.3(i), no notices, reports, authorization, consent or approval of, or registration, declaration or filing by KWESST with any federal, provincial or local court, authority or other Governmental Authority is necessary to authorize the execution and delivery of this Agreement, or any and all of the documents and instruments to be delivered under this Agreement by KWESST, or the consummation by KWESST of the Transactions contemplated herein.  Except as otherwise provided for herein, no permit, authorization or consent of any Person is required to be obtained by KWESST for the consummation by KWESST of the Transactions.

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4.5Litigation and Compliance

(i)There are no actions, suits, claims or proceedings, whether in equity or at law or, any governmental investigations pending or, to the knowledge of KWESST, threatened:

(A)against or affecting KWESST or with respect to or affecting any asset or property owned, leased or used by KWESST; or

(B)which question or challenge the validity of this Agreement, or the Transactions or any action taken or to be taken pursuant to this Agreement, or the Transactions, nor is KWESST aware of any basis for any such action, suit, claim, proceeding or investigation.

(ii)KWESST has conducted and is conducting its business in compliance with, and is not in default or violation under, and has not received notice asserting the existence of any default or violation under, any law applicable to its business or operations.

(iii)Neither KWESST, nor any asset of KWESST is subject to any judgment, order, decree, lawsuit or proceeding.

(iv)KWESST has duly filed or made all reports and returns required to be filed by it with any Governmental Authority and has obtained all permits, licenses, consents, approvals, certificates, registrations and authorizations (whether governmental, regulatory or otherwise) which are required in connection with its business and operations and is in material compliance with the terms of such permits, licenses, consents, approvals, certificates, registrations and authorizations.  To KWESST's knowledge, the business of KWESST is not being conducted in violation of any Laws applicable to KWESST and KWESST has complied in all material respects with all orders or rulings of any government or Governmental Authority.  No investigation or review by any Governmental Authority with respect to KWESST is pending or, to KWESST's knowledge, threatened, nor, to KWESST's knowledge, has any Governmental Authority indicated an intention to conduct the same.

4.6Compliance with Environmental Laws

(i)KWESST has been and is in compliance with all applicable federal, provincial, municipal laws, statutes, ordinances, by-laws and Regulations and orders, directives and decisions rendered by any ministry, department or administrative or regulatory agency ("Environmental Laws") relating to the protection of the environment, occupational health and safety and the manufacture, processing, distribution, use, treatment, storage, disposal, discharge, transport or handling of any pollutants, contaminants, chemicals or industrial, toxic or hazardous wastes or substances ("Hazardous Substances").

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(ii)KWESST has obtained all licenses, permits approvals, consents, certificates, registrations and other authorizations under Environmental Laws (the "Environmental Permits") required for the operation of its business.  Each Environmental Permit is valid, subsisting and in good standing and KWESST is not in default or breach of any Environmental Permit and no proceeding is pending, or threatened, to revoke or limit any Environmental Permit.

(iii)KWESST has not received any notice that it is potentially responsible for a federal, provincial, municipal or local clean-up site or corrective action under any Environmental Laws.  KWESST has not received any request for information in connection with any federal, provincial, municipal or local inquiries as to disposal sites.

4.7Insurance

KWESST maintains property, general liability and third-party insurance and all of such insurance policies are in good standing and in the opinion of management of KWESST are sufficient, in all material respects, to protect KWESST against potential liabilities of the business of KWESST.

4.8Financial Statements

The financial statements of KWESST for the periods ended March 31, 2020 and December 31, 2017, 2018, and 2019 were prepared in accordance with IFRS in Canada, applied on a consistent basis and fairly presented in all material respects the assets, liabilities and financial condition of KWESST as of the date thereof and the earnings, results of operations and changes in financial position of KWESST for the period then ended.  KWESST has not, since March 31, 2020, made any change in the accounting practices or policies applied in the preparation of its financial statements.  The financial position and condition of KWESST is now at least as good as that shown on or reflected in the financial statements of KWESST.

4.9Taxes

(i)KWESST has timely filed, or has caused to be timely filed on its behalf, all tax returns required to be filed by it prior to the date hereof, all such tax returns are complete and accurate in all material respects.

(ii)All taxes shown to be due on such tax returns, or otherwise owed, have been timely paid, other than those which are being contested in good faith and in respect of which adequate reserves have been provided in the most recently published financial statements of KWESST.

(iii)No deficiency with respect to any taxes has been proposed, asserted or assessed in writing against KWESST, there are no actions, suits, proceedings, investigations or claims pending or threatened against KWESST in respect of taxes or any matters under discussion with any Governmental Authority relating to taxes, and no waivers or written requests for waivers of the time to assess any such taxes are outstanding or pending.

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(iv)KWESST has remitted to the appropriate tax authorities all amounts collected by it in respect of federal goods and services tax and provincial or harmonized sales taxes.

(v)There are no liens for taxes upon any asset of KWESST except liens for taxes not yet due.

4.10Contracts

(i)Except as set out in Schedule "C" hereto, as of the date hereof, KWESST is not a party to or bound by any contract:

(A)by which title to any assets, rights or properties is retained by a third party as security for an obligation;

(B)which will be at the Effective Date secured by a lien upon any assets, rights or properties as security for an obligation;

(C)relating to the employment of any employees or the rights of employees upon severance or termination;

(D)which contemplates payment on or as a result of a change of control of KWESST;

(E)with a bank or other financial institution relating to borrowed money;

(F)relating to the existence, creation, purchase or sale of any bonds, debentures, or long-term debts;

(G)relating to outstanding letters of credit or constituting an agreement of guarantee or indemnification of the obligations or liabilities (contingent or otherwise) of any other person or relating to commitments to purchase the assets of any other person or to guarantee the price thereof;

(H)relating to the acquisition or disposition of any shares or securities of any entity;

(I)relating to the acquisition, disposition or lease of any business operations or real property;

(J)limiting or restraining KWESST from engaging in any activities or competing with any Person; or

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(K)which involves the use of a derivative, including any forward contracts or options

(ii)KWESST and, to the knowledge of KWESST, each of the other parties thereto, is in material compliance with all covenants under any material contract, and no default has occurred which, with notice or lapse of time or both, would directly or indirectly constitute such a default under any material contract, except for such non-compliance or default as has not had and will not have a Material Adverse Effect on KWESST.  Furthermore, there does not exist any state of facts which after notice or lapse of time, or both, will constitute a material default or breach on the part of KWESST under any of the provisions contained in any of the material contracts, commitments or agreements referred to in this section 4.10.

4.11KWESST Information

KWESST has fully made available to Foremost and its advisers all of the information that they have requested for deciding whether to complete the Transactions.  None of the foregoing representations, warranties and statements of fact and no other statement furnished by or on behalf of KWESST to Foremost or its advisers in connection with the negotiation of the Transactions contemplated by this Agreement contain in respect of KWESST and its business any untrue statement of a material fact or omit to state any material fact necessary to make such statement or representation not misleading to a prospective purchaser of securities of the Resulting Issuer and Foremost Shareholders seeking full information as to KWESST and Amalco and their assets, properties, financial condition, prospects, businesses and affairs.

4.12Finder's Fees

Except in connection with the KWESST Financing and as disclosed to Foremost and Subco in writing, KWESST has not incurred any obligation or liability, contingent or otherwise, for broker's fees, commissions or finder's fees or other similar fees in respect of the Transactions contemplated by this Agreement.

4.13Absence of Certain Changes

Except as set out in Schedule "C" hereto, since the Letter of Intent:

(i)there has been no Material Adverse Change to KWESST;

(ii)KWESST has not:

(A)sold, transferred, distributed or otherwise disposed of or acquired a material amount of its assets, or agreed to do any of the foregoing, except in the ordinary course of business;

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(B)incurred any liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) which has had or is likely to have a Material Adverse Effect on KWESST;

(C)prior to the date hereof, made or agreed to make any material capital expenditure or commitment;

(D)made or agreed to make any payment to any officer or director;

(E)conducted its operations other than in all material respects in the normal course of business;

(F)entered into any material transaction or material contract, or amended or terminated any material transaction or material contract, except transactions or contracts entered into in the ordinary course of business; and

(G)agreed or committed to do any of the foregoing; and

(iii)there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to KWESST's share capital.

4.14Capitalization

(i)As of the date hereof, the authorized capital of KWESST consists of an unlimited number of KWESST Shares, of which 30,475,436 KWESST Shares are issued and outstanding.

(ii)All issued and outstanding KWESST Shares have been duly authorized and are validly issued, fully paid and non-assessable and free of any pre-emptive rights.

(iii)There are currently 925,000 KWESST Options outstanding as set forth in Schedule "D".

(iv)There are currently 8,500,000 KWESST 2024 Warrants, 15,000 KWESST 2022 Warrants, as set forth in Schedule "D" (the KWESST Shares, KWESST Options and Existing KWESST Warrants are collectively referred to herein as the "KWESST Securities").

(v)Other than the KWESST Securities and except as set out in Schedule "C" hereto, there are no authorized, outstanding or existing:

(A)voting trusts or other agreements or understandings with respect to the voting of any KWESST Shares to which KWESST is a party;

(B)securities issued by KWESST that are convertible into or exchangeable for KWESST Shares;

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(C)there are no agreements, options, warrants or other rights capable of becoming agreements, options or warrants to purchase or subscribe for any KWESST Shares or securities convertible into or exchangeable for any KWESST Shares, in each case granted, extended or entered into by KWESST;

(D)there are no agreements of any kind to which KWESST is party relating to the issuance or sale of any KWESST Shares, any securities convertible, exchangeable or exercisable for KWESST Shares, or requiring KWESST to qualify securities of KWESST for distribution by prospectus under Canadian Securities Laws; or

(E)agreements of any kind which may obligate KWESST to issue or purchase any of its securities, except as disclosed to Foremost.

4.15Licence and Title

KWESST does not legally or beneficially own, directly or indirectly, any real property.  KWESST is the absolute legal and beneficial owner of, and has good and marketable title to, all of its material property or assets, including all the properties and assets reflected in the balance sheet forming part of KWESST's financial statements for the three months ended March 31, 2020 and the year ended December 31, 2019, except as indicated in the notes thereto, and such properties and assets are not subject to any Encumbrances of any kind and KWESST owns, possesses, or has obtained and is in compliance in all material respects with, all licences, permits, certificates, orders, grants and other authorizations of or from any Governmental Authority necessary to conduct its business as currently conducted, in accordance in all material respects with applicable Laws.

4.16No Undisclosed Liabilities

(a)There are no material liabilities of KWESST of any kind whatsoever, whether or not accrued and whether or not determined or determinable, in respect of which KWESST may become liable on or after the consummation of the transactions contemplated hereby, and KWESST has not guaranteed or indemnified, or agreed to guarantee or indemnify, any debt, liability or other obligation of any person, other than:

(i)liabilities disclosed on or reflected or provided for in the most recent financial statements of KWESST; and

(ii)liabilities incurred in the ordinary and usual course of business of KWESST and attributable to the period since March 31, 2020, none of which has had or may reasonably be expected to have a Material Adverse Effect on KWESST.

(b)Moreover, except as disclosed in Schedule "C", KWESST is not indebted to:

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(i)any director, officer or shareholder of KWESST (except for compensation paid in the ordinary course of business, consistent with past practice);

(ii)any individual related to any of the foregoing by blood, marriage or adoption; or

(iii)any Person controlled, directly or indirectly, by any one or more of those Persons referred to in sections 4.16 (b) (i) and (ii)

and none of those Persons referred to in section 4.16 (b) is indebted to KWESST.

4.17U.S. Securities Laws Matters

KWESST is a "foreign issuer" within the meaning of Regulation S under the U.S. Securities Act, and reasonably believes there is no "substantial U.S. market interest" in the KWESST Shares.  Except with respect to offers and sales in connection with the Amalgamation to KWESST Shareholders who are "accredited investors" (as defined in Rule 501(a) of Regulation D under the U.S. Securities Act) ("Accredited Investors") in the United States, neither KWESST nor any of its affiliates, nor any person acting on its or their behalf, has made or will make, in connection with the Merger:  (A) any offer to sell or any solicitation of an offer to buy any Foremost Shares or KWESST Shares, respectively, to any person in the United States; or (B) any sale of Foremost Shares or KWESST Shares, respectively, unless, at the time the buy order was or will have been originated, the purchaser is:

(i)outside the United States; or

(ii)KWESST, its affiliates, and any person acting on their behalf reasonably believe that the purchaser is outside the United States.

None of KWESST or any person acting on its behalf has made or will make any Directed Selling Efforts in the United States with respect to the Foremost Shares to be issued to KWESST Shareholders or with respect to the KWESST Shares to be issued in the KWESST Financing or has engaged or will engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the U.S. Securities Act), including advertisements, articles, notices or other communications published in any newspaper, magazine, Internet or similar media or broadcast over radio, television or the Internet, or any seminar or meeting whose attendees had been invited by general solicitation or general advertising in connection with the offer and exchange of such Foremost Shares in the United States or the offer and sale of such KWESST Shares in the United States.

4.18Intellectual Property Representations and Warranties of KWESST.

KWESST hereby represents to Foremost and Subco as follows, and will be deemed to have so represented again at the Effective Time:

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(a)except for Licensed Intellectual Property, all of the material Intellectual Property of KWESST or used, in whole or in part, by KWESST in connection with its business, is Owned Intellectual Property;

(b)all Owned Intellectual Property is owned by KWESST is free and clear of encumbrances, covenants, conditions, options to purchase and restrictions or other adverse claims or interests of any kind or nature.  Except as disclosed to Foremost in writing, to the knowledge of the directors and officers of Foremost, all Licensed Intellectual Property is free and clear of material encumbrances, covenants, conditions, options to purchase and restrictions or other adverse claims or interests of any kind or nature;

(c)to the extent that any Owned Intellectual Property used by, or developed on behalf of, KWESST was created by an employee of, or independent contractor or consultant to, KWESST, such persons have each irrevocably assigned to KWESST in writing all rights to such Owned Intellectual Property; neither KWESST has received any notice or claim challenging ownership of or rights by KWESST to such Owned Intellectual Property or suggesting that such person has any claim of legal or beneficial ownership or other claim or interest with respect thereto nor, to the knowledge of the directors and officers of KWESST, is there a reasonable basis for such a claim;

(d)KWESST has documented procedures in place to protect the confidentiality of any and all rights to the Owned Intellectual Property.  Key directors, officers, employees, consultants and independent contractors of KWESST have entered into confidentiality agreements with KWESST in form adequate to protect the Owned Intellectual Property;

(e)to the knowledge of the directors and officers of KWESST, all rights to the Owned Intellectual Property or Licensed Intellectual Property are valid and enforceable.  KWESST has not received any notice or claim challenging or questioning the validity or enforceability of any Owned Intellectual Property or Licensed Intellectual Property.  There is no proceeding which is ongoing or, to the knowledge of the directors and officers of KWESST, alleged, which might result in the Owned Intellectual Property being invalidated, revoked or the subject of a compulsory license.  To the knowledge of the directors and officers of KWESST, there is no proceeding which is ongoing or alleged which might result in the Licensed Intellectual Property being invalidated or revoked or the subject of a compulsory license;

(f)in the case of Licensed Intellectual Property, KWESST has entered into valid and enforceable written agreements (the "License Agreements") pursuant to which KWESST has been granted all material licenses to develop manufacture, import, export, use, reproduce, sub-license, sell, offer for sale, or otherwise exploit the Licensed Intellectual Property to the extent required to operate all material aspects of the Business.  All License Agreements are in full force and effect and neither KWESST nor any licensor is in default of its obligations thereunder.  Correct and complete copies of all License Agreements have been provided to Foremost;

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(g)all fees payable in respect of the maintenance of Owned Intellectual Property have been paid and all registrations and applications for registration of any Owned Intellectual Property are in good standing; KWESST has prosecuted, and is prosecuting, such applications diligently.  To the knowledge of the directors and officers of KWESST, all fees payable in respect of the maintenance of the Licensed Intellectual Property have been paid and all registrations and applications for registration of any Licensed Intellectual Property are in good standing; to the knowledge of the directors and officers of KWESST, the licensors of the Licensed Intellectual Property have prosecuted, and are prosecuting, such applications diligently;

(h)to the knowledge of the directors and officers of KWESST, the conduct of its business and the business of its Affiliates and Associates does not infringe any other person's rights to Intellectual Property.  KWESST is not or has not been a party to any action or proceeding nor, to the knowledge of the directors and officers of KWESST, has any action or proceeding been threatened, that alleges that the conduct of the business of KWESST infringes any other person's rights to the Owned Intellectual Property or the Licensed Intellectual Property, nor to the knowledge of the directors and officers of KWESST is there a reasonable basis for such a claim.  To the knowledge of the directors and officers of KWESST, no person has infringed or is infringing the right of KWESST in or to any Owned Intellectual Property or Licensed Intellectual Property; and

(i)KWESST is not a party to any agreement involving the grant by KWESST to any person of any right to the Owned Intellectual Property.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF FOREMOST AND SUBCO

Each of Foremost and Subco represents and warrants to and in favor of KWESST as follows and acknowledges that KWESST is relying on such representations and warranties in connection with this Agreement and completing the Transactions contemplated herein:

5.1Organization and Good Standing

(i)Each of Foremost and Subco is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.

(ii)Each of Foremost and Subco has the corporate power and authority to own, lease, or operate its properties and to carry on its business as now conducted.

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5.2Consents, Authorizations and Binding Effect

(i)Each of Foremost and Subco may execute, deliver, and perform this Agreement without the necessity of obtaining any consent, approval, authorization or waiver, or giving any notice or otherwise, except:

(A)the approval of the Subco Amalgamation Resolution by Foremost as sole shareholder of Subco;

(B)the approval by the Foremost Shareholders at an annual general and special meeting of the Foremost Shareholders of the Articles of Amendment and any other matters the Parties determine is appropriate;

(C)the approval of the TSX-V for the Amalgamation as the Qualifying Transaction of Foremost and the other Transactions contemplated hereby;

(D)consents, approvals, authorizations and waivers, which have been obtained (or will be obtained prior to the Effective Date), and are unconditional and in full force and effect and notices which have been given on a timely basis;

(E)the filing of the Articles of Amalgamation with the Director pursuant to the OBCA;

(F)the filing of the prescribed documents to effect the appointment of the New Directors and the New Management;

(G)the filing of the Articles of Amendment with the Registrar of Companies pursuant to the BCBCA; and

(H)those which, if not obtained or made, would not prevent or delay the consummation of the Transactions or otherwise prevent Foremost and Subco from performing their respective obligations under this Agreement and would not be reasonably likely to have a Material Adverse Effect on the Foremost Group.

(ii)Each of Foremost and Subco has full corporate power and authority to execute and deliver this Agreement and to perform its respective obligations hereunder and to complete the Transactions, subject to the approval of the Subco Amalgamation Resolution by Foremost by written consent resolution.

(iii)The Foremost Board has (i) approved the Transactions and the execution, delivery and performance of this Agreement; and (ii) approved the execution and delivery of the Subco Amalgamation Resolution by Foremost.

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(iv)The Subco Board has unanimously approved the Amalgamation and the execution, delivery and performance of this Agreement.

(v)This Agreement has been duly executed and delivered by Foremost and Subco and constitutes a legal, valid, and binding obligation of Foremost and Subco enforceable against each of them in accordance with its terms, except:

(A)as may be limited by bankruptcy, reorganization, insolvency and similar laws of general application relating to or affecting the enforcement of creditors' rights or the relief of debtors; and

(B)that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

(vi)The execution, delivery, and performance of this Agreement will not:

(A)constitute a violation of the articles or by-laws of Foremost or the articles or by-laws of Subco;

(B)conflict with, result in the breach of or constitute a default or give to others a right of termination, cancellation, creation or acceleration of any obligation under, or the loss of any material benefit under or the creation of any benefit or right of any third party under any material contract, material permit or material license to which any of Subco and Foremost is a party or as to which any of its property is subject which in any such case would have a Material Adverse Effect on Foremost or Subco;

(C)constitute a violation of any law applicable or relating to any of Foremost and Subco or their respective businesses; or

(D)result in the creation of any lien upon any of the assets of any of Foremost and Subco.

5.3Litigation and Compliance

(i)There are no actions, suits, claims or proceedings, whether in equity or at law, or any governmental investigations pending or, to the knowledge of Foremost, threatened:

(A)against or affecting any of Foremost and Subco or with respect to or affecting any asset owned, leased or used by any of Foremost and Subco; or

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(B)which could question or challenge the validity of this Agreement or the Transactions or any action taken or to be taken pursuant to this Agreement or the Transactions;

nor is Foremost aware of any basis for any such action, suit, claim, proceeding or investigation.

(ii)Each of Foremost and Subco has conducted and is conducting its business in compliance with, and is not in default or violation under, and has not received notice asserting the existence of any default or violation under, any law applicable to the businesses or operations of the Foremost Group.

(iii)Neither of Foremost or Subco, and no asset of any of Foremost and Subco, is subject to any judgment, order or decree entered in any lawsuit or proceeding.

(iv)Each of Foremost and Subco has duly filed or made all reports and returns required to be filed by it with any Governmental Authority and has obtained all permits, licenses, consents, approvals, certificates, registrations and authorizations (whether governmental, regulatory or otherwise) which are required in connection with their respective business and operations.

5.4Public Filings; Financial Statements

(i)Foremost has filed all documents required pursuant to applicable Canadian Securities Laws (the "Foremost Securities Documents").  As of their respective dates, the Foremost Securities Documents complied in all material respects with the then applicable requirements of the Canadian Securities Laws and, at the respective times they were filed, none of the Foremost Securities Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make any statement therein, in light of the circumstances under which it was made, not misleading.  Foremost has not filed any confidential disclosure reports which have not at the date hereof become public knowledge.

(ii)The financial statements of Foremost for the years ended February 28, 2020 and February 28, 2019 were prepared in accordance with IFRS applied on a consistent basis during the periods involved and fairly present in all material respects the assets, liabilities and financial condition of Foremost as of the respective dates thereof and the earnings, results of operations and changes in financial position of Foremost for the periods then ended.  Except as disclosed in the Foremost Securities Documents, Foremost has not, since February 28, 2020, made any change in the accounting practices or policies applied in the preparation of its financial statements.

(iii)Foremost is now, and on the Effective Date will be, a "reporting issuer" (or its equivalent) under Canadian Securities Laws of each of the Provinces of Alberta and British Columbia.  Foremost is not currently in default in any material respect of any requirement of Canadian Securities Laws or the TSX-V and Foremost is not included on a list of defaulting reporting issuers maintained by any of the securities commissions or similar regulatory authorities in such provinces.

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(iv)Except as disclosed in the Foremost Securities Documents, there has not been any reportable event (within the meaning of National Instrument 51- 102 - Continuous Disclosure Obligations of the Canadian Securities Administrators) since February 28, 2019 with the auditors of Foremost.

(v)No order ceasing or suspending trading in securities of Foremost or prohibiting the sale of securities of Foremost has been issued that remains outstanding and, to the knowledge of Foremost, no proceedings for this purpose have been instituted, are pending, contemplated or threatened by any securities commission, self-regulatory organization or the TSX-V.

(vi)Foremost is a "capital pool company" as defined in Policy 2.4 of the TSX-V, the Foremost Shares are listed and posted for trading on the TSX-V and Foremost has never carried on any active business other than as required in connection with the search for and evaluation of a potential Qualifying Transaction.

(vii)Foremost maintains a system of internal accounting controls sufficient to provide reasonable assurance that:  (i) transactions are executed in accordance with management's general or specific authorizations; (ii) access to assets is permitted only in accordance with management's general or specific authorization; and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(viii)There are no contracts with Foremost, on the one hand, and:  (i) any officer or director of Foremost; (ii) any holder of the equity securities of Foremost; or (iii) an associate or affiliate of a person in (i) or (ii), on the other hand.

5.5Taxes

(i)Each of Foremost and Subco has timely filed, or has caused to be timely filed on its behalf, all tax returns required to be filed by it prior to the date hereof, all such tax returns are complete and accurate in all material respects.

(ii)All taxes shown to be due on such tax returns, or otherwise owed, have been timely paid, other than those which are being contested in good faith and in respect of which adequate reserves have been provided in the most recently published financial statements of Foremost.

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(iii)No deficiency with respect to any taxes has been proposed, asserted or assessed in writing against any of Foremost and Subco, there are no actions, suits, proceedings, investigations or claims pending or threatened against any of Foremost and Subco in respect of taxes or any matters under discussion with any Governmental Authority relating to taxes, in each case which are likely to have a Material Adverse Effect on the Foremost Group, and no waivers or written requests for waivers of the time to assess any such taxes are outstanding or pending.

(iv)Each of Foremost and Subco has remitted to the appropriate tax authorities all amounts collected by it in respect of federal goods and services tax and provincial or harmonized sales taxes.

(v)There are no liens for taxes upon any asset of the Foremost Group except liens for taxes not yet due.

5.6Contracts

(i)Except as set out in this Agreement, as of the date hereof, no Foremost Group Member is a party to or bound by any contract:

(A)by which title to any assets, rights or properties is retained by a third party as security for an obligation;

(B)which will be at the Effective Date secured by a lien upon any assets, rights or properties as security for an obligation;

(C)relating to the employment of any employees or the rights of employees upon severance or termination;

(D)which contemplates payment on or as a result of a change of control of any of Foremost and Subco;

(E)with a bank or other financial institution relating to borrowed money;

(F)relating to the existence, creation, purchase or sale of any bonds, debentures, notes or long-term debts;

(G)relating to outstanding letters of credit or constituting an agreement of guarantee or indemnification of the obligations or liabilities (contingent or otherwise) of any other person or relating to commitments to purchase the assets of any other person or to guarantee the price thereof;

(H)relating to the acquisition or disposition of any shares or securities of any entity;

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(I)relating to the acquisition, disposition or lease of any business operations or real property;

(J)limiting or restraining any of Foremost and Subco from engaging in any activities or competing with any Person; or

(K)which involves the use of a derivative, including any forward contracts or options.

(ii)Each of Foremost and Subco and, to the knowledge of Foremost, each of the other parties thereto, is in material compliance with all covenants under any material contract, and no default has occurred which, with notice or lapse of time or both, would directly or indirectly constitute such a default under any material contract, except for such non-compliance or default as has not had and will not have a Material Adverse Effect on the Foremost Group.

5.7Absence of Certain Changes

Except as contemplated by this Agreement, since the Letter of Intent:

(i)there has been no Material Adverse Change in the Foremost Group;

(ii)no Foremost Group Member has:

(A)sold, transferred, distributed, or otherwise disposed of or acquired a material amount of its assets, or agreed to do any of the foregoing, except in the ordinary course of business;

(B)incurred any liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) which has had or is likely to have a Material Adverse Effect on the Foremost Group;

(C)prior to the date hereof, made or agreed to make any material capital expenditure or commitment;

(D)made or agreed to make any payment to any officer or director;

(E)conducted its operations other than in all material respects in the normal course of business;

(F)entered into any material transaction or material contract, or amended or terminated any material transaction or material contract, except transactions or contracts entered into in the ordinary course of business; and

(G)agreed or committed to do any of the foregoing; and

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(iii)there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to Foremost's share capital.

5.8Subco

(i)Subco was duly incorporated under the OBCA and all of its issued and outstanding shares are held by Foremost.

(ii)All of the outstanding Subco Shares are free and clear of all liens.

(iii)Foremost does not own, directly or indirectly, any equity interest of or in any entity or enterprise organized under the laws of any domestic or foreign jurisdiction other than Subco.

(iv)All outstanding Subco Shares have been duly authorized and are validly issued, fully paid and non-assessable.

5.9Capitalization

(i)As at the date hereof, the authorized capital of Foremost consists of an unlimited number of Foremost Shares, of which 4,000,000 Foremost Shares are issued and outstanding.

(ii)There are currently 400,000 Foremost Options outstanding and 200,000 Foremost Agent's Options outstanding, as set forth in Schedule "E" hereto.

(iii)All issued and outstanding Foremost Shares have been duly authorized and are validly issued, fully paid and non-assessable, free of pre-emptive rights.

(iv)Except as set out paragraph 5.9(ii) regarding the Foremost Options and the Foremost Agent's Options, and the Foremost Shares to be issued under the Amalgamation, there are no authorized, outstanding or existing:

(A)voting trusts or other agreements or understandings with respect to the voting of any Foremost Shares to which any of Foremost and Subco is a party;

(B)securities issued by any of Foremost and Subco that are convertible into or exchangeable for any Foremost Shares or Subco Shares, whichever the case;

(C)agreements, options, warrants, or other rights capable of becoming agreements, options or warrants to purchase or subscribe for any Foremost Shares or Subco Shares, whichever the case, or securities convertible into or exchangeable or exercisable for any such common shares, in each case granted, extended or entered into by any of Foremost and Subco;

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(D)agreements of any kind to which any of Foremost and Subco is party relating to the issuance or sale of any Foremost Shares or Subco Shares, whichever the case, or any securities convertible into or exchangeable or exercisable for any Foremost Shares or requiring Foremost to qualify securities of any of Foremost and Subco for distribution by prospectus under Canadian Securities Laws; or

(E)agreements of any kind which may obligate Foremost or Subco to issue or purchase any of its securities.

5.10Licence and Title

Foremost does not legally or beneficially own, directly or indirectly, any real property.  Foremost is the absolute legal and beneficial owner of, and has good and marketable title to, all of its material property or assets, including all the properties and assets reflected in the balance sheet forming part of Foremost's financial statements for the year ended February 28, 2020, except as indicated in the notes thereto, and such properties and assets are not subject to any Encumbrances of any kind and Foremost owns, possesses, or has obtained and is in compliance in all material respects with, all licences, permits, certificates, orders, grants and other authorizations of or from any Governmental Authority necessary to conduct its business as currently conducted, in accordance in all material respects with applicable Laws.

5.11No Undisclosed Liabilities

There are no material liabilities of the Foremost Group of any kind whatsoever, whether or not accrued and whether or not determined or determinable, in respect of which any of Foremost and Subco may become liable on or after the consummation of the Transactions contemplated hereby other than:

(i)liabilities disclosed on or reflected or provided for in the most recent financial statements of Foremost included in the Foremost Securities Documents; and

(ii)liabilities incurred in the ordinary and usual course of business of the Foremost Group and attributable to the period since February 28, 2020 none of which has had or may reasonably be expected to have a Material Adverse Effect on Foremost or Subco.

5.12Due Diligence Investigations

All information relating to the business, assets, liabilities, properties, capitalization or financial condition of Foremost and Subco provided by any of Foremost and Subco or any of its Representatives to KWESST is true, accurate and complete in all material respects.

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5.13Brokers

Foremost has not retained any broker or finder in connection with the Amalgamation or the other transactions contemplated hereby, nor has Foremost incurred any liability to any broker or finder by reason of any such transaction.

5.14U.S. Securities Laws Matters

Foremost is a "foreign issuer" within the meaning of Regulation S under the U.S. Securities Act, and reasonably believes there is no "substantial U.S. market interest" in the Foremost Shares or the Foremost Shares.  Except with respect to offers and sales in connection with the Amalgamation to the KWESST Shareholders who are Accredited Investors in the United States, neither Foremost nor any of its affiliates, nor any person acting on its or their behalf, has made or will make, in connection with the Amalgamation:  (A) any offer to sell, or any solicitation of an offer to buy, any Foremost Shares or Foremost Shares, respectively, to any person in the United States; or (B) any sale of Foremost Shares, unless, at the time the buy order was or will have been originated, the purchaser is (i) outside the United States or (ii) Foremost, its affiliates, and any person acting on their behalf reasonably believe that the purchaser is outside the United States.  None of Foremost, any of its affiliates or any person acting on its or their behalf has made or will make any Directed Selling Efforts in the United States with respect to the Foremost Shares to be issued to KWESST Shareholders or with respect to the KWESST Shares to be issued in the KWESST Financing or has engaged or will engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the U.S. Securities Act), including advertisements, articles, notices or other communications published in any newspaper, magazine, Internet or similar media or broadcast over radio, television or the Internet, or any seminar or meeting whose attendees had been invited by general solicitation or general advertising in connection with the offer and exchange and offer and sale of such shares in the United States.

ARTICLE 6
COVENANTS OF KWESST

From and after the date hereof and until the Effective Date (except as hereinafter otherwise provided), unless Foremost shall otherwise consent in writing, which consent shall not be unreasonably withheld, conditioned or delayed:

6.1Access

KWESST shall permit:

(i)Foremost and its Representatives to have reasonable access at reasonable times to all books, accounts, records, contracts, files, correspondence, tax records, and documents of or relating to KWESST including auditors' working papers and management letters and to discuss such matters with the executive officers of KWESST; KWESST shall make available to Foremost and its Representatives all other information concerning its business in its possession or under its control as Foremost may reasonably request;

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(ii)Foremost and its Representatives to conduct such reasonable reviews, inspections, surveys, tests, and investigations of the assets of KWESST as it deems necessary or advisable, provided such reviews are conducted at reasonable times and in a reasonable manner; and

(iii)Foremost and its Representatives to conduct a full financial, business, legal, environmental, pension, labour and other due diligence investigations with respect to KWESST.

6.2Ordinary Course

Other than as herein contemplated, KWESST shall not:

(i)issue any securities;

(ii)make any expenditures, other than in the ordinary course of business and other than in connection with the completion of the Transactions;

(iii)incur any debt, except in the ordinary course of business consistent with past practice;

(iv)declare or pay any dividend or distribute any of its assets to KWESST Shareholders;

(v)enter into any material contract, other than in the ordinary course of business consistent with past practice;

(vi)alter or amend its articles or by-laws;

(vii)engage in any business enterprise or other activity different from that carried on as of the date hereof;

(viii)sell, pledge, lease, dispose of, grant any interest in, encumber or agree to sell, pledge, lease, dispose of, grant any interest in or encumber any of its assets;

(ix)redeem, purchase or offer to purchase any of its share or other securities;

(x)acquire, directly or indirectly, any material assets, including but not limited to securities of other companies;

(xi)incur or commit to incur any indebtedness for borrowed money or issue any debt securities; or

(xii)approve, authorize or implement any change to the business, financial condition or management of KWESST.

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6.3Closing Conditions

KWESST shall use all commercially reasonable efforts to cause all of the conditions to the obligations of KWESST under this Agreement to be satisfied on or prior to the Effective Date (to the extent the satisfaction of such conditions is within the control of KWESST).

6.4Stock Exchange Listing

KWESST shall use all commercially reasonable best efforts to assist Foremost in obtaining the conditional approval of the TSX-V to the Transactions and the listing of the Post-Consolidation Foremost Shares issuable to KWESST Shareholders, which shall include the filing of the Filing Statement and all ancillary documents with the TSX-V.

6.5KWESST Financing

KWESST shall complete the KWESST Financing for sufficient minimum gross proceeds in order for Foremost to meet the listing requirements of the TSX-V following the completion of the Amalgamation.

6.6KWESST Meeting

KWESST shall use its reasonable commercial efforts to cause all KWESST Shareholders to vote in favor of the Transactions, including the Amalgamation and related matters, or to provide a unanimous written resolution of the shareholders to that effect, and not to take any action contrary to, or in opposition to the Transactions.  In addition, KWESST shall provide Foremost, on a timely basis, with all relevant information concerning itself and its business, property, operations and financial statements for inclusion in the Foremost information circular and that such information will contain no untrue statement of a material fact and will not omit to state a material fact that is required to be stated or that is necessary to make a statement therein not misleading in the light of the circumstances in which it will be made, and such information will constitute full, true and plain disclosure of all material facts relating to the particular matters concerning KWESST to be acted upon by the Foremost Shareholders at the Foremost Meeting.

ARTICLE 7
COVENANTS OF FOREMOST

From and after the date hereof and until the Effective Date (except as hereinafter otherwise provided), unless KWESST shall otherwise consent in writing, which consent shall not be unreasonably withheld, conditioned or delayed:

7.1Access

Foremost shall permit, and shall cause Subco to permit:

(a)KWESST and its Representatives to have reasonable access at reasonable times to all books, accounts, records, contracts, files, correspondence, tax records, and documents of or relating to the Foremost Group including auditor's working papers and management letters and to discuss such matters with the executive officers of the Foremost Group; Foremost shall make available to KWESST and its Representatives a copy of each report or other document filed pursuant to applicable securities laws and all other information concerning its business in its possession or under its control as KWESST may reasonably request;

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(b)KWESST and its Representatives to conduct such reasonable reviews, inspections, surveys, tests, and investigations of the assets of the Foremost Group as they deem necessary or advisable provided such reviews are conducted at reasonable times and in a reasonable manner; and

(c)KWESST and its Representatives to conduct a full financial, business, legal, environmental, pension, labour and other due diligence investigations with respect to the Foremost Group.

7.2Ordinary Course

Other than as contemplated herein, each of Foremost and Subco will not:

(a)issue any securities, other than pursuant to the exercise of the Foremost Options or the Foremost Agent's Options;

(b)make any expenditures, other than in connection with ongoing public filing requirements and the completion of the Transactions;

(c)declare or pay any dividends or distribute any of its assets to shareholders;

(d)enter into any contracts other than the contracts in connection with the Transactions contemplated herein;

(e)alter or amend its articles or by-laws;

(f)engage in any business enterprise or other activity different from that carried on as of the date hereof;

(g)sell, pledge, lease, dispose of, grant any interest in, encumber or agree to sell, pledge, lease dispose of, grant any interest in or encumber any of its assets;

(h)redeem, purchase or offer to purchase any of its common shares or other securities;

(i)acquire, directly or indirectly, any assets, including but not limited to securities of other companies;

(j)incur or commit to incur any indebtedness for borrowed money or issue any debt securities; or

(k)approve, authorize or implement any change to the business, financial condition or management of Foremost or Subco.

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7.3Foremost Meeting

Foremost shall use its reasonable commercial efforts to cause all Foremost Shareholders to vote in favor of the Transactions and related matters, and not to take any action contrary to, or in opposition to the Transactions.

7.4Closing Conditions

Foremost shall use all commercially reasonable efforts to cause all of the conditions to the obligations of the Foremost Group under this Agreement to be satisfied on or prior to the Effective Date (to the extent the satisfaction of such conditions is within the control of Foremost).

7.5Filing Statement and Financial Statements

Foremost shall use all commercially reasonable efforts to prepare the Filing Statement as soon as practicable following execution of this Agreement and to file said Filing Statement with the TSX-V, and prepare as promptly as possible any other documents required by applicable legislation and/or regulation in connection with all shareholder and regulatory approvals required in respect of the Transactions and the other matters contemplated hereby.

7.6Subco

Foremost, as sole shareholder of Subco, shall execute and deliver a written consent resolution approving the Subco Amalgamation Resolution and the Amalgamation.

ARTICLE 8
OTHER COVENANTS OF THE PARTIES

8.1Consents and Notices

Promptly after the date hereof and, if necessary, for a reasonable time after the Effective Date:

(a)The Parties shall use all commercially reasonable efforts, and shall cooperate with each other to obtain, all consents, waivers, approvals, and authorizations which may be necessary to effect the Transactions including, without limitation, obtaining those consents, waivers, approvals, and authorizations described in Section 3 hereof and Section 5.2 hereof and shall provide copies of such documents to the other Party.

(b)Each of KWESST, Foremost and Subco will promptly execute and file, or join in the execution and filing of, any application or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Authority which may be reasonably required, or which any other Party may reasonably request in connection with the consummation of the Transactions contemplated by this Agreement and shall provide copies of such documents to the other Party.  Each of KWESST, Foremost and Subco will use all commercially reasonable efforts to obtain promptly all such authorizations, approvals and consents.

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8.2Filing Statement

(a)Foremost shall prepare and deliver a first draft of the Filing Statement and all related required disclosure (including financial statements) to KWESST as soon as practicable following the date of this Agreement, and the parties shall make commercially reasonable efforts to resolve all disclosure matters to finalize the Filing Statement and file the Filing Statement with the TSX-V as soon as practicable after the date of this Agreement.

(b)KWESST covenants that none of the information regarding KWESST to be supplied by KWESST that is required to be included or incorporated by reference in the Filing Statement will as of the date of such document contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.  If, at any time prior to the Effective Time, any event with respect to KWESST or its officers and directors shall occur that is required to be described in the Filing Statement, KWESST shall give prompt notice to Foremost of such event and shall prepare a supplement or amendment to the Filing Statement, if such supplement or amendment, as applicable, is required.

(c)Foremost covenants that none of the information regarding Foremost and Subco that will be included or incorporated by reference in the Filing Statement, will, as of the date of such document, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  If at any time prior to the Effective Time any event with respect to Foremost, its officers and directors or any of Foremost and Subco shall occur that is required to be described in the Filing Statement, Foremost shall give prompt notice to KWESST of such event and shall cooperate in the preparation of a supplement or amendment to the Filing Statement if such supplement or amendment, as applicable, is required.

8.3Public Statements

The Parties will advise each other, in advance, of any public statement which they propose to make in respect of the Transactions contemplated herein, provided that no Party shall be prevented from making any disclosure statement which is required to be made by law or any rule of stock exchange or similar organization to which it is bound.

8.4Non-Solicitation

(a)From and after the date hereof until the termination of this Agreement, none of KWESST nor any of its Representatives (other than to the extent required by law) shall, directly or indirectly, (i) solicit, encourage or conduct discussions with or engage in negotiations with any Person, other than Foremost, relating to the possible acquisition of KWESST (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, (ii) provide information with respect to KWESST to any Person, other than the Parties, relating to the possible acquisition of KWESST (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, (iii) enter into an agreement with any Person, other than the Parties, providing for the acquisition of such Party (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, or (iv) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of such Party (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets by any Person, other than by the Parties.  In addition to the foregoing, if KWESST or any of its Representatives receives any unsolicited offer or proposal to enter negotiations relating to any of the above, KWESST shall immediately notify Foremost thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be.  Notwithstanding the foregoing, this section does not restrict, limit or prohibit the KWESST Board from exercising its fiduciary duties under applicable law where in the good faith judgment of the KWESST Board, after consultation with outside legal counsel, failure to take such action would be inconsistent with the exercise of its fiduciary duties.

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(b)From and after the date hereof until the termination of this Agreement, none of Foremost or any of its Representatives (other than to the extent required by law) shall, directly or indirectly, (i) solicit, encourage or conduct discussions with or engage in negotiations with any Person, other than KWESST, relating to the possible acquisition of Foremost (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, (ii) provide information with respect to Foremost to any Person, other than the Parties, relating to the possible acquisition of Foremost (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, (iii) enter into an agreement with any Person, other than the Parties, providing for the acquisition of such Party (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets, or (iv) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of such Party (whether by way of merger, purchase of shares, purchase of assets or otherwise) or any material portion of its shares or assets by any Person, other than by the Parties.  In addition to the foregoing, if Foremost or any of its Representatives receives any unsolicited offer or proposal to enter negotiations relating to any of the above, Foremost shall immediately notify KWESST thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be.  Notwithstanding the foregoing, this section does not restrict, limit or prohibit the Foremost Board from exercising its fiduciary duties under applicable law where in the good faith judgment of the Foremost Board, after consultation with outside legal counsel, failure to take such action would be inconsistent with the exercise of its fiduciary duties.

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8.5Exemptions from Registration Requirements of U.S. Securities Laws

The Parties hereto intend for the issuances and exchanges of shares contemplated hereby to be exempt from the registration requirements of any applicable United States federal and state securities laws and, accordingly, each agrees to take such further commercially reasonable actions (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request with regards to ensuring the availability of and maintaining such exemptions.  The Foremost Shares to be issued to the KWESST Shareholders that are outside the United States will be issued in "offshore transactions" (as such term is defined in Regulation S under the U.S. Securities Act) in reliance on Regulation S under the U.S. Securities Act, and the Foremost Shares to be issued to the KWESST Shareholders that are in the United States will be issued to Accredited Investors in reliance on Rule 506(b) of Regulation D under the U.S. Securities Act.  Each KWESST Shareholder that is in the United States will be required to sign and deliver a certificate in the form attached hereto as Schedule "E" in order to make the necessary representations and warranties to confirm the availability of this exemption from registration under the U.S. Securities Act prior to receipt of the Foremost Shares.  Each KWESST Shareholder that does not sign and deliver such certificate will be deemed to be representing and warranting that such KWESST Shareholder is not in the United States.  The Foremost Shares to be issued to the KWESST Shareholders in the United States in connection with the Amalgamation will be "restricted securities" within the meaning of Rule 144(a)(3) under the U.S. Securities Act.  Each certificate representing such Foremost Shares issued to holders in the United States will bear a legend in substantially the form that follows:

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE U.S. SECURITIES ACT.  THE HOLDER HEREOF, BY ACQUIRING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER; (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) IN COMPLIANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT AND, IN THE CASE OF PARAGRAPH (C) OR (D), THE SELLER FURNISHES TO THE ISSUER AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO SUCH EFFECT."

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8.6Tax Deductions and Withholdings

Foremost and KWESST shall be entitled to deduct and withhold from any consideration otherwise payable pursuant to Transactions contemplated by this Agreement to KWESST Shareholders such amounts as are required to be deducted and withheld with respect to such payment under the ITA or any provision of provincial, state, local or foreign tax law, in each case as amended; to the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes hereof as having been paid to the KWESST Shareholders in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the appropriate taxing authority.

ARTICLE 9
CONDITIONS TO OBLIGATIONS OF FOREMOST

9.1Conditions Precedent to Completion of the Transactions

The obligation of Foremost and Subco to complete the Transactions is subject to the satisfaction of the following conditions on or prior to the Effective Date, each of which may be waived by Foremost and Subco:

(a)The representations and warranties of KWESST set forth in Article 4 qualified as to materiality shall be true and correct, and the representations and warranties not so qualified shall be true and correct in all material respects as of the date of this Agreement and on the Effective Date as if made on the Effective Date, except where any failure or breach of a representation or warranty would not, individually or in the aggregate, have a Material Adverse Effect on KWESST and Foremost shall have received a certificate signed on behalf of KWESST by an executive officer thereof to such effect dated as of the Effective Date;

(b)KWESST shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it prior to or on the Effective Date and Foremost shall have received a certificate signed on behalf of KWESST by an executive officer thereof to such effect dated as of the Effective Date;

(c)There shall not have occurred any Material Adverse Change in KWESST since the date of this Agreement;

(d)There shall not be any legal proceeding or regulatory actions or proceedings against KWESST at the Effective Date which may have a material adverse effect on KWESST, its business, assets, or financial condition;

(e)There shall not be an inquiry or investigation (whether formal or informal) in relation to KWESST or its respective directors or officers commenced or threatened by any securities commission or official of the TSX-V or regulatory body having jurisdiction such that the outcome of such inquiry or investigation could have a Material Adverse Effect on KWESST, its business, assets or financial condition;

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(f)If the KWESST Meeting is convened, not more than 5% of the KWESST Shareholders will have exercised rights of dissent in relation to the Amalgamation and KWESST will have provided to Foremost a certificate of an officer of KWESST certifying on the Effective Date the number of KWESST Shares in respect of which, to such officer's knowledge, the holders have exercised rights of dissent;

(g)All of the Principals (as defined in the policies of the TSX-V) of KWESST shall be acceptable to the TSX-V;

(h)On completion of the Transactions, each of the Persons as required by the TSX-V shall have entered into an escrow agreement upon the terms and conditions imposed pursuant to the policies of the TSX-V;

(i)Foremost shall have received from KWESST:  (i) a copy of the Constating Documents of KWESST, certified by a duly authorized officer of KWESST to be true and complete as of the Effective Date; and (ii) a certificate or the equivalent, dated not more than three days prior to the Effective Date, of the jurisdiction of incorporation of KWESST as to the corporate good standing thereof;

(j)There being no other issued and outstanding securities in the capital of KWESST other than as disclosed herein and in relation to the KWESST Financing;

(k)Foremost shall have received from KWESST a copy, certified by a duly authorized officer thereof to be true and complete as of the Effective Date, of the certified records of all corporate action taken to authorize the execution, delivery and performance of this Agreement and the Transactions contemplated hereby;

(l)KWESST shall have completed the KWESST Financing for sufficient minimum gross proceeds in order for Foremost to meet the listing requirements of the TSX-V following the completion of the Amalgamation; and

(m)KWESST shall have provided such other opinions, customary certificates, resolutions and other closing documents as may be required by Foremost, acting reasonably.

ARTICLE 10
CONDITIONS TO OBLIGATIONS OF KWESST

10.1Conditions Precedent to Completion of the Transactions

The obligation of KWESST to complete the Transactions is subject to the satisfaction of the following conditions on or prior to the Effective Date, each of which may be waived by KWESST:

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(a)The representations and warranties of Foremost and Amalco set forth in Article 5 qualified as to materiality shall be true and correct, and the representations and warranties not so qualified shall be true and correct in all material respects as of the date hereof and on the Effective Date as if made on the Effective Date, except where any failure or breach of a representation or warranty would not, individually or in the aggregate have a Material Adverse Effect on Foremost or Subco and KWESST shall have received certificates signed on behalf of Foremost and Subco, respectively, by an executive officer thereof to such effect dated as of the Effective Date;

(b)Foremost and Subco shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Foremost and Subco, respectively, prior to or on the Effective Date and KWESST shall have received certificates signed on behalf of Foremost and Subco, respectively, by an executive officer thereof to such effect dated as of the Effective Date;

(c)There shall not have occurred any Material Adverse Change in the Foremost Group since the date of this Agreement;

(d)There shall no be any legal proceeding or regulatory actions or proceedings against Foremost at the Effective Date which may have a material adverse effect on Foremost, its business, assets, or financial condition;

(e)There shall not be an inquiry or investigation (whether formal or informal) in relation to Foremost or its respective directors or officers commenced or threatened by any securities commission or official of the TSX-V or regulatory body having jurisdiction such that the outcome of such inquiry or investigation could have a Material Adverse Effect on Foremost, its business, assets or financial condition;

(f)The Post-Consolidation Foremost Shares exchanged for each KWESST Share in accordance with Section 2.1(vi) being issued as fully paid and non-assessable common shares in the capital of Foremost, free and clear of any and all encumbrances, liens, charges and demands of whatsoever nature;

(g)Foremost, as the sole shareholder of Subco, shall have approved in writing the Subco Amalgamation Resolution;

(h)Provided the Foremost Shareholders have approved the filing of the Articles of Amendment, Foremost shall have filed the Articles of Amendment in accordance with the BCBCA in respect of the name change of Foremost;

(i)Foremost shall have positive working capital as at the Effective Date (excluding costs incurred to complete the Transactions contemplated herein) of a minimum of $100,000;

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(j)Foremost shall not be in default of the requirements of the TSX-V and any securities regulatory authority and no order shall have been issued preventing the Qualifying Transaction or the trading of any securities of Foremost;

(k)All of the current directors and officers of Foremost and Subco shall have resigned without payment by or any liability to Foremost, KWESST, Subco or Amalco, and each such director and officer shall have executed and delivered a mutual release in favor of Foremost, Subco, KWESST and Amalco, in a form acceptable to Foremost and KWESST, each acting reasonably;

(l)There being no other issued and outstanding securities in the capital of Foremost other than as disclosed herein;

(m)KWESST shall have received:  (i) a copy of the Constating Documents of each of Foremost and Subco, certified by a duly authorized officer of Foremost and Subco, as the case may be, to be true and complete as of the Effective Date; and (ii) a certificate or the equivalent, dated not more than three days prior to the Effective Date, of the jurisdiction of incorporation of each of Foremost and Subco as to the corporate good standing thereof;

(n)KWESST shall have received from each of Foremost and Subco a copy, certified by a duly authorized officer thereof to be true and complete as of the Effective Date, of the records of all corporate action taken to authorize the execution, delivery and performance of this Agreement and the Transactions contemplated hereby; and

(o)KWESST shall have provided such other opinions, customary certificates, resolutions and other closing documents as may be required by Foremost, acting reasonably.

ARTICLE 11
MUTUAL CONDITIONS PRECEDENT

11.1Mutual Conditions Precedent

The obligations of the Foremost Group and KWESST to complete the Transactions are subject to the satisfaction of the following conditions on or prior to the Effective Date, each of which may be waived only with the consent in writing of Foremost, and KWESST:

(a)All consents, waivers, permits, exemptions, orders, consents and approvals required to permit the completion of the Transactions, the failure of which to obtain could reasonably be expected to have a Material Adverse Effect on KWESST or the Foremost Group or the completion of the Transactions, shall have been obtained;

(b)No temporary restraining order, preliminary injunction, permanent injunction or other order preventing the consummation of the Transactions shall have been issued by any federal, state, or provincial court (whether domestic or foreign) having jurisdiction and remain in effect;

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(c)The completion of the Transactions shall not be prohibited by any applicable Laws;

(d)The KWESST Shareholders shall have approved the KWESST Amalgamation Resolution at the KWESST Meeting;

(e)KWESST and Subco shall have filed Articles of Amalgamation in accordance with the OBCA in respect of the Amalgamation and the Amalgamation shall be effective;

(f)The Foremost Shareholders shall have approved the New Directors and the filing of the Articles of Amendment;

(g)Foremost shall have completed the Foremost Share Consolidation;

(h)The Post-Consolidation Foremost Shares to be issued pursuant to the Amalgamation shall have been conditionally approved for listing on the TSX-V, subject to customary conditions;

(i)Foremost shall have received conditional approval of the Amalgamation as Foremost's "Qualifying Transaction" by the TSX-V, together with any other approvals of the TSX-V necessary to complete the transactions contemplated in this Agreement;

(j)On the Effective Date, no cease trade order or similar order relating to the Foremost Shares, the KWESST Shares or the Amalco Shares shall be in effect;

(k)There shall not be pending or threatened any suit, action or proceeding before any court or Governmental Authority, agency or tribunal, domestic or foreign, that has a significant likelihood of success, seeking to restrain or prohibit the consummation of the Transactions or any of the other transactions contemplated by this Agreement or seeking to obtain from Foremost, Subco or KWESST any damages that are material in relation to Foremost, Subco and KWESST;

(l)The distribution of the Foremost Shares pursuant to the Amalgamation shall be exempt from the prospectus and registration requirements of applicable Canadian Securities Law either by virtue of exemptive relief from the securities regulatory authorities of each of the provinces of Canada or by virtue of applicable exemptions under Canadian Securities Laws and shall not be subject to resale restrictions under applicable Canadian Securities Laws (other than as applicable to control persons) or pursuant to section 2.6 of National Instrument 45-102 - Resale of Securities of the Canadian Securities Administrators);

(m)This Agreement shall not have been terminated in accordance with its terms; and

(n)Each of the Parties shall be satisfied that the exchange of KWESST Shares for Foremost Shares shall be qualified or exempt from registration or qualification under all applicable United States federal and state securities laws.

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ARTICLE 12
CLOSING

12.1Effective Date

The Amalgamation shall be completed on the Effective Date and shall be effective at the Effective Time.

12.2Closing

The closing of the Transactions shall take place on the Effective Date or on such other date as KWESST and Foremost may agree.  Unless this Agreement is terminated pursuant to the provisions hereof, at closing, KWESST and Foremost shall deliver to the other Party, as the case may be:

(a)the documents required or contemplated to be delivered by it hereunder in order to complete, or necessary or reasonably requested to be delivered by it by the other Party in order to effect, the Transactions, provided that each such document required to be dated the Effective Date shall be dated as of, or become effective on, the Effective Date and shall be held in escrow to be released upon the Amalgamation becoming effective; and

(b)written confirmation as to the satisfaction or waiver of all the conditions in its favour contained herein.

12.3Termination of this Agreement

This Agreement may be terminated at any time prior to the Effective Time:

(a)by mutual written consent of Foremost and KWESST;

(b)by a Party if a condition in its favour or a mutual condition is not satisfied by the Termination Date except where such failure is the result of a breach of this Agreement by such Party;

(c)by Foremost or KWESST if there has been a breach of any of the material representations, warranties, covenants and agreements on the part of the other Party (the "Breaching Party") set forth in this Agreement, which breach has or will result in the failure of the conditions set forth in Section 9.1, 10.1 or 11.1, as the case may, to be satisfied and in each case has not been cured within ten (10) Business Days following receipt by the Breaching Party of written notice of such breach from the non-breaching Party (the "Non-Breaching Party");

(d)by any Party if any permanent order, decree, ruling or other action of a court or other competent authority restraining, enjoining or otherwise preventing the consummation of the Transactions shall have become final and non-appealable;

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(e)by Foremost or KWESST if the Amalgamation is not completed by the Termination Date provided that the Party then seeking to terminate this Agreement is not then in default of any of its material obligations hereunder; and

(f)by Foremost or KWESST if the other Party has breached the provisions of Section 8.4 hereof in any material manner.

12.4Survival of Representations and Warranties; Limitation

No investigation by or on behalf of any party prior to the execution of this Agreement will mitigate, diminish or affect the representations and warranties made by the other parties.  The representations and warranties set forth in herein shall expire and be terminated on the earlier of the Effective Date or the termination of this Agreement.  This Section 12.4 will not limit any covenant or agreement of any of the parties, which, by its terms, contemplates performance after the Effective Time or the date on which this Agreement is terminated, as the case may be.

ARTICLE 13
MISCELLANEOUS

13.1Further Actions

From time to time, as and when requested by any Party, the other Parties shall execute and deliver, and use all commercially reasonable efforts to cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably requested in order to:

(a)carry out the intent and purposes of this Agreement;

(b)effect the Amalgamation; and

(c)consummate and give effect to the other Transactions, covenants and agreements contemplated by this Agreement.

13.2Expenses

Each of the Parties shall be responsible for its own costs and charges incurred with respect to the Transactions contemplated herein including, without limitation, all legal and accounting fees and disbursements relating to preparing this Agreement or otherwise relating to the Transactions contemplated herein.

13.3Entire Agreement

This Agreement, which includes the Schedules hereto and the other documents, agreements, and instruments executed and delivered pursuant to or in connection with this Agreement, contains the entire Agreement between the Parties with respect to matters dealt within herein and, except as expressly provided herein, supersedes all prior arrangements or understandings with respect thereto, including the Letter of Intent.

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13.4Descriptive Headings

The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement.

13.5Notices

A notice or other communication to a party under this Agreement is valid if (a) it is in writing, and (b) it is delivered by hand, by registered mail, or by any courier service that provides proof of delivery, or (c) it is sent by electronic mail, and (d) it is addressed using the information for that Party set out below (or any other information specified by that Party in accordance with this Section 13.5):

(a)If to Foremost:

Foremost Ventures Corp.
Suite 1510, 789 West Pender Street
Vancouver, British Columbia
V6C 1H2

Attention:  John Thompson

email:  jthompson@union-securities.com

(b)If to KWESST:

KWESST Inc.
260 Terence Matthews Crescent, Suite 100,
Kanata, Ontario
K2M 2C7

Attention:  Jeff MacLeod

email:macleod@kwesst.com

or to such addresses as each Party may from time to time specify by notice.

Any notice will be deemed to have been given and received:

(a)if personally delivered, then on the day of personal service to the recipient party, provided that if such date is a day other than a Business Day such notice will be deemed to have been given and received on the first Business Day following the date of personal service;

(b)if by pre-paid registered mail, then the first Business Day, after the expiration of five (5) days following the date of mailing; or

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(c)if sent by e-mail and successfully transmitted prior to 4:30 pm on a Business Day where the recipient is located, then on that Business Day, and if transmitted after 4:30 pm on a Business Day where the recipient is located or on the day that is not a Business Day where the recipient is located, then on the first Business Day following the date of transmission.

13.6Governing Law

This Agreement shall be governed by and construed in accordance with the Laws of the Province of Ontario and the federal laws of Canada applicable therein, and the Parties hereby further irrevocably attorn to the jurisdiction of the Courts of the Province of Ontario in respect of any matter arising hereunder or in connection with the Transactions contemplated in this Agreement.

13.7Enurement and Assignability

This Agreement shall be binding upon and shall enure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns, provided that this Agreement shall not be assignable otherwise than by operation of law by either Party without the prior written consent of the other Parties, and any purported assignment by any Party without the prior written consent of the other Party shall be void.

13.8Confidentiality

The information provided by each of Foremost, Subco and KWESST, in any form whether written, electronic or verbal, as to its financial condition, business, properties, title, assets and affairs (including any material contracts) as may reasonably be requested by the other party will be kept confidential by each party (the "Confidential Information"), other than information that:

(a)has become generally available to the public;

(b)was available to a Party or its Representatives on a non-confidential basis before the date of this Agreement; or

(c)has become available to a Party or its Representatives on a non-confidential basis from a person who is not, otherwise bound by confidentiality obligations to the provider of such information or otherwise prohibited from transmitting the information to the party or its Representatives.

Confidential Information of a Party may be released or disclosed by the other Party to a third party with the prior written consent of the disclosing Party, which consent shall not be unreasonably withheld, except to the extent that such disclosure may be necessary for observance of all applicable Laws or stock exchange requirements or for accomplishment of the purposes of this Agreement.  A copy of all information disclosed by a Party (whether or not requiring permission pursuant to this section) shall be given forthwith to the other Parties.

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13.9Waivers and Amendments

Any waiver of any term or condition of this Agreement, or any amendment or supplementation of this Agreement, shall be effective only if in writing.  A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit, or waive a Party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Agreement.

13.10Severability

If any provision of this Agreement is or becomes illegal, invalid or unenforceable, in whole or in part, the remaining provisions will nevertheless be and remain valid and subsisting and the said remaining provisions will be construed as if this Agreement had been executed without the illegal, invalid or unenforceable provision.

13.11Currency

Except as otherwise set forth herein, all references to amounts of money in this Agreement are to Canadian Dollars.

13.12Counterparts

This Agreement may be signed in counterparts, each of which will be deemed to be an original and together will be deemed to constitute the same instrument.  This Agreement may be signed and delivered manually or electronically.

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IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the day and year first above written.

FOREMOST VENTURES CORP.

By:
	"John Thompson"
	John Thompson, Chief Executive Officer

KWESST INC.

By:
	"Jeff MacLeod"
	Jeff MacLeod, President
2751530 ONTARIO INC.
	"Frank Stronach"
	Frank Stronach
	Authorized Signatory

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SCHEDULE "A '
ARTICLES OF AMALGAMATION

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SCHEDULE "B"
ARTICLES OF AMENDMENT

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SCHEDULE "C"
KWESST DISCLOSURE SCHEDULES

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SCHEDULE "D"
KWESST OPTIONS AND WARRANTS

KWESST Options
Options #	Expiry	Strike Price
925,000	February 28, 2025	$0.65
EXISTING KWESST 2022 Warrants
Shareholder Warrants #	Expiry	Strike Price
15,000	January 30, 2022	$0.40
EXISTING KWESST 2024 Warrants
Shareholder Warrants #	Expiry	Strike Price
8,500,000	June 14, 2024	$0.20

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SCHEDULE "E"
FOREMOST OPTIONS

Optionee	Number of Foremost Shares Reserved	Exercise Price	Expiry Date
Azim Dhalla	100,000	$0.10	June 15, 2023
Frank Stronach	100,000	$0.10	June 15, 2023
John McCoach	100,000	$0.10	June 15, 2023
John Thompson	100,000	$0.10	June 15, 2023

FOREMOST AGENT'S WARRANTS

Warrantholder	Number of Foremost Shares Reserved	Exercise Price	Expiry Date
National Bank ITF Chippingham Financial Group	200,000	$0.10	June 15, 2020
Leslie Frame	98,000	$0.10	June 15, 2020
Errol Wong	98,000	$0.10	June 15, 2020
PI Financial Corp.	4,000	$0.10	June 15, 2020

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SCHEDULE "F"
CERTIFICATE OF A U.S. KWESST SHAREHOLDER

TO:Foremost Ventures Corp.

AND TO:KWESST Inc.

Pursuant to an Amalgamation Agreement (the "Agreement") among Foremost Ventures Corp. (the "Issuer"), 2751530 Ontario Ltd. ("Subco"), and KWESST Inc. ("KWESST"), the shareholders of KWESST (the "Shareholders") will exchange their outstanding common shares of KWESST ("KWESST Shares") for common shares of the Issuer (the "Issuer Shares") on the basis of one Issuer Shares for each KWESST Share held, and Subco will amalgamate with KWESST (the "Transaction").  In connection with the Transaction, the name of the Issuer will be changed to "KWESST Inc." or another name acceptable to KWESST.

The representations, warranties and covenants in this Certificate will form the basis for the exemptions from the registration requirements of the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), and applicable state securities laws, for the issuance of the Issuer Shares to Shareholders in exchange for their KWESST Shares upon completion of the Transaction (the "Exchange").

In connection with the Transaction and the Exchange, the undersigned (the "KWESST Shareholder"), on his/her/its own behalf and on behalf of any beneficial holder for whom he/she/it is acting, represents and warrants to, and covenants with, the Issuer and KWESST that:

1.The KWESST Shareholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Issuer Shares and is able to bear the economic risk of loss of its entire investment.

2.The KWESST Shareholder has had the opportunity to ask questions and receive answers concerning the terms and conditions of the Exchange, and the KWESST Shareholder has had access to such information concerning the Issuer, including its public reports available on the Internet at www.sedar.com, as the KWESST Shareholder has considered necessary or appropriate in connection with its investment decision to acquire the Issuer Shares.

3.The KWESST Shareholder understands that none of the Issuer Shares have been or will be registered under the U.S. Securities Act, or the securities laws of any state of the United States, and that the issuance of the Issuer Shares in exchange for the KWESST Shares is being made only to "accredited investors", as defined in Rule 501(a) of Regulation D under the U.S. Securities Act ("Accredited Investors"), in reliance on the exemption from such registration requirements provided by Rule 506(b) of Regulation D under the U.S. Securities Act.

4.The KWESST Shareholder is an Accredited Investor and is acquiring the Issuer Shares for his/her/its own account, or for the account of another Accredited Investor as to which the undersigned exercises sole investment discretion, for investment purposes only and not with a view to any resale, distribution or other disposition of the Issuer Shares in violation of the United States federal or state securities laws.

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5.If the KWESST Shareholder is an individual (that is, a natural person and not a corporation, partnership, trust or other entity), then the KWESST Shareholder (and any beneficial holder on whose behalf he/she is acting) satisfies one or more of the categories of Accredited Investor indicated below (please place an "S" on the appropriate line(s) below that applies to the undersigned KWESST Shareholder and a "BH" on the appropriate line(s) below that applies to the beneficial holder (if any)):

__________

A natural person whose individual "net worth", or joint "net worth" with that person's spouse, at the date of this Certificate exceeds US $1,000,000; For purposes of calculating "net worth" under this paragraph: (i)The person's primary residence shall not be included as an asset; (ii)Indebtedness that is secured by the person's primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of the sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and (iii)Indebtedness that is secured by the person's primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability.

__________

A natural person who had an individual income in excess of US $200,000 in each of the two most recent years or joint income with that person's spouse in excess of US $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.

6.If the KWESST Shareholder is a corporation, partnership, trust or other entity, then it (and any beneficial KWESST Shareholder on whose behalf it is acting) satisfies one or more of the categories of Accredited Investor indicated below (please place an "S" on the appropriate line(s) below that applies to the undersigned KWESST Shareholder and a "BH" on the appropriate line(s) below that applies to the beneficial holder (if any)):

__________ A bank as defined in section 3(a)(2) of the U.S. Securities Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the U.S. Securities Act whether acting in its individual or fiduciary capacity;

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__________	A broker or dealer registered pursuant to section 15 of the United States Securities Exchange Act of 1934, as amended;
__________	An insurance company as defined in section 2(a)(13) of the U.S. Securities Act;
__________	An investment company registered under the United States Investment Company Act of 1940, as amended, or a business development company as defined in Section 2(a)(48) of that Act;
__________	A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the United States Small Business Investment Act of 1958, as amended;
__________	A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of US $5,000,000;
__________	An employee benefit plan within the meaning of the United States Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of US $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
__________	An organization described in Section 501(c)(3) of the United States Internal Revenue Code of 1986, as amended (the "Code"), a corporation, a Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Issuer Shares, with total assets in excess of US $5,000,000;
__________	A trust that (a) has total assets in excess of US $5,000,000, (b) was not formed for the specific purpose of acquiring the Shares, and (c) whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he/she is capable of evaluating the merits and risks of an investment in the Issuer Shares;
__________	A private business development company as defined in Section 202(a)(22) of the United States Investment Representatives Act of 1940, as amended; or
__________	An entity in which all of the equity owners satisfy the requirements of one or more of the foregoing categories set forth in paragraph 5 of this Certificate and/or this paragraph 6.

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7.The KWESST Shareholder is not acquiring the Issuer Shares as a result of any form of "general solicitation or general advertising" (as such terms are used in Regulation D under the U.S. Securities Act), including, without limitation, advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or on the Internet, or broadcast over radio, television or the Internet, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising.

8.The KWESST Shareholder agrees that if the KWESST Shareholder decides to offer, sell, pledge or otherwise transfer any of the Issuer Shares, the KWESST Shareholder will not offer, sell, pledge or otherwise transfer any of such Issuer Shares, directly or indirectly, unless the transfer is made:

(a)to the Issuer;

(b)outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations;

(c)pursuant to the exemption from the registration requirements of the U.S. Securities Act provided by Rule 144 thereunder, if available, and in accordance with any applicable state securities laws; or

(d)in a transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws; and

the KWESST Shareholder has prior to such transfer pursuant to subsection (c) or (d) furnished to the Issuer an opinion of counsel of recognized standing in form and substance reasonably satisfactory to the Issuer to such effect.

9.The certificates representing the Issuer Shares, and any certificates issued in exchange or substitution for such securities, will bear a legend in substantially the following form:

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE U.S. SECURITIES ACT.  THE HOLDER HEREOF, BY ACQUIRING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER; (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) IN COMPLIANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS; (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT AND, IN THE CASE OF PARAGRAPH (C) OR (D), THE SELLER FURNISHES TO THE ISSUER AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO SUCH EFFECT.  DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA."

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If the Issuer Shares are being sold in compliance with the requirements of Rule 904 of Regulation S under the U.S. Securities Act and in compliance with Canadian local laws and regulations, the legend may be removed by providing a declaration to the Issuer and its transfer agent substantially in the form set forth in Exhibit I hereto (or as the Issuer may prescribe from time to time), and, if requested by the Issuer's transfer agent, an opinion of counsel of recognized standing, in form and substance reasonably satisfactory to the Issuer, to the effect that the transfer is being made in compliance with Rule 904 of Regulation S under the U.S. Securities Act.

If any of the Issuer Shares are being sold pursuant to Rule 144 under the U.S. Securities Act, if available, the legend may be removed by delivery to the Issuer and its transfer agent of an opinion of counsel of recognized standing, in form and substance reasonably satisfactory to the Issuer, to the effect that the legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws.

10.The KWESST Shareholder consents to the Issuer making a notation on its records or giving instructions to its transfer agent in order to implement the restrictions on transfer set forth and described in this Certificate.

11.The KWESST Shareholder understands and agrees that there may be material tax consequences to the KWESST Shareholder of the acquisition, holding, exercise or disposition of the Issuer Shares, and that the KWESST Shareholder is the sole responsibility of the KWESST Shareholder to determine and assess such tax consequences as may apply to its particular circumstances.  The Issuer does not give any opinion or make any representation with respect to the tax consequences to the KWESST Shareholder under United States, state, local or foreign tax law of the undersigned's acquisition, holding, exercise or disposition of such Issuer Shares; in particular, no determination has been made whether the Issuer will be a "passive foreign investment company" within the meaning of Section 1297 of the Code.

12.The KWESST Shareholder understands that the financial statements of the Issuer have been prepared in accordance with International Financial Reporting Standards, which differ in some respects from United States generally accepted accounting principles, and thus may not be comparable to financial statements of United States companies.

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13.The KWESST Shareholder is in the United States.  The address at which the KWESST Shareholder received and accepted the offer to acquire the Issuer Shares is the address listed on the execution page of this Certificate.

14.The KWESST Shareholder understands that the Issuer Shares are "restricted securities", as defined in Rule 144(a)(3) under the U.S. Securities Act, and that the KWESST Shareholder may dispose of the Issuer Shares only pursuant to an effective registration statement under the U.S. Securities Act or an exemption from the registration requirements of the U.S. Securities Act.  The KWESST Shareholder understands and acknowledges that the Issuer is not obligated to file and has no present intention of filing with the United States Securities and Exchange Commission or with any state securities administrator any registration statement in respect of resales of the Issuer Shares in the United States.  Accordingly, the KWESST Shareholder understands that absent registration under the U.S. Securities Act or an exemption therefrom, the KWESST Shareholder may be required to hold the Issuer Shares indefinitely.

15.The KWESST Shareholder understands that (i) if the Issuer is deemed to be an issuer that is, or that has been at any time previously, an issuer with no or nominal operations and no or nominal assets other than cash and cash equivalents (a "Shell Company"), Rule 144 under the U.S. Securities Act may not be available for resales of the Issuer Shares, and (ii) the Issuer is not obligated to make Rule 144 under the U.S. Securities Act available for resales of the Issuer Shares.  Because the Issuer is considered to have been a "capital pool company" prior to the Transaction, the Issuer would be considered to have been a Shell Company, and consequently, Rule 144 under the U.S. Securities Act is not available for resales of the Issuer Shares unless and until the Issuer has satisfied the applicable conditions set forth in Rule 144 under the U.S. Securities Act or in other guidance issued by the United States Securities and Exchange Commission.  As a result, Rule 144 under the U.S. Securities Act may never be available for resales of the Issuer Shares.

16.The KWESST Shareholder understands that the Issuer is incorporated under the laws of the Province of Ontario, that substantially all of the Issuer's assets are located outside the United States and that most or all of its directors and officers are residents of countries other than the United States, and, as a result, it may be difficult for the KWESST Shareholder to effect service of process within the United States upon the Issuer or its directors or officers, or to realize in the United States upon judgments of courts of the United States predicated upon civil liability of the Issuer and its directors and officers under the U.S. federal securities laws.

17.The KWESST Shareholder understands that no agency, governmental authority, regulatory body, stock exchange or other entity (including, without limitation, the United States Securities and Exchange Commission or any state securities commission) has made any finding or determination as to the merit of investment in, nor have any such agencies or governmental authorities made any recommendation or endorsement with respect, to the Issuer Shares.

18.If required by applicable securities legislation, regulatory policy or order or by any securities commission, stock exchange or other regulatory authority, the KWESST Shareholder will execute, deliver and file and otherwise assist the Issuer in filing reports, questionnaires, undertakings and other documents with respect to the issue of the Issuer Shares.

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19.The KWESST Shareholder understands and acknowledges that the KWESST Shareholder is making the representations and warranties and agreements contained herein with the intent that they may be relied upon by the Issuer and KWESST in determining its eligibility to acquire the Issuer Shares in exchange for the KWESST Shares upon completion of the Transaction.  The KWESST Shareholder understands that the representations, warranties and covenants made by the KWESST Shareholder in this Certificate will form the basis of the exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws for the issuance of the Issuer Shares in exchange for the KWESST Shares following completion of the Transaction.

"United States" means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.

The statements made in this Certificate are true and accurate to the best of my information and belief and I will promptly notify the Issuer and KWESST of any changes in any representation, warranty, agreement or other information relating to the undersigned set forth herein which takes place prior to the acquisition of the Issuer Shares.

In order to receive their Issuer Shares, each KWESST Shareholder that is in the United States must complete and sign this Certificate.

Capitalized terms used in this Schedule "F" and not defined herein have the meaning ascribed thereto in the Amalgamation Agreement to which this Schedule is annexed.

Dated ______________________________, 20

Signature of individual (if KWESST Shareholder is an individual)

Authorized signatory (if KWESST Shareholder is not an individual)

Name of KWESST Shareholder (please print)

Name of authorized signatory (please print)

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EXHIBIT I TO SCHEDULE F
DECLARATION FOR REMOVAL OF LEGEND

TO:TSX Trust Company, as registrar and transfer agent for the common shares of Foremost Ventures Corp. (to be renamed KWESST Inc.)

AND TO:  Foremost Ventures Corp. (to be renamed KWESST Inc.) (the "Issuer")

The undersigned (A) acknowledges that the sale of the common shares of the Issuer represented by certificate number _______________, to which this declaration relates, is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), and (B) certifies that (1) the undersigned is not an "affiliate" (as that term is defined in Rule 405 under the U.S. Securities Act) of the Issuer; (2) the offer of such securities was not made to a person in the United States and either (a) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believed that the buyer was outside the United States, or (b) the transaction was executed on or through the facilities of the TSX Venture Exchange or another designated offshore securities market (as such term is defined in Regulation S under the U.S. Securities Act) and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (3) neither the seller nor any affiliate of the seller nor any person acting on their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities; (4) the sale is bona fide and not for the purpose of "washing off" the resale restrictions imposed because the securities are "restricted securities" (as that term is defined in Rule 144(a)(3) under the U.S. Securities Act); (5) the seller does not intend to replace such securities with fungible unrestricted securities; and (6) the contemplated sale is not a transaction, or part of a series of transactions, which, although in technical compliance with Regulation S under the U.S. Securities Act, is part of a plan or scheme to evade the registration provisions of the U.S. Securities Act.  Terms used herein have the meanings given to them by Regulation S under the U.S. Securities Act.

Dated:  ____________________________, 20__

Signature of individual (if KWESST Shareholder is an individual)

Authorized signatory (if KWESST Shareholder is not an individual)

Name of KWESST Shareholder (please print)

Name of authorized signatory (please print)

EX-10.2

TECHNOLOGY PURCHASE AGREEMENT

This TECHNOLOGY PURCHASE AGREEMENT ("Agreement") is entered into on January 15, 2021 ("Effective Date") by and between KWESST Micro Systems Inc., having an office at Unit 1, 155 Terence Matthews Crescent, Kanata, ON, K2M 2A8 ("Purchaser"), and DEFSEC Corporation, having an office at 1100 - 343 Preston St., Ottawa, Ontario, K1S 1N4 (the "Seller").  Seller and Purchaser shall be designated collectively as the "Parties".

The Parties hereby agree as follows.

1.Background

1.1WHEREAS the Seller is the legal and beneficial owner of the Low Energy Cartridge (LEC) Technology (as defined in Section 2.8), which is protected under certain trade secrets, potential patent applications and other associated Intellectual Property (as defined in Section 2.11), and desires to sell the Low Energy Cartridge (LEC) Technology to the Purchaser (the "Acquisition").

1.2WHEREAS the Seller and a wholly-owned subsidiary of the Purchaser, KWESST Inc., entered into a "Binding Letter Agreement to Enter into a Technology Acquisition Agreement" on June 6, 2020, as amended by the parties (the "LOI") pursuant to which the Seller agreed to sell the Low Energy Cartridge (LEC) Technology pursuant to the terms thereof.

1.3WHEREAS the Purchaser completed a qualifying transaction on September 17, 2020, pursuant to which it acquired all of the issued and outstanding common shares of KWESST Inc. (the "Listing").

1.4WHEREAS KWESST Inc. has agreed to assign its obligations under the LOI to the Purchaser, which assignment was accepted and consented to by the Seller as of the date hereof.

1.5WHEREAS the Seller wishes to sell its right, title and interest in the Low Energy Cartridge (LEC) Technology and the associated Intellectual Property.

1.6WHEREAS the Purchaser wishes to purchase the Low Energy Cartridge (LEC) Technology and the associated Intellectual Property, as well as to obtain services in order to ensure the complete transfer of all data, technical specifications, research material, know-how and other tangible and intangible aspects relating to the Low Energy Cartridge (LEC) Technology so as to allow Purchaser to commercially exploit the Low Energy Cartridge (LEC) Technology.

1.7WHEREAS the Seller and the Purchaser intend that subsection 85(1) of the Income Tax Act (Canada) (the "Tax Act") and the corresponding provisions of any applicable provincial income tax legislation shall apply to the transfer of the Low Energy Cartridge (LEC) Technology, the whole as set out herein;

1.8WHEREAS the Seller and the Purchaser intend, to the extent permitted, that section 167 of the Excise Tax Act (Canada) and the corresponding provisions of any applicable provincial sales tax legislation shall apply to the transfer of the Low Energy Cartridge (LEC) Technology, the whole as set out herein;

2.Definitions

2.1"Affiliates" has the meaning ascribed to such term in the Canada Business Corporations Act.

2.2"Assignment Agreements" means the written agreements assigning rights, titles and interest in or to the Low Energy Cartridge (LEC) Technology from Mr. David Luxton, any other contributors to the Low Energy Cartridge (LEC) Technology and/or prior owners thereof to Seller, substantially in the form attached as Schedule B.

2.3"Claims" means any demand, action or cause of action, governmental or otherwise.

2.4"Confidential Information" means any non-public information in any form and however transmitted, whether orally, visually, in writing, or by electronic communication, that would be reasonably perceived in good faith to be confidential or proprietary, including without limitation:

(a)technological disclosures, business operations, current or future hardware and software deployment and designs, data, algorithms, designs, technology, source code for any proprietary or custom-developed software; IT security measures or business continuity measures, trade secrets and confidential know-how, formulas, methods and processes, specifications, databases, pricing strategies, customer lists, proposals, contracts, technical and/or financial information;

(b)all information, documents or other material with respect to the Low Energy Cartridge (LEC) Technology;

(c)all information, documents or other material with respect to Intellectual Property in the Low Energy Cartridge (LEC) Technology;

(d)any information that is identified as "confidential";

(e)the provisions of this Agreement.

2.5"Consideration Shares" means the 1,000,000 common shares of the Purchaser to be is- sued at a deemed price of forty-five cents ($0.45) per common share of the Purchaser.

2.6"Documents" has the meaning ascribed to such term in Section 3.1.

2.7"Exchange" means the TSX Venture Exchange;

2.8"Exchange Acceptance" means receipt by the Purchaser of acceptance of the Exchange to the transactions contemplated hereby, including the issuance of the Consideration Shares and Warrants;

2.9"Low Energy Cartridge (LEC) Documentation" has the meaning ascribed to such term in Section 3.1.

2.10"Low Energy Cartridge (LEC) Technology" means the technology designated as "Low Energy Cartridge (LEC)" summarily described in Schedule A, all Intellectual Property in or relating to such technology (including without limitation any trademark rights to the name "Low Energy Cartridge (LEC)"), all source code or other source material, drawings, prototypes, data, algorithms, marketing materials, and documentation used to test, develop, manufacture, source parts for, operate and otherwise use such technology, which is being acknowledged to include the combination of commercially available off-the-shelf third party components or technologies marketed by parties acting at arm's length of the Seller.

2.11"Intellectual Property" means any domestic or foreign intellectual property rights of any nature including but not limited to:  (i) issued patents, patent applications and reissues, divisions, continuations, renewals, extensions and continuations in part of issued patents or patent applications; (ii) proprietary and non-public business information, including inventions (whether patentable or not), invention disclosures, improvements, discoveries, trade secrets, formulae, recipes, product specifications, confidential information, know how, methods, algorithms, processes, designs, technology, technical data, schematics, formulae and customer lists, and documentation relating to any of the foregoing; (iii) copyright, registered copyright and applications for copyright registration; (iv) registered industrial designs or applications for industrial designs, de- signs, design registrations, design registration applications and integrated circuit topographies;(v) mask works, mask work registrations and applications for mask work registrations; (vi) registered trademarks, trademark applications, service marks, service mark applications, unregistered trademarks, unregistered service marks, logos, slogans, domain names, social media identifiers, brand names, and the good-will associated therewith; and (vii) rights in software and databases.

2.12"Loss" means any damage, loss, cost, liability, expense or requirements, governmental or otherwise, including the reasonable cost of legal representation in respect thereof and any interest or penalty arising in connection therewith.

2.13"Order" means any order (including any judicial or administrative order and the terms of any administrative consent), judgement, injunction, decree, ruling or award of any arbitrator or Governmental Entity;

2.14"Prime Rate" means the rate of interest expressed as a rate per annum that the Bank of Montreal establishes at its head office in Montreal as the reference rate of interest that it shall charge on that day for Canadian dollar demand loans to its customers in Canada and which it at present refers to as its prime rate.

2.15"Securities Laws" means the Securities Act (Ontario), the U.S. Securities Act and any such other securities Laws applicable to the Purchaser, including all rules and regulations under such Laws, together with applicable published policy statements, instruments, notices and Orders of all applicable securities regulatory authorities.

3.Delivery and Payment

3.1Delivery.  Seller shall deliver on the date of execution of this Agreement (i) all source code or other source material, drawings, specifications, bills of materials, technical diagrams, part lists, assembly diagrams, supplier information, data, algorithms, marketing materials, and all other data and documentation forming part of the Low Energy Cartridge (LEC) Technology in a fully exploitable format (the "Low Energy Cartridge (LEC) Documentation"), (ii) the Assignment Agreements in the form set out in Schedule, and (iii) any documents describing know- how or trade secrets, (hereinafter collectively designated the "Documents").  Such delivery shall be complete and sufficient to evidence Seller's clear chain of title to the Low Energy Cartridge (LEC) Technology.

3.2Purchase Price.  Further to receipt of the Documents, Purchaser shall pay to Seller the Purchase Price (as defined below) set out in section 3.3 below.  For greater certainty, payments described below in section 3.5 below shall not be considered as part of the Purchase Price.

3.3Payment of the Purchase Price.  Subject to compliance with the terms of this Agreement, the Purchase Price shall be the issuance of the Consideration Shares and the Warrants (as defined herein).  The parties acknowledge and agree that the Consideration Shares and the Warrants shall be issued by the Purchaser in consideration for the Low Energy Cartridge (LEC) Technology and that the Consideration Shares and Warrants have a fair market value of and are, in all circumstances of the transaction, the fair equivalent of a consideration payable in cash equal to the fair market value of the Low Energy Cartridge (LEC) Technology.

3.4Warrants.  On the Effective Date, the Purchaser shall issue to the Seller five hundred thousand (500,000) common share purchase warrants of the Purchaser (the "Warrants") with each Warrant being exercisable at a price of seventy cents ($0.70) per common share the Purchaser for a period of sixty (60) months following the Effective Date.  The Warrants shall vest as to 125,000 Warrants on each of January 15, 2022, January 15, 2023, January 15, 2024, January 15, 2025.

3.5Royalties and Royalty Rate.  In addition to the Purchase Price and subject to compliance with the terms of this Agreement, Purchaser shall pay Seller royalties at a rate of seven percent (7%), on (i) amounts received in consideration of the grant of licenses of the Low Energy Cartridge (LEC) Technology to third parties, net of taxes; and (ii) sales by Purchaser of products incorporating the Low Energy Cartridge (LEC) Technology, net of taxes (including, for clarity purposes, amounts withheld pursuant to applicable tax laws), duties, customs brokerage fees, shipping and handling costs, customer credits, discounts and returns (the "Royalties"), for a period of eleven (11) years following the Effective Date.  The obligation to pay Royalties shall terminate automatically once Purchaser has paid Seller a total of ten million dollars ($10,000,000) (the "Maximum Royalty Payment").

3.6Payment of Royalties.  The Royalties set out in section 3.5, shall be paid as follows:

(a)On the Effective Date, an amount of one hundred and fifty thousand dollars ($150,000) shall be payable to the Seller as an advance on Royalties, which advance corresponds to Royalties owed until the first anniversary of the Effective Date;

(b)Starting on the second anniversary of the Effective Date, for each year until the Maximum Royalty Payment has been paid, the royalties owed will be the greater of the (i) Royalties, or (ii) the minimum annual royalty, which shall be as follows:

(1)second anniversary of the Effective Date:  $150,000;

(2)third anniversary of the Effective Date:  $150,000;

(3)fourth anniversary of the Effective Date:  $200,000;

(4)fifth anniversary of the Effective Date:  $200,000;

(5)sixth anniversary of the Effective Date:  $250,000;

(6)seventh anniversary of the Effective Date:  $250,000;

(7)eighth anniversary of the Effective Date:  $300,000;

(8)ninth anniversary of the Effective Date:  $300,000;

(9)tenth anniversary of the Effective Date:  $350,000; and

(10)eleventh anniversary of the Effective Date:  $350,000; (collectively the "Minimum Annual Royalties")

on a semi-annually basis no later forty-five (45) days after the end of the said period and shall be accompanied by a report detailing the amounts that are the subject of royalty payments in their original currency, any currency conversions, any amounts deducted on account of customer cred- its, discounts and returns.  No further reporting shall be made once the Maximum Royalty Payment has been made to Seller.

3.7Royalty Buy-Out.  The Purchaser shall have the right at any time to extinguish the Royal- ties, by paying to the Seller and amount equal to the Maximum Royalty Payment less all Royal- ties and Minimum Annual Royalties already paid.

3.8Indemnification for Taxes.  Seller shall indemnify and hold Purchaser harmless from and against any taxes and any penalty or interest in respect thereof which may be payable by or assessed against Purchaser as a result of or in connection with Purchaser's failure to withhold, pursuant to applicable tax laws, any taxes payable by Seller with respect to the Royalties set out in section 3.5.

3.9Books and Records.  At all times while this Agreement is in effect and Royalties are pay- able to Seller, and thereafter for the later of (a) four (4) years after the expiration or termination of this Agreement; and (b) the resolution of any dispute arising out of or otherwise related to the transactions contemplated hereby, Purchaser shall keep and maintain accurate books and records to account for all operations and activities associated to the Low Energy Cartridge (LEC) Technology within the scope of this Agreement, in accordance with GAAP.

3.10Audit.  At all times during the term of the Agreement during which Royalties are payable to Seller, Seller shall have the right, from time to time, upon not less than ten business days' advance notice and during regular business hours, to examine and/or audit, and make copies and extracts from all reports, books of account, records, and all other documents, materials and inventories in the possession of or under the control of Purchaser with respect to the subject matter and terms of this Agreement, including, without limitation, manufacturing, inventory and sales records relating to products incorporating the Low Energy Cartridge (LEC) Technology sold.  Any audit hereunder shall be made by Seller at its own expense, except to the extent the audit reveals underpayment to the Seller of more than five percent (5%) for the time period being audited.

3.11Canadian Hold Period.  The Seller hereby acknowledges that upon the issuance of the Consideration Shares or Warrants in accordance with section 3.3 hereof, such securities shall be subject to a mandatory hold period under applicable Securities Laws and may be further subject to an additional hold period and/or escrow requirements, as applicable, pursuant to rules of the Exchange.  The Seller further acknowledges that the certificate representing such securities will bear an appropriate legend, as may be prescribed under Securities Laws, pursuant to rules of the Exchange.

4.Transfer of Technology

4.1Intellectual Property Assignment.  Seller hereby assigns and transfers to Purchaser all rights, titles and interests, including all Intellectual Property, in or to the Low Energy Cartridge (LEC) Technology, including without limitation, all rights of Seller under the Assignment Agreements and all inventions and discoveries described therein and any term extensions or renewals and additional rights to with respect to Intellectual Property in the Low Energy Cartridge (LEC) Technology granted by law in the future pursuant to applicable laws and international conventions.

4.2Assignment of Causes of Action.  Seller hereby sells, assigns, transfers and conveys to Purchaser all right, title and interest it has in and to all causes of action and enforcement rights, whether currently pending, filed, or otherwise, in connection with the Low Energy Cartridge (LEC) Technology, including without limitation all rights to pursue damages, injunctive relief and other remedies for past, current and future infringement, violation or misappropriation of the Low Energy Cartridge (LEC) Technology.

4.3Transfer.  Starting on the Effective Date of this Agreement Seller shall, at no cost to Purchaser, make its employees, including Mr. David Luxton, available through remote or face-to- face meetings at Purchaser's site (when reasonably requested and to the extent possible) with Purchaser's employees and consultants, for the purpose of (i) all information and know how relating to use and exploitation of the Low Energy Cartridge (LEC) Technology (ii) assisting Purchaser's employees and consultants to fully understand the Low Energy Cartridge (LEC) Documentation; and (iii) training and counselling Purchaser and its employees and consultants so that Purchaser will be in a position within twelve (12) months of the Effective Date to commercially use and exploit the Low Energy Cartridge (LEC) Technology in its own facility (or that of its designated subcontractors) with its own employees without the assistance of Seller (the "Transfer Services").  If deemed necessary by the Purchaser, the Seller shall make its consultants avail- able to the Purchaser to give effect to this Section 4.3, and the Purchaser agrees to pay for such consultants services, as long as those payments have been approved in writing by the Purchaser prior to being incurred.

4.4Knowledge Transfer Committee.  Purchaser may, from time to time, organize knowledge transfer meetings for the purpose of monitoring the completion of the Transfer Services.  Seller shall make Mr. David Luxton and other of its key employees available for such meetings.  Among other subjects, Seller shall use these meetings to (a) direct the form and content of the technical information to be produced in order to properly document the Intellectual Property that is not documented, and (b) agree on the timeline and methodology of the Transfer Services to be performed by Seller with their key personnel.

5.Additional Obligations

5.1Further Cooperation - Seller.  Seller shall cooperate with Purchaser and shall promptly sign (and have signed by the relevant persons, including without limitation by Mr. David Lux-ton) all instruments and agreements necessary to further confirm the assignment set out in this section 4.1 or to allow Purchaser to register, protect, defend or enforce Intellectual Property in the Low Energy Cartridge (LEC) Technology and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby.  The decision to file for patent, copyright or industrial design protection or to maintain such development as a trade secret shall be in the sole discretion of Purchaser.

6.Purchaser's Conditions Precedent

6.1The obligation of the Purchaser to consummate this Agreement on the Closing Date shall be subject to the prior completion of the following conditions:

(a)The Purchaser will have received conditional or final Exchange Acceptance for the issuance of the Consideration Shares and Warrants, and any other regulatory approval that may be required.

(b)The representations and warranties of the Seller contained in this Agreement or in any of the Low Energy Cartridge (LEC) Documents will have been true and correct as of the date of this Agreement and shall be true and correct as of the Effective Date, with the same force and effect as if such representations and warranties had been made on and as of such Effective Date, save and except in any respect which would not have a material adverse effect on the Assets;

(c)The Seller will have performed, fulfilled or complied with, in all material respects, all of its obligations, covenants and agreements contained in this Agreement to be fulfilled or complied with by the Seller at or prior to the Effective Date;

(d)The Seller will deliver or cause to be delivered to the Purchaser the closing documents as set forth in Section 4 in a form satisfactory to the Purchaser, acting reasonably;

(e)There will not be in force any order or decree restraining or enjoining the con- summation of the transactions contemplated hereby; and

(f)Seller shall have received and delivered to the Purchaser an executed legal opinion that is satisfactory to the Purchaser, acting reasonably, from outside intellectual property counsel with respect to intellectual property under this Agreement and potential for violation of any third-party rights.

7.Term of Agreement

7.1This Agreement shall become effective as of the Effective Date and shall continue in full force and effect until the earliest of (i) twenty years from the Effective Date unless the Agreement is terminated earlier pursuant to the terms of section 8 below.

8.Termination

8.1Termination for cause.  Upon written notice as specified in this Agreement, Purchaser may terminate this Agreement for cause in the event of any material breach of an obligation therein that remains uncured for thirty (30) days, or for any breach of a material representation and warranty by the Seller.  Seller may terminate this Agreement for cause in the event of non- payment of Royalties more than thirty (30) days after the due date thereof.

8.2Termination for convenience by Purchaser.  Purchaser may terminate this Agreement for convenience, including but not limited to circumstances where market conditions for sales of the Low Energy Cartridge (LEC) Technology become unfavorable.  Purchaser shall provide Seller with at least sixty days' prior written notice, which notice shall (i) identify all exclusive and non- exclusive licenses granted by Purchaser that cannot be terminated on thirty (30) days' prior writ- ten notice and provide, to the full extent possible, copies of such licenses; and (ii) provide a list of all applied for, issued or registered Intellectual Property in the Low Energy Cartridge (LEC) Technology.

8.3Effect of Termination.  Upon the termination of the Agreement:

(a)Purchaser is fully and irrevocably, released and discharged by Seller from any payment obligations including the outstanding or future Purchase Price and Royalties to Seller with respect to the Low Energy Cartridge (LEC) Technology and any improvements thereto.

(b)Any unvested warrants as of the date of the termination of the Agreement shall be immediately cancelled.

(c)Upon the termination of the Agreement in accordance with Section 7.2, Purchaser shall within thirty days of such termination return all Confidential Information and material pertaining to Intellectual Property in the Low Energy Cartridge (LEC) Technology in its possession (or in its custody or control) to Seller, or destroy such information or material pertaining to such intellectual property as instructed by Seller.  Seller may require Purchaser to confirm, in a sworn statement, that the Confidential Information and material pertaining to Intellectual Property in the Low Energy Cartridge (LEC) Technology were either returned or destroyed.

(d)Within thirty days from the receipt of the termination notice under Section 7.1 and 8.2, Seller may exercise the option, by giving written notice to Purchaser, to re- quest Purchaser to assign all its right, title and interest in and to the Low Energy Cartridge (LEC) Technology, including Intellectual Property therein.  The consideration shall be payable by Seller at the closing of the transaction, which closing shall occur at the latest on the termination date.  Any assignment by Purchaser to Seller under this Section 8.3(d) shall be on an "as is, where is" basis without any representation, warranty or condition, whether implied, express or provided by law, including without limitation any representation or warranty of merchantability or of non-infringement of third party intellectual property.  The Parties will co- operate promptly to document such assignments for purpose of recordal with the various intellectual property offices, which recordal shall be made at Seller's sole expense.  Purchaser shall be responsible up to the termination date for the fees payable for the filing, prosecution and maintenance of any Intellectual Property in the Low Energy Cartridge (LEC) Technology.  To the extent Seller exercises its option, Seller shall bear, as of the termination date, all expenses related to and be entirely responsible for the filing, prosecution and maintenance of any Intellectual Property in the Low Energy Cartridge (LEC) Technology.

(e)Purchaser will take all reasonable care to ensure the appropriate protection of Intellectual Property.

(f)Seller shall accept the assignment pursuant to Section 7.3 (e) on "as is, as available" basis without any representations, warranties or conditions, including those that may be provided by law, of all licenses entered into by Purchaser with respect to the Intellectual Property in the Low Energy Cartridge (LEC) Technology and become bound by their terms and conditions.

(g)Upon termination by Purchaser pursuant to 7.1, Purchaser shall have the right to claim from Seller actual costs and damages incurred by the Purchaser arising from the material breach, without limitation as to any other remedies Purchaser may have at law.

(h)If a dispute arises out of, or in connection with this Agreement, the parties agree to resolve the dispute through negotiation, mediation or other methods of dispute resolution.

(i)The obligations set forth in Sections 5.1, 14.1 and 14.2 and Sections 9, 12 and 13 shall remain in full force and effect despite the termination of this Agreement, regardless of the reason therefor.

9.Representations and Warranties of the Seller

Seller hereby represents and warrants to Purchaser as follows in respect of the Low Energy Cartridge (LEC) Technology and the Intellectual Property therein:

9.1Residence.  The Seller is not a non-resident of Canada for the purpose of the Tax Act; the Seller is a resident of the Province of Ontario.

9.2Authority.  Seller has the right and authority to enter into this Agreement and to carry out its obligations hereunder.

9.3Title.  Seller has good and marketable exclusive title to the Intellectual Property in the Low Energy Cartridge (LEC) Technology.  The Intellectual Property and all material forming part of the Low Energy Cartridge (LEC) Technology is free and clear of all liens, mortgages, security interests or other encumbrances, and restrictions on transfer.  There are no actions, suits, investigations, claims or proceedings threatened, pending or in progress relating in any way to the Intellectual Property in the Low Energy Cartridge (LEC) Technology nor to any material forming part of the Low Energy Cartridge (LEC) Technology.  There are no existing and unexpired contracts, agreements, options, commitments, proposals, bids, offers, or rights with, to, or in any person to acquire or license any of the Intellectual Property in the Low Energy Cartridge (LEC) Technology nor to any material forming part of the Low Energy Cartridge (LEC) Technology.

9.4Completeness of the Low Energy Cartridge (LEC) Technology.  Neither the Seller, nor the directors, officers of the Seller, its Affiliates nor, to the knowledge of the Seller, any persons who contributed to the development of the Low Energy Cartridge (LEC) Technology shall upon execution of this Agreement retain any Intellectual Property that would be necessary in order to commercially exploit the Low Energy Cartridge (LEC) Technology.

9.5Existing Rights Granted to Others.  No rights, covenants not to sue, licenses of, or any consent to use any Intellectual Property in the Low Energy Cartridge (LEC) Technology have been granted to third parties, including for clarity to any Affiliates of the Seller nor to any per- sons involved in the development of the Low Energy Cartridge (LEC) Technology, nor for purposes of open innovation, open source, copylefted or free software projects.

9.6Infringement.  To the knowledge of Seller neither the Low Energy Cartridge (LEC) Technology nor the use and exploitation thereof in any territory violates, infringes, or misappropriates any third party Intellectual Property or would violate, infringe, or misappropriate any third party Intellectual Property.  Neither the Seller, nor, to the knowledge of the Seller, Mr. David Luxton, have received any communication from a third party advising that the Low Energy Cartridge (LEC) Technology infringes, violates or misappropriates its Intellectual Property or that of an- other person nor inviting the Seller or Mr. David Luxton to obtain a license of or purchase Intellectual Property of a third party in connection with the use, development or exploitation of the Low Energy Cartridge (LEC) Technology.

9.7Third Party Intellectual Property.  To the knowledge of the Seller, the commercialization of products incorporating the Low Energy Cartridge (LEC) Technology as contemplated at closing does not require any third party Intellectual Property or components, other than commercially available off-the-shelf third party components or technologies.  To the knowledge of the Seller, no software, software libraries, technologies, data or material that is the subject of an open innovation project, subject to open source terms, copyrighted or disseminated free of charge has been incorporated into the Low Energy Cartridge (LEC) Technology or is necessary for the use and commercial exploitation of the Low Energy Cartridge (LEC) Technology.

9.8Disclosures.  No disclosures, sales or offers for sale of the Low Energy Cartridge (LEC) Technology have been made by Seller or its Affiliates, their agents, and, to the knowledge of the Seller, by any persons involved in the development of such technology or who have otherwise had access to such technology, that would invalidate in whole or in part the claims of any future patent applications, except as disclosed to third parties bound by Non Disclosure Agreement as provided in 9.9.

9.9Protection of confidential information.  Seller has taken all reasonable steps to preserve the confidentiality of any trade secrets and other confidential information pertaining to the Low Energy Cartridge (LEC) Technology.  All persons that have had access to the Low Energy Cartridge (LEC) Documentation have been at all times legally bound by an obligation not to use other than for the purposes of the Seller's business and an obligation not to disclose such information to others.  Seller is not aware of any disclosure, misappropriation, intrusion or data breach that could reasonably compromise the trade secret protection pertaining to the Low Energy Cartridge (LEC) Technology.

9.10Government.  No government entity, including without limitation the United States Army, has any right in or relating to the Low Energy Cartridge (LEC) Technology and any Intellectual Property in the Low Energy Cartridge (LEC) Technology, including without limitation, any proprietary interest, any license or right to use, any option to obtain a license, any right to use or obtain an assignment of such technology, any right to restrict the sale or licensing of such technology, any right to obtain any part of the proceeds of the sale, licensing or use of such technology, any right to claim the reimbursement of any amounts associated with the development of such technology.

9.11Restrictions on Rights.  Purchaser will not be subject to any covenant not to sue or similar restrictions on its enforcement or enjoyment of the Low Energy Cartridge (LEC) Technology as a result of the transaction contemplated in this Agreement.

9.12Enforcement.  Seller has not put any third party on notice of actual or potential infringement, misappropriation or violation of any Intellectual Property in the Low Energy Cartridge (LEC) Technology.

9.13Conduct.  None of Seller or its representatives has engaged in any conduct, or omitted to perform any necessary act, the result of which would invalidate any of the Intellectual Property in the Low Energy Cartridge (LEC) Technology or hinder their enforcement, including but not limited to misrepresenting Seller's patent rights to a standard-setting organization or failing to file a requisite information disclosure statement in a timely manner regarding in connection with a patent application or patent where legally required.

9.14Related Assets.  There are no other patents issued and/or applications pending for or on behalf of Seller nor, to the knowledge of the Seller, on behalf of Mr. David Luxton or any other person involved in the development of the Low Energy Cartridge (LEC) Technology, which would reasonably require a license under any claim of such other patents.

9.15Validity and Enforceability.  No Intellectual Property forming part of the Low Energy Cartridge (LEC) Technology has ever been found invalid or unenforceable for any reason in any administrative, arbitration, judicial or other proceeding.

9.16Development Process.  All contractors, consultants, employees and other persons who contributed to the development, creation or conception of the Low Energy Cartridge (LEC) Technology have entered into intellectual property assignment contracts with and in favour of the Seller whereby each such person has assigned or confirmed the Seller's ownership of all right, title and interest (except moral rights) that such person may possess in and to such any Intellectual Property developed, created or conceived by such person in connection with the Low Energy Cartridge (LEC) Technology in favor of Seller, to the full extent permitted by applicable laws.  Each such contractor, consultant, employee or other person has irrevocably waived in writing its moral rights, where applicable, to any developments created by it on behalf of the Seller in connection with the Low Energy Cartridge (LEC) Technology; wherein said person was an employee, consultant or contractor, where appropriate, the consultant or contractor also obtained the necessary waiver(s) of moral rights from any and all of its own employees, consultants, and contractors involved in the creation of any such Intellectual Property, to the full extent permitted by applicable laws.

9.17State of Low Energy Cartridge (LEC) Technology.  The Low Energy Cartridge (LEC) Technology has been developed to the stage of successful proof of concept.  At least one fully functioning proof of concept incorporating the Low Energy Cartridge (LEC) Technology has been produced.  Seller is in possession of a complete copy of all source code of software forming part of the Low Energy Cartridge (LEC) Technology.

10.Representations and Warranties of the Seller

Purchaser hereby represents and warrants to the Seller as follows:

10.1Incorporation.  It has been duly incorporated and organized and is a validly existing corporation in good standing under the Laws of British Columbia;

10.2Corporate Power.  It has full right, corporate power and authority to carry on its business, and to execute and deliver this Agreement and any agreement or instrument referred to or contemplated herein, subject to approval of this Agreement by the Exchange;

10.3Execution.  The execution and delivery of this Agreement has been duly and validly authorized by the Purchaser;

10.4Valid Obligation.  This Agreement, when delivered in accordance with the terms hereof, shall constitute a valid and binding obligation enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other similar law affecting creditors' rights generally, and to the general principles of equity;

10.5Necessary Approvals.  On the Effective Date and following receipt of the Exchange Acceptance, the Purchaser will have obtained all necessary approvals, consents or waivers with respect to the acquisition of the Low Energy Cartridge (LEC) Technology by the Purchaser;

10.6Listing.  The Common Shares are listed on the Exchange and the Purchaser is in compliance in all material respects with the policies of the Exchange, except as disclosed in writing to the Seller.

11.Tax Elections

11.1Tax Deferral.  The Purchaser shall, at the request of the Seller, jointly elect with the Seller under subsection 85(1) of the Tax Act with respect to the transfer of the Low Energy Cartridge (LEC) Technology.  Such election will be prepared by the Seller and filed by the Seller in the form and manner and within the time prescribed by the Tax Act.  The agreed amount for the purposes of such election shall be such amount as is determined by the Seller within the limits pre- scribed in the Tax Act.

11.2Election Forms.  The Purchaser shall, at the request of the Seller, jointly elect with the Seller under corresponding provisions of any applicable provincial income tax legislation with respect to the transfer of the Low Energy Cartridge (LEC) Technology.  The provisions of Section 11.1 shall apply mutatis mutandis to the making of any such provincial election.

11.3To the extent permitted under section 167 of the Excise Tax Act (Canada) and the corresponding provisions of any applicable provincial legislation, the Seller and the Purchaser shall jointly execute in the prescribed form, and the Purchaser shall file by the applicable due date, an election under section 167 of the Excise Tax Act (Canada) and the corresponding provisions of any applicable provincial legislation such that no Goods and Services Tax/Harmonized Sales Tax ("GST/HST") and/or similar provincial sales tax shall be payable with respect to the purchase and sale of the Low Energy Cartridge (LEC) Technology.]

12.Indemnification

12.1Indemnification for Breaches of Representations and Warranties.  Seller hereby agrees to indemnify and save harmless the Purchaser, effective as and from the Effective Date, from and against any Losses which it may suffer or incur as a result of, in respect of, or arising out of any non-fulfilment of any covenant or agreement on the part of Seller under this Agreement or any misrepresentation in or breach of any representation or warranty of the Seller contained herein.

12.2Any amount which Seller is liable to pay to Acquirer pursuant to this Section 12.1 shall bear interest at a rate per annum equal to the Prime Rate, calculated and payable monthly, both before and after judgment, with interest on overdue interest at the same rate, from the date Purchaser disbursed funds, suffered such Losses, to the date of payment by Seller to Purchaser.  Purchaser and Seller each consent that the choice of attorneys pursuant to any Claims will be made exclusively by Purchaser.

12.3Third Party Claims.  If a Claim is made against Purchaser by a third party for which Purchaser may be entitled to indemnification under Section 12.1, Purchaser shall give notice (the "Indemnity Notice") to Seller specifying the particulars of such Claim forthwith and in any event within thirty (30) days after it receives notification of the Claim.  Failure to give such no- tice within such time period shall not prejudice the rights of Purchaser except to the extent that the failure to give such notice materially adversely affects the ability of Seller to defend the Claim or to cure the breach or incorrectness of the representation, warranty, covenant or agreement giving rise to the Claim or that Seller suffers damages as a result thereof.  Seller shall have the right to participate in any negotiations or proceedings with respect to such Claim at its own expense.  Purchaser shall not settle or compromise any such Claim without the prior written con- sent of Seller, which shall not be unreasonably refused.  Purchaser shall co-operate in all reasonable respects in the defense of such Claim but at the expense of Seller.  If Seller fails, after the giving of such notice, diligently and reasonably to defend such Claim throughout the period that such Claim exists, its right to defend the Claim shall terminate and Purchaser may assume the defense of such Claim at the sole expense of Seller.  In such event, Purchaser may compromise or settle such Claim, without the consent of Seller.  If Purchaser becomes aware of a possible infringement by a third party on the Low Energy Cartridge (LEC) Technology, the Intellectual Property and the name Low Energy Cartridge (LEC), it shall give notice to Seller of such possible infringement.

13.Confidentiality

13.1Ownership.  Seller acknowledges that as of the Effective Date Purchaser becomes the exclusive owner of all Confidential Information related to the Low Energy Cartridge (LEC) Technology.

13.2Confidentiality of Terms.  Seller and Mr. David Luxton shall maintain Confidential Information with respect to the Low Energy Cartridge (LEC) Technology and the Low Energy Cartridge (LEC) Documentation with the same care against disclosure that it treats its own proprietary confidential information whether or not ownership is transferred under this agreement.

13.3Terms of this Agreement.  Seller shall keep the Confidential Information related to the Low Energy Cartridge (LEC) Technology, the Low Energy Cartridge (LEC) Documentation and the terms and existence of this Agreement confidential and shall not now or hereafter divulge any of this information to any third party except:  (a) with the prior written consent of Purchaser, such consent shall not be unreasonably withheld; (b) as otherwise may be required by law or le- gal process; (c) during the course of litigation, so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating par- ties; or (d) in confidence to its legal counsel, accountants, banks and financing sources and their advisors solely in connection with proceeding with financial transactions; provided that, in (b) through (d) above, (i) Seller shall use all legitimate and legal means available to minimize the disclosure to third parties, including without limitation seeking a confidential treatment request or protective order whenever appropriate or available; and (ii) Seller shall provide the other Party with at least ten (10) days prior written notice of such disclosure.

14.Miscellaneous

14.1Governing Law.  Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws applicable in the Province of Ontario without regard to principles of conflict of laws.

14.2Jurisdiction.  Each party hereby agrees to exclusive jurisdiction and venue in the courts of the judicial district of Ottawa for all disputes and litigation arising under or relating to this Agreement.

14.3Entire Agreement.  The terms and conditions of this Agreement, including its schedules, constitutes the entire agreement between the parties with respect to the subject matter hereof, and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  No oral explanation or oral information by either party hereto shall alter the meaning or interpretation of this Agreement.  No amendments or modifications shall be effective unless in writing signed by authorized representatives of both parties.  These terms and conditions will prevail notwithstanding any different, conflicting or additional terms and conditions which may appear on any purchase order, acknowledgment or other writing not expressly incorporated into this Agreement.  The following schedules are attached hereto and incorporated herein:  Schedule A (entitled "Low Energy Cartridge (LEC) Technology")

14.4Notices:  All notices required or permitted to be given hereunder shall be in writing, shall make reference to this Agreement, and shall be delivered by hand, or dispatched by prepaid air courier or by registered or certified airmail, postage prepaid, addressed as follows:

If to Seller	If to Purchaser
DEFSEC Corporation	KWESST Micro Systems Inc.
1100 - 343 Preston Street	Unit #1, 155 Terence Matthews Crescent,
Ottawa, Ontario, K1S 1N4	Kanata, ONT, K2M 2A8
Attn:  David Luxton	Attn:  Jeffrey McLoed

Such notices shall be deemed served when received by addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery.  Either Party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party at such changed address.

14.5Relationship of Parties.  The parties hereto are independent contractors.  Neither party has any express or implied right or authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party.  Nothing in this Agreement shall be construed to create a partnership, joint venture, employment or agency relationship between Seller and Purchaser.

14.6Equitable Relief.  The Parties agree that damages alone would be insufficient to compensate for a breach of this Agreement, acknowledges that irreparable harm would result from a breach of this Agreement, and consents to the entering of an order for injunctive relief to prevent a breach or further breach, and the entering of an order for specific performance to compel performance of any obligations under this Agreement.

14.7Severability.  The terms and conditions stated herein are declared to be severable.  If any paragraph, provision, or clause in this Agreement shall be found or be held to be invalid or unenforceable in any jurisdiction in which this Agreement is being performed, the remainder of this Agreement shall be valid and enforceable and the parties shall use good faith to negotiate a substitute, valid and enforceable provision which most nearly effects the parties' intent in entering into this Agreement.

14.8Waiver.  Failure by either party to enforce any term of this Agreement shall not be deemed a waiver of future enforcement of that or any other term in this Agreement or any other agreement that may be in place between the parties.

14.9Assignment.  The terms and conditions of this Agreement shall inure to the benefit and be binding upon the Parties, their successors, assigns and other legal representatives.  Any portion of the Purchase Price or Royalties may be assigned by the Seller for convenience to a third-party.

14.10In witness whereof, the parties have executed this Technology Purchase Agreement as of the Effective Date:

DEFSEC Corporation	KWESST Micro Systems Inc.
"David Luxton"	"Jeff McLeod"
David Luxton, President	Jeff McLeod, President & CEO
Jan 15, 2021	Jan 15, 2021
Date	Date

Schedule A

SCHEDULE A

LOW ENERGY CARTRIDGE (LEC) TECHNOLOGY

Description of technology attached herewith.

Overview

The LEC is a system comprising:

◾a dedicated firing platform in a non-standard calibre to ensure "live fire exclusion" for safety;

◾a non-lethal low energy cartridge case and actuator that powers a projectile; and

◾a non-lethal polymer projectile with various payloads depending on the intended application
(public order, training, personal defence or high-action gaming).

The calibration of energy dynamics between the firing platform, the energy in the cartridge and the velocity of the projectile combine to ensure reliable functioning of the firing platform and terminal effects that are non-lethal (typically by ensuring muzzle velocity remains under 400 fps).

There are two versions of the LEC cartridge:

◾One for non-reciprocating firing platforms, i.e. revolvers and shotguns; and

◾One for reciprocating firing platforms, such as automatic pistols, sub-machine guns and assault rifles.

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Proprietary commercial confidential information of DEFSEC Corporation

Cartridges, projectiles and payloads

Non-reciprocating cartridge ◾For revolvers and shotguns ◾Custom off-size casing diameter ◾Casing interior with recessed ribs that mate with protruding ribs of the projectile ◾Custom actuator for optimized pressure curve. Reciprocating cartridge ◾For automatic pistols, sub-machine guns and assault rifles ◾Custom off-size casing diameter and length ◾Illustrations at right are proprietary variants employing a novel hi-low pressure system ◾Directs high pressure rearward to function firing mechanism, ports residual low pressure forward to propel projectile at velocity under 400 fps ◾Custom actuator for optimized pressure curve.

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Proprietary commercial confidential information of DEFSEC Corporation

Cartridges, projectiles and payloads…cont'd

Projectiles Shotgun and revolver projectiles ◾Off-size 12 gauge and off-size .44 Cal ◾Two-piece, cap-and-plug design ◾Exterior self-stabilizing ribs that mate to interior of cartridge case ◾Snap-fit base plug for simple fill and payload retention Automatic firearm projectile ◾For automatic pistols, submachine guns and assault rifles ◾Same basic concept as shotgun and revolver but re-sized for off-size .40 Cal ◾Snap-fit cap-and-plug design for simple fill and payload retention Turbo cap-and-plug design in .68 calibre ◾For opportunistic stand-alone sales to large installed base of mag- fed air guns
Projectile payloads
◾Blank (firearms training) ◾Solid slug (practice, pain compliance) ◾Inert powder (practice, force-on-force training, gaming) ◾Colored marking agent (force-on-force training, gaming) ◾Irritant (capsaicin- based) powder (public order, dangerous subject, personal defence)

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Proprietary commercial confidential information of DEFSEC Corporation

Firing platforms

Custom dedicated non-reciprocating firing platforms
◾Shotguns and revolvers ◾Main application public order and dangerous suspects ◾Colored to signify non-lethal ◾Chambered to accept only LEC cartridges ◾Adaptation of existing popular shotgun design(s) and readily available components ◾Revolver based on existing platform designs with custom outer clamshell to detract from real gun appearance. ◾Can be accessorized with laser sights and onboard high-lumen mini-flashlight Custom dedicated reciprocating firing platforms ◾Automatic pistols, sub-machine guns and assault rifles ◾Main applications are military and law enforcement training, personal protection and high-action gaming ◾Only two platform patterns required initially:  M4 Carbine and Glock pistol or equivalent, colored to signify less-lethal. ◾Pistol mechanism can also be encased in custom cladding for non-firearm appearance.

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Proprietary commercial confidential information of DEFSEC Corporation

Cartridge features and novelty

Non- reciprocating cartridge for shotgun and revolver

5

Proprietary commercial confidential information of DEFSEC Corporation

Cartridge features and novelty

Reciprocating cartridge for automatic firing platforms

6

Proprietary commercial confidential information of DEFSEC Corporation

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Proprietary commercial confidential information of DEFSEC Corporation

SCHEDULE B

FORM OF CONFIRMATORY ASSIGNMENT DOCUMENT

In consideration of the engagement by the undersigned (the "Contributor") as an employee, consultant or subcontractor of DEFSEC CORPORATION. (the "Corporation"), the undersigned confirms the existence of the following agreements and covenants as follows:

1.For purposes of this contract, the expression "Low Energy Cartridge (LEC) Technology" means the technology designated as "Low Energy Cartridge (LEC)" summarily described in Schedule I, all source code or other source material, drawings, prototypes, data, algorithms, marketing materials, and documentation used to test, develop, manufacture, source parts for, operate and otherwise use such technology.

2.Engagement as an employee, consultant or subcontractor in connection with the Low Energy Cartridge (LEC) Technology ("Engagement") may result or has resulted in the development of confidential information for the benefit of the Corporation or will give or has given the Contributor access to proprietary and confidential information belonging to the Corporation, its customers, its suppliers and others (the proprietary and confidential information is collectively referred to in this Agreement as "Confidential Information").  Confidential Information includes but is not limited to technological information, technical data, schematics, source code. prototypes, processes, drawings, know-how, methods, algorithms, designs, software, workflows, customer lists, marketing plans and strategies, and/or financial information.  All Confidential Information remains the confidential and proprietary information of the Corporation.  Confidential Information does not include information that (i) is or becomes public other than through a breach of this Agreement or (ii) is known to the Contributor prior to disclosure by the Corporation as demonstrated by written records.

DISCLOSURE AND OWNERSIDP OF INTELLECTUAL PROPERTY

3.All inventions (whether patentable or not), improvements, technologies, trade secrets, databases, computer programs (including source code), know-how, works of authorship, designs, utility models, formulae, copyrightable works, semi-conductor chip or mask works, social media identifiers, and any other subject-matter that may be protected by an intellectual property right and all applications and registrations of the foregoing in all countries and territories worldwide and under international conventions, solely or jointly obtained, conceived, developed, or reduced to practice, or caused to be obtained, conceived or developed, or reduced to practice by the Contributor in the course of the Contributor's Engagement with the Corporation (the "Corporation IP") shall be disclosed in writing promptly by the Contributor to the Corporation, and shall be the sole and exclusive property of the Corporation, to the full extent applicable as a "work for hire".

4.To the extent that the Corporation IP is not already owned by the Corporation pursuant to any applicable laws, Contributor hereby confirms the assignment and transfer to the Corporation, without additional consideration, of all of his rights, titles and interests to the Corporation IP (except moral rights), (i) at the moment of its creation, development or conception or, to the extent such assignment and transfer cannot be made at the moment of its acquisition, creation, development or conception, will assign and transfer, and (ii) without any restrictions of any nature (the "Assignment").  The Corporation hereby confirms its acceptance of the Assignment.

5.The Contributor confirms the waiver of any and all moral rights he may have with respect to any Corporation IP, to the full extent permitted by applicable laws.

6.The Contributor acknowledges that all Corporation IP that the Contributor has provided or provides to or for the benefit of the Corporation, whether solely or jointly, was and shall be original and does not and will not violate any intellectual property right and does not and will not violate any confidential information belonging to a former employer or third party, nor any legal or contractual obligation that the Contributor has or may have had toward any former employer or any third party.

OBLIGATIONS REGARDING CONFIDENTIALITY

7.The Contributor acknowledges that the unauthorized disclosure of Confidential Information or its use for any purpose other than his Engagement could be detrimental to the Corporation and contrary to its legitimate interests and that such Confidential Information must be protected at all times.

8.The Contributor shall, both during and after the Contributor's Engagement with the Corporation, keep all Confidential Information confidential and shall not make available, use, disclose, broadcast, sell, transfer, give, publish or distribute any of it except for the purpose of carrying out authorized activities on behalf of the Corporation.  The Contributor may, however, disclose Confidential Information which is required to be disclosed by law, whether under an order of a court or government tribunal or other legal process, provided that Contributor informs the Corporation of such requirement in sufficient time to allow the Corporation to avoid such disclosure by the Contributor.  The Contributor shall ensure that its own employees and contributors are bound by covenants at least as protective of the Confidential Information as this Agreement.

9.Any document or work that the Contributor composed, produced or assembled and that contains Confidential Information (including, without limiting the generality of the foregoing, notes, excerpts, texts or references from which the nature or substance of the Confidential Information may be disclosed implicitly or otherwise) is deemed to be Confidential Information in accordance with the meaning of that term herein and shall be treated as such.

10.The Contributor shall return to the Corporation or destroy, as directed by the Corporation, Confidential Information and material pertaining to Corporation IP upon request by the Corporation at any time.  The Contributor shall certify, by way of affidavit or statutory declaration that all such Confidential Information and Corporation IP has been returned or destroyed, as applicable.

11.The Contributor covenants and agrees not to make and not have made any unauthorized use whatsoever of or to bring onto the Corporation's premises for the purpose of making any unauthorized use whatsoever of any trade secrets, confidential information or intellectual property of any third party, including without limitation any trade-marks, inventions, trade secrets or copyrighted materials, during the course of the Contributor's Engagement with the Corporation, except in conformity with Corporation policies and with the approval of the Corporation.  In the event Contributor incorporates or has incorporated into any of the Corporation• s products, services or materials any confidential information or intellectual property owned or controlled by the Contributor that is not assigned pursuant to this Agreement, Contributor confirms having automatically granted or will automatically grant (or, as applicable, shall procure that the entity it controls grant) an irrevocable, royalty-free, fully paid-up, worldwide, non-exclusive, fully sublicenseable (through multiple tiers) license to use, reproduce, communicate, rent, distribute, perform, make derivative works, and make available such confidential information or intellectual property, for the complete term of protection granted by applicable laws, including any extensions thereof.

COOPERATION OBLIGATIONS

12.Contributor confirms his agreement to cooperate with the Corporation and its attorneys in the preparation of any patent, copyright or other intellectual property application for Corporation IP and, upon request, shall promptly sign all instruments and agreements and perform any action to:  (i) perfect the Assignment of Corporation IP to the Corporation, (ii) prosecute applications, including patent applications to secure protection for the Corporation IP, or (iii) to defend the rights of the Corporation in the Corporation IP, the whole at no cost to the Corporation.  The decision to file for patent, copyright or other intellectual property protection or to maintain Corporation IP as a trade secret shall be in the sole discretion of the Corporation and the Contributor shall be bound by such decision.

13.The Contributor confirms that he will, if requested from time to time by the Corporation, execute such further reasonable agreements as to confidentiality and proprietary rights as the Corporation, its customers or suppliers reasonably require to protect confidential information or intellectual property and confirm ownership of such subject matter, the whole at no cost to the Corporation.

MISCELLANEOUS

14.The Contributor confirms his undertaking to not violate any intellectual property or trade secrets of any third parties during the Engagement and to advise the Corporation of any such violation or allegation of a violation as soon as the Contributor has knowledge of such violation or allegation of a violation.

15.The Contributor confirms that he has not entered into, and the Contributor agrees that he will not enter into, any agreement either written or oral in conflict herewith.

16.The Contributor confirms that irreparable harm will be suffered by the Corporation in the event of the Contributor's breach or threatened breach of any of his or her obligations under this Agreement, and that the Corporation will be entitled to seek, in addition to any other rights and remedies that it may have at law or equity, a provisional, interlocutory or permanent injunction restraining the Contributor from engaging in or continuing any such breach hereof.  Any claims asserted by the Contributor against the Corporation shall not constitute a defense in any injunction action, application or motion brought against the Contributor by the Corporation.

17.This Agreement and any written amendment thereto, shall constitute the entire Agreement between the Parties and supersedes all other agreements, oral or written, concerning the subject matter hereof.

18.This Agreement may be assigned by the Corporation to a third party.

19.This Agreement is governed by the laws applicable in the Province of Ontario, excluding conflicts of laws rules, and the parties agree to the exclusive jurisdiction of the courts of in the City of Ottawa for any claims arising out of this Agreement.

20.If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, that provision shall be deleted and the other provisions shall remain in effect.

IN WITNESS WHEREOF the Corporation and the Contributor have caused this Agreement to be executed on January 15, 2021.

SIMON MARTINEAU

	"Simon Martineau"
By:	Engineering consultant
DEFSEC CORPORATION
By:	"David Luxton"
Position:	President
	Description of technology:
Attached herewith.

EX-10.3

TECHNOLOGY PURCHASE AGREEMENT

This TECHNOLOGY PURCHASE AGREEMENT ("Agreement") is entered into on June 12, 2020 ("Effective Date") by and between KWESST Inc., having an office at Unit 1, 155 Terence Matthews Crescent, Kanata, ONT, K2M 2A8 ("Purchaser"), and SAGEGUILD, LLC, having an office at 99 Brookesmill Lane, Stafford, VA 22554 the "Seller").  Seller and Purchaser shall be designated collectively as the "Parties".

The Parties hereby agree as follows.

1.Background

1.1.Seller is the legal and beneficial owner of the GhostStep® Technology (as defined in Section 2.8), which is protected under certain trade secrets, patent applications and other associated Intellectual Property (as defined in Section 2.10), and desires to sell the GhostStep® Technology to the Acquirer.

1.2.Seller wishes to sell its right, title and interest in the GhostStep® Technology and the associated Intellectual Property, including the patent applications set out in Schedule A to Purchaser.

1.3.Purchaser wishes to purchase the GhostStep® Technology and the associated Intellectual Property, as well as to obtain services in order to ensure the complete transfer of all data, technical specifications, research material, know-how and other tangible and intangible aspects relating to the GhostStep® Technology so as to allow Purchaser to commercially exploit the GhostStep® Technology.

1.4.The Parties have entered into a Binding Letter Agreement to enter into a Technology Acquisition Agreement on May 19, 2020.

2.Definitions

2.1."Affiliates" has the meaning ascribed to such term in the Canada Business Corporations Act.

2.2."Assignment Agreements" means the written agreements assigning rights, titles and interest in or to the GhostStep® Technology from Mr. Jeffrey M. Dunn, any other contributors to the GhostStep® Technology and/or prior owners thereof to Seller, substantially in the form attached as Schedule C.

2.3."Claims" means any demand, action or cause of action, governmental or otherwise.

2.4."Confidential Information" means any non-public information in any form and however transmitted, whether orally, visually, in writing, or by electronic communication, that would be reasonably perceived in good faith to be confidential or proprietary, including without limitation:

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(a)technological disclosures, business operations, current or future hardware and software deployment and designs, data, algorithms, designs, technology, source code for any proprietary or custom-developed software; IT security measures or business continuity measures, trade secrets and confidential know-how, formulas, methods and processes, specifications, databases, pricing strategies, customer lists, proposals, contracts, technical and/or financial information;

(b)all information, documents or other material with respect to the GhostStep® Technology;

(c)all information, documents or other material with respect to Intellectual Property in the GhostStep® Technology;

(d)any information that is identified as "confidential";

(e)the provisions of this Agreement.

2.5."Consulting Agreement" means the Consultation Agreement entered into by the Seller and the Purchaser on March 1, 2020, as amended on May 20, 2020.

2.6."Documents" has the meaning ascribed to such term in Section 3.1.

2.7."GhostStep® Documentation" has the meaning ascribed to such term in Section 3.1.

2.8."GhostStep® Technology" means the technology designated as "GhostStep®" summarily described in Schedule A, all Intellectual Property in or relating such technology (including without limitation any trademark rights to the name "GhostStep®" and the Patents set out in Schedule A), all source code or other source material, drawings, prototypes, data, algorithms, marketing materials, and documentation used to test, develop, manufacture, source parts for, operate and otherwise use such technology, which is being acknowledged to include the combination of commercially available off-the-shelf third party components or technologies marketed by parties acting at arm's length of the Seller.

2.9."Going Public Transaction" means a reverse takeover, statutory merger or amalgamation, arrangement, share exchange, qualifying transaction (under the rules of the Toronto Stock Exchange or TSX Venture Exchange) or similar transaction involving the Purchaser, and/or an affiliate thereof, together with a reporting issuer in Canada, which, in all cases, results in a class of shares of the issuer resulting from such transaction (the "Resulting Issuer") being listed on a recognized stock exchange in Canada and the holders of shares of the Purchaser receiving either i) securities listed on such exchange or b) securities convertible into or exchangeable for securities listed on such exchange for no additional consideration, in either case in exchange for their shares in the Purchaser.  For the purposes of this agreement, a Going Public Transaction means the previously announced qualifying transaction between the Purchaser and Foremost Ventures Inc., a capital pool company under the policies of the TSX Venture Exchange.

2.10."Intellectual Property" means any domestic or foreign intellectual property rights of any nature including but not limited to:  (i) issued patents, patent applications and reissues, divisions, continuations, renewals, extensions and continuations in part of issued patents or patent applications; (ii) proprietary and non-public business information, including inventions (whether patentable or not), invention disclosures, improvements, discoveries, trade secrets, formulae, recipes, product specifications, confidential information, know how, methods, algorithms, processes, designs, technology, technical data, schematics, formulae and customer lists, and documentation relating to any of the foregoing; (iii) copyright, registered copyright and applications for copyright registration; (iv) registered industrial designs or applications for industrial designs, designs, design registrations, design registration applications and integrated circuit topographies;(v) mask works, mask work registrations and applications for mask work registrations; (vi) registered trademarks, trademark applications, service marks, service mark applications, unregistered trademarks, unregistered service marks, logos, slogans, domain names, social media identifiers, brand names, and the goodwill associated therewith; and (vii) rights in software and databases.

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2.11."List of Prosecution Counsel" means the names and addresses of prosecution counsel who prosecuted the Patents and who are currently handling the Patents.

2.12."Loss" means any damage, loss, cost, liability, expense or requirements, governmental or otherwise, including the reasonable cost of legal representation in respect thereof and any interest or penalty arising in connection therewith.

2.13."Order" means any order (including any judicial or administrative order and the terms of any administrative consent), judgement, injunction, decree, ruling or award of any arbitrator or Governmental Entity;

2.14."Patents" means those patents and patent applications listed in Schedule A hereto as well as all inventions and discoveries disclosed therein, and all reissues, reexaminations, extensions, continuations, continuations in part, continuing prosecution applications, and divisions of such patents and applications; provisional patent applications that are or will be continuations or continuations in part of such patents and applications; and foreign counterparts to any of the foregoing including without limitation utility models.

2.15."Prime Rate" means the rate of interest expressed as a rate per annum that the Bank of Montreal establishes at its head office in Montreal as the reference rate of interest that it shall charge on that day for Canadian dollar demand loans to its customers in Canada and which it at present refers to as its prime rate.

2.16."Securities Laws" means the Securities Act (Ontario), the U.S. Securities Act and any such other securities Laws applicable to the Purchaser, including all rules and regulations under such Laws, together with applicable published policy statements, instruments, notices and Orders of all applicable securities regulatory authorities; and

2.17."U.S. Securities Act" means the United States Securities Act of 1993, as amended.

3.Delivery and Payment

3.1.Delivery.  Seller shall deliver on the date of execution of this Agreement (i) all source code or other source material, drawings, specifications, bills of materials, technical diagrams, part lists, assembly diagrams, supplier information, data, algorithms, marketing materials, and all other data and documentation forming part of the GhostStep® Technology in a fully exploitable format (the "GhostStep® Documentation"), (ii) the Assignment Agreements in the form set out in Schedule, (iii) the List of Prosecution Counsel, (iv) all files and original documents owned or controlled by Seller relating to the Patents including, without limitation, all prosecution files for pending patent applications included in the Patents, (v) any documents describing know-how or trade secrets that are useful for the practice of the Patents but that do not appear in the specifications of the Patents, (vi) any documents describing improvements to the subject matter of the Patents that do not appear in the specifications of the Patents, (hereinafter collectively designated the "Documents").  Such delivery shall be complete and sufficient to evidence Seller's clear chain of title to the GhostStep® Technology.

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3.2.Purchase Price.  Further to receipt of the Documents, Purchaser shall pay to Seller the Purchase Price (as defined below) set out in section 3.3 below.  Upon receipt of the Purchase Price, Seller shall deliver to Purchaser an executed original of the Assignment of Patent Rights in Schedule B hereto.  For greater certainty, payments described below in sections 3.4 and 3.5 below shall not be considered as part of the Purchase Price.

3.3.Payment of the Purchase Price.  Subject to compliance with the terms of this Agreement, the Purchase Price shall be payable as follows:

(a)Payment on the Effective Date.  USD $100,000 in cash and 140,000 common shares of KWESST on the Effective Date; and

(b)Going Public Transaction.  In connection with the Going Public Transaction, the Purchaser shall:

(1)Upon the completion of Going Public Transaction, make the payment to the Seller of either USD $100,000 in cash or 557,000 common shares of the Resulting Issuer, the whole at the sole discretion of the Purchaser; or

(2)In accordance with section 7.2 hereof, if Foremost Ventures Inc. announces that the Going Public Transaction shall not be completed, the Purchaser shall have the option to terminate this agreement or, within 30 days of such announcement, to issue 557,000 common shares of KWESST at a deemed price of CAD$0.50 per share.

3.4.Yearly Payments.  In addition to the Purchase Price, the Purchaser shall pay to the Seller the sum of CAD $125,000 on each of December 31st, 2020, 2021 and 2022 (the "Yearly Payments").  In the event that the Consulting Agreement is terminated by the Purchaser, then on the date of such termination of any unpaid Yearly Payment shall automatically be cancelled.

3.5.Warrants.  On the Effective Date, the Purchaser shall issue to the Seller 750,000 share purchase warrants of KWESST (the "Warrants") with each Warrant being exercisable at a price of $0.50 per common share of KWESST.  The Warrants shall vest as to 250,000 Warrants on each of December 31, 2020, 2021, 2022.  If the Consulting Agreement is terminated by the Purchaser, then on the date of such termination of any unvested Warrants shall automatically be cancelled.

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3.6.Royalties and Royalty Rate.  In addition to the Purchase Price and subject to compliance with the terms of this Agreement, Purchaser shall pay Seller royalties at a rate of twenty percent (20%), on (i) amounts received in consideration of the grant of licenses of the GhostStep® Technology to third parties, net of taxes (including for clarity amounts withheld pursuant to applicable tax laws); and (ii) sales by Purchaser of products incorporating the GhostStep® Technology, net of taxes (including, for clarity purposes, amounts withheld pursuant to applicable tax laws), duties, customs brokerage fees, shipping and handling costs, customer credits, discounts and returns, until Purchaser has paid the Seller a total of USD $3 million in royalties.  Once Purchaser has paid Seller a total of USD $3 million in royalties, the royalty rate shall decrease to five percent (5%), on (i) further amounts received in consideration of the grant of licenses of Intellectual Property in the GhostStep® Technology to third parties, net of taxes (including for clarity amounts withheld pursuant to applicable tax laws); and (ii) sales by Purchaser of products incorporating the GhostStep® Technology, net of taxes, duties (including for clarity amounts withheld pursuant to applicable tax laws), customs brokerage fees, shipping and handling costs, customer credits, discounts and returns.  The obligation to pay royalties shall terminate automatically once Purchaser has paid Seller a total of USD $20 million in (the "Maximum Royalty Payment").

3.7.Payment of Royalties.  The royalties set out in section 3.6, shall be paid on a quarterly basis no later forty-five (45) days after the end of each financial quarter of Purchaser in U.S. currency and shall be accompanied by a report detailing the amounts that are the subject of royalty payments in their original currency, any currency conversions, any amounts deducted on account of customer credits, discounts and returns.  No further reporting shall be made once the Maximum Royalty Payment has been made to Seller.  To the extent that certain amounts subject to payment of royalties are received by Purchaser in currencies other than U.S. currency, for purposes of royalty payment calculations they shall be converted into U.S. currency using the rate of exchange in effect on the last day of the month in which such sale was transacted, as reported in The Wall Street Journal.

3.8.Indemnification for Taxes.  Seller shall indemnify and hold Purchaser harmless from and against any taxes and any penalty or interest in respect thereof which may be payable by or assessed against Purchaser as a result of or in connection with Purchaser's failure to withhold, pursuant to applicable tax laws, any taxes payable by Seller with respect to the royalties set out in section 3.6.

3.9.Books and Records.  At all times while this Agreement is in effect and Royalties are payable to Seller, and thereafter for the later of (a) four (4) years after the expiration or termination of this Agreement; and (b) the resolution of any dispute arising out of or otherwise related to the transactions contemplated hereby, Purchaser shall keep and maintain accurate books and records to account for all operations and activities associated to the GhostStep® Technology within the scope of this Agreement, in accordance with GAAP.

3.10.Audit.  At all times during the term of the Agreement during which Royalties are payable to Seller, Seller shall have the right, from time to time, upon not less than ten business days' advance notice and during regular business hours, to examine and/or audit, and make copies and extracts from all reports, books of account, records, and all other documents, materials and inventories in the possession of or under the control of Purchaser with respect to the subject matter and terms of this Agreement, including, without limitation, manufacturing, inventory and sales records relating to products incorporating the GhostStep® Technology sold.  Any audit hereunder shall be made by Seller at its own expense, except to the extent the audit reveals underpayment to the Seller of more than five percent (5%) for the time period being audited.

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3.11.Canadian Hold Period.  The Seller hereby acknowledges that upon the issuance of any shares or Warrants in accordance with section 3.3 hereof, such securities shall be subject to a mandatory hold period under applicable Securities Laws and may be further subject to an additional hold period and/or escrow requirements, as applicable, pursuant to rules of the stock exchange on which the securities may be listed following the completion of the Going Public Transaction.  The Seller further acknowledges that the certificate representing such securities will bear an appropriate legend, as may be prescribed under Securities Laws, pursuant to rules of the stock exchange on which the securities may be listed following the completion of the Going Public Transaction.

3.12.United States Securities Laws Restrictions on Transfer.  The Seller hereby acknowledges that upon issuance of any shares, Warrants or shares issuable upon exercise of any Warrants in accordance with section 3.3 hereof, by the Purchaser or the Resulting Issuer to the Seller, such securities will be "restricted securities" under the U.S. Securities Act and applicable state securities laws and the certificates representing such securities shall bear the following legend in substantially the following form:

"THE SECURITIES REPRESENTED HEREBY [The following shall be included for the Warrants:  AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF] HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.  THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) IN COMPLIANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (1) RULE 144 THEREUNDER, IF AVAILABLE, OR (2) RULE 144A THEREUNDER, IF AVAILABLE, AND, IN BOTH CASES, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT, AND, IN THE CASE OF (C)(1) AND (D) ABOVE, AFTER THE SELLER FURNISHES TO THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED STANDING EN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION TO SUCH EFFECT.  DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA."

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4.Transfer Of Technology

4.1.Intellectual Property Assignment.  Seller hereby assigns and transfers to Purchaser all rights, titles and interests, including all Intellectual Property, in or to the GhostStep® Technology, including without limitation, all rights of Seller under the Assignment Agreements, the Patents and all inventions and discoveries described therein and any term extensions or renewals and additional rights to with respect to Intellectual Property in the GhostStep® Technology granted by law in the future pursuant to applicable laws and international conventions.

4.2.Assignment of Causes of Action.  Seller hereby sells, assigns, transfers and conveys to Purchaser all right, title and interest it has in and to all causes of action and enforcement rights, whether currently pending, filed, or otherwise, in connection with the GhostSteps® Technology, including without limitation all rights to pursue damages, injunctive relief and other remedies for past, current and future infringement, violation or misappropriation of the GhostStep® Technology.

4.3.Transfer.  Starting on the Effective Date of this Agreement Seller shall, at no cost to Purchaser, make its employees, including Mr. Jeffrey M. Dunn, available through remote or face-to-face meetings at Purchaser's site (when reasonably requested and to the extent possible) with Purchaser's employees and consultants, for the purpose of (i) all information and know how relating to use and exploitation of the GhostStep® Technology (ii) assisting Purchaser's employees and consultants to fully understand the GhostStep® Documentation; and (iii) training and counselling Purchaser and its employees and consultants so that Purchaser will be in a position within twelve (12) months of the Effective Date to commercially use and exploit the GhostStep® Technology in its own facility (or that of its designated subcontractors) with its own employees without the assistance of Seller (the "Transfer Services").  If deemed necessary by the Purchas er, the Seller shall make its consultants available to the Purchaser to give effect to this Section 4.3, and the Purchaser agrees to pay for such consultants services, as long as those payments have been approved in writing by the Purchaser prior to being incurred.

4.4.Knowledge Transfer Committee.  Purchaser may, from time to time, organize knowledge transfer meetings for the purpose of monitoring the completion of the Transfer Services.  Seller shall make Mr. Jeffrey M. Dunn and other of its key employees available for such meetings.  Among other subjects, Seller shall use these meetings to (a) direct the form and content of the technical information to be produced in order to properly document the Intellectual Property that is not documented, and (b) agree on the timeline and methodology of the Transfer Services to be performed by Seller with their key personnel.

5.Additional Obligations

5.1.Further Cooperation - Seller.  Seller shall cooperate with Purchaser and shall promptly sign (and have signed by the relevant persons, including without limitation by Mr. Jeffrey M. Dunn) all instruments and agreements necessary to further confirm the assignment set out in this section 4.1 or to allow Purchaser to register, protect, defend or enforce Intellectual Property in the GhostStep® Technology and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the transactions contemplated hereby.  The decision to file for patent, copyright or industrial design protection or to maintain such development as a trade secret shall be in the sole discretion of Purchaser.

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6.Term of Agreement

6.1.This Agreement shall become effective as of the Effective Date and shall continue in full force and effect until the earliest of (i) twenty years from the Effective Date or (ii) the date of the expiration of the last of the Patents or any of the patents related to improvements of the GhostStep® Technology to which Seller or Mr. Jeffrey M. Dunn materially contributes, unless the Agreement is terminated earlier pursuant to the terms of section 7 below.

7.Termination

7.1.Termination for cause.  Upon written notice as specified in this Agreement, Purchaser may terminate this Agreement for cause in the event of any material breach of an obligation therein that remains uncured for thirty (30) days, or for any breach of a material representation and warranty by the Seller.  Seller may terminate this Agreement for cause in the event of non-payment of Royalties more than thirty (30) days after the due date thereof.

7.2.Termination for convenience by Purchaser.  Purchaser may terminate this Agreement for convenience, including but not limited to circumstances where market conditions for sales of GhostStep become unfavorable and if Foremost issues a news release indicating that the Going Public Transaction shall not be completed.  Purchaser shall provide Seller with at least sixty days' prior written notice Seller, which notice shall (i) identify all exclusive and non-exclusive licenses granted by Purchaser that cannot be terminated on thirty (30) days' prior written notice and provide, to the full extent possible, copies of such licenses; and (ii) provide a list of all applied for, issued or registered Intellectual Property in the GhostStep® Technology.

7.3.Effect of Termination.  Upon the termination of the Agreement:

(a)Purchaser is fully and irrevocably, released and discharged by Seller from any payment obligations including the outstanding or future Purchase Price and royalties to Seller with respect to the GhostStep® Technology and any improvements thereto.

(b)Any unvested warrants as of the date of the termination of the Agreement shall be immediately cancelled.

(c)Any unpaid Yearly Payment as of the date of the termination of the Agreement shall be immediately cancelled.

(d)Upon the termination of the Agreement in accordance with Section 7.2, Purchaser shall return all Confidential Information and material pertaining to Intellectual Property in the GhostStep® Technology in its possession (or in its custody or control) to Seller, or destroy such information or material pertaining to such intellectual property as instructed by Seller.  Seller may require Purchaser to confirm, in a sworn statement, that the Confidential Information and material pertaining to Intellectual Property in the GhostStep® Technology were either returned or destroyed.

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(e)Within thirty days from the receipt of the termination notice under Section 7.1 and 7.2, Seller may exercise either or both of the following options by giving written notice to Purchaser:  (i) Seller may request Purchaser to assign all its right. title and interest in and to the GhostStep® Technology, including Intellectual Property therein except any trademarks, trademark applications or registrations and associated goodwill forming part of the GhostStep® Technology ("Trademarks"), and deliver the GhostStep® Documentation back to Seller, in consideration of one dollar, and, to the extent desired by Seller, (ii) to assign all its right, title and interest in and to the Trademarks in consideration of payment of an amount equivalent to all expenses incurred by Purchaser to verify the availability of the Trademarks and to secure protection for such Trademarks, which expenses shall be provided within ten (10) business days of a request being made by Seller to Purchaser after the date of exercise of the right to terminate provided by Section 7.  The consideration shall be payable by Seller at the closing of the transaction, which closing shall occur at the latest on the termination date.  Any assignment by Purchaser to Seller under this Section 7.3(e) shall be on an "as is, where is" basis without any representation, warranty or condition, whether implied, express or provided by law, including without limitation any representation or warranty of merchantability or of non-infringement of third party intellectual property.  The Parties will cooperate promptly to document such assignments for purpose of recordal with the various intellectual property offices, which recordal shall be made at Seller's sole expense.  Purchaser shall be responsible up to the termination date for the fees payable for the filing, prosecution and maintenance of any Intellectual Property in the GhostStep® Technology.  To the extent Seller exercises its option, Seller shall bear, as of the termination date, all expenses related to and be entirely responsible for the filing, prosecution and maintenance of any Intellectual Property in the GhostStep® Technology (other than the Trademarks unless Seller has given the consideration to obtain the assignment thereof).

(f)Seller shall accept the assignment pursuant to Section 7.3 (e) on "as is, as available" basis without any representations, warranties or conditions, including those that may be provided by law, of all licenses entered into by Purchaser with respect to the Intellectual Property in the GhostStep® Technology and become bound by their terms and conditions.

(g)Upon termination by Purchaser pursuant to 7.1, Purchaser shall have the right to claim from Seller actual costs and damages incurred by the Purchaser arising from the material breach, without limitation as to any other remedies Purchaser may have at law.

(h)If a dispute arises out of, or in connection with this Agreement, the parties agree to resolve the dispute through negotiation, mediation or other methods of dispute resolution.

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(i)The obligations set forth in Sections 5.1, 11.1 and 11.2 and Sections 8, 9 and 10 shall remain in full force and effect despite the termination of this Agreement, regardless of the reason therefor.

8.Representations And Warranties

Seller hereby represents and warrants to Purchaser as follows in respect of the GhostStep® Technology and the Intellectual Property therein:

8.1.Authority.  Seller has the right and authority to enter into this Agreement and to carry out its obligations hereunder.

8.2.Title.  Seller has good and marketable exclusive title to the Intellectual Property in the GhostStep® Technology.  The Intellectual Property and all material forming part of the Ghost Step® Technology is free and clear of all liens, mortgages, security interests or other encumbrances, and restrictions on transfer.  There are no actions, suits, investigations, claims or proceedings threatened, pending or in progress relating in any way to the Intellectual Property in the GhostStep® Technology nor to any material forming part of the GhostStep® Technology.  There are no existing and unexpired contracts, agreements, options, commitments, proposals, bids, offers, or rights with, to, or in any person to acquire or license any of the Intellectual Property in the GhostStep® Technology nor to any material forming part of the GhostStep® Technology.

8.3.Completeness of the GhostStep® Technology.  Neither the Seller, nor the directors, officers of the Seller, its Affiliates nor, to the knowledge of the Seller, any persons who contributed to the development of the GhostStep® Technology shall upon execution of this Agreement retain any Intellectual Property that would be necessary in order to commercially exploit the GhostStep® Technology.

8.4.Existing Rights Granted to Others.  No rights, covenants not to sue, licenses of, or any consent to use any Intellectual Property in the GhostStep® Technology have been granted to third parties, including for clarity to any Affiliates of the Seller nor to any persons involved in the development of the GhostStep® Technology, nor for purposes of open innovation, open source, copylefted or free software projects.

8.5.Infringement.  To the knowledge of Seller neither the GhostStep® Technology nor the use and exploitation thereof in any territory violates, infringes, or misappropriates any third party Intellectual Property or would violate, infringe, or misappropriate any third party Intellectual Property.  Neither the Seller, nor, to the knowledge of the Seller, Mr. Jeffrey M. Dunn, have received any communication from a third party advising that the GhostStep') Technology infringes, violates or misappropriates its Intellectual Property or that of another person nor inviting the Seller or Mr. Jeffrey M. Dunn to obtain a license of or purchase Intellectual Property of a third party in connection with the use, development or exploitation of the GhostStep® Technology.

8.6.Third Party Intellectual Property.  To the knowledge of the Seller, the commercialization of products incorporating the GhostStep® Technology as contemplated at closing does not require any third party Intellectual Property or components, other than commercially available off-the-shelf third party components or technologies.  To the knowledge of the Seller, no software, software libraries, technologies, data or material that is the subject of an open innovation project, subject to open source terms, copyrighted or disseminated free of charge has been incorporated into the GhostStep® Technology or is necessary for the use and commercial exploitation of the GhostStep® Technology.

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8.7.Patent Fees.  All fees falling due in connection with the Patents as of the date of this Agreement have been paid in a timely manner by the Seller, and Seller shall not be entitled to any such fees not disclosed to Purchaser and approved in writing by Purchaser, as of the date hereof

8.8.Disclosures.  No disclosures, sales or offers for sale of the GhostStep® Technology have been made by Seller or its Affiliates, their agents, and, to the knowledge of the Seller, by any persons involved in the development of such technology or who have otherwise had access to such technology, that would invalidate in whole or in part the claims of the patent applications set out in Schedule A (assuming a patent issues with identical claims) and any corresponding Patents to issue in countries other than the United States (assuming a set of identical claims).

8.9.Protection of confidential information.  Seller has taken all reasonable steps to preserve the confidentiality of any trade secrets and other confidential information pertaining to the GhostStep® Technology.  All persons that have had access to the GhostStep® Documentation have been at all times legally legal bound by an obligation not to use other than for the purposes of the Seller's business and an obligation not to disclose such information to others.  Seller is not aware of any disclosure, misappropriation, intrusion or data breach that could reasonably compromise the trade secret protection pertaining to the GhostStep® Technology.

8.10.Government.  No government entity, including without limitation the United States Army, has any right in or relating to the GhostStep® Technology and any Intellectual Property in the GhostStep® Technology, including without limitation, any proprietary interest, any license or right to use, any option to obtain a license, any right to use or obtain an assignment of such technology, any right to restrict the sale or licensing of such technology, any right to obtain any part of the proceeds of the sale, licensing or use of such technology, any right to claim the reimbursement of any amounts associated with the development of such technology.

8.11.Restrictions on Rights.  Purchaser will not be subject to any covenant not to sue or similar restrictions on its enforcement or enjoyment of the GhostStep® Technology as a result of the transaction contemplated in this Agreement.

8.12.Enforcement.  Seller has not put any third party on notice of actual or potential infringement, misappropriation or violation of any Intellectual Property in the GhostStep® Technology.

8.13.Conduct.  None of Seller or its representatives has engaged in any conduct, or omitted to perform any necessary act, the result of which would invalidate any of the Intellectual Property in the GhostStep® Technology (including without limitation the Patents) or hinder their enforcement, including but not limited to misrepresenting Seller's patent rights to a standard-setting organization or failing to file a requisite information disclosure statement in a timely manner regarding in connection with a patent application or patent where legally required.

8.14.Patent Office Proceedings.  None of the Patents have been or are currently involved in any pre-issuance submissions by a third party, reexamination, reissue, opposition, interference proceeding, post-grant review proceeding, inter-parties review proceedings, or any similar proceeding and that no such proceedings are pending or threatened.

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8.15.Related Assets.  There are no other patents issued and/or applications pending for or on behalf of Seller nor, to the knowledge of the Seller, on behalf of Mr. Jeffrey M. Dunn or any other person involved in the development of the GhostStep® Technology, which include (or will include) claims such that practice of any of the claims of the Patents conveyed in this Agreement would reasonably require a license under any claim of such other patents.

8.16.Validity and Enforceability.  No Intellectual Property forming part of the GhostStep® Technology has ever been found invalid or unenforceable for any reason in any administrative, arbitration, judicial or other proceeding, and neither Seller nor, to the knowledge of the Seller, Mr. Jeffrey M. Dunn have received any notice or information of any kind from any source suggesting that the Patents may be invalid or unenforceable.  The Seller is not aware of any prior art references that may adversely affect the scope of the claims of the Patents as they currently stand, other than the prior art references that were of record with the U.S. Patent Office prior to the execution of this Agreement and have been communicated to Purchaser prior to such date.

8.17.Development Process.  All contractors, consultants, employees and other persons who contributed to the development, creation or conception of the GhostStep® Technology have entered into intellectual property assignment contracts with and in favour of the Seller whereby each such person has assigned or confirmed the Seller's ownership of all right, title and interest (except moral rights) that such person may possess in and to such any Intellectual Property developed, created or conceived by such person in connection with the GhostStep® Technology in favor of Seller, to the full extent permitted by applicable laws.  Each such contractor, consultant, employee or other person has irrevocably waived in writing its moral rights, where applicable, to any developments created by it on behalf of the Seller in connection with the GhostStep® Technology; wherein said person was an employee, consultant or contractor, where appropriate, the consultant or contractor also obtained the necessary waiver(s) of moral rights from any and all of its own employees, consultants, and contractors involved in the creation of any such Intellectual Property, to the full extent permitted by applicable laws.

8.18.State of GhostStep® Technology.  The GhostStep® Technology has been successfully field tested and no material defects or failures to provide the functionalities described in Schedule A to this Agreement have been observed.  At least one fully operational prototype of a product incorporating the GhostStep® Technology has been produced.  Seller is in possession of a complete copy of all source code of software forming part of the GhostStep® Technology.

8.19.U.S. Securities Laws Matters.  The Seller understands and acknowledges that the Purchaser and any Resulting Issuer is not obligated to file and has no present intention of filing with any United States Securities and Exchange Commission or any state securities regulatory authority or commission any registration statement with respect to the securities to be issued by the Purchaser and any Resulting Issuer as consideration for the Purchase Price.  The Seller understands and acknowledges that the issuances contemplated hereunder are being made in reliance upon exemptions from the registration requirements available under applicable United States federal and state securities laws and that such securities have not been and will not be registered under such laws.  The Seller alone, or with the assistance of financial advisors, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in such securities and it is able to bear the economic risk, and withstand a complete loss, of its entire investment.  The Seller is acquiring such securities for its own account, solely for investment purposes and not with a view to any resale, distribution or other disposition of such securities in violation of applicable United States federal or state securities laws.  The Seller has had access to such information regarding the Purchaser, the Resulting Issuer and the Going Public Transaction as it has considered necessary in connection with its investment decision to acquire such securities.  The Seller understands and acknowledges that upon the original issuance of such securities and until such time as the same is no longer required under applicable requirements of applicable United States federal and state securities laws, certificates representing such securities, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend restricting transfer of such securities in accordance with United States federal and state securities laws.  The Seller understand that there will be restrictions on exercise of the Warrants, and that any such exercise must be exempt from United States federal and state securities laws.  The Seller consents to the Purchaser and the Resulting Issuer making a notation on its records or giving instructions to any transfer agent of such securities in order to implement the restrictions on transfer set forth and described herein.  NTD:  Jeff to review with his attorney

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9.Indemnification

9.1.Indemnification for Breaches of Representations and Warranties.  Seller hereby agrees to indemnify and save harmless the Purchaser, effective as and from the Effective Date, from and against any Losses which it may suffer or incur as a result of, in respect of, or arising out of any non-fulfilment of any covenant or agreement on the part of Seller under this Agreement or any misrepresentation in or breach of any representation or warranty of the Seller contained herein.

9.2.Any amount which Seller is liable to pay to Acquirer pursuant to this Section 9.1 shall bear interest at a rate per annum equal to the Prime Rate, calculated and payable monthly, both before and after judgment, with interest on overdue interest at the same rate, from the date Purchaser disbursed funds, suffered such Losses, to the date of payment by Seller to Purchaser.  Purchaser and Seller each consent that the choice of attorneys pursuant to any Claims will be made exclusively by Purchaser.

9.3.Third Party Claims.  If a Claim is made against Purchaser by a third party for which Purchaser may be entitled to indemnification under Section 9.1, Purchaser shall give notice (the "Indemnity Notice") to Seller specifying the particulars of such Claim forthwith and in any event within thirty (30) days after it receives notification of the Claim.  Failure to give such notice within such time period shall not prejudice the rights of Purchaser except to the extent that the failure to give such notice materially adversely affects the ability of Seller to defend the Claim or to cure the breach or incorrectness of the representation, warranty, covenant or agreement giving rise to the Claim or that Seller suffers damages as a result thereof.  Seller shall have the right to participate in any negotiations or proceedings with respect to such Claim at its own expense.  Purchaser shall not settle or compromise any such Claim without the prior written consent of Seller, which shall not be unreasonably refused.  Purchaser shall cooperate in all reasonable respects in the defense of such Claim but at the expense of Seller.  If Seller fails, after the giving of such notice, diligently and reasonably to defend such Claim throughout the period that such Claim exists, its right to defend the Claim shall terminate and Purchaser may assume the defense of such Claim at the sole expense of Seller.  In such event, Purchaser may compromise or settle such Claim, without the consent of Seller.  If Purchaser becomes aware of a possible infringement by a third party on the GhostStep® Technology, the Intellectual Property, the name GhostStep® and the Patents set out in Schedule A, it shall give notice to Seller of such possible infringement.  In such a case, Purchaser may, at its sole discretion, decide to defend the Patents, but shall not be under any obligation to do so.  If Purchaser decides not to defend the Patent, Seller shall have the right to do so, at its own expense.

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10.Confidentiality

10.1.Ownership.  Seller acknowledges that as of the Effective Date Purchaser becomes the exclusive owner of all Confidential Information related to the GhostStep® Technology.

10.2.Confidentiality of Terms.  Seller and Mr. Jeffrey M. Dunn shall maintain Confidential Information with respect to the GhostStep® Technology and the GhostStep® Documentation with the same care against disclosure that it treats its own proprietary confidential information whether or not ownership is transferred under this agreement.

10.3.Terms of this Agreement.  Seller shall keep the Confidential Information related to the GhostStep® Technology, the GhostStep® Documentation and the terms and existence of this Agreement confidential and shall not now or hereafter divulge any of this information to any third party except:  (a) with the prior written consent of Purchaser, such consent shall not be unreasonably withheld; (b) as otherwise may be required by law or legal process; (c) during the course of litigation, so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating parties; or (d) in confidence to its legal counsel, accountants, banks and financing sources and their advisors solely in connection with proceeding with financial transactions; provided that, in (b) through (d) above, (i) Seller shall use all legitimate and legal means available to minimize the disclosure to third parties, including without limitation seeking a confidential treatment request or protective order whenever appropriate or available; and (ii) Seller shall provide the other Party with at least ten (10) days prior written notice of such disclosure.

11.Miscellaneous

11.1.Governing Law.  Any claim arising under or relating to this Agreement shall be governed by the internal substantive laws applicable in the Province of Ontario without regard to principles of conflict of laws.

11.2.Jurisdiction.  Each party hereby agrees to exclusive jurisdiction and venue in the courts of the judicial district of Ottawa for all disputes and litigation arising under or relating to this Agreement.

11.3.Entire Agreement.  The terms and conditions of this Agreement, including its schedules, constitutes the entire agreement between the parties with respect to the subject matter hereof, and merges and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  No oral explanation or oral information by either party hereto shall alter the meaning or interpretation of this Agreement.  No amendments or modifications shall be effective unless in writing signed by authorized representatives of both parties.  These terms and conditions will prevail notwithstanding any different, conflicting or additional terms and conditions which may appear on any purchase order, acknowledgment or other writing not expressly incorporated into this Agreement.  The following schedules are attached hereto and incorporated herein:  Schedule A (entitled "GhostStep® Technology and associated patent applications"), Schedule B (entitled "Assignment of Patent Rights") and Schedule C (entitled "Form of Assignment Document").

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11.4.Notices:  All notices required or permitted to be given hereunder shall be in writing, shall make reference to this Agreement, and shall be delivered by hand, or dispatched by prepaid air courier or by registered or certified airmail, postage prepaid, addressed as follows:

If to Seller	If to Purchaser
SAGEGUILD, LLC	KWESST Inc.
99 Brookesmill Lane,	Unit #1, 255 Terence Matthews Crescent,
Stafford, VA 22554	Kanata, ONT, K2M 2A8
Attn:	Attn:

Such notices shall be deemed served when received by addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery.  Either Party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party at such changed address.

11.5.Relationship of Parties.  The parties hereto are independent contractors.  Neither party has any express or implied right or authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party.  Nothing in this Agreement shall be construed to create a partnership, joint venture, employment or agency relationship between Seller and Purchaser.

11.6.Equitable Relief.  The Parties agrees that damages alone would be insufficient to compensate for a breach of this Agreement, acknowledges that irreparable harm would result from a breach of this Agreement, and consents to the entering of an order for injunctive relief to prevent a breach or further breach, and the entering of an order for specific performance to compel performance of any obligations under this Agreement.

11.7.Severability.  The terms and conditions stated herein are declared to be severable.  If any paragraph, provision, or clause in this Agreement shall be found or be held to be invalid or unenforceable in any jurisdiction in which this Agreement is being performed, the remainder of this Agreement shall be valid and enforceable and the parties shall use good faith to negotiate a substitute, valid and enforceable provision which most nearly effects the parties' intent in entering into this Agreement.

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11.8.Waiver.  Failure by either party to enforce any term of this Agreement shall not be deemed a waiver of future enforcement of that or any other term in this Agreement or any other agreement that may be in place between the parties.

11.9.Assignment.  The terms and conditions of this Agreement shall inure to the benefit and be binding upon the Parties, their successors, assigns and other legal representatives.

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In witness whereof, the parties have executed this Technology Purchase Agreement as of the Effective Date:

SAGEGUILD, LLC	KWESST Inc.
"Jeffrey M. Dunn"	"Jeff McLeod"
Jeffrey M. Dunn, President	Jeff McLeod, President & CEO
12 Jun 2020	June 12, 2020
Date	Date

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Schedule A

SCHEDULE A

GHOSTSTEP® TECHNOLOGY AND ASSOCIATED PATENT APPLICATIONS

Description of technology:

GhostStep® is a compact, lightweight, selectively expendable electromagnetic transmitter that is able to mimic the EM footprint of small tactical units thereby presenting a sophisticated enemy with a more complex problem.  GhostStep® V1 simultaneously emulates multiple waveforms organic to various ground units.  GhostStep® utilizes high TRL, off the shelf System on Chip technology in a patented configuration.  The decoy is programmable, contains a number of different unit profiles (in order to give the Commander options in the deception plan).  GhostStep® can incorporate Machine Learning in order to emulate actual unit behavior patterns and has been designed with modular external amplifier configurations for flexibility regarding minimum detectable signal, signal to noise ratio, and minimum unattended run-time calculations more accurately.

The technology includes any improvements or enhancements of the foregoing.

Patent applications:

Patent or Application No.	Country	Filing Date	Title and Inventor(s)
US16/116,914	US	30-Aug-2018 (Estimate)	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US16/686,095	US	15-Nov-2019 (Estimate)	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US62/657,706	US	04/13/2018	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)

U.S. patent applications serial 16/116,914 and 16/686,095 for a Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy, claiming the benefit of application serial 62/657,706 filed on 04/13/2018, as well as any other patent applications claiming priority from the foregoing patent applications.

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Description of GhostStep® as a Product

1)Description of GhostStep® as a Product

GhostStep® is a compact, lightweight, selectively expendable Electromagnetic transmitter that

is able to mimic the EM footprint of small tactical units thereby presenting a sophisticated enemy with a more complex problem.  GhostStep® V 1 simultaneously emulates multiple waveforms organic to various ground units.  GhostStep® utilizes high TRL, off the shelf System on Chip technology in a patented configuration.  The decoy is programable, contains a number of different unit profiles (in order to give the Commander options in the deception plan).  GS can incorporate Machine Learning in order to emulate actual unit behavior patterns and has been designed with modular external amplifier configurations for flexibility regarding minimum detectable signal, signal to noise ratio, and minimum unattended run-time calculations more accurately.

The GhostStep® design currently supports frequencies from the low kilowatt ranges all the way to 300GHz and beyond.  The decoy is capable of emitting multiple signals simultaneously (4-8 channels depending on configuration).

2)How We Take it to Market

GhostStep® was funded in early development by the U.S. Army Research Laboratory but as it was a rapid project with an already patented configuration, the IP remained privately owned.  Subsequently the VI Prototype has made tremendously successful showings in live force-on-force exercises and has generated enthusiasm in U.S. DoD markets.  Currently there are several V2 projects under consideration by U.S. DoD. Internationally, KWESST is utilizing its IP to generate a separate yet effective instantiation for the international market.

3)What its Used For

GhostStep® presents an electromagnetic ghost image of a Command Post or Unit to enemy forces attempting to locate our forces with EM detectors.  Two decades of counterinsurgency have atrophied U.S. capabilities to survive near peer adversaries.  Electromagnetic decoys are not just clever tools for audacious, overly imaginative commanders - they will be essential to the survival of U.S. forces if ever confronted by a near-peer threat.  Because the electromagnetic spectrum is easily visible utilizing readily available COTS technology, it will prove catastrophic to present our adversaries with nothing but valid EM signatures.  GhostStep® is an inexpensive, electromagnetic decoy that is simple to operate, contains advanced "system on chip" technology, is man-portable, and entirely programable.  It can simulate numerous signals simultaneously, generates 16Ghz instantaneous non-contiguous bandwidth, serve as a bent-pipe relay for one or more waveforms, and can be prepositioned for remote activation.  For survival on a near-peer battlefield, it is essential to draw enemy attention away from the main effort or dilute the enemy's resources (drones with cameras, jammers, rockets, and missiles).  We must delay and deceive.

19

Schedule B

SCHEDULE B

ASSIGNMENT OF PATENT RIGHTS

For good and valuable consideration, the receipt of which is hereby acknowledged, SAGEGUILD, LLC, having an office at 99 Brookesmill Lane, Stafford, VA 22554, ("Assignor"), does hereby sell, assign, transfer and convey unto KWESST Inc., having an office at Unit 1, 255 Terence Matthews Crescent, Kanata, ONT, K2M 2A8 ("Assignee") or its designees, all of Assignor's right, title and interest in and to the patent applications and patents listed below, any patents, registrations, or certificates of invention issuing on any patent applications listed below, the inventions disclosed in any of the foregoing, any and all counterpart United States, international and foreign patents, applications and certificates of invention based upon or covering any portion of the foregoing, and all reissues, re-examinations, divisionals, renewals, extensions, provisionals, continuations and continuations-in-part of any of the foregoing (collectively "Patent Rights"):

Patent or Application No.	Country	Filing Date	Title and Inventor(s)
US16/116,914	US	30-Aug-2018 (Estimate)	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US16/686,095	US	15-Nov-2019 (Estimate)	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US62/657,706	US	04/13/2018	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)

Assignor further agrees to and hereby does sell, assign, transfer and convey unto Assignee all rights:  (i) in and to causes of action and enforcement rights for the Patent Rights including all rights to pursue damages, injunctive relief and other remedies for past and future infringement of the Patent Rights, and (ii) to apply in any or all countries of the world for patents, certificates of invention or other governmental grants for the Patent Rights, including without limitation under the Paris Convention for the Protection of Industrial Property, the International Patent Cooperation Treaty, or any other convention, treaty, agreement or understanding.  Assignor also hereby authorizes the respective patent office or governmental agency in each jurisdiction to issue any and all patents or certificates of invention which may be granted upon any of the Patent Rights in the name of Assignee, as the assignee to the entire interest therein.

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The terms and conditions of this Assignment shall inure to the benefit of Assignee, its successors, assigns and other legal representatives, and shall be binding upon Assignor, its successor, assigns and other legal representatives.

IN WITNESS WHEREOF this Assignment of Patent Rights is executed at     11:34      on    12 Jun 2020          .

SAGEGUILD, LLC

By:	"Jeffrey M. Dunn"
Name:	Jeffrey M. Dunn
Title	Former CEO/President

KWESST Inc.

By:	"Jeff McLeod"
Name:	Jeff McLeod
Title:	President & CEO

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SCHEDULE C

FORM OF CONFIRMATORY ASSIGNMENT DOCUMENT

In consideration of the engagement by the undersigned (the "Contributor") as an employee, consultant or subcontractor of SAGEGUILD, LLC. (the "Corporation"), the undersigned confirms the existence of the following agreements and covenants as follows:

1.For purposes of this contract, the expression "GhostStep® Technology" means the technology designated as "GhostStep®" summarily described in Schedule 1, all source code or other source material, drawings, prototypes, data, algorithms, marketing materials, and documentation used to test, develop, manufacture, source parts for, operate and otherwise use such technology..

2.Engagement as an employee, consultant or subcontractor in connection with the GhostStep® Technology ("Engagement") may result or has resulted in the development of confidential information for the benefit of the Corporation or will give or has given the Contributor access to proprietary and confidential information belonging to the Corporation, its customers, its suppliers and others (the proprietary and confidential information is collectively referred to in this Agreement as "Confidential Information").  Confidential Information includes but is not limited to technological information, technical data, schematics, source code. prototypes, processes, drawings, know-how, methods, algorithms, designs, software, workflows, customer lists, marketing plans and strategies, and/or financial information.  All Confidential Information remains the confidential and proprietary information of the Corporation.  Confidential Information does not include information that (i) is or becomes public other than through a breach of this Agreement or (ii) is known to the Contributor prior to disclosure by the Corporation as demonstrated by written records.

DISCLOSURE AND OWNERSHIP OF INTELLECTUAL PROPERTY

3.All inventions (whether patentable or not), improvements, technologies, trade secrets, databases, computer programs (including source code), know-how, works of authorship, designs, utility models, formulae, copyrightable works, semi-conductor chip or mask works, social media identifiers, and any other subject-matter that may be protected by an intellectual property right and all applications and registrations of the foregoing in all countries and territories worldwide and under international conventions, solely or jointly obtained, conceived, developed, or reduced to practice, or caused to be obtained, conceived or developed, or reduced to practice by the Contributor in the course of the Contributor's Engagement with the Corporation (the "Corporation IP") shall be disclosed in writing promptly by the Contributor to the Corporation, and shall be the sole and exclusive property of the Corporation, to the full extent applicable as a "work for hire".

4.To the extent that the Corporation IP is not already owned by the Corporation pursuant to any applicable laws, Contributor hereby confirms the assignment and transfer to the Corporation, without additional consideration, of all of his rights, titles and interests to the Corporation IP (except moral rights), (i) at the moment of its creation, development or conception or, to the extent such assignment and transfer cannot be made at the moment of its acquisition, creation, development or conception, will assign and transfer, and (ii) without any restrictions of any nature (the "Assignment").  The Corporation hereby confirms its acceptance of the Assignment.

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5.The Contributor confirms the waiver of any and all moral rights he may have with respect to any Corporation IP, to the full extent permitted by applicable laws.

6.The Contributor acknowledges that all Corporation IP that the Contributor has provided or provides to or for the benefit of the Corporation, whether solely or jointly, was and shall be original and does not and will not violate any intellectual property right and does not and will not violate any confidential information belonging to a former employer or third party, nor any legal or contractual obligation that the Contributor has or may have had toward any former employer or any third party.

OBLIGATIONS REGARDING CONFIDENTIALITY

7.The Contributor acknowledges that the unauthorized disclosure of Confidential Information or its use for any purpose other than his Engagement could be detrimental to the Corporation and contrary to its legitimate interests and that such Confidential Information must be protected at all times.

8.The Contributor shall, both during and after the Contributor's Engagement with the Corporation, keep all Confidential Information confidential and shall not make available, use, disclose, broadcast, sell, transfer, give, publish or distribute any of it except for the purpose of carrying out authorized activities on behalf of the Corporation.  The Contributor may, however, disclose Confidential Information which is required to be disclosed by law, whether under an order of a court or government tribunal or other legal process, provided that Contributor informs the Corporation of such requirement in sufficient time to allow the Corporation to avoid such disclosure by the Contributor.  The Contributor shall ensure that its own employees and contributors are bound by covenants at least as protective of the Confidential Information as this Agreement.

9.Any document or work that the Contributor composed, produced or assembled and that contains Confidential Information (including, without limiting the generality of the foregoing, notes, excerpts, texts or references from which the nature or substance of the Confidential Information may be disclosed implicitly or otherwise) is deemed to be Confidential Information in accordance with the meaning of that term herein and shall be treated as such.

10.The Contributor shall return to the Corporation or destroy, as directed by the Corporation, Confidential Information and material pertaining to Corporation IP upon request by the Corporation at any time.  The Contributor shall certify, by way of affidavit or statutory declaration that all such Confidential Information and Corporation IP has been returned or destroyed, as applicable.

11.The Contributor covenants and agrees not to make and not have made any unauthorized use whatsoever of or to bring onto the Corporation's premises for the purpose of making any un authorized use whatsoever of any trade secrets, confidential information or intellectual property of any third party, including without limitation any trademarks, inventions, trade secrets or copyrighted materials, during the course of the Contributor's Engagement with the Corporation, except in conformity with Corporation policies and with the approval of the Corporation.  In the event Contributor incorporates or has incorporated into any of the Corporation's products, services or materials any confidential information or intellectual property owned or controlled by the Contributor that is not assigned pursuant to this Agreement, Contributor confirms having automatically granted or will automatically grant (or, as applicable, shall procure that the entity it controls grant) an irrevocable, royalty-free, fully paid-up, worldwide, non-exclusive, fully sublicenseable (through multiple tiers) license to use, reproduce, communicate, rent, distribute, perform, make derivative works, and make available such confidential information or intellectual property, for the complete term of protection granted by applicable laws, including any extensions thereof.

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COOPERATION OBLIGATIONS

12.Contributor confirms his agreement to cooperate with the Corporation and its attorneys in the preparation of any patent, copyright or other intellectual property application for Corporation IP and, upon request, shall promptly sign all instruments and agreements and perform any action to:  (i) perfect the Assignment of Corporation IP to the Corporation, (ii) prosecute applications, including patent applications to secure protection for the Corporation IP, or (iii) to defend the rights of the Corporation in the Corporation IP, the whole at no cost to the Corporation.  The decision to file for patent, copyright or other intellectual property protection or to maintain Corporation IP as a trade secret shall be in the sole discretion of the Corporation and the Contributor shall be bound by such decision.

13.The Contributor confirms that he will, if requested from time to time by the Corporation, execute such further reasonable agreements as to confidentiality and proprietary rights as the Corporation, its customers or suppliers reasonably require to protect confidential information or intellectual property and confirm ownership of such subject matter, the whole at no cost to the Corporation.

MISCELLANEOUS

14.The Contributor confirms his undertaking to not violate any intellectual property or trade secrets of any third parties during the Engagement and to advise the Corporation of any such violation or allegation of a violation as soon as the Contributor has knowledge of such violation or allegation of a violation.

15.The Contributor confirms that he has not entered into, and the Contributor agrees that he will not enter into, any agreement either written or oral in conflict herewith.

16.The Contributor confirms that irreparable harm will be suffered by the Corporation in the event of the Contributor's breach or threatened breach of any of his or her obligations under this Agreement, and that the Corporation will be entitled to seek, in addition to any other rights and remedies that it may have at law or equity, a provisional, interlocutory or permanent injunction restraining the Contributor from engaging in or continuing any such breach hereof.  Any claims asserted by the Contributor against the Corporation shall not constitute a defense in any injunction action, application or motion brought against the Contributor by the Corporation.

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17.This Agreement and any written amendment thereto, shall constitute the entire Agreement between the Parties and supersedes all other agreements, oral or written, concerning the subject matter hereof.

18.This Agreement may be assigned by the Corporation to a third party.

19.This Agreement is governed by the laws applicable in the Province of Quebec, excluding conflicts of laws rules, and the parties agree to the exclusive jurisdiction of the courts of in the City of Montreal for any claims arising out of this Agreement.

20.If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, that provision shall be deleted and the other provisions shall remain in effect.

IN WITNESS WHEREOF the Corporation and the Contributor have caused this Agreement to be executed on   12 June 2020     .

[NAME OF CONTRIBUTOR]

By:

Position (if applicable):

SAGEGUILD, LLC

By:	"Jeffrey M. Dunn"
Position: President

Description of technology:

GhostStep® is a compact, lightweight, selectively expendable electromagnetic transmitter that is able to mimic the EM footprint of small tactical units thereby presenting a sophisticated enemy with a more complex problem.  GhostStep® VI simultaneously emulates multiple waveforms organic to various ground units.  GhostStep® utilizes high TRL, off the shelf System on Chip technology in a patented configuration.  The decoy is programmable, contains a number of different unit profiles (in order to give the Commander options in the deception plan).  GhostStep® can incorporate Machine Learning in order to emulate actual unit behavior patterns and has been designed with modular external amplifier configurations for flexibility regarding minimum detectable signal, signal to noise ratio, and minimum unattended run-time calculations more accurately.

The technology includes any improvements or enhancements of the foregoing.  Patent applications:

25

Patent or Application No.	Country	Filing Date	Title and Inventor(s)
US16/116,914	US	30-Aug-2018 (Estimate)	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US16/686,095	US	15-Nov-2019 (Estimate)	Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)
US62/657,706	US	04/13/2018	Programmable Multi Waveform RF Generator for Use as Battlefield Decoy (Application not disclosed to the public)

U.S. patent applications serial 16/116,914 and 16/686,095 for a Programmable Multi-Waveform RF Generator for Use as Battlefield Decoy, claiming the benefit of application serial 62/657,706 filed on 04/13/2018, as well as any other patent applications claiming priority from the foregoing patent applications.

Description of GhostStep® as a Product

1.)Description of GhostStep® as a Product

GhostStep® is a compact, lightweight, selectively expendable Electromagnetic transmitter that is able to mimic the EM footprint of small tactical units thereby presenting a sophisticated enemy with a more complex problem.  GhostStep® VI simultaneously emulates multiple waveforms organic to various ground units.  GhostStep® utilizes high TRL, off the shelf System on Chip technology in a patented configuration.  The decoy is programable, contains a number of different unit profiles (in order to give the Commander options in the deception plan).  GS can incorporate Machine Learning in order to emulate actual unit behavior patterns and has been designed with modular external amplifier configurations for flexibility regarding minimum detectable signal, signal to noise ratio, and minimum unattended run-time calculations more accurately.

The GhostStep® design currently supports frequencies from the low kilowatt ranges all the way to 300GHz and beyond.  The decoy is capable of emitting multiple signals simultaneously (4-8 channels depending on configuration).

26

2.)How We Take it to Market

GhostStep® was funded in early development by the U.S. Army Research Laboratory but as it was a rapid project with an already patented configuration, the IP remained privately owned.  Subsequently the VI Prototype has made tremendously successful showings in live force-on-force exercises and has generated enthusiasm in U.S. DoD markets.  Currently there are several V2 projects under consideration by U.S. DoD.  Internationally, KWESST is utilizing its IP to generate a separate yet effective instantiation for the international market.

3.)What its Used For

GhostStep® presents an electromagnetic ghost image of a Command Post or Unit to enemy forces attempting to locate our forces with EM detectors.  Two decades of counterinsurgency have atrophied U.S. capabilities to survive near peer adversaries.  Electromagnetic decoys are not just clever tools for audacious, overly imaginative commanders - they will be essential to the survival of U.S. forces if ever confronted by a near-peer threat.  Because the electromagnetic spectrum is easily visible utilizing readily available COTS technology, it will prove catastrophic to present our adversaries with nothing but valid EM signatures.  GhostStep® is an inexpensive, electro-magnetic decoy that is simple to operate, contains advanced "system on chip" technology, is man-portable, and entirely programable.  It can simulate numerous signals simultaneously, generates 1 6Ghz instantaneous non-contiguous bandwidth, serve as a bent-pipe relay for one or more waveforms, and can be prepositioned for remote activation.  For survival on a near-peer battlefield, it is essential to draw enemy attention away from the main effort or dilute the enemy's resources (drones with cameras, jammers, rockets, and missiles).  We must delay and deceive.

27

EX-10.4

FORM 2F
CPC ESCROW AGREEMENT

THIS AGREEMENT is made as of the 2^nd day of May, 2018

AMONG:

FOREMOST VENTURES CORP.
(the Issuer)

AND:

TSX TRUST COMPANY
(the Escrow Agent)

AND:

EACH OF THE UNDERSIGNED SECURITYHOLDERS OF THE ISSUER
(a Securityholder or you)

(collectively, the Parties)

This Agreement is being entered into by the Parties under Exchange Policy 2.4 - Capital Pool Companies (the Policy) in connection with a listing of a Capital Pool Company on the TSX Venture Exchange (the Exchange).

For good and valuable consideration, the Parties agree as follows:

PART 1ESCROW

1.1Appointment of Escrow Agent

The Issuer and the Securityholders appoint the Escrow Agent to act as escrow agent under this Agreement.  The Escrow Agent accepts the appointment.

1.2Deposit of Escrow Securities in Escrow

(1)You are depositing the securities (escrow securities) listed opposite your name in Schedule "A" with the Escrow Agent to be held in escrow under this Agreement.  You will immediately deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of these securities which you have or which you may later receive.

(2)If you receive any shares of the Issuer upon exercise of a stock option granted by the Issuer prior to Completion of the Qualifying Transaction, (option securities) you will deposit them with the Escrow Agent.  You will deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of those option securities.  When this Agreement refers to escrow securities, it includes option securities.

FORM 2F	CPC ESCROW AGREEMENT	Page 1
(as of June 14, 2010)

(3)If you receive any other securities (additional escrow securities):

(a)as a dividend or other distribution on escrow securities;

(b)on the exercise of a right of purchase, conversion or exchange attaching to escrow securities, including securities received on conversion of special warrants;

(c)on a subdivision, or compulsory or automatic conversion or exchange of escrow securities; or

(d)from a successor issuer in a business combination, if Part 7 of this Agreement applies,

you will deposit them in escrow with the Escrow Agent.  You will deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of those additional escrow securities.  When this Agreement refers to escrow securities, it includes additional escrow securities.

(4)You will immediately deliver to the Escrow Agent any replacement share certificates or other evidence of option securities or additional escrow securities issued to you.

1.3Direction to Escrow Agent

The Issuer and the Securityholders direct the Escrow Agent to hold the escrow securities in escrow until they are released from escrow under this Agreement.

PART 2RELEASE OF ESCROW SECURITIES

2.1Release Provisions

The provisions of Schedule(s) B(1) are incorporated into and form part of this Agreement.

2.2Release Provisions for Option Securities

The Escrow Agent will release any option securities upon receiving notice from the Exchange that the Issuer has completed a Qualifying Transaction.

2.3Additional escrow securities

If you acquire additional escrow securities in connection with the transaction to which this agreement relates, those securities will be added to the securities already in escrow, to increase the number of remaining escrow securities.  After that, all of the escrow securities will be released in accordance with the applicable release schedule.

FORM 2F	CPC ESCROW AGREEMENT	Page 2
(as of June 14, 2010)

2.4Delivery of Share Certificates for Escrow Securities

The Escrow Agent will send to each Securityholder any share certificates or other evidence of that Securityholder's escrow securities in the possession of the Escrow Agent released from escrow as soon as reasonably practicable after the release.

2.5Replacement Certificates

If, on the date a Securityholder's escrow securities are to be released, the Escrow Agent holds a share certificate or other evidence representing more escrow securities than are to be released, the Escrow Agent will deliver the share certificate or other evidence to the Issuer or its transfer agent and request replacement share certificates or other evidence.  The Issuer will cause replacement share certificates or other evidence to be prepared and delivered to the Escrow Agent.  After the Escrow Agent receives the replacement share certificates or other evidence, the Escrow Agent will send to the Securityholder or at the Securityholder's direction, the replacement share certificate or other evidence of the escrow securities released.  The Escrow Agent and Issuer will act as soon as reasonably practicable.

2.6Release upon Death

(1)If a Securityholder dies, the Securityholder's escrow securities will be released from escrow.  The Escrow Agent will deliver any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent to the Securityholder's legal representative provided that:

(a)the legal representative of the deceased Securityholder provides written notice to the Exchange of the intent to release the escrow securities as at a specified date which is at least 10 business days and not more than 30 business days prior to the proposed release; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to delivery the Escrow Agent must receive:

(a)a certified copy of the death certificate; and

(b)any evidence of the legal representative's status that the Escrow Agent may reasonably require.

2.7Exchange Discretion to Terminate

If the Escrow Agent receives a request from the Exchange to halt or terminate the release of escrow securities from escrow, then the Escrow Agent will comply with that request, and will not release any escrow securities from escrow until it receives the written consent of the Exchange.

FORM 2F	CPC ESCROW AGREEMENT	Page 3
(as of June 14, 2010)

2.8Discretionary Applications

The Exchange may consent to the release from escrow of escrow securities in other circumstances and on terms and on conditions it deems appropriate.  Escrow securities may be released from escrow provided that the Escrow Agent receives written notice from the Exchange.

PART 3EARLY RELEASE ON CHANGE OF ISSUER STATUS

3.1Early Release - Graduation to Tier 1

(1)When a CPC or Resulting Issuer becomes a Tier 1 Issuer, the release schedule for its escrow securities changes.

(2)If the Issuer reasonably believes that it meets the Initial Listing Requirements of a Tier 1 Issuer as described in Policy 2.1 - Initial Listing Requirements, the Issuer may make application to the Exchange to be listed as a Tier 1 Issuer.  The Issuer must also concurrently provide notice to the Escrow Agent that it is making such an application.

(3)If the graduation to Tier 1 is accepted by the Exchange, the Exchange will issue an Exchange Bulletin confirming final acceptance for listing of the Issuer on Tier 1.  Upon issuance of this Bulletin the Issuer must immediately:

(a)issue a news release disclosing:

(i)that it has been accepted for graduation to Tier 1; and

(ii)the number of escrow securities to be released and the dates of release under the new schedule; and

(b)provide the news release, together with a copy of the Exchange Bulletin, to the Escrow Agent.

(4)Upon completion of the steps in section 3.1(3) above, the Issuer's release schedule B(1) will be replaced with release schedule B(2).

(5)Within 10 days of the Exchange Bulletin confirming the Issuer's listing on Tier 1, the Escrow Agent must release any escrow securities from escrow which under the new release schedule would have been releasable at a date prior to the Exchange Bulletin.

PART 4CANCELLATION OF ESCROWED SECURITIES

4.1Delisting of the CPC

If the Issuer fails to complete a Qualifying Transaction, as defined in the applicable Exchange Policy, within 24 months following the date of listing of the Issuer and the Exchange issues an Exchange Bulletin that the Issuer will be delisted, the Issuer must immediately notify the Escrow Agent.

FORM 2F	CPC ESCROW AGREEMENT	Page 4
(as of June 14, 2010)

4.2Cancellation of Certain Escrow Securities Held by Related Parties of the CPC

(1)If the Issuer is delisted prior to Completion of a Qualifying Transaction,

(a)the Escrow Agent will deliver a notice to the Issuer, including any certificates possessed by the Escrow Agent which evidence the escrow securities held by Related Parties to the CPC which were purchased prior to the IPO of the CPC at a discount to the IPO price (the Discount Seed Shares); and

(b)the Issuer and the Escrow Agent must take such action as is necessary to cancel the Discount Seed Shares pursuant to the Policy.

(2)For the purposes of cancellation of Discount Seed Shares, each Securityholder irrevocably appoints the Escrow Agent as his or her attorney, with authority to appoint substitute attorneys, as necessary.

4.3Cancellation of Other Escrow Securities

(1)Any escrow securities which have not been released from escrow under this Agreement as at 4:30 p.m.  (Vancouver time) or 5:30 p.m.  (Calgary time) on the date which is the 10th anniversary of the date of delisting from the Exchange must immediately be cancelled.  The Escrow Agent must deliver a notice to the Issuer, including any certificates possessed by the Escrow Agent which evidence the escrowed securities.  The Issuer and Escrow Agent must take all actions as may be necessary to expeditiously effect cancellation.

(2)For the purposes of cancellation of escrow securities under this Agreement, each Securityholder hereby irrevocably appoints the Escrow Agent as his or her attorney, with authority to appoint substitute attorneys, as necessary.

PART 5DEALING WITH ESCROW SECURITIES

5.1Restriction on Transfer

Unless it is expressly permitted in this Agreement, you will not sell, transfer, assign, mortgage, enter into a derivative transaction concerning, or otherwise deal in any way with your escrow securities or any related share certificates or other evidence of the escrow securities.  If a Securityholder is a private company controlled by one or more Principals of the Issuer, the Securityholder may not participate in a transaction that results in a change of its control or a change in the economic exposure of the Principals to the risks of holding escrow securities.

5.2Pledge, Mortgage or Charge as Collateral for a Loan

Subject to Exchange Acceptance, you may pledge, mortgage or charge your escrow securities to a financial institution as collateral for a loan, provided that no escrow securities or any share certificates or other evidence of escrow securities will be transferred or delivered by the Escrow Agent to the financial institution for this purpose.  The loan agreement must provide that the escrow securities will remain in escrow if the lender realizes on the escrow securities to satisfy the loan.

FORM 2F	CPC ESCROW AGREEMENT	Page 5
(as of June 14, 2010)

5.3Voting of Escrow Securities

Although you may exercise voting rights attached to your escrow securities, you may not, while your securities are held in escrow, exercise voting rights attached to any securities (whether in escrow or not) in support of one or more arrangements that would result in the repayment of capital being made on the escrow securities prior to a winding up of the Issuer.

5.4Dividends on Escrow Securities

You may receive a dividend or other distribution on your escrow securities, and elect the manner of payment from the standard options offered by the Issuer.  If the Escrow Agent receives a dividend or other distribution on your escrow securities, other than additional escrow securities, the Escrow Agent will pay the dividend or other distribution to you on receipt.

5.5Exercise of Other Rights Attaching to Escrow Securities

You may exercise your rights to exchange or convert your escrow securities in accordance with this agreement.

PART 6PERMITTED TRANSFERS WITHIN ESCROW

6.1Transfer to Directors and Senior Officers

(1)You may transfer escrow securities within escrow to existing or, upon their appointment, incoming directors or senior officers of the Issuer or any of its material operating subsidiaries, if the Issuer's board of directors has approved the transfer and provided that:

(a)you make application under the applicable Exchange Policy of the intent to transfer at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certified copy of the resolution of the board of directors of the Issuer approving the transfer;

(b)a certificate signed by a director or officer of the Issuer authorized to sign, stating that the transfer is to a director or senior officer of the Issuer or a material operating subsidiary and that any required acceptance from the Exchange on which the Issuer is listed has been received;

(c)an acknowledgment in the form of Form 5E signed by the transferee; and

(d)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

FORM 2F	CPC ESCROW AGREEMENT	Page 6
(as of June 14, 2010)

(3)A transfer within escrow is a trade within the meaning of securities legislation and may require an exemption or discretionary order.

6.2Transfer to Other Principals

(1)You may transfer escrow securities within escrow:

(a)to a person or company that before the proposed transfer holds more than 20% of the voting rights attached to the Issuer's outstanding securities; or

(b)to a person or company that after the proposed transfer

(i)will hold more than 10% of the voting rights attached to the Issuer's outstanding securities, and

(ii)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries,

provided that:

(c)you make application under the applicable Exchange Policy of the intent to transfer at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(d)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certificate signed by a director or officer of the Issuer authorized to sign, stating that:

(i)the transfer is to a person or company that the officer believes, after reasonable investigation, holds more than 20% of the voting rights attached to the Issuer's outstanding securities before the proposed transfer; or

(ii)the transfer is to a person or company that:

(A)the officer believes, after reasonable investigation, will hold more than 10% of the voting rights attached to the Issuer's outstanding securities; and

(B)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries

after the proposed transfer; and

(iii)any required approval from the Exchange has been received;

FORM 2F	CPC ESCROW AGREEMENT	Page 7
(as of June 14, 2010)

(b)an acknowledgment in the form of Form 5E signed by the transferee; and

(c)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

6.3Transfer upon Bankruptcy

(1)You may transfer escrow securities within escrow to a trustee in bankruptcy or another person or company entitled to escrow securities on bankruptcy provided that

(a)you make application under the applicable Exchange Policy of the intent to transfer at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

(2)Prior to the transfer, the Escrow Agent must receive:

(a)a certified copy of either

(i)the assignment in bankruptcy filed with the Superintendent of Bankruptcy, or

(ii)the receiving order adjudging the Securityholder bankrupt;

(b)a certified copy of a certificate of appointment of the trustee in bankruptcy;

(c)a transfer power of attorney, duly completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(d)an acknowledgment in the form of Form 5E signed by

(i)the trustee in bankruptcy or

(ii)on direction from the trustee, with evidence of that direction attached to the acknowledgment form, another person or company legally entitled to the escrow securities.

6.4Transfer Upon Realization of Pledged, Mortgaged or Charged Escrow Securities

(1)You may transfer within escrow to a financial institution provided that:

(a)you make application under the applicable Exchange Policy of the intent to transfer at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

FORM 2F	CPC ESCROW AGREEMENT	Page 8
(as of June 14, 2010)

(2)Prior to the transfer the Escrow Agent must receive:

(a)a statutory declaration of an officer of the financial institution that the financial institution is legally entitled to the escrow securities;

(b)evidence that the Exchange has accepted the pledge, mortgage or charge of escrow securities to the financial institution;

(c)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent;

and

(d)an acknowledgement in the form of Form 5E signed by the financial institution.

6.5Transfer to Certain Plans and Funds

(1)You may transfer escrow securities within escrow to or between a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or other similar registered plan or fund with a trustee, where the beneficiaries of the plan or fund are limited to you and your spouse, children and parents provided that.

(a)you make application under the applicable Exchange Policy of the intent to transfer at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)evidence from the trustee of the transferee plan or fund, or the trustee's agent, stating that, to the best of the trustee's knowledge, the annuitant of the RRSP or RRIF or the beneficiaries of the other registered plan or fund do not include any person or company other than you and your spouse, children and parents;

(b)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(c)an acknowledgement in the form of Form 5E signed by the trustee of the plan or fund.

6.6Effect of Transfer Within Escrow

After the transfer of escrow securities within escrow, the escrow securities will remain in escrow and released from escrow under this Agreement as if no transfer has occurred, on the same terms that applied before the transfer.  The Escrow Agent will not deliver any share certificates or other evidence of escrow securities to the transferees under this Part 6.

FORM 2F	CPC ESCROW AGREEMENT	Page 9
(as of June 14, 2010)

6.7Discretionary Applications

The Exchange may consent to the transfer within escrow of escrow securities in other circumstances and on such terms and conditions as it deems appropriate.

PART 7BUSINESS COMBINATIONS

7.1Business Combinations

This Part applies to the following (business combinations):

(a)a formal take-over bid for all outstanding equity securities of the Issuer or which, if successful, would result in a change of control of the Issuer

(b)a formal issuer bid for all outstanding equity securities of the Issuer

(c)a statutory arrangement

(d)an amalgamation

(e)a merger

(f)a reorganization that has an effect similar to an amalgamation or merger

7.2Delivery to Escrow Agent

You may tender your escrow securities to a person or company in a business combination.  At least five business days prior to the date the escrow securities must be tendered under the business combination, you must deliver to the Escrow Agent:

(a)a written direction signed by you that directs the Escrow Agent to deliver to the depositary under the business combination any share certificates or other evidence of the escrow securities, and a completed and executed cover letter or similar document and, where required, transfer power of attorney completed and executed for transfer in accordance with the requirements of the Issuer's depository, and any other documentation specified or provided by you and required to be delivered to the depositary under the business combination;

(b)written consent of the Exchange; and

(c)any other information concerning the business combination as the Escrow Agent may reasonably require.

7.3Delivery to Depositary

As soon as reasonably practicable, and in any event no later than three business days after the Escrow Agent receives the documents and information required under section 7.2, the Escrow Agent will deliver to the depositary, in accordance with the direction, any share certificates or other evidence of the escrow securities and a letter addressed to the depositary that

FORM 2F	CPC ESCROW AGREEMENT	Page 10
(as of June 14, 2010)

(a)identifies the escrow securities that are being tendered;

(b)states that the escrow securities are held in escrow;

(c)states that the escrow securities are delivered only for the purposes of the business combination and that they will be released from escrow only after the Escrow Agent receives the information described in section 7.4;

(d)if any share certificates or other evidence of the escrow securities have been delivered to the depositary, requires the depositary to return to the Escrow Agent, as soon as practicable, the share certificates or other evidence of escrow securities that are not released from escrow into the business combination; and

(e)where applicable, requires the depositary to deliver or cause to be delivered to the Escrow Agent, as soon as practicable, share certificates or other evidence of additional escrow securities that you acquire under the business combination.

7.4Release of Escrow Securities to Depositary

(1)The Escrow Agent will release from escrow the tendered escrow securities provided that:

(a)you or the Issuer make application under the applicable Exchange Policy of the intent to release the tendered securities on a date at least 10 business days and not more than 30 business days prior to the date of the proposed release date; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date;

(c)the Escrow Agent receives a declaration signed by the depositary or, if the direction identifies the depositary as acting on behalf of another person or company in respect of the business combination, by that other person or company, that

(i)the terms and conditions of the business combination have been met or waived; and

(ii)the escrow securities have either been taken up and paid for or are subject to an unconditional obligation to be taken up and paid for under the business combination.

7.5Escrow of New Securities

If you receive securities (new securities) of another issuer (successor issuer) in exchange for your escrow securities, the new securities will be subject to escrow in substitution for the tendered escrow securities.

FORM 2F	CPC ESCROW AGREEMENT	Page 11
(as of June 14, 2010)

7.6Release from Escrow of New Securities

(1)The Escrow Agent will send to a Securityholder share certificates or other evidence of the Securityholder's new securities as soon as reasonably practicable after the Escrow Agent receives:

(a)a certificate from the successor issuer signed by a director or officer of the successor issuer authorized to sign

(i)stating that it is a successor issuer to the Issuer as a result of a business combination;

(ii)containing a list of the securityholders whose new securities are subject to escrow under section 7.5;

(iii)containing a list of the securityholders whose new securities are not subject to escrow under section 7.5; and

(b)written confirmation from the Exchange that it has accepted the list of Securityholders whose new securities are not subject to escrow under section 7.5; and

(2)If your new securities are subject to escrow, unless subsection (3) applies, the Escrow Agent will hold your new securities in escrow on the same terms and conditions, including release dates, as applied to the escrow securities that you exchanged.

(3)If the Issuer is a Tier 2 Issuer, and the successor issuer is a Tier 1 Issuer, the release provisions relating to graduation will apply.

PART 8RESIGNATION OF ESCROW AGENT

8.1Resignation of Escrow Agent

(1)If the Escrow Agent wishes to resign as escrow agent, the Escrow Agent will give written notice to the Issuer and the Exchange.

(2)If the Issuer wishes to terminate the Escrow Agent as escrow agent, the Issuer will give written notice to the Escrow Agent and the Exchange.

(3)If the Escrow Agent resigns or is terminated, the Issuer will be responsible for ensuring that the Escrow Agent is replaced not later than the resignation or termination date by another escrow agent that is acceptable to the Exchange and that has accepted such appointment, which appointment will be binding on the Issuer and the Securityholders.

(4)The resignation or termination of the Escrow Agent will be effective, and the Escrow Agent will cease to be bound by this Agreement, on the date that is 60 days after the date of receipt of the notices referred to above by the Escrow Agent or Issuer, as applicable, or on such other date as the Escrow Agent and the Issuer may agree upon (the "resignation or termination date"), provided that the resignation or termination date will not be less than 10 business days before a release date.

FORM 2F	CPC ESCROW AGREEMENT	Page 12
(as of June 14, 2010)

(5)If the Issuer has not appointed a successor escrow agent within 60 days of the resignation or termination date, the Escrow Agent will apply, at the Issuer's expense, to a court of competent jurisdiction for the appointment of a successor escrow agent, and the duties and responsibilities of the Escrow Agent will cease immediately upon such appointment.

(6)On any new appointment under this section, the successor Escrow Agent will be vested with the same powers, rights, duties and obligations as if it had been originally named herein as Escrow Agent, without any further assurance, conveyance, act or deed.  The predecessor Escrow Agent, upon receipt of payment for any outstanding account for its services and expenses then unpaid, will transfer, deliver and pay over to the successor Escrow Agent, who will be entitled to receive, all securities, records or other property on deposit with the predecessor Escrow Agent in relation to this Agreement and the predecessor Escrow Agent will thereupon be discharged as Escrow Agent.

(7)If any changes are made to Part 9 of this Agreement as a result of the appointment of the successor Escrow Agent, those changes must not be inconsistent with the Policy and the terms of this Agreement and the Issuer to this Agreement will file a copy of the new Agreement with the securities regulators with jurisdiction over this Agreement and the escrow securities.

PART 9OTHER CONTRACTUAL ARRANGEMENTS

9.1Escrow Agent Not a Trustee

The Escrow Agent accepts duties and responsibilities under this Agreement, and the escrow securities and any share certificates or other evidence of these securities, solely as a custodian, bailee and agent.  No trust is intended to be, or is or will be, created hereby and the Escrow Agent shall owe no duties hereunder as a trustee.

9.2Escrow Agent Not Responsible for Genuineness

The Escrow Agent will not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any escrow security deposited with it.

9.3Escrow Agent Not Responsible for Furnished Information

The Escrow Agent will have no responsibility for seeking, obtaining, compiling, preparing or determining the accuracy of any information or document, including the representative capacity in which a party purports to act, that the Escrow Agent receives as a condition to a release from escrow or a transfer of escrow securities within escrow under this Agreement.

9.4Escrow Agent Not Responsible after Release

The Escrow Agent will have no responsibility for escrow securities that it has released to a Securityholder or at a Securityholder's direction according to this Agreement.

FORM 2F	CPC ESCROW AGREEMENT	Page 13
(as of June 14, 2010)

9.5Indemnification of Escrow Agent

The Issuer and each Securityholder hereby jointly and severally agree to indemnify and hold harmless the Escrow Agent, its affiliates, and their current and former directors, officers, employees and agents from and against any and all claims, demands, losses, penalties, costs, expenses, fees and liabilities, including, without limitation, legal fees and expenses, directly or indirectly arising out of, in connection with, or in respect of, this Agreement, except where same result directly and principally from gross negligence, willful misconduct or bad faith on the part of the Escrow Agent.  This indemnity survives the release of the escrow securities, the resignation or termination of the Escrow Agent and the termination of this Agreement.

9.6Additional Provisions

(1)The Escrow Agent will be protected in acting and relying reasonably upon any notice, direction, instruction, order, certificate, confirmation, request, waiver, consent, receipt, statutory declaration or other paper or document (collectively referred to as "Documents") furnished to it and purportedly signed by any officer or person required to or entitled to execute and deliver to the Escrow Agent any such Document in connection with this Agreement, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth or accuracy of any information therein contained, which it in good faith believes to be genuine.

(2)The Escrow Agent will not be bound by any notice of a claim or demand with respect thereto, or any waiver, modification, amendment, termination or rescission of this Agreement unless received by it in writing, and signed by the other Parties and approved by the Exchange, and, if the duties or indemnification of the Escrow Agent in this Agreement are affected, unless it has given its prior written consent.

(3)The Escrow Agent may consult with or retain such legal counsel and advisors as it may reasonably require for the purpose of discharging its duties or determining its rights under this Agreement and may rely and act upon the advice of such counsel or advisor.  The Escrow Agent will give written notice to the Issuer as soon as practicable that it has retained legal counsel or other advisors.  The Issuer will pay or reimburse the Escrow Agent for any reasonable fees, expenses and disbursements of such counsel or advisors.

(4)In the event of any disagreement arising under the terms of this Agreement, the Escrow Agent will be entitled, at its option, to refuse to comply with any and all demands whatsoever until the dispute is settled either by a written agreement among the Parties or by a court of competent jurisdiction.

(5)The Escrow Agent will have no duties or responsibilities except as expressly provided in this Agreement and will have no duty or responsibility under the Policy or arising under any other agreement, including any agreement referred to in this Agreement, to which the Escrow Agent is not a party.

(6)The Escrow Agent will have the right not to act and will not be liable for refusing to act unless it has received clear and reasonable documentation that complies with the terms of this Agreement.  Such documentation must not require the exercise of any discretion or independent judgment.

FORM 2F	CPC ESCROW AGREEMENT	Page 14
(as of June 14, 2010)

(7)The Escrow Agent is authorized to cancel any share certificate delivered to it and hold such Securityholder's escrow securities in electronic or uncertificated form only, pending release of such securities from escrow.

(8)The Escrow Agent will have no responsibility with respect to any escrow securities in respect of which no share certificate or other evidence or electronic or uncertificated form of these securities has been delivered to it, or otherwise received by it.

9.7Limitation of Liability of Escrow Agent

The Escrow Agent will not be liable to any of the Parties hereunder for any action taken or omitted to be taken by it under or in connection with this Agreement, except for losses directly, principally and immediately caused by its bad faith, willful misconduct or gross negligence.  Under no circumstances will the Escrow Agent be liable for any special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages hereunder, including any loss of profits, whether foreseeable or unforeseeable.  Notwithstanding the foregoing or any other provision of this Agreement, in no event will the collective liability of the Escrow Agent under or in connection with this Agreement to any one or more Parties, except for losses directly caused by its bad faith or willful misconduct, exceed the amount of its annual fees under this Agreement or the amount of three thousand dollars ($3,000.00), whichever amount shall be greater.

9.8Remuneration of Escrow Agent

The Issuer will pay the Escrow Agent reasonable remuneration for its services under this Agreement, which fees are subject to revision from time to time on 30 days' written notice.  The Issuer will reimburse the Escrow Agent for its expenses and disbursements.  Any amount due under this section and unpaid 30 days after request for such payment, will bear interest from the expiration of such period at a rate per annum equal to the then current rate charged by the Escrow Agent, payable on demand.

In the event the Issuer or the Securityholders fail to pay the Escrow Agent any amounts owing to the Escrow Agent hereunder, the Escrow Agent shall have the right not to act (including the right not to release any additional securities from escrow) and will not be liable for refusing to act until it has been fully paid all amounts owing to it hereunder.  Further, in the event the Issuer fails to pay the Escrow Agent its reasonable remuneration for its services hereunder, the Escrow Agent shall be entitled to charge the Securityholders for any further release of escrowed securities and shall have the right not to act (including the right not to release any additional securities from escrow) until the Securityholders have paid such amounts to the Escrow Agent.

In the event the Issuer or the Securityholders have failed to pay the amounts owing the Escrow Agent hereunder, the Escrow Agent shall not be liable for any loss caused by a delay in the release of the escrowed securities.

FORM 2F	CPC ESCROW AGREEMENT	Page 15
(as of June 14, 2010)

9.9Notice to Escrow Agent

The Issuer shall forthwith provide a copy of the Exchange Bulletin, confirmation of listing and posting for trading of the subject escrowed shares or such other relevant document to the Escrow Agent as it shall require in order to make the required releases.  No duty shall rest with the Escrow Agent to obtain this information independently nor shall it be held liable for any loss, claim, suit or action, howsoever caused by any delay in providing this information to it.

PART 10INDEMNIFICATION OF THE EXCHANGE

10.1Indemnification

(1)The Issuer and each Securityholder jointly and severally:

(a)release, indemnify and save harmless the Exchange from all costs (including legal cost, expenses and disbursements), charges, claims, demands, damages, liabilities, losses and expenses incurred by the Exchange;

(b)agree not to make or bring a claim or demand, or commence any action, against the Exchange; and

(c)agree to indemnify and save harmless the Exchange from all costs (including legal costs) and damages that the Exchange incurs or is required by law to pay as a result of any person's claim, demand or action,

arising from any and every act or omission committed or omitted by the Exchange, in connection with this Agreement, even if said act or omission was negligent, or constituted a breach of the terms of this Agreement.

(2)This indemnity survives the release of the escrow securities and the termination of this Agreement.

PART 11NOTICES

11.1Notice to Escrow Agent

Documents will be considered to have been delivered to the Escrow Agent on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Name:  TSX Trust Company
Attention:  VP Client Management
Address:  301 - 100 Adelaide Street West, Toronto, ON, M5H 4H1
Telephone number:  1 (888) 873-8392
E-mail address:  TMXEClientManagement@tmx.com

FORM 2F	CPC ESCROW AGREEMENT	Page 16
(as of June 14, 2010)

11.2Notice to Issuer

Documents will be considered to have been delivered to the Issuer on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand during normal business hours or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Name:  Foremost Ventures Corp.
Attention:  John Thompson
Address:  Suite 808, 1090 West Pender Street, Vancouver, B.C., V6E 2N7
Telephone number:  1 (604) 230-5176
E-mail address:  jpt@usl.ca

11.3Deliveries to Securityholders

Documents will be considered to have been delivered to a Securityholder on the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the address on the Issuer's share register.

Any share certificates or other evidence of a Securityholder's escrow securities will be sent to the Securityholder's address on the Issuer's share register unless the Securityholder has advised the Escrow Agent in writing otherwise at least ten business days before the escrow securities are released from escrow.  The Issuer will provide the Escrow Agent with each securityholder's address as listed on the Issuer's share register.

11.4Change of Address

(1)The Escrow Agent may change its address for delivery by delivering notice of the change of address to the Issuer and to each Securityholder.

(2)The Issuer may change its address for delivery by delivering notice of the change of address to the Escrow Agent and to each Securityholder.

(3)A Securityholder may change that Securityholder's address for delivery by delivering notice of the change of address to the Issuer and to the Escrow Agent.

11.5Postal Interruption

A party to this Agreement will not mail a Document if the party is aware of an actual or impending disruption of postal service.

PART 12GENERAL

12.1Interpretation - holding securities

Unless the context otherwise requires, all capitalized terms that are not otherwise defined in this Agreement, shall have the meanings as defined in Policy 1.1 - Interpretation or in Policy 5.4 - Escrow, Vendor Consideration and Resale Restrictions.

FORM 2F	CPC ESCROW AGREEMENT	Page 17
(as of June 14, 2010)

When this Agreement refers to securities that a Securityholder "holds", it means that the Securityholder has direct or indirect beneficial ownership of or control or direction over the securities.

12.2Enforcement by Third Parties

The Issuer enters this Agreement both on its own behalf and as trustee for the Exchange and the Securityholders of the Issuer, and this Agreement may be enforced by either the Exchange, or the Securityholders of the Issuer, or both.

12.3Termination, Amendment, and Waiver of Agreement

(1)Subject to subsection 12.3(3), this Agreement shall only terminate:

(a)with respect to all the Parties:

(i)as specifically provided in this Agreement;

(ii)subject to section 12.3(2), upon the agreement of all Parties; or

(iii)when the escrow securities of all Securityholders have been released from escrow pursuant to this Agreement; and

(b)with respect to a Party:

(i)as specifically provided in this Agreement; or

(ii)if the Party is a Securityholder, when all of the Securityholder's escrow securities have been released from escrow pursuant to this Agreement.

(2)An agreement to terminate this Agreement pursuant to section 12.3(1) (a) (ii) shall not be effective unless and until the agreement to terminate

(a)is evidenced by a memorandum in writing signed by all Parties;

(b)if the Issuer is listed on the Exchange, the termination of this Agreement has been consented to in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(3)Notwithstanding any other provision in this Agreement, the obligations set forth in section 10.1 shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.

(4)No amendment or waiver of this Agreement or any part of this Agreement shall be effective unless the amendment or waiver:

(a)is evidenced by a memorandum in writing signed by all Parties;

FORM 2F	CPC ESCROW AGREEMENT	Page 18
(as of June 14, 2010)

(b)if the Issuer is listed on the Exchange, the amendment or waiver of this Agreement has been approved in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(5)No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether similar or not), nor shall any waiver constitute a continuing waiver, unless expressly provided.

12.4Severance of Illegal Provision

Any provision or part of a provision of this Agreement determined by a court of competent jurisdiction to be invalid, illegal or unenforceable shall be deemed stricken to the extent necessary to eliminate any invalidity, illegality or unenforceability, and the rest of the Agreement and all other provisions and parts thereof shall remain in full force and effect and be binding upon the parties hereto as though the said illegal and/or unenforceable provision or part thereof had never been included in this Agreement.

12.5Further Assurances

The Parties will execute and deliver any further documents and perform any further acts reasonably requested by any of the Parties to this Agreement which are necessary to carry out the intent of this Agreement.

12.6Time

Time is of the essence of this Agreement.

12.7Consent of Exchange to Amendment

The Exchange must approve any amendment to this Agreement if the Issuer is listed on the Exchange at the time of the proposed amendment.

12.8Additional Escrow Requirements

A Canadian exchange may impose escrow terms or conditions in addition to those set out in this Agreement.

12.9Governing Laws

The laws of British Columbia and the applicable laws of Canada will govern this Agreement.

12.10Counterparts

The Parties may execute this Agreement by fax and in counterparts, each of which will be considered an original and all of which will be one agreement.

FORM 2F	CPC ESCROW AGREEMENT	Page 19
(as of June 14, 2010)

12.11Singular and Plural

Wherever a singular expression is used in this Agreement, that expression is considered as including the plural or the body corporate where required by the context.

12.12Language

This Agreement has been drawn up in the English language at the request of all parties.  Cet acte a été rédigé en anglais à la demande de toutes les parties.

12.13Benefit and Binding Effect

This Agreement will benefit and bind the Parties and their heirs, executors, administrators, successors and permitted assigns and all persons claiming through them as if they had been a Party to this Agreement.

12.14Entire Agreement

This is the entire agreement among the Parties concerning the subject matter set out in this Agreement and supersedes any and all prior understandings and agreements.

12.15Successor to Escrow Agent

Any corporation with which the Escrow Agent may be amalgamated, merged or consolidated, or any corporation succeeding to the business of the Escrow Agent will be the successor of the Escrow Agent under this Agreement without any further act on its part or on the part or any of the Parties, provided that the successor is recognized by the Exchange.

The Parties have executed and delivered this Agreement as of the date set out above.

TSX TRUST COMPANY

"Deanna Guilfoyle"

Deanna Guilfoyle, Relationship Manager

Authorized signatory

"Julia Yan"

Julia Yan, VP, Regional Sales

Authorized signatory

FOREMOST VENTURES CORP.

Authorized signatory

Authorized signatory

FORM 2F	CPC ESCROW AGREEMENT	Page 20
(as of June 14, 2010)

If the Securityholder is an individual:

Signed, sealed and delivered by	)
Azim Dhalla in the presence of:	)
	)
Mouane Sengsavang	)
Name	)
	)
2569 East 20th Avenue	)	"Azim Dhalla"
Address	)	Azim Dhalla
	)
Vancouver, B.C. V5M 2T5	)
	)
	)
Lawyer	)
Occupation	)

If the Securityholder is an individual:

Signed, sealed and delivered by	)
Frank Stronach in the presence of:	)
	)
Mouane Sengsavang	)
Name	)
	)
2569 East 20th Avenue	)	"Frank Stronach"
Address	)	Frank Stronach
	)
Vancouver, B.C. V5M 2T5	)
	)
	)
Lawyer	)
Occupation	)

FORM 2F	CPC ESCROW AGREEMENT	Page 21
(as of June 14, 2010)

If the Securityholder is an individual:

Signed, sealed and delivered by	)
John McCoach in the presence of:	)
	)
Mouane Sengsavang	)
Name	)
	)
2569 East 20th Avenue	)	"John McCoach"
Address	)	John McCoach
	)
Vancouver, B.C. V5M 2T5	)
	)
	)
Lawyer	)
Occupation	)

If the Securityholder is an individual:

Signed, sealed and delivered by	)
John Thompson in the presence of:	)
	)
Mouane Sengsavang	)
Name	)
	)
2569 East 20th Avenue	)	"John Thompson"
Address	)	John Thompson
	)
Vancouver, B.C. V5M 2T5	)
	)
	)
Lawyer	)
Occupation	)

FORM 2F	CPC ESCROW AGREEMENT	Page 22
(as of June 14, 2010)

Schedule "A" to Escrow Agreement

Securityholder

Name:

Signature:

Address for Notice:

Securities:

Class or description	Number	Certificate(s) (if applicable)
Common shares	500,000	002

Securityholder

Name:

Signature:

Address for Notice:

Securities:

Class or description	Number	Certificate(s) (if applicable)
Common shares	500,000	003

FORM 2F	CPC ESCROW AGREEMENT	Page 23
(as of June 14, 2010)

Securityholder

Name:

Signature:

Address for Notice:

Securities:

Class or description	Number	Certificate(s) (if applicable)
Common shares	500,000	004

Securityholder

Name:

Signature:

Address for Notice:

Securities:

Class or description	Number	Certificate(s) (if applicable)
Common shares	500,000	005

FORM 2F	CPC ESCROW AGREEMENT	Page 24
(as of June 14, 2010)

SCHEDULE B (1) - CPC ESCROW SECURITIES

RELEASE SCHEDULE

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released
[Insert date of Final Exchange Bulletin]	10%	200,000
[Insert date 6 months following Final Exchange Bulletin]	15%	300,000
[Insert date 12 months following Final Exchange Bulletin]	15%	300,000
[Insert date 18 months following Final Exchange Bulletin]	15%	300,000
[Insert date 24 months following Final Exchange Bulletin]	15%	300,000
[Insert date 30 months following Final Exchange Bulletin]	15%	300,000
[Insert date 36 months following Final Exchange Bulletin]	15%	300,000
TOTAL	100%	2,000,000

* In the simplest case, where there are no changes to the escrow securities initially deposited and no additional escrow securities, the release schedule outlined above results in the escrow securities being released in equal tranches of 15% after completion of the release on the date of the Final Exchange Bulletin.

FORM 2F	CPC ESCROW AGREEMENT	Page 25
(as of June 14, 2010)

SCHEDULE B (2) - TIER 1 ISSUER - ESCROW SECURITIES
RELEASE SCHEDULE

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released
[Insert date of Final Exchange Bulletin]	25%
[Insert date 6 months following Final Exchange Bulletin]	25%
[Insert date 12 months following Final Exchange Bulletin]	25%
[Insert date 18 months following Final Exchange Bulletin]	25%
TOTAL	100%

* In the simplest case, where there are no changes to the escrow securities initially deposited and no additional escrow securities, then the release schedule outlined above results in the escrow securities being released in equal tranches of 25%.

FORM 2F	CPC ESCROW AGREEMENT	Page 26
(as of June 14, 2010)

SCHEDULE B (3)
UNDERTAKING OF HOLDING COMPANY

TO:  THE TSX VENTURE EXCHANGE

• (the "Securityholder") has subscribed for and agreed to purchase, as principal, • Common Shares of • (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between • (the "Issuer"), • (the "Escrow Agent") and the Securityholder (the "Escrow Agreement").

The undersigned undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this • day of •.

(Name of Securityholder - please print)

(Authorized Signature)

(Official Capacity - please print)

(Please print here name of individual whose signature appears above)

The Securityholder is directly controlled by the undersigned who undertakes that, to the extent reasonably possible, he will not permit or authorize securities of the Securityholder to be issued or transferred, nor otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this • day of •.

(Signature)

(Name of Controlling Securityholder - please print)

(Signature)

(Name of Controlling Securityholder - please print)

FORM 2F	CPC ESCROW AGREEMENT	Page 27
(as of June 14, 2010)

EX-10.5

FORM 5D

ESCROW AGREEMENT
SURPLUS SECURITY

THIS AGREEMENT is made as of the 17 day of September 2020.

AMONG:

KWESST Micro Systems Inc.

(the "Issuer")

AND:

TSX Trust Company,

(the "Escrow Agent")

AND:

2573685 Ontario Inc., a corporation with an office in West Montrose, Ontario;

Jeffrey MacLeod, an individual residing in West Montrose, Ontario;

Carla Brechin, an individual residing in West Montrose, Ontario;

DEFSEC Corporation, a corporation with an office in Ottawa, Ontario;

PLK Accounting and Finance Inc., a corporation with an office in Toronto, Ontario; and

Paul Mangano, an individual residing in Kennebunk, Maine, USA

EACH OF THE UNDERSIGNED SECURITYHOLDERS OF THE ISSUER (a "Securityholder" or "you")

(collectively, the "Parties")

This Agreement is being entered into by the Parties under Exchange Policy 5.4 - Escrow, Vendor Consideration and Resale Restrictions (the Policy) in connection with a Qualifying Transaction.  The Issuer is a Tier 2 Issuer as described in Policy 2.1 - Initial Listing Requirements.

For good and valuable consideration, the Parties agree as follows:

FORM 5D	ESCROW AGREEMENT	Page 1
(as at June 14, 2010)

PART 1ESCROW

1.1.Appointment of Escrow Agent

The Issuer and the Securityholders appoint the Escrow Agent to act as escrow agent under this Agreement.  The Escrow Agent accepts the appointment.

1.2.Deposit of Escrow Securities in Escrow

(1)You are depositing the securities listed opposite your name in Schedule "A" with the Escrow Agent to be held in escrow under this Agreement.  You will immediately deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of these securities which you have or which you may later receive.

(2)If you receive any other securities:

(a)as a dividend or other distribution on escrow securities;

(b)on the exercise of a right of purchase, conversion or exchange attaching to escrow securities, including securities received on conversion of special warrants;

(c)on a subdivision, or compulsory or automatic conversion or exchange of escrow securities; or

(d)from a successor issuer in a business combination, if Part 6 of this Agreement applies,

you will deposit them in escrow with the Escrow Agent.  You will deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of those additional escrow securities.  When this Agreement refers to escrow securities, it includes additional escrow securities.

(3)You will immediately deliver to the Escrow Agent any replacement share certificates or other evidence of additional escrow securities issued to you.

1.3.Direction to Escrow Agent

The Issuer and the Securityholders direct the Escrow Agent to hold the escrow securities in escrow until they are released from escrow under this Agreement.

PART 2RELEASE OF ESCROW SECURITIES

2.1.Release Provisions

The provisions of Schedules B (4) and B (3) are incorporated into and form part of this Agreement.

FORM 5D	ESCROW AGREEMENT	Page 2
(as at June 14, 2010)

2.2.Additional escrow securities

If you acquire additional escrow securities in connection with the transaction to which this agreement relates, those securities will be added to the securities already in escrow, to increase the number of remaining escrow securities.  After that, all of the escrow securities will be released in accordance with the applicable release schedule.

2.3.Additional Requirements for Tier 2 Surplus Escrow Securities

Where securities are subject to a Tier 2 Surplus Security Escrow Agreement [Schedule B (4)], the following additional conditions apply:

(1)The escrow securities will be cancelled if the asset, property, business or interest therein in consideration of which the securities were issued, is lost, or abandoned, or the operations or development of such asset, property or business is discontinued.

(2)The Escrow Agent will not release escrow securities from escrow under schedule B (4) unless the Escrow Agent has received, within the 15 days prior to the release date, a certificate from the Issuer that:

(a)is signed by two directors or officers of the Issuer;

(b)is dated not more than 30 days prior to the release date;

(c)states that the assets for which the escrow securities were issued (the "Assets") were included as assets on the balance sheet of the Issuer in the most recent financial statements filed by the Issuer with the Exchange; and

(d)states that the Issuer has no reasonable knowledge that the Assets will not be included as assets on the balance sheet of the Issuer in the next financial statements to be filed by the Issuer with the Exchange.

(3)If, at any time during the term of this Agreement, the Escrow Agent is prohibited from releasing escrow securities on a release date specified schedule B(4) as a result of section 2.3 (2) above, then the Escrow Agent will not release any further escrow securities from escrow without the written consent of the Exchange.

(4)If as a result of this section 2.3, the Escrow Agent does not release escrow securities from escrow for a period of five years, then:

(a)the Escrow Agent will deliver a notice to the Issuer, and will include with the notice any certificates that the Escrow Agent holds which evidence the escrow securities; and

(b)the Issuer and the Escrow Agent will take such action as is necessary to cancel the escrow securities.

FORM 5D	ESCROW AGREEMENT	Page 3
(as at June 14, 2010)

(5)For the purposes of cancellation of escrow securities under this section, each Securityholder irrevocably appoints the Escrow Agent as his or her attorney, with authority to appoint substitute attorneys, as necessary.

2.4.Delivery of Share Certificates for Escrow Securities

The Escrow Agent will send to each Securityholder any share certificates or other evidence of that Securityholder's escrow securities in the possession of the Escrow Agent released from escrow as soon as reasonably practicable after the release.

2.5.Replacement Certificates

If, on the date a Securityholder's escrow securities are to be released, the Escrow Agent holds a share certificate or other evidence representing more escrow securities than are to be released, the Escrow Agent will deliver the share certificate or other evidence to the Issuer or its transfer agent and request replacement share certificates or other evidence.  The Issuer will cause replacement share certificates or other evidence to be prepared and delivered to the Escrow Agent.  After the Escrow Agent receives the replacement share certificates or other evidence, the Escrow Agent will send to the Securityholder or at the Securityholder's direction, the replacement share certificate or other evidence of the escrow securities released.  The Escrow Agent and Issuer will act as soon as reasonably practicable.

2.6.Release upon Death

(1)If a Securityholder dies, the Securityholder's escrow securities will be released from escrow.  The Escrow Agent will deliver any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent to the Securityholder's legal representative provided that:

(a)the legal representative of the deceased Securityholder provides written notice to the Exchange of the intent to release the escrow securities as at a specified date which is at least 10 business days and not more than 30 business days prior to the proposed release; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to delivery the Escrow Agent must receive:

(a)a certified copy of the death certificate; and

(b)any evidence of the legal representative's status that the Escrow Agent may reasonably require.

FORM 5D	ESCROW AGREEMENT	Page 4
(as at June 14, 2010)

2.7.Exchange Discretion to Terminate

If the Escrow Agent receives a request from the Exchange to halt or terminate the release of escrow securities from escrow, then the Escrow Agent will comply with that request, and will not release any escrow securities from escrow until it receives the written consent of the Exchange.

2.8.Discretionary Applications

The Exchange may consent to the release from escrow of escrow securities in other circumstances and on terms and on conditions it deems appropriate.  Securities may be released from escrow provided that the Escrow Agent receives written notice from the Exchange.

PART 3EARLY RELEASE ON CHANGE OF ISSUER STATUS

3.1.Early Release - Graduation to Tier 1

(1)When a Tier 2 Issuer becomes a Tier 1 Issuer, the release schedule for its escrow securities changes.

(2)If the Issuer reasonably believes that it meets the Initial Listing Requirements of a Tier 1 Issuer as described in Policy 2.1 - Initial Listing Requirements, the Issuer may make application to the Exchange to be listed as a Tier 1 Issuer.  The Issuer must also concurrently provide notice to the Escrow Agent that it is making such an application.

(3)If the graduation to Tier 1 is accepted by the Exchange, the Exchange will issue an Exchange Bulletin confirming final acceptance for listing of the Issuer on Tier 1.  Upon issuance of this Bulletin the Issuer must immediately:

(a)issue a news release:

(i)disclosing that it has been accepted for graduation to Tier 1; and

(ii)disclosing the number of escrow securities to be released and the dates of release under the new schedule; and

(b)provide the news release, together with a copy of the Exchange Bulletin, to the Escrow Agent.

(4)Upon completion of the steps in section 3.1(3) above, the Issuer's release schedule will be replaced as follows:

Applicable Schedule Pre-Graduation	Applicable Schedule Post-Graduation
Schedule B (4)	Schedule B (3)

(5)Within 10 days of the Exchange Bulletin confirming the Issuer's listing on Tier 1, the Escrow Agent must release any escrow securities from escrow securities which under the new release schedule would have been releasable at a date prior to the Exchange Bulletin.

FORM 5D	ESCROW AGREEMENT	Page 5
(as at June 14, 2010)

PART 4DEALING WITH ESCROW SECURITIES

4.1.Restriction on Transfer, etc.

Unless it is expressly permitted in this Agreement, you will not sell, transfer, assign, mortgage, enter into a derivative transaction concerning, or otherwise deal in any way with your escrow securities or any related share certificates or other evidence of the escrow securities.  If a Securityholder is a private company controlled by one or more Principals of the Issuer, the Securityholder may not participate in a transaction that results in a change of its control or a change in the economic exposure of the Principals to the risks of holding escrow securities.

4.2.Pledge, Mortgage or Charge as Collateral for a Loan

Subject to Exchange acceptance, you may pledge, mortgage or charge your escrow securities to a financial institution as collateral for a loan, provided that no escrow securities or any share certificates or other evidence of escrow securities will be transferred or delivered by the Escrow Agent to the financial institution for this purpose.  The loan agreement must provide that the escrow securities will remain in escrow if the lender realizes on the escrow securities to satisfy the loan.

4.3.Voting of Escrow Securities

Although you may exercise voting rights attached to your escrow securities, you may not, while your securities are held in escrow, exercise voting rights attached to any securities (whether in escrow or not) in support of one or more arrangements that would result in the repayment of capital being made on the escrow securities prior to a winding up of the Issuer.

4.4.Dividends on Escrow Securities

You may receive a dividend or other distribution on your escrow securities and elect the manner of payment from the standard options offered by the Issuer.  If the Escrow Agent receives a dividend or other distribution on your escrow securities, other than additional escrow securities, the Escrow Agent will pay the dividend or other distribution to you on receipt.

4.5.Exercise of Other Rights Attaching to Escrow Securities

You may exercise your rights to exchange or convert your escrow securities in accordance with this agreement.

PART 5PERMITTED TRANSFERS WITHIN ESCROW

5.1.Transfer to Directors and Senior Officers

(1)You may transfer escrow securities within escrow to existing or, upon their appointment, incoming directors or senior officers of the Issuer or any of its material operating subsidiaries, if the Issuer's board of directors has approved the transfer and provided that:

FORM 5D	ESCROW AGREEMENT	Page 6
(as at June 14, 2010)

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certified copy of the resolution of the board of directors of the Issuer approving the transfer;

(b)a certificate signed by a director or officer of the Issuer authorized to sign, stating that the transfer is to a director or senior officer of the Issuer or a material operating subsidiary and that any required acceptance from the Exchange the Issuer is listed on has been received;

(c)an acknowledgment in the form of Form SE signed by the transferee; and

(d)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

5.2.Transfer to Other Principals

(1)You may transfer escrow securities within escrow:

(a)to a person or company that before the proposed transfer holds more than 20% of the voting rights attached to the Issuer's outstanding securities; or

(b)to a person or company that after the proposed transfer

(i)will hold more than 10% of the voting rights attached to the Issuer's outstanding securities, and

(ii)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries,

provided that:

(c)you make an application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(d)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certificate signed by a director or officer of the Issuer authorized to sign, stating that:

FORM 5D	ESCROW AGREEMENT	Page 7
(as at June 14, 2010)

(i)the transfer is to a person or company that the officer believes, after reasonable investigation, holds more than 20% of the voting rights attached to the Issuer's outstanding securities before the proposed transfer; or

(ii)the transfer is to a person or company that:

(A)the officer believes, after reasonable investigation, will hold more than 10% of the voting rights attached to the Issuer's outstanding securities; and

(B)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries

after the proposed transfer; and

(iii)any required approval from the Exchange or any other exchange on which the Issuer is listed has been received;

(b)an acknowledgment in the form of Form 5E signed by the transferee; and

(c)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

5.3.Transfer upon Bankruptcy

(1)You may transfer escrow securities within escrow to a trustee in bankruptcy or another person or company entitled to escrow securities on bankruptcy provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer, the Escrow Agent must receive:

(a)a certified copy of either

(i)the assignment in bankruptcy filed with the Superintendent of Bankruptcy, or

(ii)the receiving order adjudging the Securityholder bankrupt;

(b)a certified copy of a certificate of appointment of the trustee in bankruptcy;

(c)a transfer power of attorney, duly completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

FORM 5D	ESCROW AGREEMENT	Page 8
(as at June 14, 2010)

(d)an acknowledgment in the form of Form 5E signed by

(i)the trustee in bankruptcy or

(ii)on direction from the trustee, with evidence of that direction attached to the acknowledgement form, another person or company legally entitled to the escrow securities.

5.4.Transfer Upon Realization of Pledged, Mortgaged or Charged Escrow Securities

(1)You may transfer escrow securities you have pledged, mortgaged or charged under section 4.2 to a financial institution as collateral for a loan within escrow to the lender on realization provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a statutory declaration of an officer of the financial institution that the financial institution is legally entitled to the escrow securities;

(b)evidence that the Exchange has accepted the pledge, mortgage or charge of escrow securities to the financial institution;

(c)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(d)an acknowledgement in the form of Form 5E signed by the financial institution.

5.5.Transfer to Certain Plans and Funds

(1)You may transfer escrow securities within escrow to or between a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or other similar registered plan or fund with a trustee, where the beneficiaries of the plan or fund are limited to you and your spouse, children and parents provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

FORM 5D	ESCROW AGREEMENT	Page 9
(as at June 14, 2010)

(2)Prior to the transfer the Escrow Agent must receive:

(a)evidence from the trustee of the transferee plan or fund, or the trustee's agent, stating that, to the best of the trustee's knowledge, the annuitant of the RRSP or RRIF or the beneficiaries of the other registered plan or fund do not include any person or company other than you and your spouse, children and parents;

(b)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(c)an acknowledgement in the form of Form 5E signed by the trustee of the plan or fund.

5.6.Effect of Transfer Within Escrow

After the transfer of escrow securities within escrow, the escrow securities will remain in escrow and released from escrow under this Agreement as if no transfer has occurred, on the same terms that applied before the transfer.  The Escrow Agent will not deliver any share certificates or other evidence of the escrow securities to transferees under this Part 5.

5.7.Discretionary Applications

The Exchange may consent to the transfer within escrow of escrow securities in other circumstances and on such terms and conditions as it deems appropriate.

PART 6BUSINESS COMBINATIONS

6.1.Business Combinations

This Part applies to the following:

(a)a formal take-over bid for all outstanding securities of the Issuer or which, if successful, would result in a change of control of the Issuer

(b)a formal issuer bid for all outstanding equity securities of the Issuer

(c)a statutory arrangement

(d)an amalgamation

(e)a merger

(f)a reorganization that has an effect similar to an amalgamation or merger

6.2.Delivery to Escrow Agent

(1)You may tender your escrow securities to a person or company in a business combination.  At least five business days prior to the date the escrow securities must be tendered under the business combination, you must deliver to the Escrow Agent:

FORM 5D	ESCROW AGREEMENT	Page 10
(as at June 14, 2010)

(a)a written direction signed by you that directs the Escrow Agent to deliver to the depositary under the business combination any share certificates or other evidence of the escrow securities and a completed and executed cover letter or similar document and, where required, transfer power of attorney completed and executed for transfer in accordance with the requirements of the Issuer's depository, and any other documentation specified or provided by you and required to be delivered to the depositary under the business combination;

(b)written consent of the Exchange; and

(c)any other information concerning the business combination as the Escrow Agent may reasonably require.

6.3.Delivery to Depositary

(1)As soon as reasonably practicable, and in any event no later than three business days after the Escrow Agent receives the documents and information required under section 6.2, the Escrow Agent will deliver to the depositary, in accordance with the direction, any share certificates or other evidence of the escrow securities, and a letter addressed to the depositary that

(a)identifies the escrow securities that are being tendered;

(b)states that the escrow securities are held in escrow;

(c)states that the escrow securities are delivered only for the purposes of the business combination and that they will be released from escrow only after the Escrow Agent receives the information described in section 6.4;

(d)if any share certificates or other evidence of the escrow securities have been delivered to the depositary, requires the depositary to return to the Escrow Agent, as soon as practicable, the share certificates or other evidence of escrow securities that are not released from escrow into the business combination; and

(e)where applicable, requires the depositary to deliver or cause to be delivered to the Escrow Agent, as soon as practicable, share certificates or other evidence of additional escrow securities that you acquire under the business combination.

6.4.Release of Escrow Securities to Depositary

(1)The Escrow Agent will release from escrow the tendered escrow securities provided that:

(a)you or the Issuer make application to release the tendered securities under the Policy on a date at least 10 business days and not more than 30 business days prior to the date of the proposed release date; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date;

FORM 5D	ESCROW AGREEMENT	Page 11
(as at June 14, 2010)

(c)the Escrow Agent receives a declaration signed by the depositary or, if the direction identifies the depositary as acting on behalf of another person or company in respect of the business combination, by that other person or company, that

(i)the terms and conditions of the business combination have been met or waived; and

(ii)the escrow securities have either been taken up and paid for or are subject to an unconditional obligation to be taken up and paid for under the business combination.

6.5.Escrow of New Securities

(1)If you receive securities of another issuer in exchange for your escrow securities, the new securities will be subject to escrow in substitution for the tendered escrow securities, unless, immediately after completion of the business combination,

(a)the successor issuer is an exempt issuer as defined in the National Policy;

(b)the escrow holder was subject to a Value Security Escrow Agreement and is not a Principal of the successor issuer; and

(c)the escrow holder holds less than 1% of the voting rights attached to the successor issuer's outstanding securities.  (In calculating this percentage, include securities that may be issued to the escrow holder under outstanding convertible securities in both the escrow holder's securities and the total securities outstanding.)

6.6.Release from Escrow of New Securities

(1)The Escrow Agent will send to a Securityholder share certificates or other evidence of the Securityholder's new securities as soon as reasonably practicable after the Escrow Agent receives:

(a)a certificate from the successor issuer signed by a director or officer of the successor issuer authorized to sign

(i)stating that it is a successor issuer to the Issuer as a result of a business combination;

(ii)containing a list of the securityholders whose new securities are subject to escrow under section 6.5;

(iii)containing a list of the securityholders whose new securities are not subject to escrow under section 6.5;

(b)written confirmation from the Exchange that it has accepted the list of Securityholders whose new securities are not subject to escrow under section 6.5.

FORM 5D	ESCROW AGREEMENT	Page 12
(as at June 14, 2010)

(2)The escrow securities of the Securityholders, whose securities are not subject to escrow under section 6.5, will be released, and the Escrow Agent will send any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent in accordance with section 2.4.

(3)If your new securities are subject to escrow, unless subsection (4) applies, the Escrow Agent will hold your new securities in escrow on the same terms and conditions, including release dates, as applied to the escrow securities that you exchanged.

(4)If the Issuer is a Tier 2 Issuer and the successor issuer is a Tier 1 Issuer, the release provisions in section 3.1(4) relating to graduation will apply.

PART 7RESIGNATION OF ESCROW AGENT

7.1.Resignation of Escrow Agent

(1)If the Escrow Agent wishes to resign as escrow agent, the Escrow Agent will give written notice to the Issuer and the Exchange.

(2)If the Issuer wishes to terminate the Escrow Agent as escrow agent, the Issuer will give written notice to the Escrow Agent and the Exchange.

(3)If the Escrow Agent resigns or is terminated, the Issuer will be responsible for ensuring that the Escrow Agent is replaced not later than the resignation or termination date by another escrow agent that is acceptable to the Exchange and that has accepted such appointment, which appointment will be binding on the Issuer and the Securityholders.

(4)The resignation or termination of the Escrow Agent will be effective, and the Escrow Agent will cease to be bound by this Agreement, on the date that is 60 days after the date of receipt of the notices referred to above by the Escrow Agent or Issuer, as applicable, or on such other date as the Escrow Agent and the Issuer may agree upon (the "resignation or termination date"), provided that the resignation or termination date will not be less than 10 business days before a release date.

(5)If the Issuer has not appointed a successor escrow agent within 60 days of the resignation or termination date, the Escrow Agent will apply, at the Issuer's expense, to a court of competent jurisdiction for the appointment of a successor escrow agent, and the duties and responsibilities of the Escrow Agent will cease immediately upon such appointment.

(6)On any new appointment under this section, the successor Escrow Agent will be vested with the same powers, rights, duties and obligations as if it had been originally named herein as Escrow Agent, without any further assurance, conveyance, act or deed.  The predecessor Escrow Agent, upon receipt of payment for any outstanding account for its services and expenses then unpaid, will transfer, deliver and pay over to the successor Escrow Agent, who will be entitled to receive, all securities, records or other property on deposit with the predecessor Escrow Agent in relation to this Agreement and the predecessor Escrow Agent will thereupon be discharged as Escrow Agent.

FORM 5D	ESCROW AGREEMENT	Page 13
(as at June 14, 2010)

(7)If any changes are made to Part 8 of this Agreement as a result of the appointment of the successor Escrow Agent, those changes must not be inconsistent with the Policy and the terms of this Agreement and the Issuer to this Agreement will fie a copy of the new Agreement with the Exchange.

PART 8OTHER CONTRACTUAL ARRANGEMENTS

8.1.Escrow Agent Not a Trustee

The Escrow Agent accepts duties and responsibilities under this Agreement, and the escrow securities and any share certificates or other evidence of these securities, solely as a custodian, bailee and agent.  No trust is intended to be, or is or will be, created hereby and the Escrow Agent shall owe no duties hereunder as a trustee.

8.2.Escrow Agent Not Responsible for Genuineness

The Escrow Agent will not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any escrow security deposited with it.

8.3.Escrow Agent Not Responsible for Furnished Information

The Escrow Agent will have no responsibility for seeking, obtaining, compiling, preparing or determining the accuracy of any information or document, including the representative capacity in which a party purports to act, that the Escrow Agent receives as a condition to a release from escrow or a transfer of escrow securities within escrow under this Agreement.

8.4.Escrow Agent Not Responsible after Release

The Escrow Agent will have no responsibility for escrow securities that it has released to a Securityholder or at a Securityholder's direction according to this Agreement.

8.5.Indemnification of Escrow Agent

The Issuer and each Securityholder hereby jointly and severally agree to indemnify and hold harmless the Escrow Agent, its affiliates, and their current and former directors, officers, employees and agents from and against any and all claims, demands, losses, penalties, costs, expenses, fees and liabilities, including, without limitation, legal fees and expenses, directly or indirectly arising out of, in connection with, or in respect of, this Agreement, except where same result directly and principally from gross negligence, willful misconduct or bad faith on the part of the Escrow Agent.  This indemnity survives the release of the escrow securities, the resignation or termination of the Escrow Agent and the termination of this Agreement.

8.6.Additional Provisions

(1)The Escrow Agent will be protected in acting and relying reasonably upon any notice, direction, instruction, order, certificate, confirmation, request, waiver, consent, receipt, statutory declaration or other paper or document (collectively referred to as "Documents") furnished to it and purportedly signed by any officer or person required to or entitled to execute and deliver to the Escrow Agent any such Document in connection with this Agreement, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth or accuracy of any information therein contained, which it in good faith believes to be genuine.

FORM 5D	ESCROW AGREEMENT	Page 14
(as at June 14, 2010)

(2)The Escrow Agent will not be bound by any notice of a claim or demand with respect thereto, or any waiver, modification, amendment, termination or rescission of this Agreement unless received by it in writing, and signed by the other Parties and approved by the Exchange, and, if the duties or indemnification of the Escrow Agent in this Agreement are affected, unless it has given its prior written consent.

(3)The Escrow Agent may consult with or retain such legal counsel and advisors as it may reasonably require for the purpose of discharging its duties or determining its rights under this Agreement and may rely and act upon the advice of such counsel or advisor.  The Escrow Agent will give written notice to the Issuer as soon as practicable that it has retained legal counsel or other advisors.  The Issuer will pay or reimburse the Escrow Agent for any reasonable fees, expenses and disbursements of such counsel or advisors.

(4)In the event of any disagreement arising under the terms of this Agreement, the Escrow Agent will be entitled, at its option, to refuse to comply with any and all demands whatsoever until the dispute is settled either by a written agreement among the Parties or by a court of competent jurisdiction.

(5)The Escrow Agent will have no duties or responsibilities except as expressly provided in this Agreement and will have no duty or responsibility under the Policy or arising under any other agreement, including any agreement referred to in this Agreement, to which the Escrow Agent is not a party.

(6)The Escrow Agent will have the right not to act and will not be liable for refusing to act unless it has received clear and reasonable documentation that complies with the terms of this Agreement.  Such documentation must not require the exercise of any discretion or independent judgment.

(7)The Escrow Agent is authorized to cancel any share certificate delivered to it and hold such Securityholder's escrow securities in electronic or uncertificated form only, pending release of such securities from escrow.

(8)The Escrow Agent will have no responsibility with respect to any escrow securities in respect of which no share certificate or other evidence or electronic or uncertificated form of these securities has been delivered to it, or otherwise received by it.

8.7.Limitation of Liability of Escrow Agent

The Escrow Agent will not be liable to any of the Parties hereunder for any action taken or omitted to be taken by it under or in connection with this Agreement, except for losses directly, principally and immediately caused by its bad faith, willful misconduct or gross negligence.  Under no circumstances will the Escrow Agent be liable for any special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages hereunder, including any loss of profits, whether foreseeable or unforeseeable.  Notwithstanding the foregoing or any other provision of this Agreement, in no event will the collective liability of the Escrow Agent under or in connection with this Agreement to any one or more Parties, except for losses directly caused by its bad faith or willful misconduct, exceed the amount of its annual fees under this Agreement or the amount of three thousand dollars ($3,000.00), whichever amount shall be greater.

FORM 5D	ESCROW AGREEMENT	Page 15
(as at June 14, 2010)

8.8.Remuneration of Escrow Agent

The Issuer will pay the Escrow Agent reasonable remuneration for its services under this Agreement, which fees are subject to revision from time to time on 30 days' written notice.  The Issuer will reimburse the Escrow Agent for its expenses and disbursements.  Any amount due under this section and unpaid 30 days after request for such payment, will bear interest from the expiration of such period at a rate per annum equal to the then current rate charged by the Escrow Agent, payable on demand.

In the event the Issuer or the Securityholders fail to pay the Escrow Agent any amounts owing to the Escrow Agent hereunder, the Escrow Agent shall have the right not to act (including the right not to release any additional securities from escrow) and will not be liable for refusing to act until it has been fully paid all amounts owing to it hereunder.  Further, in the event the Issuer fails to pay the Escrow Agent its reasonable remuneration for its services hereunder, the Escrow Agent shall be entitled to charge the Securityholders for any further release of escrowed securities and shall have the right not to act (including the right not to release any additional securities from escrow) until the Securityholders have paid such amounts to the Escrow Agent.

In the event the Issuer or the Securityholders have failed to pay the amounts owing the Escrow Agent hereunder, the Escrow Agent shall not be liable for any loss caused by a delay in the release of the escrowed securities.

8.9.Notice to Escrow Agent

The Issuer shall forthwith provide a copy of the Exchange Bulletin, confirmation of listing and posting for trading of the subject escrowed shares or such other relevant document to the Escrow Agent as it shall require in order to make the required releases.  No duty shall rest with the Escrow Agent to obtain this information independently nor shall it be held liable for any loss, claim, suit or action, howsoever caused by any delay in providing this information to it.

PART 9INDEMNIFICATION OF THE EXCHANGE

9.1.Indemnification

(1)The Issuer and each Securityholder jointly and severally:

(a)release, indemnify and save harmless the Exchange from all costs (including legal cost, expenses and disbursements), charges, claims, demands, damages, liabilities, losses and expenses incurred by the Exchange;

(b)agree not to make or bring a claim or demand, or commence any action, against the Exchange; and

FORM 5D	ESCROW AGREEMENT	Page 16
(as at June 14, 2010)

(c)agree to indemnify and save harmless the Exchange from all costs (including legal costs) and damages that the Exchange incurs or is required by law to pay as a result of any person's claim, demand or action,

arising from any and every act or omission committed or omitted by the Exchange, in connection with this Agreement, even if said act or omission was negligent, or constituted a breach of the terms of this Agreement.

(2)This indemnity survives the release of the escrow securities and the termination of this Agreement.

PART 10NOTICES

10.1.Notice to Escrow Agent

Documents will be considered to have been delivered to the Escrow Agent on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand during normal business hours or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Name:  TSX Trust Company
Attention:  VP Client Management
Address:  301 - 100 Adelaide Street West, Toronto, ON, M5H 4H1
Telephone number:  1 (888) 873-8392
E-mail address:  TMXEClientManagement@tmx.com

10.2.Notice to Issuer

Documents will be considered to have been delivered to the Issuer on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

[Name, address, contact person, fax number]

10.3.Deliveries to Securityholders

Documents will be considered to have been delivered to a Securityholder on the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the address on the Issuer's share register.

Any share certificates or other evidence of a Securityholder's escrow securities will be sent to the Securityholder's address on the Issuer's share register unless the Securityholder has advised the Escrow Agent in writing otherwise at least ten business days before the escrow securities are released from escrow.  The Issuer will provide the Escrow Agent with each Securityholder's address as listed on the Issuer's share register.

FORM 5D	ESCROW AGREEMENT	Page 17
(as at June 14, 2010)

10.4.Change of Address

(1)The Escrow Agent may change its address for delivery by delivering notice of the change of address to the Issuer and to each Securityholder.

(2)The Issuer may change its address for delivery by delivering notice of the change of address to the Escrow Agent and to each Securityholder.

(3)A Securityholder may change that Securityholder's address for delivery by delivering notice of the change of address to the Issuer and to the Escrow Agent.

10.5.Postal Interruption

A party to this Agreement will not mail a Document if the party is aware of an actual or impending disruption of postal service.

PART 11GENERAL

11.1.Interpretation - "holding securities"

Unless the context otherwise requires, all capitalized terms that are not otherwise defined in this Agreement, shall have the meanings as defined in Policy 1.1 - Interpretation or in Policy 5.4 - Escrow, Vendor Consideration and Resale Restrictions.

When this Agreement refers to securities that a Securityholder "holds", it means that the Securityholder has direct or indirect beneficial ownership of or control or direction over the securities.

11.2.Enforcement by Third Parties

The Issuer enters this Agreement both on its own behalf and as trustee for the Exchange and the Securityholders of the Issuer, and this Agreement may be enforced by either the Exchange, or the Securityholders of the Issuer, or both.

11.3.Termination, Amendment, and Waiver of Agreement

(1)Subject to subsection 11.3(3), this Agreement shall only terminate:

(a)with respect to all the Parties:

(i)as specifically provided in this Agreement;

(ii)subject to subsection 11.3(2), upon the agreement of all Parties; or

(iii)when the Securities of all Securityholders have been released from escrow pursuant to this Agreement; and

FORM 5D	ESCROW AGREEMENT	Page 18
(as at June 14, 2010)

(b)with respect to a Party:

(i)as specifically provided in this Agreement; or

(ii)if the Party is a Securityholder, when all of the Securityholder's Securities have been released from escrow pursuant to this Agreement.

(2)An agreement to terminate this Agreement pursuant to section 11.3(1)(a)(ii) shall not be effective unless and until the agreement to terminate

(a)is evidenced by a memorandum in writing signed by all Parties;

(b)if the Issuer is listed on the Exchange, the termination of this Agreement has been consented to in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(3)Notwithstanding any other provision in this Agreement, the obligations set forth in section 9.1 shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.

(4)No amendment or waiver of this Agreement or any part of this Agreement shall be effective unless the amendment or waiver:

(a)is evidenced by a memorandum in writing signed by all Parties;

(b)if the Issuer is listed on the Exchange, the amendment or waiver of this Agreement has been approved in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(5)No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether similar or not), nor shall any waiver constitute a continuing waiver, unless expressly provided.

11.4.Severance of Illegal Provision

Any provision or part of a provision of this Agreement determined by a court of competent jurisdiction to be invalid, illegal or unenforceable shall be deemed stricken to the extent necessary to eliminate any invalidity, illegality or unenforceability, and the rest of the Agreement and all other provisions and parts thereof shall remain in full force and effect and be binding upon the parties hereto as though the said illegal and/or unenforceable provision or part thereof had never been included in this Agreement.

FORM 5D	ESCROW AGREEMENT	Page 19
(as at June 14, 2010)

11.5.Further Assurances

The Parties will execute and deliver any further documents and perform any further acts reasonably requested by any of the Parties to this agreement which are necessary to carry out the intent of this Agreement.

11.6.Time

Time is of the essence of this Agreement.

11.7.Consent of Exchange to Amendment

The Exchange must approve any amendment to this Agreement if the Issuer is listed on the Exchange at the time of the proposed amendment.

11.8.Additional Escrow Requirements

A Canadian exchange may impose escrow terms or conditions in addition to those set out in this Agreement.

11.9.Governing Laws

The laws of Ontario and the applicable laws of Canada will govern this Agreement.

11.10.Counterparts

The Parties may execute this Agreement by fax and in counterparts, each of which will be considered an original and all of which will be one agreement.

11.11.Singular and Plural

Wherever a singular expression is used in this Agreement, that expression is considered as including the plural or the body corporate where required by the context.

11.12.Language

This Agreement has been drawn up in the [English/French] language at the request of all parties.  Cet acte a été rédigé en [anglais/francais] à la demande de toutes les parties.

11.13.Benefit and Binding Effect

This Agreement will benefit and bind the Parties and their heirs, executors, administrators, successors and permitted assigns and all persons claiming through them as if they had been a Party to this Agreement.

11.14.Entire Agreement

This is the entire agreement among the Parties concerning the subject matter set out in this Agreement and supersedes any and all prior understandings and agreements.

FORM 5D	ESCROW AGREEMENT	Page 20
(as at June 14, 2010)

11.15.Successor to Escrow Agent

Any corporation with which the Escrow Agent may be amalgamated, merged or consolidated, or any corporation succeeding to the business of the Escrow Agent will be the successor of the Escrow Agent under this Agreement without any further act on its part or on the part or any of the Parties, provided that the successor is recognized by the Exchange.

The Parties have executed and delivered this Agreement as of the date set out above.

(signatures on the following page)

FORM 5D	ESCROW AGREEMENT	Page 21
(as at June 14, 2010)

TSX Trust Company

"Deanna Guilfoyle"

Deanna Guilfoyle

Authorized signatory

"Sandy Hunter"

Sandy Hunter

Authorized signatory

KWESST Micro Systems Inc.

"Jeff McLeod"

Jeff McLeod, CEO

Authorized signatory

"David Luxton"

David Luxton, Executive Chairman

Authorized signatory

Signed, sealed and delivered by	)
Paul Mangano in the presence of:	)
	)
"Paul Mangano"	)
Name	)
	)
	)	"Paul Mangano"
Address	)	Paul Mangano
	)
General Manager	)
Occupation	)
	)
Signed, sealed and delivered by	)
Jeffrey MacLeod in the presence of:	)
	)
Mary Carla Brechin	)
Name	)
	)
	)	"Jeffrey MacLeod"
Address	)	Jeffrey MacLeod
	)
Reatail	)
Occupation	)

FORM 5D	ESCROW AGREEMENT	Page 22
(as at June 14, 2010)

Signed, sealed and delivered by	)
Carla Brechin in the presence of:	)
	)
Jeffrey McLeaod	)
Name	)
	)
	)	"Carla Brechin"
Address	)	Carla Brechin
	)
Businessman	)
Occupation	)

DEFSEC Corporation

"David Luxton"

David Luxton, President

Authorized signatory

2573685 Ontario Inc.

"Jeff McLeod"

Jeff McLeod, CEO

Authorized signatory

PKL Accounting and Finance Inc.

Authorized signatory

FORM 5D	ESCROW AGREEMENT	Page 23
(as at June 14, 2010)

Securityholder

Name: 

Signature:                         

Address for Notice: 

Securities:

Class and Type (i.e. Surplus Securities)	Number	Certificate(s) (if applicable)
Common share purchase warrants exercisable at a price of $0.20 per share	1,000,000

FORM 5D	ESCROW AGREEMENT	Page 24
(as at June 14, 2010)

Securityholder

Name: 

Signature:                  

Address for Notice: 

Securities:

Class and Type (i.e. Surplus Securities)	Number	Certificate(s) (if applicable)
Common share purchase warrants exercisable at a price I of $0.20 per share	1,000,000

FORM 5D	ESCROW AGREEMENT	Page 25
(as at June 14, 2010)

Securityholder

Name: 

Signature:
	Authorized signatory

Address for Notice: 

Securities:

Class and Type (i.e. Surplus Securities)	Number	Certificate(s) (if applicable)
Common shares	3,562,181
Common share purchase warrants exercisable at a price of $0.20 per share	3,000,000

FORM 5D	ESCROW AGREEMENT	Page 26
(as at June 14, 2010)

Securityholder

Name: 

Signature:
	Authorized signatory

Address for Notice: 

Securities:

Class and Type (i.e. Surplus Securities)	Number	Certificate(s) (if applicable)
Common shares	100,000

FORM 5D	ESCROW AGREEMENT	Page 27
(as at June 14, 2010)

SCHEDULE B (3) - TIER 1 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF COMMON SHARES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (2573685 Ontario Inc.)	Total Number of Escrowed Securities to be Released (DEFSEC Corporation)
September 17, 2020	10%	1,045,020	356,218
March 17, 2021	20%	2,090,040	712,436
September 17, 2021	30%	3,135,080	1,068,654
March 17, 2022	40%	4,180,080	1,424,873
TOTAL	100%	10,450,020	3,562,181

FORM 5D	ESCROW AGREEMENT	Page 28
(as at June 14, 2010)

SCHEDULE B (4) - TIER 2 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF SECURITIES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (2573685 Ontario Inc.)	Total Number of Escrowed Securities to be Released (DEFSEC Corporation)
September 17, 2020	5%	522,510	178,109
March 17, 2021	5%	522,510	178,109
September 17, 2021	10%	1,045,020	356,218
March 17, 2022	10%	1,045,020	356,218
September 17, 2022	15%	1,567,530	534,327
March 17, 2023	15%	1,567,530	534,327
September 17, 2023	40%	2,090,040	1,424,873
TOTAL	100%	10,450,200	3,562,181

FORM 5D	ESCROW AGREEMENT	Page 29
(as at June 14, 2010)

SCHEDULE B (3) - TIER 1 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF COMMON SHARES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (PLK Accounting and Finance Inc.)	Total Number of Escrowed Securities to be Released (Paul Mangano)
September 17, 2020	10%	10,000	31,576
March 17, 2021	20%	20,000	63,152
September 17, 2021	30%	30,000	94,728
March 17, 2022	40%	40,000	126,307
TOTAL	100%	100,000	315,763

FORM 5D	ESCROW AGREEMENT	Page 30
(as at June 14, 2010)

SCHEDULE B (4) - TIER 2 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF COMMON SHARES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (PLK Accounting and Finance Inc.)	Total Number of Escrowed Securities to be Released (Paul Mangano)
September 17, 2020	5%	5,000	15,788
March 17, 2021	5%	5,000	15,788
September 17, 2021	10%	10,000	31,576
March 17, 2022	10%	10,000	31,576
September 17, 2022	15%	15,000	47,364
March 17, 2023	15%	15,000	47,364
September 17, 2023	40%	40,000	126,307
TOTAL	100%	100,000	315,763

FORM 5D	ESCROW AGREEMENT	Page 31
(as at June 14, 2010)

SCHEDULE B (3) - TIER 1 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF WARRANTS (exercisable at a price of $0.20 per share) Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (Jeffrey MacLeod)	Total Number of Escrowed Securities to be Released (Carla Brechin)	Total Number of Escrowed Securities to be Released (DEFSEC Corporation)
September 17, 2020	10%	100,000	100,000	300,000
March 17, 2021	20%	200,000	200,000	600,000
September 17, 2021	30%	300,000	300,000	900,000
March 17, 2022	40%	400,000	400,000	1,200,000
TOTAL	100%	1,000,000	1,000,000	3,000,000

FORM 5D	ESCROW AGREEMENT	Page 32
(as at June 14, 2010)

SCHEDULE B (4) - TIER 2 SURPLUS SECURITY ESCROW AGREEMENT

RELEASE OF WARRANTS (exercisable at a price of $0.20 per share)

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (Jeffrey MacLeod)	Total Number of Escrowed Securities to be Released (Carla Brechin)	Total Number of Escrowed Securities to be Released (DEFSEC Corporation)
September 17, 2020	5%	50,000	50,000	150,000
March 17, 2021	5%	50,000	50,000	150,000
September 17, 2021	10%	100,000	100,000	300,000
March 17, 2022	10%	100,000	100,000	300,000
September 17, 2022	15%	150,000	150,000	450,000
March 17, 2023	15%	150,000	150,000	450,000
September 17, 2023	40%	400,000	400,000	1,200,000
TOTAL	100%	1,000,000	1,000,000	3,000,000

FORM 5D	ESCROW AGREEMENT	Page 33
(as at June 14, 2010)

SCHEDULE B (5)
UNDERTAKING OF HOLDING COMPANY

TO:THE TSX VENTURE EXCHANGE

2573685 Ontario Inc. (the "Securityholder") owns, as principal, 10,450.200 Common Shares of KWESST Micro Systems Inc. (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between KWESST Micro Systems Inc. (the "Issuer"), TSX Trust Company and the Securityholder.

The undersigned Securityholder undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange. as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this    16th     day of September 2020.

2573685 Ontario Inc.

(Name of Securityholder - please print)

"Jeffrey MacLeod"

(Authorized Signature)

CEO

(Official Capacity - please print)

Jeffrey MacLeod

(Please print here name of individual whose signature appears above)

The Securityholder is directly controlled by the undersigned who undertakes that, to the extent reasonably possible, he will not permit or authorize securities of the Securityholder to be issued or transferred, nor otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this   16th     day of September 2020.

"Jeffrey. MacLeod"

(Signature)

Jeffrey. MacLeod

(Name of Controlling Securityholder - please print)

(Signature)

(Name of Controlling Securityholder - please print)

FORM 5D	ESCROW AGREEMENT	Page 34
(as at June 14, 2010)

Schedule "A" to Escrow Agreement

Securityholder

Name: 

Signature:
	Authorized signatory

Signature: ______________________________________________________
Authorized signatory

Address for Notice: 

Securities:

Class and Type (i.e. Surplus Securities)	Number	Certificate(s) (if applicable)
Common shares	10,450,200

FORM 5D	ESCROW AGREEMENT	Page 35
(as at June 14, 2010)

SCHEDULE B (5)
UNDERTAKING OF HOLDING COMPANY

TO:THE TSX VENTURE EXCHANGE

PLK Accounting and Finance Inc. (the "Securityholder") owns, as principal, 100,000 Common Shares of KWESST Micro Systems Inc. (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between KWESST Micro Systems Inc. (the "Issuer"), TSX Trust Company and the Securityholder.

The undersigned Securityholder undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this 16 day of September 2020.

PLK Accounting & Finance Inc.

(Name of Securityholder - please print)

"Paul Kania"

(Authorized Signature)

President

(Official Capacity - please print)

Paul Kania

(Please print here name of individual whose signature appears above)

The Securityholder is directly controlled by the undersigned who undertakes that, to the extent reasonably possible, he will not permit or authorize securities of the Securityholder to be issued or transferred, nor otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this 16 day of September 2020.

"Paul Kania"

(Signature)

Paul Kania

(Name of Controlling Securityholder - please print)

(Signature)

(Name of Controlling Securityholder - please print)

FORM 5D	ESCROW AGREEMENT	Page 36
(as at June 14, 2010)

SCHEDULE B (5)
UNDERTAKING OF HOLDING COMPANY

TO:THE TSX VENTURE EXCHANGE

DEFSEC Corporation (the "Securityholder") owns, as principal, 3,562,181Common Shares and 2,000,000 common share purchase warrants of KWESST Micro Systems Inc. (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between KWESST Micro Systems Inc. (the "Issuer"), TSX Trust Company and the Securityholder.

The undersigned Securityholder undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this   17   day of September 2020.

DEFSEC CORPORATION

(Name of Securityholder - please print)

"David Luxton"

(Authorized Signature)

President

(Official Capacity - please print)

David Luxton

(Please print here name of individual whose signature appears above)

The Securityholder is directly controlled by the undersigned who undertakes that, to the extent reasonably possible, he will not permit or authorize securities of the Securityholder to be issued or transferred, nor otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this   17   day of September 2020.

"David Luxton"

(Signature)

David Luxton

(Name of Controlling Securityholder - please print)

(as at June 14, 2010)

EX-10.6

FORM 5D

ESCROW AGREEMENT
VALUE SECURITY

THIS AGREEMENT is made as of the 17 day of September 2020

AMONG:

KWESST Micro Systems Inc., a corporation with an office in the City of Ottawa, Ontario

(the "Issuer")

AND:

TSX Trust Company,

(the "Escrow Agent")

AND:

Mary Lou Parise, an individual resident in the city of Vancouver, BC;

Fiducie Familiale du Clan Brady, a trust created under the laws of the Province of Quebec; and

10040932 Canada Inc., a corporation with an office in the City of Ottawa, Ontario

EACH OF THE UNDERSIGNED SECURITYHOLDERS OF THE ISSUER (a "Securityholder" or "you")

(collectively, the "Parties")

This Agreement is being entered into by the Parties under Exchange Policy 5.4 - Escrow, Vendor Consideration and Resale Restrictions (the Policy) in connection with a Qualifying Transaction.  The Issuer is a Tier 2 Issuer as described in Policy 2.1 - Initial Listing Requirements.

For good and valuable consideration, the Parties agree as follows:

FORM 5D	ESCROW AGREEMENTS	Page 1
(as at June 14, 2010)

PART 1ESCROW

1.1Appointment of Escrow Agent

The Issuer and the Securityholders appoint the Escrow Agent to act as escrow agent under this Agreement.  The Escrow Agent accepts the appointment.

1.2Deposit of Escrow Securities in Escrow

(1)You are depositing the securities listed opposite your name in Schedule "A" with the Escrow Agent to be held in escrow under this Agreement.  You will immediately deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of these securities which you have or which you may later receive.

(2)If you receive any other securities:

(a)as a dividend or other distribution on escrow securities;

(b)on the exercise of a right of purchase, conversion or exchange attaching to escrow securities, including securities received on conversion of special warrants;

(c)on a subdivision, or compulsory or automatic conversion or exchange of escrow securities; or

(d)from a successor issuer in a business combination, if Part 6 of this Agreement applies,

you will deposit them in escrow with the Escrow Agent.  You will deliver or cause to be delivered to the Escrow Agent any share certificates or other evidence of those additional escrow securities.  When this Agreement refers to escrow securities, it includes additional escrow securities.

(3)You will immediately deliver to the Escrow Agent any replacement share certificates or other evidence of additional escrow securities issued to you.

1.3Direction to Escrow Agent

The Issuer and the Securityholders direct the Escrow Agent to hold the escrow securities in escrow until they are released from escrow under this Agreement.

PART 2RELEASE OF ESCROW SECURITIES

2.1Release Provisions

The provisions of Schedules B (1) and B (2) are incorporated into and form part of this Agreement.

FORM 5D	ESCROW AGREEMENTS	Page 2
(as at June 14, 2010)

2.2Additional escrow securities

If you acquire additional escrow securities in connection with the transaction to which this agreement relates, those securities will be added to the securities already in escrow, to increase the number of remaining escrow securities.  After that, all of the escrow securities will be released in accordance with the applicable release schedule.

2.3Additional Requirements for Tier 2 Surplus Escrow Securities

Where securities are subject to a Tier 2 Surplus Security Escrow Agreement [Schedule B(4)], the following additional conditions apply:

(1)The escrow securities will be cancelled if the asset, property, business or interest, therein in consideration of which the securities were issued, is lost, or abandoned, or the operations or development of such asset, property or business is discontinued.

(2)The Escrow Agent will not release escrow securities from escrow under schedule B(4) unless the Escrow Agent has received, within the 15 days prior to the release date, a certificate from the Issuer that:

(a)is signed by two directors or officers of the Issuer;

(b)is dated not more than 30 days prior to the release date;

(c)states that the assets for which the escrow securities were issued (the "Assets") were included as assets on the balance sheet of the Issuer in the most recent financial statements filed by the Issuer with the Exchange; and

(d)states that the Issuer has no reasonable knowledge that the Assets will not be included as assets on the balance sheet of the Issuer in the next financial statements to be filed by the Issuer with the Exchange.

(3)If, at any time during the term of this Agreement, the Escrow Agent is prohibited from releasing escrow securities on a release date specified schedule 13(4) as a result of section 2.3(2) above, then the Escrow Agent will not release any further escrow securities from escrow without the written consent of the Exchange.

(4)If as a result of this section 2.3, the Escrow Agent does not release escrow securities from escrow for a period of five years, then:

(a)the Escrow Agent will deliver a notice to the Issuer, and will include with the notice any certificates that the Escrow Agent holds which evidence the escrow securities; and

(b)the Issuer and the Escrow Agent will take such action as is necessary to cancel the escrow securities.

FORM 5D	ESCROW AGREEMENTS	Page 3
(as at June 14, 2010)

(5)For the purposes of cancellation of escrow securities under this section, each Securityholder irrevocably appoints the Escrow Agent as his or her attorney, with authority to appoint substitute attorneys, as necessary.

2.4Delivery of Share Certificates for Escrow Securities

The Escrow Agent will send to each Securityholder any share certificates or other evidence of that Securityholder's escrow securities in the possession of the Escrow Agent released from escrow as soon as reasonably practicable after the release.

2.5Replacement Certificates

If, on the date a Securityholder's escrow securities are to be released, the Escrow Agent holds a share certificate or other evidence representing more escrow securities than are to be released, the Escrow Agent will deliver the share certificate or other evidence to the Issuer or its transfer agent and request replacement share certificates or other evidence.  The Issuer will cause replacement share certificates or other evidence to be prepared and delivered to the Escrow Agent.  After the Escrow Agent receives the replacement share certificates or other evidence, the Escrow Agent will send to the Securityholder or at the Securityholder's direction, the replacement share certificate or other evidence of the escrow securities released.  The Escrow Agent and Issuer will act as soon as reasonably practicable.

2.6Release upon Death

(1)If a Securityholder dies, the Securityholder's escrow securities will be released from escrow.  The Escrow Agent will deliver any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent to the Securityholder's legal representative provided that:

(a)the legal representative of the deceased Securityholder provides written notice to the Exchange of the intent to release the escrow securities as at a specified date which is at least 10 business days and not more than 30 business days prior to the proposed release; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

(2)Prior to delivery the Escrow Agent must receive:

(a)a certified copy of the death certificate; and

(b)any evidence of the legal representative's status that the Escrow Agent may reasonably require.

FORM 5D	ESCROW AGREEMENTS	Page 4
(as at June 14, 2010)

2.7Exchange Discretion to Terminate

If the Escrow Agent receives a request from the Exchange to halt or terminate the release of escrow securities from escrow, then the Escrow Agent will comply with that request, and will not release any escrow securities from escrow until it receives the written consent of the Exchange.

2.8Discretionary Applications

The Exchange may consent to the release from escrow of escrow securities in other circumstances and on terms and on conditions it deems appropriate.  Securities may be released from escrow provided that the Escrow Agent receives written notice from the Exchange.

PART 3EARLY RELEASE ON CHANGE OF ISSUER STATUS

3.1Early Release - Graduation to Tier I

(1)When a Tier 2 Issuer becomes a Tier 1 Issuer, the release schedule for its escrow securities changes.

(2)If the Issuer reasonably believes that it meets the Initial Listing Requirements of a Tier 1 Issuer as described in Policy 2.1 - Initial Listing Requirements, the Issuer may make application to the Exchange to be listed as a Tier 1 Issuer.  The Issuer must also concurrently provide notice to the Escrow Agent that it is making such an application.

(3)If the graduation to Tier 1 is accepted by the Exchange, the Exchange will issue an Exchange Bulletin confirming final acceptance for listing of the Issuer on Tier I.  Upon issuance of this Bulletin the Issuer must immediately:

(a)issue a news release:

(i)disclosing that it has been accepted for graduation to Tier 1; and

(ii)disclosing the number of escrow securities to be released and the dates of release under the new schedule; and

(b)provide the news release, together with a copy of the Exchange Bulletin, to the Escrow Agent.

(4)Upon completion of the steps in section 3.1(3) above, the Issuer's release schedule will be replaced as follows:

Applicable Schedule Pre-Graduation	Applicable Schedule Post-Graduation
Schedule B (2)	Schedule B (1)

(5)Within 10 days of the Exchange Bulletin confirming the Issuer's listing on Tier 1, the Escrow Agent must release any escrow securities from escrow securities which under the new release schedule would have been releasable at a date prior to the Exchange Bulletin.

FORM 5D	ESCROW AGREEMENTS	Page 5
(as at June 14, 2010)

PART 4DEALING WITH ESCROW SECURITIES

4.1Restriction on Transfer, etc.

Unless it is expressly permitted in this Agreement, you will not sell, transfer, assign, mortgage, enter into a derivative transaction concerning, or otherwise deal in any way with your escrow securities or any related share certificates or other evidence of the escrow securities.  If a Securityholder is a private company controlled by one or more Principals of the Issuer, the Securityholder may not participate in a transaction that results in a change of its control or a change in the economic exposure of the Principals to the risks of holding escrow securities.

4.2Pledge, Mortgage or Charge as Collateral for a Loan

Subject to Exchange acceptance, you may pledge, mortgage or charge your escrow securities to a financial institution as collateral for a loan, provided that no escrow securities or any share certificates or other evidence of escrow securities will be transferred or delivered by the Escrow Agent to the financial institution for this purpose.  The loan agreement must provide that the escrow securities will remain in escrow if the lender realizes on the escrow securities to satisfy the loan.

4.3Voting of Escrow Securities

Although you may exercise voting rights attached to your escrow securities, you may not, while your securities are held in escrow, exercise voting rights attached to any securities (whether in escrow or not) in support of one or more arrangements that would result in the repayment of capital being made on the escrow securities prior to a winding up of the Issuer.

4.4Dividends on Escrow Securities

You may receive a dividend or other distribution on your escrow securities and elect the manner of payment from the standard options offered by the Issuer.  If the Escrow Agent receives a dividend or other distribution on your escrow securities, other than additional escrow securities, the Escrow Agent will pay the dividend or other distribution to you on receipt.

4.5Exercise of Other Rights Attaching to Escrow Securities

You may exercise your rights to exchange or convert your escrow securities in accordance with this agreement.

PART 5PERMITTED TRANSFERS WITHIN ESCROW

5.1Transfer to Directors and Senior Officers

(1)You may transfer escrow securities within escrow to existing or, upon their appointment, incoming directors or senior officers of the Issuer or any of its material operating subsidiaries, if the Issuer's board of directors has approved the transfer and provided that:

FORM 5D	ESCROW AGREEMENTS	Page 6
(as at June 14, 2010)

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certified copy of the resolution of the board of directors of the Issuer approving the transfer;

(b)a certificate signed by a director or officer of the Issuer authorized to sign, stating that the transfer is to a director or senior officer of the Issuer or a material operating subsidiary and that any required acceptance from the Exchange the Issuer is listed on has been received;

(c)an acknowledgment in the form of Form 5E signed by the transferee; and

(d)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

5.2Transfer to Other Principals

(1)You may transfer escrow securities within escrow:

(a)to a person or company that before the proposed transfer holds more than 20% of the voting rights attached to the Issuer's outstanding securities; or

(b)to a person or company that after the proposed transfer

(i)will hold more than 10% of the voting rights attached to the Issuer's outstanding securities, and

(ii)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries,

provided that:

(c)you make an application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(d)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

FORM 5D	ESCROW AGREEMENTS	Page 7
(as at June 14, 2010)

(2)Prior to the transfer the Escrow Agent must receive:

(a)a certificate signed by a director or officer of the Issuer authorized to sign, stating that:

(i)the transfer is to a person or company that the officer believes, after reasonable investigation, holds more than 20% of the voting rights attached to the Issuer's outstanding securities before the proposed transfer; or

(ii)the transfer is to a person or company that:

(A)the officer believes, after reasonable investigation, will hold more than 10% of the voting rights attached to the Issuer's outstanding securities; and

(B)has the right to elect or appoint one or more directors or senior officers of the Issuer or any of its material operating subsidiaries

after the proposed transfer; and

(iii)any required approval from the Exchange or any other exchange on which the Issuer is listed has been received;

(b)an acknowledgment in the form of Form 5E signed by the transferee; and

(c)a transfer power of attorney completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent.

5.3Transfer upon Bankruptcy

(1)You may transfer escrow securities within escrow to a trustee in bankruptcy or another person or company entitled to escrow securities on bankruptcy provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date.

(2)Prior to the transfer, the Escrow Agent must receive:

(a)a certified copy of either

(i)the assignment in bankruptcy filed with the Superintendent of Bankruptcy, or

(ii)the receiving order adjudging the Securityholder bankrupt;

(b)a certified copy of a certificate of appointment of the trustee in bankruptcy;

FORM 5D	ESCROW AGREEMENTS	Page 8
(as at June 14, 2010)

(c)a transfer power of attorney, duly completed and executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(d)an acknowledgment in the form of Form 5E signed by

(i)the trustee in bankruptcy or

(ii)on direction from the trustee, with evidence of that direction attached to the acknowledgement form, another person or company legally entitled to the escrow securities.

5.4Transfer Upon Realization of Pledged, Mortgaged or Charged Escrow Securities

(1)You may transfer escrow securities you have pledged, mortgaged or charged under section 4.2 to a financial institution as collateral for a loan within escrow to the lender on realization provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

(2)Prior to the transfer the Escrow Agent must receive:

(a)a statutory declaration of an officer of the financial institution that the financial institution is legally entitled to the escrow securities;

(b)evidence that the Exchange has accepted the pledge, mortgage or charge of escrow securities to the financial institution;

(c)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(d)an acknowledgement in the form of Form SE signed by the financial institution.

5.5Transfer to Certain Plans and Funds

(1)You may transfer escrow securities within escrow to or between a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or other similar registered plan or fund with a trustee, where the beneficiaries of the plan or fund are limited to you and your spouse, children and parents provided that:

(a)you make application to transfer under the Policy at least 10 business days and not more than 30 business days prior to the date of the proposed transfer; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m. (Vancouver time) or 11:00 a.m. (Calgary time) on such specified date.

FORM 5D	ESCROW AGREEMENTS	Page 9
(as at June 14, 2010)

(2)Prior to the transfer the Escrow Agent must receive:

(a)evidence from the trustee of the transferee plan or fund, or the trustee's agent, stating that, to the best of the trustee's knowledge, the annuitant of the RRSP or RRIF or the beneficiaries of the other registered plan or fund do not include any person or company other than you and your spouse, children and parents;

(b)a transfer power of attorney, executed by the transferor in accordance with the requirements of the Issuer's transfer agent; and

(c)an acknowledgement in the form of Form 5E signed by the trustee of the plan or fund.

5.6Effect of Transfer Within Escrow

After the transfer of escrow securities within escrow, the escrow securities will remain in escrow and released from escrow under this Agreement as if no transfer has occurred, on the same terms that applied before the transfer.  The Escrow Agent will not deliver any share certificates or other evidence of the escrow securities to transferees under this Part 5.

5.7Discretionary Applications

The Exchange may consent to the transfer within escrow of escrow securities in other circumstances and on such terms and conditions as it deems appropriate.

PART 6BUSINESS COMBINATIONS

6.1Business Combinations

This Part applies to the following:

(a)a formal take-over bid for all outstanding securities of the Issuer or which, if successful, would result in a change of control of the Issuer

(b)a formal issuer bid for all outstanding equity securities of the Issuer

(c)a statutory arrangement

(d)an amalgamation

(e)a merger

(f)a reorganization that has an effect similar to an amalgamation or merger

6.2Delivery to Escrow Agent

(1)You may tender your escrow securities to a person or company in a business combination.  At least five business days prior to the date the escrow securities must be tendered under the business combination, you must deliver to the Escrow Agent:

FORM 5D	ESCROW AGREEMENTS	Page 10
(as at June 14, 2010)

(a)a written direction signed by you that directs the Escrow Agent to deliver to the depositary under the business combination any share certificates or other evidence of the escrow securities and a completed and executed cover letter or similar document and, where required, transfer power of attorney completed and executed for transfer in accordance with the requirements of the Issuer's depository, and any other documentation specified or provided by you and required to be delivered to the depositary under the business combination;

(b)written consent of the Exchange; and

(c)any other information concerning the business combination as the Escrow Agent may reasonably require.

6.3Delivery to Depositary

(1)As soon as reasonably practicable, and in any event no later than three business days after the Escrow Agent receives the documents and information required under section 6.2, the Escrow Agent will deliver to the depositary, in accordance with the direction, any share certificates or other evidence of the escrow securities, and a letter addressed to the depositary that

(a)identifies the escrow securities that are being tendered;

(b)states that the escrow securities are held in escrow;

(c)states that the escrow securities are delivered only for the purposes of the business combination and that they will be released from escrow only after the Escrow Agent receives the information described in section 6.4;

(d)if any share certificates or other evidence of the escrow securities have been delivered to the depositary, requires the depositary to return to the Escrow Agent, as soon as practicable, the share certificates or other evidence of escrow securities that are not released from escrow into the business combination; and

(e)where applicable, requires the depositary to deliver or cause to be delivered to the Escrow Agent, as soon as practicable, share certificates or other evidence of additional escrow securities that you acquire under the business combination.

6.4Release of Escrow Securities to Depositary

(1)The Escrow Agent will release from escrow the tendered escrow securities provided that:

(a)you or the Issuer make application to release the tendered securities under the Policy on a date at least 10 business days and not more than 30 business days prior to the date of the proposed release date; and

(b)the Exchange does not provide notice of its objection to the Escrow Agent prior to 10:00 a.m.  (Vancouver time) or 11:00 a.m.  (Calgary time) on such specified date;

FORM 5D	ESCROW AGREEMENTS	Page 11
(as at June 14, 2010)

(c)the Escrow Agent receives a declaration signed by the depositary or, if the direction identifies the depositary as acting on behalf of another person or company in respect of the business combination, by that other person or company, that

(i)the terms and conditions of the business combination have been met or waived; and

(ii)the escrow securities have either been taken up and paid for or are subject to an unconditional obligation to be taken up and paid for under the business combination.

6.5Escrow of New Securities

(1)If you receive securities of another issuer in exchange for your escrow securities, the new securities will be subject to escrow in substitution for the tendered escrow securities, unless, immediately after completion of the business combination,

(a)the successor issuer is an exempt issuer as defined in the National Policy;

(b)the escrow holder was subject to a Value Security Escrow Agreement and is not a Principal of the successor issuer; and

(c)the escrow holder holds less than 1% of the voting rights attached to the successor issuer's outstanding securities.  (In calculating this percentage, include securities that may be issued to the escrow holder under outstanding convertible securities in both the escrow holder's securities and the total securities outstanding.)

6.6Release from Escrow of New Securities

(1)The Escrow Agent will send to a Securityholder share certificates or other evidence of the Securityholder's new securities as soon as reasonably practicable after the Escrow Agent receives:

(a)a certificate from the successor issuer signed by a director or officer of the successor issuer authorized to sign

(i)stating that it is a successor issuer to the Issuer as a result of a business combination;

(ii)containing a list of the securityholders whose new securities are subject to escrow under section 6.5;

(iii)containing a list of the securityholders whose new securities are not subject to escrow under section 6.5;

(b)written confirmation from the Exchange that it has accepted the list of Securityholders whose new securities are not subject to escrow under section 6.5.

FORM 5D	ESCROW AGREEMENTS	Page 12
(as at June 14, 2010)

(2)The escrow securities of the Securityholders, whose securities are not subject to escrow under section 6.5, will be released, and the Escrow Agent will send any share certificates or other evidence of the escrow securities in the possession of the Escrow Agent in accordance with section 2.4.

(3)If your new securities are subject to escrow, unless subsection (4) applies, the Escrow Agent will hold your new securities in escrow on the same terms and conditions, including release dates, as applied to the escrow securities that you exchanged.

(4)If the Issuer is a Tier 2 Issuer and the successor issuer is a Tier 1 Issuer, the release provisions in section 3.1(4) relating to graduation will apply.

PART 7RESIGNATION OF ESCROW AGENT

7.1Resignation of Escrow Agent

(1)If the Escrow Agent wishes to resign as escrow agent, the Escrow Agent will give written notice to the Issuer and the Exchange.

(2)If the Issuer wishes to terminate the Escrow Agent as escrow agent, the Issuer will give written notice to the Escrow Agent and the Exchange.

(3)If the Escrow Agent resigns or is terminated, the Issuer will be responsible for ensuring that the Escrow Agent is replaced not later than the resignation or termination date by another escrow agent that is acceptable to the Exchange and that has accepted such appointment, which appointment will be binding on the Issuer and the Securityholders.

(4)The resignation or termination of the Escrow Agent will be effective, and the Escrow Agent will cease to be bound by this Agreement, on the date that is 60 days after the date of receipt of the notices referred to above by the Escrow Agent or Issuer, as applicable, or on such other date as the Escrow Agent and the Issuer may agree upon (the "resignation or termination date"), provided that the resignation or termination date will not be less than 10 business days before a release date.

(5)If the Issuer has not appointed a successor escrow agent within 60 days of the resignation or termination date, the Escrow Agent will apply, at the Issuer's expense, to a court of competent jurisdiction for the appointment of a successor escrow agent, and the duties and responsibilities of the Escrow Agent will cease immediately upon such appointment.

(6)On any new appointment under this section, the successor Escrow Agent will be vested with the same powers, rights, duties and obligations as if it had been originally named herein as Escrow Agent, without any further assurance, conveyance, act or deed.  The predecessor Escrow Agent, upon receipt of payment for any outstanding account for its services and expenses then unpaid, will transfer, deliver and pay over to the successor Escrow Agent, who will be entitled to receive, all securities, records or other property on deposit with the predecessor Escrow Agent in relation to this Agreement and the predecessor Escrow Agent will thereupon be discharged as Escrow Agent.

FORM 5D	ESCROW AGREEMENTS	Page 13
(as at June 14, 2010)

(7)If any changes are made to Part 8 of this Agreement as a result of the appointment of the successor Escrow Agent, those changes must not be inconsistent with the Policy and the terms of this Agreement and the Issuer to this Agreement will fie a copy of the new Agreement with the Exchange.

PART 8OTHER CONTRACTUAL ARRANGEMENTS

8.1Escrow Agent Not a Trustee

The Escrow Agent accepts duties and responsibilities under this Agreement, and the escrow securities and any share certificates or other evidence of these securities, solely as a custodian, bailee and agent.  No trust is intended to be, or is or will be, created hereby and the Escrow Agent shall owe no duties hereunder as a trustee.

8.2Escrow Agent Not Responsible for Genuineness

The Escrow Agent will not be responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any escrow security deposited with it.

8.3Escrow Agent Not Responsible for Furnished Information

The Escrow Agent will have no responsibility for seeking, obtaining, compiling, preparing or determining the accuracy of any information or document, including the representative capacity in which a party purports to act, that the Escrow Agent receives as a condition to a release from escrow or a transfer of escrow securities within escrow under this Agreement.

8.4Escrow Agent Not Responsible after Release

The Escrow Agent will have no responsibility for escrow securities that it has released to a Securityholder or at a Securityholder's direction according to this Agreement.

8.5Indemnification of Escrow Agent

The Issuer and each Securityholder hereby jointly and severally agree to indemnify and hold harmless the Escrow Agent, its affiliates, and their current and former directors, officers, employees and agents from and against any and all claims, demands, losses, penalties, costs, expenses, fees and liabilities, including, without limitation, legal fees and expenses, directly or indirectly arising out of, in connection with, or in respect of, this Agreement, except where same result directly and principally from gross negligence, willful misconduct or bad faith on the part of the Escrow Agent.  This indemnity survives the release of the escrow securities, the resignation or termination of the Escrow Agent and the termination of this Agreement.

8.6Additional Provisions

(1)The Escrow Agent will be protected in acting and relying reasonably upon any notice, direction, instruction, order, certificate, confirmation, request, waiver, consent, receipt, statutory declaration or other paper or document (collectively referred to as "Documents") furnished to it and purportedly signed by any officer or person required to or entitled to execute and deliver to the Escrow Agent any such Document in connection with this Agreement, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth or accuracy of any information therein contained, which it in good faith believes to be genuine.

FORM 5D	ESCROW AGREEMENTS	Page 14
(as at June 14, 2010)

(2)The Escrow Agent will not be bound by any notice of a claim or demand with respect thereto, or any waiver, modification, amendment, termination or rescission of this Agreement unless received by it in writing, and signed by the other Parties and approved by the Exchange, and, if the duties or indemnification of the Escrow Agent in this Agreement are affected, unless it has given its prior written consent.

(3)The Escrow Agent may consult with or retain such legal counsel and advisors as it may reasonably require for the purpose of discharging its duties or determining its rights under this Agreement and may rely and act upon the advice of such counsel or advisor.  The Escrow Agent will give written notice to the Issuer as soon as practicable that it has retained legal counsel or other advisors.  The Issuer will pay or reimburse the Escrow Agent for any reasonable fees, expenses and disbursements of such counsel or advisors.

(4)In the event of any disagreement arising under the terms of this Agreement, the Escrow Agent will be entitled, at its option, to refuse to comply with any and all demands whatsoever until the dispute is settled either by a written agreement among the Parties or by a court of competent jurisdiction.

(5)The Escrow Agent will have no duties or responsibilities except as expressly provided in this Agreement and will have no duty or responsibility under the Policy or arising under any other agreement, including any agreement referred to in this Agreement, to which the Escrow Agent is not a party.

(6)The Escrow Agent will have the right not to act and will not be liable for refusing to act unless it has received clear and reasonable documentation that complies with the terms of this Agreement.  Such documentation must not require the exercise of any discretion or independent judgment.

(7)The Escrow Agent is authorized to cancel any share certificate delivered to it and hold such Securityholder's escrow securities in electronic or uncertificated form only, pending release of such securities from escrow.

(8)The Escrow Agent will have no responsibility with respect to any escrow securities in respect of which no share certificate or other evidence or electronic or uncertificated form of these securities has been delivered to it, or otherwise received by it.

8.7Limitation of Liability of Escrow Agent

The Escrow Agent will not be liable to any of the Parties hereunder for any action taken or omitted to be taken by it under or in connection with this Agreement, except for losses directly, principally and immediately caused by its bad faith, willful misconduct or gross negligence.  Under no circumstances will the Escrow Agent be liable for any special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages hereunder, including any loss of profits, whether foreseeable or unforeseeable.  Notwithstanding the foregoing or any other provision of this Agreement, in no event will the collective liability of the Escrow Agent under or in connection with this Agreement to any one or more Parties, except for losses directly caused by its bad faith or willful misconduct, exceed the amount of its annual fees under this Agreement or the amount of three thousand dollars ($3,000.00), whichever amount shall be greater.

FORM 5D	ESCROW AGREEMENTS	Page 15
(as at June 14, 2010)

8.8Remuneration of Escrow Agent

The Issuer will pay the Escrow Agent reasonable remuneration for its services under this Agreement, which fees are subject to revision from time to time on 30 days' written notice.  The Issuer will reimburse the Escrow Agent for its expenses and disbursements.  Any amount due under this section and unpaid 30 days after request for such payment, will bear interest from the expiration of such period at a rate per annum equal to the then current rate charged by the Escrow Agent, payable on demand.

In the event the Issuer or the Securityholders fail to pay the Escrow Agent any amounts owing to the Escrow Agent hereunder, the Escrow Agent shall have the right not to act (including the right not to release any additional securities from escrow) and will not be liable for refusing to act until it has been fully paid all amounts owing to it hereunder.  Further, in the event the Issuer fails to pay the Escrow Agent its reasonable remuneration for its services hereunder, the Escrow Agent shall be entitled to charge the Securityholders for any further release of escrowed securities and shall have the right not to act (including the right not to release any additional securities from escrow) until the Securityholders have paid such amounts to the Escrow Agent.

In the event the Issuer or the Securityholders have failed to pay the amounts owing the Escrow Agent hereunder, the Escrow Agent shall not be liable for any loss caused by a delay in the release of the escrowed securities.

8.9Notice to Escrow Agent

The Issuer shall forthwith provide a copy of the Exchange Bulletin, confirmation of listing and posting for trading of the subject escrowed shares or such other relevant document to the Escrow Agent as it shall require in order to make the required releases.  No duty shall rest with the Escrow Agent to obtain this information independently nor shall it be held liable for any loss, claim, suit or action, howsoever caused by any delay in providing this information to it.

PART 9INDEMNIFICATION OF THE EXCHANGE

9.1Indemnification

(1)The Issuer and each Securityholder jointly and severally:

(a)release, indemnify and save harmless the Exchange from all costs (including legal cost, expenses and disbursements), charges, claims, demands, damages, liabilities, losses and expenses incurred by the Exchange;

(b)agree not to make or bring a claim or demand, or commence any action, against the Exchange; and

FORM 5D	ESCROW AGREEMENTS	Page 16
(as at June 14, 2010)

(c)agree to indemnify and save harmless the Exchange from all costs (including legal costs) and damages that the Exchange incurs or is required by law to pay as a result of any person's claim, demand or action,

arising from any and every act or omission committed or omitted by the Exchange, in connection with this Agreement, even if said act or omission was negligent, or constituted a breach of the terms of this Agreement.

(2)This indemnity survives the release of the escrow securities and the termination of this Agreement.

PART 10NOTICES

10.1Notice to Escrow Agent

Documents will be considered to have been delivered to the Escrow Agent on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand during normal business hours or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

Name:  TSX Trust Company
Attention:  VP Client Management
Address:  301 - 100 Adelaide Street West, Toronto, ON, M5H 4H1
Telephone number:  1 (888) 873-8392
E-mail address:  TMXEClientManagement@tmx.com

10.2Notice to Issuer

Documents will be considered to have been delivered to the Issuer on the next business day following the date of transmission, if delivered by fax, the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the following:

KWESST Micro Systems Inc.
Unit 1, 155 Terence Matthews Crescent
Ottawa, Ontario
K2M 2A8

Contact: 

10.3Deliveries to Securityholders

Documents will be considered to have been delivered to a Securityholder on the date of delivery, if delivered by hand or by prepaid courier, or 5 business days after the date of mailing, if delivered by mail, to the address on the Issuer's share register.

Any share certificates or other evidence of a Securityholder's escrow securities will be sent to the Securityholder's address on the Issuer's share register unless the Securityholder has advised the Escrow Agent in writing otherwise at least ten business days before the escrow securities are released from escrow.  The Issuer will provide the Escrow Agent with each Securityholder's address as listed on the Issuer's share register.

FORM 5D	ESCROW AGREEMENTS	Page 17
(as at June 14, 2010)

10.4Change of Address

(1)The Escrow Agent may change its address for delivery by delivering notice of the change of address to the Issuer and to each Securityholder.

(2)The Issuer may change its address for delivery by delivering notice of the change of address to the Escrow Agent and to each Securityholder.

(3)A Securityholder may change that Securityholder's address for delivery by delivering notice of the change of address to the Issuer and to the Escrow Agent.

10.5Postal Interruption

A party to this Agreement will not mail a Document if the party is aware of an actual or impending disruption of postal service.

PART 11GENERAL

11.1Interpretation - "holding securities"

Unless the context otherwise requires, all capitalized terms that are not otherwise defined in this Agreement, shall have the meanings as defined in Policy 1.1 - Interpretation or in Policy 5.4 -Escrow, Vendor Consideration and Resale Restrictions.

When this Agreement refers to securities that a Securityholder "holds", it means that the Securityholder has direct or indirect beneficial ownership of or control or direction over the securities.

11.2Enforcement by Third Parties

The Issuer enters this Agreement both on its own behalf and as trustee for the Exchange and the Securityholders of the Issuer, and this Agreement may be enforced by either the Exchange, or the Securityholders of the Issuer, or both.

11.3Termination, Amendment, and Waiver of Agreement

(1)Subject to subsection 11.3(3), this Agreement shall only terminate:

(a)with respect to all the Parties:

(i)as specifically provided in this Agreement;

(ii)subject to subsection 11.3(2), upon the agreement of all Parties; or

FORM 5D	ESCROW AGREEMENTS	Page 18
(as at June 14, 2010)

(iii)when the Securities of all Securityholders have been released from escrow pursuant to this Agreement; and

(b)with respect to a Party:

(i)as specifically provided in this Agreement; or

(ii)if the Party is a Securityholder, when all of the Securityholder's Securities have been released from escrow pursuant to this Agreement.

(2)An agreement to terminate this Agreement pursuant to section 11.3(1)(a)(ii) shall not be effective unless and until the agreement to terminate

(a)is evidenced by a memorandum in writing signed by all Parties;

(b)if the Issuer is listed on the Exchange, the termination of this Agreement has been consented to in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(3)Notwithstanding any other provision in this Agreement, the obligations set forth in section 9.1 shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.

(4)No amendment or waiver of this Agreement or any part of this Agreement shall be effective unless the amendment or waiver:

(a)is evidenced by a memorandum in writing signed by all Parties;

(b)if the Issuer is listed on the Exchange, the amendment or waiver of this Agreement has been approved in writing by the Exchange; and

(c)has been approved by a majority vote of securityholders of the Issuer excluding in each case, Securityholders.

(5)No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether similar or not), nor shall any waiver constitute a continuing waiver, unless expressly provided.

11.4Severance of Illegal Provision

Any provision or part of a provision of this Agreement determined by a court of competent jurisdiction to be invalid, illegal or unenforceable shall be deemed stricken to the extent necessary to eliminate any invalidity, illegality or unenforceability, and the rest of the Agreement and all other provisions and parts thereof shall remain in full force and effect and be binding upon the parties hereto as though the said illegal and/or unenforceable provision or part thereof had never been included in this Agreement.

FORM 5D	ESCROW AGREEMENTS	Page 19
(as at June 14, 2010)

11.5Further Assurances

The Parties will execute and deliver any further documents and perform any further acts reasonably requested by any of the Parties to this agreement which are necessary to carry out the intent of this Agreement.

11.6Time

Time is of the essence of this Agreement.

11.7Consent of Exchange to Amendment

The Exchange must approve any amendment to this Agreement if the Issuer is listed on the Exchange at the time of the proposed amendment.

11.8Additional Escrow Requirements

A Canadian exchange may impose escrow terms or conditions in addition to those set out in this Agreement.

11.9Governing Laws

The laws of Ontario and the applicable laws of Canada will govern this Agreement.

11.10Counterparts

The Parties may execute this Agreement by fax and in counterparts, each of which will be considered an original and all of which will be one agreement.

11.11Singular and Plural

Wherever a singular expression is used in this Agreement, that expression is considered as including the plural or the body corporate where required by the context.

11.12Language

This Agreement has been drawn up in the English language at the request of all parties.  Cet acte a été rédigé en anglais à la demande de toutes les parties.

11.13Benefit and Binding Effect

This Agreement will benefit and bind the Parties and their heirs, executors, administrators, successors and permitted assigns and all persons claiming through them as if they had been a Party to this Agreement.

11.14Entire Agreement

This is the entire agreement among the Parties concerning the subject matter set out in this Agreement and supersedes any and all prior understandings and agreements.

FORM 5D	ESCROW AGREEMENTS	Page 20
(as at June 14, 2010)

11.15Successor to Escrow Agent

Any corporation with which the Escrow Agent may be amalgamated, merged or consolidated, or any corporation succeeding to the business of the Escrow Agent will be the successor of the Escrow Agent under this Agreement without any further act on its part or on the part or any of the Parties, provided that the successor is recognized by the Exchange.

(Signatures on following page)

FORM 5D	ESCROW AGREEMENTS	Page 21
(as at June 14, 2010)

The Parties have executed and delivered this Agreement as of the date set out above.

TSX Trust Company

"Deanna Guilfoyle"

Authorized signatory

"Sandy Hunter"

Authorized signatory

KWESST Micro System Inc.

"Jeffrey McLeod"

Jeffrey McLeod, CEO

Authorized signatory

"David Luxton"

David Luxton, Executive Chairman

Authorized signatory

Signed, sealed and delivered by	)
Mary Lou Parise in the presence of:	)
	)
Alain Lambert	)
Name	)
	)
	)	"Mary Lou Parise"
Address	)	Mary Lou Parise
	)
Businessman	)
Occupation	)

Fiducie Familiale du Clan Brady

"Alain Lambert"

Alain Lambert, Trustee

Authorized signatory

10040932 Canada Inc.

"Laura Brown"

Laura Brown

Authorized signatory

FORM 5D	ESCROW AGREEMENTS	Page 22
(as at June 14, 2010)

Schedule "A" to Escrow Agreement

Securityholder

Name: 

Signature:                  

Securities:

Class and Type (i.e. Value Securities)	Number	Certificate(s) (if applicable)
Common shares	500,000

FORM 5D	ESCROW AGREEMENTS	Page 23
(as at June 14, 2010)

Securityholder

Name: 

Signature:

Securities:

Class and Type (i.e. Value Securities)	Number	Certificate(s) (if applicable)
Common shares	1,000,000

FORM 5D	ESCROW AGREEMENTS	Page 24
(as at June 14, 2010)

Securityholder

Name: 

Signature:

Securities:

Class and Type (i.e. Value Securities)	Number	Certificate(s) (if applicable)
Common shares	2,000,000

FORM 5D	ESCROW AGREEMENTS	Page 25
(as at June 14, 2010)

SCHEDULE B (1) - TIER 1 VALUE SECURITY ESCROW AGREEMENT

RELEASE OF SECURITIES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (Mary Lou Parise)	Total Number of Escrowed Securities to be Released (Fiducie Familiale du Clan Brady)	Total Number of Escrowed Securities to be Released (10040932 Canada Inc.)
September 17, 2020	25%	125,000	250,000	500,000
March 17, 2021	25%	125,000	250,000	500,000
September 17, 2021	25%	125,000	250,000	500,000
March 17, 2022	25%	125,000	250,000	500,000
TOTAL	100%	500,000	1,000,000	2,000,000

*In the simplest case where there are no changes to the escrow securities initially deposited and no additional escrow securities, then the release schedule outlined above results in the escrow securities being released in equal tranches of 25%.

FORM 5D	ESCROW AGREEMENTS	Page 26
(as at June 14, 2010)

SCHEDULE 13 (2) - TIER 2 VALUE SECURITY ESCROW AGREEMENT

RELEASE OF SECURITIES

Timed Release

Release Dates	Percentage of Total Escrowed Securities to be Released	Total Number of Escrowed Securities to be Released (Mary Lou Parise)	Total Number of Escrowed Securities to be Released (Fiducie Familiale du Clan Brady)	Total Number of Escrowed Securities to be Released (10040932 Canada Inc.)
September 17, 2020	10%	50,000	100,000	200,000
March 17, 2021	15%	75,000	150,00	300,000
September 17, 2021	15%	75,000	150,000	300,000
March 17, 2022	15%	75,000	150,000	300,000
September 17, 2022	15%	75,000	150,000	300,000
March 17, 2023	15%	75,000	150,000	300,000
September 17, 2023	15%	75,000	150,000	300,000
TOTAL	100%	500,000	1,00000	2,000,000

*In the simplest case where there are no changes to the escrow securities initially deposited and no additional escrow securities, the release schedule outlined above results in the escrow securities being released in equal tranches of 15% after completion of the release on the date of the Exchange Bulletin.

FORM 5D	ESCROW AGREEMENTS	Page 27
(as at June 14, 2010)

SCHEDULE B (5)

UNDERTAKING OF HOLDING COMPANY

TO:  THE TSX VENTURE EXCHANGE

10040932 Canada Inc. (the "Securityholder") has subscribed for and agreed to purchase, as principal, 2,000,000 Common Shares of KWESST Micro Systems Inc. (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between KWESST Micro Systems Inc. (the "Issuer"), TSX Trust Company and the Securityholder.

The undersigned Securityholder undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this     17    day of September 2020.

10040932 Canada Inc

(Name of Securityholder - please print)

"Laura Brown"

(Authorized Signature)

President

(Official Capacity - please print)

Laura Brown

(Please print here name of individual whose signature appears above)

FORM 5D	ESCROW AGREEMENTS	Page 28
(as at June 14, 2010)

The Securityholder is directly controlled by the undersigned who undertakes that, to the extent reasonably possible, he will not permit or authorize securities of the Securityholder to be issued or transferred, nor otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this    17    day of September 2020.

"Laura Brown"

(Signature)

(Name of Controlling Securityholder - please print)

Laura Brown

(Signature)

(Name of Controlling Securityholder - please print)

FORM 5D	ESCROW AGREEMENTS	Page 29
(as at June 14, 2010)

SCHEDULE B (5)

UNDERTAKING OF TRUST

TO:  THE TSX VENTURE EXCHANGE

Fiducie Familiale du Clan Brady (the "Securityholder") owns, as principal, 1,000,000 Common Shares of KWESST Micro Systems Inc. (the "Escrowed Securities").  The Escrowed Securities will be held in escrow as detailed in the escrow agreement entered into between KWESST Micro Systems Inc. (the "Issuer"), TSX Trust Company and the Securityholder.

The undersigned Securityholder undertakes that, to the extent reasonably possible, it will not permit or authorize its securities to be issued or transferred, nor will it otherwise authorize any transaction involving any of its securities that could reasonably result in a change of its control without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this    17    day of September 2020.

Fiducie Familiale du Clan Brady

(Name of Securityholder - please print)

"Alain Lambert"

(Authorized Signature)

Trustee

(Official Capacity - please print)

Alain Lambert

(Please print here name of individual whose signature appears above)

FORM 5D	ESCROW AGREEMENTS	Page 30
(as at June 14, 2010)

The Securityholder is directly controlled by the undersigned as trustee who undertakes that, to the extent reasonably possible, he will not permit or authorize or otherwise carry out any transaction that could reasonably result in a change of control of the Securityholder without the prior consent of the TSX Venture Exchange, as long as any Escrowed Securities remain held or are required to be held in escrow.

DATED this    17   day of September 2020.

"Alain Lambert"

(Signature)

Alain Lambert,  Trusteee

(Name of Controlling Securityholder - please print)

(Signature)

(Name of Controlling Securityholder - please print)

FORM 5D	ESCROW AGREEMENTS	Page 31
(as at June 14, 2010)

EX-10.7

KWESST MICRO SYSTEMS INC.

- and -

TSX TRUST COMPANY


COMMON SHARE PURCHASE WARRANT INDENTURE

Providing for the Issue of
up to 3,766,781 Common Share Purchase Warrants

APRIL 29, 2021

TABLE OF CONTENTS

Article 1. - INTERPRETATION	1
1.1Definitions	2
1.2Words Importing the Singular	7
1.3Interpretation not Affected by Headings	7
1.4Day not a Business Day	7
1.5Time of the Essence	7
1.6Governing Law	7
1.7Meaning of "outstanding" for Certain Purposes	8
1.8Currency	8
1.9Termination	8
Article 2. - ISSUE OF WARRANTS	8
2.1Issue of Warrants	8
2.2Form and Terms of Warrants	8
2.3Signing of Warrant Certificates	10
2.4Authentication or Certification by the Warrant Agent	10
2.5Warrantholder not a Shareholder, etc.	10
2.6Issue in Substitution for Lost Warrant Certificates	10
2.7Warrants to Rank Pari Passu	11
2.8Registration and Transfer of Warrants	11
2.9Registers Open for Inspection	12
2.10Exchange of Warrants	13
2.11Ownership of Warrants	13
2.12Uncertificated Warrants	13
2.13Adjustment of Exchange Basis	15
2.14Rules Regarding Calculation of Adjustment of Exchange Basis For the purposes of section 2.13:	19
2.15Postponement of Subscription	21
2.16Notice of Adjustment	21
2.17No Action after Notice	22
2.18Purchase of Warrants for Cancellation	22
2.19Optional Purchases by the Company	22
2.20Protection of Warrant Agent	22
2.21Legend on Warrant Certificate or Uncertificated Warrants and Warrant Share certificates under the Private Placement	23
2.22U.S. Legend on Warrant Certificates and Warrant Share certificates	24
Article 3. - EXERCISE OF WARRANTS	25
3.1Method of Exercise of Warrants	25
3.2No Fractional Shares	27
3.3Effect of Exercise of Warrants	27

- ii -

3.4Cancellation of Warrants	28
3.5Subscription for less than Entitlement	28
3.6Expiration of Warrant	28
3.7Prohibition on Exercise by U.S. Persons; Exception	28
Article 4. - COVENANTS	30
4.1General Covenants of the Company	30
4.2Securities Qualification Requirements	31
4.3Warrant Agent's Remuneration and Expenses	31
4.4Performance of Covenants by Warrant Agent	31
Article 5. - ENFORCEMENT	32
5.1Suits by Warrantholders	32
5.2Limitation of Liability	32
Article 6. - MEETINGS OF WARRANTHOLDERS	32
6.1Right to Convene Meetings	32
6.2Notice	33
6.3Chairman	33
6.4Quorum	33
6.5Power to Adjourn	34
6.6Show of Hands	34
6.7Poll and Voting	34
6.8Regulations	34
6.9Company, Warrant Agent and Counsel may be Represented	35
6.10Powers Exercisable by Extraordinary Resolution	35
6.11Meaning of "Extraordinary Resolution"	36
6.12Powers Cumulative	36
6.13Minutes	37
6.14Instruments in Writing	37
6.15Binding Effect of Resolutions	37
6.16Holdings by the Company or Subsidiaries of the Company Disregarded	37
Article 7. - SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES	38
7.1Provision for Supplemental Indentures for Certain Purposes	38
7.2Successor Companies	39
Article 8. - CONCERNING THE WARRANT AGENT	39
8.1Indenture Legislation	39
8.2Rights and Duties of Warrant Agent	40
8.3Evidence, Experts and Advisers	40
8.4Securities, Documents and Monies Held by Warrant Agent	42
8.5Actions by Warrant Agent to Protect Interests	42

- iii -

8.6Warrant Agent not Required to Give Security	42
8.7Protection of Warrant Agent	42
8.8Replacement of Warrant Agent	43
8.9Conflict of Interest	44
8.10Acceptance of Duties and Obligations	45
8.11Warrant Agent not to be Appointed Receiver	45
8.12Authorization to Carry on Business	45
Article 9. - GENERAL	46
9.1Notice to the Company and the Warrant Agent	46
9.2Notice to the Warrantholders	46
9.3Privacy	47
9.4Third Party Interests	47
9.5Discretion of Directors	48
9.6Satisfaction and Discharge of Indenture	48
9.7Provisions of Indenture and Warrants for the Sole Benefit of Parties and Warrantholders	48
9.8Indenture to Prevail	48
9.9Assignment	48
9.10Counterparts and Formal Date	49
SCHEDULE "A" - FORM OF WARRANT CERTIFICATE	52
SCHEDULE "B" - FORM OF DECLARATION FOR REMOVAL OF LEGEND.	65

THIS WARRANT INDENTURE dated as of April 29, 2021

BETWEEN:

KWESST MICRO SYSTEMS INC.
a company incorporated under the laws of the Province of British Columbia

(hereinafter called the "Company")

AND

TSX TRUST COMPANY
a trust company continued under the laws of Canada and registered to carry on business in the Province of Ontario

(hereinafter called the "Warrant Agent")

RECITALS

WHEREAS:

A.In connection with a brokered private placement by the Company of 3,536,057 Units (the "Private Placement"), the Company proposes to issue up to 3,766,781 Warrants, including Compensation Option Warrants which may be issued pursuant to the exercise of Compensation Options;

B.Each Warrant entitles the holder thereof to purchase, subject to adjustment in certain events, one Warrant Share at a price of $1.75 at any time prior to 5:00 p.m.  (Eastern time) on April 29, 2023 (the "Expiry Date");

C.For such purpose the Company deems it necessary to create and issue Warrants and Warrant Certificates to be constituted and issued in the manner hereinafter set forth;

D.The Company is duly authorized to create and issue the Warrants to be issued as herein provided;

E.All things necessary have been done and performed to make the Warrants, when Authenticated or certified by the Warrant Agent and issued as provided in this Indenture, legal, valid and binding upon the Company with the benefits of and subject to the terms of this Indenture;

F.The foregoing recitals are made as statements of fact by the Company and not by the Warrant Agent;

G.The Warrant Agent has agreed to enter into this Indenture and to hold all rights, interests and benefits contained herein for and on behalf of those persons who become holders of Warrants issued pursuant to this Indenture from time to time;

NOW THEREFORE THIS INDENTURE WITNESSES that for good and valuable consideration mutually given and received, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed and declared as follows:

ARTICLE 1 - INTERPRETATION

1.1Definitions

In this Indenture, unless there is something in the subject matter or context inconsistent therewith:

"Acceleration Event" means the occurrence, at any time following the date which is four (4) months and one (1) day following the Closing Date, of the closing price of the Common Shares on the TSXV, or such other stock exchange on which the Common Shares are listed or quoted, being equal to or greater than three dollars ($3.00) for a period of ten (10) consecutive Trading Days;

"Acceleration Notice" has the meaning set forth in Section 2.2(3)(b) of this Warrant Indenture;

"Acceleration Right" means in the case of an Acceleration Event, the option of the Company to accelerate the Expiry Date of the Warrants to the date that is thirty (30) days following the deemed receipt by holders of Warrants of the Acceleration Notice;

"Accredited Investor" means an "accredited investor" as defined in Rule 501(a) of Regulation D;

"Agents" means the agents of the Private Placement, being PI Financial Corp. and Beacon Securities Limited;

"Applicable Legislation" means the provisions of the statutes of Canada and its provinces and the regulations under those statutes relating to warrant indentures and/or the rights, duties or obligations of issuers and warrant agents under warrant indentures as are from time to time in force and applicable to this Indenture;

"Authenticated" means with respect to the issuance of an Uncertificated Warrant, one in respect of which the Warrant Agent has completed all Internal Procedures such that the particulars of such Uncertificated Warrant are entered in the register of Warrantholders, "Authenticate", "Authenticating" and "Authentication" have the appropriate correlative meanings;

"Beneficial Owner" means a person that has a beneficial interest in a Warrant;

"Book-Entry Only System" means the book-based securities system administered by CDS in accordance with its operating rules and procedures in force from time to time;

"Business Day" means a day that is not a Saturday, Sunday, or a day on which banks are closed or which is a civic or statutory holiday in the City of Toronto, Ontario;

"Capital Reorganization" has the meaning ascribed to that term in subsection 2.13(4);

2

"CDS" means CDS Clearing and Depository Services Inc. and its successors in interest;

"Closing Date" means April 29, 2021;

"Common Shares" means the common shares in the capital of the Company;

"Common Share Reorganization" has the meaning ascribed to that term in subsection 2.13(1);

"Company" means KWESST Micro Systems Inc., a corporation incorporated under the Business Corporations Act (British Columbia), and its lawful successors from time to time;

"Company's Auditors" means the chartered (professional) accountant or firm of chartered (professional) accountants duly appointed as auditor or auditors of the Company from time to time;

"Compensation Option Warrants" means the Warrants comprising the Units issued pursuant to the exercise of the Compensation Options, if any;

"Compensation Options" means the 230,724 compensation options issued to the Agents pursuant to the Private Placement, each such Compensation Option entitling the holder thereof to purchase one Unit at any time on or before the date that is 24 months from the date hereof;

"Confirmation" means that CDS shall deliver to the Warrant Agent confirmation of its intention to exercise Warrants in a manner acceptable to the Warrant Agent, including by electronic means through the Book-Entry Only System;

"counsel" means a barrister and solicitor or lawyer (who may be an employee of the Company) or a firm of barristers and solicitors or lawyers (who may be counsel to the Company), in both cases acceptable to the Warrant Agent;

"Current Market Price" means, at any date, the volume weighted average price per share at which the Common Shares have traded:

(i)on the TSXV;

(ii)if the Common Shares are not listed on the TSXV, on any stock exchange upon which the Common Shares are listed as may be selected for this purpose by the board of directors of the Company, acting reasonably; or

(iii)if the Common Shares are not listed on any stock exchange, on any over-the-counter market on which the Common Shares are trading, as may be selected for this purpose by the board of directors of the Company, acting reasonably;

during the 20 consecutive trading days (on each of which at least 100 Common Shares are traded in board lots) ending the third trading day before such date and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the 20 consecutive trading days by the number of Common Shares sold or, if not traded on any recognized market or exchange, as determined by the directors of the Company, acting reasonably;

3

"director" means a member of the board of directors of the Company for the time being, and unless otherwise specified herein, reference to "action by the board of directors" means action by the board of directors of the Company as a board or, whenever duly empowered, action by a committee of the board;

"Dividends Paid in Ordinary Course" means dividends declared payable on the Common Shares in any fiscal year of the Company in cash to the extent that such cash dividends do not exceed 5% of the Exercise Price, and for such purpose the amount of any dividend paid in shares shall be the aggregate stated capital of such shares and the amount of any dividend paid in other than cash or shares shall be the fair market value of such dividend as determined by resolution passed by the board of directors of the Company, subject, if applicable, to the prior consent of any stock exchange or any other over-the-counter market on which the Common Shares are traded and for such purpose the amount of any dividends paid in other than cash or shares shall be the fair market value of such dividend as determined by the directors;

"DRS" means the Direct Registration System;

"Exchange Basis" means, at any time, the number of Warrant Shares or other classes of shares or securities which a Warrantholder is entitled to receive upon the exercise of the rights attached to the Warrants pursuant to the terms of this Indenture, as the number may be adjusted pursuant to Article 2 hereof, such number being equal to one Warrant Share per Warrant as of the date hereof;

"Exercise Date" with respect to any Warrant means the date on which such Warrant is duly surrendered for exercise in accordance with the provisions of Article 3 hereof;

"Exercise Notice" has the meaning ascribed to that term in subsection 3.1(4);

"Exercise Price" means $1.75 for each Warrant Share, subject to adjustment in accordance with the provisions of this Indenture;

"Expiry Date" has the meaning ascribed to that term in the recitals;

"extraordinary resolution" has the meaning ascribed to that term in sections 6.11 and 6.14;

"Internal Procedures" means in respect of the making of any one or more entries to, changes in or deletions of any one or more entries in the register at any time (including without limitation, original issuance or registration of transfer of ownership) the minimum number of the Warrant Agent's internal procedures customary at such time for the entry, change or deletion made to be complete under the operating procedures followed at the time by the Warrant Agent;

"Issue Date" means, for a Warrant, the date on which the Warrant is actually issued by or on behalf of the Company;

"Participant" means a person recognized by CDS as a participant in the Book-Entry Only System;

4

"person" means an individual, a corporation, a partnership, a syndicate, a trustee or any unincorporated organization and words importing persons are intended to have a similarly extended meaning;

"Privacy Laws" has the meaning ascribed to that term in section 9.3;

"Private Placement" has the meaning ascribed to that term in the recitals;

"Purchaser" means a purchaser of Units;

"Qualified Institutional Buyer" means a qualified institutional buyer within the meaning of Rule 144A;

"Regulation D" means Regulation D as promulgated under the U.S. Securities Act;

"Regulation S" means Regulation S as promulgated under the U.S. Securities Act;

"Rights Offering" has the meaning ascribed to that term in subsection 2.13(2);

"Rights Offering Price" has the meaning ascribed to that term in subsection 2.14(8);

"Rule 144A" means Rule 144A as promulgated under the U.S. Securities Act;

"Securities Laws" means, collectively, the applicable securities laws of each of the provinces of Canada, the United States and each of the states of the United States, as applicable, and the respective regulations made and forms prescribed thereunder together with all applicable published rules, policy statements, notices and blanket orders and rulings of the securities commissions or similar regulatory authorities in each of the provinces of Canada;

"shareholder" means an owner of record of one or more Common Shares or shares of any other class or series of the Company;

"Special Distribution" has the meaning ascribed to that term in subsection 2.13(3);

"Subsidiary" means a corporation, a majority of the outstanding voting shares of which are owned, directly or indirectly, by the Company or by one or more subsidiaries of the Company and, as used in this definition, "voting shares" means shares of a class or classes ordinarily entitled to vote for the election of the majority of the directors of a corporation irrespective of whether or not shares of any other class or classes shall have or might have the right to vote for directors by reason of the happening of any contingency;

"successor company" has the meaning ascribed to that term in section 7.2;

"this Indenture", "herein", "hereby" and similar expressions mean or refer to this common share purchase warrant indenture and any indenture, deed or instrument supplemental or ancillary hereto; and the expressions "Article", "section", "subsection" or "paragraph" followed by a number or letter mean and refer to the specified Article, section, subsection or paragraph of this Indenture;

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"Time of Expiry" means the earlier of (i) 5:00 p.m. (Eastern time) on the Expiry Date and (ii) thirty (30) days following the date of delivery of an Acceleration Notice;

"trading day" means a day on which the TSXV (or such other exchange on which the Common Shares are listed and which forms the primary trading market for such shares) is open for trading, and if the Common Shares are not listed on a stock exchange, a day on which an over-the-counter market where such shares are traded is open for business;

"transaction instruction" means a written order signed by the holder or CDS, entitled to request that one or more actions be taken, or such other form as may be reasonably acceptable to the Warrant Agent, requesting one or more such actions to be taken in respect of an Uncertificated Warrant;

"Transfer Agent" means the transfer agent or agents for the time being for the Common Shares;

"TSXV" means the TSX Venture Exchange;

"U.S. Person" means a U.S. person as that term is defined in Regulation S;

"U.S. Securities Act" means the United States Securities Act of 1933, as amended;

"Uncertificated Warrant" means any Warrant which is issued under the Book-Entry Only System;

"Unit Share" means a Common Share comprising part of each Unit;

"United States" means the United States as that term is defined in Regulation S;

"Units" means the units of the Company, each Unit being comprised of one Unit Share and one Warrant;

"Warrant Agent" means TSX TRUST COMPANY, a trust company existing under the laws of Canada, or any lawful successor thereto including through the operation of section 8.8;

"Warrant Certificates" means the certificates representing Warrants substantially in the form attached as Schedule "A" hereto or such other form as may be approved by the Company, the Agents and the Warrant Agent;

"Warrant Shares" means the Common Shares or other securities or property issuable upon the exercise of the Warrants as a result of any adjustment to the subscription rights pursuant to Article 2 hereof;

"Warrantholders" or "holders" means the persons whose names are entered for the time being in the register maintained pursuant to section 2.8;

"Warrantholders' Request" means an instrument, signed in one or more counterparts by Warrantholders representing, in the aggregate, at least 25% of the aggregate number of Warrants then outstanding, which requests the Warrant Agent to take some action or proceeding specified therein;

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"Warrants" means the common share purchase warrants of the Company issued and Authenticated hereunder as Uncertificated Warrants or to be issued and countersigned in the form of Warrant Certificates, in either case, entitling the holders thereof to purchase Warrant Shares on the basis of one Warrant Share for each whole Warrant upon payment of the Exercise Price prior to the Time of Expiry; provided that in each case the number and/or class of shares or securities receivable on the exercise of the Warrants may be subject to increase or decrease or change in accordance with the terms and provisions hereof; for clarity, the "Warrants" include the Compensation Option Warrants where the context requires; and

"written direction of the Company", "written request of the Company", "written consent of the Company" and "certificate of the Company" and any other document required to be signed by the Company, means, respectively, a written direction, request, consent, certificate or other document signed in the name of the Company by the Chief Executive Officer and/or the Chief Financial Officer and may consist of one or more instruments so executed.

1.2Words Importing the Singular

Unless elsewhere otherwise expressly provided, or unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders.

1.3Interpretation not Affected by Headings

The division of this Indenture into Articles, sections, subsections and paragraphs, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture.

1.4Day not a Business Day

If any day on or before which any action is required or permitted to be taken hereunder is not a Business Day, then such action shall be required or permitted to be taken on or before the requisite time on the next succeeding day that is a Business Day.

1.5Time of the Essence

Time shall be of the essence in all respects of this Indenture and the Warrants issued hereunder.

1.6Governing Law

This Indenture and the Warrants issued hereunder shall be construed and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated in all respects as Ontario contracts.

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1.7Meaning of "outstanding" for Certain Purposes

Every Warrant Authenticated or certified by the Warrant Agent hereunder shall be deemed to be outstanding until it shall be cancelled or delivered to the Warrant Agent for cancellation, exercised pursuant to section 3.1 or until the Time of Expiry; provided that where a new Warrant Certificate has been issued pursuant to section 2.6 hereof to replace one which is lost, mutilated, stolen or destroyed, the Warrants represented by only one of such Warrant Certificates shall be counted for the purpose of determining the aggregate number of Warrants outstanding.

1.8Currency

Unless otherwise stated, all dollar amounts referred to in this Indenture are in Canadian dollars.

1.9Termination

This Indenture shall continue in full force and effect until the earlier of:  (a) the Time of Expiry; and (b) the date that no Warrants are outstanding hereunder; provided that this Indenture shall continue in effect thereafter, if applicable, until the Company and the Warrant Agent have fulfilled all of their respective obligations under this Indenture.

ARTICLE 2 - ISSUE OF WARRANTS

2.1Issue of Warrants

A total of 3,766,781 Warrants, of which 3,536,057 Warrants shall be issuable to purchasers of Units, and of which up to a maximum of 230,724 Compensation Option Warrants shall be issuable pursuant to the exercise of Compensation Options, are hereby created and authorized to be issued on the applicable Issue Date in accordance with the terms and conditions hereof.  The Warrants created hereunder shall entitle the registered holders thereof to acquire an aggregate of 3,766,781 Warrant Shares, including 230,724 Warrant Shares issuable upon the exercise of Compensation Option Warrants, are hereby authorized to be issued hereunder at the Exercise Price upon the terms and conditions herein set forth.  Uncertificated Warrants shall be Authenticated by the Warrant Agent and deposited in CDS and Warrant Certificates evidencing the Warrants, if any, shall be executed by the Company, certified by or on behalf of the Warrant Agent and delivered by the Warrant Agent to the Company, as applicable, in accordance with a written direction of the Company, all in accordance with sections 2.3 and 2.4.  Subject to adjustment in accordance with the provisions of this Indenture, each of the Warrants issued hereunder shall entitle the holder thereof to receive from the Company, at the Exercise Price, the number of Warrant Shares equal to the Exchange Basis in effect on the Exercise Date.

2.2Form and Terms of Warrants

(1)The Warrants may be issued in either certificated or uncertificated form, or issued via DRS.  The Warrant Certificates shall be substantially in the form attached as Schedule "A" hereto, subject to the provisions of this Indenture, with such additions, variations and changes as may be required or permitted by the terms of this Indenture, and to give effect to any Warrants not being issued as Uncertificated Warrants, and which may from time to time be agreed upon by the Warrant Agent and the Company, and shall have such legends, distinguishing letters and numbers as the Company may, with the approval of the Warrant Agent, prescribe.  Except as hereinafter provided in this Article 2, all Warrants shall, save as to denominations, be of like tenor and effect.  The Warrant Certificates may be engraved, printed, lithographed, photocopied or be partially in one form or another, as the Company may determine.  No change in the form of the Warrant Certificate shall be required by reason of any adjustment made pursuant to this Article 2 in the number and/or class of securities or type of securities that may be acquired pursuant to the Warrants.  All Warrants issued to CDS may be in either a certificated or uncertificated form, such uncertificated form being evidenced by a book position on the register of Warrantholders to be maintained by the Warrant Agent in accordance with section 2.8.

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(2)Each Warrant authorized to be issued hereunder shall entitle the registered holder thereof to acquire (subject to sections 2.13, 2.14 and 2.15) upon due exercise and upon the transaction instruction or due execution of the exercise form endorsed on the Warrant Certificate, as applicable, or other instrument of exercise in such form as the Warrant Agent and/or the Company may from time to time prescribe and upon payment of the Exercise Price, one Warrant Share or such other kind and amount of shares or securities or property, calculated pursuant to the provisions of sections 2.13 and 2.14, as the case may be, at any time after the Issue Date of such Warrants and prior to the Time of Expiry, in accordance with the provisions of this Indenture.

(3)If at any time after the date which is four (4) months and one (1) day following the Closing Date, an Acceleration Event occurs:

(a)the Company shall be entitled to accelerate the Expiry Date of the Warrants such that the Warrantholders shall only have a period of thirty (30) days to exercise the Warrants upon deemed receipt of the Acceleration Notice as defined in Section 2.2(3)(b);

(b)in the case of an Acceleration Event, no later than the date which is five (5) Trading Days following the tenth (10th) consecutive Trading Day of such Acceleration Event (or if the Acceleration Event continues for greater than 10 consecutive Trading Days, no later than five (5) Trading Days following the last Trading Day upon which the closing price was equal to or greater than $3.00 during such Acceleration Event), the Company may deliver to the Warrant Agent and each Warrantholder a notice advising that the Company has exercised its option pursuant to the Acceleration Right and notifying them of the accelerated Expiry Date of the Warrants (the "Acceleration Notice").  The Acceleration Notice shall be deemed to be validly given if delivered, or sent by registered letter, postage prepaid, to the Subscriber at the address on the register maintained by the Warrant Agent, and the Acceleration Notice shall be deemed to have been received and given on the third Business Day following the date of transmission; and

(c)a Warrantholder shall have the option to exercise its Warrants in accordance with the terms of this Warrant Indenture within the 30-day period after the deemed receipt of the Acceleration Notice.  Any Warrants that have not been exercised by a Warrantholder in accordance with the provisions of the Warrant Certificates shall expire on 5:00 p.m.  (Eastern Standard Time) on the thirtieth (30th) day after the date on which the Acceleration Notice was deemed to have been received by such holder of Warrants.

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(4)Fractional Warrants shall not be issued or otherwise provided for.  If any fraction of a Warrant would otherwise be issuable, the number of Warrants so issued shall be rounded down to the nearest whole Warrant without compensation therefor.

2.3Signing of Warrant Certificates

Warrant Certificates shall be signed by an authorised officer of the Company and may, but need not be under the corporate seal of the Company or a reproduction thereof.  The signature of any such director or officer may be mechanically reproduced in facsimile or other electronic format and Warrant Certificates bearing such facsimile or other electronic format signatures shall be binding upon the Company as if they had been manually signed by such director or officer.  Notwithstanding that the person whose manual or electronic signature appears on any Warrant Certificate as a director or officer may no longer hold office at the Issue Date of the Warrant Certificate or at the date of certification or delivery thereof, any Warrant Certificate signed as aforesaid shall, subject to section 2.4, be valid and binding upon the Company and the registered holder thereof will be entitled to the benefits of this Indenture.

2.4Authentication or Certification by the Warrant Agent

(1)No Warrant shall be issued or, if issued, shall be valid for any purpose or entitle the registered holder to the benefit hereof or thereof until it has been Authenticated or certified by manual signature by or on behalf of the Warrant Agent, as applicable, and such Authentication or certification by the Warrant Agent shall be conclusive evidence as against the Company that the Warrant so Authenticated or certified has been duly issued hereunder and the holder is entitled to the benefits hereof.

(2)The Authentication or certification of the Warrant Agent on the Warrants issued hereunder shall not be construed as a representation or warranty by the Warrant Agent as to the validity of this Indenture or the Warrants (except the due Authentication and certification thereof) and the Warrant Agent shall in no respect be liable or answerable for the use made of the Warrants or any of them or of the consideration therefor except as otherwise specified herein.

2.5Warrantholder not a Shareholder, etc.

Nothing in this Indenture or the holding of a Warrant shall be construed as conferring upon a Warrantholder any right or interest whatsoever as a shareholder, including but not limited to the right to vote at, to receive notice of, or to attend meetings of shareholders or any other proceedings of the Company, nor entitle the holder to any right or interest in respect thereof except as herein and in the Warrants expressly provided.

2.6Issue in Substitution for Lost Warrant Certificates

(1)If any Warrant Certificates issued and certified under this Indenture shall become mutilated or be lost, destroyed or stolen, the Company, subject to applicable law, and subsection 2.6(2), shall issue and thereupon the Warrant Agent shall certify and deliver a new Warrant Certificate of like denomination, date and tenor as the one mutilated, lost, destroyed or stolen in exchange for, in place of and upon cancellation of such mutilated Warrant Certificate, or in lieu of and in substitution for such lost, destroyed or stolen Warrant Certificate, and the substituted Warrant Certificate shall be substantially in the form set out in Schedule "A" hereto and Warrants evidenced by it will entitle the holder thereof to the benefits hereof and shall rank equally in accordance with its terms with all other Warrant Certificates issued or to be issued hereunder.

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(2)The applicant for the issue of a new Warrant Certificate pursuant to this section 2.6 shall bear the cost of the issue thereof and in the case of mutilation shall, as a condition precedent to the issue thereof, deliver to the Warrant Agent the mutilated Warrant Certificate, and in the case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Company and to the Warrant Agent such evidence of ownership and of the loss, destruction or theft of the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Company and to the Warrant Agent in their sole discretion and such applicant may be required to furnish an indemnity and surety bond in amount and form satisfactory to the Company and the Warrant Agent in their sole discretion and shall pay the reasonable charges of the Company and the Warrant Agent in connection therewith.

2.7Warrants to Rank Pari Passu

All Warrants shall rank pari passu with all other Warrants, whatever may be the actual Issue Date of the Warrants.

2.8Registration and Transfer of Warrants

(1)The Warrant Agent will create and keep at the principal stock transfer offices of the Warrant Agent in the City of Toronto, Ontario:

(a)a register of holders in which shall be entered in alphabetical order the names and addresses of the holders of Warrants and particulars of the Warrants held by them and the Warrant Agent shall be entitled to rely on such register in connection with the exchange, transfer, exercise or deemed exercise of any Warrant(s) pursuant to the terms of this Indenture or the terms thereof; and

(b)a register of transfers in which all transfers of Warrants and the date and other particulars of each such transfer shall be entered.

(2)No transfer of any Warrant will be valid unless entered on the register of transfers referred to in subsection 2.8(1), upon surrender to the Warrant Agent of the Warrant Certificate evidencing such Warrant, and a duly completed and executed transfer form endorsed on the Warrant Certificate executed by the registered holder or his executors, administrators or other legal representatives or his attorney duly appointed by an instrument in writing in form and execution satisfactory to the Warrant Agent, if applicable, and, upon compliance with such requirements and such other reasonable requirements as the Warrant Agent may prescribe, such transfer will be recorded on the register of transfers by the Warrant Agent.

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(3)The transferee of any Warrant will, after surrender to the Warrant Agent of the Warrant as required by subsection 2.8(2) and upon compliance with all other conditions in respect thereof required by this Indenture or by law, be entitled to be entered on the register of holders referred to in subsection 2.8(1) as the owner of such Warrant free from all equities or rights of set-off or counterclaim between the Company and the transferor or any previous holder of such Warrant, except in respect of equities of which the Company is required to take notice by statute or by order of a court of competent jurisdiction.

(4)The Company will be entitled, and may direct the Warrant Agent, to refuse to recognize any transfer, or enter the name of any transferee, of any Warrant on the registers referred to in subsection 2.8(1), if such transfer would constitute a violation of the Securities Laws of any applicable jurisdiction or the rules, regulations or policies of any regulatory authority having jurisdiction or the representations and warranties made by the Warrantholder in the United States pursuant to the Private Placement under which the Warrants were acquired.  The Warrant Agent is entitled to assume compliance with all applicable Securities Laws unless otherwise notified in writing by the Company.  No duty shall rest with the Warrant Agent to determine compliance of the transferee or transferor of any Warrant with applicable Securities Laws.

(5)Any Warrant issued to a transferee upon transfers contemplated by this section 2.8 shall bear the appropriate legend(s) as set forth in subsections 2.21(1), (2) and 2.22(2), if applicable.

(6)If a Warrant tendered for transfer bears the legend set forth in subsection 2.22(2), the Warrant Agent shall not register such transfer unless the transferor has provided the Warrant Agent with the Warrant Certificate and complies with the requirements of the said subsection 2.22(2).

(7)Warrants, in certificated form, bearing the legend set forth in subsection 2.22(2) shall not be offered, sold or otherwise transferred except (A) to the Company, (B) outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations, (C) within the United States in accordance with (i) Rule 144A under the U.S. Securities Act or (ii) Rule 144 under the U.S. Securities Act, if available, and in compliance with applicable state securities laws, or (D) in another transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws, provided that in the case of transfers pursuant to (C)(ii) or (D) above, the Company has received an opinion of counsel satisfactory to it to such effect, and, in each case, in accordance with applicable state securities laws.  Warrants, in uncertificated form, held by a Warrantholder in the United States or a U.S. Person may be offered, sold or otherwise transferred only in accordance with this section 2.8(7) (A) or (B).

2.9Registers Open for Inspection

The registers referred to in subsection 2.8(1) shall be open at all reasonable times during business hours on a Business Day for inspection by the Company or any Warrantholder.  The Warrant Agent shall, from time to time when requested to do so in writing by the Company, furnish the Company with a list of the names and addresses of holders of Warrants entered in the register of holders kept by the Warrant Agent and showing the number of Warrants held by each such holder.

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2.10Exchange of Warrants

(1)Warrants may, upon compliance with the reasonable requirements of the Warrant Agent, be exchanged for Warrants in any other authorized denomination representing in the aggregate an equal number of Warrants as the number of Warrants represented by the Warrants being exchanged.  The Company shall sign and the Warrant Agent shall Authenticate or certify, in accordance with sections 2.3 and 2.4, all Warrants necessary to carry out the exchanges contemplated herein.

(2)Warrants may be exchanged only at the principal stock transfer offices of the Warrant Agent in the City of Toronto, Ontario or at any other place that is designated by the Company with the approval of the Warrant Agent.  Any Warrants tendered for exchange shall be surrendered to the Warrant Agent and cancelled.

(3)Except as otherwise herein provided, the Warrant Agent may charge Warrantholders requesting an exchange a reasonable sum for each Warrant Certificate issued; and payment of such charges and reimbursement of the Warrant Agent or the Company for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange.

2.11Ownership of Warrants

The Company and the Warrant Agent and their respective agents may deem and treat the registered holder of any Warrant as the absolute owner of the Warrant represented thereby for all purposes and the Company and the Warrant Agent and their respective agents shall not be affected by any notice or knowledge to the contrary except as required by statute or order of a court of competent jurisdiction.  The holder of any Warrant shall be entitled to the rights evidenced by that Warrant free from all equities or rights of set-off or counterclaim between the Company and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any holder of the Warrant Shares or monies obtainable pursuant to the exercise of the Warrant shall be a good discharge to the Company and the Warrant Agent for the same and neither the Company nor the Warrant Agent shall be bound to inquire into the title of any holder.

2.12Uncertificated Warrants

(1)Registration and re-registration of beneficial interests in and transfers of Warrants held by CDS shall be made only through the Book-Entry Only System and no Warrant Certificates shall be issued in respect of such Warrants except where physical certificates evidencing ownership in such securities are required or as set out herein or as may be requested by CDS, as determined by the Company, from time to time.  Except as provided in this section 2.12, owners of beneficial interests in any Uncertificated Warrants shall not be entitled to have Warrants registered in their names and shall not receive or be entitled to receive Warrants in definitive form or to have their names appear in the register referred to in section 2.8 herein.  Notwithstanding any terms set out herein, Warrants subject to the restrictions and any legend set forth in section 2.21 or 2.22, as applicable, herein and held in the name of CDS may only be held in the form of Uncertificated Warrants with the prior consent of the Company and CDS.

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(2)If any Warrant is issued in uncertificated form and any of the following events occurs:

(a)CDS or the Company has notified the Warrant Agent that (A) CDS is unwilling or unable to continue as depository or (B) CDS ceases to be a clearing agency in good standing under applicable laws and, in either case, the Company is unable to locate a qualified successor depository within 90 days of delivery of such notice;

(b)the Company has determined, in its sole discretion, with the consent of the Warrant Agent, to terminate the Book-Entry Only System in respect of such Uncertificated Warrants and has communicated such determination to the Warrant Agent in writing;

(c)the Company or CDS is required by applicable law to take the action contemplated in this subsection; or

(d)the Book-Entry Only System administered by CDS ceases to exist,

then one or more definitive fully registered Warrant Certificates shall be executed by the Company and certified and delivered by the Warrant Agent to CDS in exchange for the Uncertificated Warrants form held by CDS.

Fully registered Warrant Certificates issued and exchanged pursuant to this subsection shall be registered in such names and in such denominations as CDS shall instruct the Warrant Agent, provided that the aggregate number of Warrants represented by such Warrant Certificates shall be equal to the aggregate number of Uncertificated Warrants so exchanged.  Upon exchange of Uncertificated Warrants for one or more Warrant Certificates in definitive form, such Uncertificated Warrants shall be cancelled by the Warrant Agent.

(3)Subject to the provisions of this section 2.12, any exchange of Warrants for Warrants which are not Uncertificated Warrants may be made in whole or in part in accordance with the provisions of section 2.10, mutatis mutandis.  All such Warrants issued in exchange for Uncertificated Warrants or any portion thereof shall be registered in such names as CDS for such Uncertificated Warrants shall direct and shall be entitled to the same benefits and subject to the same terms and conditions (except insofar as they relate specifically to Warrants) as the Warrants or portion thereof surrendered upon such exchange.

(4)Every Warrant Authenticated upon registration of transfer of Warrants, or in exchange for or in lieu of Uncertificated Warrants or any portion thereof, whether pursuant to this section 2.12, or otherwise, shall be Authenticated in the form of, and shall be, an Uncertificated Warrant, unless such Warrant is registered in the name of a person other than CDS for such Uncertificated Warrant or a nominee thereof.

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(5)Notwithstanding anything to the contrary in this Indenture, subject to Applicable Legislation, the Uncertificated Warrants will be issued as an Uncertificated Warrant, unless otherwise requested in writing by CDS or the Company.

(6)The rights of beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the Book-Entry Only System shall be limited to those established by applicable law and agreements between CDS and the Participants and between such Participants and the beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through the Book-Entry Only System, and such rights must be exercised through a Participant in accordance with the rules and procedures of CDS.

(7)Notwithstanding anything herein to the contrary, neither the Company nor the Warrant Agent nor any agent thereof shall have any responsibility or liability for:

(a)the electronic records maintained by CDS relating to any ownership interests or any other interests in the Warrants or the depository system maintained by CDS, or payments made on account of any ownership interest or any other interest of any person in any Warrant represented by an electronic position in the Book-Entry Only System (other than CDS or its nominee);

(b)maintaining, supervising or reviewing any records of CDS or any Participant relating to any such interest; or

(c)any advice or representation made or given by CDS or those contained herein that relate to the rules and regulations of CDS or any action to be taken by CDS on its own direction or at the direction of any Participant.

(8)The Company may terminate the application of this section 2.12 in its sole discretion in which case all Warrants shall be evidenced by Warrant Certificates registered in the name of a person other than CDS.

2.13Adjustment of Exchange Basis

Subject to section 2.14, the Exchange Basis shall be subject to adjustment from time to time in the events and in the manner provided as follows:

(1)If and whenever, at any time after the date hereof and prior to the Time of Expiry, the Company shall:

(i)issue Common Shares or securities exchangeable for or convertible into Common Shares to all or substantially all the holders of the Common Shares as a stock dividend or other distribution (other than as a Dividend Paid in the Ordinary Course or a distribution of Warrant Shares upon exercise of the Warrants or pursuant to the exercise of incentive stock options granted under stock option plans of the Company), or

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(ii)subdivide, redivide or change its then outstanding Common Shares into a greater number of Common Shares, or

(iii)reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares,

(any of such events in these paragraphs (i), (ii) or (iii) being called a "Common Share Reorganization"), then the Exchange Basis in effect on the effective date of such subdivision or consolidation, or on the record date of such stock dividend or other distribution, as the case may be, shall be adjusted by multiplying the Exchange Basis in effect immediately prior to such effective or record date by a fraction:

(a)the numerator of which shall be the total number of Common Shares outstanding on such date immediately after giving effect to such Common Share Reorganization (including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would have been outstanding had such securities been exchanged for or converted into Common Shares on such record date, assuming in any case where such securities are not then convertible or exchangeable but subsequently become so, that they were convertible or exchangeable on the record date on the basis upon which they first become convertible or exchangeable), and

(b)the denominator of which shall be the total number of Common Shares outstanding on such date before giving effect to such Common Share Reorganization.  The resulting product, adjusted to the nearest 1/100th, shall thereafter be the Exchange Basis until further adjusted as provided in this Article 2.

To the extent that any adjustment in the Exchange Basis occurs pursuant to this subsection 2.13(1) as a result of the fixing by the Company of a record date for the distribution of securities exchangeable for or convertible into Common Shares and the Common Share Reorganization does not occur or any conversion or exchange rights are not fully exercised, the Exchange Basis shall be readjusted immediately after the expiry of any relevant exchange or conversion right or the termination of the Common Share Reorganization, as the case may be, to the Exchange Basis that would then be in effect, based upon the number of Common Shares actually issued and remaining issuable after such expiry and shall be further readjusted in such manner upon the expiry of any further such right.

(2)If and whenever, at any time after the date hereof and prior to the Time of Expiry, the Company shall fix a record date for the distribution to all or substantially all of the holders of its outstanding Common Shares of rights, options or warrants entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase Common Shares, or securities exchangeable for or convertible into Common Shares, at a price per share to the holder (or at an exchange or conversion price per share) of less than 95% of the Current Market Price on such record date (any of such events being called a "Rights Offering"), then the Exchange Basis shall be adjusted effective immediately after such record date for the Rights Offering by multiplying the Exchange Basis in effect immediately prior to such record date by a fraction:

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(a)the numerator of which shall be the number of Common Shares which would be outstanding after giving effect to the Rights Offering (assuming the exercise of all of the rights, options or warrants under the Rights Offering and assuming the exchange or conversion into Common Shares of all exchangeable or convertible securities issued upon exercise of such rights, options or warrants, if any), and

(b)the denominator of which shall be the aggregate of:

(i)the total number of Common Shares outstanding as of the record date for the Rights Offering, and

(ii)a number of Common Shares determined by dividing

(A)the amount equal to the aggregate consideration payable on the exercise of all of the rights, options and warrants under the Rights Offering plus the aggregate consideration, if any, payable on the exchange or conversion of the exchangeable or convertible securities issued upon exercise of such rights, options or warrants (assuming the exercise of all rights, options and warrants under the Rights Offering and assuming the exchange or conversion of all exchangeable or convertible securities issued upon exercise of such rights, options and warrants);

by

(B)the Current Market Price as of the record date for the Rights Offering.

The resulting product, adjusted to the nearest 1/100th, shall thereafter be the Exchange Basis until further adjusted as provided in this Article 2.  Any Common Shares owned by or held for the account of the Company or any of its Subsidiaries or a partnership in which the Company is directly or indirectly a party to will be deemed not to be outstanding for the purpose of any computation.  If, at the date of expiry of the rights, options or warrants subject to the Rights Offering, less than all the rights, options or warrants have been exercised, then the Exchange Basis shall be readjusted effective immediately after the date of expiry to the Exchange Basis which would have been in effect on the date of expiry if only the rights, options or warrants issued had been those exercised.  If at the date of expiry of the rights of exchange or conversion of any securities issued pursuant to the Rights Offering less than all of such securities have been exchanged or converted into Common Shares, then the Exchange Basis shall be readjusted effective immediately after the date of expiry to the Exchange Basis which would have been in effect on the date of expiry if only the exchangeable or convertible securities issued had been those securities actually exchanged for or converted into Common Shares.

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(3)If and whenever, at any time after the date hereof and prior to the Time of Expiry, the Company shall fix a record date for the issuance or distribution to all or substantially all the holders of its outstanding Common Shares of:

(i)shares of the Company of any class other than Common Shares; or

(ii)rights, options or warrants to acquire Common Shares or securities exchangeable for or convertible into Common Shares; or

(iii)evidences of indebtedness; or

(iv)cash, securities or any property or other assets,

and if such issuance or distribution does not constitute a Dividend Paid in the Ordinary Course, a Common Share Reorganization or a Rights Offering (any of such non-excluded events being herein called a "Special Distribution"), the Exchange Basis shall be adjusted effective immediately after the record date for the Special Distribution by multiplying the Exchange Basis in effect on such record date by a fraction:

(a)the numerator of which shall be the number of Common Shares outstanding on such record date multiplied by the Current Market Price on such record date, and

(b)the denominator of which shall be:

(A)the product of the number of Common Shares outstanding on such record date and the Current Market Price on such record date, less

(B)the fair market value, as determined by action by the board of directors acting reasonably and in good faith (whose determination shall be conclusive), to the holders of the Common Shares of the shares, rights, options, warrants, evidences of indebtedness or property or other assets issued or distributed in the Special Distribution,

provided that no such adjustment shall be made if the result of such adjustment would be to decrease the Exchange Basis in effect immediately before such record date.  The resulting product, adjusted to the nearest 1/100th, shall thereafter be the Exchange Basis until further adjusted as provided in this Article 2.  Any shares owned by or held for the account of the Company or its Subsidiaries or a partnership of which the Company is directly or indirectly a party to shall be deemed not to be outstanding for the purpose of any such computation.

(4)If and whenever, at any time after the date hereof and prior to the Time of Expiry, there shall be a reclassification of the Common Shares at any time outstanding or change or exchange of the Common Shares into other shares or into other securities (other than a Common Share Reorganization), or a consolidation, amalgamation, plan of arrangement or merger of the Company with or into any other corporation or other entity (other than a consolidation, amalgamation, plan of arrangement or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares), or a transfer (other than to a Subsidiary) of the undertaking or assets of the Company as an entirety or substantially as an entirety to another corporation or other entity (any of such events being herein called a "Capital Reorganization"), any Warrantholder who thereafter shall exercise his right to receive Warrant Shares pursuant to Warrant(s) shall be entitled to receive, and shall accept in lieu of the number of Warrant Shares to which such holder was theretofore entitled upon such exercise, the aggregate number of shares, other securities or other property resulting from the Capital Reorganization which such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date or record date thereof, as the case may be, the Warrantholder had been the registered holder of the number of Warrant Shares to which such holder was theretofore entitled upon exercise.  If appropriate, adjustments shall be made as a result of any such Capital Reorganization in the application of the provisions set forth in this Article 2 with respect to the rights and interests thereafter of Warrantholders to the end that the provisions set forth in this Article 2 shall thereafter correspondingly be made applicable as nearly as may reasonably be in relation to any shares, other securities or other property thereafter deliverable upon the exercise of any Warrant.  Any such adjustment shall be made by and set forth in an indenture supplemental hereto approved by the directors and by the Warrant Agent and entered into pursuant to the provisions of this Indenture and shall for all purposes be conclusively deemed to be an appropriate adjustment.

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(5)Any adjustment to the Exchange Basis as set forth herein shall also include a corresponding adjustment to the Exercise Price which shall be calculated by multiplying the Exercise Price by a fraction:  (a) the numerator of which shall be the Exchange Basis prior to the adjustment, and (b) the denominator of which shall be the Exchange Basis after the adjustment.

2.14Rules Regarding Calculation of Adjustment of Exchange Basis

For the purposes of section 2.13:

(1)The adjustments provided for in section 2.13 shall be cumulative and such adjustments shall be made successively whenever an event referred to in section 2.13 shall occur, subject to the following subsections of this section 2.14.

(2)No adjustment in the:  (a) Exchange Basis shall be required unless such adjustment would result in a change of at least 0.01 of a Warrant Share based on the prevailing Exchange Basis; or (b) Exercise Price shall be required unless such adjustment would result in a change of at least 1%, provided that any adjustments which, except for the provisions of this subsection, would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment.

(3)No adjustment in the Exchange Basis shall be made in respect of any event described in section 2.13, other than the events referred to in paragraphs (ii) and (iii) of subsection (1) thereof, if Warrantholders are entitled to participate in such event on the same terms, mutatis mutandis, as if Warrantholders had exercised their Warrants prior to or on the effective date or record date of such event, any such participation being subject to regulatory approval.

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(4)No adjustment in the Exchange Basis shall be made pursuant to section 2.13 in respect of the issue from time to time of Warrant Shares purchasable on exercise of the Warrants or in respect of the issue from time to time of a Dividend Paid in the Ordinary Course to holders of Common Shares who exercise an option or election to receive substantially equivalent dividends in Common Shares in lieu of receiving a cash dividend, and any such issue shall be deemed not to be a Common Share Reorganization.

(5)If a dispute shall at any time arise with respect to adjustments provided for in section 2.13, such dispute shall, absent manifest error, be conclusively determined by the Company's Auditors, or if they are unable or unwilling to act, by such other firm of independent chartered accountants as may be selected by the directors and any further determination, absent manifest error, shall be binding upon the Company, the Warrant Agent and the Warrantholders.

(6)If the Company shall set a record date to determine the holders of the Common Shares for the purpose of entitling them to receive any dividend or distribution or any subscription or purchase rights and shall, thereafter and before the distribution to such shareholders of any such dividend, distribution, or subscription or purchase rights, legally abandon its plan to pay or deliver such dividend, distribution, or subscription or purchase rights, then no adjustment in the Exchange Basis shall be required by reason of the setting of such record date.

(7)In the absence of a resolution of the directors fixing a record date for a Rights Offering or Special Distribution, the Company shall be deemed to have fixed as the record date therefor the date on which the Rights Offering or Special Distribution is effected.

(8)If the purchase price provided for in any Rights Offering (the "Rights Offering Price") is decreased, the Exchange Basis shall forthwith be changed so as to increase the Exchange Basis to such Exchange Basis as would have been obtained had the adjustment to the Exchange Basis made pursuant to subsection 2.13(2) upon the issuance of such Rights Offering been made upon the basis of the Rights Offering Price as so decreased, provided that the provisions of this subsection shall not apply to any decrease in the Rights Offering Price resulting from provisions in any such Rights Offering designed to prevent dilution if the event giving rise to such decrease in the Rights Offering Price itself requires an adjustment to the Exchange Basis pursuant to the provisions of section 2.13.

(9)As a condition precedent to the taking of any action that would require any adjustment in any of the subscription rights pursuant to any of the Warrants, including the Exchange Basis, the Company shall take any corporate action which may, in the opinion of counsel, be necessary in order that the Company have unissued and reserved in its authorized capital and may validly and legally issue as fully paid and non-assessable all the shares or other securities that all the holders of such Warrants are entitled to receive on the exercise of all the subscription rights attaching thereto in accordance with the provisions thereof.

(10)In case the Company, after the date hereof, shall take any action affecting any Common Shares, other than action described in section 2.13, which in the opinion of the directors acting reasonably and in good faith would materially affect the rights of Warrantholders, the Exchange Basis shall be adjusted in such manner, if any, and at such time, as the directors, in their sole discretion acting in good faith, may determine to be equitable in the circumstances.  Failure of the taking of action by the directors so as to provide for an adjustment in the Exchange Basis prior to the effective date of any action by the Company affecting the Common Shares shall be conclusive evidence that the directors have determined that it is equitable to make no adjustment in the circumstances.

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(11)The Warrant Agent shall be entitled to act and rely on any adjustment calculations by the Company or the Company's Auditors.

2.15Postponement of Subscription

In any case where the application of section 2.13 results in an increase in the number of Common Shares that are issuable upon exercise of the Warrants taking effect immediately after the record date for a specific event, if any Warrant is exercised after that record date and prior to completion of such specific event, the Company may postpone the issuance to the Warrantholder of the Warrant Shares to which he is entitled by reason of such adjustment, but such Warrant Shares shall be so issued and delivered to that holder upon completion of that event, with the number of such Warrant Shares calculated on the basis of the number of Warrant Shares on the date that the Warrant was exercised, adjusted for completion of that event and the Company shall deliver to the person or persons in whose name or names the Warrant Shares are to be issued an appropriate instrument evidencing the right of such person or persons to receive such Warrant Shares and the right to receive any dividends or other distributions which, but for the provisions of this section 2.15, such person or persons would have been entitled to receive in respect of such Warrant Shares from and after the date that the Warrant was exercised in respect thereof.

2.16Notice of Adjustment

(1)At least 14 days prior to the effective date or record date, as the case may be, of any event which requires or might require adjustment pursuant to section 2.13, the Company shall:

(a)file with the Warrant Agent a certificate of the Company specifying the particulars of such event (including the record date or the effective date for such event) and, if determinable, the required adjustment and the computation of such adjustment; and

(b)give notice to the Warrantholders of the particulars of such event (including the record date or the effective date for such event) and, if determinable, the required adjustment.

(2)In case any adjustment for which a notice in subsection 2.16(1) has been given is not then determinable, the Company shall promptly after such adjustment is determinable:

(a)file with the Warrant Agent a computation of such adjustment; and

(b)give notice to the Warrantholders of the adjustment.

(3)The Warrant Agent may, absent manifest error, act and rely upon certificates and other documents filed by the Company pursuant to this section 2.16 for all purposes of the adjustment.

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2.17No Action after Notice

The Company covenants with the Warrant Agent that it will not take any other corporate action which might deprive a Warrantholder of the opportunity of exercising the rights of acquisition pursuant thereto during the period of 10 days after the giving of the notice set forth in paragraph (b) of subsections 2.16(1) and (2).

2.18Purchase of Warrants for Cancellation

The Company may, at any time and from time to time, purchase Warrants by invitation for tender, by private contract or otherwise (which shall include a purchase through an investment dealer or firm holding membership on a Canadian stock exchange) on such terms as the Company may determine.  All Warrants purchased pursuant to the provisions of this section 2.18 shall be forthwith delivered to, cancelled and destroyed by the Warrant Agent and shall not be reissued.  If required by the Company, the Warrant Agent shall furnish the Company with a certificate as to such destruction.

2.19Optional Purchases by the Company

Subject to applicable law and prior approval of the TSXV, if required, the Company may from time to time purchase on any stock exchange (if then listed), in the open market, by private agreement or otherwise any of the Warrants.  Any such purchase shall be made at the lowest price or prices at which, in the opinion of the board of directors of the Company, such Warrants are then obtainable, plus reasonable costs of purchase, and may be made in such manner, from such persons, and on such other terms as the Company in its sole discretion may determine.  The Warrant Certificates representing the Warrants purchased pursuant to this section 2.19 shall forthwith be delivered to, cancelled and destroyed by the Warrant Agent.

2.20Protection of Warrant Agent

Subject to Article 8, the Warrant Agent shall not:

(a)at any time be under any duty or responsibility to any registered holder of Warrants to determine whether any facts exist that may require any adjustment contemplated by this Article 2, nor to verify the nature and extent of any such adjustment when made or the method employed in making the same;

(b)be accountable with respect to the validity or value or the kind or amount of any Warrant Shares that may at any time be issued or delivered upon the exercise of the Warrants;

(c)be responsible for any failure of the Company to make any cash payment upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply with any of the covenants contained in this Article 2; or

(d)incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Company of any of the representations, warranties or covenants of the Company or any acts or deeds of the agents or servants of the Company.

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2.21Legend on Warrant Certificate or Uncertificated Warrants and Warrant Share certificates under the Private Placement

(1)Each Warrant Certificate originally issued to a Purchaser pursuant to the Private Placement and all certificates for Warrant Shares if issued prior to four months and one day from the Closing Date upon exercise of Warrants issued under the Private Placement, shall bear the following legend(s):

"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY [AND FOR THE WARRANTS INCLUDE:  OR ANY SECURITY ISSUED ON ITS EXERCISE] BEFORE AUGUST 30, 2021

and, if applicable, the additional legend:

WITHOUT PRIOR WRITTEN APPROVAL OF [Insert applicable stock exchange] AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL AUGUST 30, 2021.

(2)Each Warrant originally issued and held by CDS and each Warrant issued in exchange therefor or in substitution thereof shall bear or be deemed to bear the following legend or such variations thereof as the Company may prescribe from time to time:

"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CDS CLEARING AND DEPOSITORY SERVICES INC.  ("CDS") TO KWESST MICRO SYSTEMS INC.  (THE "ISSUER") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO., OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND ANY PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER HEREOF, CDS & CO., HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO HOLD, TRANSFER OR DEAL WITH THIS CERTIFICATE."

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2.22U.S. Legend on Warrant Certificates and Warrant Share certificates

(1)The Warrant Agent understands and acknowledges that the Warrants and the Warrant Shares issuable upon exercise of the Warrants have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state of the United States.

(2)Each Warrant, in certificated form, originally issued in the United States or, to or for the account or benefit of, a U.S. Person, and all Warrant Shares issued upon exercise of such Warrants, and all certificates issued in exchange or in substitution thereof or upon transfer thereof, shall bear the following legend(s):

"THE SECURITIES REPRESENTED HEREBY [for Warrants include:  AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF] HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR STATE SECURITIES LAWS.  THE HOLDER HEREOF, BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF KWESST MICRO SYSTEMS INC.  (THE "COMPANY") THAT THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S ("REGULATION S") UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL OPINION SATISFACTORY TO THE COMPANY MUST FIRST BE PROVIDED TO TSX TRUST COMPANY.THESE SECURITIES MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON CANADIAN STOCK EXCHANGES."

[if a Warrant:  "THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.  THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE.  "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT."]

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provided that, if any Warrants or Warrant Shares issuable upon exercise of the Warrants are being sold in accordance with Rule 904 of Regulation S, the legend may be removed by providing to the Warrant Agent or the Transfer Agent, as applicable, (i) a declaration in the form attached hereto as Schedule "B" (or as the Company may prescribe from time to time in order to address changes in applicable laws) and (ii) if required by the Warrant Agent or the Transfer Agent, as applicable, an opinion of counsel, of recognized standing reasonably satisfactory to the Company, or other evidence reasonably satisfactory to the Company, that the proposed transfer may be effected without registration under the U.S. Securities Act;

and provided, further, that, if any Warrants or Warrant Shares issuable upon exercise of the Warrants are being sold under Rule 144, the legend may be removed by delivering to the Warrant Agent or the Transfer Agent, as applicable, an opinion of counsel of recognized standing reasonably satisfactory to the Company, that the legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws;

(3)If a Warrant or Warrant Share issued with respect to an exercise of Warrants is tendered for transfer and bears the legend set forth in subsection 2.22(2) herein and the holder thereof has not obtained the prior written consent of the Company, the Warrant Agent or the Transfer Agent, as the case may be, shall not register such transfer unless the holder complies with the requirements of the said subsection 2.22(2) hereof.

ARTICLE 3 - EXERCISE OF WARRANTS

3.1Method of Exercise of Warrants

(1)The registered Warrantholder may exercise the rights thereby conferred on them to acquire all or any part of the Warrant Shares to which such Warrant entitles the holder, by surrendering the Warrant Certificate representing such Warrants to the Warrant Agent at any time prior to the Time of Expiry at its principal stock transfer offices in the City of Toronto, Ontario (or at such additional place or places as may be decided by the Company from time to time with the approval of the Warrant Agent), with a duly completed and executed exercise form of the registered holder or his executors, administrators or other legal representative or his attorney duly appointed by an instrument in writing in the form and manner satisfactory to the Warrant Agent, substantially in the form endorsed on the Warrant Certificate specifying the number of Warrant Shares subscribed for together with a certified cheque, bank draft or money order in lawful money of Canada, payable to or to the order of the Company in an amount equal to the Exercise Price multiplied by the number of Warrant Shares subscribed for.  A Warrant Certificate with the duly completed and executed exercise form and payment of the Exercise Price shall be deemed to be surrendered only upon personal delivery thereof to or, if sent by mail or other means of transmission, upon actual receipt thereof by the Warrant Agent.

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(2)Any exercise form referred to in subsection 3.1(1) shall be signed by the Warrantholder, or his executors, or administrators or other legal representative or his attorney duly appointed by an instrument in writing in the form and manner satisfactory to the Warrant Agent, shall specify the person(s) in whose name such Warrant Shares are to be issued, the address(es) of such person(s) and the number of Warrant Shares to be issued to each person, if more than one is so specified.  If any of the Warrant Shares subscribed for are to be issued to (a) person(s) other than the Warrantholder, the signatures set out in the exercise form referred to in subsection 3.1(1) shall be guaranteed by a Canadian Schedule 1 chartered bank or a medallion signature guarantee from a member of a recognized Signature Medallion Guarantee Program and the Warrantholder shall pay to the Company or the Warrant Agent all applicable transfer or similar taxes and the Company shall not be required to issue or deliver certificates evidencing Warrant Shares unless or until such Warrantholder shall have paid to the Company or the Warrant Agent on behalf of the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or that no tax is due.

(3)If, at the time of exercise of the Warrants, in accordance with the provisions of subsection 3.1(1), there are any trading restrictions on the Warrant Shares pursuant to applicable securities legislation or stock exchange requirements, the Company shall, on the advice of counsel, endorse any certificates representing the Warrant Shares to such effect.  The Warrant Agent is entitled to assume compliance with all applicable securities legislation unless otherwise notified in writing by the Company.

(4)A Beneficial Owner who desires to exercise his Uncertificated Warrants, must do so by causing a Participant to deliver to CDS (at its office in the City of Toronto), on behalf of the Beneficial Owner at any time prior to the Time of Expiry, a written notice of the Beneficial Owner's intention to exercise Warrants (the "Exercise Notice").  Forthwith upon receipt by CDS of such notice, as well as payment for the Exercise Price, CDS shall deliver to the Warrant Agent confirmation of its intention to exercise Warrants (the "Confirmation") in a manner acceptable to the Warrant Agent, including by electronic means through the Book-Entry Only System.  CDS will initiate the exercise by way of the Confirmation and forward the aggregate Exercise Price electronically to the Warrant Agent and the Warrant Agent will execute the exercise by issuing to CDS through the Book-Entry Only System the Warrant Shares to which the exercising Beneficial Owner is entitled pursuant to the exercise.  Any expense associated with the preparation and delivery of Exercise Notices will be for the account of the Beneficial Owner exercising the Warrants.

(5)An electronic exercise of the Uncertificated Warrants initiated by the Book-Entry Only Participant through the Book-Entry Only System shall constitute a representation to both the Company and the Warrant Agent that the beneficial holder at the time of exercise of such Uncertificated Warrants (a) is not in the United States; (b) is not a U.S. Person and is not exercising such Uncertificated Warrants on behalf of a U.S. Person or a person in the United States; and (c) did not execute or deliver the Exercise Notice of the owner's intention to exercise such Uncertificated Warrants in the United States.  If the Book-Entry Only Participant is not able to make or deliver the foregoing representation by initiating the electronic exercise of the Uncertificated Warrants, then such Warrants shall be withdrawn from the Book-Entry Only System, by the Book-Entry Only Participant and an individually registered Warrant Certificate shall be issued by the Warrant Agent to such beneficial owner or Book-Entry Only Participant, which certificate shall be impressed with the appropriate legends, and the exercise procedures set forth in Section 3.7 shall be followed.

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(6)By causing a Participant to deliver notice to CDS, a Beneficial Owner shall be deemed to have irrevocably surrendered his Warrants so exercised and appointed such Participant to act as his or her exclusive settlement agent with respect to the exercise and the receipt of Warrant Shares in connection with the obligations arising from such exercise.

(7)Any notice which CDS determines to be incomplete, not in proper form or not duly executed shall for all purposes be void and of no effect and the exercise to which it relates shall be considered for all purposes not to have been exercised thereby.  A failure by a Participant to exercise or to give effect to the settlement thereof in accordance with the Beneficial Owner's instructions will not give rise to any obligations or liability on the part of the Company or Warrant Agent to the Participant or the Beneficial Owner.

3.2No Fractional Shares

Under no circumstances shall the Company be obliged to issue any fractional Warrant Shares or any cash or other consideration in lieu thereof upon the exercise of one or more Warrants.  To the extent that the holder of one or more Warrants would otherwise have been entitled to receive on the exercise or partial exercise thereof a fraction of a Warrant Share, that holder may exercise that right in respect of the fraction only in combination with another Warrant or Warrants that in the aggregate entitle the holder to purchase a whole number of Warrant Shares.

3.3Effect of Exercise of Warrants

(1)Upon compliance by the Warrantholder with the provisions of section 3.1, the Warrant Shares subscribed for shall be deemed to have been issued and the person to whom such Warrant Shares are to be issued shall be deemed to have become the holder of record of such Warrant Shares on the Exercise Date unless the transfer registers of the Company for the Common Shares shall be closed on such date, in which case the Warrant Shares subscribed for shall be deemed to have been issued and such person shall be deemed to have become the holder of record of such Warrant Shares on the date on which such transfer registers are reopened.

(2)Within three Business Days following the due exercise of a Warrant pursuant to section 3.1 and forthwith after the Time of Expiry, the Warrant Agent shall deliver to the Company a notice setting forth the particulars of all Warrants exercised, if any, and the persons in whose names the Warrant Shares are to be issued (as applicable) and the addresses of such holders of the Warrant Shares.

(3)Within three Business Days of the due exercise of a Warrant pursuant to section 3.1, the Company shall cause the Transfer Agent to issue, within such three Business Day period, to CDS through the Book-Entry Only System the Warrant Shares (which shall include Warrant Shares issued to a Purchaser that is a Qualified Institutional Buyer pursuant to Section 3.7(2)(b)) to which the exercising Warrantholder is entitled pursuant to the exercise or mail to the person in whose name the Warrant Shares so subscribed for are to be issued, as specified in the exercise form completed on the Warrant Certificate, at the address specified in such exercise form, a certificate or certificates for the Warrant Shares to which the Warrantholder is entitled and, if applicable, shall cause the Warrant Agent to mail a Warrant Certificate representing any Warrants not then exercised.

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3.4Cancellation of Warrants

All Warrants surrendered to the Warrant Agent pursuant to sections 2.6, 2.8(2), 2.10 or 3.1 shall be cancelled by the Warrant Agent and the Warrant Agent shall record the cancellation of such Warrants on the register of holders maintained by the Warrant Agent pursuant to subsection 2.8(1).  The Warrant Agent shall, if required by the Company, furnish the Company with a certificate identifying the Warrants so cancelled.  All Warrants that have been duly cancelled shall be without further force or effect whatsoever.

3.5Subscription for less than Entitlement

The holder of any Warrant may subscribe for and purchase a whole number of Warrant Shares that is less than the number that the holder is entitled to purchase pursuant to a surrendered Warrant.  In such event, the holder thereof shall be entitled to receive a new Warrant in respect of the balance of Warrants that were not then exercised, such new Warrant to contain the same legend as provided for in subsections 2.21(1) and (2) and 2.22(2) if applicable.

3.6Expiration of Warrant

After the Time of Expiry, all rights under any Warrant in respect of which the right of subscription and purchase herein and therein provided for shall not theretofore have been exercised shall wholly cease and terminate and such Warrant shall be void and of no effect.

3.7Prohibition on Exercise by U.S. Persons; Exception

(1)Warrants may not be exercised within the United States or by or on behalf of, or for the account or benefit of, any U.S. Person or any person in the United States unless an exemption is available from the registration requirements of the U.S. Securities Act and applicable state securities laws and the holder of the Warrants has furnished an opinion of counsel of recognized standing in form and substance satisfactory to the Company to such effect; provided that a Qualified Institutional Buyer that purchased the Units in the Private Placement will not be required to deliver an opinion of counsel in connection with the exercise of Warrants forming part of the Units, provided it provides the certification required in paragraph 3.7(2)(b) below.  The Warrant Agent shall be entitled to rely upon the registered address of the Warrantholder as set forth in such Warrantholder's register for the purchase of Units in determining whether the address is in the United States or the Warrantholder is a U.S. Person.

(2)Any holder which exercises any Warrants shall provide to the Company either:

(a)a written certification that such holder (a) at the time of exercise of the Warrants is not in the United States; (b) is not a U.S. Person and is not exercising the Warrants on behalf of a U.S. Person or person in the United States; and (c) did not execute or deliver the exercise form for the Warrants in the United States; and (d) has in all other aspects complied with the terms of an "offshore transaction" within the meaning of Regulation S under the U.S. Securities Act;

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(b)a written certification that the holder (a) purchased the Warrants as a part of the Units in the Private Placement; (b) is exercising the Warrants solely for its own account or for the benefit of a U.S. Person or a person in the United States for whose account such holder acquired the Warrants as a part of the Units in the Private Placement and for whose account such holders exercises sole investment discretion; (c) was and is, and any beneficial purchaser for whose account such holder acquired the Warrant and is exercising the Warrants was and is, a Qualified Institutional Buyer both on the date the Units were purchased in the Private Placement and on the Exercise Date; and (d) the representations and warranties made by the holder or any beneficial purchaser, as the case may be, to the Company in connection with the acquisition of the Units in the Private Placement remain true and correct on the Exercise Date;

(c)a written certification that the holder (a) purchased the Warrants as a part of the Units in the Private Placement; (b) is exercising the Warrants solely for its own account or for the benefit of a U.S. Person or a person in the United States for whose account such holder acquired the Warrants as a part of the Units in the Private Placement and for whose account such holders exercises sole investment discretion; (c) was and is, and any beneficial purchaser for whose account such holder acquired the Warrant and is exercising the Warrants was and is an Accredited Investor both on the date the Units were purchased in the Private Placement and on the Exercise Date; and (d) the representations and warranties made by the holder or any beneficial purchaser, as the case may be, to the Company in connection with the acquisition of the Units in the Private Placement remain true and correct on the Exercise Date; or

(d)a written opinion of counsel of recognized standing in form and substance satisfactory to the Company to the effect that an exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws is available for the issuance of the Warrant Shares issuable on exercise of the Warrants.

(3)No Warrant Shares will be registered or delivered to an address in the United States unless the holder of Warrants complies with the requirements of paragraphs (b), (c) or (d) of subsection 3.7(2).

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ARTICLE 4 - COVENANTS

4.1General Covenants of the Company

The Company represents, warrants and covenants with the Warrant Agent for the benefit of the Warrant Agent and the Warrantholders that:

(1)The Company will at all times, so long as any Warrants remain outstanding, maintain its existence, unless otherwise inconsistent with the fiduciary duties of the board of directors of the Company, and will carry on and conduct its business in a prudent manner in accordance with industry standards and good business practice, and will keep or cause to be kept proper books of account in accordance with applicable law until the Time of Expiry.

(2)The Company is duly authorized to create and issue the Warrants to be issued hereunder and the Warrants, when issued, Authenticated and countersigned, as applicable, will be legal, valid, binding and enforceable obligations of the Company.

(3)The issue of the Warrants and the issue of the Warrant Shares issuable upon exercise thereof does not and will not, so long as any Warrants remain outstanding, result in a breach by the Company of, and does not and will not create a state of facts which, after notice or lapse of time or both, will result in a breach by the Company of any Applicable Legislation, and does not and will not conflict with any of the terms, conditions or provisions of the articles, by-laws or resolutions of the Company or any trust indenture, loan agreement or any other agreement or instrument to which the Company is a party or by which it is contractually bound on the date of this Indenture.

(4)Unless otherwise inconsistent with the fiduciary duties of the board of directors of the Company, the Company will use its commercially reasonable efforts to maintain the listing of the Common Shares on the TSXV or such other recognized stock exchange or quotation system, so long as any Warrants remain outstanding, and to have the Warrant Shares issued pursuant to the exercise of the Warrants listed and posted for trading on the TSXV as expeditiously as possible.

(5)Unless otherwise inconsistent with the fiduciary duties of the board of directors of the Company, use commercially reasonable efforts to maintain its status as a "reporting issuer" (or the equivalent thereof) in each of the provinces of Canada in which it is currently a reporting issuer, not in default of the requirements of the applicable Securities Laws of such province until the Time of Expiry.

(6)The Company will reserve and keep available a sufficient number of Warrant Shares for issuance upon the exercise of Warrants issued by the Company.

(7)The Company will cause the Warrant Shares from time to time subscribed for pursuant to the Warrants issued by the Company hereunder, in the manner herein provided, to be duly issued in accordance with the Warrants and the terms hereof.

(8)The Company will cause the certificates representing the Warrant Shares from time to time to be acquired, pursuant to the Warrants in the manner herein provided, to be duly issued and delivered in accordance with the Warrants and the terms hereof.

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(9)All Warrant Shares that shall be issued by the Company upon exercise of the rights provided for herein shall be issued as fully paid and non-assessable.

(10)If the Company is a party to any transaction in which the Company is not the continuing corporation, the Company shall use its commercially reasonable efforts to obtain all consents which may be necessary or appropriate to enable the continuing corporation to give effect to this Indenture.

(11)The Company will perform and carry out all of the acts or things to be done by it as provided in this Indenture.

(12)The Company will promptly advise the Warrant Agent and the Warrantholders in writing of any breach or default under the terms of this Indenture no later than five Business Days following the occurrence of such breach or default.

4.2Securities Qualification Requirements

(1)If, in the opinion of counsel, any instrument is required to be filed with, or any permission, order or ruling is required to be obtained from, any securities administrator or any other step is required under any federal or provincial law of Canada before the Warrant Shares may be issued or delivered to a Warrantholder, the Company covenants that it will use its best efforts to file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances.

(2)The Company will give written notice of the issue of Warrant Shares pursuant to the exercise of Warrants, in such detail as may be required, to each securities administrator in each jurisdiction in which there is legislation requiring the giving of any such notice.

4.3Warrant Agent's Remuneration and Expenses

The Company covenants that it will pay to the Warrant Agent from time to time the agreed remuneration for its services hereunder and will pay or reimburse the Warrant Agent upon its request for all reasonable expenses and disbursements of the Warrant Agent in the administration or execution of the duties and obligations hereby created (including the reasonable compensation and the disbursements of its counsel and all other advisers, experts, accountants and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Warrant Agent hereunder shall be finally and fully performed, except any such expense or disbursement in connection with or related to or required to be made as a result of the gross negligence, wilful misconduct, bad faith or fraud of the Warrant Agent.  Any amount owing hereunder and remaining unpaid after 30 days from the invoice date will bear interest at the then current rate charged by the Warrant Agent against unpaid invoices and shall be payable upon demand.  This Section shall survive the resignation or removal of the Warrant Agent and/or the termination of this Indenture.

4.4Performance of Covenants by Warrant Agent

Subject to section 8.7, if the Company shall fail to perform any of its covenants contained in this Indenture and the Company has not rectified such failure within 25 Business Days after either giving notice of such default pursuant to subsection 4.1(12) or receiving written notice from the Warrant Agent of such failure, the Warrant Agent may notify the Warrantholders of such failure on the part of the Company or may itself perform any of the said covenants capable of being performed by it, but shall be under no obligation to perform said covenants.  All reasonable sums expended or disbursed by the Warrant Agent in so doing shall be repayable as provided in section 4.3.  No such performance, expenditure or advance by the Warrant Agent shall be deemed to relieve the Company of any default hereunder or of its continuing obligations under the covenants herein contained.

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ARTICLE 5 - ENFORCEMENT

5.1Suits by Warrantholders

Subject to section 6.10, all or any of the rights conferred upon a Warrantholder by the terms of the Warrants held by him and/or this Indenture may be enforced by such Warrantholder by appropriate legal proceedings but without prejudice to the right that is hereby conferred upon the Warrant Agent to proceed in its own name to enforce each and all of the provisions herein contained for the benefit of the holders of the Warrants from time to time outstanding.  The Warrant Agent shall also have the power at any time and from time to time to institute and to maintain such suits and proceedings as it may reasonably be advised shall be necessary or advisable to preserve and protect its interests and the interests of the Warrantholders.

Subject to applicable law, the Warrant Agent and, by acceptance of the Warrant Certificate or Uncertificated Warrant, as applicable, and as part of the consideration for the issue of the Warrants, the Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any person in its capacity as an incorporator or any past, present or future shareholder, director, officer, employee or agent of the Company for the creation and issue of the shares pursuant to any warrant or any covenant, agreement, representation or warranty by the Company herein or contained in the Warrant Certificate or Uncertificated Warrant, as applicable.

5.2Limitation of Liability

The obligations hereunder (including without limitation under subsection 8.7(5)) are not personally binding upon, nor shall resort hereunder be had to, the private property of any of the past, present or future directors or shareholders of the Company or any of the past, present or future officers, employees or agents of the Company, but only the property of the Company (or any successor person) shall be bound in respect hereof.

ARTICLE 6 - MEETINGS OF WARRANTHOLDERS

6.1Right to Convene Meetings

The Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Company or of a Warrantholders' Request, convene a meeting of the Warrantholders provided that the Warrant Agent has been provided with sufficient funds and is indemnified to its reasonable satisfaction by the Company or by the Warrantholders signing such Warrantholders' Request against the costs, charges, expenses and liabilities that may be incurred in connection with the calling and holding of such meeting.  If within 7 Business Days after the receipt of a written request of the Company or a Warrantholders' Request, funding and indemnity given as aforesaid the Warrant Agent fails to give the requisite notice specified in section 6.2 to convene a meeting, the Company or such Warrantholders, as the case may be, may convene such meeting.  Every such meeting shall be held in the City of Toronto, Ontario or at such other place as may be approved or determined by the Warrant Agent.

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6.2Notice

At least 14 days prior notice of any meeting of Warrantholders shall be given to the Warrantholders at the expense of the Company in the manner provided for in section 9.2 and a copy of such notice shall be delivered to the Warrant Agent unless the meeting has been called by it, and to the Company unless the meeting has been called by it.  Such notice shall state the date, time and place of the meeting, the general nature of the business to be transacted and shall contain such information as is reasonably necessary to enable the Warrantholders to make a reasoned decision on the matter, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 6.  The notice convening any such meeting may be signed by an appropriate officer of the Warrant Agent or of the Company or the person designated by such Warrantholders, as the case may be.

6.3Chairman

The Warrant Agent may nominate in writing an individual (who need not be a Warrantholder) to be chairman of the meeting and if no individual is so nominated, or if the individual so nominated is not present within 15 minutes after the time fixed for the holding of the meeting, the Warrantholders present in person or by proxy shall appoint an individual present to be chairman of the meeting.  The chairman of the meeting need not be a Warrantholder.

6.4Quorum

Subject to the provisions of section 6.11, at any meeting of the Warrantholders a quorum shall consist of two Warrantholders present in person or represented by proxy and representing at least 20% of the aggregate number of Warrants then outstanding.  If a quorum of the Warrantholders shall not be present within one-half hour from the time fixed for holding any meeting, the meeting, if summoned by the Warrantholders or on a Warrantholders' Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day in which case it shall be adjourned to the next following Business Day) at the same time and place to the extent possible and, subject to the provisions of section 6.11, no notice of the adjournment need be given.  Any business may be brought before or dealt with at an adjourned meeting that might have been dealt with at the original meeting in accordance with the notice calling the same.  At the adjourned meeting the Warrantholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may not represent at least 20% of the aggregate number of Warrants then unexercised and outstanding.  No business shall be transacted at any meeting, except an adjourned meeting as described above, unless a quorum is present at the commencement of business.

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6.5Power to Adjourn

The chairman of any meeting at which a quorum of the Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe.

6.6Show of Hands

Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an extraordinary resolution shall be given in the manner hereinafter provided.  At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact.

6.7Poll and Voting

On every extraordinary resolution, and when demanded by the chairman or by one or more of the Warrantholders acting in person or by proxy on any other question submitted to a meeting and after a vote by show of hands, a poll shall be taken in such manner as the chairman shall direct.  Questions other than those required to be determined by extraordinary resolution shall be decided by a majority of the votes cast on the poll.  On a show of hands, every person who is present and entitled to vote, whether as a Warrantholder or as proxy for one or more absent Warrantholders, or both, shall have one vote.  On a poll, each Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each whole Warrant then held by him.  A proxy need not be a Warrantholder.  The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Warrants, if any, held or represented by him.

6.8Regulations

Subject to the provisions of this Indenture, the Warrant Agent or the Company with the approval of the Warrant Agent may from time to time make and from time to time vary such regulations as it shall consider necessary or appropriate:

(a)for the deposit of instruments appointing proxies at such place and time as the Warrant Agent, the Company or the Warrantholders convening the meeting, as the case may be, may in the notice convening the meeting direct;

(b)for the deposit of instruments appointing proxies at some approved place other than the place at which the meeting is to be held and enabling particulars of such instruments appointing proxies to be mailed or forwarded via facsimile or email before the meeting to the Company or to the Warrant Agent at the place where the same is to be held and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting;

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(c)for the form of instrument appointing a proxy and the manner in which the form of proxy may be executed; and

(d)generally for the calling of meetings of Warrantholders and the conduct of business thereat including setting a record date for Warrantholders entitled to receive notice of or to vote at such meeting.

Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted.  Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to section 6.9), shall be Warrantholders or persons holding proxies of Warrantholders.

6.9Company, Warrant Agent and Counsel may be Represented

The Company and the Warrant Agent, by their respective directors, officers and employees and the counsel for each of the Company, the Warrantholders and the Warrant Agent may attend any meeting of the Warrantholders and speak thereat but shall not be entitled to vote unless in their capacities as Warrantholders or proxies therefor.

6.10Powers Exercisable by Extraordinary Resolution

In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Warrantholders at a meeting shall have the power, exercisable from time to time by extraordinary resolution:

(a)to agree with the Company to any modification, alteration, compromise or arrangement of the rights of Warrantholders and/or the Warrant Agent in its capacity as Warrant Agent hereunder (subject to the Warrant Agent's approval) or on behalf of the Warrantholders against the Company, whether such rights arise under this Indenture or the Warrants or otherwise;

(b)to amend, modify or repeal any extraordinary resolution previously passed or sanctioned by the Warrantholders;

(c)to direct or authorize the Warrant Agent (subject to the Warrant Agent receiving funding and indemnity) to enforce any of the covenants on the part of the Company contained in this Indenture or the Warrants or to enforce any of the rights of the Warrantholders in any manner specified in such extraordinary resolution or to refrain from enforcing any such covenant or right;

(d)to waive, authorize and direct the Warrant Agent to waive any default on the part of the Company in complying with any provisions of this Indenture or the Warrants either unconditionally or upon any conditions specified in such extraordinary resolution;

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(e)to restrain any Warrantholder from taking or instituting any suit, action or proceeding against the Company for the enforcement of any of the covenants on the part of the Company contained in this Indenture or the Warrants or to enforce any of the rights of the Warrantholders; and

(f)to direct any Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with any such suit, action or proceeding, upon payment of the costs, charges and expenses reasonably and properly incurred by such Warrantholder in connection therewith.

6.11Meaning of "Extraordinary Resolution"

(1)The expression "extraordinary resolution" when used in this Indenture means, subject as hereinafter in this section 6.11 and in section 6.14 provided, a resolution proposed at a meeting of Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 6 at which there are present in person or by proxy Warrantholders representing at least 20% of the aggregate number of all the then outstanding Warrants and passed by the affirmative votes of Warrantholders representing not less than 662/3% of the aggregate number of all the then outstanding Warrants represented at the meeting and voted on the poll upon such resolution.

(2)If, at any meeting called for the purpose of passing an extraordinary resolution, Warrantholders representing at least 20% of the aggregate number of all the then outstanding Warrants are not present in person or by proxy within one-half hour after the time appointed for the meeting, then the meeting, if convened by Warrantholders or on a Warrantholders' Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than 10 Business Days later, and to such place and time as may be appointed by the chairman.  Not less than three Business Days prior notice shall be given of the time and place of such adjourned meeting in the manner provided in sections 9.1 and 9.2.  Such notice shall state that at the adjourned meeting the Warrantholders present in person or represented by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars.  At the adjourned meeting the Warrantholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in subsection 6.11(1) shall be an extraordinary resolution within the meaning of this Indenture notwithstanding that Warrantholders representing at least 20% of all the then outstanding Warrants are not present in person or represented by proxy at such adjourned meeting.

(3)Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary.

6.12Powers Cumulative

It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Warrantholders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Warrantholders to exercise such powers or combination of powers then or thereafter from time to time.

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6.13Minutes

Minutes of all resolutions and proceedings at every meeting of Warrantholders as aforesaid shall be made and duly entered in books to be provided for that purpose by the Warrant Agent at the expense of the Company and any minutes as aforesaid, if signed by the chairman of the meeting at which resolutions were passed or proceedings had, or by the chairman of the next succeeding meeting of the Warrantholders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every meeting, in respect of the proceedings of which minutes shall have been made, shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken, to have been duly passed and taken.

6.14Instruments in Writing

All actions that may be taken and all powers that may be exercised by the Warrantholders at a meeting held as provided in this Article 6 also may be taken and exercised by Warrantholders representing a majority, or in the case of an extraordinary resolution at least 662/3%, of the aggregate number of all the then outstanding Warrants by an instrument in writing signed in one or more counterparts by such Warrantholders in person or by attorney duly appointed in writing, and the expression "extraordinary resolution" when used in this Indenture shall include an instrument so signed.

6.15Binding Effect of Resolutions

Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article 6 at a meeting of Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Warrantholders in accordance with section 6.14 shall be binding upon all the Warrantholders, whether signatories thereto or not, and each and every Warrantholder and the Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and instrument in writing.  In the case of an instrument in writing, the Warrant Agent shall give notice in the manner contemplated in sections 9.1 and 9.2 of the effect of the instrument in writing to all Warrantholders and the Company as soon as is reasonably practicable.

6.16Holdings by the Company or Subsidiaries of the Company Disregarded

In determining whether Warrantholders are present at a meeting of Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, extraordinary resolution, Warrantholders' Request or other action under this Indenture, Warrants owned legally or beneficially by the Company or its Subsidiaries or in partnership of which the Company is directly or indirectly a party to shall be disregarded.  The Company shall provide, upon the written request of the Warrant Agent, a certificate as to the registration particulars of any Warrants held by the Company.

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ARTICLE 7 - SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES

7.1Provision for Supplemental Indentures for Certain Purposes

From time to time the Company (if properly authorized by its directors) and the Warrant Agent may, subject to the provisions hereof, and they shall, when so directed hereby, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes:

(a)providing for the issuance of additional Warrants, including Warrants in excess of the number set out in Section 2.1 hereunder and any consequential amendments hereto as may be required by the Warrant Agent, relying on the advice (but for certainty, not an opinion) of counsel;

(b)setting forth adjustments in the application of Article 2;

(c)adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of counsel are necessary or advisable, provided that the same are not in the opinion of the Warrant Agent, relying on the advice of counsel, prejudicial to the interests of the Warrantholders as a group;

(d)giving effect to any extraordinary resolution passed as provided in Article 6;

(e)making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder provided that such provisions are not, in the opinion of the Warrant Agent, relying on the advice of counsel, prejudicial to the interests of the Warrantholders as a group;

(f)adding to or amending the provisions hereof in respect of the transfer of Warrants, making provision for the exchange of Warrants and making any modification in the form of the Warrant Certificate that does not affect the substance thereof;

(g)amending any of the provisions of this Indenture or relieving the Company from any of the obligations, conditions or restrictions herein contained, provided that no such amendment or relief shall be or become operative or effective if, in the opinion of the Warrant Agent, relying on the advice of counsel, such amendment or relief impairs any of the rights of the Warrantholders as a group or of the Warrant Agent, and provided further that the Warrant Agent may in its sole discretion decline to enter into any supplemental indenture that in its opinion may not afford adequate protection to the Warrant Agent when the same shall become operative; and

(h)for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors or omissions herein, provided that, in the opinion of the Warrant Agent, relying on the advice of counsel, the rights of the Warrant Agent and the Warrantholders as a group are in no way prejudiced thereby.

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7.2Successor Companies

In the case of the amalgamation, consolidation, arrangement, merger or transfer of the undertaking or assets of the Company as an entirety or substantially as an entirety to another person (a "successor company"), the successor company resulting from the amalgamation, consolidation, arrangement, merger or transfer (if not the Company) shall be bound by the provisions hereof and all obligations for the due and punctual performance and observance of each and every covenant and obligation contained in this Indenture to be performed by the Company and the successor company shall by supplemental indenture satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, expressly assume those obligations.

ARTICLE 8 - CONCERNING THE WARRANT AGENT

8.1Indenture Legislation

(1)If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail.

(2)The Company and the Warrant Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation.

8.2Rights and Duties of Warrant Agent

(1)The Warrant Agent accepts the duties and responsibilities under this Indenture, solely as custodian, bailee and agent.  No trust is intended to be, or is or will be, created hereby and the Warrant Agent shall owe no duties hereunder as a trustee.

(2)In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Warrant Agent shall act honestly and in good faith and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant agent would exercise in comparable circumstances.  No provision of this Indenture shall be construed to relieve the Warrant Agent from, or require any other person to indemnify the Warrant Agent against liability for its own gross negligence, wilful misconduct, bad faith or fraud.

(3)The Warrant Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Company under this Indenture unless and until it shall have received a Warrantholders' Request specifying the act, action or proceeding that the Warrant Agent is requested to take.  The obligation of the Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Warrant Agent or the Warrantholders hereunder shall be conditional upon the Warrantholders furnishing, when required by notice in writing by the Warrant Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Warrant Agent and its counsel to protect and hold harmless the Warrant Agent, its officers, directors, employees, agents, successors and assigns against the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof.  None of the provisions contained in this Indenture shall require the Warrant Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid.

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(4)The Warrant Agent may, before commencing any act, action or proceeding, or at any time during the continuance thereof require the Warrantholders at whose instance it is acting to deposit with the Warrant Agent the Warrants held by them, for which Warrants the Warrant Agent shall issue receipts.

(5)Every provision of this Indenture that, by its terms, relieves the Warrant Agent of liability or entitles it to rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, this section 8.2 and section 8.3.

(6)The Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereunder unless and until it shall have been required to do so under the terms hereof; nor shall the Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall specifically set out the default desired to be brought to the attention of the Warrant Agent and in the absence of such notice the Warrant Agent may for all purposes of this Indenture conclusively assume that no default has occurred or been made in the performance or observance of the representations, warranties and covenants, agreements or conditions herein contained.  Any such notice shall in no way limit any discretion herein given to the Warrant Agent to determine whether or not the Warrant Agent shall take action with respect to any default.

(7)In this Indenture, whenever confirmations or instructions are required to be given to the Warrant Agent, in order to be valid, such confirmations and instructions shall be in writing.

8.3Evidence, Experts and Advisers

(1)In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Company shall furnish to the Warrant Agent such additional evidence of compliance with any provision hereof and in such form as may be prescribed by Applicable Legislation or as the Warrant Agent may reasonably require by written notice to the Company.

(2)In the exercise of its rights and duties hereunder, the Warrant Agent may, if it is acting in good faith, act and rely absolutely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, or orders of the Company, certificates of the Company or other evidence furnished to the Warrant Agent pursuant to any provision hereof or of Applicable Legislation or pursuant to a request of the Warrant Agent.  The Warrant Agent shall be under no responsibility in respect of the validity of this Indenture or the execution and delivery hereof by or on behalf of the Company or in respect of the validity or the execution of any Warrant Certificate by the Company and issued hereunder, nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Indenture or in any such Warrant Certificate; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any securities to be issued upon the right to acquire provided for in this Indenture and/or in any Warrant or as to whether any securities will when issued be duly authorized or be validly issued and fully paid and non-assessable.

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(3)Whenever Applicable Legislation requires that evidence referred to in subsection 8.3(1) be in the form of a statutory declaration, the Warrant Agent may accept the statutory declaration in lieu of a certificate of the Company required by any provision hereof.  Any such statutory declaration may be made by one or more of the directors or officers of the Company and may be relied upon by the Warrant Agent in good faith without further inquiry.

(4)Proof of the execution of an instrument in writing, including a Warrantholders' Request, by any Warrantholder may be made by a certificate of a notary public or other person with similar powers that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Warrant Agent may consider adequate and in respect of a corporate Warrantholder, shall include a certificate of incumbency of such Warrantholder together with a certified resolution authorizing the person who signs such instrument to sign such instrument.

(5)The Warrant Agent may act and rely and shall be protected in acting and relying upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, or other paper document believed by it to be genuine and to have been signed, sent or presented by or on behalf of the proper party or parties.  The Warrant Agent has sole discretion and shall be protected in acting and relying upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter or other paper document received in facsimile or email form.

(6)The Warrant Agent may employ or retain such counsel, accountants, engineers, appraisers or other experts or advisers as it may reasonably require for the purpose of determining and discharging its duties hereunder and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel and shall not be responsible for any misconduct on the part of any of them who has been selected with due care by the Warrant Agent.  Any reasonable remuneration paid by the Warrant Agent shall be paid by the Company in accordance with section 4.3.

(7)The Warrant Agent may act and rely and shall be protected in acting and relying in good faith on the opinion or advice of or information obtained from any counsel, accountant, appraiser, engineer or other expert or advisor, whether retained or employed by the Company or the Warrant Agent, in relation to any matter arising in fulfilling its duties and obligations hereof.

(8)The Warrant Agent may, as a condition precedent to any action to be taken by it under this Indenture, require such opinions, statutory declarations, reports, certificates or other evidence as it, acting reasonably, considers necessary or advisable in the circumstances.

(9)The Warrant Agent is not required to expend or place its own funds at risk in executing its duties and obligations.

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8.4Securities, Documents and Monies Held by Warrant Agent

Any securities, documents of title, monies or other instruments that may at any time be held by the Warrant Agent subject to the duties and obligations hereof, for the benefit of the Company, may be placed in the deposit vaults of the Warrant Agent or of any Schedule 1 Canadian chartered bank for safekeeping with any such bank or the Warrant Agent.  All interest or other income received by the Warrant Agent in respect of such deposits and investments shall, subject to section 4.4, belong to the Company and shall be paid to the Company upon discharge of this Indenture.

8.5Actions by Warrant Agent to Protect Interests

Subject to the provisions of this Indenture and Applicable Legislation, the Warrant Agent shall have the power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Warrantholders.

8.6Warrant Agent not Required to Give Security

The Warrant Agent shall not be required to give any bond or security in respect of the execution of the duties and obligations of this Indenture or otherwise, subject to section 8.8.

8.7Protection of Warrant Agent

By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows:

(1)The Warrant Agent shall not be liable for or by reason of any representations, statements of fact or recitals in this Indenture or in the Warrants (except the representation contained in section 8.9 or in the certificate of the Warrant Agent on the Warrants) or be required to verify the same and all such statements of fact or recitals are and shall be deemed to be made by the Company (except the representation contained in section 8.9 or in the certificate of the Warrant Agent on the Warrants).

(2)Nothing herein contained shall impose any obligation on the Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto.

(3)The Warrant Agent shall not be bound to give notice to any person or persons of the execution hereof.

(4)The Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Company of any of the covenants or warranties herein contained or of any acts of any directors, officers, employees, agents or servants of the Company.

(5)Without limiting any protection or indemnity of the Warrant Agent under any other provision hereof, or otherwise at law, the Company hereby agrees to indemnify and hold harmless the Warrant Agent and its directors, officers, agents and employees from and against any and all liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements, including reasonable legal or advisor fees and disbursements, of whatever kind and nature which may at any time be imposed on, incurred by or asserted against the Warrant Agent in connection with the performance of its duties and obligations hereunder, other than such liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements arising by reason of the gross negligence, wilful misconduct, bad faith or fraud of the Warrant Agent.  This provision shall survive the resignation or removal of the Warrant Agent, or the termination of this Indenture.  The Warrant Agent shall not be under any obligation to prosecute or defend any action or suit in respect of this Indenture which, in the opinion of its counsel, may involve it in expense or liability, unless the Company shall, so often as required, furnish the Warrant Agent with satisfactory indemnity and funding against such expense or liability.

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(6)If any of the funds provided to the Warrant Agent hereunder are received by it in the form of an uncertified cheque or bank draft, the Warrant Agent shall delay the release of such funds and the related Warrant Shares until such uncertified cheque has cleared the financial institution upon which the same is drawn.

(7)The forwarding of a cheque or the sending of funds by wire transfer by the Warrant Agent will satisfy and discharge the liability of any amounts due to the extent of the sum represented thereby unless such cheque is not honoured on presentation, provided that in the event of the non-receipt of such cheque by the payee, or the loss or destruction thereof, the Warrant Agent, upon being furnished with reasonable evidence of such non-receipt, loss or destruction and indemnity reasonably satisfactory to it, will issue to such payee a replacement cheque for the amount of such cheque.

(8)The Warrant Agent shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Warrant Agent, in its sole judgement, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline.  Further, should the Warrant Agent, in its sole judgement, determine at any time that its acting under this Warrant Indenture has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days' written notice to the Company provided:  (i) that the Warrant Agent's written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Warrant Agent's satisfaction within such 10-day period, then such resignation shall not be effective.

8.8Replacement of Warrant Agent

(1)The Warrant Agent may resign its appointment and be discharged from all further duties and liabilities hereunder by giving to the Company not less than 60 days prior notice in writing or such shorter prior notice as the Company may accept as sufficient.  The Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Warrant Agent and to appoint a new Warrant Agent.  In the event of the Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Company shall forthwith appoint a new Warrant Agent unless a new Warrant Agent has already been appointed by the Warrantholders; failing such appointment by the Company, the retiring Warrant Agent or any Warrantholder may apply to a justice of the Ontario Superior Court of Justice at the Company's expense, on such notice as such justice may direct, for the appointment of a new Warrant Agent; but any new Warrant Agent so appointed by the Company or by the Court shall be subject to removal as aforesaid by the Warrantholders.  Any new Warrant Agent appointed under any provision of this section 8.8 shall be a corporation authorized to carry on the business of a transfer agent or a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province.  On any such appointment the new Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Warrant Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Company, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new Warrant Agent, provided that any resignation or removal of the Warrant Agent and appointment of a successor Warrant Agent shall not become effective until the successor Warrant Agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Company, the predecessor Warrant Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor Warrant Agent an appropriate instrument transferring to such successor Warrant Agent all rights and powers of the Warrant Agent hereunder and all securities, documents of title and other instruments and all monies and properties held by the Warrant Agent hereunder.

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(2)Upon the appointment of a successor Warrant Agent, the Company shall promptly notify the Warrantholders thereof in the manner provided for in section 9.1.

(3)Any corporation into or with which the Warrant Agent may be merged or consolidated or amalgamated, or to which all or substantially all of the corporate trust business is sold or any corporation succeeding to the stock transfer business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new Warrant Agent under subsection 8.8(1).

(4)Any Warrants Authenticated or certified but not delivered by a predecessor Warrant Agent may be Authenticated or certified by the new or successor Warrant Agent in the name of the predecessor or the new or successor Warrant Agent.

8.9Conflict of Interest

(1)The Warrant Agent represents to the Company that at the time of execution and delivery hereof no material conflict of interest exists which it is aware of in the Warrant Agent's role hereunder and agrees that in the event of a material conflict of interest arising which it becomes aware of hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its appointment hereunder.  If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Warrants shall not be affected in any manner whatsoever by reason thereof.

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(2)Subject to subsection 8.9(1), the Warrant Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Company and generally may contract and enter into financial transactions with the Company or any Subsidiary without being liable to account for any profit made thereby.

8.10Acceptance of Duties and Obligations

The Warrant Agent hereby accepts the duties and obligations in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth and agrees to hold all rights, interests and benefits contained herein on behalf of those persons who become holders of Warrants from time to time issued under this Indenture.

8.11Warrant Agent not to be Appointed Receiver

The Warrant Agent and any person related to the Warrant Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Company or any Subsidiary or any partnership of which the Company is directly or indirectly involved.

8.12Authorization to Carry on Business

The Warrant Agent represents to the Company that it is registered to carry on the business of a transfer agent and warrant agent under Applicable Legislation in the Province of Ontario.

ARTICLE 9 - GENERAL

9.1Notice to the Company and the Warrant Agent

(1)Unless herein otherwise expressly provided, any notice to be given hereunder to the Company or the Warrant Agent shall be deemed to be validly given if delivered, if sent by registered letter, postage prepaid or if transmitted by email to the following email addresses:

(a)If to the Company, to:

KWESST MICRO SYSTEMS INC.
155 Terence Matthews Crescent
Kanata, Ontario, K2M 2A8
Attention:Steve Archambault
Email:  archambault@kwesst.com

45

with a copy to:

Fasken Martineau DuMoulin LLP
3500-800, Square-Victoria Street
Montréal, Québec H4Z 1E9

Attention:Frank Mariage
Email :  fmariage@fasken.com

(b)If to the Warrant Agent, to:

TSX TRUST COMPANY
301-100 Adelaide Street West
Toronto, Ontario M5H 4H1

Attention:Vice President, Corporate Trust
Email:  tmxestaff-corporatetrust@tmx.com

and any notice given in accordance with the foregoing shall be deemed to have been received on the date of delivery if that date is a Business Day or, if mailed, on the fifth Business Day following the date of the postmark on such notice or, if transmitted by email, on the Business Day of the date of delivery.

(2)The Company or the Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in subsection 9.1(1) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Company or the Warrant Agent, as the case may be, for all purposes of this Indenture.  A copy of any notice of change of address given pursuant to this subsection 9.1(2) shall be available for inspection at the principal stock transfer offices of the Warrant Agent in the City of Toronto, Ontario by Warrantholders during normal business hours.

(3)If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Warrant Agent or to the Company hereunder could reasonably be considered unlikely to reach its destination, the notice shall be valid and effective only if it is delivered to an officer of the party to which it is addressed or if it is delivered to that party at the appropriate address provided in subsection 9.1(1) by email or other means of prepaid, transmitted or recorded communication and any notice delivered in accordance with the foregoing shall be deemed to have been received on the date of delivery to the officer if delivered by email or if delivered by other means of prepaid, transmitted, recorded communication on the third Business Day following the date of the sending of the notice by the person giving the notice.

9.2Notice to the Warrantholders

(1)Any notice to the Warrantholders under the provisions of this Indenture shall be deemed to be validly given if the notice is sent by prepaid mail or, if delivered by hand, to the holders at their addresses appearing in the register of holders.  Any notice so delivered shall be deemed to have been received on the date of delivery if that date is a Business Day or the Business Day following the date of delivery if such date is not a Business Day or on the third Business Day if delivered by mail.  All notices may be given to whichever one of the Warrantholders (if more than one) is named first in the appropriate register hereinbefore mentioned, and any notice so given shall be sufficient notice to all Warrantholders and any other persons (if any) interested in such Warrants.  Accidental error or omission in giving notice or accidental failure to mail notice to any Warrantholder will not invalidate any action or proceeding founded thereon.

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(2)If, by reason of strike, lockout or other work stoppage, actual or threatened, involving postal employees, any notice to be given to the Warrantholders could reasonably be considered unlikely to reach its destination, the notice may be given in a news release disseminated through a newswire service, filed on SEDAR and posted on the Company's website; provided that in the case of a notice convening a meeting of the holders of Warrants, the Warrant Agent may require such additional publications of that notice, in Toronto, Ontario or in other cities or both, as it may deem necessary for the reasonable notification of the holders of Warrants or to comply with any applicable requirement of law or any stock exchange.  Any notice so given shall be deemed to have been given on the day on which it has been published in all of the cities in which publication was required.

9.3Privacy

Despite any other provision of this Indenture, no party hereto shall take or direct any action that would contravene, or cause the other to contravene, applicable federal and/or provincial legislation that addresses the protection of individuals' personal information (collectively, "Privacy Laws").  The Company shall, prior to transferring or causing to be transferred personal information to the Warrant Agent, obtain and retain required consents of the relevant individuals to the collection, use and disclosure of their personal information, or shall have determined that such consents either have previously been given upon which the parties can rely or are not required under the Privacy Laws.  The Warrant Agent shall use commercially reasonable efforts to ensure that its services hereunder comply with Privacy Laws.  Specifically, the Warrant Agent agrees:  (a) to have a designated chief privacy officer; (b) to maintain policies and procedures to protect personal information and to receive and respond to any privacy complaint or inquiry; (c) to use personal information solely for the purposes of providing its services under or ancillary to this Indenture and not to use it for any other purpose except with the consent of or direction from the Company or the individual involved; (d) not to sell or otherwise improperly disclose personal information to any third party; and (e) to employ administrative, physical and technological safeguards to reasonably secure and protect personal information against loss, theft, or unauthorized access, use or modification.

9.4Third Party Interests

The Company represents to the Warrant Agent that any account to be opened by, or interest to held by the Warrant Agent in connection with this Indenture, for or to the credit of such party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case such party hereto agrees to complete and execute forthwith a declaration in the Warrant Agent prescribed form as to the particulars of such third party.

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9.5Discretion of Directors

Any matter provided herein to be determined by the directors in their sole discretion and determination so made will be conclusive.

9.6Satisfaction and Discharge of Indenture

Upon the earlier of the Time of Expiry or the date by which there shall have been delivered to the Warrant Agent for exercise or destruction in accordance with the provisions hereof all Warrants theretofore Authenticated or certified hereunder, this Indenture, except to the extent that Warrant Shares and any certificates therefor have not been issued and delivered hereunder or the Company has not performed any of its obligations hereunder, shall cease to be of further effect in respect of the Company, and the Warrant Agent, on written demand of and at the cost and expense of the Company, and upon delivery to the Warrant Agent of a certificate of the Company stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with and upon payment to the Warrant Agent of the expenses, fees and other remuneration payable to the Warrant Agent, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided that if the Warrant Agent has not then performed any of its obligations hereunder any such satisfaction and discharge of the Company's obligations hereunder shall not affect or diminish the rights of any Warrantholder or the Company against the Warrant Agent.

9.7Provisions of Indenture and Warrants for the Sole Benefit of Parties and Warrantholders

Nothing in this Indenture or the Warrant Certificates, expressed or implied, shall give or be construed to give to any person other than the parties hereto and the holders from time to time of the Warrants any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision therein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Warrantholders.

9.8Indenture to Prevail

To the extent of any discrepancy or inconsistency between the terms and conditions of this Indenture and the Warrant Certificate, the terms of this Indenture will prevail.

9.9Assignment

Except as provided in subsection 8.8(3), this Indenture nor any benefits or burdens under this Indenture shall be assignable by the Company or the Warrant Agent without the prior written consent of the other party, such consent not to be unreasonably withheld.  Subject to the foregoing, this Indenture shall enure to the benefit of and be binding upon the Company and the Warrant Agent and their respective successors (including any successor by reason of amalgamation) and permitted assigns.

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9.10Counterparts and Formal Date

This Indenture may be simultaneously executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear the date set out at the top of the first page of this Indenture.

(Signature page follows)

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IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers in that behalf.

KWESST MICRO SYSTEMS INC.
Per:	"Steven Archambault"
Authorized Signing Officer
TSX TRUST COMPANY
Per:	"Bolanle Oyelade"
Authorized Signing Officer
Per:	"Beatriz Fedozzi"
Authorized Signing Officer

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SCHEDULE "A"

FORM OF WARRANT CERTIFICATE

[Include on Warrant Certificates issued to U.S. Purchasers:  "THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR STATE SECURITIES LAWS.  THE HOLDER HEREOF, BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF KWESST MICRO SYSTEMS INC.  (THE "COMPANY") THAT THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S ("REGULATION S") UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH (1) RULE 144A UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, OR (2) RULE 144 UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL OPINION SATISFACTORY TO THE COMPANY MUST FIRST BE PROVIDED TO TSX TRUST COMPANY.  THESE SECURITIES MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON CANADIAN STOCK EXCHANGES."

"THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.  THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE.  "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT."]

[For Warrants issued under the Private Placement include:  "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY OR ANY SECURITY ISSUED ON ITS EXERCISE BEFORE •"

[and, if applicable, include:  "WITHOUT PRIOR WRITTEN APPROVAL OF [Insert applicable stock exchange] AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL •."]

WARRANTS TO PURCHASE COMMON SHARES
OF KWESST MICRO SYSTEMS INC. (a company incorporated pursuant to the Business Corporations Act (British Columbia))

CUSIP No.•
ISIN No.•

Warrant Certificate Number:  •	Representing • Warrants to
	purchase Common Shares

THIS CERTIFIES that, for value received, the registered holder hereof, • (the "holder") is entitled at any time at or before 5:00 p.m.  (Eastern time) on April 29, 2023 (the "Expiry Time") to acquire, subject to adjustment in certain events, the number of common shares ("Common Shares") of KWESST Micro Systems Inc. specified above (the "Company"), as presently constituted, by surrendering to TSX TRUST COMPANY (the "Warrant Agent") at its principal office in Toronto, Ontario, this Warrant Certificate with the duly completed and executed Exercise Form endorsed on the back of this Warrant Certificate, and accompanied by payment of $1.75 per Common Share (the "Warrant Exercise Price") by certified cheque, bank draft or money order in lawful money of Canada payable to, or to the order of, the Company at par at the above-mentioned office of the Warrant Agent.  The holder of this Warrant Certificate may purchase less than the number of Common Shares which he is entitled to purchase on the exercise of the Warrants represented by this Warrant Certificate, in which event a new Warrant Certificate representing the Warrants not then exercised will be issued to the holder.

The Warrants evidenced hereby are exercisable on or before the Expiry Time, after which time the Warrants evidenced hereby shall be deemed to be void and of no further force or effect.

This Warrant Certificate represents Warrants of the Company issued or issuable under the provisions of a warrant indenture (which indenture together with all other instruments supplemental or ancillary thereto is herein referred to as the "Warrant Indenture") dated as of •, between the Company and the Warrant Agent, as may be amended from time to time, which contains particulars of the rights of the holders of the Warrants and the Company and of the Warrant Agent in respect thereof and the terms and conditions upon which the Warrants are issued and held, all to the same effect as if the provisions of the Warrant Indenture were herein set forth, to all of which the holder of this Warrant Certificate by acceptance hereof assents.  Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Warrant Indenture.  A copy of the Warrant Indenture will be available for inspection at the principal office of the Warrant Agent in the City of Toronto, in the Province of Ontario.  In the event of any conflict between the provisions contained in this Warrant Certificate and the provisions of the Warrant Indenture, the provisions of the Warrant Indenture shall prevail.

Upon acceptance hereof, the holder hereof hereby expressly waives the right to receive any fractional Common Shares upon the exercise hereof in full or in part and further waives the right to receive any cash or other consideration in lieu thereof.  The Warrants represented by this Warrant Certificate shall be deemed to have been surrendered, and payment by certified cheque, bank draft or money order shall be deemed to have been made only upon personal delivery thereof or, if sent by post or other means of transmission, upon actual receipt thereof by the Warrant Agent at its office in the City of Toronto, Ontario.

2

Upon due exercise of the Warrants represented by this Warrant Certificate and payment of the Warrant Exercise Price, the Company shall cause to be issued to the person(s) in whose name(s) the Common Shares so subscribed for (provided that if the Common Shares are to be issued to a person other than the registered holder of this Warrant Certificate, the holder's signature on the Exercise Form herein shall be guaranteed by a Schedule I Canadian chartered bank, or by a medallion signature guarantee from a member of a recognized Signature Medallion Guarantee Program and the holder shall pay to the Company or the Warrant Agent all applicable transfer or similar taxes and the Company shall not be required to issue or deliver certificates evidencing the Common Shares unless or until the holder shall have paid the Company or the Warrant Agent the amount of such tax (or shall have satisfied the Company that such tax has been paid or that no tax is due) the number of Common Shares to be issued to such person(s) and such person(s) shall become a holder in respect of such Common Shares with effect from the date of such exercise, and upon due surrender of this Warrant Certificate, the Warrant Agent shall issue a certificate(s) representing such Common Shares to be issued within three Business Days after the exercise of the Warrants (or portion thereof) represented hereby.

Neither the Warrants represented by this Warrant Certificate nor the Common Shares issuable upon exercise hereof have been or will be registered under the U.S. Securities Act or any state securities laws.  The Warrants represented by this Warrant Certificate may not be exercised within the United States or by, or for the account or benefit of, a U.S. Person (as defined by Regulation S under the U.S. Securities Act) or a person within the United States unless registered under the U.S. Securities Act and any applicable state securities laws or unless an exemption from such registration is available.

The holder acknowledges that the Warrants represented by this Warrant Certificate and the Common Shares issuable upon exercise hereof may be offered, sold or otherwise transferred only in compliance with all applicable securities laws.

No transfer of any Warrant will be valid unless entered on the register of transfers, upon surrender to the Warrant Agent of the Warrant Certificate evidencing such Warrant, duly endorsed by, or accompanied by a transfer form or other written instrument of transfer in form satisfactory to the Warrant Agent executed by the registered holder or his executors, administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Warrant Agent.  Subject to the provisions of the Warrant Indenture and upon compliance with the reasonable requirements of the Warrant Agent, Warrant Certificates may be exchanged for Warrant Certificates representing in the aggregate an equal number of Warrants.  The Company and the Warrant Agent may treat the registered holder of this Warrant Certificate for all purposes as the absolute owner hereof.  The holding of the Warrants represented by this Warrant Certificate shall not constitute the holder hereof a holder of Common Shares nor entitle him to any right or interest in respect thereof except as herein and in the Warrant Indenture expressly provided.

3

The Warrant Indenture provides for adjustment in the number of Common Shares to be delivered upon exercise of the right of purchase hereby granted and to the Warrant Exercise Price in certain events therein set forth.

The Warrant Indenture contains provisions making binding upon all holders of Warrants outstanding thereunder resolutions passed at meetings of such holders held in accordance with such provisions and instruments in writing signed by the Warrantholders entitled to acquire upon the exercise of the Warrants a specified percentage of the Common Shares.

The Warrants and the Warrant Indenture shall be governed by and performed, construed and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and shall be treated in all respects as Ontario contracts.  Time shall be of the essence hereof and of the Warrant Indenture.

The Company may from time to time at any time prior to the Expiry Time purchase any of the Warrants by private agreement or otherwise.

This Warrant Certificate shall not be valid for any purpose until it has been certified by or on behalf of the Warrant Agent for the time being under the Warrant Indenture.

All dollar amounts herein are expressed in the lawful money of Canada.

4

IN WITNESS WHEREOF the Company has caused this Warrant Certificate to be signed by its duly authorized officer as of this _____ day of •.

KWESST MICRO SYSTEMS INC.
By:
	Authorized Signing Officer
Countersigned this ____ day of •
TSX TRUST COMPANY
By:
	Authorized Signing Officer

EXERCISE FORM

TO:KWESST MICRO SYSTEMS INC.
c/o TSX TRUST COMPANY
301-100 Adelaide Street West
Toronto, Ontario M5H 4H1

The undersigned holder of the within Warrants hereby irrevocably exercises the right of such holder to be issued and hereby subscribes for ____________ Common Shares of KWESST MICRO SYSTEMS INC.  (the "Company") at the Warrant Exercise Price referred to in the attached Warrant Certificate on the terms and conditions set forth in such certificate and the Warrant Indenture and encloses herewith a certified cheque, bank draft or money order payable at par in the City of Toronto, in the Province of Ontario to the order of the Company in payment in full of the subscription price of the Common Shares hereby subscribed for.

Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the warrant indenture between the Company and TSX TRUST COMPANY dated •.

(Please check the ONE box applicable):

☐1.The undersigned certifies that it (i) is not in the United States and is not a "U.S. Person", within the meaning of Regulation S under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), (ii) is not exercising this Warrant for the account or benefit of any U.S. Person, (iii) did not execute or deliver this Exercise Form within the United States and (iv) has in all other aspects complied with the terms of Regulation S under the U.S. Securities Act.

☐2.The undersigned holder (i) purchased the Warrants as a part of the Units in the Private Placement; (b) is exercising the Warrants solely for its own account or for the benefit of a U.S. Person or a person in the United States for whose account such holder acquired the Warrants as a part of the Units in the Private Placement and for whose account such holders exercises sole investment discretion; (c) was and is, and any beneficial purchaser for whose account such holder acquired the Warrant and is exercising the Warrants was and is a Qualified Institutional Buyer both on the date the Units were purchased in the Private Placement and on the Exercise Date; and (d) the representations and warranties made by the holder or any beneficial purchaser, as the case may be, to the Company in connection with the acquisition of the Units in the Private Placement remain true and correct on the Exercise Date.

☐3.The undersigned holder (i) purchased the Warrants as a part of the Units in the Private Placement; (b) is exercising the Warrants solely for its own account or for the benefit of a U.S. Person or a person in the United States for whose account such holder acquired the Warrants as a part of the Units in the Private Placement and for whose account such holders exercises sole investment discretion; (c) was and is, and any beneficial purchaser for whose account such holder acquired the Warrant and is exercising the Warrants was and is an Accredited Investor both on the date the Units were purchased in the Private Placement and on the Exercise Date; and (d) the representations and warranties made by the holder or any beneficial purchaser, as the case may be, to the Company in connection with the acquisition of the Units in the Private Placement remain true and correct on the Exercise Date.

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☐4.The undersigned is delivering a written opinion of United States legal counsel or evidence satisfactory to the Company to the effect that the Warrant and the Common Shares to be delivered upon exercise hereof have been registered under the U.S. Securities Act or are exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

The undersigned hereby directs that the said Common Shares be issued as follows:

NAME(S) IN FULL ADDRESS(ES) NUMBER OF COMMON
SHARES

(Please print.  If securities are issued to a person other than the registered Warrantholder, the holder must pay to the Warrant Agent all applicable taxes and the signature of the holder must be guaranteed by a Schedule I Canadian chartered bank, or by a medallion signature guarantee from a member of a recognized Signature Medallion Guarantee Program).

DATED this _______ day of _________________, _____.
Signature of Warrantholder	Signature Guarantee
Print name
Address

[] Please check this box if the securities are to be delivered at the office where these Warrants are surrendered, failing which the securities will be mailed.

NOTES:

1.Certificates will not be registered or delivered to an address in the United States unless Box 2, 3 or 4 above is checked.

2.If Box 4 is checked, holders are encouraged to contact the Company in advance to determine that the legal opinion tendered in connection with exercise will be satisfactory in form and substance to the Company.

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TRANSFER FORM

TO:KWESST MICRO SYSTEMS INC.
c/o TSX TRUST COMPANY
301-100 Adelaide Street West
Toronto, Ontario M5H 4H1

FOR VALUE RECEIVED, the undersigned transferor hereby sells, assigns and transfers unto

(Transferee)

(Address)

(Social Insurance Number)

________________ of the Warrants registered in the name of the undersigned transferor represented by the Warrant Certificate.

THE UNDERSIGNED TRANSFEROR HEREBY CERTIFIES AND DECLARES that the Warrants are not being offered, sold or transferred to, or for the account or benefit of, a U.S. Person (as defined in Regulation S under the U.S. Securities Act of 1933 as amended) or a person within the United States unless registered under the U.S. Securities Act and any applicable state securities laws or unless an exemption from such registration is available.

DATED this _______ day of _____________, _____.
Signature of Warrantholder (Transferor)	Signature Guarantee
Print name
Address

NOTES:

1.The signature to this transfer must correspond with the name as recorded on the Warrants in every particular without alteration or enlargement or any change whatever.  The signature of the person executing this transfer must be guaranteed by a Schedule I Canadian chartered bank, or by a medallion signature guarantee from a member of a recognized Signature Medallion Guarantee Program.

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2.Warrants shall only be transferable in accordance with the Warrant Indenture between KWESST MICRO SYSTEMS INC. (the "Company") and TSX TRUST COMPANY (the "Warrant Agent") dated as of •, applicable laws and the rules and policies of any applicable stock exchange.  Without limiting the foregoing, if the Warrant Certificate bears a legend restricting the transfer of the Warrants except pursuant to an exemption from registration under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), and applicable state securities laws, this Transfer Form must be accompanied by a properly completed and executed declaration for removal of legend in the form attached as Schedule "B" to the Warrant Indenture or if Warrants are transferred in compliance pursuant to an exemption from the registration requirements of the U.S. Securities Act, an opinion of counsel of recognized standing, reasonably satisfactory to the Company, to the effect that such legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws, together with such other documents or instruments as the Company or the Warrant Agent may require.

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SCHEDULE "B"

FORM OF DECLARATION FOR REMOVAL OF LEGEND

TO:KWESST MICRO SYSTEMS INC.
c/o TSX TRUST COMPANY
301-100 Adelaide Street West
Toronto, Ontario M5H 4H1

The undersigned (a) acknowledges that the sale of ______________ of KWESST MICRO SYSTEMS INC.  (the "Company") represented by certificate number ______________ to which this declaration relates is being made in reliance on Rule 904 of Regulation S ("Regulation S") under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and (b) certifies that (1) it is not an affiliate of the Company (as defined in Rule 405 under the U.S. Securities Act), (2) the offer of such securities was not made to a person in the United States and either (A) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (B) the transaction was executed on or through the facilities of the TSX Venture Exchange or another "designated offshore securities market" and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, (3) neither the seller nor any affiliate of the seller nor any person acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities, (4) the sale is bona fide and not for the purpose of "washing off" the resale restrictions imposed because the securities are "restricted securities" (as such term is defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does not intend to replace the securities sold in reliance on Rule 904 of the U.S. Securities Act with fungible unrestricted securities, and (6) the sale was not a transaction, or part of a series of transactions which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the U.S. Securities Act.  Terms used herein have the meanings given to them by Regulation S

Dated:	By:
	Name:
	Title:

EX-10.8

THIS FIRST SUPPLEMENTAL WARRANT INDENTURE IS MADE AS OF THE 25^th DAY OF AUGUST, 2021

BETWEEN:	KWESST MICRO SYSTEMS INC., a corporation constituted under the laws of the Province of British Columbia (the "Company")
	OF THE FIRST PART
AND:	TSX TRUST COMPANY, a trust company incorporated under the laws of Canada and authorized to carry on business in the Province of Ontario (the "Warrant Agent")
	OF THE SECOND PART

WHEREAS a warrant indenture dated April 29, 2021 (the "Warrant Indenture") was entered into among the Company and the Warrant Agent in respect of the issuance of a maximum of 3,766,781 common share purchase warrants of the Company (the "Warrants");

WHEREAS the Company and the Warrant Agent wish to amend certain provisions of the Warrant Indenture by entering into this First Supplemental Warrant Indenture;

WHEREAS Section 7.1 of the Warrant Indenture provides that the Company, if properly authorized by its directors, and the Warrant Agent, may execute and deliver indentures or instruments supplemental to the Warrant Indenture, which thereafter shall form part of the Warrant Indenture;

WHEREAS pursuant to directors' resolutions dated August 25, 2021, the directors approved the proposed amendment and duly authorized the execution and delivery of this First Supplemental Indenture and all things necessary to make this First Supplemental Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done;

WHEREAS the amendment described hereinbelow does not impair any of the rights of the Warrantholders as a group or the Warrant Agent; and

WHEREAS the foregoing recitals are made as a statement of fact by the Corporation and not by the Warrant Agent.

NOW THEREFORE, in consideration of mutual covenants and undertakings contained herein and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto have agreed as follows:

1.All capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Warrant Indenture;

2.Section 2.2(3)(b) of the Warrant Indenture is hereby deleted in its entirety and replaced by the following:

"in the case of an Acceleration Event, no later than the date which is ten (10) Trading Days following the tenth (10th) consecutive Trading Day of such Acceleration Event (or if the Acceleration Event continues for greater than 10 consecutive Trading Days, no later than ten (10) Trading Days following the last Trading Day upon which the closing price was equal to or greater than $3.00 during such Acceleration Event), the Company may deliver to the Warrant Agent and each Warrantholder a notice advising that the Company has exercised its option pursuant to the Acceleration Right and notifying them of the accelerated Expiry Date of the Warrants (the "Acceleration Notice"). The Acceleration Notice shall be deemed to be validly given if delivered, or sent by registered letter, postage prepaid, to the Subscriber at the address on the register maintained by the Warrant Agent, and the Acceleration Notice shall be deemed to have been received and given on the third Business Day following the date of transmission; and

3.This agreement and the interpretation and enforcement thereof shall be governed by and in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein.

4.This First Supplemental Warrant Indenture and the amendment contemplated herein are subject to the Company obtaining the required approval from the TSXV.

5.This First Supplemental Indenture is supplemental to the Warrant Indenture and the Warrant Indenture will henceforth be read in conjunction with this First Supplemental Indenture and all the provisions of the Warrant Indenture, except only insofar as the same may be inconsistent with the express provisions hereof, will apply and have the same effect as if all the provisions of the Warrant Indenture and of this First Supplemental Indenture were contained in one instrument and the expressions used herein will have the same meaning as is ascribed to the corresponding expressions in the Warrant Indenture.

6.On and after the date hereof, each reference to the Warrant Indenture, as amended by this First Supplemental Indenture, "this indenture", "herein", "hereby", and similar references, and each reference to the Warrant Indenture in any other agreement, certificate, document or instrument relating thereto, will mean and refer to the Warrant Indenture as amended hereby. Except as specifically amended by this First Supplemental Indenture, all other terms and conditions of the Warrant Indenture will remain in full force and unchanged.

7.This First Supplemental Warrant Indenture may be executed by facsimile or electronic transmission and in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts together shall constitute one and the same instrument.

[INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF the parties have executed this amendment to the Warrant Indenture as of the date first written above.

KWESST MICRO SYSTEMS INC.

By:(Signed) Steve Archambault

Authorized Signing Officer

Countersigned this 25th day of August

TSX TRUST COMPANY

By: (Signed) Bolanle Oyelade

Authorized Signing Officer

By: (Signed) Beatriz Fedozzi

Authorized Signing Officer

EX-10.9

KWESST MICRO SYSTEMS INC.

(the "Company")

LONG-TERM PERFORMANCE INCENTIVE PLAN

SECTION 1.ESTABLISHMENT AND PURPOSE OF THIS PLAN

The Company wishes to establish this long-term performance incentive plan ("Plan"). The purpose of this Plan is to promote the long-term success of the Company and the creation of Shareholder value by: (a) encouraging the attraction and retention of Eligible Persons; (b) encouraging such Eligible Persons to focus on critical long-term objectives; and (c) promoting greater alignment of the interests of such Eligible Persons with the interests of the Company.

To this end, this Plan provides for the grant of Restricted Share Units, Performance Share Units, Deferred Share Units, Options and Stock Appreciation Rights to Eligible Persons, Consultants and Persons providing Investor Relations Activities as further described in this Plan.

The Plan and the Restricted Share Units, Performance Share Units, Deferred Share Units, Options and Stock Appreciation Rights issuable under the Plan are subject to Policy 4.4 - Incentive Stock Options of the Exchange (the "Policy").

This Plan is a "rolling" stock plan, as such term is defined in the Policy, permitting the issuance of (i) Options of up to ten (10%) percent of the issued and outstanding Shares and (ii) Restricted Share Units, Performance Share Units, Deferred Share Units and Stock Appreciation Rights of up to a fixed amount in respect of Awards granted hereunder.

SECTION 2.DEFINITIONS

As used in this Plan, the following terms shall have the meanings set forth below:

(a)"Option Plan" means the Company's Stock Option Plan dated November 28, 2017, as may be amended or restated from time to time;

(b)"Associate" has the meaning ascribed thereto in the Securities Act;

(c)"Award" means any award of RSUs, PSUs, DSUs, Options or SARs granted under this Plan;

(d)"Award Agreement" means any written agreement, contract, or other instrument or document, including an electronic communication, as may from time to time be designated by the Company as evidencing any Award granted under this Plan;

(e)"Board" means the board of directors of the Company;

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(f)"Blackout Period" means an interval of time during which the Company has determined that one or more Participants may not trade any securities of the Company because they may be in possession of publicly undisclosed confidential information pertaining to the Company;

(g)"Cessation Date" means, the effective date on which a Participant ceases to be a Director or a Key Employee, where applicable, of the Company or a Subsidiary for any reason;

(h)"Change of Control" means the occurrence of one transaction or a series of transactions which results in one Person, together with any affiliates of such Person, exercising direction or control over 50% or more of the Shares. " Person" for the purpose of this provision includes, but is not limited to, any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation or other entity however designated or constituted; a change in the majority of the Company's Board taking place over a period of six (6) months or less; a merger or consolidation, after which the Company's Shareholders no longer control the Company; and/or the sale of all or substantially all of the Company's assets or the liquidation of the Company, except where the sale is to an affiliate of the Company.

(i)"Committee" means such committee of the Board performing functions in respect of compensation as may be determined by the Board from time to time;

(j)"Company" means KWESST Micro Systems Inc., a company incorporated under the Canada Corporations Act (British Columbia), and any of its successors or assigns;

(k)"Consultant" means a Person (other than a Key Employee or Director) that:

(i)is engaged to provide, on an ongoing bona fide basis, consulting, technical , management or other services to the Company or an affiliate of the Company, other than services provided in relation to a distribution (as defined in the Securities Act);

(ii)provides the services under a written contract between the Company or an affiliate of the Company and the Person, as the case may be;

(iii)in the reasonable opinion of the Company, spends or will spend a significant amount of time on the affairs and business of the Company or an affiliate of the Company; and

(iv)has a relationship with the Company or an affiliate of the Company that enables the Person to be knowledgeable about the business and affairs of the Company,

and: 

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(v)if the Person is an individual, includes a corporation of which such individual is an employee or Shareholder, and a partnership of which the individual is an employee or partner; and

(vi)if the Person is not an individual, includes an employee, executive officer or director of the Consultant, provided that the individual employee, executive officer or director spends or will spend a significant amount of time on the affairs and business of the Company or an affiliate of the Company;

(l)"Current Market Price" means the last closing price of the Shares on the Exchange before either the issuance of the news release or the filing of the Price Reservation Form (Form 4A) required to fix the price at which the securities are to be issued or deemed to be issued (the "Notice of Transaction"), except under the following conditions, where applicable:

(i)"Consolidation Exception" The Current Market Price is to be adjusted for any share consolidation or split. If the Notice of the Transaction is within 5 days following a consolidation of the Company's share capital, the minimum price per share will be the greater of the Current Market Price, adjusted for any share consolidation or split, or $0.05;

(ii)"Material Information Exception" If the Company announces Material Information regarding the affairs of the Company after providing Notice of the Transaction and if the Exchange determines that a party to the transaction should reasonably have been aware of that pending Material Information, then the Current Market Price will be at least equal to the closing price of the Shares on the trading day after the day on which that Material Information was announced;

(iii)"Price Interference Exception" If the Exchange determines that the closing price is not a fair reflection of the market for the Shares and the Shares appear to have been high-closed or low-closed, then the Exchange will determine the Current Market Price to be used;

(iv)"Suspension Exemption" If the Company is suspended from trading or has for any reason not traded for an extended period of time, the Exchange may determine the deemed Current Market Price to be used; and

(v)"Minimum Price Exception" The Exchange will not generally permit the Shares to be issued from treasury at a price less than $0.05 nor will the Exchange generally permit any securities convertible into Shares including Options and Warrants to be issued with an effective conversion price of less than $0.05 per Share;

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(m)"Deferred Share Unit" or "DSU" means a right to receive on a deferred basis a payment in Shares as provided in Subsection 5.3 hereof and subject to the terms and conditions of this Plan and the applicable Award Agreement;

(n)"Determination Date" means a date determined by the Board in its sole discretion but not later than 90 days after the expiry of a Performance Cycle;

(o)"Director" means a member of the Board;

(p)"Disability" means a medically determinable physical or mental impairment expected to result in death or to last for a continuous period of not less than one year, and which causes an individual to be unable to engage in any substantial gainful activity, or any other condition of impairment that the Board, acting reasonably, determines constitutes a disability;

(q)"Disinterested Shareholders Approval" means approval by a majority of the votes cast by all the Company's Shareholders at a duly constituted meeting of Shareholders, excluding votes attached to Shares beneficially owned by Insiders to whom Options may be granted under this Plan and Associates and Affiliates of such Insiders;

(r)"Effective Date" has the meaning ascribed thereto in Section 8;

(s)"Election Form" means the form to be completed by a Director specifying the amount of Fees he or she wishes to receive in DSUs under this Plan;

(t)"Eligible Person" means a Director and a Key Employee of the Company and its Subsidiaries;

(u)"Exchange" means the TSX Venture Exchange, or such other exchange upon which the Shares of the Company may become listed for trading;

(v)"Exchange Hold Period" means the four month resale restriction imposed by the Exchange on the shares, more particularly described in the Exchange's Policy 1.1 - Interpretation;

(w)"Fees" means the annual board retainer, chair fees, meeting attendance fees or any other fees payable to a Director by the Company;

(x)"Grant Date" means, for any Award, the date specified by the Board as the grant date at the time it grants the Award or, if no such date is specified, the date upon which the Award was actually granted;

(y)"Incentive Securities" means the Options, DSUs, RSUs, PSUs and SARs issuable to any Participant under this Plan;

(z)"Insider" means any insider, as that term is defined in the Securities Act;

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(aa)"Insider Participant" means a Participant who is an (i) Insider of the Company or of a Subsidiary, and (ii) Associate of any person who is an Insider by virtue of (i);

(bb)"Investor Relations Activities" means any activities, by or on behalf of the Company or a Shareholder of the Company, that promote or reasonably could be expected to promote the purchase or sale of securities of the Company, but does not include:

(i)the dissemination of information provided, or records prepared, in the ordinary course of business of the Company

A)to promote the sale of products or services of the Company, or

B)to raise public awareness of the Company,

that cannot reasonably be considered to promote the purchase or sale of securities of the Company;

(ii)activities or communications necessary to comply with the requirements of:

A)applicable securities laws;

B)Exchange requirements or the by-laws, rules or other regulatory instruments of any other self-regulatory body or exchange having jurisdiction over the Company;

(iii)communications by a publisher of, or writer for, a newspaper, magazine or business or financial publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to purchasers of it, if:

A)the communication is only through the newspaper, magazine or publication, and

B)the publisher or writer receives no commission or other consideration other than for acting in the capacity of publisher or writer; or

(iv)activities or communications that may be otherwise specified by the Exchange

(cc)"Key Employees" means employees, as such term is defined in the Exchange's Policy 1.1- Interpretation, including officers, and including both full-time and part-time employees of the Company or any Subsidiary who, by the nature of their positions or jobs are, in the opinion of the Board, in a position to contribute to the success of the Company; 

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(dd)"Option" means incentive share purchase options entitling the holder thereof to purchase Shares;

(ee)"Participant" means any Eligible Person, Consultant or Persons performing Investor Relations Activities to whom Awards under this Plan are granted;

(ff)"Participant's Account" means a notional account maintained for each Participant's participation in this Plan which will show any Incentive Securities credited to a Participant from time to time;

(gg)"Performance Criteria" means criteria established by the Board which, without limitation, may include criteria based on the Participant's personal performance and/or financial performance of the Company and its Subsidiaries, and that are to be used to determine the vesting of the PSUs;

(hh)"Performance Cycle" means the applicable performance cycle of the PSUs as may be specified by the Board in the applicable Award Agreement;

(ii)"Performance Share Unit" or "PSU" means a right awarded to a Participant to receive a payment in Shares as provided in Subsection 5.2 hereof and subject to the terms and conditions of this Plan and the applicable Award Agreement;

(jj)"Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or governmental authority or body;

(kk)"Restriction Period" means the time period between the Grant Date and the Vesting Date of an Award of RSUs specified by the Board in the applicable Award Agreement, subject to the Vesting Requirement provision in see section 4.4;

(ll)"Restricted Share Unit" or "RSU" means a right awarded to a Participant to receive a payment in Shares as provided in Subsection 5.1 hereof and subject to the terms and conditions of this Plan and the applicable Award Agreement;

(mm)"Retirement" means retirement from active employment with the Company or a Subsidiary with the consent of an officer of the Company or the Subsidiary;

(nn)"Stock Appreciation Right" or "SAR" means a right awarded to a Participant to receive a payment in Shares as provided in Subsection 5.5.1 hereof and subject to the terms and conditions of this Plan and the applicable Award Agreement;

(oo)"SAR Amount" has the meaning set out in Subsection 5.5.3;

(pp)"SAR Grant Price" has the meaning set out in Subsection 5.5.2 ;

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(qq)"Securities Act" means the Securities Act (British Columbia), as amended, from time to time;

(rr)"Shareholder" means a registered or beneficial holder of Shares or, if the context requires, other securities of a Company.

(ss)"Shares" means the common shares of the Company;

(tt)"Subsidiary" means a corporation, company or partnership that is controlled, directly or indirectly, by the Company;

(uu)"Termination Date" means, as applicable: (i) in the event of a Participant's Retirement, voluntary termination or termination of employment as a result of a Disability, the date on which such Participant ceases to be an employee or a Consultant of the Company or a Subsidiary; and (ii) in the event of termination of the Participant's employment or consulting contract by the Company or a Subsidiary, the date on which such Participant is advised by the Company or a Subsidiary, in writing or verbally, that his or her services are no longer required;

(vv)"Trading Day" means any date on which the Exchange is open for trading; and

(ww)"Vesting Date" means in respect of any Award, the date when the Award is fully vested m accordance with the provisions of this Plan and the applicable Award Agreement.

SECTION 3.ADMINISTRATION

3.1BOARD TO ADMINISTER PLAN. Except as otherwise provided herein, this Plan shall be administered by the Board and the Board shall have full authority to administer this Plan, including the authority to interpret and construe any provision of this Plan and to adopt, amend and rescind such rules and regulations for administering this Plan as the Board may deem necessary in order to comply with the requirements of this Plan.

3.2DELEGATION TO COMMITTEE. All of the powers exercisable hereunder by the Board may, to the extent permitted by applicable law and as determined by resolution of the Board, be delegated to and exercised by the Committee or such other committee as the Board may determine.

3.3INTERPRETATION. All actions taken and all interpretations and determinations made or approved by the Board in good faith shall be final and conclusive and shall be binding on the Participants and the Company.

3.4NO LIABILITY. No Director shall be personally liable for any action taken or determination or interpretation made or approved in good faith in connection with this Plan and the Directors shall, in addition to their rights as Directors, be fully protected, indemnified and held harmless by the Company with respect to any such action taken or determination or interpretation made. The appropriate officers of the Company are hereby authorized and empowered to do all things and execute and deliver all instruments, undertakings and applications and writings as they, in their absolute discretion, consider necessary for the implementation of this Plan and of the rules and regulations established for administering this Plan. All costs incurred in connection with this Plan shall be for the account of the Company.

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SECTION 4.SHARES AVAILABLE FOR AWARDS

4.1LIMITATIONS ON SHARES AVAILABLE FOR ISSUANCE.

4.1.1In respect of Options, so long as it may be required by the rules and policies of the Exchange:

(a)the aggregate number of Shares issuable under this Plan in respect of Options shall not exceed ten (10%) percent of the Company's issued and outstanding Shares at any point in time;

(b)the total number of Options issuable to any Consultant under this Plan shall not exceed two (2%) percent of the issued and outstanding Shares in any twelve (12) month period;

(c)the total number of Options issuable to Persons performing Investor Relations Activities shall not exceed two (2%) percent of the issued and outstanding Shares in any twelve (12) month period; and

4.1.2In respect of DSUs, PSUs, RSUs and SARs:

(a)the maximum aggregate number of Shares issuable under this Plan in respect of DSUs, PSUs, RSUs and SARs shall not exceed 4,226,737 at any point in time, representing 10% of the issued and outstanding Shares of the Company at the Effective Date;

(b)the total number of DSUs, RSUs, PSUs and SARs issuable to any Participant under this Plan shall not exceed one (1%) percent of the issued and outstanding Shares at the time of the Award;

(c)any exercise of DSUs, PSUs, RSUs and SARs does not increase the available number of DSUs, PSUs, RSUs and SARs issuable under the Plan.

4.1.3The total number of Incentive Securities combined issuable to any Participant under this Plan shall not exceed five (5%) percent of the issued and outstanding Shares in any twelve (12) month period;

4.1.4The aggregated number of Shares issuable to Insiders upon the exercise of Incentive Securities granted under the Plan shall not exceed ten (10%) percent of the issued and outstanding Shares a any point in time;

Page 8

4.1.5The aggregate number of Awards issued to Insiders under the Plan within a twelve (12) month period shall not exceed ten (10%) percent of the issued and outstanding Shares, calculated on the Grant Date;

4.1.6Consultants and Persons performing Investor Relations Activities may only receive Options as Awards under this Plan;

4.1.7All Options granted to Consultants and Persons performing Investor Relations Activities will vest and become exercisable in stages over a period of not less than twelve (12) months, with no more than one-quarter (1/4) of such Options vesting and becoming exercisable in any three (3) month period.

4.1.8The total number of Incentive Securities issuable to a Director under this Plan (excluding, for this purpose, the Chairman of the Board, if any) shall not exceed three (3%) percent of the issued and outstanding Shares;

4.1.9Pursuant to the policies of the Exchange, the Exchange Hold Period will be applied to Shares issuable under this Plan and any certificate(s) representing those Shares will include a legend stipulating that the Shares issued are subject to a four month Exchange Hold Period commencing from the Grant Date.

4.2ACCOUNTING FOR AWARDS. For purposes of this Section 4:

4.2.1If an Award is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the Grant Date of such Award against the aggregate number of Shares available for granting Awards under this Plan; and

4.2.2Notwithstanding anything herein to the contrary, any Shares related to Awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, or are exchanged with the Board's permission, prior to the issuance of Shares, for Awards not involving Shares, shall be available again for granting Awards under this Plan.

4.3ANTI-DILUTION. If the number of outstanding Shares is increased or decreased as a result of a stock split, consolidation or recapitalization and not as a result of the issuance of Shares for additional consideration or by way of stock dividend, the Board may make appropriate adjustments, in accordance with the terms of this Plan, the policies of the Exchange, and applicable laws, to the number and price (or other basis upon which an Award is measured) of Incentive Securities credited to a Participant. Any determinations by the Board as to the required adjustments shall be made in its sole discretion and all such adjustments shall be conclusive and binding for all purposes under this Plan.

4.4MODIFICATION. Any adjustment, other than as noted in section 4.3 Anti-Dilution, to Award granted or issued under this Plan must be subject to the prior acceptance of the Exchange, including adjustments related to an amalgamation, merger, arrangement, reorganization, spin-off, dividend, or recapitalization.

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4.5VESTING REQUIREMENT: No Award issued under this Plan, other than Options, may vest before the date that is one year following the date it is granted or issued. Notwithstanding this provision, vesting may be accelerated for a Participant who dies or who ceases to be an eligible Participant under this Plan in connection with a change of control, take-over bid, RTO, or other similar transaction. Additionally, see section 4.1.7 for vesting requirements applicable to Options granted to Investor Relations Service Providers.

4.6OPTION PLAN. From and after the Effective Date, the Option Plan shall be cancelled and deemed to be cancelled, and all awards granted hereunder shall be governed and deemed to be governed by the provisions of this Plan as existing Options under this Plan.

SECTION 5.AWARDS

5.1RESTRICTED SHARE UNITS

5.1.1ELIGIBILITY AND PARTICIPATION. Subject to the provisions of this Plan and such other terms and conditions as the Board may prescribe, the Board may, from time to time, grant Awards of RSUs to Eligible Persons and Consultants. RSUs granted to a Participant shall be credited, as of the Grant Date, to the Participant's Account. The number of RSUs to be credited to each Participant shall be determined by the Board in its sole discretion in accordance with this Plan. Each RSU shall, contingent upon the lapse of any restrictions, represent one (1) Share. The number of RSUs granted pursuant to an Award and the Restriction Period in respect of such RSUs shall be specified in the applicable Award Agreement.

5.1.2RESTRICTIONS. RSUs shall be subject to such restrictions as the Board, in its sole discretion, may establish in the applicable Award Agreement , which restrictions may lapse separately or in combination at such time or times and on such terms, conditions and satisfaction of objectives as the Board may, in its discretion, determine at the time an Award is granted.

5.1.3VESTING. All RSUs will vest and become payable by the issuance of Shares at the end of the Restriction Period if all applicable restrictions have lapsed, as such restrictions may be specified in the Award Agreement.

5.1.4CHANGE OF CONTROL. In the event of a Change of Control, all restrictions upon any RSUs shall lapse immediately and all such RSUs shall become fully vested in the Participant and will accrue to the Participant in accordance with Subsection 5.1.9.

5.1.5DEATH. Other than as may be set forth in the applicable Award Agreement, upon the death of a Participant, any RSUs granted to such Participant which, prior to the Participant's death, have not vested, will be immediately and automatically forfeited and cancelled without further action and without any cost or payment, and the Participant or his or her estate, as the case may be, shall have no right, title or interest therein whatsoever. Any RSUs granted to such Participant which, prior to the Participant's death, had vested pursuant to the terms of the applicable Award Agreement will accrue to the Participant's estate in accordance with Subsection 5.1.9 hereof.

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5.1.6TERMINATION OF EMPLOYMENT OR SERVICE.

(a)Where, in the case of Key Employees, a Participant's employment is terminated by the Company or a Subsidiary for cause, or consulting contract, subject to the applicable Award Agreement, is terminated as a result of the Participant's breach, all RSUs granted to the Participant under this Plan will immediately terminate without payment, be forfeited and cancelled and shall be of no further force or effect as of the Termination Date.

(b)Where, in the case of Key Employees, a Participant's employment contract is terminated by the Company or a Subsidiary without cause, by voluntary termination or due to Retirement by the Participant, all RSUs granted to the Participant under this Plan that have not vested will, unless the applicable Award Agreement provides otherwise and subject to the provisions below, immediately terminate without payment, be forfeited and cancelled and shall be of no further force or effect as of the Termination Date, provided, however , that any RSUs granted to such Participant which, prior to the Participant's termination without cause, voluntary termination or Retirement, had vested pursuant to the terms of the applicable Award Agreement will accrue to the Participant in accordance with Subsection 5.1.9 hereof.

(c)Upon termination of a Participant's employment with the Company or a Subsidiary, the Participant's eligibility to receive further grants of Awards of RSUs under this Plan shall cease as of the Termination Date.

5.1.7DISABILITY. Where, in the case of Key Employees, a Participant becomes afflicted by a Disability, all RSUs granted to the Participant under this Plan will continue to vest in accordance with the terms of such RSUs, provided, however, that no RSUs may be redeemed during a leave of absence. Where, in the case of Key Employees, a Participant's employment or consulting contract is terminated due to Disability, all RSUs granted to the Participant under this Plan that have not vested will, unless the applicable Award Agreement provides otherwise and subject to the provisions below, immediately terminate without payment, be forfeited and cancelled and shall be of no further force or effect as of the Termination Date, provided, however, that any RSUs granted to such Participant which, prior to the Participant's termination due to Disability, had vested pursuant to terms of the applicable Award Agreement will accrue to the Participant in accordance with Subsection 5.1.9 hereof.

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5.1.8CESSATION OF DIRECTORSHIP. Where, in the case of Directors, a Participant ceases to be a Director for any reason, any RSUs granted to the Participant under this Plan that have not yet vested will, unless the applicable Award Agreement provides otherwise and subject to the provisions below, immediately terminate without payment, be forfeited and cancelled and shall be of no further force or effect as of the Cessation Date, provided, however, that any RSUs granted to such Participant which, prior to the Cessation Date for any reason, had vested pursuant to the terms of the applicable Award Agreement will accrue to the Participant in accordance with Subsection 5.1.9 hereof.

5.1.9PAYMENT OF AWARD. As soon as practicable after each Vesting Date of an Award of RSUs, and subject to the applicable Award Agreement, the Company shall issue from treasury to the Participant, or if Subsection 5.1.5 applies, to the Participant's estate, a number of Shares equal to the number of RSUs credited to the Participant's Account that become payable on the Vesting Date. As of the Vesting Date, the RSUs in respect of which such Shares are issued shall be cancelled and no further payments shall be made to the Participant under this Plan in relation to such RSUs. Such payments shall be made entirely in Shares, unless otherwise provided for in the applicable Award Agreement.

5.2PERFORMANCE SHARE UNITS

5.2.1ELIGIBILITY AND PARTICIPATION. Subject to the provisions of this Plan and such other terms and conditions as the Board may prescribe, the Board may, from time to time, grant Awards of PSUs to Key Employees and Consultants. PSUs granted to a Participant shall be credited, as of the Grant Date, to the Participant's Account. The number of PSUs to be credited to each Participant shall be determined by the Board, in its sole discretion, in accordance with this Plan. Each PSU shall, contingent upon the attainment of the Performance Criteria within the Performance Cycle, represent one (1) Share, unless otherwise specified in the applicable Award Agreement. The number of PSUs granted pursuant to an Award, the Performance Criteria which must be satisfied in order for the PSUs to vest and the Performance Cycle in respect of such PSUs shall be specified in the applicable Award Agreement.

5.2.2PERFORMANCE CRITERIA. The Board will select, settle and determine the Performance Criteria (including without limitation the attainment thereof), for purposes of the vesting of the PSUs, in its sole discretion. An Award Agreement may provide the Board with the right, during a Performance Cycle or after it has ended, to revise the Performance Criteria and the Award amounts if unforeseen events (including, without limitation, changes in capitalization, an equity restructuring, an acquisition or a divestiture) occur which have a substantial effect on the financial results and which in the sole judgment of the Board make the application of the original Performance Criteria unfair or inappropriate unless a revision is made. Notices will be provided by the Company to applicable regulatory authorities or stock exchanges as may be required with respect to the foregoing.

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5.2.3VESTING. Subject to section 4.4., all PSUs will vest and become payable to the extent that the Performance Criteria set forth in the Award Agreement are satisfied for the Performance Cycle, the determination of which satisfaction shall be made by the Board on the Determination Date.

5.2.4CHANGE OF CONTROL. In the event of a Change of Control, all PSUs granted to a Participant shall become fully vested in such Participant (without regard to the attainment of any Performance Criteria) and shall become payable to the Participant in accordance with Subsection 5.2.8 hereof.

5.2.5DEATH. Other than as may be set forth in the applicable Award Agreement and below, upon the death of a Participant, all PSUs granted to the Participant which, prior to the Participant's death, have not vested, will immediately and automatically be forfeited and cancelled without further action and without any cost or payment, and the Participant or his or her estate, as the case may be, shall have no right, title or interest therein whatsoever, provided, however, the Board may determine, in its sole discretion, the number of the Participant's PSUs that will vest based on the extent to which the applicable Performance Criteria set forth in the Award Agreement have been satisfied in that portion of the Performance Cycle that has lapsed. The PSUs that the Board determines to have vested shall become payable in accordance with Subsection 5.2.8 hereof.

5.2.6TERMINATION OF EMPLOYMENT OR SERVICE.

(a)Where a Participant's employment is terminated by the Company or a Subsidiary for cause, or consulting contract, subject to the applicable Award Agreement, is terminated as a result of the Consultant's breach, all PSUs granted to the Participant under this Plan will immediately terminate without payment, be forfeited and cancelled and shall be of no further force or effect as of the Termination Date.

(b)Where other than as may be set forth in the applicable Award Agreement and below, a Participant's employment or consulting contract is terminated by the Company or a Subsidiary without cause, by voluntary termination or due to Retirement, all PSUs granted to the Participant which, prior to the Participant's termination without cause, by voluntary termination or due to Retirement, have not vested, will immediately and automatically be forfeited and cancelled without further action and without any cost or payment, and the Participant shall have no right, title or interest therein whatsoever as of the Termination Date, provided , however, the Board may determine, in its sole discretion, the number of the Participant's PSUs that will vest based on the extent to which the applicable Performance Criteria set forth in the Award Agreement have been satisfied in that portion of the Performance Cycle that has lapsed. The PSUs that the Board determines to have vested shall become payable in accordance with Subsection 5.2.8 hereof.

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(c)Upon termination of a Participant's employment with the Company or a Subsidiary, the Participant's eligibility to receive further grants of Awards of PSUs under this Plan shall cease as of the Termination Date.

5.2.7DISABILITY. Where a Participant becomes afflicted by a Disability, all PSUs granted to the Participant under this Plan will continue to vest in accordance with the terms of such PSUs, provided, however, that no PSUs may be redeemed during a leave of absence. Where a Participant's employment or consulting contract is terminated due to Disability, all PSUs granted to the Participant under this Plan that have not vested will, unless the applicable Award Agreement provides otherwise and subject to the provisions below, immediately and automatically be forfeited and cancelled without further action and without any cost or payment, and the Participant shall have no right, title or interest therein whatsoever as of the Termination Date, provided, however, that the Board may determine , in its sole discretion, the number of the Participant's PSUs that will vest based on the extent to which the applicable Performance Criteria set forth in the Award Agreement have been satisfied in that portion of the Performance Cycle that has lapsed. The PSUs that the Board determines to have vested shall become payable in accordance with Subsection 5.2.8 hereof.

5.2.8PAYMENT OF AWARD. Subject to the applicable Award Agreement, payment to Participants in respect of vested PSUs shall be made after the Determination Date for the applicable Award and in any case within ninety (90) days after the last day of the Performance Cycle to which such Award relates. Such payments shall be made entirely in Shares, unless otherwise provided for in the applicable Award Agreement. The Company shall issue from treasury to the Participant, or if Subsection 5.2.5 applies, to the Participant's estate, a number of Shares equal to the number of PSUs that have vested. As of the Vesting Date, the PSUs in respect of which such Shares are issued shall be cancelled and no further payments shall be made to the Participant under this Plan in relation to such PSUs.

5.2.9PERFORMANCE EVALUATION; ADJUSTMENT OF GOALS. At the time that a PSU is first issued, the Board, in the Award Agreement or in another written document, may specify whether performance will be evaluated including or excluding the effect of any of the following events that occur during the Performance Cycle or Restriction Period, as the case may be: (A) judgments entered or settlements reached in litigation; (B) the write down of assets; (C) the impact of any reorganization or restructuring; (D) the impact of changes in tax laws, accounting principles, regulatory actions or other laws affecting reported results; (E) extraordinary non-recurring items as may be described in the Company's management's discussion and analysis of financial condition and results of operations for the applicable financial year; (F) the impact of any mergers, acquisitions, spin-offs or other divestitures; and (G) foreign exchange gains and losses.

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5.2.10ADJUSTMENT OF PERFORMANCE SHARE UNITS. The Board shall have the sole discretion to adjust the determinations of the degree of attainment of the pre-established Performance Criteria or restrictions, as the case may be, as may be set out in the applicable Award Agreement governing the relevant Performance-Based Award. Notwithstanding any provision herein to the contrary, the Board may not make any adjustment or take any other action with respect to any Performance-Based Award that will increase the amount payable under any such Award. The Board shall retain the sole discretion to adjust PSUs downward or to otherwise reduce the amount payable with respect to any Performance-Based Award.

5.3DEFERRED SHARE UNITS

5.3.1ELIGIBILITY AND PARTICIPATION. Subject to the provisions of this Plan and such other terms and conditions as the Board may prescribe, the Board may, from time to time, grant Awards of DSUs to Eligible Persons. Eligible Persons become Participants effective as of the date he or she is first appointed or elected as a Director or employed as a Key Employee and cease to be Participants on the Cessation Date for any reason. DSUs granted to a Participant in accordance with Subsection 5.3 hereof shall be credited, as of the Grant Date, to the Participant's Account.

5.3.2ELECTION. Each Director may elect to receive any part or all of his or her Fees in DSUs under this Plan. Elections by Participants regarding the amount of their Fees that they wish to receive in DSUs shall be made no later than 90 days after this Plan is adopted by the Board, and thereafter no later than December 31 of any given year with respect to Fees for the following year. Any Director who becomes a Participant during a fiscal year and wishes to receive an amount of his or her Fees for the remainder of that year in DSUs must make his or her election within 60 days of becoming a Director.

5.3.3CALCULATION. The number of DSUs to be credited to the Participant's Account shall be calculated by dividing the amount of Fees selected by an Director in the applicable Election Form by the Current Market Price on the Grant Date, or if more appropriate, another trading range that best represents the period for which the award was earned (or such other price as required under Exchange policies). If, as a result of the foregoing calculation, a Participant shall become entitled to a fractional DSU, the Participant shall only be credited with a full number of DSUs (rounded down) and no payment or other adjustment will be made with respect to the fractional DSU.

5.3.4CHANGE OF CONTROL. ln the event of a Change of Control, all DSUs granted to a Participant shall become fully vested in such Participant and shall become payable to the Participant in accordance with Subsection 5.3.5 hereof.

5.3.5PAYMENT OF AWARD. Each Participant shall be entitled to receive, after the effective date that the Participant ceases to be an Eligible Person for any reason or any earlier vesting period(s) as may be set forth in the applicable Award Agreement, up to two (2) dates designated by the Participant and communicated to the Company by the Participant in writing at least fifteen (15) days prior to the designated day (or such earlier date as the Participant and the Company may agree, which dates shall be no earlier than then ninetieth (90) day following the year of the Cessation Date and no later than the end of the calendar year following the year of the Cessation Date, or any earlier period on which the DSUs vested, as the case may be) and if no such notice is given, then on the first anniversary of the Cessation Date or any earlier period on which the DSUs vested, as the case may be, at the sole discretion of the Participant, that number of Shares equal to the number of DSUs credited to the Participant's Account, such Shares to be issued from treasury of the Company.

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5.3.6DEATH. Upon death of a Participant, the Participant's estate shall be entitled to receive, within 120 days after the Participant's death and at the sole discretion of the Board, such Shares that would have otherwise been payable in accordance with Subsection 5.3.4 hereof to the Participant upon such Participant ceasing to be a Director or Key Employee.

5.4OPTIONS

5.4.1ELIGIBILITY AND PARTICIPATION. Subject to the provisions of this Plan and such other terms and conditions as the Board may determine, the Board may, from time to time, in its discretion, grant Awards of Options to Eligible Persons, Consultants and Persons performing Investor Relations Activities, provided that such Eligible Persons, Consultants and Persons performing Investor Relations Activities are determined by the Board to be bona fide Eligible Persons, Consultants and Persons performing Investor Relations Activities, as the case may be, at the time of such grant. Options granted to a Participant shall be credited, as of the Grant Date, to the Participant's Account. The number of Options to be credited to each Participant shall be determined by the Board in its sole discretion in accordance with this Plan.

5.4.2EXERCISE PRICE. The exercise price of the Options shall be determined by the Board at the time the Option is granted. In no event shall such exercise price be lower than the discounted market price permitted by the Exchange. The Board shall not reprice any Options previously granted under this Plan, except in accordance with the rules and policies of the Exchange. For greater certainty, the Company will be required to obtain Disinterested Shareholders Approval in respect of any extension or reduction in the exercise price of Options granted to any Participant if the Participant is an Insider at the time of the proposed reduction or extension.

5.4.3TIME AND CONDITIONS OF EXERCISE. The Board shall determine the time or times at which an Option may be exercised in whole or in part, provided that the term of any Option granted under this Plan shall not exceed ten years. The Board shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

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5.4.4EVIDENCE OF GRANT. All Options shall be evidenced by a written Award Agreement. The Award Agreement shall reflect the Board's determinations regarding the exercise price, time and conditions of exercise (including vesting provisions) and such additional provisions as may be specified by the Board.

5.4.5EXERCISE. The exercise of any Option will be contingent upon receipt by the Company of a written notice of exercise in the manner and in the form set forth in the applicable Award Agreement, which written notice shall specify the number of Shares with respect to which the Option is being exercised, and which shall be accompanied by a cash payment, certified cheque or bank draft for the full purchase price of such Shares with respect to which the Option is exercised. Certificates for such Shares shall be issued and delivered to the Participant within a reasonable time following the receipt of such notice and payment. Neither the Participants nor their legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any Shares unless and until the certificates for the Shares issuable pursuant to Options under this Plan are issued to such Participants under the terms of this Plan. Where the expiry date for an Option occurs during a Blackout Period, the expiry date for such Option shall be extended to the date that is ten (10) business days following the end of such Blackout Period.

5.4.6CHANGE OF CONTROL. In the event of a Change of Control, each outstanding Option issued to Eligible Persons, Consultants and Persons performing Investor Relations Activities, to the extent that it shall not otherwise have become vested and exercisable, and subject to the applicable Award Agreement, shall automatically become fully and immediately vested and exercisable, without regard to any otherwise applicable vesting requirement, but subject to the policies of the Exchange.

5.4.7DEATH. Where a Participant shall die, any Option held by such Participant at the date of death shall be exercisable in whole or in part only by the person or persons to whom the rights of the Participant under the Option shall pass by the will of the Participant or the laws of descent and distribution for a period of 120 days after the date of death of the Participant or prior to the expiration of the option period in respect of the Option, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the Option at the date of death of such Participant.

5.4.8TERMINATION OF EMPLOYMENT OR SERVICE.

(a)Where, in the case of Key Employees, Consultants or Persons performing Investor Relations Activities, a Participant's employment is terminated by the Company or a Subsidiary for cause, or contract, subject to the applicable Award Agreement, is terminated as a result of the Consultant's breach, no Option held by such Participant shall be exercisable from the Termination Date.

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(b)Where, in the case of Key Employees, Consultants or Persons performing Investor Relations Activities, a Participant's employment or contract is terminated by the Company or a Subsidiary without cause, by voluntary termination by the Participant or due to Retirement, subject to the applicable Award Agreement, any Option held by such Participant at such time shall remain exercisable in full at any time, and in part from time to time, for a period of 60 days after the Termination Date (subject to any longer period set out in the applicable Award Agreement , which period shall not, in any event, exceed twelve (12) months from the Termination Date) or prior to the expiration of the option period in respect of the Option, whichever is sooner , and then only to the extent that such Participant was entitled to exercise the Option at the Termination Date.

(c)Where, in the case of Key Employees, Consultants or Persons performing Investor Relations Activities, a Participant becomes afflicted by a Disability, all Options granted to the Participant under this Plan will continue to vest in accordance with the terms of such Options. Where, in the case of Key Employees, Consultants or Persons performing Investor Relations Activities, a Participant's employment or contract is terminated due to Disability, subject to the applicable Award Agreement, any Option held by such Participant shall remain exercisable for a period of 120 days after the Termination Date (subject to any longer period set out in the applicable Award Agreement , which period shall not, in any event, exceed twelve (12) months from the Termination Date) or prior to the expiration of the option period in respect of the Option, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the Option at the Termination Date.

5.4.9CESSATION OF DIRECTORSHIP. Where, in the case of Directors, a Participant ceases to be a Director for any reason, subject to the applicable Award Agreement and the provisions below, any Option held by such Participant at such time shall remain exercisable in full at any time, and in part from time to time, for a period of 60 days after the Cessation Date (subject to any longer period set out in the applicable Award Agreement, which period shall not, in any event, exceed twelve (12) months from the Participant ceasing to be a Director) or prior to the expiration of the Option in respect of the Option, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the Option as of the Cessation Date. Where, in the case of Directors, a Participant becomes afflicted by a Disability, all Options granted to the Participant under this Plan will continue to vest in accordance with the terms of such Options, provided that if a Participant ceases to be a Director due to Disability, subject to the applicable Award Agreement, any Option held by such Participant shall remain exercisable for a period of 120 days after the Cessation Date (subject to any longer period set out in the applicable Award Agreement, which period shall not, in any event, exceed twelve (12) months from the Cessation Date) or prior to the expiration of the option period in respect of the Option, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the Option as of the Cessation Date.

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5.5STOCK APPRECIATION RIGHTS

5.5.1ELIGIBILITY AND PARTICIPATION. Subject to the provisions of this Plan and such other terms and conditions as the Board may determine, the Board may, from time to time, in its discretion, grant awards of SARs to Eligible Persons and Consultants, either on a stand-alone basis or in relation to any Option. SARs granted to a Participant shall be credited, as of the Grant Date, to the Participant's account. The number of SARs to be credited to each Participant shall be determined by the Board in its sole discretion in accordance with this Plan.

5.5.2SAR GRANT PRICE. The exercise price of the SAR (the "SAR Grant Price") shall be determined by the Board at the time the SAR is granted. In no event shall the SAR Grant Price be lower than the discounted market price permitted by the Exchange. Where a SAR is granted in relation to an Option, it shall be a right in respect of the same number of Shares, and the SAR Grant Price shall be the same as the exercise price of the Option it is granted in relation to. The Board shall not reprice the SAR Grant Price of any SARs previously granted under this Plan, except in accordance with the rules and policies of the Exchange.

5.5.3PAYMENT.

(a)Subject to the provisions hereof, a SAR is the right to receive a payment in Shares equal to the excess, if any, of:

(i)the Current Market Price immediately prior to the date such SAR is exercised; over

(ii)the SAR Grant Price,

multiplied by the number of Shares in respect of which the SAR is being exercised (less any amount required to be withheld for taxes by applicable law) (the "SAR Amount").

(b)For greater clarity, the actual number of Shares to be granted to the Participant pursuant to Paragraph A shall be equal to the aggregate SAR Amount divided by the Current Market Price.

(c)Notwithstanding the foregoing, in the sole discretion of the Board, the Award Agreement may provide that the Company may elect to satisfy the exercise of a SAR (in whole or in part) by paying to the Participant cash in an amount equal to the SAR Amount in lieu of Shares.

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5.5.4TERMS OF SARS GRANTED IN CONNECTION WITH AN OPTION. SARs may be granted in relation to an Option either at the time of the grant of the Option or by adding the SAR to an existing Option. SARs granted in relation to an Option shall be exercisable only at the same time, by the same persons and to the same extent, that the related Option is exercisable. Upon the exercise of any SAR related to an Option, the corresponding portion of the related Option shall be surrendered to the Corporation and cancelled, and upon the exercise of any Option which has an accompanying SAR, the corresponding portion of the related SAR shall be surrendered to the Corporation and cancelled.

5.5.5TERMS OF SARS GRANTED ON A STAND-ALONE BASIS. SARs shall be granted on such terms as shall be determined by the Board and set out in the Award Agreement (including any terms pertaining to vesting and settlement), provided the term of any SAR granted under this Plan shall not exceed ten (10) years.

5.5.6EXERCISE. The exercise of any SAR will be contingent upon receipt by the Company of a written notice of exercise in the manner and in the form set forth in the applicable Award Agreement, which written notice shall specify the number of Shares with respect to which the SAR is being exercised. If the Participant is to receive Shares, certificates for such Shares shall be issued and delivered to the Participant within a reasonable time following the receipt of such notice. Neither the Participant nor his legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any Shares unless and until the certificates for the Shares issuable pursuant to SARs under this Plan are issued to such Participant under the terms of this Plan. When the expiration of the exercise period in respect of a SAR occurs during a Blackout Period, the exercise period for such SAR shall be extended to the date that is ten (10) business days following the end of such Blackout Period.

5.5.7CHANGE OF CONTROL. In the event of a Change of Control, each outstanding SAR issued to Eligible Persons, to the extent that it shall not otherwise have become vested and exercisable, and subject to the applicable Award Agreement, shall automatically become fully and immediately vested and exercisable, without regard to any otherwise applicable vesting requirement, but subject to the policies of the Exchange.

5.5.8DEATH. Where a Participant shall die while holding a SAR, any SAR held by such Participant at the date of death shall be exercisable in whole or in part only by the person or persons to whom the rights of the Participant under the SAR shall pass by the will of the Participant or the laws of descent and distribution for a period of 120 days after the date of death of the Participant or prior to the expiration of the exercise period in respect of the SAR, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the SAR at the date of death of such Participant.

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5.5.9TERMINATION OF EMPLOYMENT OR SERVICE.

(a)Where, in the case of Key Employees, a Participant's employment is terminated by the Company or a Subsidiary for cause, subject to the applicable Award Agreement , is terminated as a result of the Consultant's breach, no SAR held by such Participant shall be exercisable from the Termination Date.

(b)Where, in the case of Key Employees, a Participant's employment is terminated by the Company or a Subsidiary without cause, by voluntary termination by the Participant or due to Retirement, subject to the applicable Award Agreement , any SAR held by such Participant at such time shall remain exercisable in full at any time, and in part from time to time, for a period of 60 days after the Termination Date (subject to any longer period set out in the applicable Award Agreement, which period shall not, in any event, exceed twelve (12) months from the Termination Date) or prior to the expiration of the exercise period in respect of the SAR, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the SAR at the Termination Date.

(c)Where, in the case of Key Employees, a Participant becomes afflicted by a Disability, all SARs granted to the Participant under this Plan will continue to vest in accordance with the terms of such SARs. Where, in the case of Key Employees, a Participant's employment is terminated due to Disability, subject to the applicable Award Agreement, any SAR held by such Participant shall remain exercisable for a period of 120 days after the Termination Date (subject to any longer period set out in the applicable Award Agreement, which period shall not, in any event, exceed twelve (12) months from the Termination Date) or prior to the expiration of the exercise period in respect of the SAR, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the SAR at the Termination Date.

5.5.10CESSATION OF DIRECTORSHIP. Where, in the case of Directors, a Participant ceases to be a Director for any reason, subject to the applicable Award Agreement and the provisions below, any SAR held by such Participant at such time shall remain exercisable in full at any time, and in part from time to time, for a period of 60 days after the Cessation Date or prior to the expiration of the exercise period in respect of the SAR, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the SAR as of the Cessation Date. Where, in the case of Directors, a Participant becomes afflicted by a Disability, all SARs granted to the Participant under this Plan will continue to vest in accordance with the terms of such SARs, provided that if a Participant ceases to be a Director due to Disability, subject to the applicable Award Agreement, any SAR held by such Participant shall remain exercisable for a period of 120 days after the Cessation Date or prior to the expiration of the exercise period in respect of the SAR, whichever is sooner, and then only to the extent that such Participant was entitled to exercise the SAR as of the Cessation Date.

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5.6GENERAL TERMS APPLICABLE TO AWARDS

5.6.1FORFEITURE EVENTS. The Board will specify in an Award Agreement at the time of the Award that the Participant's rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of employment for cause, violation of material Company policies, fraud, breach of noncompetition, confidentiality or other restrictive covenants that may apply to the Participant or other conduct by the Participant that is detrimental to the business or reputation of the Company.

5.6.2AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Without limiting Subsection 5.5, Awards may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution for any other Award. Awards granted in addition to or in tandem with other Awards, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

5.6.3NON-TRANSFERABILITY OF AWARDS. Except as otherwise provided in an Award Agreement, no Award and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution. No Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company. The Company does not intend to make Awards assignable or transferable, except where required by law or in certain estate proceedings described herein.

5.6.4CONDITIONS AND RESTRICTIONS UPON SECURITIES SUBJECT TO AWARDS. The Board may provide that the Shares issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Board in its sole discretion may specify, including without limitation, conditions on vesting or transferability and forfeiture or repurchase provisions or provisions on payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Shares issued under an Award, including without limitation: (A) restrictions under an insider trading policy or pursuant to applicable law; (B) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant; (C) restrictions as to the use of a specified brokerage firm for such resales or other transfers; and (D) provisions requiring Shares to be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.

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5.6.5SHARE CERTIFICATES. All Shares delivered under this Plan pursuant to any Award shall be subject to such stop transfer orders and other restrictions as the Board may deem advisable under this Plan or the rules , regulations, and other requirements of any securities commission, the Exchange, and any applicable securities legislation, regulations, rules, policies or orders, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

5.6.6CONFORMITY TO PLAN. In the event that an Award is granted which does not conform in all particulars with the provisions of this Plan, or purports to grant an Award on terms different from those set out in this Plan, the Award shall not be in any way void or invalidated, but the Award shall be adjusted by the Board to become, in all respects, in conformity with this Plan.

SECTION 6.AMENDMENT AND TERMINATION

6.1SHAREHOLDER APPROVAL OF PLAN. This Plan is subject to Disinterested Shareholders Approval. Any Options granted under this Plan prior to receipt of Disinterested Shareholders Approval will not be exercisable or binding on the Company unless and until such approvals are obtained. DSUs, PSUs, RSUs and SARs cannot be granted under this Plan prior to receipt of Disinterested Shareholders Approval.

6.2AMENDMENTS AND TERMINATION OF THIS PLAN. The Board may at any time or from time to time, in its sole and absolute discretion, amend, suspend, terminate or discontinue this Plan and may amend the terms and conditions of any Awards granted hereunder, subject to (a) any required approval of any applicable regulatory authority or the Exchange, and (b) any approval of Disinterested Shareholders of the Company as required by the rules of the Exchange or applicable law, provided that Disinterested Shareholder approval shall not be required for the following amendments and the Board may make any changes which may include but are not limited to:

6.2.1amendments of a "housekeeping nature";

6.2.2any amendment for the purpose of curing any ambiguity, error or omission in this Plan or to correct or supplement any provision of this Plan that is inconsistent with any other provision of this Plan;

6.2.3an amendment which is necessary to comply with applicable law or the requirements of the Exchange;

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6.2.4amendments respecting administration and eligibility for participation under this Plan;

6.2.5changes to the terms and conditions on which Awards may be or have been granted pursuant to this Plan, subject to sections 4.4 and 4.5; and

6.2.6changes to the termination provisions of an Award or this Plan which do not entail an extension beyond the original fixed term.

If this Plan is terminated, prior Awards shall remain outstanding and in effect in accordance with their applicable terms and conditions.

6.3AMENDMENTS TO AWARDS. The Board may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue, or terminate, any Awards theretofore granted, prospectively or retroactively. No such amendment or alteration shall be made which would impair the rights of any Participant, without such Participant's consent, under any Award theretofore granted, provided that no such consent shall be required with respect to any amendment or alteration if the Board determines in its sole discretion that such amendment or alteration either (i) is required or advisable in order for the Company, this Plan or the Award to satisfy or conform to any law or regulation or to meet the requirements of any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award.

SECTION 7.GENERAL PROVISIONS

7.1NO RIGHTS TO AWARDS. No Director, Key Employee, Consultant, Persons performing Investor Relations Activities or other Person shall have any claim to be granted any Award under this Plan, or, having been selected to receive an Award under this Plan, to be selected to receive a future Award, and further there is no obligation for uniformity of treatment of Directors, Key Employees, Consultant, Persons performing Investor Relations Activities or holders or beneficiaries of Awards under this Plan. The terms and conditions of Awards need not be the same with respect to each recipient.

7.2WITHHOLDING. The Company shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under this Plan the amount (in cash , Shares, other securities, or other Awards) of withholding taxes due in respect of an Award, its exercise, or any payment or transfer under such Award or under this Plan and to take such other action as may be necessary in the opinion of the Company to satisfy statutory withholding obligations for the payment of such taxes. Without in any way limiting the generality of the foregoing, whenever cash is to be paid on the redemption, exercise or vesting of an Award, the Company shall have the right to deduct from all cash payments made to a Participant any taxes required by law to be withheld with respect to such payments. Whenever Shares are to be delivered on the redemption, exercise or vesting of an Award, the Company shall have the right to deduct from any other amounts payable to the Participant any taxes required by law to be withheld with respect to such delivery of Shares, or if any payment due to the Participant is not sufficient to satisfy the withholding obligation, to require the Participant to remit to the Company in cash an amount sufficient to satisfy any taxes required by law to be withheld. At the sole discretion of the Board, a Participant may be permitted to satisfy the foregoing requirement by:

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7.2.1electing to have the Company withhold from delivery Shares having a value equal to the amount of tax required to be withheld, or

7.2.2delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or a portion of the Shares and to deliver to the Company from the sales proceeds an amount sufficient to pay the required withholding taxes.

7.3NO LIMIT ON OTHER SECURITY-BASED COMPENSATION ARRANGEMENTS. Nothing contained in this Plan shall prevent the Company or a Subsidiary from adopting or continuing in effect other securitybased compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

7.4NO RIGHT TO EMPLOYMENT. The grant of an Award shall not constitute an employment contract nor be construed as giving a Participant the right to be retained in the employ of the Company. Further, the Company may at any time dismiss a Participant from employment, free from any liability, or any claim under this Plan, unless otherwise expressly provided in this Plan or in any Award Agreement.

7.5NO RIGHT AS SHAREHOLDER. Neither the Participant nor any representatives of a Participant's estate shall have any rights whatsoever as Shareholders in respect of any Shares covered by such Participant's Award, until the date of issuance of a share certificate to such Participant or representatives of a Participant's estate for such Shares.

7.6CURRENCY. Unless expressly stated otherwise, all dollars amounts in this Plan are in Canadian dollars.

7.7GOVERNING LAW. This Plan and all of the rights and obligations arising here from shall be interpreted and applied in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

7.8SEVERABILITY. If any provision of this Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award, and the remainder of this Plan and any such Award shall remain in full force and effect.

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7.9NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured creditor of the Company.

7.10NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award, and the Board shall determine whether cash, or other securities shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated, or otherwise eliminated.

7.11HEADINGS. Headings are given to the Sections and Subsections of this Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

7.12NO REPRESENTATION OR WARRANTY. The Company makes no representation or warranty as to the value of any Award granted pursuant to this Plan or as to the future value of any Shares issued pursuant to any Award.

7.13NO REPRESENTATIONS OR COVENANTS WITH RESPECT TO TAX QUALIFICATION. Although the Company may, in its discretion, endeavor to (i) qualify an Award for favourable Canadian tax treatment or (ii) avoid adverse tax treatment, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under this Plan.

7.14CONFLICT WITH AWARD AGREEMENT. In the event of any inconsistency or conflict between the provisions of this Plan and an Award Agreement, the provisions of this Plan shall govern for all purposes.

7.15COMPLIANCE WITH LAWS. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges on which the Company is listed as may be required. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan prior to:

7.15.1obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and

7.15.2completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable or at a time when any such registration or qualification is not current, has been suspended or otherwise has ceased to be effective.

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The inability or impracticability of the Company to obtain or maintain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

SECTION 8.EFFECTIVE DATE OF THIS PLAN

This Plan shall become effective upon the date (the "Effective Date") of approval by the Shareholders of the Company given by affirmative vote of the majority of the Shares represented at the meeting of the Shareholders of the Company at which motion to approve the Plan is presented.

SECTION 9.TERM OF THIS PLAN

This Plan shall terminate automatically ten (10) years after the Effective Date, provided that this Plan may be terminated on any earlier date as provided in Section 6 hereof, or if any approvals required by the Exchange are not obtained on the terms and conditions required thereby.

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EX-10.10

THIS LOAN AGREEMENT dated as of                                           , 2022

BETWEEN:	KWESST MICRO SYSTEMS INC., as Borrower;
AND:	, as Lender;

WITNESSETH:

WHEREAS the Borrower wishes to borrow certain monies from multiple lenders, and the Lender is prepared to lend a portion of such monies to the Borrower upon the terms and subject to the conditions herein contained;

NOW THEREFORE in consideration of the premises, the mutual covenants contained herein and for other consideration, the receipt and sufficiency of which are acknowledged, the parties hereto have agreed as follows:

ARTICLE 1

INTERPRETATION

1.1General Definitions

The capitalized words and expressions, wherever used in this Agreement or in any agreement ancillary hereto, unless there be something in the subject or the context inconsistent therewith, shall have the meaning ascribed thereto in Schedule "A".

1.2References to Agreements

Each reference in this Agreement to any agreement (including this Agreement and any other defined term that is an agreement) shall be construed so as to include such agreement (including any attached schedules) and each amendment, supplement, amendment and restatement, novation and other modification made to it at or before the time in question.  The terms "this Agreement", "this Loan Agreement", "hereof", "hereunder" and similar expressions refer to this agreement and not to any particular Article, Section, subsection, paragraph, subparagraph, clause or other portion of this agreement.

1.3Headings, etc.

The division of this Agreement into Articles, Sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

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1.4Number and Gender

In this Agreement, words in the singular (including defined terms) include the plural and vice versa (the necessary changes being made to fit the context) and words in one gender include all genders.

ARTICLE 2

THE LOAN

2.1Loan

The Lender agrees, upon the terms and subject to the conditions of this Agreement, to lend to the Borrower, an amount of CDN$ , on an unsecured basis.

2.2Purpose of the Loan

The Loan shall be used by the Borrower for general corporate purposes.

2.3Loan Maturity

The Loan and interest accrued thereon must be repaid on the earlier of (i) the date that is thirteen (13) months from the Closing Date and (ii) the acceleration of the Loan pursuant to Section 12.1 below (such date, the "Maturity Date").

2.4Voluntary Repayment of Loan

The Borrower may, at any time prior to the close of business on the Maturity Date, voluntarily repay the whole or any part of the Loan, without penalty or premium, by issuing a Repayment Notice to the Lender. Any Repayment Notice shall be delivered to the Lender at least three (3) Business Days prior to the effective date of the relevant voluntary repayment. In the event that the Borrower raises funds by way of a Subsequent Offering, the Borrower may use ten percent (10%) of the proceeds of the Subsequent Offering to repay the whole or any part of the Total Loan Amount on a pro rata basis amongst the Lenders.

ARTICLE 3

INTEREST AND BONUS SHARES

3.1Interest on Loan

The Borrower shall pay the Lender interest on the outstanding balance of the Loan at a rate per annum equal to 9.0%, compounded monthly and not in advance.

3.2Computation of Interest

3.2.1Interest in respect of the Loan shall be computed on the basis of a 365-day year for the actual number of days elapsed;

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3.2.2Interest payable on the Loan is calculated upon the daily outstanding balance of the Loan from and including the date it is advanced until, but excluding, the date it is repaid in full.

3.3Annual Equivalents

For the purposes of the Interest Act (Canada), the annual rates of interest to which are equivalent the rate determined in accordance with the provisions of Section 3.1 are the following rate: (the quoted rate) x (number of days in the year) ÷ 365 = % per annum.

3.4Payment of Interest

3.4.1Interest shall be paid in cash by the Borrower at the end of each month  (each, an "Interest Payment Date") with the first payment of interest being on March 31 , 2022. Interest shall accrue from the most recent date to which interest has been paid for or, if no interest has been paid, from the date of the Closing Date. 

3.5Bonus Shares

On the Closing Date, the Borrower will issue in favour of the Lender an aggregate number of common shares (collectively, the "Bonus Shares"). In connection therewith, the Lender acknowledges and recognizes the following:

3.5.1the Lender shall receive the number of Bonus Shares as is equal to twenty percent (20%) of the total dollar amount of the Loan divided by the Market Price of the common shares of the Borrower on the Exchange on the date that is immediately prior to the date of the news release the Borrower announcing the Loan; and

3.5.2the Bonus Shares will be subject to a four (4) month and one (1) day hold period from the date of issuance as required under Applicable Laws.

ARTICLE 4

MANNER OF PAYMENTS

4.1Currency of Payments

All payments or repayments, as the case may be, of principal under the Loan or any part thereof or of interest shall be made in Canadian Dollars only.

4.2Payment on Any Business Day by 3:00 P.M. (Eastern time)

Whenever any payment or repayment falls due on a day which is not a Business Day, such payment or repayment shall be made on the next following Business Day. Furthermore, any amount received after 3:00 P.M. (Eastern time) on any Business Day shall be applied to the appropriate payment or repayment which was required to be made on such Business Day, on the next following Business Day. Until so applied, interest shall continue to accrue as provided in this Agreement on the amount of such payment or repayment.

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ARTICLE 5

CONDITIONS PRECEDENT

5.1Closing Conditions

Closing shall occur upon the following conditions precedent being met to the satisfaction of the Lender or, as the case may be, waived by the Lender (the date on which such conditions precedent shall be met shall be referred to herein as the "Closing Date"):

5.1.1the Parties shall have received satisfactory evidence that the board of directors of the Borrower has approved the transactions contemplated in this Agreement;

5.1.2the Parties shall have received an executed copy of this Agreement;

5.1.3the Lender shall have received satisfactory evidence that the Borrower has received all necessary third-party acknowledgements and consents in connection with this Agreement and the other Loan Documents;

5.1.4the Lender shall have received a certificate or a direct registration statement evidencing the Bonus Shares and the issue thereof;

5.1.5the Lender shall have received satisfactory evidence that the Borrower has received all required regulatory approvals including the approval of the Exchange;

5.1.6no Default or Event of Default shall have occurred and be continuing;

5.1.7the representations and warranties made by the Borrower under this Agreement, are true and correct in all material respects as of the Closing Date;

5.1.8no Material Adverse Effect, as determined by the Lender in its reasonable discretion, shall have occurred and be continuing; and

5.1.9the Borrower shall have received a completed and executed certificate, and any other supporting documentation requested by the Borrower, as required under Section 10.5.

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ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF
THE BORROWER

To induce the Lender to make the Loan available to the Borrower, the Borrower represents and warrants to and in favour of the Lender as follows:

6.1Existence

The Borrower is a corporation duly and validly incorporated or formed, organized, existing and in good standing under the Laws of its jurisdiction of organization.

6.2Authority

The Borrower has the legal capacity to (i) enter into this Agreement and the other Loan Documents, (ii) own and hold under lease its property, and (iii) conduct business substantially as presently conducted.

6.3Due Authorization

The Borrower has taken all necessary action to authorize the execution and delivery of this Agreement and the other Loan Documents, the creation and performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated herein and therein. The Borrower has duly executed and delivered this Agreement and the other Loan Documents.

6.4Enforceability

Each of the Loan Documents constitutes legal, valid and binding obligations of the Lender, enforceable against it in accordance with its terms, subject only to those provisions of applicable laws relating to bankruptcy, insolvency, winding-up, dissolution, administration, reorganization, arrangement or other statutes or judicial decisions affecting the enforcement of creditors' rights in general and to general principles of equity under which specific performance and injunctive relief may be refused by a court in its discretion.

6.5Authorizations from Governmental Authorities and other Persons

The Borrower has obtained all Authorizations of or from all Governmental Authorities or other Persons which are necessary or required to authorize the execution and delivery of this Agreement, the other Loan Documents and to execute its obligations hereunder and thereunder.

6.6Accuracy of Information

No information furnished by the Borrower to the Lender in connection with any of the Loan Documents contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made and as of the date made. No undisclosed fact or liability is currently known to the Borrower which, in the Lender's reasonable discretion, has or could be expected to have a Material Adverse Effect.

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6.7Validity of Loan Documents - Non-Conflict

None of the authorization, execution, delivery or performance of the Loan Documents by the Borrower, nor the consummation of any of the transactions contemplated in the Loan Documents to which Borrower is a party conflicts with, contravenes or gives rise to any default under the provisions of any indenture, instrument, agreement or undertaking to which the Borrower is a party or by which the Borrower may be, or any of its Business Assets are or may become bound or any Applicable Law.

6.8No Material Adverse Effect

Since September 30, 2021 (being the date of the last audited financial statements of the Borrower), there has been no undisclosed change and no undisclosed event has occurred which could reasonably be expected to have a Material Adverse Effect.

6.9No Default

No Default has occurred which has not been disclosed to the Lender and either remedied or expressly waived by the Lender in writing.

6.10Taxes

The Borrower has paid and discharged, and has caused its Material Subsidiaries to pay and discharge, all Taxes payable by it or its Material Subsidiaries when due except with respect to any such Tax which is being contested in good faith by appropriate proceedings and which is not required, by Applicable Law, to be paid prior to such contestation and for which appropriate reserves have been provided in its books and as to which neither any Lien has attached nor any foreclosure, distraint, seizure, attachment, sale or similar proceedings shall have been commenced, and the charges, accruals and reserves on its books in respect of Taxes are adequate, in its judgment.

ARTICLE 7

POSITIVE COVENANTS OF
THE BORROWER

So long as the Loan or any other amount payable hereunder is outstanding and unpaid, and unless the Lender shall otherwise consent in writing, the Borrower hereby covenants that:

7.1Payment of Principal, etc.

The Borrower will pay when due any amount owed to the Lender under this Agreement or any other Loan Document in principal, interest and fees.

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7.2Preservation of Existence, etc.

The Borrower will preserve and maintain its existence and preserve and maintain all Authorizations and registrations necessary or required in the normal conduct of its business and qualify and remain qualified and authorized to do business in each jurisdiction in which it carries on business or owns or leases material Business Assets.

7.3Listing on the Exchange

The Borrower's common shares shall remain listed on the Exchange and the Borrower shall comply in all material respects with the rules and policies of such exchange and all applicable securities laws, rules and regulations.

7.4Operations ran in the Normal Course of Business/Subsidiaries

The Borrower will run its operations in the normal course of business as currently operated by the Borrower. The Borrower shall cause its Material Subsidiaries to abide by all the covenants set forth in Article 7 and Article 8 of this Agreement.

7.5Use of Loan

The Borrower shall use the Loan exclusively for the purposes set out in Section 2.2.

7.6Authorizations

The Borrower will maintain, and take all actions necessary to maintain, in full force and effect the action taken by it to authorize the execution, delivery and performance in accordance with their respective terms of this Agreement, of the other Loan Documents and the consummation of the transactions contemplated herein and therein. The Borrower will obtain and maintain any Authorization of or from any Governmental Authority necessary or required under Applicable Law in order to carry on its business.

7.7Compliance with Applicable Law

The Borrower will comply with Applicable Law in all material respects.

7.8Payment of Taxes and Claims

The Borrower will pay and discharge all Taxes imposed upon it or upon its income, capital or profits or upon any properties belonging to it prior to the date on which penalties attach thereto, and all lawful claims for rents, labour, materials and supplies which, if unpaid, might become a Lien upon any of its properties; provided, however, that, no such Tax need be paid which is being contested in good faith by appropriate proceedings and for which appropriate reserves shall have been set aside on the appropriate books, but only so long as such Tax does not become a Lien, and no foreclosure, distraint, seizure, attachment, sale or similar proceedings shall have been commenced.

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ARTICLE 8

NEGATIVE COVENANTS OF
THE BORROWER

So long as the Loan or any other amount payable hereunder is outstanding and unpaid and unless the Lender shall otherwise consent in writing, which consent shall not be unreasonably withheld, the Borrower hereby covenants that:

8.1Liens

Other than any Liens existing on the Closing Date and Liens securing Indebtedness incurred in respect of equipment financed by way of conditional sales contracts or capital lease agreements, the Borrower shall not grant or permit to exist any Lien of any kind with respect to any of the Borrower's or any of its Material Subsidiaries' Business Assets.

8.2Change in Business

The Borrower will not change the nature of its business in any material respect.

8.3Affiliate Transactions

The Borrower shall not (i) create any new Material Subsidiary not consistent with the Borrower's normal course of business or (ii) enter into or be a party to any transaction with any Material Subsidiary or director, officer, or employee of the Borrower or its Material Subsidiaries, except for routine employment and consulting transactions between the Borrower or its Material Subsidiaries and any of their respective directors, officers or employees regarding base salaries and customary employee benefits, consulting fees and equity incentive compensation made in the ordinary course of business.

ARTICLE 9

INFORMATION COVENANTS OF THE BORROWER

So long as the Loan or any other amount payable hereunder is outstanding and unpaid and unless the Lender shall otherwise consent in writing, the Borrower covenants and agrees that:

9.1Notice of Litigation and Other Matters

The Borrower shall furnish to the Lender prompt notice of the following events after the Borrower has become aware thereof and has made a reasonable determination with respect thereto:

9.1.1the commencement of all litigations against the Borrower, or in any other way relating adversely to the Borrower or any of its Business Assets which, if adversely determined, singly or when aggregated with all other such litigations, could, in the Lender's reasonable discretion, have a Material Adverse Effect;

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9.1.2any event or events which, singly or in the aggregate, could, in the Lender's reasonable discretion, reasonably be expected to have a Material Adverse Effect; and

9.1.3any Default or Event of Default.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES
OF THE LENDER

The Lender hereby represents and warrants to and in favour of the Borrower as follows:

10.1Existence

If the Lender is a corporation, it has been duly and validly incorporated or formed, organized, existing and in good standing under the Laws of its jurisdiction of organization.

10.2Authority and Enforceability

The Lender has the legal capacity to enter into this Agreement and as applicable, the other Loan Documents.

10.3Due Authorization

If the Lender is a corporation, it has taken all necessary action to authorize the execution and delivery of this Agreement and the other Loan Documents, the creation and performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated herein and therein. The Lender has duly executed and delivered this Agreement and the other Loan Documents.

10.4Enforceability

This Agreement constitutes legal, valid and binding obligations of the Lender, enforceable against it in accordance with its terms, subject only to laws relating to bankruptcy, insolvency, winding-up, dissolution, administration, reorganization, arrangement or other statutes or judicial decisions affecting the enforcement of creditors' rights in general and to general principles of equity under which specific performance and injunctive relief may be refused by a court in its discretion.

10.5Prospectus Exemption

The Lender is acquiring the Bonus Shares as principal pursuant to an exemption from the prospectus requirements under NI 45-106, and the Lender shall complete and execute on the Closing Date a certificate to that effect, in a form satisfactory to the Borrower along with any other document which the Borrower may reasonably request to confirm the Lender's eligibility under the applicable prospectus exemption.

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10.6Source of Funds

The funds representing the Loan do not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (the "PCMLA") and the Lender acknowledges that the Borrower may in the future be required by law to disclose the Lender's name and other information relating to this Agreement and the Lender's Loan hereunder, on a confidential basis, pursuant to the PCMLA. To the best of the Lender's knowledge, none of the funds to be paid by the Lender: (i) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada, the United States or any other jurisdiction; or (ii) are being tendered on behalf of a person or entity who has not been identified to the Lender, and the Lender shall promptly notify the Borrower if the Lender discovers that any of such representations ceases to be true, and shall provide the Borrower with appropriate information in connection therewith.

10.7Counsel

The Lender is solely responsible for obtaining such tax, investment, legal and other professional advice as it considers appropriate in connection with the execution, delivery and performance by it of this Agreement, any other Loan Document and the transactions contemplated hereunder.

ARTICLE 11

EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall constitute an Event of Default (each such event being herein referred to as an "Event of Default"):

11.1Non-Payment

The Borrower fails to pay when due (i) any amount of principal owed by it and outstanding hereunder or under any Similar Loan Document or (ii) any amount of interest, fees and accessories outstanding hereunder or under any Similar Loan Document, and such Default referred to in clause (ii) shall not be remedied within five (5) Business Days following written notice of such Default by the Lender to the Borrower.

11.2Misrepresentation/Notice Failure

Any representation or warranty made or deemed made by the Borrower under this Agreement or under any other Loan Document or any Similar Loan Agreement, is found to have been, when made or deemed made, either incorrect or inaccurate in any material respect, or, Borrower fails to provide the Similar Loan Default Notice as required under Section 14.1 hereunder.

11.3Covenants

The Borrower fails to perform, observe or comply with any other term, covenant or agreement contained in this Agreement or in any Similar Loan Agreement, and such failure remains unremedied for thirty (30) days following written notice of such failure by the Lender.

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11.4Insolvency

An Insolvency Event shall have occurred.

11.5Material Adverse Effect

An event or series of events occurs that, in the Lender's reasonable discretion, results or could reasonably be expected to result in a Material Adverse Effect.

11.6Unsatisfied Awards

Any one or more judgments are entered against the Borrower which judgments are not vacated, discharged, stayed or bonded pending appeal within thirty (30) days of the entry thereof or shall not have been vacated or discharged prior to the expiration of any such stay and involve a liability (not paid or fully covered by insurance) the amount of which, singly or when aggregated with all such liabilities of the Borrower exceeds CDN$1,000,000.

ARTICLE 12

REMEDIES

12.1Termination and Acceleration

If an Event of Default shall have occurred and be continuing, the Lender may declare the Loan to be cancelled and accelerated (other than with respect to any Event of Default pursuant to Section 11.1 hereunder, in which case, the Loan shall be automatically and immediately due and payable without need of any Lender action) or take any other action, commence any other suit, action or proceeding or exercise such other rights as may be permitted by Applicable Law (whether or not provided for under this Agreement) at such times and in such manner as the Lender may consider expedient, all without any additional notice, demand, presentment for payment, protest, noting of protest, dishonour, notice of dishonour or any other action being required.

12.2Compensation and Set-Off

12.2.1In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, after the occurrence of an Event of Default, the Lender is hereby authorized by the Borrower, at any time and from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to effect compensation, to set-off and to appropriate and to apply any and all deposits (general or special, time or demand, including Indebtedness evidenced by certificates of deposit, in each case whether matured or unmatured), and any other Indebtedness at any time held or owing by the Lender to or for the credit or the account of the Borrower against and on account of the obligations and liabilities of the Borrower to the Lender hereunder, although said obligations and liabilities, or any of them, shall be contingent or unmatured.

Loan Agreement - Page 12

12.2.2For the purposes of the application of this Section, the Parties agree that the benefit of any term applicable to any Lender's deposit, credit indebtedness, liability or obligation referred to in this Section shall be lost immediately before the time when the Lender shall exercise its rights under this Section in respect of such deposit, credit indebtedness, liability or obligation of the Lender.

12.2.3Furthermore, in the exercise of its rights under this Section, where any Indebtedness of the Lender to the Borrower is not outstanding in the same currency as the Indebtedness of the Borrower to the Lender, then the Lender may effect all currency conversions with respect to any such Indebtedness as it considers appropriate in accordance with its normal practices by using its own rate of exchange in effect on the Business Day preceding that on which it exercised its rights under this Section.

ARTICLE 13

TAXES AND OTHER CHARGES

13.1No Payment of Additional Amounts

To the best of the knowledge of the parties hereto, as of the date of this Agreement, the Borrower is not required by Law to make any deduction or withholding in respect of any Taxes imposed on the Lender from any amount payable under this Agreement (the "Withholding Taxes"). However, if the Borrower, after the date hereof, becomes aware of circumstances giving rise to Withholding Taxes (including pursuant to a change in Law), then the Borrower shall inform the Lender in writing of the reasons giving rise to such Withholding Taxes and remit to the relevant Governmental Authority such Withholding Taxes. To the extent the Borrower deducts or retains any amount otherwise due and payable hereunder to the Lender to cover any Withholding Taxes, such amount shall be increased so that the Lender receives an amount equal to the total amount the Lender would have received had no amount been deducted or retained by the Borrower for such Withholding Taxes.

ARTICLE 14

MISCELLANEOUS

14.1Notices

Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made to the Party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, when delivered to such Party (by certified mail, postage prepaid, hand delivered, telecopier, email or other acceptable form of electronic communication) at its address and attention set forth with its signature below or at such other address as any of the parties hereto may hereafter notify the others in writing. The Borrower shall be required to provide written notice to Lender of any default with respect to any Similar Loan Agreement within five (5) days of the occurrence of such default (any such notice, a "Similar Loan Default Notice"). This Agreement and any other Loan Document may not be amended or otherwise modified without the prior written consent of the Lender.

Loan Agreement - Page 13

14.2Rights and Recourses Cumulative

The rights and remedies of the Parties under this Agreement shall be cumulative and not exclusive of any right or remedy which the Parties would otherwise have and no failure or delay by the Parties in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right.

14.3Assignments by the Borrower

The rights of the Borrower hereunder are declared to be purely personal and may therefore not be assigned or transferred, nor can the Borrower assign or transfer any of its obligations, any such assignment being null and void insofar as the Lender is concerned and rendering any balance then outstanding of the Loan immediately due and payable at the option of the Lender.

14.4Assignment by the Lender

The Lender may at any time assign all or any portion of the Loan with the prior written consent of the Borrower, which shall not be unreasonably withheld.

14.5Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument.

14.6Severability

Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

14.7Replacement of Previous Agreements

This Agreement replaces and supersedes all verbal or oral agreements, understandings and undertakings between the Lender and the Borrower relating to the Loan.

14.8Obligation to Pay Absolute

The obligations of the Borrower to make payments on the Loan as and when due in accordance with this Agreement shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances without any right of compensation or set-off and notwithstanding any defence, right of action or claim of any nature whatsoever which the Borrower may at any time have or have had against the Lender, whether in connection with this Agreement or otherwise.

Loan Agreement - Page 14

14.9Governing Law

This Agreement and the interpretation and enforcement thereof shall be governed by and in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein.

Loan Agreement – Signature Page

IN WITNESS WHEREOF, the Parties hereto have signed this Agreement on the date and in the place first herein above mentioned.

	KWESST MICRO SYSTEMS INC., as Borrower
Per:
Address:	155 Terence Matthews Cr., Unit#1, Ottawa, ON K2M 2A8
Attention:	Steve Archambault, Chief Financial Officer
Email:	archambault@kwesst.com

Loan Agreement – Signature Page

	as Lender
Per:
Number of KWESST common shares currently held (1) required under TSX Venture Exchange rules
Address:
Attention:
Telephone:
Email:

SCHEDULE "A"

DEFINITIONS

"Affiliate" has the meaning ascribed to it from time to time in the Business Corporations Act (British Columbia);

"Applicable Law" means, with respect to any Person, any Law applicable to such Person or its properties or assets and any judgment or award binding on such Person or its properties or assets;

"Authorization" means any authorization, approval, consent, exemption, licence, permit, franchise or no-action letter from any Governmental Authority having jurisdiction with respect to any specified Person, property, transaction or event, or with respect to any of such Person's properties or assets;

"Bonus Shares" has the meaning ascribed thereto in Section 3.5;

"Borrower" refers to KWESST Micro Systems Inc. and includes any successor thereto;

"Business Assets" means the property and assets, tangible and intangible, corporeal and incorporeal, movable and immovable, of a specified Person;

"Business Day" means any day excluding Saturday, Sunday or any other day which in Ottawa, Ontario is a legal holiday or a day on which banks are authorized by law or by local proclamation to close;

"Canadian Dollars" or "CDN$" means the lawful currency of Canada;

"Capital Stock" means common shares, preferred shares or other equivalent equity interests (howsoever designated) of capital stock of a body corporate, equity preferred or common interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent such ownership interest;

"Closing Date" has the meaning ascribed thereto in Section 5.1;

"Control" has the meaning ascribed to it from time to time in the Business Corporations Act (British Columbia), and "Controls" and "Controlled" shall have the correlative meanings;

"Default" means any Event of Default or any default, breach, failure, event, state or condition which, unless remedied or waived, with the lapse of time or giving of notice, or both, would constitute an Event of Default;

"Distribution", with respect to any Person, means the payment or declaration of any dividend or the making of any distribution of any kind or character (whether in cash or property but expressly excluding any such distribution by way of the payment of dividends by the issuance of Capital Stock) in respect of any class of the Capital Stock of such Person or to the holders of any class of its Capital Stock;

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"Event of Default" means any of the events described in Article 11;

"Exchange" means the TSX Venture Exchange;

"Governmental Authority" means Canada, the Provinces thereof, any other sovereign country and any other regional, municipal, state, provincial, local or other subdivision of any jurisdiction, and any other governmental entity of any such jurisdiction and includes any agency, department, commission, office, régie, ministry, tribunal, central bank or other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government;

"Indebtedness" of any Person means: (a) all obligations of such Person, contingent or otherwise for borrowed money, including obligations for borrowed money evidenced by bonds, debentures, notes or similar instruments, (b) all obligations of such Person, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person, (c) all capitalized lease liabilities and purchase money obligations of such Person, (d) net hedging obligations of such Person, (e) all obligations of such Person to pay the deferred purchase price of property or services to the extent such obligations bear interest (excluding trade accounts payable in the ordinary course of business), and (f) all contingent liabilities of such Person in respect of any of the foregoing;

"Interest Payment Date" has the meaning ascribed thereto in Section 3.4;

"Insolvency Event" means the occurrence of any of the following events:

1.the Borrower applies for, consents to, or acquiesces in the appointment of a receiver, receiver and manager, statutory manager, trustee or similar official for all or substantially all of its assets; or

2.the Borrower is declared to be insolvent in a final judgment or admits in writing that it is unable to pay its debts generally when they fall due; or

3.the Borrower takes any steps to obtain or is granted protection from its creditors, under any Applicable Law; or

4.(a) the commencement of an involuntary proceeding against the Borrower (i) seeking bankruptcy, liquidation, reorganization, dissolution, winding up, a composition or arrangement with creditors, a readjustment of debts, or other relief with respect to it or its debts under any bankruptcy laws or other customary insolvency actions or (ii) seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its assets, the issuance of a writ of attachment, execution, or similar process, or like relief, and such involuntary proceeding shall remain undismissed and unstayed for a period of 30 days, (b) an order for relief is entered against the Borrower under the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) or any other present or future federal bankruptcy or insolvency Laws of Canada, (c) filing by the Borrower of an answer admitting the material allegations of a petition filed against it in any involuntary proceeding commenced against it, or (d) consent by the Borrower to any relief referred to in this paragraph or to the appointment of or taking possession by any such official in any involuntary proceeding commenced against it; or

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5.anything analogous or having a substantially similar effect to any of the events specified above happens under the Law of any applicable jurisdiction, including, without limitation, the Borrower taking steps towards filing any plan of arrangement proceeding seeking to restructure its Indebtedness;

"Law" means any international treaty or any federal, provincial, territorial, state, municipal, county or local statute, law, ordinance, code, rule, regulation or order (including any consent, decree or administrative order) or any directive, guideline or policy of any Governmental Authority;

"Lender" means the Person identified as the lender on the first page of this Agreement, and shall include its successors and assigns;

"Lenders" means the Persons having agreed to loan monies to the Borrower, which for certainty includes the Lender;

"Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner (which for the purposes hereof shall include a possessor under a title retention agreement and a lessee under a capital lease) including by way of mortgage, pledge, charge, lien, assignment by way of security, hypothecation, security interest, conditional sale agreement, deposit arrangement, deemed trust, title retention, capital lease, factoring or securitization arrangement;

"Loan" means, as at any time, the aggregate principal amount which the Lender has agreed to make available to the Borrower pursuant to Section 2.1, any and all interest accruing and owing hereunder and all other moneys which from time to time may be owing and payable to Lender hereunder;

"Loan Documents" refers collectively to this Agreement, the certificate representing the Bonus Shares and each document, instrument or agreement entered into by or between the Borrower and the Lender in connection with the transactions contemplated herein or therein or which is supplemental hereto or thereto, and "Loan Document" refers to any one thereof;

"Market Price" has the meaning set forth in Policy 1.1;

"Material Subsidiary(ies)" means any Person (i) of which the Borrower, directly or indirectly, owns 50% or more of the equity securities of any kind in such Person, and (ii) the book value of the assets of such Person represents more than 50% of the total book value of the Borrower's consolidated assets;

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"Material Adverse Effect" means a material adverse effect upon (i) the business, financial condition, operations or properties of the Borrower, taken as a whole on an unconsolidated basis, (ii) the rights and remedies of the Lender under this Agreement or the other Loan Documents, or (iii) the ability of the Borrower to perform its obligations under this Agreement;

"Maturity Date" has the meaning ascribed thereto in Section 2.3;

"NI 45-106" means National Instrument 45-106 - Prospectus Exemptions and in the Province of Québec, Regulation 45-106 respecting Prospectus Exemptions;

"Parties" refers collectively to the Borrower and the Lender, and "Party" refers to any one of them individually;

"Person" means any individual, corporation, company, limited liability company, estate, limited or general partnership, trust, joint venture, other legal entity, unincorporated association or Governmental Authority;

"Policy 1.1" means Policy 1.1 of the Corporate Finance Manual of the Exchange;

"Repayment Notice" means the notice to be sent to the Lender by the Borrower under Section 2.4;

"Subsidiary(ies)" of any Person means any Person (i) which is Controlled, directly or indirectly by such first Person or (ii) a majority of whose voting Capital Stock, on a fully diluted basis, is owned directly or indirectly, beneficially or otherwise, by such first Person. A Person shall be deemed to be a Subsidiary of another Person if it is a Subsidiary of a Person that is that other's Subsidiary;

"Taxes" means all taxes of any kind or nature whatsoever including federal large corporation taxes, provincial capital taxes, realty taxes (including utility charges which are collectible like realty taxes), business taxes, property transfer taxes, income taxes, sales taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the Closing Date or at any time in the future, by any Governmental Authority having power to tax, together with penalties, fines, additions to tax and interest thereon, and "Tax" shall have a correlative meaning;

"Total Loan Amount" means the sum of all monies borrowed by the Borrower from the Lenders

"Withholding Taxes" has the meaning scribed thereto in Section 13.1.

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EX-10.11

PROFESSIONAL SERVICES AGREEMENT

THIS AGREEMENT is dated 1st October 2019.

Between:

KWESST Inc., an Ontario business corporation with an office at ,

(hereinafter catted the "Corporation")

AND:

DEFSEC CORPORATION, a Canada business corporation with an office. at 1100-343 Preston Street, Ottawa, ON K1S 1N4

(hereinafter called "DEFSEC")

- and-

DAVID LUXTON, an individual residing at

(hereinafter called the "Executive")

ARTICLE 1
INTERPRETATION

1.1.Wherever in the Agreement, including the recitals and any Schedule attached hereto, the following terms appear, the following meanings shall be ascribed thereto:

"Affiliate" has the meaning ascribed to it in the CBCA;

"Agreement" means this executive services agreement;

"Annual Fee" has the meaning set out in Article 4.1 or as otherwise established from time to time by the Board and paid or payable by the Corporation;

"Applicable Privacy Laws" means any and all applicable laws relating to privacy and the collection, use and disclosure of Personal Information in all applicable jurisdictions, including but not limited to the Personal Information Protection and Electronic Documents Act (Canada) and/or any comparable Ontario law;

"Associate," has the meaning ascribed to it in the CBCA

"Benefits" has the meaning set out in Article 6.1;

"Board" or "Board of Directors" means the board of directors of the Corporation;

"Bonus" the amount paid or payable to the Executive by the Corporation pursuant to Article 4.2 hereof.  For the purposes of Article 4.2, "Bonus" shall not exceed 200% of the Annual Fee then in effect;

"Business Day" means any day on which the banks are open for general banking business in Ottawa, Ontario;

"CBCA" means the Canada Business Corporations Act

"Change of Control" shall mean:

(a)the sale of an or substantially all of the outstanding common shares of the Corporation for cash or securities of an entity not .managed by the Corporation's management team and that are determined by the Board of Directors to be liquid for all shareholders of the Corporation (a "Liquid Unrelated Issuer");

(b)a merger, amalgamation, arrangement or other similar transaction involving the Corporation where the holders of common shares of the Corporation receive cash or securities of a Liquid Unrelated Issuer, but do not immediately thereafter own securities of the successor corporation which entitle them to cast more than 50% of the votes attaching to alt shares in the capital of the successor corporation;

(c)the sale of all or substantially all of the Corporation's assets followed by a liquidating distribution to the holders of common shares of the Corporation of cash or securities of a Liquid Unrelated Issuer;

provided that the Board shall have the right, in its absolute discretion, to deem any transaction not enumerated above to be a Change of Control (other than an initial public offering of the Corporation that does not result in the reduction of the Executive's Duties hereunder).  For greater clarity, a sale or transfer of founders shares between related parties, and/or an initial going public transaction of any kind shall not constitute a change of control.

"Confidential Information" means information relating to the business or the technology and technical data of a corporation which is of a confidential and proprietary nature, including, but not limited to, non-public information that relates to the actual or anticipated business or research and development of such corporation, trade secrets, know how, inventions, techniques, processes, designs, engineering, formulas, programs, documentation, data, service manuals, technical reports, customer lists, supplies lists and suppliers, financial information and sales and marketing plans.  Confidential Information explicitly excludes a) industry information, technologies and contacts previously known by DEFSEC and the Executive and b} a Low Energy Cartridge ("LEC") munitions technology developed by DEFSEC and the Executive.

"Developments" has the meaning ascribed to it in Article O hereof;

"Duties" has the meaning ascribed to it in Article 3.1 hereof;

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"Notice" means any statement, payment, account, notice or other writing required or permitted to be given hereunder;

"Person" has the meaning ascribed to it in the CBCA and which, for the purposes of this Agreement, shalt include the Corporation;

"Personal Information" means information about an identifiable individual;

"President" means the President of the Corporation; and

"Subsidiary" has the meaning ascribed to it in the CBCA.

1.2.Except where this context otherwise requires, the term "this Agreement" shall include all terms and provisions of this agreement in writing between the parties hereto, including the recitals and any Schedules attached hereto and made a part hereof.

1.3.Wherever in this Agreement the masculine, feminine or neuter gender is used, it shall be construed as including all genders, as the context so requires and wherever the singular number is used, it shall be deemed to include the plural and vice versa, where the context so requires.

1.4.Unless otherwise specifically provided, any period of time required to be measured hereunder shall be exclusive of the date of the giving of Notice or the occurrence of the event from which the period is to be measured and inclusive of the last day of the period.

1.5.This Agreement contains the entire understanding of the parties with respect to the matters contained herein.  There are no promises, covenants, or understandings by either party hereto to the other, other than those expressly set forth herein.  Except as otherwise expressly provided in this Agreement, this Agreement supersedes and replaces any earlier agreement(s), whether oral or in writing between the parties hereto respecting the subject matter of this Agreement.

ARTICLE 2
TERM

2.1.The initial term of this Agreement will be for the period of October 1st, 2019 to 31 December 2022 (the "Initial Term").  Upon the expiry of the Initial Term, this Agreement will automatically renew for a second term of two years.

ARTICLE 3
SERVICES

3.1.DEFSEC is hereby engaged to provide personnel, specifically the Executive, who shall be seconded from DEFSEC to the Corporation to carry out the duties of Executive Chairman of the Corporation as are customary and appropriate for an Executive Chairman of such company, including but not limited to:  strategic planning; investor relations; media relations; leadership on strategic transactions; board and management reporting; ail as specified by the Board of the Corporation, and generally described in ANNEX A (the "Duties")

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3.2.DEFSEC and the Executive shall promote the businesses of the Corporation and its subsidiaries and affiliates and act in good faith while performing their respective duties and obligations under this Agreement, at all times in the best interests of the Corporation and its subsidiaries and affiliates.

3.3.DEFSEC and the Executive shall, in the performance of this-Agreement, comply with all applicable laws, regulations and orders of Canada and of any Province or political territorial subdivision thereof, and where applicable to the business and operations of the Corporation, the applicable laws, regulations and orders of any applicable foreign jurisdiction, including, but not limited to, laws, regulations and orders pertaining to labor, wages:, hours of work and other similar provisions.  The Executive further agrees to read and comply with all' of the Corporation's internal policies and procedures, including those contained in any employee manual, as may be prepared and revised from time to time,

3.4.DEFSEC and the Executive represent to the Corporation that the Executive has the competence, experience and skill necessary to perform the Duties, Is not subject or a party to any employment agreement, non-competition covenant, non-disclosure agreement or other ,agreement, covenant, understanding or restriction which would prohibit the Executive from executing this Agreement and performing fully the Duties and responsibilities hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties and responsibilities which may now or in the future be assigned to DEFSEC and the Executive by the Corporation or the scope of assistance to which they may now or in the future provide to other Affiliates or divisions of the Corporation.

3.5.DEFSEC and the Executive acknowledges and agrees that by virtue of this Agreement, they owe the Corporation a fiduciary duty.

3.6.DEFSEC and the Executive shall provide the services contemplated during normal business hours on normal business days but the Executive shall be entitled to a vacation of up to 30 days during each year of the term hereof.  The Executive may work remotely in the course of performing the Duties under this Agreement, but shall attend at the Corporation's offices as and when necessary.

3.7.Notwithstanding any other term hereof, the Parties hereto specifically state and agree that DEFSEC and the Executive are each independent contractors and not employees, agents or partners of the Corporation and DEFSEC shall be responsible for payment of all taxes, including federal, provincial and local taxes, arising out of the services provided, activities undertaken and payments made under this Agreement and accordingly, any personnel provided by a corporate Party shall be deemed an employee of such party and shall not, for any purpose, be considered an employee or agent of the other party or have any authority, except as specifically provided herein, to act on behalf of the other party.

3.8.The Corporation shall at its cost provide Directors and Officer's liability insurance coverage for the Executive typical for a business of this nature.

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ARTICLE 4
REMUNERATION

4.1.For all of the services rendered (including performance of the Duties) by DEFSEC and the Executive hereunder during the term of this Agreement, the Corporation shall pay DEFSEC an Annual Fee equal to $120,000, plus HST, rising to $150,000 plus HST upon a going public transaction.  The Annual Fee may be increased from time to time, at the sole discretion of the Board, by merit and general increases in amounts determined by the Board.  The Annual Fee shall be paid in semi-monthly instalments, each equal to 1/24^th of the Annual Fee.

4.2.In addition to the foregoing, the Corporation may pay to DEFSEC an annual Bonus in an amount determined as determined by the Board of Directors.

ARTICLE 5
STOCK OPTIONS AND RSUS

5.1.Subject to compliance with applicable securities legislation and any obligations of the Corporation pursuant to any agreements by which it is bound, the Corporation may grant to DEFSEC, subject to approval of the Board, stock options and RSUs pursuant to the Corporation's stock option plan entitling DEFSEC to purchase common shares of the Corporation, as the Board may determine from time to time.

5.2.All stock options and RSUs granted to DEFSEC shall be subject to the terms and provisions of the stock option agreement or RSU agreement pursuant to which same were granted, and all stock options granted to DEFSEC shall be subject to the terms and provisions of the stock option plan of the Corporation which is in effect from time to time, as approved by the Board and, if required, the shareholders of the Corporation.

ARTICLE 6
EXECUTIVE BENEFITS, LIABILITY INSURANCE

6.1.In addition to the Annual Fee and the grant of stock options and RSUs set out in ARTICLE 5, the Executive shall be entitled to participate in any benefit plans adopted by the Corporation for its executives, as may be amended from time to time, subject to the terms of the applicable plan documents and policies provided by the relevant carrier.  Additionally, the Corporation shall without delay put in place Directors and Officers liability insurance commensurate with a Corporation of this nature, with DEFSEC and the Executive as a named insured under such coverage.

ARTICLE 7
EXPENSES

7.1.The Corporation agrees that during the Term of this Agreement, the Executive shall be reimbursed by the Corporation for all reasonable traveling and other out-of-pocket costs actually and properly incurred by the Executive in connection with the Duties and in accordance with any applicable policies and procedures of the Corporation.  The Executive shall furnish to the Corporation statements and vouchers for all such expenses.  The Corporation agrees that upon execution of this Agreement It shall reimburse DEFSEC for out-of-pocket travel and expenses incurred prior to this Agreement, with supporting receipts, up to a maximum amount of $15,000.

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ARTICLE 8
TERMINATION

8.1.This Agreement shall terminate as follows:

(a)automatically upon the death or total incapacity of the Executive.  For the purpose of this provision, the Executive may be deemed to be totally Incapacitated if he or she shall, by reason of accident, sickness, becoming of unsound mind or becoming incapable of managing his own affairs as determined by a court of law, be unable to perform the whole or any part, which is a material part, of the Duties for a continuous period of six (6) months, the total incapacity to be deemed to have occurred upon the expiration of the period of six (6) months aforesaid.  The resumption of the Duties by the Executive for a period of twenty-nine (29) days or less shall not interrupt the continuity of the six (6) month period aforesaid;

(b)immediately upon Notice of termination served by the Corporation upon DEFSEC for just cause.  Without restricting the generality of the foregoing, "just cause" shall include but not be limited to the following:

(i)breach of this Agreement;

(ii)conviction of a criminal offence relating to a breach of trust, dishonesty or fraud, or a crime of violence;

(iii)fraud, whether civil or criminal, misappropriation of the property or funds of the Corporation, embezzlement, malfeasance, misfeasance or nonfeasance in office which is willfully or grossly negligent on the part of the Executive;

(iv)refusal to comply with a lawful order or direction of the Corporation;

(v)neglect or incompetence of the Executive to carry out the Duties and responsibilities of his or her position in a diligent, professional, and efficient manner; and

(vi)any other act of misconduct harmful to the best interests of the Corporation,

(c)by DEFSEC giving at least sixty (60) days Notice of termination to the Corporation.

8.2.The Corporation may elect to, terminate this Agreement upon the expiry of the Initial Term by providing DEFSEC with notice in writing ("Notice") of same on or before a date which is six (6) months prior to expiry of the Initial Term (the "Termination Option").  Should the Corporation elect to exercise the Termination Option, the Corporation will, upon the expiry of the Initial Term, provide a lump sum payment to DEFSEC in the amount of $100,000, which amount will be in addition to any other payments owed by the Corporation to DEFSEC pursuant to this Agreement, and all stock options held by DEFSEC shall immediately become vested.

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8.3.Notwithstanding Article 8.2, if the Corporation terminates this Agreement without cause within 24 months of, or in anticipation within 180 days of, a change of control, the Corporation will pay DEFSEC a lump sum payment equal to 18 months of the Annual Fee then in effect, which amount will be in addition to any other payments owed by the Corporation to DEFSEC pursuant to this agreement, and all stock options held by DEFSEC shall immediately become vested.

8.4.Notwithstanding Article 8.2, if the Corporation terminates this Agreement without cause the Corporation will pay DEFSEC a lump sum payment equal to 12 months of the Annual Fee then in effect, which amount will be in addition to any other payments owed by the Corporation to DEFSEC pursuant to this agreement, and all stock options held by DEFSEC shall immediately become vested.

8.5.Notwithstanding any other provision in this Agreement, if the Corporation terminates this Agreement at any time without cause, the Corporation will pay DEFSEC an amount equal to the Annual Fee then in effect, plus accrued unpaid Bonuses and expenses, and all stock options held by DEFSEC shall immediately become vested.

8.6.Notwithstanding any other term hereof, the Corporation shall not be required to pay all or any part of such amounts outlined in Articles 8.2 and 8.3 above unless and until DEFSEC and the Executive shall each have executed and delivered to the Corporation a release, in form ·and substance as set out in Schedule A.

8.7.This Agreement shall continue in full force and effect during the Term hereof, unless earlier terminated pursuant to the provisions of ARTICLE 8.

8.8.Upon termination of this Agreement pursuant to ARTICLE 8, DEFSEC and the Executive shall immediately:

(a)cease to represent themselves as providing an¥ duties or services, including the Duties, to the Corporation and'/or its Affiliates and shall cease to use any documentation or advertising of the Corporation and/or its Affiliates and shall take all reasonable action as may be necessary to remove such identification as a representative of the Corporation and/or its Affiliates;

(b)deliver to the Corporation all Confidential Information and Developments described in ARTICLE 9 hereof whether the same is in the Executive's actual possession, charge or custody, or under the Executive's control; and

(c)deliver to the Corporation any other property of the Corporation.

8.9.DEFSEC and the Executive acknowledge that the severance amounts provided pursuant to Article 8 of this Agreement supersedes and replaces any rights to reasonable notice of termination that might otherwise have arisen at common law and DEFSEC and the Executive expressly waive any right to such notice or pay in lieu.  DEFSEC and the Executive agree that the severance amount provided pursuant to Article 8.2 and Article 8.3 of this Agreement is deemed conclusively to compensate for any lack of reasonable notice of termination.

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8.10.The Corporation shall give consideration to any reasonable request which DEFSEC may make in respect of payments to be made to DEFSEC for favourable income tax treatment of DEFSEC which does not negatively impact the Corporation or result in any expense or costs to the Corporation.

ARTICLE 9
CONFIDENTIAL INFORMATION

9.1.In the course of performing the Duties, DEFSEC and the Executive may obtain Confidential Information relating to the Corporation and its Affiliates or Associates.  During the course of performing the Duties and thereafter, DEFSEC and the Executive shall not make use of the Confidential Information other than as required for the performance of the Duties and responsibilities under this Agreement.

9.2.DEFSEC and the Executive shall hold the Corporation and its Affiliates or Associates' Confidential Information in strictest confidence and shall not, without the prior written consent of the Corporation, divulge or allow access to the Confidential Information of the Corporation (or any Affiliate or Associate of the Corporation) to any Person, except where:

(a)such Confidential Information is available to the public and made generally known through no wrongful act of the Executive or of others who were under confidentiality obligations as to the item or items involved generally in the form disclosed; or

(b)such disclosure of the Confidential Information is compelled by .applicable law.

9.3.DEFSEC and the Executive shall take reasonable steps to prevent the Confidential Information from being used or acquired by any unauthorized Person.

9.4.During the term hereof and thereafter, DEFSEC and the Executive shall not improperly use or disclose Confidential Information of any former employer or other person or entity and DEFSEC and the Executive shall not bring onto the premises of the Corporation, any unpublished document or Confidential Information belonging to any such employer, person or entity unless consented to in writing by such employer, Person or entity.

9.5.The Corporation has received, and in the future will receive, from third parties their Confidential Information subject to a duty on the Corporation's part to maintain the confidentiality of such information and to use it only for certain limited purposes.  DEFSEC and the Executive shall hold all such Confidential Information in the strictest confidence and shall not disclose it to any person, firm or corporation or use it except as necessary in carrying out the Duties, as applicable, consistent with such party's agreement with such third party.

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9.6.All developments, including inventions, whether patentable or otherwise, trade secrets, discoveries, Improvements, ideas and writings, which either directly or indirectly relate to or may be useful in the business of the Corporation or any of its Affiliates, Associates or divisions.  (collectively, the "Developments") and. which DEFSEC or the Executive, either by themselves or in conjunction with any other Person has conceived, made, developed, acquired or acquired knowledge of in the course of the engagement of DEFSEC by and the secondment of the Executive to the Corporation shall become and remain the sole and exclusive property of the Corporation.  DEFSEC and the Executive hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey, all of their right (including moral rights), title and interest in and to any and all such Developments and to disclose fully as soon as practicable, in writing, all such Developments to the Board.  At any time and from time to time, upon the request and at the expense of the Corporation, DEFSEC and the 'Executive wilt execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the reasonable opinion of counsel for the Corporation, are or may be necessary or desirable to document such transfer or to enable the Corporation to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under Canadian or foreign law with respect to any such Developments or aspect of a Development or to obtain any extension, validation,, re-issue, continuance or renewal of any such patent, trademark or copyright.  The Corporation will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse the Executive for all reasonable expenses Incurred by DEFSEC and the Executive in compliance with the provisions of this Article.

9.7.Confidential Information explicitly excludes:  (a).Industry information, technologies and contacts previously known to DEFSEC and the Executive; and (b) a low Energy Cartridge ("LEC") munitions technology developed by DEFSEC and the Executive.

ARTICLE 10
NON-COMPETITION

10.1.DEFSEC and the Executive hereby acknowledges and agrees that he or she will gain knowledge of and a close working relationship with the Corporation's customers and service providers, which would injure the Corporation if made available to a competitor or used for competitive purposes.

10.2.DEFSEC and the Executive agree, with and for the benefit of the Corporation, that during the term of this Agreement and for a period of twelve (12) months from the date of termination of this Agreement, whether such termination is occasioned by DEFSEC or the Executive or by the Corporation, with or without cause, or by mutual agreement, DEFSEC and the Executive shall not, for any reason whatsoever, directly or indirectly, solicit or accept business, or be employed by or otherwise retained by any person or company engaged in in direct competition with the business of the Corporation within the largest of the following areas:  (a) networked surveillance and targeting on ground weapon systems and interface with drones; (b) kinetic counter-drone technology; and shotcounter technology.

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10.3.DEFSEC, and the Executive further acknowledge, and, agree that, if requested by the Corporation, the Executive shall enter into a separate agreement with the Corporation giving effect to the foregoing agreement not to compete with the Corporation.

10.4.DEFSEC and the Executive agree that the limitations of time, geography and scope of activity agreed to in this Article are reasonable because, among other things:  (i) the Corporation is engaged in a highly competitive industry; (ii) DEFSEC and the Executive will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) DEFSEC and the Executive will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

ARTICLE 11
NON-SOLICITATION

11.1.DEFSEC and the Executive agree that fora period of twelve (12) months following the termination of this Agreement for any reason, DEFSEC and the Executive shall not, directly or indirectly, solicit, divert, hire, retain, employ or take away any employees, executives or consultants of the Corporation that (a) have not been terminated by the Corporation or (b) resigned from the Corporation following a Change of Control, whether such new employment or retainer Is with or without compensation.

11.2.DEFSEC and the Executive agree and acknowledge that the time limitations in Article 11.2 are reasonable and properly required for the adequate protection of the exclusive property and business of the Corporation.

11.3.DEFSEC and the Executive agrees that the limitations of time and scope of activity agreed to in this Article are reasonable because, among other things:  (i) the Corporation is engaged in a highly competitive industry; (ii) DEFSEC and the Executive will have access to confidential' information, trade secrets and' know-how of the Corporation and its Affiliates; (iii) DEFSEC and the Executive will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

ARTICLE 12
REMEDIES

12.1.DEFSEC and the Executive acknowledge and agree that the Corporation will suffer irreparable harm if DEFSEC or the Executive breaches any of the obligations under ARTICLE 10 or ARTICLE 11, and that monetary damages would be inadequate to compensate the Corporation for such a breach.  Accordingly, DEFSEC and the Executive agree that in the event of a breach, or a threatened breach, by DEFSEC or the Executive of any of the provisions of ARTICLE 10 or ARTICLE 11, the Corporation shall be entitled to obtain, in addition to any other rights, remedies or damages available to the Corporation.  at law or in equity, an interim and permanent injunction, without having to prove damages, in order to prevent or restrain any such breach, or threatened breach, by DEFSEC or the Executive, and that the Corporation shall be entitled to all of its costs and expenses incurred in obtaining such relief including reasonable solicitor and client legal costs and disbursements on a full indemnity basis.

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12.2.DEFSEC and the Executive hereby agree that all restrictions contained in ARTICLE 10 and ARTICLE 11 are reasonable, valid and :necessary protections of the Corporation's proprietary business interests and hereby waive any and all defenses to the strict enforcement thereof by the Corporation.  If any covenant or provision of ARTICLE 10 or ARTICLE 11 is determined to be void or unenforceable in whole or in part, for any reason, it shall be deemed not to affect or impair the validity of any other covenant or provision of this Agreement, which shall remain in full force and effect.  The provisions of ARTICLE 10 or ARTICLE 11 shall survive and remain in full force and effect notwithstanding the termination of this Agreement for any reason.

12.3.For the purposes of ARTICLE 10, ARTICLE 11, and ARTICLE 12 •corporation", when referred to therein, shall include any subsidiary, associated, affiliated or successor corporation of the Corporation, provided that ARTICLE 11 shall only apply to the Corporation (including any associated, affiliated or successor corporation of the Corporation) and its partners, employees, executives and consultants at the date of termination of this Agreement.

ARTICLE 13
PRIVACY

13.1.DEFSEC and the Executive acknowledge and agree that they will take all necessary steps to protect and maintain Personal Information of the employees, consultants or customers of the Corporation obtained in the course of DEFSEC's engagement by or the Executive's secondment to the Corporation.  DEFSEC and the Executive shall at all times comply, and shall assist the Corporation to comply, with all Applicable Privacy Laws.

13.2.DEFSEC and the Executive acknowledge and agree that the disclosure of the Executive's Personal Information may be required as part of the ongoing operations of the Corporation, as required by law or regulatory agencies, as part of the audit process of the Corporation, or as part of a potential business or commercial transaction or as part of the Corporation's management obligations, and' the Executive hereby grants consent as may be required by Applicable Privacy Laws to such personal information disclosure.

13.3.DEFSEC and the Executive acknowledge that the Executive has no expectation of privacy regarding any information, items or material stored at the Corporation's premises, including without limitation any data stored on the Corporation's computers (including any laptops, smartphones or other electronic device provided to the Executive by the Corporation) or network, such as email.  The Corporation reserves the right to disclose and monitor communications made by the Executive using the Corporation's facilities and resources, whether electronic or physical, and reserves the right to search and enter all areas of the Corporation's premises, including any locked desks or drawers.  Without limiting the foregoing, the Executive further acknowledges that the full contents of the Executive's email and stored data may be made known to other Corporation employees as required in the normal course of the Corporation's operations, both during and after the Executive's engagement with the Corporation.

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ARTICLE 14
GENERAL

14.1.This Agreement along with any indemnity agreement to be entered between the Corporation and the Executive concurrent with execution of this Agreement constitute the entire Agreement between the parties.

14.2.This Agreement shall not be assigned by the Corporation, DEFSEC or the Executive, in whole or in part, without the prior written consent of the other parties, which consent may be withheld for any reason.

14.3.DEFSEC and the Executive acknowledge and agree that they are executing this Agreement voluntarily and without any duress or undue influence by the Corporation or anyone else.  Both further acknowledge and agree that they have carefully read this Agreement and that they have asked any questions needed by them to understand the terms, consequences and binding effect of this Agreement and fully understand it.  Finally, DEFSEC and the Executive agree that they have been provided an opportunity to seek the advice of legal counsel of their choice before signing this Agreement.

14.4.Time shall in all respects be of the essence of this Agreement.

14.5.The division of this Agreement into Articles, Sections, Subsections and Paragraphs or any other divisions and the inclusion of headings is for convenience only and shall not affect the construction or interpretation of all or any part hereof.

14.6.All Notices permitted or required to be given hereunder shall be in writing and shall be addressed as follows:

(a)to the Corporation at:

(b)1255 Katherine Street North,-R.:R. #1, West Montrose,. Ontario,.N0B 2V0,

(c)to DEFSEC and the Executive at:

1100-343 Preston Street, Ottawa ON K1S 1N4

Attention:  David Luxton

14.7.Notices shall be addressed as set forth in Article 14.6 and may be delivered by e-mail, by facsimile, by personal delivery or by first-class mail, postage prepaid.

14.8.Notices which are personally delivered shall be deemed to be received upon actual receipt thereof.  Notices which are mailed shall be deemed to have been received three (3) Business Days after the posting of such Notices (exclusive of e-mail or the date of posting and exclusive of Saturdays, Sundays and statutory vac).  Notices delivered by e-mail or facsimile shall be deemed to have been given on the date the e-mail or facsimile transmission was sent.

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14.9.Any party may change its address or particulars respecting its address for receipt of Notices by giving Notice as aforesaid.

14.10.Notwithstanding any other provision of this Agreement, Article 8, Article 9, Article 10, Article 11 and Article 12 shall survive the termination of this Agreement and the restrictions specified therein shall remain a continuing obligation of DEFSEC and the Executive.

14.11.This Agreement shall ensure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, according to law.

14.12.This Agreement may be amended only by written instrument signed by each of the parties hereto.

14.13.No provision hereof shall be deemed waived and no breach excused, unless such waiver or consent excusing the breach shall be in writing and signed by the party to be charged with such waiver or consent.  A waiver by a party of any provision of this Agreement shall not be construed as a waiver of a further breach of the same provision.

14.14.This Agreement shall be governed by and construed in accordance with the laws in force in the Province of Ontario and the laws of Canada applicable therein and each of the parties hereby attorns to the courts of such Province.

14.15.In the event that any provisions contained in this Agreement shall be declared invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, this Agreement shall continue in force with respect to the enforceable provisions and all rights and remedies accrued under the enforceable provisions shall survive any such declaration, and any non-enforceable provision shall, to the extent permitted by law, be replaced by a provision which, being valid, comes closest to the intention underlying the invalid, illegal and unenforceable provision.

14.16.This Agreement may be executed in counterparts, or facsimile counterparts, each of which when executed by either of the parties shall be deemed to be an original' and such counterparts shall together constitute one and the same Agreement.

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IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first above written.

KWESST Inc.

Per:  /s/ Jeffrey MacLeod

DEFSEC CORPORATION

Per:  /s/ David Luxton

DAVID LUXTON	WITNESS
/s/ David Luxton	/s/ Laura Brown

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SCHEDULE "A"

RELEASE

[***]

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ANNEX A

Executive Chairman

A Key responsibility of the Executive Chairman of the Board of Directors, in addition to his responsibilities as a senior member of the executive management team of the Corporation, is to provide leadership to the Board to enhance Board effectiveness.  The Board has ultimate accountability for supervision of the management of the Company.  Critical to meeting this accountability is the relationship between the Board, management, shareholders and other stakeholders.  The Executive Chairman, as the presiding member, must oversee that these relationships are effective, efficient, and further the best interests of the Corporation.

The Executive Chairman reports to the Board.  The Executive Chairman Shall:

•Chair all meetings of the Board of Directors and shareholders;

•Lead the board in ensuring that the Board assumes its duties and responsibilities for the stewardship of the Corporation as set out in the Corporate Governance Guidelines as approved by the Board, the constating documents of the Corporation and corporate law;

•Ensure, in cooperation with the CEO and the Board, that there is an effective succession plan in place for the CEO position and the other senior management positions of the Company;

•Assist the CEO and other members of the senior management team in the short and long range planning activities of the Corporation including acquisition and growth strategies;

•Ensure the development, on an annual basis, of the corporate objectives with which the CEO is responsible for meeting, for the review and approval of the Board;

•Establish the agenda for meetings of the Board in conjunction with the CEO and ensures the proper and timely flow of information to the Board sufficiently in advance of the meetings;

•Act as a liaison between the Corporation's management and the Board where and if required;

•In conjunction with the CEO, Leads the corporation in Investor Relations, Corporate financing, mergers and acquisition programs, joint ventures and licencing deals,

•In conjunction with the CEO represent the Corporation before its stakeholders, including the shareholders, managers and employees, the investment community, the industry and the public;

•Undertake the lead on any corporate governance matter that the Board may request from time to time;

•Develop and maintain a good working relationship between the Executive Chairman, the President and CEO, and the Board to assure open communications, cooperation, interdependence, mutual trust, respect, and commonality of purpose;

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•Take steps to foster the Board's understanding of its responsibilities and boundaries with management;

•Establish any other procedures to govern the effective and efficient conduct of the Board's work; and

•Carry out other duties as requested by the Board.

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EX-10.12

EMPLOYMENT CONTRACT

THIS EMPLOYMENT CONTRACT (this "Agreement") dated this 01 September 2019

BETWEEN:

KWESST INC of 1255 Katherine St North RRl, West Montrose, Ontario, NOB 2V0. (the "Employer")

OF THE FIRST PART

-AND

Jeffrey Macleod

Of  (the "Employee")

OF THE SECOND PART

BACKGROUND:

A.The Employer is of the opinion that the Employee has the necessary qualifications, experience and abilities to assist and benefit the Employer in its business.

B.The Employer desires to employ the Employee and the Employee has agreed to accept and enter such employment upon the terms and conditions set out in this Agreement.

IN CONSIDERATION OF the matters described above and of the mutual benefits and obligations set forth in this Agreement, the receipt and sufficiency of which consideration is hereby acknowledged, the parties to this Agreement agree as follows:

Commencement Date and Term

1.The Employee will commence permanent full-time employment with the Employer on the 1st day of October, 2019 (the "Commencement Date"), for a three (3) year term. Upon the expiry of the Initial Term, this Agreement will automatically renew for a second term of two years.

Job Title and Description

2.The job title of the Employee will be the following: CEO and President. Responsibilities and duties as per Annex A. This Position reports to the Board of Directors

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3.The Employee agrees to be employed on the terms and conditions set out in this Agreement. The Employee agrees to be subject to the general supervision of and act pursuant to the orders, advice and direction of the Employer.

4.The Employee will perform any and all duties as requested by the Employer that are reasonable and that are customarily performed by a person holding a similar position in the industry or business of the Employer.

5.The Employee agrees to abide by the Employer's rules, regulations, policies and practices, including those concerning work schedules, vacation and sick leave, as they may from time to time be adopted or modified.

Employee Compensation

6.Compensation paid to the Employee for the services rendered by the Employee as required by this Agreement (the "Compensation") will include a salary of $140,000.00 (dollars) per year, raising to $160,000 (dollars) per year upon the common shares of the Employer being listed on a stock exchange. The Annual Salary may be increased from time to time, at the sole discretion of the Board, by merit and general increases in amounts determined by the Board.

7.This Compensation will be payable every two weeks while this Agreement is in force. The Employer is entitled to deduct from the Employee's Compensation, or from any other compensation in whatever form, any applicable deductions and remittances as required by law.

8.The Employer will reimburse the Employee for all reasonable expenses, in accordance with the Employer's lawful policies as in effect from time to time, including but not limited to, any travel and entertainment expenses incurred by the Employee in connection with the business of the Employer. Expenses will be paid within a reasonable time after submission of acceptable supporting documentation.

9.In addition to the foregoing, the Corporation may pay to the employee an annual Bonus in an amount determined and approved by the Board of Directors.

10.Subject to compliance with applicable securities legislation and any obligations of the Corporation pursuant to any agreements by which it is bound, the Corporation may grant to the employee, subject to approval of the Board, stock options and RSUs pursuant to the Corporation's stock option plan entitling the employee to purchase common shares of the Corporation, as the Board may determine from time to time.

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11.All stock options and RSUs granted to the employee shall be subject to the terms and provisions of the stock option agreement or RSU agreement pursuant to which same were granted, and all stock options granted to the employee shall be subject to the terms and provisions of the stock option plan of the Corporation which is in effect from time to time, as approved by the Board and, if required, the shareholders of the Corporation.

12.The employer will provide a housing allowance of up to 1000$ per month for the 12 months starting 1 Nov 2019, which allowance shall be for a residence in the vicinity of the Employer's office in the Ottawa region.

Place of Work

13.The Employee's place of work will be at the following locations:

•

•

•Or others that may from time to time be required.

Employee Benefits

14.The Employee will be entitled to only those additional benefits that are currently available as described in the lawful provisions of the Employer's employment booklets, manuals, and policy documents or as required by law.

15.Employer discretionary benefits are subject to change, without compensation, upon the Employer providing the Employee with sixty (60) days written notice of that change and providing that any change to those benefits is taken generally with respect to other employees and does not single out the Employee.

Vacation

16.The Employee will be entitled to Five weeks of paid vacation each year during the term of this Agreement, or as entitled by law, whichever is greater.

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Conflict of Interest

17.During the term of the Employee's active employment with the Employer, it is understood and agreed that any business opportunity relating to or similar to the Employer's actual or reasonably anticipated business opportunities (with the exception of personal investments in less than 5% of the equity of a business, investments in established family businesses, real estate, or investments in stocks and bonds traded on public stock exchanges) coming to the attention of the Employee, is an opportunity belonging to the Employer. Therefore, the Employee will advise the Employer of the opportunity and cannot pursue the opportunity, directly or indirectly, without the written consent of the Employer.

18.During the term of the Employee's active employment with the Employer, the Employee will not, directly or indirectly, engage or participate in any other business activities that the Employer, in its reasonable discretion, determines to be in conflict with the best interests of the Employer without the written consent of the Employer.

Confidential Information

19.The Employee acknowledges that, in any position the Employee may hold, in and as a result of the Employee's employment by the Employer, the Employee will, or may, be making use of, acquiring or adding to information which is confidential to the Employer (the "Confidential Information") and the Confidential Information is the exclusive property of the Employer.

20.The Confidential Information will include all data and information relating to the business and management of the Employer, including but not limited to, proprietary and trade secret technology and accounting records to which access is obtained by the Employee, including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations, and Customer Information.

21.The Confidential Information will also include any information that has been disclosed by a third party to the Employer and is governed by a non-disclosure agreement entered into between that third party and the Employer.

22.The Confidential Information will not include information that:

a.Is generally known in the industry of the Employer;

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b.Is now or subsequently becomes generally available to the public through no wrongful act of the Employee;

c.Was rightfully in the possession of the Employee prior to the disclosure to the Employee by the Employer;

d.Is independently created by the Employee without direct or indirect use of the Confidential Information; or

e.The Employee rightfully obtains from a third party who has the right to transfer or disclose it.

23.The Confidential Information will also not include anything developed or produced by the Employee during the Employee's term of employment with the Employer, including but not limited to, any intellectual property, process, design, development, creation, research, invention, know how, trade name, trade-mark or copyright that:

a.Was developed without the use of equipment, supplies, facility or Confidential Information of the Employer;

b.Was developed entirely on the Employee's own time;

c.Does not result from any work performed by the Employee for the Employer; and

d.Does not relate to any actual or reasonably anticipated business opportunity of the Employer.

Duties and Obligations Concerning Confidential Information

24.The Employee agrees that a material term of the Employee's contract with the Employer is to keep all Confidential Information absolutely confidential and protect its release from the public. The Employee agrees not to divulge, reveal, report or use, for any purpose, any of the Confidential Information which the Employee has obtained or which was disclosed to the Employee by the Employer as a result of the Employee's employment by the Employer. The Employee agrees that if there is any question as to such disclosure then the Employee will seek out senior management of the Employer prior to making any disclosure of the Employer's information that may be covered by this Agreement.

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25.The Employee agrees and acknowledges that the Confidential Information is of a proprietary and confidential nature and that any disclosure of the Confidential Information to a third party in breach of this Agreement cannot be reasonably or adequately compensated for in money damages, would cause irreparable injury to Employer, would gravely affect the effective and successful conduct of the Employer's business and goodwill, and would be a material breach of this Agreement.

26.The obligations to ensure and protect the confidentiality of the Confidential Information imposed on the Employee in this Agreement and any obligations to provide notice under this Agreement will survive the expiration or termination, as the case may be, of this Agreement and will continue indefinitely from the date of such expiration or termination.

27.The Employee may disclose any of the Confidential Information:

a.To a third party where Employer has consented in writing to such disclosure; or

b.To the extent required by law or by the request or requirement of any judicial, legislative, administrative or other governmental body after providing reasonable prior notice to the Employer.

28.If the Employee loses or makes unauthorized disclosure of any of the Confidential Information, the Employee will immediately notify the Employer and take all reasonable steps necessary to retrieve the lost or improperly disclosed Confidential Information.

Ownership and Title to Confidential Information

29.The Employee acknowledges and agrees that all rights, title and interest in any Confidential Information will remain the exclusive property of the Employer. Accordingly, the Employee specifically agrees and acknowledges that the Employee will have no interest in the Confidential Information, including, without limitation, no interest in know-how, copyright, trade-marks or trade names, notwithstanding the fact that the Employee may have created or contributed to the creation of the Confidential Information.

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30.The Employee waives any moral rights that the Employee may have with respect to the Confidential Information.

31.The Employee agrees to immediately disclose to the Employer all Confidential Information developed in whole or in part by the Employee during the Employee's term of employment with the Employer and to assign to the Employer any right, title or interest the Employee may have in the Confidential Information. The Employee agrees to execute any instruments and to do all other things reasonably requested by the Employer, both during and after the Employee's employment with the Employer, in order to vest more fully in the Employer all ownership rights in those items transferred by the Employee to the Employer.

Return of Confidential Information

32.The Employee agrees that, upon request of the Employer or upon termination or expiration, as the case may be, of this employment, the Employee will turn over to the Employer all Confidential Information belonging to the Employer, including but not limited to, all documents, plans, specifications, disks or other computer media, as well as any duplicates or backups made of that Confidential Information in whatever form or media, in the possession or control of the Employee that:

a.May contain or be derived from ideas, concepts, creations, or trade secrets and other proprietary and Confidential Information as defined in this Agreement; or

b.Is connected with or derived from the Employee's employment with the Employer.

Non-Competition

33.The Employee hereby acknowledges and agrees that he or she will gain knowledge of and a close working relationship with the Corporation's customers and service providers, which would injure the Corporation if made available to a competitor or used for competitive purposes.

34.The Employee agrees, with and for the benefit of the Corporation, that during the term of this Agreement and for a period of twelve (12) months from the date of termination of this Agreement, whether such termination is occasioned by the Employee or by the Corporation, with or without cause, or by mutual agreement, the Employee shall not, for any reason whatsoever, directly or indirectly, solicit or accept business, or be employed by or otherwise retained by any person or company engaged in in direct competition with the business of the Corporation within the largest of the following areas: a) networked surveillance and targeting on ground weapon systems and interface with drones; b) kinetic counter-drone technology; and shotcounter technology.

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35.The Employee further acknowledge and agree that, if requested by the Corporation, the Employee shall enter into a separate agreement with the Corporation giving effect to the foregoing agreement not to compete with the Corporation.

36.The Employee agrees that the limitations of time, geography and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) The Employee will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) The Employee will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

Non Solicitation

37.The Employee agrees that for a period of twelve (12) months following the termination of this Agreement for any reason, The Employee shall not, directly or indirectly, solicit, divert, hire, retain, employ or take away any employees, executives or consultants of the Corporation that (a) have not been terminated by the Corporation or (b) resigned from the Corporation following a Change of Control, whether such new employment or retainer is with or without compensation.

38.The Employee agrees and acknowledges that the time limitations in Article 11.2 are reasonable and properly required for the adequate protection of the exclusive property and business of the Corporation.

39.The Employee agrees that the limitations of time and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) The Employee will have access to confidential information, trade secrets and know how of the Corporation and its Affiliates; (iii) The Employee will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

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Termination of Employment

40.Where there is just cause for termination, the Employer may terminate the Employee's employment without notice, as permitted by law.

End of Contract

41.The Corporation may elect to terminate this Agreement upon the expiry of the Initial Term by providing the Employee with notice in writing ("Notice") of same on or before a date which is six (6) months prior to expiry of the Initial Term (the "Termination Option"). Should the Corporation elect to exercise the Termination Option, the Corporation will, upon the expiry of the Initial Term, provide a lump sum payment to the employee in the amount of $100,000, which amount will be in addition to any other payments owed by the Corporation to the Employee pursuant to this Agreement, and all stock options held by Employee shall immediately become vested.

42.Notwithstanding Article 41, if the Corporation terminates this Agreement without cause within 24 months of, or in anticipation within 180 days of, a change of control, the Corporation will pay The Employee a lump sum payment equal to 18 months of the Annual Fee then in effect, which amount will be in addition to any other payments owed by the Corporation to the employee pursuant to this agreement, and all stock options held by the employee shall immediately become vested.

43.Notwithstanding any other provision in this Agreement, if the Corporation terminates this Agreement at any time without cause, the Corporation will pay the Employee an amount equal to the Annual Salary then in effect, plus accrued unpaid Bonuses and expenses, and all stock options held by the Employee shall immediately become vested."

Remedies

44.In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee agrees that the Employer is entitled to a permanent injunction, in addition to and not in limitation of any other rights and remedies available to the Employer at law or in equity, in order to prevent or restrain any such breach by the Employee or by the Employee's partners, agents, representatives, servants, employees, and/or any and all persons directly or indirectly acting for or with the Employee.

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Severability

45.The Employer and the Employee acknowledge that this Agreement is reasonable, valid and enforceable. However, if any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the parties' intent that such provision be changed in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of the provisions of this Agreement will in no way be affected, impaired or invalidated as a result.

Notices

46.Any notices, deliveries, requests, demands or other communications required here will be deemed to be completed when hand-delivered, delivered by agent, or seven (7) days after being placed in the post, postage prepaid, to the parties at the following addresses or as the parties may later designate in writing:

•Employer:

Name:KWESST INC

Address:

Email:

•Employee:

Name:Jeffrey MacLeod

Address:1255 Katherine St North RRl, West Montrose On, NOB 2V0

Email:macleodjeff@yahoo.ca

Modification of Agreement

47.Any amendment or modification of this Agreement or additional obligation assumed by either party in connection with this Agreement will only be binding if evidenced in writing signed by each party or an authorized representative of each party.

Governing Law

48.This Agreement will be construed in accordance with and governed by the laws of the province of Ontario.

Page 10 of 11

General Provisions

49.Time is of the essence in this Agreement.

50.Headings are inserted for the convenience of the parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa.

51.No failure or delay by either party to this Agreement in exercising any power, right or privilege provided in this Agreement will operate as a waiver, nor will any single or partial exercise of such rights, powers or privileges preclude any further exercise of them or the exercise of any other right, power or privilege provided in this Agreement.

52.This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns, as the case may be, of the Employer and the Employee.

53.This Agreement may be executed in counterparts. Facsimile signatures are binding and are considered to be original signatures.

54.This Agreement constitutes the entire agreement between the parties and there are no further items or provisions, either oral or written. The parties to this Agreement stipulate that neither of them has made any representations with respect to the subject matter of this Agreement except such representations as are specifically set forth in this Agreement.

IT WITNESS WHEREOF, the parties have duly affixed their signatures under hand on this 1st day of October 2019.

EMPLOYER:

KWESST INC

Per:

/s/ Jeffrey MacLeod

EMPLOYEE:

/s/ Jeffrey MacLeod

Page 11 of 11

EX-10.13

EMPLOYMENT CONTRACT

THIS EMPLOYMENT CONTRACT (this "Agreement") dated this 1st day of April, 2021.

BETWEEN:

KWESST MICRO SYSTEMS INC., a corporation having an office at 155 Terence Matthews Crescent, Ottawa, Ontario (the "Employer" or the "Corporation" or "the Company")

OF THE FIRST PART

- AND

STEVE ARCHMABAULT, a person residing at (the "Employee")

OF THE SECOND PART

BACKGROUND

A. The Employer is of the opinion that the Employee has the necessary qualifications, experience and abilities to assist and benefit the Employer in its business.

B. The Employer desires to employ the Employee and the Employee has agreed to accept and enter such employment upon the terms and conditions set out in this Agreement.

IN CONSIDERATION OF the matters described above and of the mutual benefits and obligations set forth in this Agreement, the receipt and sufficiency of which consideration is hereby acknowledged, the parties to this Agreement agree as follows:

Commencement Date and Term

1.  The Employee will commence full-time employment with the Employer on the 1st day of April, 2021 (the "Commencement Date"), for an initial term of six months, and automatically renewable thereafter for an indeterminate period (the "Term") unless modified or terminated before the six month anniversary date of this Agreement.  The Corporation may request the Employee, from time to time, to work additional hours and/or days per week in which case the Corporation shall provide reasonable notice to the Employee to allow him to plan accordingly in light of his other commitments.

Job Title and Description

2.  The job title of the Employee will be Chief Financial Officer described in Annex A. This Position reports to the Executive Chairman of the Company and to the Audit Committee of the Board of Directors.

3.  The Employee agrees to be employed on the terms and conditions set out in this Agreement. The Employee agrees to be subject to the general supervision of and act pursuant to the orders, advice and direction of the Employer.

4.  The Employee will perform any and all duties as requested by the Employer that are reasonable and that are customarily performed by a person holding a similar position in the industry or business of the Employer.

5.  The Employee agrees to abide by the Employer's rules, regulations, policies and practices, including those concerning work schedules, vacation and sick leave, as they may from time to time be adopted or modified.

Employee Compensation

6.  The base salary paid to the Employee for the services rendered as required by this Agreement (the "Compensation") will be as described in Annex B. The Compensation may be increased from time to time, at the sole discretion of the Board, by merit and general increases in amounts determined by the Board.

7.  The Compensation will be payable every two weeks while this Agreement is in force. The Employer is entitled to deduct from the Employee's Compensation, or from any other compensation in whatever form, any applicable deductions and remittances as required by law.

8.  The Employer will reimburse the Employee for all reasonable expenses, in accordance with the Employer's lawful policies as in effect from time to time, including but not limited to, any travel and entertainment expenses incurred by the Employee in connection with the business of the Employer.  Expenses will be paid within a reasonable time after submission of acceptable supporting documentation.

9.  In addition to the foregoing, the Corporation may pay to the Employee an annual Bonus in an amount determined and approved by the Board of Directors per Annex B.

10.  Subject to compliance with applicable securities legislation and any obligations of the Corporation pursuant to any agreements by which it is bound, the Corporation may grant to the Employee, subject to approval of the Board, stock options and restricted stock units ("RSUs") pursuant to the Corporation's stock based compensation plan entitling the Employee to purchase common shares of the Corporation, as the Board may determine from time to time.

11.  All stock options and RSUs granted to the Employee shall be subject to the terms and provisions of the stock option agreement or RSU agreement pursuant to which same were granted, and all stock options granted to the Employee shall be subject to the terms and provisions of the stock option plan of the Corporation which is in effect from time to time, as approved by the Board and, if required, the shareholders of the Corporation.

Place of Work

12.  The Employee's place of work will be at the following location: 155 Terence Matthews Crescent, Ottawa, Ontario.

Employee Benefits

13.  The Employee will be entitled to only those additional benefits that are currently available as described in the lawful provisions of the Employer's employment booklets, manuals, and policy documents or as required by law.

14.  Employer discretionary benefits are subject to change, without compensation, upon the Employer providing the Employee with sixty (60) days written notice of that change and providing that any change to those benefits is taken generally with respect to other Employees and does not single out the Employee.

Vacation

15. The Employee will be entitled to four weeks of paid vacation each year during the term of this Agreement, or as entitled by law, whichever is greater.

Conflict of Interest

16.  During the term of the Employee's active employment with the Employer, it is understood and agreed that any business opportunity relating to or similar to the Employer's actual or reasonably anticipated business opportunities (with the exception of personal investments in less than 5% of the equity of a business, investments in established family businesses, real estate, or investments in stocks and bonds traded on public stock exchanges) coming to the attention of the Employee, is an opportunity belonging to the Employer. Therefore, the Employee will advise the Employer of the opportunity and cannot pursue the opportunity, directly or indirectly, without the written consent of the Employer.

17.  During the term of the Employee's active employment with the Employer, the Employee will not, directly or indirectly, engage or participate in any other business activities that the Employer, in its reasonable discretion, determines to be in conflict with the best interests of the Employer without the written consent of the Employer.

Confidential Information

18. The Employee acknowledges that, in any position the Employee may hold, in and as a result of the Employee's employment by the Employer, the Employee will, or may, be making use of, acquiring or adding to information which is confidential to the Employer (the "Confidential Information") and the Confidential Information is the exclusive property of the Employer.

19. The Confidential Information will include all data and information relating to the business and management of the Employer, including but not limited to, proprietary and trade secret technology and accounting records to which access is obtained by the Employee, including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations, and Customer Information.

20. The Confidential Information will also include any information that has been disclosed by a third party to the Employer and is governed by a non-disclosure agreement entered into between that third party and the Employer.

21. The Confidential Information will not include information that:

a. Is generally known in the industry of the Employer;

b. Is now or subsequently becomes generally available to the public through no wrongful act of the Employee;

c. Was rightfully in the possession of the Employee prior to the disclosure to the Employee by the Employer;

d. Is independently created by the Employee without direct or indirect use of the Confidential Information; or

e. The Employee rightfully obtains from a third party who has the right to transfer or disclose it.

22. The Confidential Information will also not include anything developed or produced by the Employee during the Employee's term of employment with the Employer, including but not limited to, any intellectual property, process, design, development, creation, research, invention, know-how, trade name, trade-mark or copyright that:

a. Was developed without the use of equipment, supplies, facility or Confidential Information of the Employer
b. Was developed entirely on the Employee's own time;
c. Does not result from any work performed by the Employee for the Employer; and
d. Does not relate to any actual or reasonably anticipated business opportunity of the Employer.

Duties and Obligations Concerning Confidential Information

23. The Employee agrees that a material term of the Employee's contract with the Employer is to keep all Confidential Information absolutely confidential and protect its release from the public. The Employee agrees not to divulge, reveal, report or use, for any purpose, any of the Confidential Information which the Employee has obtained or which was disclosed to the Employee by the Employer as a result of the Employee's employment by the Employer. The Employee agrees that if there is any question as to such disclosure then the Employee will seek out senior management of the Employer prior to making any disclosure of the Employer's information that may be covered by this Agreement.

24. The Employee agrees and acknowledges that the Confidential Information is of a proprietary and confidential nature and that any disclosure of the Confidential Information to a third party in breach of this Agreement cannot be reasonably or adequately compensated for in money damages, would cause irreparable injury to Employer, would gravely affect the effective and successful conduct of the Employer's business and goodwill, and would be a material breach of this Agreement.

25. The obligations to ensure and protect the confidentiality of the Confidential Information imposed on the Employee in this Agreement and any obligations to provide notice under this Agreement will survive the expiration or termination, as the case may be, of this Agreement and will continue indefinitely from the date of such expiration or termination.

26. The Employee may disclose any of the Confidential Information:

a. To a third party where Employer has consented in writing to such disclosure; or
b. To the extent required by law or by the request or requirement of any judicial, legislative, administrative or other governmental body after providing reasonable prior notice to the Employer.

27. If the Employee loses or makes unauthorized disclosure of any of the Confidential Information, the Employee will immediately notify the Employer and take all reasonable steps necessary to retrieve the lost or improperly disclosed Confidential Information.

Ownership and Title to Confidential Information

28. The Employee acknowledges and agrees that all rights, title and interest in any Confidential Information will remain the exclusive property of the Employer. Accordingly, the Employee specifically agrees and acknowledges that the Employee will have no interest in the Confidential Information, including, without limitation, no interest in know-how, copyright, trade-marks or trade names, notwithstanding the fact that the Employee may have created or contributed to the creation of the Confidential Information.

29. The Employee waives any moral rights that the Employee may have with respect to the Confidential Information.

30. The Employee agrees to immediately disclose to the Employer all Confidential Information developed in whole or in part by the Employee during the Employee's term of employment with the Employer and to assign to the Employer any right, title or interest the Employee may have in the Confidential Information. The Employee agrees to execute any instruments and to do all other things reasonably requested by the Employer, both during and after the Employee's employment with the Employer, in order to vest more fully in the Employer all ownership rights in those items transferred by the Employee to the Employer.

Return of Confidential Information

31. The Employee agrees that, upon request of the Employer or upon termination or expiration, as the case may be, of this employment, the Employee will turn over to the Employer all Confidential Information belonging to the Employer, including but not limited to, all documents, plans, specifications, disks or other computer media, as well as any duplicates or backups made of that Confidential Information in whatever form or media, in the possession or control of the Employee that:

a. May contain or be derived from ideas, concepts, creations, or trade secrets and other proprietary and Confidential Information as defined in this Agreement; or  b. Is connected with or derived from the Employee's employment with the Employer.

Non-Competition

32. The Employee hereby acknowledges and agrees that he or she will gain knowledge of and a close working relationship with the Corporation's customers and service providers, which would injure the Corporation if made available to a competitor or used for competitive purposes.

33.  The Employee agrees, with and for the benefit of the Corporation, that during the term of this Agreement and for a period of twelve (12) months from the date of termination of this Agreement, whether such termination is occasioned by the Employee or by the Corporation, with or without cause, or by mutual agreement, the Employee shall not, for any reason whatsoever, directly or indirectly, solicit or accept business, or be employed by or otherwise retained by any person or company engaged in in direct competition with the business of the Corporation within the largest of the following areas: a) networked surveillance and targeting on ground weapon systems and interface with drones; b) kinetic counter-drone technology; c) electronic decoy technology; d) low energy cartridge technology; and e) shot counter technology.

34. The Employee further acknowledges and agrees that, if requested by the Corporation, the Employee shall enter into a separate agreement with the Corporation giving effect to the foregoing agreement not to compete with the Corporation.

35. The Employee agrees that the limitations of time, geography and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) The Employee will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) The Employee will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

Non-Solicitation

36. The Employee agrees that for a period of twelve (12) months following the termination of this Agreement for any reason, The Employee shall not, directly or indirectly, solicit, divert, hire, retain, employ or take away any Employees, executives or consultants of the Corporation that (a) have not been terminated by the Corporation or (b) resigned from the Corporation following a Change of Control, whether such new employment or retainer is with or without compensation.

37. The Employee agrees and acknowledges that the time limitations in Article 11.2 are reasonable and properly required for the adequate protection of the exclusive property and business of the Corporation.

38. The Employee agrees that the limitations of time and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) the Employee will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) the Employee will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

Termination of Employment

39. Where there is just cause for termination, the Employer may terminate the Employee's employment without notice, as permitted by law.

End of Contract

40. The Corporation may elect to terminate this Agreement by providing the Employee with thirty day's notice in writing ("Notice").  Should the Corporation elect to provide Employee with Notice of termination the Corporation will,

a.  provide a lump sum payment to the Employee in the amount of the last three month's salary or the last six month's salary if the Term is automatically renewed (the "Termination Payment"), which amount will be in addition to any other payments owed by the Corporation to the Employee pursuant to this Agreement, and all stock options held by Employee shall immediately become vested.

b. the Employee shall also receive all earned and unpaid bonuses in addition to the Termination Payment and all stock options held by Employee shall immediately become vested.

41. Notwithstanding Section 40, if the Corporation terminates this Agreement without cause within three (3) months of, or in anticipation within three (3) months of, a change of control, the Corporation will pay the Employee a lump sum payment equal to six (6) months of annual base salary then in effect, which amount will be in addition to any other payments owed by the Corporation to the Employee pursuant to this agreement, and all stock options held by the Employee shall immediately become vested.

Remedies

42. In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee agrees that the Employer is entitled to a permanent injunction, in addition to and not in limitation of any other rights and remedies available to the Employer at law or in equity, in order to prevent or restrain any such breach by the Employee or by the Employee's partners, agents, representatives, servants, Employees, and/or any and all persons directly or indirectly acting for or with the Employee.

Severability

43. The Employer and the Employee acknowledge that this Agreement is reasonable, valid and enforceable. However, if any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the parties' intent that such provision be changed in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of the provisions of this Agreement will in no way be affected, impaired or invalidated as a result.

Notices

44. Any notices, deliveries, requests, demands or other communications required here will be deemed to be completed when hand-delivered, delivered by agent, or seven (7) days after being placed in the post, postage prepaid, to the parties at the following addresses or as the parties may later designate in writing:

KWESST Micro Systems Inc.
Unit 155 Terence Matthews Crescent, Ottawa, Ontario

Steve Archambault

Modification of Agreement

45. Any amendment or modification of this Agreement or additional obligation assumed by either party in connection with this Agreement will only be binding if evidenced in writing signed by each party or an authorized representative of each party.

Governing Law

46. This Agreement will be construed in accordance with and governed by the laws of the province of Ontario.

General Provisions

47. Time is of the essence in this Agreement.

48. Headings are inserted for the convenience of the parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa.

49. No failure or delay by either party to this Agreement in exercising any power, right or privilege provided in this Agreement will operate as a waiver, nor will any single or partial exercise of such rights, powers or privileges preclude any further exercise of them or the exercise of any other right, power or privilege provided in this Agreement.

50. This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns, as the case may be, of the Employer and the Employee.

51. This Agreement may be executed in counterparts. Facsimile signatures are binding and are considered to be original signatures.

52. This Agreement constitutes the entire agreement between the parties and there are no further items or provisions, either oral or written. The parties to this Agreement stipulate that neither of them has made any representations with respect to the subject matter of this Agreement except such representations as are specifically set forth in this Agreement.

IN WITNESS WHEREOF, the parties have duly affixed their signatures under hand on this 1st day of April, 2021 (signatures on page following).

EMPLOYER:

KWESST MICRO SYSTEM INC.

Per: /s/ David Luxton                               

EMPLOYEE:

/s/ Steven Archambault                            

ANNEX A

Role of the Chief Financial Officer

As a key member of the corporate leadership team the principal duties of the Chief Financial Officer are to:

•Provide leadership, direction and management of the finance and accounting function.

•Provide the Executive Chairman and CEO with regular financial reports and analysis, including but not limited to monthly P&L and balance sheet reports and a weekly 12 month cash flow forecast.

•Participate in the preparation of bids and quotes ensuring appropriate rates for G&A, material handling and profit are applied.

•Manage and optimize the transition from small business banking to a corporate banking relationship.

•Manage the preparation of the Corporation's public filings, including interim and annual financial statements and MD&A filings; material change; management circular, etc.

•Report quarterly interim and annual financials to the Audit Committee of the Board.

•Provide strategic recommendations to the CEO, Executive Chairman, and members of the executive management team.

•Manage the capital request and budgeting processes.

•Contribute to the development of the Corporation's strategic plan, annual operating plan and budget and monitor their implementation against goals and milestones.

•Collaborate with debt financing and equity financing as needed; establish and maintain in-depth relations with investment banks / capital providers / key investors.

•Understand and mitigate key elements of the Corporation's risk profile, including putting in place an effective control environment and maintain appropriate insurance coverage.

•Monitor and manage the delegation of authorities as approved by the board.

•Advise on long-term business and financial planning, including potential M&A opportunities.

•In addition to Finance, manage human resources administration, IT and office administration functions.

ANNEX B

Compensation

Annual base compensation ("Base Compensation") per section 6:

$155,000 plus equity grant equal to a top-up to $180,000; equity grant to be vested bi-weekly. subject to board approval 

Bonus compensation per section 9:

50% of effective Base Compensation (to a maximum of $90,000), half tied to Company goals to be mutually agreed and 50% tied to personal goals to be mutually agreed, payable in cash or fully vested stock at the Company's option. 

Annual grant of stock options

The Chief Financial Officer shall be entitled to an annual grant of stock options commensurate with options granted to other senior executives of the Company, subject to the Company's Long-Term Incentive Plan.

EX-10.14

EMPLOYMENT CONTRACT

THIS EMPLOYMENT CONTRACT (this "Agreement") dated this 12th day of April, 2021.

BETWEEN:

KWESST MICRO SYSTEMS INC., a corporation having an office at 155 Terence Matthews Crescent, Ottawa, Ontario (the "Employer" or the "Corporation" or "the Company")

OF THE FIRST PART

-AND

RICK BOWES, a person residing at (the "Employee")

OF THE SECOND PART

BACKGROUND

A.The Employer is of the opinion that the Employee has the necessary qualifications, experience and abilities to assist and benefit the Employer in its business.

B.The Employer desires to employ the Employee and the Employee has agreed to accept and enter such employment upon the terms and conditions set out in this Agreement.

IN CONSIDERATION OF the matters described above and of the mutual benefits and obligations set forth in this Agreement, the receipt and sufficiency of which consideration is hereby acknowledged, the parties to this Agreement agree as follows:

Commencement Date and Term

l. The Employee will commence full-time employment with the Employer on the 12th day of April, 2021 (the "Commencement Date"), for an indeterminate period (the "Term"). The Corporation may request the Employee, from time to time, to work additional hours and/or days per week in which case the Corporation shall provide reasonable notice to the Employee to allow him to plan accordingly in light of his other commitments.

Job Title and Description

2.The job title of the Employee will be Vice President, Operations, for the Company's Digital and Tactical Products ("DTP") business unit described in Annex A. This Position reports to the Executive Chairman in the normal course of business and to the Management Committee of the Board on a monthly basis.

3.The Employee agrees to be employed on the terms and conditions set out in this Agreement. The Employee agrees to be subject to the general supervision of and act pursuant to the orders, advice and direction of the Employer.

4.The Employee will perform any and all duties as requested by the Employer that are reasonable and that are customarily performed by a person holding a similar position in the industry or business of the Employer.

5.The Employee agrees to abide by the Employer's rules, regulations, policies and practices, including those concerning work schedules, vacation and sick leave, as they may from time to time be adopted or modified.

Employee Compensation

6.The base salary paid to the Employee for the services rendered as required by this Agreement (the "Compensation") will be as described in Annex B. The Compensation may be increased from time to time. at the sole discretion of the Board, by merit and general increases in amounts determined by the Board.

7.The Compensation will be payable every two weeks while this Agreement is in force. The Employer is entitled to deduct from the Employee's Compensation, or from any other compensation in whatever form, any applicable deductions and remittances as required by law.

8.The Employer will reimburse the Employee for all reasonable expenses, in accordance with the Employer's lawful policies as in effect from time to time, including but not limited to, any travel and entertainment expenses incurred by the Employee in connection with the business of the Employer. Expenses will be paid within a reasonable time after submission of acceptable supporting documentation.

9.In addition to the foregoing, the Corporation may pay to the Employee an annual Bonus in an amount determined and approved by the Board of Directors per Annex B.

10.Subject to compliance with applicable securities legislation and any obligations of the Corporation pursuant to any agreements by which it is bound, the Corporation may grant to the Employee, subject to approval of the Board, stock options and restricted stock units ("RSUs") pursuant to the Corporation's stock based compensation plan entitling the Employee to purchase common shares of the Corporation, as the Board may determine from time to time. Effective from the date of this employment contract, the Board has approved a grant of 300,000 options to the Employee, at an exercise price to be determined and approved by regulatory authorities at the market close 12 April 2021.

11.All stock options and RSUs granted to the Employee shall be subject to the terms and provisions of the stock option agreement or RSU agreement pursuant to which same were granted, and all stock options granted to the Employee shall be subject to the terms and provisions of the stock option plan of the Corporation which is in effect from time to time, as approved by the Board and, if required, the shareholders of the Corporation.

Place of Work

12.The Employee's place of work will be at the following location: 155 Terence Matthews Crescent, Ottawa, Ontario.

Employee Benefits

13.The Employee will be entitled to only those additional benefits that are currently available as described in the lawful provisions of the Employer's employment booklets, manuals, and policy documents or as required by law. It is understood the Employee may not qualify initially for the Employer's group health benefits until such time as his weekly hours meet the minimum hours under the Corporation's group health benefit plan.

14.Employer discretionary benefits are subject to change, without compensation, upon the Employer providing the Employee with sixty (60) days written notice of that change and providing that any change to those benefits is taken genera11y with respect to other Employees and does not single out the Employee.

Vacation

15.The Employee will be entitled to four weeks of paid vacation each year during the term of this Agreement, or as entitled by law, whichever is greater, subject to pro-ration during the Employee's part-time employment status.

Conflict of Interest

16.During the term of the Employee's active employment with the Employer, it is understood and agreed that any business opportunity relating to or similar to the Employer's actual or reasonably anticipated business opportunities (with the exception of persona] investments in less than 5% of the equity of a business, investments in established family businesses, real estate, or investments in stocks and bonds traded on public stock exchanges) coming to the attention of the Employee, is an opportunity belonging to the Employer. Therefore, the Employee will advise the Employer of the opportunity and cannot pursue the opportunity, directly or indirectly, without the written consent of the Employer.

17.During the term of the Employee's active employment with the Employer, the Employee will not, directly or indirectly, engage or participate in any other business activities that the Employer, in its reasonable discretion, determines to be in conflict with the best interests of the Employer without the written consent of the Employer.

Confidential Information

18.The Employee acknowledges that, in any position the Employee may hold, in and as a result of the Employee's employment by the Employer, the Employee will, or may, be making use of, acquiring or adding to information which is confidential to the Employer (the "Confidential Information") and the Confidential Information is the exclusive property of the Employer.

19.The Confidential Information will include all data and information relating to the business and management of the Employer, including but not limited to, proprietary and trade secret technology and accounting records to which access is obtained by the Employee, including Work Product, Computer Software, Other Proprietary Data, Business Operations, Marketing and Development Operations, and Customer Information.

20.The Confidential Information will also include any information that has been disclosed by a third party to the Employer and is governed by a non-disclosure agreement entered into between that third party and the Employer.

21.The Confidential Information will not include information that:

a.Is generally known in the industry of the Employer;

b.Is now or subsequently becomes generally available to the public through no wrongful act of the Employee;

c.Was rightfully in the possession of the Employee prior to the disclosure to the Employee by the Employer;

d.Is independently created by the Employee without direct or indirect use of the Confidential Information; or

e.The Employee rightfully obtains from a third party who has the right to transfer or disclose it.

22.The Confidential Information will also not include anything developed or produced by the Employee during the Employee's term of employment with the Employer, including but not limited to, any intellectual property, process, design, development, creation, research, invention, know-how, trade name, trade-mark or copyright that:

a.Was developed without the use of equipment, supplies, facility or Confidential Information of the Employer;

b.Was developed entirely on the Employee's own time;

c.Does not result from any work performed by the Employee for the Employer; and

d.Does not relate to any actual or reasonably anticipated business opportunity of the Employer.

Duties and Obligations Concerning Confidential Information

23.The Employee agrees that a material term of the Employee's contract with the Employer is to keep all Confidential Information absolutely confidential and protect its release from the public. The Employee agrees not to divulge, reveal, report or use, for any purpose, any of the Confidential Information which the Employee has obtained or which was disclosed to the Employee by the Employer as a result of the Employee's employment by the Employer. The Employee agrees that if there is any question as to such disclosure then the Employee will seek out senior management of the Employer prior to making any disclosure of the Employer's information that may be covered by this Agreement.

24.The Employee agrees and acknowledges that the Confidential Information is of a proprietary and confidential nature and that any disclosure of the Confidential Information to a third party in breach of this Agreement cannot be reasonably or adequately compensated for in money damages, would cause irreparable injury to Employer, would gravely affect the effective and successful conduct of the Employer's business and goodwill, and would be a material breach of this Agreement.

25.The obligations to ensure and protect the confidentiality of the Confidential Information imposed on the Employee in this Agreement and any obligations to provide notice under this Agreement will survive the expiration or termination, as the case may be, of this Agreement and will continue indefinitely from the date of such expiration or termination.

26.The Employee may disclose any of the Confidential Information:

a.Toa third party where Employer has consented in writing to such disclosure; or

b.To the extent required by law or by the request or requirement of any judicial, legislative, administrative or other governmental body after providing reasonable prior notice to the Employer.

27.If the Employee loses or makes unauthorized disclosure of any of the Confidential Information, the Employee will immediately notify the Employer and take all reasonable steps necessary to retrieve the lost or improperly disclosed Confidential Information.

Ownership and Title to Confidential Information

28.The Employee acknowledges and agrees that all rights, title and interest in any Confidential Information will remain the exclusive property of the Employer. Accordingly, the Employee specifically agrees and acknowledges that the Employee will have no interest in the Confidential Information, including, without limitation, no interest in know-how, copyright, trade-marks or trade names. notwithstanding the fact that the Employee may have created or contributed to the creation of the Confidential Information.

29.The Employee waives any moral rights that the Employee may have with respect to the Confidential Information.

30.The Employee agrees to immediately disclose to the Employer all Confidential Information developed in whole or in part by the Employee during the Employee's term of employment with the Employer and to assign to the Employer any right, title or interest the Employee may have in the Confidential Information. The Employee agrees to execute any instruments and to do all other things reasonably requested by the Employer, both during and after the Employee's employment with the Employer, in order to vest more fully in the Employer all ownership rights in those items transferred by the Employee to the Employer.

Return of Confidential Information

31.The Employee agrees that, upon request of the Employer or upon termination or expiration, as the case may be, of this employment, the Employee will tum over to the Employer all Confidential Information belonging to the Employer, including but not limited to, all documents, plans, specifications, disks or other computer media, as well as any duplicates or backups made of that Confidential Information in whatever form or media. in the possession or control of the Employee that:

a.May contain or be derived from ideas, concepts, creations, or trade secrets and other proprietary and Confidential Information as defined in this Agreement; or

b.Is connected with or derived from the Employee's employment with the Employer.

Non-Competition

32.The Employee hereby acknowledges and agrees that he or she will gain knowledge of and a close working relationship with the Corporation's customers and service providers, which would injure the Corporation if made available to a competitor or used for competitive purposes.

33.The Employee agrees, with and for the benefit of the Corporation, that during the term of this Agreement and for a period of twelve (12) months from the date of termination of this Agreement, whether such termination is occasioned by the Employee or by the Corporation, with or without cause, or by mutual agreement, the Employee shall not, for any reason whatsoever, directly or indirectly, solicit or accept business, or be employed by or otherwise retained by any person or company engaged in in direct competition with the business of the Corporation within the largest of the following areas: a) networked surveillance and targeting on ground weapon systems and interface with drones; b) kinetic counter-drone technology; c) electronic decoy technology; d) low energy cartridge technology; and e) shot counter technology.

34.The Employee further acknowledges and agrees that, if requested by the Corporation, the Employee shall enter into a separate agreement with the Corporation giving effect to the foregoing agreement not to compete with the Corporation.

35.The Employee agrees that the limitations of time, geography and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) The Employee will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) The Employee wiil be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations

are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

Non-Solicitation

36.The Employee agrees that for a period of twelve (12) months following the termination of this Agreement for any reason, The Employee shall not, directly or indirectly, solicit, divert, hire, retain, employ or take away any Employees, executives or consultants of the Corporation that (a) have not been terminated by the Corporation or (b) resigned from the Corporation following a Change of Control, whether such new employment or retainer is with or without compensation.

37.The Employee agrees and acknowledges that the time limitations in Article 11.2 are reasonable and properly required for the adequate protection of the exclusive property and business of the Corporation.

38.The Employee agrees that the limitations of time and scope of activity agreed to in this Article are reasonable because, among other things: (i) the Corporation is engaged in a highly competitive industry; (ii) the Employee will have access to confidential information, trade secrets and know-how of the Corporation and its Affiliates; (iii) the Employee will be able to obtain suitable and satisfactory employment without violation of this Agreement; and (iv) these limitations are necessary to protect the trade secrets, confidential information and goodwill of the Corporation and its Affiliates.

Termination of Employment

39.Where there is just cause for termination, the Employer may terminate the Employee's employment without notice, as permitted by law.

End of Contract

40.The Corporation may elect to terminate this Agreement by providing the Employee with thirty day's notice in writing ("Notice"). Should the Corporation elect to provide Employee with Notice of termination the Corporation will,

a.provide a lump sum payment to the Employee in the amount of the last three month's salary (the "Termination Payment"), which amount will be in addition to any other payments owed by the Corporation to the Employee pursuant to this Agreement, and all stock options held by Employee shall immediately become vested.

b.the Employee shall also receive all earned and unpaid bonuses in addition to the Termination Payment and all stock options held by Employee shall immediately become vested.

41.Notwithstanding Section 40, if the Corporation terminates this Agreement without cause within three (3) months of, or in anticipation within three (3) months of, a change of control, the Corporation will pay the Employee a lump sum payment equal to six (6) months of annual base salary then in effect, which amount will be in addition to any other payments owed by the Corporation to the Employee pursuant to this agreement, and all stock options held by the Employee shall immediately become vested.

Remedies

42.In the event of a breach or threatened breach by the Employee of any of the provisions of this Agreement, the Employee agrees that the Employer is entitled to a permanent injunction, in addition to and not in limitation of any other rights and remedies available to the Employer at law or in equity, in order to prevent or restrain any such breach by the Employee or by the Employee's partners, agents, representatives, servants, Employees, and/or any and all persons directly or indirectly acting for or with the Employee.

Severability

43.The Employer and the Employee acknowledge that this Agreement is reasonable, valid and enforceable. However, if any term, covenant, conclition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the parties' intent that such provision be changed in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of tbe provisions of this Agreement will in no way be affected, impaired or invalidated as a result.

Notices

44.Any notices, deliveries, requests, demands or other communications required here will be deemed to be completed when hand-delivered, delivered by agent, or seven (7) days after being placed in the post, postage prepaid, to the parties at the following addresses or as the parties may later designate in writing:

KWESST Micro Systems Inc.
Unit 155 Terence Matthews Crescent, Ottawa, Ontario

Rick Bowes

Modification of Agreement

45.Any amendment or modification of this Agreement or additional obligation assumed by either party in connection with this Agreement will only be binding if evidenced in writing signed by each party or an authorized representative of each party.

Governing Law

46.This Agreement will be construed in accordance with and governed by the laws of the province of Ontario.

General Provisions

47.Time is of the essence in this Agreement.

48.Headings are inserted for the convenience of the parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa.

49.No failure or delay by either party to this Agreement in exercising any power, right or privilege provided in this Agreement will operate as a waiver, nor will any single or partial exercise of such rights, powers or privileges preclude any further exercise of them or the exercise of any other right, power or privilege provided in this Agreement.

50.This Agreement will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns, as the case may be, of the Employer and the Employee.

51.This Agreement may be executed in counterparts. Facsimile signatures are binding and are considered to be original signatures.

52.This Agreement constitutes the entire agreement between the parties and there are no further items or provisions, either oral or written. The parties to this Agreement stipulate that neither of them has made any representations with respect to the subject matter of this Agreement except such representations as are specifically set forth in this Agreement.

IN WITNESS WHEREOF, the parties have duly affixed their signatures under hand on this 12th day of April, 2021 (signatures on page following).

EMPLOYER:

/s/ David Luxton                                 

EMPLOYEE:

/s/ Richard Bowes                              

ANNEX A

Role of Vice President, Operations, Digitization and Tactical Products (DTP)

The Vice President, Operations is a key member of the senior management team, reporting to the Executive Chairman and the Management Board of the company, and is accountable for the profit and loss performance of the DTP business unit. The role entails control of specialized business operations, requiring in-depth knowledge of defence and security programs relevant to the company's business. It also entails skilled management of strategic relationships, including strategic partners, external contractors and employees. The overall goal of the position is to ensure the functionality of the business to drive extensive and sustainable growth.

Key responsibilities

•Work with the Leadership Team to set comprehensive goals for performance and growth of the business.

•Recommend and implement operating plans and procedures to achieve company goals.

•Establish policies and business processes that promote a culture of performance and excellence.

•Oversee daily operations of the DTP unit including innovation, sales and marketing.

•Provide leadership to employees to encourage maximum performance and dedication.

•Evaluate perfo1mance by analyzing and interpreting data and metrics.

•Provide timely information and reports to the Executive Chairman on a weekly basis and to the Management Committee of the Board on a monthly basis.

•Foster and maintain fulsome communication with other members of the Leadership Team of the company on all matters of importance.

•Participate in expansion activities (investments, acquisitions, corporate alliances etc.)

•Manage relationships with partners and vendors.

•Identify and mitigate key risks in the DTP business unit strategy and operating plans.

ANNEXB

Compensation

Annual base compensation ("Base Compensation") per section 6:

$155,000 plus equity grant equal to a top-up to $180,000

Bonus compensation per section 9:

50% of effective Base Compensation (to a maximum of $90,000), half tied to Company goals to be mutually agreed and 50% tied to personal goals to be mutually agreed, payable in cash or stock at the Company's option.

Annual grant of stock options

The Vice President, Operations, DTP shall be entitled to an annual grant of stock options commensurate with options granted to other senior executives of the Company, subject to the Company's Employee Stock Option Plan.

EX-10.15

PO Number: 324556

Certain portions of this exhibit have been excluded because the information is both (i) not material and (ii) the type that the registrant customarily and actually treats as private or confidential. Omitted information has been noted in this document with a placeholder identified by the mark "[***]".

Master Professional Services Agreement

Between

General Dynamics Land Systems - Canada Corporation

doing business as General Dynamics Mission Systems - Canada

("GDMS-C")

and

KWESST Inc.

(Wholly-owned by KWESST Micro Systems Inc.)

("Seller")

As used herein, unless otherwise defined, "Agreement" shall mean this agreement and the following documents: the attached Terms and Conditions; Schedule A; all Statements of Work executed by the Parties from time to time and substantially in the form attached hereto and incorporated herein as Schedule B; Annex 1 of Schedule B (if applicable); Schedule C; Seller's certifications under Section 11.3 (Independent Contractor, Compliance with Code of Conduct); any disclosure by Seller of conflict of interest under Section 15 (Non-Exclusivity/Conflict of Interest); and all forms of Schedule D duly executed by Seller and Seller's Contractors; Schedule E; Annex 1 of Schedule E: Security Requirements Checklist (if applicable); and Schedule F (if applicable).

GDMS-C and Seller may be individually referred to in this Agreement as a "Party", or collectively as "Parties".

In witness hereof, for good and valuable consideration, the Parties, through their duly authorized representative, have executed this Agreement to be effective as of the Effective Date set forth herein.

For and on behalf of: General Dynamics Land Systems - Canada Corporation doing business as General Dynamics Mission Systems - Canada	For and on behalf of: KWESST Inc.
/s/ Kevin McMurray	/s/ Rick Bowes

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I warrant that I have authority to bind the company.		I warrant that I have authority to bind the company.
Signed by:		Signed by:
Name:	Kevin McMurray	Name:	Rick Bowes
Title:	Subcontracts Commercial Officer	Title:	VP Operations

Table of Contents

1.Scope of Work	4
2.Term of the Agreement	5
3.Priority of Documents	5
4.Inspection/Acceptance/Warranty	5
5.Price and Payment	6
6.Invoicing	6
7.Taxes and Duties	7
8.Proprietary Information and Intellectual Property Ownership	7
9.Intellectual Property Indemnity	11
10.Records and Audit	11
11.Independent Contractor	11
12.Security and Access to GDMS-C's Facilities While Visiting or Working at GDMS-C's Facilities	12
13.Termination	12
14.Assignment, Delegation and Subcontracting, No Liens	13
15.Non-Exclusivity/Conflict of Interest	14
16.Insurance and Indemnification	14
17.Dispute Resolution	17
18.Export Regulations	18
19.Compliance with Applicable Laws	18
20.Limitation of Liability	18
21.Suspension of Work	18
22.Anti-Bribery	19
23.Offset Credits	20
24.Security Requirements	20
25.Counterfeit Parts  ("CP") and Counterfeit Parts Prevention	20
26.Conflict Minerals ("CM")	21
27.Notices	22
28.Quality Assurance	23
29.Quality Assurance for Externally Provided Processes Products , and Services	23

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30.Subcontracting Flow Down	23
31.General Terms	23

List of Schedules

Schedule A: Pricing	26
Schedule B: Form of Statement of Work ("SOW")	27
Annex 1 of Schedule B: Milestone Payment Plan	31
Schedule C: GDMS-C's Contractor's Code of Conduct	33
Schedule D: Seller and Seller's Contractor Certifications and Agreements Regarding Contractor Restrictions	39
Schedule E: Security Terms and Conditions	43
Annex 1 of Schedule E: Security Requirements Checklist ("SRCL")	46
Schedule F: Additional Terms and Conditions	47

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This Agreement, effective as of December 1, 2021 ("Effective Date"), is between the following Parties:

General Dynamics Land Systems - Canada Corporation,

doing business as General Dynamics Mission Systems - Canada,

a New Brunswick corporation, with offices

located at 1941 Robertson Road, Ottawa, Ontario, Canada, K2H 5B7 ("GDMS-C")

and

KWESST Inc.,

a Ontario corporation, with offices

located at 155 Terence Matthews Crescent, Unit #1, Ottawa, Ontario, Canada, K2M 2A8 ("Seller")

WHEREAS GDMS-C and Seller desire to enter into the Agreement pertaining to a research and development project as part of an investment framework as outlined by Innovation, Science and Economic Development (ISED) Canada (https://www.ic.gc.ca/eic/site/086.nsf/eng/00054.html).

In consideration of the premises, mutual covenants and agreements herein set forth, the Parties agree as follows:

1.Scope of Work

1.1Seller shall perform the work and, as applicable, provide the deliverables, as defined in any Statement of Work ("SOW") that may be executed by the Parties hereunder and in accordance with the terms and conditions of this Agreement including all other exhibits hereto (individually "Services" and "Deliverables" and collectively "Work").  No obligations or liabilities under this Agreement shall be incurred by GDMS-C until such time as a Statement of Work is executed hereunder by the Parties.

1.2In the event that Seller cannot provide particular Work in accordance with the terms and conditions set forth herein, Seller shall promptly notify GDMS-C.

1.3Seller shall assign its employees and contractors to perform the Work ("Contractors" or "Seller's Contractors").  GDMS-C may require Seller to withdraw and replace any of Seller's Contractors, or any replacement employee performing the Work, and require that Seller promptly provide replacement personnel with the requisite knowledge and experience to perform the Work for GDMS-C. Replacement personnel, if any, shall also hereinafter be referred to as "Contractor" or "Seller's Contractor".  If GDMS-C requires specifically named employees of Seller to perform the Work, Seller shall assign the employees specifically named in the SOW to perform the Work.  Should the Seller need to provide new or additional personnel, it shall give GDMS-C thirty (30) days advance notice. GDMS-C shall then have the right to approve or reject the proposed candidate(s).

1.4No obligations or liabilities under this Agreement shall be incurred by either Party hereunder until such time as the Parties execute a SOW for Work and GDMS-C issues a Purchase Order ("P.O.") to the Seller for such Work.  Several SOWs or P.O.'s may be executed in conjunction with this Agreement.  The terms and conditions of this Agreement will apply to the Work and the P.O. terms and conditions describe related administrative matters and, to the extent that a P.O.'s terms conflict with this Agreement, this Agreement's terms and conditions shall prevail.  Any P.O. accepted by the Seller will be governed by the terms and conditions of this Agreement and will create contractual rights and obligations under this Agreement between GDMS-C and the Seller.  In each P.O., GDMS-C may identify its authorized representative and the Supplier's point of contact concerning that particular P.O.

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2.Term of the Agreement

2.1The Term of the Agreement shall expire one year from the Effective Date of this Agreement ("Term"). The Term may be extended by the written mutual agreement of the Parties. During the Term, the Seller shall perform the Work through the Contractors during the applicable Period of Performance as defined in each SOW. Costs incurred prior to or after the Period of Performance of each SOW shall be allowed only if approved in writing by GDMS-C's authorized Contracting Authority as identified in the SOW ("Authorized Contracting Authority").

2.2The Seller grants to GDMS-C the irrevocable option to extend the term of the Agreement by up to three (3) additional one-year periods under the same conditions. GDMS-C may exercise this option at any time by sending a written notice to the Seller before the expiry date of the Agreement. The options may only be exercised by the Contracting Authority, and will be evidenced for administrative purposes only, through an amendment to the Agreement.

3.Priority of Documents

3.1In the event of a conflict or inconsistency the documents shall be given precedence in the following order:

3.1.1The terms and conditions of this Agreement;

3.1.2Schedule B: Statement of Work;

3.1.3Schedule A: Pricing;

3.1.4Schedule F: Additional Terms and Conditions (if applicable);

3.1.5Schedule E: Security Requirements Checklist (if applicable); and

3.1.6Schedule D: Contractor Certifications and Agreements Regarding Contractor Restrictions.

4.Inspection/Acceptance/Warranty

4.1For each Statement of Work:

4.2GDMS-C shall, in its sole discretion acting reasonably, accept the Work or give Seller notice of rejection within forty-five (45) business days after performance notwithstanding any payment, test or inspection.  No inspection, test, delay or failure to inspect/test or failure to discover any defect or other non-conformance shall relieve Seller of any of its obligations under the applicable SOW or this Agreement or impair any rights or remedies of GDMS-C or GDMS-C's customers.

4.3Seller warrants that: (a) each of its Contractors assigned to perform the Work hereunder shall have the proper skill, training and background so as to be able to perform the Work in a competent and professional manner in keeping with reasonable industry standards, (b) each Deliverable will be free from defects in workmanship and materials, (c) all Work shall be performed in accordance with the applicable Statement of Work; and (d) GDMS-C shall receive sufficient, free, good and clear title to all Deliverables developed under this Agreement including under the applicable Statement of Work.  In addition to the foregoing warranties, any applicable SOW may contain additional warranties that specifically apply to such Statement of Work.

4.4If Seller delivers nonconforming Work in GDMS-C's sole opinion, GDMS-C may require Seller to promptly correct or re-perform the nonconforming Work.  All repair, replacement and other correction and redelivery shall be completed within the original delivery schedule or such later time as GDMS-C may reasonably direct.  Redelivery to GDMS-C of any corrected or re-performed Work shall be at Seller's sole expense. Seller shall inform GDMS-C of any corrective action taken.  In addition, if Seller does not reasonably correct or re-perform the nonconforming Work, GDMS-C may at its sole discretion: (i) correct the nonconforming Work; or (ii) obtain replacement Work from another source at as reasonable a cost as practicable given the schedule, with all such cost borne by Seller and, in such case, GDMS-C may reduce the Price accordingly.

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5.Price and Payment

5.1Price. For the full, satisfactory and timely performance of the Work by Seller, GDMS-C shall pay Seller the fees and expenses as set forth in the applicable SOW ("Price").  The Price for Work performed by Seller's Contractors hereunder including for Deliverables, is inclusive of all overheads, mark-ups and fees.

5.2Types of Taxes Included and Excluded. The Price includes, and Seller is liable for and shall pay, all taxes, impositions, charges and exactions imposed on or measured by the applicable SOW except for applicable Goods and Services Tax ("GST") and Harmonized Sales Tax ("HST") or other applicable sales and use taxes (individually and collectively "Sales Taxes") which are to be separately stated on Seller's invoice and shall be in addition to the Price except that Price shall not include any taxes, impositions, charges or exactions for which GDMS-C has furnished a valid exemption certificate or other evidence of exemption.

5.3No Waiver for Payment. Payment of the Price or any portion thereof or payment of any invoice shall not constitute GDMS-C's acceptance of any of the Work performed by Seller under this Agreement including under a Statement of Work.

5.4Right of Set-Off. If GDMS-C is due a payment pursuant to the terms and conditions of this Agreement including the applicable SOW at the time Seller issues an invoice, Seller shall apply that amount due to GDMS-C from the invoice, clearly identifying that credit within the invoice. If the payment due to GDMS-C exceeds the amount of the invoice, Seller shall remit payment to GDMS-C in that amount within ten (10) calendar days of submitting the invoice.

5.5Timing of Payment. GDMS-C shall not be responsible for payment to Seller until a valid invoice together with applicable receipts has been received in accordance with this Agreement including the applicable SOW and in no event shall GDMS-C be liable for payment of any invoices that are not submitted within ninety (90) calendar days from the date on which Work under the applicable SOW is completed.  GDMS-C shall remit payment within thirty-eight (38) days after GDMS-C's receipt of a valid invoice, provided that no dispute arises.  Payment due date shall be computed from the date of the later of the scheduled delivery date, the actual delivery date or the date of receipt of a correct invoice.  Payment shall be deemed to have been made on the date GDMS-C's cheque is mailed or payment is otherwise tendered. Seller shall promptly repay to GDMS-C any amounts paid in excess of amounts due Seller. Invoices must be approved by the GDMS-C Contracting Authority, as identified under Section 27 (Notices), prior to payment.

5.6Proprietary Pricing. The Price including, but not limited to, rate(s) per quantity, as applicable, to be paid by GDMS-C to Seller, shall constitute GDMS-C's and Seller's Proprietary Information (as defined in Subsection 8.1.1) and disclosure thereof shall be deemed a breach of this Agreement.

5.7No Responsibility to Pay for Work not performed due to Closure of Offices. Where the Seller, its Contractors, subcontractors or agents are providing services on government or GDMS-C premises under the Agreement and those premises are inaccessible because of the evacuation or closure of offices, and as a result no work is performed, GDMS-C is not responsible for paying the Seller for work that otherwise would have been performed if there had been no evacuation or closure.

If, as a result of any strike or lock-out, the Seller or its Contractors, subcontractors or agents cannot obtain access to government or GDMS-C premises and, as a result, no work is performed, GDMS-C is not responsible for paying the Seller for work that otherwise would have been performed if the Seller had been able to gain access to the premises.

6.Invoicing

6.1Email Transmittal. All invoices, along with supporting documentation, including without limitation receipts for reimbursement of travel and living expenses, as applicable, shall be submitted by Seller to GDMS-C by email to acctspay-invoice@gdit.com, with an electronic copy sent to GDMS-C's Contracting Authority, as identified in Section 27 (Notices).

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6.2Timing and Contents of Invoice. Seller shall submit original invoices no more than once per month, or otherwise in accordance with the payment plan agreed between the Parties in each Statement of Work, and in accordance with the Price set forth in the applicable SOW for such Work as is actually rendered by Seller and accepted by GDMS-C.  Seller's invoices shall include this Agreement's number as well as the applicable SOW number, the applicable purchase order number,  the date of issuance of the invoice, a detailed description of the Work performed, date(s) of performance, number of hours worked, name of Seller's Contractor who has performed the Work being invoiced and, as applicable, the hourly rate, labour cost (hours x rate), the costs of expenses claimed for reimbursement, as well as a summary line of all the above and shall include a credit for each total amount previously billed and paid by GDMS-C.  If invoicing against a milestone payment plan, in addition to the requirements listed in this Subsection 6.2, the applicable milestone must be identified.

6.3Reimbursement for Costs. Except for those costs for which GDMS-C has agreed in writing to reimburse Seller, all costs, including, but not limited to, per diem, hotel, travel and commuting expenses, if any, which are incurred by Seller or its agents and personnel in connection with the performance of Work under a SOW to this Agreement, shall be borne by Seller.  GDMS-C shall have no liability for any expenses or costs incurred by Seller other than pursuant to this Section 6.

7.Taxes and Duties

7.1Exclusion of Sales Tax. The Parties agree that, in accordance with Subsection 5.2, only Sales Taxes shall be borne by GDMS-C.

7.2Non-Resident Taxation. Pursuant to Regulation 105 of the Canadian Income Tax Regulations, GDMS-C must withhold fifteen percent (15%) of any amount to be paid to the Seller in respect of services provided in Canada if the Seller is a non-resident of Canada, unless the Seller obtains a valid Canadian tax waiver. The amount withheld will be remitted to the Canada Revenue Agency to be held on account for the Seller in respect to any tax liability which may be owed to Canadian tax authorities.  To the extent that this or any other taxes are required by applicable law to be remitted by means of withholding on payments due from one Party to this Agreement to the other, the Parties agree that any such payments shall be made net of withholding tax.

8.Proprietary Information and Intellectual Property Ownership

8.1Definitions

8.1.1"Proprietary Information" means all information that is identified as Proprietary Information by the disclosing party, or ought reasonably to be understood by the receiving party to be proprietary, and is disclosed by the disclosing party under this Agreement subject to the provisions of Subsection 8.2.2 in tangible, written, oral or visual form. Proprietary Information includes without limitation, all classified or unclassified information, records, data and documents that are relevant to the Work and that GDMS-C determines, in its sole discretion, should not be freely disclosed to the public and includes: intellectual property of any nature and kind including all domestic and foreign trade-marks, business names, trade names, domain names, trading styles, patents, trade secrets, technology, techniques, know-how, software, industrial designs, inventions, improvements, discoveries, product formulations, processes, processing methods and developments, manufacturing techniques, formulae, recipes, software, documentation, designs, flowcharts, specifications, drawings, prints, notes, memoranda, devices, samples, moulds, casts, sketches, plans, models, studies, listings, or any other material containing or disclosing any of the matters constituting the Work,  or any other business research, investigation or plans of GDMS-C and its affiliates, and copyrights, whether registered or unregistered, and all applications for registration thereof, and information regarding government classified business or other businesses, customer lists and other customer-related information, cost and price information, supplier lists, and any other information that is proprietary to the owner. Proprietary Information does not include information that was:

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8.1.1.1Published or otherwise is, or becomes, available to the public other than by breach of this Agreement;

8.1.1.2Lawfully received from a third party without restriction on disclosure and without breach of this Agreement;

8.1.1.3Disclosed to a third party without a similar restriction on the rights of such third party;

8.1.1.4Already known by the Recipient and the Recipient can demonstrate that the information was known without breach of this Agreement;

8.1.1.5Developed independently within the Recipient's organization without access to or use of the Proprietary Information disclosed hereunder; or

8.1.1.6Approved in writing by the Discloser for public release or disclosure by the Recipient.

8.1.2"Background Intellectual Property" means all intellectual property including, but not limited to, patents, copyrights, trademarks, mask works, trade secrets, know-how and all other forms of intellectual property which are owned or controlled by the disclosing party prior to this Agreement, or contemporaneously with this Agreement but not arising from the performance of Work under this Agreement and whether or not embodied in Deliverables under this Agreement.

8.1.3"Foreground Intellectual Property" means all intellectual property including, but not limited to, patents, unpatented inventions, copyrights, trademarks, mask works, trade secrets, know-how and all other forms of intellectual property generated, conceived, produced or first reduced to practice, or to a tangible medium of expression, or made during the performance of Work under this Agreement and all intellectual property embodied in Deliverables under this Agreement.

8.2Subject to this Subsection 8.2 and Subsection 8.3, the Parties agree to protect Proprietary Information as follows:

8.2.1The receiving party shall use the Proprietary Information disclosed hereunder only for the purpose of performing the Work under this Agreement and, during the Term and for a period of ten (10) years following expiration or termination of the Agreement, the receiving party shall take reasonable efforts to preserve in confidence such Proprietary Information and prevent disclosure thereof to third parties and shall use the same standard of care to protect the disclosing party's Proprietary Information as the receiving party uses to protect its own information of like kind but, in any event, shall employ at least reasonable care.  Disclosures of such Proprietary Information shall be restricted to those individuals of the receiving party who are directly participating in the efforts relating to this Agreement or the individual SOWs, as applicable, who have a need to know such information and who have been made aware of and consent in writing to abide by the restrictions contained in this Agreement which concern the use of such information.

8.2.2The Parties agree that in order to identify Proprietary Information for protection under this Agreement where such Proprietary Information is not otherwise reasonably understood to be proprietary to a Party, the disclosing party shall clearly and conspicuously mark written or documentary, recorded, machine readable and other information in a tangible form using an appropriate legend.  Proprietary Information stored in electronic form on disk, tape, or other storage media shall be considered to be adequately marked if a legend indicating the information is proprietary displays when the information originally runs on a computer system and when the information is printed from its data file.  The disclosing party shall identify proprietary information originally disclosed in some other form (e.g., orally or visually) by (a) identifying the information as proprietary at the time of original disclosure, (b) summarizing the Proprietary Information in writing sufficiently specific to enable the receiving party to identify the information considered proprietary by the disclosing party, (c) marking the written summary clearly and conspicuously with an appropriate proprietary legend, and (d) delivering the written summary to the receiving party within sixty (60) days following the original disclosure.  All information disclosed through access to the non-public areas of GDMS-C's premises, and through access to GDMS-C's computer networks are considered Proprietary Information, whether or not marked, unless specifically notified in writing to the contrary.

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8.2.3The terms and conditions of this Agreement and any purchase order issued hereunder will be regarded as Proprietary Information and subject to the provisions of this Section 8. Either the Seller or GDMS-C may disclose such terms and conditions to its legal and financial advisors or to any federal or provincial government department or agency in Canada or to any other applicable government body.  In addition, the Parties may disclose the terms and conditions of this Agreement to its parent company or to any affiliated or subsidiary company or to any past, present or prospective customers of the Parties.

8.3The disclosing party warrants that it shall not provide any Proprietary Information to the receiving party for which the disclosing Party does not own or control the intellectual property rights, or under which disclosing party does not have a right to grant to receiving party a license to such intellectual property rights, and agrees to defend, indemnify and hold the receiving party, and in the case of GDMS-C, its parent, General Dynamics Corporation, GDMS-C's affiliates, subsidiaries, and their respective customers, directors, officers, employees and agents harmless from and against any cost, expenses or other liability arising from any claim or cause of action brought against receiving party and resulting from the disclosing party's breach of this warranty.  The foregoing shall constitute the sole and exclusive remedy of the receiving party for a breach of the foregoing warranty by the disclosing party.

8.4Ownership of Intellectual Property / Title to Inventions and Work

8.4.1Seller shall assign and transfer, and does hereby irrevocably assign and transfer to GDMS-C the entire right, title and interest, worldwide, in, to and under all Foreground Intellectual Property including but not limited to all copyrights, inventions, and patents, including copyright renewal rights, and such Foreground Intellectual Property shall, from the time of creation, be and shall remain the sole and exclusive property of GDMS-C and its nominees throughout the world, whether or not patented or copyrighted, and without regard to any expiration or termination of this Agreement or a Statement of Work.  Seller shall waive and does hereby waive, and shall cause its personnel to so waive, all moral rights in the Services and Deliverables including but not limited to all copyrights, inventions, and patents, including copyright renewal rights, and relinquish and transfer and set over to GDMS-C any and all interest in such work.  The Seller agrees to exercise reasonable care to avoid making any Foreground Intellectual Property assigned to GDMS-C available to any third party.  The Seller is liable to GDMS-C for all damages, including reasonable attorneys' fees, in the event any Foreground Intellectual Property is made available to third parties by the Seller in any manner not authorized by GDMS-C.

8.4.2Reporting. Seller shall communicate in writing to GDMS-C promptly and describe fully all Foreground Intellectual Property whether made solely by Seller or jointly with others.  On the first business day of every calendar quarter after execution of this Agreement, Seller shall submit a written report to GDMS-C reporting the Foreground Intellectual Property conceived, reduced to practice or to a tangible medium of expression, or made by Seller during the previous quarter and any previously unreported items.  The written report shall contain a description of the Foreground Intellectual Property and those responsible its creation. GDMS-C shall have the right to audit annually the Seller to determine whether the Seller has disclosed to GDMS-C all of the Foreground Intellectual Property in accordance with this Subsection 8.4.2.

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8.4.3Further Assurances. Seller and the Contractors, at GDMS-C's request and expense, shall assist GDMS-C and its nominees in every reasonable way during and subsequent to the Term to obtain for GDMS-C or its nominees' benefit, patents, copyrights, or other forms of legal protection on such Foreground Intellectual Property throughout the world including without limitation to execute all applications, assignments and other documents required to give effect to the provisions of this Subsection 8.4.3 and the applicable Contractor certifications, and to enforce the rights of GDMS-C to all Deliverables, Work and intellectual property.

8.4.4Subject to the limitations of GDMS-C's use of Seller's Background Intellectual Property as stated in Subsection 8.4.5 below, all data, designs, drawings, tracings, plans, layouts, programs, flow charts, specifications, software, documentation, work product and any and all other memoranda, including but not limited to any and all written information which may be or has been furnished to Seller or which may be produced, prepared, or designed by Seller in connection with the Work hereunder, shall be, become, and remain the exclusive property of GDMS-C, and shall be available to GDMS-C at all times.  Such materials shall be subject to the provision of Subsection 8.2 or such other non-disclosure terms executed by the Parties hereto.  Upon the termination or completion of the Work performed under a Statement of Work, any and all material referred to in this Subsection 8.4.4, together with all copies and reprints in Seller's possession, custody, or control, shall be promptly transferred and delivered to GDMS-C and Seller shall thereafter make no further use, either directly or indirectly, of such material.

8.4.5License to Seller's Background Intellectual Property. Seller grants and agrees to grant to GDMS-C a perpetual, non-exclusive, irrevocable, transferable, royalty-free, fully paid-up, worldwide license, to all of Seller's Background Intellectual Property necessary to use and freely exploit Foreground Intellectual Property without restriction, including but not limited to rights to Seller's patents, copyrights and know-how, for GDMS-C to make, have made, use, copy, have copied, reproduce, have reproduced, translate, have translated, modify, compile, configure, create derivative works of, distribute, sell, lease, sublicense or otherwise market and dispose of products and services and to practice processes or methods related thereto.  If Seller's Background Intellectual Property includes computer software, Seller grants and agrees to grant to GDMS-C the right to sublicense Seller's computer software to its sub-licensees under the same rights as granted to GDMS-C when the Seller's software is necessary to be used in conjunction with the Foreground Intellectual Property conceived during the performance of the Work under this Agreement.

8.4.6License to GDMS-C's Background Intellectual Property. GDMS-C hereby grants and agrees to grant to Seller, including Seller's Contractors, a limited, non-exclusive, royalty-free, non-transferable, indivisible, personal license, in Canada, for the Term of the Agreement to use, modify, prepare derivative works based on, and copy GDMS-C Background Intellectual Property provided by GDMS-C to Seller, including Seller's Contractors, pursuant to and strictly limited to the purpose of, the applicable SOW.  Such license shall be limited to and solely for the purposes of Seller, including Seller's Contractors, fulfilling their respective obligations during the Period of Performance under the applicable SOW and this Agreement.  Except as otherwise specifically provided in the applicable SOW, nothing in this Agreement shall grant to Seller or Seller's Contractors any rights or license to use any GDMS-C intellectual property and/or Proprietary Information (including without limitation any GDMS-C Proprietary Information developed pursuant to this Agreement) for any purpose other than performance of the Work and completion of Deliverables under this Agreement including the applicable SOW.

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9.Intellectual Property Indemnity

9.1Third Party Licenses. Seller agrees not to knowingly incorporate in the Deliverables Seller or third party intellectual property, excluding commercial computer software acquired with GDMS-C's written consent and subject to the third party licensor's standard commercial license, which shall be delivered to GDMS-C forthwith.

9.2IP Indemnity. Seller shall indemnify, defend and hold harmless GDMS-C, its parent, General Dynamics Corporation, GDMS-C's affiliates, subsidiaries, and their respective customers, directors, officers, employees, and agents from all claims, suits, actions, awards, liabilities, damages, costs, expenses and attorneys' fees: (i) related to the actual or alleged infringement of any Canadian, American or foreign intellectual property right; and (ii) arising out of the Work performed by Seller or the Deliverables.  GDMS-C and/or its customer shall notify Seller of any such claim, suit or action; and Seller shall, at its own expense, fully defend such claim, suit or action on behalf of indemnities.

9.3Limitation of Liability for IP Infringement. Seller's liability under this Section with regard to any infringement shall be limited solely to the extent that the infringement claim arises from: (i) Seller's compliance with formal specifications issued by GDMS-C where infringement could not be avoided in complying with such specifications; or (ii) GDMS-C's use or sale of Work or Deliverables in combination with other non-Seller services or products that would not reasonably be expected to be used in such combination, and which are used without Seller's approval or direction or otherwise approved in the SOW and where the infringement claim would have been avoided but for such combination.

9.4For purposes of this Section 9, the term GDMS-C shall include the General Dynamics Corporation, all of its subsidiaries, all officers, directors, agents, and employees of GDMS-C.

10.Records and Audit

10.1Seller agrees to maintain accurate records in support of effort spent in the performance of Work hereunder and retain such records for seven (7) years after this Agreement is terminated. GDMS-C reserves the right to itself or through an independent third party auditor to audit at reasonable times and upon reasonable notice any of Seller's records involving transactions or obligations related to this Agreement.  Seller's reasonable expenses arising from such audit or examination shall be borne by GDMS-C.

11.Independent Contractor

11.1Seller shall have complete control over the performance of, and the details for accomplishing, the Work.  It is the intention of GDMS-C and Seller that for all purposes Seller is and shall be an independent contractor and the sole employer and/or principal of any and all Contractors assigned by Seller to provide Work. Under this Agreement, Seller is obligated to perform all requirements of an employer under federal, provincial, and local laws and ordinances (or foreign law, if applicable).  Such compliance shall include, but not be limited to, laws regarding, as applicable, the payment or remittance, as applicable, of minimum wages, employment equity, pension plan contributions, employment insurance premiums, federal and provincial income taxes, and workers' compensation premiums and health premiums.  Under no circumstances shall Seller or its Contractors be construed to be employees, representatives, or agents of GDMS-C for any purpose, including but not limited to taxation and worker's compensation laws.  Seller's Contractors, employees and agents shall not be entitled to participate in the profit sharing, benefits, pension, or other plans established for the benefit of GDMS-C's employees.

11.2Relationship. Under the terms of this Agreement GDMS-C and Seller are independent contractors, and nothing contained herein shall be construed to create or imply that there exists between the Parties any partnership, joint venture, or other combined business organization.  The respective obligations and rights of Seller and GDMS-C are limited to the terms of this Agreement, and both Parties hereby specifically acknowledge that they do not have authority to incur any obligations or responsibilities on behalf of the other Party.

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11.3Compliance with Code of Conduct. Notwithstanding Seller's status as an independent contractor, Seller agrees that Seller understands, and Seller agrees to ensure Seller's Contractors understand, the GDMS-C Contractor's Code of Conduct as outlined in Schedule C, which illustrates GDMS-C's expectations, ethics and conduct of Seller and Seller's Contractors during the performance of Work under this Agreement.  Seller agrees that it shall abide by, and Seller agrees that it shall ensure that Seller's Contractors abide by, the principles contained in such code, a copy of which is attached hereto as Schedule C. Seller agrees to furnish written certification to GDMS-C before commencement of Work and at any time thereafter before substituting or adding new personnel to work on GDMS-C's premises, that Seller has reviewed with Seller's Contractors the GDMS-C Contractor's Code of Conduct.

11.4Seller further agrees that Seller understands the certification required under the terms of Schedule D which include the Government of Canada Integrity Provisions. Seller agrees to furnish the written certification (Schedule D) to GDMS-C at the time of executing this Agreement and at any time thereafter at the request of GDMS-C.

12.Security and Access to GDMS-C's Facilities While Visiting or Working at GDMS-C's Facilities

12.1Facility Access. Seller and Seller's Contractors shall be granted access to GDMS-C facilities, only as indicated in the applicable SOW and only during GDMS-C's normally scheduled business hours or as otherwise specifically agreed in writing between the Parties, all of which shall be in accordance with the Security Terms and Conditions attached at Schedule E.

13.Termination

13.1Termination for Convenience

13.1.1GDMS-C may terminate for any reason all or any part of this Agreement and/or a SOW by written notice to the Seller. In the event of termination of the Agreement, Seller shall immediately cease performance of all Work terminated hereunder and cause any and all of Seller's Contractors to cease work.  In the event of termination of a Statement of Work, Seller shall immediately cease all Work under the applicable SOW and cause Seller's Contractors performing such Work to cease work.

13.1.2GDMS-C shall have no liability for any such termination except for liability for Work rendered or expenses incurred prior to the effective date of such termination for which payment has not been made.  The Seller shall not be paid for any Work performed or costs incurred that reasonably could have been avoided.  Failure to agree shall be deemed a dispute and shall be settled in accordance with the provisions of Section 17 (Dispute Resolution).  Seller must submit all claims within sixty (60) days after the effective date of termination.  In no event shall GDMS-C be obligated to pay Seller: (i) in the case of termination of the Agreement, any amount in excess of the Agreement Price; and (ii) in the case of termination of a Statement of Work, any amount in excess of the Price for the applicable Work.  Seller shall continue to perform Work not terminated.

13.2Termination for Default

13.2.1GDMS-C may terminate this Agreement immediately if Seller and/or Seller's Contractor(s) breach the provisions of Section 8 (Proprietary Information and Intellectual Property Ownership) and/or if Seller or Seller's Contractor fails to comply with the Government of Canada's Integrity Provisions as contained in Schedule D.  In addition, GDMS-C may terminate all or any part of this Agreement and/or a SOW by written notice to Seller if: (i) Seller fails to perform the Work within the time specified by this Agreement including a SOW or any written extension authorized by GDMS-C; (ii) Seller fails to perform any other provision of this Agreement or a Statement of Work, or fails to make progress, so as to endanger performance of this Agreement and/or a Statement of Work, and, in either of these two circumstances, does not cure the failure within ten (10) days after receipt of notice from GDMS-C specifying the failure; or (iii) in the event Seller declares bankruptcy, suspension of its business operation, or initiates any reorganization and/or arrangement for the benefit of its creditors.  Seller shall continue to perform the Work not terminated.  If GDMS-C terminates all or any part of this Agreement and/or a SOW for default, GDMS-C may acquire, under terms and conditions and in a manner GDMS-C considers appropriate, Work similar to those terminated and the Seller shall be liable to GDMS-C for any reasonable excess costs for that Work (the "Reprocurement").  If the Agreement and/or a SOW is terminated for default, GDMS-C may require the Seller to transfer title and deliver to GDMS-C any completed Services and Deliverables or partially completed Services and Deliverables and materials, part, tool, dies, jigs, fixtures, plans, drawings, information and Agreement rights that the Seller has specifically produced or acquired for this Agreement.  Seller shall protect and preserve property in its possession in which GDMS-C has an interest.

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13.2.2GDMS-C shall pay for completed Services and Deliverables delivered and accepted in accordance with the Prices set forth in the applicable SOW and in accordance with the terms of this Agreement.  GDMS-C and Seller shall agree on the amount of payment for in process Services and Deliverables or materials, title to which has been transferred and delivered to GDMS-C.  Failure to agree shall be a dispute and shall be settled in accordance with Section 17 (Dispute and Resolution).  Seller must submit all claims within sixty (60) days after the effective date of termination.  In no event shall GDMS-C be obligated to pay Seller: (i) in the case of termination of the Agreement, any amount in excess of the Agreement Price; and (ii) in the case of termination of a Statement of Work, any amount in excess of the Price for the applicable Work.  The rights and remedies provided by GDMS-C in this Section 13 are in addition to any other right or remedies provided by law or in equity.

13.2.3Upon termination of this Agreement and/or a Statement of Work, Seller shall promptly return to GDMS-C all copies of any GDMS-C Proprietary Information, data, records or materials, of whatever nature, and all work in progress.

13.2.4The rights and obligations to protect Proprietary Information disclosed prior to expiration or termination in accordance with the time period set forth in Subsection 8.2.1 of this Agreement shall not be affected by the expiration or termination of this Agreement or a Statement of Work.  Upon expiration or termination of this Agreement and/or a Statement of Work, but subject to the use required for Reprocurement, each Party shall cease all use of Proprietary Information received under the Agreement or the Statement of Work, as applicable.

13.2.5Within thirty (30) calendar days following termination or expiration of this Agreement and/or the Statement of Work, Seller shall submit to GDMS-C an itemized invoice of any fees or expenses theretofore incurred under this Agreement or the Statement of Work, as applicable.  GDMS-C upon payment of accrued amounts so invoiced and accepted shall thereafter have no further liability or obligation to Seller for any further fees, expenses or other payments under this Agreement or the Statement of Work, as applicable.

14.Assignment, Delegation and Subcontracting, No Liens

14.1Seller may not assign, subcontract or delegate its obligations, rights or duties under this Agreement or under a Statement of Work, in whole or in part, without the prior written consent of GDMS-C.  Any such assignment or delegation without such consent shall be void.

14.2Notwithstanding Subsection 14.1, GDMS-C may assign this Agreement and/or a Statement of Work, in whole or in part, to its parent or any of its subsidiaries or affiliates without the consent of Seller.  In such event, GDMS-C shall notify Seller in writing of such assignment.

14.3Seller may assign its right to monies due or to become due provided that Seller gives GDMS-C written evidence of said assignment.  No assignment, delegation or subcontracting by Seller, with or without GDMS-C's consent, shall relieve Seller of any of its obligations under this Agreement or a SOW or prejudice any of GDMS-C's rights against Seller whether arising before or after the date of any assignment.  This Section does not limit Seller's ability to purchase standard commercial supplies or raw materials.

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14.4To the fullest extent permitted by law, Seller shall not file any mechanic's or materialmen's lien against GDMS-C's property and shall keep the property free and clear of all liens, claims, and encumbrances arising from Seller's or Seller's Contractors' performance of Work under this Agreement.  In the event that any mechanic's or materialmen's lien is filed against GDMS-C's property by Seller or Seller's Contractors, GDMS-C shall notify Seller of such filing, and if a waiver or release of the lien is not provided to GDMS-C within seventy-two (72) hours of such notice, GDMS-C shall be entitled to pay the amount claimed by the filer of the lien directly to such person or firm, and to deduct any such sum from compensation then due or due in the future to Seller.  Seller agrees to indemnify, defend and hold GDMS-C harmless from and against any cost, expenses or other liability arising from any claim or cause of action in connection with such lien.

15.Non-Exclusivity/Conflict of Interest

15.1Each Party reserves the right to contract with other firms or individuals during the Term of this Agreement to provide or procure services similar to those being performed by Seller hereunder.

15.2Notwithstanding Subsection 15.1, Seller specifically agrees that during the applicable Period of Performance it shall not provide the same or similar work product(s) or service(s) as those described in the applicable SOW under this Agreement to a competitor of GDMS-C without prior written notice to and the consent of GDMS-C which shall not be unreasonably withheld.  Seller shall provide prior notice to GDMS-C, if during the Term hereof, Seller shall be performing the same or similar services for any other company.  Based upon that information, GDMS-C shall inform Seller whether the other recipient of Seller's services is a competitor of GDMS-C.  Except for the above, Seller shall be free to accept all other service opportunities during the Term of this Agreement.

15.3Seller agrees that at the time of execution of this Agreement, Seller has disclosed to GDMS-C in writing the existence, if any, of conflicting roles.  Seller further agrees that it has a continuing obligation during the applicable Period of Performance of any SOW to disclose immediately in writing to GDMS-C the existence of conflicting roles.

16.Insurance and Indemnification

16.1Minimum Insurance Requirements.

16.1.1Unless higher amounts or additional coverage are stated elsewhere in this Agreement, during the Term of this Agreement and for as long as Seller has obligations which survive expiration or termination of this Agreement, Seller shall maintain the following types of insurance coverage in the minimum amounts stated:

Type of Insurance

Minimum Coverage

Workers' Compensation Insurance in accordance with such laws as may be applicable to the Work to be performed in the province or state, as applicable, where such Work are to be performed. Seller must show evidence of Workers' Compensation coverage for the provinces and state(s), as applicable, in which the Work are to be performed. Seller's Workers' Compensation insurer must waive its right of subrogation against General Dynamics Corporation.

Statutory Limits

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Employer's Liability	$1,000,000 per Occurrence
Comprehensive General Liability	$1,000,000 for Bodily Injury and Property Damage - Combined Single Limit per Occurrence.
Comprehensive Automobile Liability - If motor vehicles are used during performance of this Agreement	$1,000,000 for Bodily Injury and Property Damage - Combined Single Limit per Occurrence.
Professional Liability (if applicable)	$1,000,000 - Each Claim

16.2Additional Requirements

16.2.1Promptly following execution of this Agreement and in any event prior to the commencement of Work under the initial SOW executed hereunder, Seller shall provide GDMS-C with a certificate or adequate proof of the foregoing insurance, including if specifically requested by GDMS-C, endorsements and policies, from a carrier reasonably acceptable to GDMS-C (Minimum A.M. Best rating of A- or better).

16.2.2Upon request of GDMS-C, Seller shall add "General Dynamics Land Systems - Canada Corporation doing business as General Dynamics Mission Systems - Canada" as additional insured under all other specified insurance to the extent of the liabilities assumed by the Seller under this Agreement.  In addition, the Seller's insurance must be designated as primary.

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16.2.3Seller shall provide GDMS-C with at least thirty (30) days advance written notice of the expiration, cancellation, or termination of any insurance policy providing any of the above coverage or of any reduction in Seller's coverage below the minimum requirements set forth herein, or any material change in the terms and conditions of Seller's coverage.

16.2.4GDMS-C may, in its discretion, accept Seller's self-insurance program in lieu of coverage required under this Section 16.

16.2.5Seller agrees that Seller, Seller's insurer(s) and anyone claiming by, through, under or in Seller's behalf shall have no claim, right of action or right of subrogation against General Dynamic Corporation.

16.2.6GDMS-C reserves the right to require other reasonable forms of insurance and/or faithful performance guarantee bonds by giving Seller written notice of said additional requirements.

16.2.7The procurement and maintenance of insurance specified in this Subsection 16.2.7 shall not limit or affect any liability which the Seller might have by virtue of this Agreement or otherwise.

16.3Indemnification

16.3.1Seller agrees to indemnify and hold harmless GDMS-C, its parent, General Dynamics Corporation, GDMS-C's affiliates, subsidiaries, and their respective customers, directors, officers, employees and agents from and against all actions, causes of action, liabilities, claims, suits, judgments, liens, awards and damages of any kind and nature whatsoever for (a) property damage, (b) bodily injury, (c) death (including without limitation injury to or death of employees and Contractors of Seller or any of its suppliers thereof), (d) expenses, (e) costs of litigation, or (f) legal counsel fees which arise out of, or are in any way related to Seller's or Seller's Contractors' 1) breach of obligations or responsibilities arising from this Agreement, any SOW, or purchase order issued hereunder, or 2) failure to comply with all applicable local, provincial, state and Federal Laws and regulations in the performance of this Agreement or a SOW.  Seller's obligation hereunder is not limited to insurance available to or provided by Seller, Seller's Contractors or any of Seller's suppliers.  Seller expressly waives any immunity under industrial insurance, whether arising out of statue or source, to the extent of the indemnity set forth in this Subsection 16.3.1.

16.4Gratuities

16.4.1Seller warrants that neither Seller nor any of Seller's Contractors, employees, agents or representatives have offered or given, or shall offer or give, any gratuities to GDMS-C's employees, agents or representatives for the purpose of securing this Agreement or a SOW or securing favourable treatment under this Agreement or under a Statement of Work.

16.5Protection of Property

16.5.1At all times Seller shall use, and Seller shall ensure that any of Seller's Contractors shall use, suitable precautions to prevent damage to GDMS-C's property.  If any such property is damaged by the fault or negligence of Seller or any Seller Contractor thereof, Seller shall, at no cost to GDMS-C, promptly and equitably reimburse GDMS-C for such damage or repair or otherwise make good such property to GDMS-C's satisfaction.  If Seller fails to do so, GDMS-C may perform the repairs and recover from Seller the cost thereof.

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16.6Cooperation

16.6.1GDMS-C agrees to comply with all reasonable requests of Seller and provide access to all documents reasonably necessary for Seller to perform its duties under this Agreement or any Statement of Work.  Seller shall comply with all reasonable requests of GDMS-C in order for GDMS-C to properly assess Seller's performance hereunder.

17.Dispute Resolution

17.1Subject to the provisions of Subsection 17.2, in the event of any dispute, claim, question, or disagreement arising from or relating to this Agreement, Statement of Work, or the breach thereof, the Parties hereto shall use reasonable efforts to attempt to settle the dispute, claim, question, or disagreement including through escalation to the Parties' senior management. To this effect, the Parties shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both Parties.  If the Parties do not reach such solution (or agree in writing to mediate the dispute) within a period of thirty (30) days from such dispute, claim, question, or disagreement arising, then, upon notice by either Party to the other, and prior to taking any other legal actions, all disputes, claims, questions, or disagreements shall be finally settled by arbitration pursuant to the Arbitrations Act of Ontario before a single arbitrator, selected by the Parties or appointed, and the arbitration shall be held in Ottawa, Ontario.  The language of the proceedings shall be English. Each Party shall submit a brief not to exceed ten (10) pages and the arbitration shall not exceed two (2) consecutive business days in duration.  The arbitrator's decision shall follow the plain and natural meaning of the relevant documents, and shall be final and binding.  The arbitrator shall issue a written decision setting forth in reasonable detail the basis for that decision.  The arbitral award may be entered in any court having jurisdiction. All aspects of the arbitration will be confidential.

17.2Disputes, claims, questions, or disagreement that are based on intellectual property rights (including, but not limited to patent validity and infringement, trademark or copyright infringement, and misuse or disclosure of trade secrets) shall be submitted to a court of competent jurisdiction and are not subject to the arbitration procedures mandated by this clause.  The prevailing party in any action or proceeding that arises out of this Subsection 20.2 shall be entitled to recover reasonable attorney's fees, costs, and litigation expenses from the non-prevailing Party.  The "prevailing party" shall be determined by the court before which the action was brought based upon an assessment of which Party's major arguments or positions taken in the suit or proceeding could fairly be said to have prevailed over the other Party's major arguments or positions on major disputed issues in the court's decision.

17.3The arbitrator shall have no authority to award damages inconsistent with this Agreement or punitive or other damages not measured by the prevailing Party's actual damages, except as may be required by statute, and the Parties expressly waive their right to obtain such punitive damages in arbitration or in any other forum.

17.4The arbitrator shall award to the prevailing party, if any, as determined by the arbitrator, all of its costs and fees. "Costs and fees" mean all reasonable pre-award expenses of the arbitration, including the arbitrator's fees, administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, witness fees, and attorneys' fees.

17.5The procedures set forth in this Section 17 shall be the sole and exclusive procedures for the resolution of disputes between the Parties arising out of or relating to this Agreement or a Statement of Work; provided, however, that a Party may seek a preliminary injunction or other provisional judicial relief if, in its sole judgment, such action is necessary.  Despite such action, the Parties shall continue to participate in good faith in the procedures specified in this Section 17.  All applicable statutes of limitations and defences based upon the passage of time shall be tolled while the procedures (including optional mediation) specified in this Section 17 are pending.  The Parties shall take necessary action that is required to effectuate such tolling.  Each Party is required to continue to perform its obligations under this Agreement pending resolution of any dispute arising out of the Agreement unless to do so would be impossible under the circumstances.  The requirements of this Section 17 shall not be deemed to constitute a waiver of any right of termination under this Agreement.

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17.6Should GDMS-C, without fault on GDMS-C's part, be made a party to any litigation instituted by Seller or by any third party against Seller, or any such other person or otherwise arising out of or resulting from any act, omission or transaction of Seller, Seller covenants to save and hold GDMS-C harmless from any judgment rendered against GDMS-C and all costs and expenses, including reasonable attorneys' fees, incurred by GDMS-C in or in connection with such litigation.

18.Export Regulations

18.1Seller shall not export, directly or indirectly, any hardware, software, technology, information or technical data disclosed under this Agreement to any individual or country for which the Government of Canada requires an export license or other government approval, without first obtaining such license or approval from the GDMS-C Office of Export Compliance ("OEC").

19.Compliance with Applicable Laws

19.1Seller agrees and warrants that Seller's performance of all Work hereunder shall comply with all applicable laws, orders, rules, regulations, ordinances, permits and licenses that governs or applies to the Work.  Seller shall procure all licenses/permits, pay all fees, and other required charges and shall comply with all applicable guidelines and directives of any local, state, and/or federal governmental authority.

19.2Indemnification. Seller agrees to indemnify and hold GDMS-C, its parent, General Dynamics Corporation, GDMS-C's affiliates, subsidiaries, and their respective customers, directors, officers, employees and agents harmless from and against any and all loss, cost (including attorney's fees and allocable costs of in-house counsel and expenses), liability, or damage (including without limitation punitive or special damages) by reason of Seller's failure to comply with this Section 19.

20.Limitation of Liability

20.1The Parties' rights, liabilities, responsibilities and remedies with respect to the Work hereunder shall be exclusively those expressly set forth in this Agreement.  IN NO EVENT SHALL GDMS-C, ITS PARENT, AFFILIATES, SUBSIDIAIRIES, OR THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES BE LIABLE BY REASON OF GDMS-C'S BREACH OR TERMINATION OF THIS AGREEMENT OR A SOW OR BY REASON OF ANY ACTS OR OMISSIONS IN CONNECTION WITH THIS AGREEMENT OR  A SOW FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, HOWEVER CAUSED, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, LOSS OF DATA, WORK INTERRUPTION, INCREASED COST OF WORK, OR ANY CLAIMS OR DEMANDS AGAINST SELLER BY ANY OTHER ENTITY, WHETHER SUCH REMEDY IS SOUGHT IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.  IN NO EVENT SHALL GDMS-C'S TOTAL LIABILITY UNDER THE AGREEMENT FOR DIRECT DAMAGES IN ANY CIRCUMSTANCE SET FORTH IN THIS CLAUSE EXCEED THE PRICE PAYABLE FOR THE WORK TO BE PERFORMED BY SELLER UNDER THIS AGREEMENT.  IN NO EVENT SHALL GDMS-C'S LIABILITY UNDER EACH SOW FOR DIRECT DAMAGES IN ANY CIRCUMSTANCES SET FORTH IN THIS CLAUSE EXCEED THE PRICE PAYABLE FOR THE WORK TO BE PERFORMED BY SELLER UNDER THE APPLICABLE STATEMENT OF WORK.  THIS AGREEMENT SHALL NOT CREATE FOR NOR GIVE TO ANY THIRD PARTY ANY CLAIM OR RIGHT OF ACTION AGAINST GDMS-C WHICH WOULD NOT ARISE WITHOUT THIS AGREEMENT.

21.Suspension of Work

21.1GDMS-C's Contracting Authority, as identified under Section 27 (Notices), may, by written order only, suspend part or all of the Work to be performed under this Agreement and/or a SOW for a period not to exceed ninety (90) calendar days unless the Parties mutually agree to an extension.  Within this ninety (90) day period of Work suspension, GDMS-C shall (i) cancel the suspension of Work order; (ii) terminate this Agreement and/or a SOW in accordance with Subsection 13.1 (Termination for Convenience) of this Agreement; (iii) terminate this Agreement and/or a SOW in accordance with Subsection 13.2 (Termination for Default) of this Agreement; or (iv) extend the stop Work period.

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21.2If GDMS-C cancels the suspension of Work order by written notification, Seller shall resume Work 14 calendar days from written notification.  GDMS-C and Seller shall negotiate an equitable adjustment in the applicable Price or schedule or both if (i) the suspension results in a change in Seller's cost of performance of Work or ability to meet the Agreement and/or SOW delivery schedule; and (ii) Seller submits a claim for adjustment within twenty (20) days after the applicable suspension is cancelled.

21.3If this Agreement or a SOW is terminated, then either Subsection 13.1 (Termination for Convenience) or Subsection 13.2 (Termination for Default) of this Agreement, whichever is applicable, shall be followed.

22.Anti-Bribery

22.1The Parties shall comply with the Canadian Corruption of Foreign Officials Act, the UK Bribery Act, 2010 and the U.S. Foreign Corrupt Practices Act ("FCPA"), as well as the rules and regulations issued thereunder, as amended and as may be further amended and supplemented from time to time ("Anti-Bribery Laws").

22.2Each Party recognizes and acknowledges that in every aspect of its business, including all services rendered on its behalf by any Associated Person, as defined by the FCPA as amended from time to time, it is obliged to comply with the Anti-Bribery Laws.

22.3Each Party represents to the other Party that it has not and will not, and none of its current or former directors, officers or employees has or will (and, as far as it is aware, none of its other current or former Associated Persons has or will):

22.3.1make, authorize, offer, promise or give any financial or other advantage (including any payment, loan, gift or transfer of anything of value), directly or indirectly, to or for the use or benefit of any Government Official (as defined by the FCPA) (or to another person at the request or with the assent or acquiescence of such Government Official), or any other natural or legal person, in order to assist it or any of its subsidiaries in improperly obtaining or retaining business for or with any person, in improperly directing business to any person, or in securing any improper advantage; or

22.3.2engage in any other conduct which would violate any applicable Anti-Bribery Laws.

22.4Each Party undertakes to the other that for as long as it is a Party to this Agreement it will not, and to the extent it is legally able, will certify that none of its Associated Persons will not engage in any of the conduct described in herein.

22.5Notwithstanding any other provision of this Agreement, neither Party shall be obliged to take any action or omit to take any action under this Agreement that it believes, in good faith, would cause it to be in violation of any Anti-Bribery Laws.

22.6Each Party represents to the other Party that none of its directors, officers or employees are Government Officials or Associated Persons. Each Party agrees that if any of its directors, officers or employees becomes a Government Official or Associated Person, it will promptly notify the other Party in writing.  On receipt of written Notice, the Parties will consult together to address concerns under Anti-Bribery Laws and determine whether those concerns can be satisfactorily resolved.

22.7Each Party represents and undertakes to the other Party that it has in place, and for as long as it is a Party to this Agreement will maintain adequate policies, systems, controls and procedures: (a) designed to prevent it and their respective Associated Persons from violating Anti-Bribery Laws; and (b) for reporting a violation or suspected violation of Anti-Bribery Laws and/or generally accepted standards of business ethics and conduct directly to its Board of Directors, and for ensuring that all such reports are fully investigated by the Board of Directors (or one or more persons designated by the Board of Directors) and acted upon appropriately.

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22.8The Parties agree that they will keep accurate and complete expense, correspondence, and other records of the business.

22.9The Parties agree that, to address any concerns regarding Anti-Bribery Laws as they relate to this Agreement, they will make financial records available to external auditors at reasonable times and upon reasonable notice.

22.10Each Party agrees that, without the prior written consent of the other Party, it will not assign its rights to any third party until appropriate steps have been taken to ensure compliance with Anti-Bribery Laws.

22.11Each Party agrees to indemnify the other Party against all direct or indirect losses, liabilities, costs (including legal costs), charges, expenses, actions, proceedings, claims and demands which the other Party may suffer through or arising from any breach by it of its obligations herein.

23.Offset Credits

23.1This Agreement is placed with the Seller under the auspices of GDMS-C's Offset Program for Canada.  All Offset credit value from this Agreement is creditable solely to GDMS-C for its use on any Offset program of its choice. Seller agrees to assist GDMS-C in securing Offset credit from in an amount reflecting the value of this Agreement.

24.Security Requirements

24.1Reserved.

25.Counterfeit Parts ("CP") and Counterfeit Parts Prevention

25.1The Seller shall validate the authenticity of all components prior to delivery to GDMS-C or the end customer. The Seller must provide a certificate of conformity, certifying that all components are authentic and meet all requirements of the SOW and that the Work provided under this SOW contain no Counterfeit Electronic Parts ("CEP"). The Seller shall furnish, upon request from the GDMS-C Contracting Authority, all known pedigree information for each lot date code of components delivered.  Such documentation shall include, to the greatest extent possible, the name and location of all supply chain intermediaries.  The Seller shall immediately notify GDMS-C with the pertinent facts if the Seller becomes aware that it has delivered CEP or Suspect Counterfeit Electronic Parts ("SCEP"). If CEP or SCEP are furnished under a SOW or are found in any of the Work delivered hereunder, such parts and associated hardware will be impounded by GDMS-C. The Seller shall promptly replace the CEP or SCEP with parts acceptable to GDMS-C.  The Seller shall be liable for and shall promptly reimburse GDMS-C for the full cost of the CEP or SCEP and the Seller assumes responsibility and liability for all costs associated with the delivery of the CEP or SCEP including, without limitation, costs associated with identification, testing, and any corrective action required to remove and replace the CEP or SCEP. The remedies in this Section shall apply regardless of whether the warranty period or guarantee period has ended and are in addition to any remedies available to GDMS-C at law or in equity.

25.2The Seller shall only purchase products to be delivered or incorporated as Work to GDMS-C directly from the Original Component Manufacturer ("OCM")/Original Equipment Manufacturer ("OEM"), or through an OCM/OEM authorized distributor chain. The Seller may use another source only if (i) the foregoing sources are unavailable, (ii) the Seller's inspection and other counterfeit risk mitigation processes will be employed to ensure the authenticity of the Work, and (iii) the Seller obtains the advance written approval of GDMS-C.

25.3The Seller shall maintain counterfeit risk mitigation processes in accordance with industry recognized standards and with any other specific requirements identified in this Agreement.

25.4Notwithstanding the above Sections 25.1, 25.2 and 25.3, electronic parts procured through supply chain channels other than direct purchases, including, but not limited to, contract manufacturers and subcontractors, the following language shall apply:

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25.4.1Seller represents and warrants that only new and authentic materials are used in products required to be delivered to GDMS-C and that the deliverables contains no CEP. No material, part, or component other than a new and authentic part is to be used unless approved in advance in writing by GDMS-C. To further mitigate the possibility of the inadvertent use of CEP, Seller shall only purchase authentic parts/components directly from the OEM, OCM or through the OEM's/OCM's authorized dealers. Seller represents and warrants to GDMS-C that all parts/components delivered under this Agreement are traceable back to the OEM/OCM. Seller must maintain and make available to GDMS-C, at GDMS-C's request, OEM/OCM documentation that authenticates traceability of the parts/components to the applicable OEM/OCM. Purchase of parts/components from non-franchised sources is not authorized unless first approved in writing by GDMS-C. Seller must present complete and compelling support for its request and include in its request all actions to ensure the parts/components thus procured are legitimate parts. GDMS-C's approval of Seller request(s) does not relieve Seller's responsibility to comply with all Agreement requirements, including the representations and warranties in this paragraph;

25.4.2Seller shall maintain a documented system (policy, procedure, or other documented approach) that provides for prior notification and GDMS-C approval before parts/components are procured from sources other than OEMs/OCMs or the OEM's/OCM's authorized dealers. Seller shall provide copies of such documentation for its system for GDMS-C's inspection upon GDMS-C's request;

25.4.3Seller must maintain a counterfeit detection process that complies with SAE standard AS5553, Counterfeit Electronic Parts, Avoidance, Detection, Mitigation, and Disposition;

25.4.4If it is determined that CEP or SCEP were delivered to GDMS-C by Seller, the CEP or SCEP will not be returned to the Seller. GDMS-C reserves the right to quarantine any and all CEP or SCEP it receives and to notify the Government Industry Data Exchange Program (GIDEP) and other relevant government agencies. Seller shall promptly reimburse GDMS-C for the full cost of the suspect CEP or SCEP;

25.4.5Seller assumes responsibility and liability for all costs associated with the delivery of CEP or SCEP, including, but not limited to, costs for identification, testing, and any corrective action required to remove and replace the CEP or SCEP. The remedies in this paragraph shall apply regardless of whether the warranty period or guarantee period has ended, and are in addition to any remedies available at law or in equity;

25.4.6If the procurement of materials under this Agreement is pursuant to, or in support of, a contract, subcontract, or task order for delivery of goods or services to a government, the making of a materially false, fictitious, or fraudulent statement, representation or claim or the falsification or concealment of a material fact in connection with this Agreement may be punishable, as a criminal offence by imprisonment and/or substantial monetary fines. In addition, trafficking in counterfeit goods or services, to include military goods or services, constitutes a criminal offence, punishable by imprisonment and a substantial monetary fine; and

25.4.7Seller shall flow the requirements of this Section 25 to its Contractors, subcontractors, agents and suppliers at any tier for the performance of this Agreement.

26.Conflict Minerals ("CM")

26.1The Seller certifies that, regardless of whether the Seller is publicly traded or not, the Seller does not procure Conflict Minerals ("CM") from Covered Countries ("CC"), as those terms are defined by and consistent with the Securities and Exchange Commission's (SEC) final rule on CM, 17 CFR Parts 240 and 249(b), promulgated pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act as amended from time to time (the "Rule").  The Seller also certifies and warrants that all hardware that will be delivered to GDMS-C by the Seller under this Agreement, are Democratic Republic of the Congo ("DRC") Conflict Free, as defined by and consistent with the Rule.

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26.2The Seller agrees that, if required by the Rule, it will make good faith inquiries reasonably designed to determine whether any CM that is included in any Products delivered to GDMS-C pursuant to a SOW originated in the DRC or an 'Adjoining Country', or is from 'Recycled' or 'Scrap Sources', as defined in the Rule. The Seller further agrees that, if required by the Rule, it has performed, and will continue to perform, due diligence on the source and chain of custody of any CM that is included in any Work delivered to GDMS-C pursuant to a SOW, and that such due diligence conforms to a nationally or internationally recognized due diligence framework, if such a framework is available for the CM. The Seller agrees that all inquiries and diligence performed shall be consistent with the requirements of the Rule.

26.3The Seller agrees that it shall require its own sub-tier sellers and suppliers (at any tier in the supply chain for Work delivered to GDMS-C or the end customer under a SOW) to furnish information to the Seller necessary to support the Seller's obligations under this Section.

26.4The Seller will maintain records reviewable by GDMS-C to support its certifications above.

26.5The Seller acknowledges that GDMS-C may utilize and disclose CM information provided by the Seller in order to satisfy GDMS-C's disclosure obligations under the Rule.

26.6If GDMS-C determines that any certification made by Seller under this Section 26 is inaccurate or incomplete in any respect, then GDMS-C may terminate this Agreement pursuant Section 13 (Termination).

27.Notices

27.1Any notices required to be given under this Agreement by either Party to the other shall be deemed to have been duly given or served if in writing and either: (i) personally served; (ii) delivered by pre-paid nationally recognized overnight courier service with evidence of receipt required for delivery; (iii) forwarded by Registered or Certified mail, return receipt requested, postage prepaid; or (iv) e-mailed with evidence of receipt and followed by delivery of a copy of the notice by first class mail; in all such cases addressed to the Parties at the addresses set forth below.  Each such notice shall be deemed to have been given to or served upon the Party to which addressed on the date the same is delivered or delivery is refused.  Either Party hereto may change its address to which said notice shall be delivered or mailed by giving written notice of such change to the other Party hereto, as herein provided.

GDMS-C	Seller
Disclosures and receipts	Disclosures and receipts
Name: Tim Smith	Name: Rick Bowes
Address: 1020 - 68th Avenue N.E.. Calgary, Alberta T2E 8P2, CA	Address: 155 Terence Matthews Cr., Kanata, ON, K2M 2A8
Tel: 403-295-5292	Tel: 613-299-3990
Email: Tim.Smith@gd-ms.ca	Email: bowes@kwesst.com
Notices and authorizations	Notices and authorizations
Name: Kevin McMurray	Name: Steven Archambault
Address: 1941 Robertson Road, Ottawa, Ontario, Canada, K2H 5B7	Address: 155 Terence Matthews Cr, Unit #1, Kanata, ON, K2M 2A8
Tel: 613-229-7317	Tel: 613-319-0537 Ext. 116
Email: Kevin.McMurray@gd-ms.ca	Email: archambault@kwesst.com

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28.Quality Assurance

28.1Throughout the performance of this Agreement, the Seller shall perform all Work and deliver all services and goods in accordance with the latest quality standard of AS9100 and ISO 9001 quality standards, unless specified otherwise.

28.2Throughout the performance of the Agreement, the Seller shall perform all Work and deliver all services and goods in accordance with the latest quality standard of  ISO 9001: - Quality management systems - Requirements, published by the International Organization for Standardization ("ISO"), current edition at date of submission of Seller's bid.  It is not intended that the Seller be registered to ISO 9001; however, the Seller's quality management system shall address all requirements appropriate to the scope of the Work. Only exclusions in accordance with clause 1.2 of ISO 9001 are acceptable.

29.Quality Assurance for Externally-Provided Processes, Products, and Services

29.1The Seller shall ensure that externally-provided  processes, products, and services do not adversely affect the Seller's ability to consistently deliver conforming products and services  to GDMS-C. The Seller must:

29.1.1ensure that externally-provided processes remain within the control of its quality management system;

29.1.2define the controls that it intends to apply to its Contractors, subcontractors, suppliers or agents and those it intends to apply to the resulting output;

29.1.3determine the verification, or other activities, necessary to ensure that the externally-provided processes, products, and services meet requirements. Verification activities of externally-provided processes, products, and services shall be performed according to the risks identified by the Seller. These shall include inspection or periodic testing, as applicable, when there is high risk of nonconformities including counterfeit parts .

29.1.4take into consideration (i) the potential impact of the externally-provided processes, products, and services on the organization's  ability to consistently meet GDMS-C and applicable statutory and regulatory requirements, (ii) the effectiveness of the controls applied by the external provider and (iii) the results of the periodic review of external provider performance.

30.Flow Downs for Externally-Provided Processes, Products, and Services

30.1The Seller shall require that any Contractors, subcontractors agents or suppliers apply industry appropriate quality assurance controls when 

30.1.1externally-provided products and services are intended for incorporation into Seller's own products and services;

30.1.2externally-provided products and services are provided directly to GDMS-C or GDMS-C's Customer on behalf of the Seller;

30.1.3a process, or part of a process, is externally-provided as a result of a decision by the Seller.

31.General Terms

31.1Survivability.  The termination of this Agreement shall not terminate any obligations of the Parties which by their nature should survive after termination. This Section and, without limitation, Sections 4 (Inspection/Acceptance/Warranty), 8 (Proprietary Information and Intellectual Property Ownership), 9 (Intellectual Property Indemnity), 10 (Records and Audit), 11 (Independent Contractor), 12 (Security and Access to GDMS-C's Facilities While Visiting or Working at GDMS-C's Facilities), 13 (Termination), 14 (Assignment, Delegation and Subcontracting, No Liens), 17 (Dispute Resolution), 18 (Export Regulations), 19 (Compliance with Applicable Laws, 20 (Limitation of Liability), 31.3 (Entire Agreement), 31.9 (Force Majeure), 31.11 (Governing Law and Venue), Schedule D, and Schedule F (if applicable) shall survive termination of this Agreement.

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31.2Counterparts.  This Agreement may be executed and delivered (including by email transmission) in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

31.3Entire Agreement. This Agreement, including (i) the Terms and Conditions, (ii) all Statements of Work executed by the Parties from time to time hereafter, (iii) Schedules A through F, Annex 1 of Schedule B, and Annex 1 of Schedule E inclusively, (iv) Section 11.3 (Independent Contractor, Compliance with Code of Conduct), and (v) any disclosure by Seller of conflict of interest under Section 15 (Non-Exclusivity/Conflict of Interest) constitutes the entire understanding and agreement between the Parties and supersedes all prior or contemporaneous correspondence, offers, negotiations, agreements, or other communications between the Parties relating to the subject matter of this Agreement, whether oral, written or electronic, and including the terms of any Seller standard acknowledgement form.  Any work done under a previous letter agreement, purchase order or other agreement relating to the subject matter of this Agreement shall be considered work done under this Agreement and the terms of this Agreement shall be controlling.  This Agreement, including any SOW executed hereunder, may not be modified, amended or cancelled, in whole or in part, except by written agreement signed by authorized representatives of both Parties. The Parties acknowledge and agree that this Agreement has been jointly drafted by both of the Parties to it and that it is intended to benefit both Parties equally. Accordingly, neither the Agreement nor any of the clauses shall be construed strictly against any of the Parties.

31.4No Amendment.  This Agreement may not be superseded, amended, or modified except by written agreement between the Parties hereto, duly signed by authorized representatives of each Party. Nothing contained in any purchase order, purchase order acknowledgement, or invoice shall in any way modify, add to, or delete from, the terms and conditions of this Agreement.

31.5Binding on Assigns.  This Agreement is binding upon and for the benefit of the Parties and in the case of GDMS-C its affiliates in the Mission Systems area of business, namely: General Dynamics Mission Systems, Inc. (USA), General Dynamics United Kingdom Limited (UK), and General Dynamics Mission Systems - Italy S.R.L. (Italy), who have a "need-to-know" exclusively and strictly to support the achievement of the Purpose, their successors and permitted assigns.

31.6Relationship.  No agency, partnership, joint venture or employment relationship is or shall be created by virtue of this Agreement.

31.7Publicity.  No Party shall use the trade name, trademark or logo of the other Party in any public statement, advertising, marketing, promotion, public relations or media release relating to the subject matter of this Agreement or the relationship of the Parties without the prior written consent of the other Party.

31.8Force Majeure.  Neither Party shall be liable for any delay or failure in performing its obligations hereunder that is due to circumstances beyond such Party's reasonable control, including, but not limited to, acts of God or the public enemy, actions or decrees of governmental entities, civil unrest, acts of terrorism, riots, war, fire, floods, unusually severe weather, earthquakes, volcanoes, explosions ("Force Majeure Event"), provided that such circumstances were not reasonably foreseeable by such Party and, by the exercise of reasonable commercial due diligence, could not have been prevented or mitigated by such Party.  Upon the occurrence of a Force Majeure Event, the affected Party shall give five (5) calendar days' notice, to the other Party of the nature of any such conditions and the extent of the anticipated delay resulting from such conditions, at which time performance of this Agreement to the extent affected by the Force Majeure Event shall immediately be suspended without penalty to such affected Party.  The Party who has been affected shall take all reasonable actions to resume performance hereunder as soon as such Force Majeure Event is removed or ceases.  If the period of non-performance exceeds thirty (30) calendar days from receipt of the notice of the Force Majeure Event, GDMS-C may terminate this Agreement and/or the applicable SOW immediately upon written notice to Seller.

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31.9No Waiver.  No term or provision hereof will be considered waived by either Party, and no breach excused by either Party, unless such waiver or consent is in writing and signed by authorized representatives of the Party against whom the waiver is asserted.  No consent by either Party to, or waiver of, a breach by the other Party will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by such other Party.

31.10Governing Law and Venue.  This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario, Canada, without resort to its conflict of laws rules.  Venue shall be in a court of competent jurisdiction in the City of Ottawa, within the Province of Ontario, Canada.  If a court of competent jurisdiction determines one or more provisions of this Agreement illegal, invalid or unenforceable, that determination shall not affect the enforceability of the remaining provisions to the extent they can be given effect without the illegal, invalid or unenforceable provision. The failure of a party to enforce at any time, or for any period, any of the provisions of this Agreement shall not constitute a waiver of such provision, nor the right of that Party to enforce each and every provision.

31.11Headings.  The headings used in this Agreement are inserted for the convenience of the Parties and shall not define, limit or describe the scope or the intent of the provisions of this Agreement.

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Schedule A: Pricing

1.Rates

1.1Reserved.

2.Basis of Payment

2.1The basis of payment for Work, including Deliverables, provided under a SOW to this Agreement shall be identified in each Schedule B (Statement of Work) executed hereunder by the Parties.

2.2The basis of payment for each SOW shall be stated in accordance with one or more of the following clauses:

2.2.1The firm fixed price for Work, including Deliverables, is $[insert amount], is stated in Canadian dollars, is inclusive of all overheads, mark-ups and fees, and is valid for the Period of Performance GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed the Price and Seller shall not adopt any changes in the Work, including Deliverables, that would cause an increase in the Price unless otherwise authorized in writing by the GDMS-C Contracting Authority.

2.2.2The rates for Work, including Deliverables, on a time and materials basis are listed in the table below, are stated in Canadian dollars, are inclusive of all overheads, mark-ups and fees, and are valid for the Period of Performance GDMSC's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed $[insert amount not to exceed] ("Not To Exceed Limit") unless otherwise authorized in writing by the GDMS-C Contracting Authority.

Work Fee
Hourly Rate (CDN$)	Number of Hours	Total Not to Exceed Fee (CDN$) for Period of Performance
$[***]/hour	1652	$[***]

1.1.1A milestone plan has been established for the Work, including Deliverables and is set forth in Attachment 1 to Exhibit B.  The firm fixed price for Work is $[insert amount], is stated in Canadian dollars, is inclusive of all overheads, mark-ups and fees, and is valid for the Period of Performance ("Price").  GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed the Price and the Seller shall not adopt any changes in the Work that would cause an increase in the Price unless otherwise authorized in writing by the GDMS-C Contracting Authority.

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Schedule B: Form of Statement of Work ("SOW")

1.1The Parties agree that one or more SOWs may be attached to this Agreement, or executed separately hereunder and incorporated into this Agreement by their execution, provided that each such SOW references this Agreement, is referenced as Schedule B-[insert sequential number] to this Agreement, and is signed by both Parties to this Agreement.

1.2The initial Schedule B under this Agreement shall be Schedule B-1 and is executed simultaneously herewith and deemed appended hereto.

1.3The form of Schedule B to be used as a guide for the creation of SOWs is as follows:

Schedule B-[*] to Professional Services Agreement

between

General Dynamics Land Systems - Canada Corporation doing business as General Dynamics Mission Systems - Canada ("GDMS-C")

and

KWESST Inc., ("Seller")

Statement of Work No. ([insert SOW number in bold])

This Statement of Work contains confidential and proprietary information of GDMS-C and Seller.

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1.General Terms

1.1General

1.1.1This Statement of Work ("SOW") sets forth the Services and Deliverables to be provided by the Seller to GDMS-C in support of [insert name of program] ("Program").

1.2Services

1.2.1The following Services shall be provided by the Seller in support of the Program:

1.2.1.1[Insert a description or list of Services to be performed by the Seller during the Period of Performance.]

1.3Deliverables

1.3.1The following Deliverables shall be provided by the Seller in support of the Program:

Deliverables Format (i.e. CD-ROM, electronic, MS Word, etc.)

1.4Project Coordinator

1.4.1The Seller will assign a Project Coordinator with overall responsibility for coordinating the provision of Work as outlined in this SOW, including without limitation the management of all Seller's Contractor(s) and related activities. The Project Coordinator will be the primary point of contact ("POC") for GDMS-C.

1.4.2Primary responsibilities of the Project Coordinator will include but not be limited to [insert description of POC responsibilities].

1.5Contacts

	Name	Title/Roll	Phone	Email
Seller		Project Coordinator
GDMS-C		Authorized Technical Representative
GDMS-C		Authorized Contracting Authority

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1.6Access to GDMS-C Personnel

1.6.1Seller [will/will not] require access to the following GDMS-C personnel to perform the Work.  Such access will be facilitated through the GDMS-C Contracting Authority. [If access to GDMS-C personnel will be required for the Work, insert the titles of the personnel to whom access will be required].

Name Title/Roll Phone Email

1.7Work Location

1.7.1Services shall be performed at the following location(s):

1.7.1.1GDMS-C (Address): [insert full municipal address]

1.7.1.2Seller (Address): [insert full municipal address]

1.7.1.3Customer (Address): [insert full municipal address]

1.8Acceptance

1.8.1Except as otherwise specifically provided below, criteria for acceptance of the Work, including without limitation the Deliverables, shall be as determined by the Authorized Technical Representative. The Work, including the Deliverables shall be subject to review and approval by the Authorized Technical Representative.  In accordance with the following acceptance criteria:

1.8.1.1[List applicable acceptance criteria]

2.Commercial Terms

2.1Period of Performance

2.1.1The period of performance for Work shall commence on [insert start date] and end on [insert end date] ("Period of Performance").

2.2Seller's Contractor(s') Availability

2.2.1Except as otherwise agreed with the GDMS-C Contracting Authority, there shall be no pre-set hours of work and the Seller's Contractors shall be available to perform the Work on any day of the week, Sunday through Saturday, in coordination with the Authorized Technical Representative.

2.2.2Except as otherwise specifically agreed in writing with the GDMS-C Contracting Authority, the Seller's Contractors shall not be entitled to claim Overtime for the performance of Services.

2.2.3Overtime is defined by the Ontario Labour Code as work in excess of forty-four (44) hours of work in a calendar week (Sunday through Saturday, inclusive), or on Statutory Holidays as defined therein.  Overtime shall be defined in accordance with the provisions of the applicable labour law in effect in the jurisdiction where Seller's Contractors are performing Services ("Overtime").

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2.2.4If Overtime is to be specifically permitted by GDMS-C in writing, the following shall apply:

2.2.4.1"Full-Time Availability" means availability during the Period of Performance on a "Man-Day" basis, that is, eight (8) hours per day, Monday to Friday, within GDMS-C core business hours, subject to the provisions applicable to Overtime.  A Man-Day excludes Canadian statutory and GDMS-C company holidays, employee annual vacation, and sick days ("Excluded Days").

2.2.5In calculating Overtime consideration shall be given to the period of time, in excess of Full Time Availability and on Excluded Days, during which the Seller's Contractors provide Services.

2.2.6The Seller will monitor and track on a monthly basis the Overtime hours, if any, worked by the Seller's Contractor(s).  Where it is necessary for GDMS-C to reimburse the Seller's Contractor(s) for Overtime hours worked, these hours will be summarized at the end of each calendar month, and will be included as a separate line item on the monthly invoice to GDMS-C, identifying total Overtime hours worked in the prior calendar month, and the costs associated with this effort.

2.2.7Overtime hours will be reimbursed at the rates identified in the table below.

Overtime Rates
PM	$[***] / hour
Engineering	$[***] /hour

2.3Basis of Payment and Prices

2.3.1The basis of payment for Work, including Deliverables, provided under this SOW is as follows:

2.3.1.1[The firm fixed price for Work, including Deliverables, is $[insert amount], is stated in Canadian dollars, is inclusive of all overheads, mark-ups and fees, and is valid for the Period of Performance ("Price").  GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed the Price and Seller shall not adopt any changes in the Work, including Deliverables, that would cause an increase in the Price unless otherwise authorized in writing by the GDMS-C Contracting Authority.]

                                           [OR]

2.3.1.2[The rates for Work, including Deliverables, on a time and materials basis are listed in the table below, are stated in Canadian dollars, are inclusive of all overheads, mark-ups and fees, and are fixed for the Period of Performance ("Price").  GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed $[insert not to exceed amount] ("Not To Exceed Limit") unless otherwise authorized in writing by the GDMS-C Contracting Authority.]

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Work Fee
Hourly Rate (CDN$)	Number of Hours	Total Not to Exceed Fee (CDN$) for Period of Performance
$  /hour

      [OR]

2.3.1.3[A milestone plan has been established for the Services, including Deliverables and is set forth in Attachment 1 to Exhibit B. The firm fixed price for Work is $[insert amount], is stated in Canadian dollars, is inclusive of all overheads, mark-ups and fees, and is valid for the Period of Performance ("Price").  GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed the Price and the Seller shall not adopt any changes in the Work that would cause an increase in the Price unless otherwise authorized in writing by the GDMS-C Contracting Authority.]

2.4Travel and Living

2.4.1Subject to prior approval and authorization by the GDMS-C Contracting Authority, GDMS-C will reimburse the Seller in accordance with GDMS-C guidelines (based on the per diem rates as set by the Government of Canada, Department of Defence for such reasonable travel, living and other out-of-pocket expenses that the Seller's personnel may incur in providing Work under the Agreement).

2.5Other Costs

2.5.1Any other costs that may be required to be incurred by the Seller in order to perform Work shall be subject to prior written agreement between GDMS-C and the Seller.

In witness whereof, the Parties have caused this SOW to be executed by their duly-authorized representatives to be effective as of the Period of Performance stated above.

For and on behalf of: General Dynamics Land Systems - Canada Corporation doing business as General Dynamics Mission Systems - Canada	For and on behalf of: KWESST Inc.
I warrant that I have authority to bind the company.	I warrant that I have authority to bind the company.
Signed by:	Signed by:
Name:	Name:
Title:	Title:

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Annex 1 of Schedule B: Milestone Payment Plan

Not Used.

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Schedule C: GDMS-C's Contractor's Code of Conduct

1.Introduction

1.1Times will change. GDMS-C's products will change. GDMS-C's employees will change. GDMS-C's customers will change.  What GDMS-C will not change is its commitment to its key beliefs.

2.Key Beliefs

2.1Key beliefs define who we are -- as individuals and as a company.  GDMS-C's key beliefs have defined it for many years to each other, to its customers, its shareholders, its suppliers, its competitors, and its communities.

2.2"Uncompromising integrity" means staying true to what we believe.  We adhere to honesty, fairness and "doing the right thing" without compromise, even when circumstances make it difficult.

2.3"Constant respect for people" means we treat others with dignity, as we would like to be treated ourselves.  Constant respect applies to every individual we interact with around the world.

3.Purpose of the Contractor's Code of Business Conduct

3.1Since its inception, the keystone of GDMS-C's business success has been integrity with respect to its dealings with customers, suppliers and governments.  The highest order of ethical conduct has and continues to be the very foundation of our enterprise.  These qualities have been instilled and transmitted throughout GDMS-C ("Company").

3.2GDMS-C adheres to a Code of Business Conduct that provides firm uncompromising standards for each GDMS-C employee in dealing with agents, customers, suppliers, political entities and others.  The Code re-emphasizes and provides guidance regarding policies that have been an integral part of GDMS-C's business philosophy from its beginning.

3.3GDMS-C believes that its Contractors should also maintain the highest order of ethical conduct.  The following Contractor's' Code of Conduct ("Code of Conduct") represents GDMS-C's expectations with respect to the ethical conduct of the Contractors we retain.  GDMS-C urges our Contractors to strive to achieve and maintain the principles outlined in this Code of Conduct.

3.4The terms "GDMS-C" and "Company" as used in this Code of Conduct includes GDMS-C and all of its affiliated companies.

4.Your Responsibility as a Contractor to GDMS-C Employees

4.1To respect the dignity of each and every individual GDMS-C employee.

4.2Constant Respect

4.2.1GDMS-C expects that its Contractors will treat GDMS-C employee with respect and fairness at all times.

4.3Harassment

4.3.1Abusive, harassing or offensive conduct is unacceptable, whether verbal, physical or visual.  Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.

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4.4Safety and Health

4.4.1All GDMS-C Contractors are responsible for maintaining a safe workplace by following safety and health rules and practices.  You are responsible for immediately reporting accidents, injuries, and unsafe equipment, practices or conditions related to your performance of work for GDMS-C to your GDMS-C contact person. GDMS-C is committed to keeping its workplaces free from hazards.

4.4.2In order to protect the safety of all employees, Contractors must report to GDMS-C's facilities free from the influence of any substance that could prevent them and GDMS-C employees from conducting work activities safely and effectively.  Threats or acts of violence or physical intimidation are prohibited.

5.Your Responsibility to GDMS-C and its Shareholders

5.1Protecting GDMS-C Assets

5.1.1GDMS-C assets such as funds, products, or computers may only be used for GDMS-C business purposes or other purposes approved by management.  GDMS-C assets may never be used for illegal purposes of any kind.  The payment of a bribe to a public official or the kickback of funds to an employee of a customer would be in direct violation of this Section of the Code.  Under no circumstances may the payment of a gratuity, fee, or gift of any kind be made to a government employee whether in recognition of efficient service or otherwise.

5.2Proprietary Information

5.2.1Safeguard all proprietary information by marking information accordingly, keeping it secure, and limiting access to those who have a need-to-know in order to do their job.  Proprietary information includes any information that is not generally known to the public and is helpful to GDMS-C, or would be helpful to competitors. The obligation to preserve proprietary information continues even after the consultancy period ends. Information disclosed by a customer or supplier to a GDMS-C Contractor and clearly identified verbally or in writing as sensitive, private or confidential shall also be protected from disclosure to unauthorized persons inside and outside the Contractor and GDMS-C to the same extent as GDMS-C sensitive, private or confidential information is protected, except where such information was already known to the Contractor or to GDMS-C, is available from other sources, or is generally known outside GDMS-C or customer organizations.

5.2.1.1Example: A customer makes GDMS-C or a GDMS-C Contractor aware of a confidential project for which it is contemplating use of GDMS-C products.  The customer asks GDMS-C or a GDMS-C Contractor to hold the discussion in confidence. This request will be honoured. The information will not be disclosed by the GDMS-C Contractor to persons without a reasonable need to know in order to serve the best interests of that customer.  Nor will the information be disclosed to any persons outside GDMS-C or the GDMS-C Contractor except where required to comply with a law or regulation.

5.3Inside Information and Securities Trading

5.3.1Contractors are not allowed to trade in securities or any other kind of property based on knowledge that comes from their work at GDMS-C, if that information hasn't been reported publicly.  It is against the laws of many countries, including the U.S, to trade or to "tip" others who might make an investment decision based on inside job information.  For example, using non-public information to buy or sell GDMS-C stock, options in GDMS-C stock or the stock of a GDMS-C supplier or customer is prohibited.

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5.4Accuracy of Company Records

5.4.1We require honest and accurate recording and reporting of information in order to make responsible business decisions. This includes business data such as quality, safety, and personnel records, as well as all financial records.

5.4.2All financial books, records and accounts must accurately reflect transactions and events, and conform to required accounting principles. No false or artificial entries may be made.  When a payment is made, it can only be used for the purpose spelled out on the supporting document.  For example, it would be a violation of this Section of the Code to purposefully issue an invoice or other document that inaccurately reflected a transaction.

6.Your Responsibility to Competitors

6.1We compete aggressively and with integrity at the same time.

6.2Competitive Information

6.2.1Contractors must never use any illegal or unethical methods to gather competitive information.  Stealing proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited.  If information that may constitute a trade secret or confidential information of another business is obtained by mistake, or if you have questions about the legality of information gathering, inform your GDMS-C contact person who, in turn, will consult with the GDMS-C Law Department.

7.Your Responsibility to Governments

7.1As a responsible citizen, it is your obligation to obey the law.

7.2Compliance with the Law

7.2.1GDMS-C Contractors around the world are required to comply with all applicable laws and regulations. Demands due to business conditions are not excuses for violating the law.  If you have any questions or concerns about the legality of an action, you are responsible for checking your management and requesting assistance from GDMS-C.  Contractors of GDMS-C will respect the laws, customs and traditions of each country in which they operate, but will, at the same time, engage in no act or course of conduct which, even if legal, customary and accepted in any such country, could be deemed to be in violation of the accepted business ethics of GDMS-C or the laws of Canada relating to business ethics.

7.3GDMS-C Political Activities

7.3.1No GDMS-C Contractor may make any political contribution for GDMS-C or use GDMS-C's name, funds, property, equipment or services for the support of political parties, initiatives, committees or candidates.  The term "political contributions" is used in its broadest sense and includes local, provincial  or federal fund-raising dinners, banquets, raffles or any funds or gifts (including the free or discounted use of property or services) which could be routed, directly or indirectly, to a political candidate, party, committee or organization.

7.4Anti-Corruption Laws

7.4.1GDMS-C and GDMS-C Contractors will comply with the anti-corruption laws of the countries in which it does business, including the U.S. Foreign Corrupt Practices Act ("FCPA") and the Canadian Bribery of Foreign Officials Act which applies to its global business. GDMS-C and GDMS-C Contractors will not directly or indirectly offer or make a corrupt payment to government officials, including employees of state-owned enterprises.

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7.5Crossing National Borders

7.5.1When importing or exporting products, services, information or technology, GDMS-C and GDMS-C Contractors will comply with applicable Canadian, U.S. and other national laws, regulations and restrictions.  In addition, if Contractor travels internationally on behalf of GDMS-C he/she is also subject to laws governing import and export. GDMS-C Contractors are responsible for knowing the laws that pertain to them, and for checking with the GDMS-C contact person who, in turn, can check with an import/export compliance manager.

8.Conflict of Interests

8.1We will make business decisions based on the best interests of GDMS-C.

8.2General Guidance

8.2.1Business decisions and actions must be based on the best interests of GDMS-C, and must not be motivated by personal considerations or relationships.  Relationships with prospective or existing suppliers, contractors, customers, competitors or regulators must not affect independent and sound judgment on behalf of GDMS-C.  General guidelines to help GDMS-C Contractors better understand several of the most common examples of situations that may cause a conflict of interest are listed below.  However, you are required to disclose to local GDMS-C management any situation that may be, or appear to be, a conflict of interest.  When in doubt, it is best to disclose.

8.3Family Members and Close Personal Relationships

8.3.1Contractor may not use personal influence to get GDMS-C to do business with a company in which Contractor's family member or friend has an interest.  If an instance occurs where it is important to GDMS-C's advantage to enter into such a transaction, the proposed situation shall be submitted in writing to, and receive prior written approval of, GDMS-C's Law Department before any commitment is made.  Such approval will not be granted unless it can be ascertained that the terms of the transaction are to be determined by competitive bidding or are established by law, or are determined under other conditions which clearly establish an arm's length fairness of terms.

9.Gifts

9.1Gifts are not always physical objects -- they might also be services, favours or other items of value.

9.2Gifts to GDMS-C Employees and From GDMS-C Employees

9.2.1Contractors don't accept kickbacks, lavish gifts or gratuities. They can accept items of nominal value, such as small promotional items bearing another company's name.  They will not accept anything that might make it appear that their judgment for GDMS-C would be compromised. Suppliers win GDMS-C business on the basis of product or service suitability, price, delivery and quality. There is no other basis. Attempts to influence procurement decisions by offers of any compensation, commission, kickback, paid vacation, special discount on a product or service, entertainment or any form of gift or gratuity must be firmly rejected by all GDMS-C Contractors.  In some rare situations, it would be impractical or harmful to refuse or return a gift. When this happens, discuss the situation with local GDMS-C management.

9.3Gifts Given by GDMS-C

9.3.1Some business situations call for giving gifts.  GDMS-C's gifts must be legal, reasonable, and approved by local management. GDMS-C never pays bribes.  We will not provide any gift if it is prohibited by law or the policy of the recipient's organization.  For example, the employees of many government entities around the world are prohibited from accepting gifts. If in doubt, check first.

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10.Entertainment

10.1We consider "entertainment" to include a representative of both Parties at an event.

10.2Entertainment of GDMS-C's Contractors

10.2.1Contractors working on behalf of GDMS-C may accept entertainment that is reasonable in the context of the business and that advances GDMS-C's interest.  For example, accompanying a business associate to a local cultural or sporting event, or to a business meal, would in most cases be acceptable.

10.2.2Entertainment that is lavish or frequent may appear to influence your independent judgment on behalf of GDMS-C. If an invitation seems inappropriate, turn down the offer or pay the true value of the entertainment yourself. Discuss entertainment that may appear inappropriate with local GDMS-C management, in advance if possible.

10.3Entertainment by GDMS-C Contractors

10.4Contractors may provide entertainment that is reasonable in the context of the business if approved by GDMS-C contact person.  If you have a concern about whether providing entertainment is appropriate, discuss it with GDMS-C management in advance.  Entertainment of government officials may be prohibited by law.  Get approval from appropriate local government representatives in each instance.

11.Travel

11.1Acceptance of Travel Expenses

11.1.1Contractors may accept transportation and lodging provided by a GDMS-C supplier or other third party, if the trip is for business and is approved in advance by the GDMS-C Authorized Technical Representative.  All travel accepted must be accurately recorded in the Contractor's travel expense records.

12.Other Jobs

12.1A GDMS-C Contractor shall not engage in any activity where the skill and knowledge the Contractor develops or applies in the Contractor's GDMS-C position is transferred or applied to such activity in derogation of the present or prospective business interests of GDMS-C.  A GDMS-C Contractor shall not have any relationship with any other business enterprise which might affect the Contractor's independence of judgment in transactions between GDMS-C and the other business enterprise or otherwise conflicts with the proper performance of the Contractor's duties for GDMS-C.

13.Personal Financial Interest

13.1Supplier-Customer Relationships - A GDMS-C Contractor may not have any interest in any supplier or customer of GDMS-C which interest could in any respect compromise the Contractor's loyalty to GDMS-C.

13.2Competitor Relationships - A GDMS-C Contractor may not have any interest in another enterprise which might appear to adversely affect their judgment regarding their job or loyalty to GDMS-C.  The proper application of criteria concerning the effect of a specific interest on a Contractor's judgment and loyalty will vary somewhat with the circumstances, but generally, the greater the job responsibilities of the Contractor's employee within the Contractor's organization, the higher their duties are in these regards.

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13.3Interest of Associates - The interest of a GDMS-C Contractor's associate in a supplier, customer or competitor of GDMS-C may create a conflict-of-interest depending upon the facts and circumstances of the particular case.

13.3.1"Associate" for purposes of this policy statement shall mean:

13.3.1.1any relative of a GDMS-C Contractor, any person living in the Contractor's household or to whom the Contractor furnishes support or any person having a personal relationship, similar to the above, with a GDMS-C Contractor;

13.3.1.2any business in which the Contractor has a financial interest, any creditor or debtor of the GDMS-C Contractor, or any other person benefits to whom could reasonably be expected to relieve the GDMS-C Contractor of some obligation or obtain for the Contractor some personal advantage or gain; or

13.3.1.3any trust or estate administered by such persons or in which they have a financial interest as a beneficiary.

14.Key Beliefs

14.1It would be wonderful if the right thing to do were always perfectly clear. In the real world of business, however, things are not always obvious.  If you are ever in a situation where the "right thing" is unclear or doing the right thing is difficult, remember GDMS-C's key beliefs.

Does my action reflect GDMS-C's key beliefs of integrity and respect?

To GDMS-C employees? To customers?
To business partners, competitors and shareholders?
To the government? To the public?

If you wouldn't want your action to appear in the media, it's probably not the right thing to do.

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Schedule D: Seller and Seller's Contractor Certifications and Agreements Regarding Contractor Restrictions

ATTENTION: This certification is to be completed by Seller and every one of Seller's Contractors performing Work under this Agreement. If Seller or Seller's Contractor is a corporation, partnership or other form of business organization, the representations and certifications shall apply not only to the individual(s) who will be performing the Work but also to the principal officers and owners of the business organization.  The Seller shall provide a copy of every executed copy of this certification to GDMS-C's Contracting Authority.

1.1By execution of this Schedule D, as Seller or Seller's Contractor, I represent and certify to the following Integrity Provisions:

1.1.1I have reviewed the Government of Canada's Ineligibility and Suspension Policy (the "Policy") in effect on December 1, 2021 and all related Directives in effect on that date and I certify that I (Seller) complies with the Policy and directives which can be found at Ineligibility and Suspension Policy which can be found at http://www.tpsgc-pwgsc.gc.ca/ci-if/politique-policy-eng.html;

1.1.2I, the Seller, understand that certain domestic and foreign criminal charges and convictions and other circumstances as described in the Policy will, or may, result in a determination of ineligibility or suspension under the Policy by the Government of Canada;

1.1.3I, the Seller, certify that I am aware that GDMS-C may request additional information, certifications, and validations from me or a third party if requested by the Government of Canada to do so, for purposes of making a determination of ineligibility or suspension; 

1.1.4I, the Seller, certify to the best of my knowledge and belief, I, my affiliates and any proposed first tier subcontractors have not been charged with or convicted of any foreign criminal charges and convictions that may be similar to one of the listed offences in the Policy;

1.1.5I, Seller, certify that none of the domestic criminal offences, and other circumstances, described in the Policy that will or may result in a determination of ineligibility or suspension apply to me, my affiliates and any proposed first tier subcontractors; and

1.1.6I, Seller, certify that I am not aware of a determination by the Government of Canada of a determination of ineligibility or suspension issued by the Government of Canada that applies to me.

1.2By execution of this Schedule D, as Seller or Seller's Contractor, I agree that, I will not engage in any effort on behalf of GDMS-C to lobby (i.e., to influence or attempt to influence) the Government of Canada or any Member of Parliament.

1.3By execution of this Schedule D, as Seller's Contractor, I represent that I have and will make disclosure during the Term of this Agreement and the Period of Performance of each Statement of Work, of each instance where I am providing a supplier, customer, or competitor of GDMS-C services similar to those provided for hereunder or have provided such services during a period of twelve (12) months prior to the date of any certification and I further represent that I will disclose to GDMS-C prior to entering into any such arrangements in the future and will provide current certifications as may be requested by GDMS-C in order to facilitate its compliance with applicable laws and regulations.

1.4By execution of this Schedule D, as Seller or Seller's Contractor, I agree that I shall not attempt to obtain, or receive any information that is security classified or procurement sensitive, directly or indirectly, from the Government of Canada or any other source where it is clear that release is unauthorized or in circumstances where there is reason to believe that such information cannot lawfully be in GDMS-C's possession. The same prohibitions apply to information of another company that is business confidential or proprietary.  For the purpose of this Agreement, the term "Information" includes documents, video and audio materials, oral transmissions, electronic data, and any other method or means by which information might be conveyed.

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1.5I UNDERSTAND AND AGREE THAT I AM NOT AN EMPLOYEE OF GDMS-C, AND THAT MY EMPLOYER IS RESPONSIBLE FOR ANY TAX DEDUCTIONS AND WITHHOLDINGS.

1.6I FURTHER UNDERSTAND AND AGREE THAT GDMS-C'S VARIOUS BENEFIT PLANS ARE INTENDED TO PROVIDE BENEFITS SOLELY TO GDMS-C EMPLOYEES, AND NOT TO SERVICES, INDEPENDENT CONTRACTORS, LEASED EMPLOYEES, OR TEMPORARY CONTRACT LABOUR, AND IN CONSIDERATION OF BEING PERMITTED TO PERFORM SERVICES ON GDMS-C'S PREMISES, I WAIVE ANY CLAIMS FOR BENEFITS UNDER ANY OF GDMS-C BENEFIT PLANS.

1.7By execution of this Schedule D, as an individual working for Seller, I agree and understand that my employer has entered into this Agreement to provide Work to GDMS-C. My employer desires to assign me to perform the Work under this Agreement. I understand that such work may require access to GDMS-C's, its customers', suppliers' and business partners' Proprietary Information, or property on which such Proprietary Information is located. I also understand that such work is for the sole benefit of GDMS-C and that all Intellectual Property and work product shall be the sole and exclusive property of GDMS-C.

1.8Before GDMS-C shall permit my employer to assign me to perform to provide Work for GDMS-C, I understand that I must agree to the following conditions for the benefit of GDMS-C.  By executing this Agreement, I do so agree to the following:

1.8.1In providing Work to GDMS-C, I shall not disclose to or use in any work I perform for GDMS-C, any confidential information belonging to myself or to others, unless I have obtained their written authorization to do so from both the owner of the confidential information and from GDMS-C.  I shall not knowingly use or incorporate any inventions made by me or others which GDMS-C is not otherwise entitled to learn or use.

1.8.2Except as my work for GDMS-C requires, I shall not use, publish, or disclose to others, either during or after my work for GDMS-C, any Proprietary Information of GDMS-C or of GDMS-C's customers, suppliers, or business partners, because Proprietary Information is a valuable asset, and its use, publication or disclosure may have harmful consequences.

1.8.3Upon completion of my work for GDMS-C I shall promptly deliver to GDMS-C all documents, records, badges, and other materials which belong to GDMS-C or relate to its business activities.

1.8.4I shall transfer and assign and I do hereby transfer and assign to GDMS-C as its exclusive property, my entire right, title, and interest in all of those Inventions conceived or reduced to practice by me solely, or jointly with others, during the Term of the Agreement, including during the Period of Performance of any SOW if they (a) are made with GDMS-C equipment supplies, facilities, trade secrets, Proprietary Information, or time; (b) relate to GDMS-C business or to GDMS-C actual or demonstrably anticipated research or development, (c) result from any Services performed by me for GDMS-C, or (d) embodied in Deliverables and I shall waive and do hereby waive all moral rights in the Services and Deliverables including but not limited to all copyrights, inventions, and patents, including copyright renewal rights, and relinquish and transfer and set over to GDMS-C any and all interest in such work.

1.8.5I shall make and maintain written records of all inventions, innovations, or ideas referred to in the preceding Subsection, and shall promptly submit such records and make supplemental disclosures to GDMS-C.  I shall also execute all papers and otherwise provide proper assistance at GDMS-C's request and reasonable expense, during and after my work for GDMS-C, to enable GDMS-C or its nominees to obtain patents, copyrights, and legal protection for Inventions in any country.

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1.8.6I agree that all notes, drawings, designs, memoranda, computer programs, and other data prepared or produced in the performance of Work for GDMS-C shall be the sole property of GDMS-C, and shall not be disclosed to anyone outside of GDMS-C.

1.8.7I agree that all computer programs, software, and the like, and any documentation for them, which are created by me in the performance of Work for GDMS-C, shall be considered to be works made for hire for purposes of the copyright laws of Canada, and to the extent that any such items are determined by a court not to be works made for hire, I shall transfer and assign and I do hereby transfer and assign, and I shall waive and do hereby waive all moral rights and all of my interest, including any copyright interest I may own, in such items to GDMS-C.

1.8.8I understand that the term "Invention" when used above includes innovations and ideas in any form, original works of authorship, and other intellectual property, including computer programs.  The term "Proprietary Information" includes proprietary information, trade secrets, and other information learned during the provision of Work under this Agreement.  The term also includes proprietary information, trade secrets, and other information learned by Seller from third parties during the provision of Work under this Agreement.  The term does not include information which, at the time of disclosure, is available to the general public without breach of this Agreement or another non-disclosure agreement; or information that is properly released from all restrictions in writing by its owner to Seller; or information that is lawfully obtained from a third party without confidential restriction; or was known to Seller without confidential restriction prior to disclosure; or information that is, at any time, developed by Seller independent of this Agreement.  Proprietary Information does include information regarding GDMS-C products, computer systems, business plans, processes, equipment, personnel, or facilities, which is disclosed in oral, written, graphic, or machine recognizable or reusable form, and which is designated, labelled, or marked as confidential or its equivalent, names of customers, names and qualifications of employees, organizational structures, number or character of contracts, marketing strategies and Prices, manufacturing processes, equipment or strategies, or products.

1.9I agree that while on GDMS-C's property I shall comply with all work place procedures of which I have notice. I have received and read a supplier safety pamphlet provided by GDMS-C. I understand that my failure to follow these procedures may result in the denial of further access to GDMS-C's property.

1.10By execution of this Schedule D, as Seller or Seller's employee, I represent that:

1.10.1Seller has provided me with a copy of and that I have carefully read the GDMS-C Contractors Code of Conduct.

1.10.2I understand that the GDMS-C Contractors Code of Conduct policy sets forth the standards of ethics and conduct that GDMS-C expects of Contractors. As a condition of my assignment to GDMS-C as a contractor, I agree to conduct myself in a manner that is consistent with such Code of Conduct.

1.10.3I understand that the GDMS-C Contractor's Code of Conduct contains GDMS-C's expectations regarding the giving and receiving of gifts and entertainment by non-employees, including contract workers, to or from GDMS-C's employees.  As a condition of my assignment to GDMS-C as a contractor, I agree that I shall not offer gifts to GDMS-C's employees nor accept gifts from GDMS-C's employees that would violate this policy.

1.10.4I understand and acknowledge that my agreement to comply with these policies and procedures does not create any employment relationship between myself and GDMS-C.

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1.10.5To the best of my knowledge and belief, all activities on behalf of GDMS-C by employees or agents under my supervision have been in compliance with the terms of the GDMS-C's Contractor's Code of Conduct, except such activities which have been previously reported in writing to the Ethics Director or Chief Legal Counsel of GDMS-C and have been approved as an exception to the policy.

1.10.6Additionally, all of my individual activities on behalf of GDMS-C have been in compliance with the terms of the GDMS-C Contractor's Code of Conduct.

1.10.7I further understand that if I require interpretation of any part of the GDMS-C Contractor's Code of Conduct, I can obtain such interpretation by contacting the GD Ethics Director via email or the Hotline at 1-877-DS-ETHIC (1-877-373-8442 for USA and Canada or 480-441-5757 from any other country).

1.11By execution of this Schedule D, as Seller or Seller's Contractor, I agree that inappropriate Internet activity on GDMS-C's computers is not allowable. Examples of inappropriate activity include accessing, storing or forwarding inappropriate, illegal, pornographic or otherwise offensive materials.  I understand GDMS-C has a zero-tolerance policy for misuse of GDMS-C's assets, both during and after normal work schedules.  GDMS-C shall terminate your assignment, if you disregard this policy.

1.12I understand that GDMS-C has authorized regular monitoring of servers and workstations and that I shall not store inappropriate materials on any workstation or assigned server.  Access of inappropriate web sites is not allowed.

1.13By my signature below I am certifying that I have read, understand, and shall comply with the foregoing statements and that the certifications provided by me are true:

Seller: KWESST Inc.

Signature: /s/ Rick Bowes

Print Name: Rick Bowes - VP Operations

Date: 3 Dec 2021

1.14By my signature below I am certifying that I have read, understand, and shall comply with the foregoing statements and that the certifications provided by me are true:

Seller: KWESST Inc.

Signature: /s/ Rick Bowes

Print Name: Rick Bowes, VP Operations

Date: 3 Dec 2021

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Schedule E: Security Terms and Conditions

1.1Compliance with Rules and Regulations

1.1.1Seller agrees that, while visiting or working at GDMS-C's facilities, Seller shall comply, and Seller agrees that it shall ensure its Contractors shall comply, with all facility rules and regulations of which they have notice, including, but not limited to, the security requirements set forth in the Government of Canada Industrial Security Manual.

1.2Audio or Video Recording Devices

1.2.1Seller understands and agrees to inform Seller's Contractors that it is against GDMS-C's policy for Seller and its Contractors to bring any audio or video recording device onto GDMS-C's property without the prior express written permission of GDMS-C's security department and Seller agrees to ensure that Seller's Contractors strictly abide by such policy.  Prohibited recording devices include, but are not limited to, any digital or analogue audio recorders and any still or video camera, whether using photographic film or digital technology and shall include, without limitation, personal digital assistants, handheld computers, portable data storage devices (i.e. thumb drives and external hard drives) or any other computer cameras capable of recording still or moving images.  Seller further agrees, and Seller agrees to ensure that Seller's Contractors agree, that Seller and Seller's Contractors shall not use the built-in audio recording capability of any computer it brings onto GDMS-C's property without the prior express written permission of GDMS-C's security department.  Seller understands and agrees to inform Seller's Contractors that in the event it should violate GDMS-C's policy, GDMS-C may suffer irreparable harm with no adequate remedy at law.  Accordingly, Seller agrees that if Seller or any of Seller's Contractors should violate GDMS-C's policy, Seller's and/or Seller's Contractor's, as applicable,  equipment and any recorded material shall be subject to confiscation and GDMS-C shall be entitled to temporary and permanent injunctive relief with respect to any Seller and Seller Contractor records in violation of GDMS-C's policy.  GDMS-C also reserves its right to seek monetary damages with respect to any violation of GDMS-C's policy by Seller and Seller's Contractors.

1.3Information Required for Access

1.3.1Seller shall be required to provide information concerning citizenship or immigrant status of Seller's Contractors entering the premises of GDMS-C.  Seller agrees to furnish this information before commencement of Work and at any time thereafter before substituting or adding new personnel to work on GDMS-C's premises. Information submitted by Seller shall be certified by an authorized representative of Seller as being true and correct.  Seller shall comply with all the rules and regulations established by GDMS-C for access to and activities in and around premises controlled by GDMS-C or GDMS-C's customer.

1.4Escorted/Unescorted Access to Facilities

1.4.1Access to GDMS-C's facilities on an unescorted basis and/or access to any of GDMS-C's computer networks shall not be granted, unless and until Seller, at its own expense, complies with GDMS-C's policies regarding background screening set forth below. These background screening requirements must be completed prior to Seller's Contractors commencing the Work.

1.5Background Screening Information

1.5.1Seller shall comply, and Seller shall ensure that Seller's Contractors shall comply, with the Government of Canada then-current Enhanced Security Strategy ("ESS") Assessments.

1.5.2A consumer credit history check, excluding any credit score, from a national credit bureau shall be provided to GDMS-C for Seller and Seller's Contractors who: (a) have some responsibility for administration of GDMS-C's computer networks, (b) have access to non-public financial performance data of GDMS-C or (c) perform functions determined by GDMS-C's security director to protect GDMS-C and its assets.

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1.5.3Seller agrees not to assign, without prior written approval from a GDMS-C authorized human resources manager, any individual to perform services on GDMS-C's premises who has been convicted of any serious crime involving violence or threat of violence, theft or other dishonest conduct, drugs or controlled substances, computer-related crimes, or similar crimes which create an increased risk to persons or property. GDMS-C reserves the right to broaden the scope of these requirements with appropriate notice to Seller.

1.5.4Seller shall be responsible for obtaining all Contractor consents and authorizations required in relation to background screening. GDMS-C shall have the right to deny access to its facility of any Seller's Contractors based upon GDMS-C's review of the background screening results.

1.5.5Seller agrees to retain, during the Term of this Agreement and for at least two (2) years from the date of last assignment at GDMS-C, all documents relating to background screening of Contractors who are or were assigned to perform services on GDMS-C premises. Upon request by GDMS-C and, within one (1) business day, Seller agrees to provide GDMS-C with a copy of such documents for any Contractors assigned to perform services on GDMS-C premises.

1.6Exception to the Background Screening Requirements

1.6.1The above background screening requirements are not applicable to Seller's Contractors that performed services under a prior agreement for professional services with GDMS-C where the prior background screening requirements were completed within the last year.

1.7Access to Classified or Restricted Data. 

1.7.1Any classified or restricted data, information, or item required by Seller or Seller's Contractors in the performance of Work under this Agreement shall be furnished only after receipt by GDMS-C of proof that Seller and Seller's Contractors have the necessary security clearance, and the execution of any requisite non-disclosure agreement(s).

1.8Use of GDMS-C's Computers or Computer Networks

1.8.1In the event Seller and/or Seller's Contractors are provided access to GDMS-C's computer networks, or are provided with a computer by GDMS-C for the purposes of performing Work under this Agreement (collectively "Computer Resources"), Seller agrees, and Seller agrees to ensure that Seller's Contractors each agree,  to comply with GDMS-C's policy on appropriate use of Computer Resources and must ensure that all software stored in or executed on GDMS-C's Computer Resources are in accordance with applicable license agreements.  GDMS-C expressly reserves the right to audit, access, monitor, and inspect electronic communications and data created, stored or transmitted on its Computer Resources in accordance with applicable law.  Access to GDMS-C's computer or computer networks by Seller and or Seller's Contractors may be terminated at GDMS-C's will.

1.9Safety

1.9.1Seller agrees to comply with the federal and provincial occupational laws, regulations or standards, and all GDMS-C's safety rules of which Seller has notice, regarding the performance of Work under this Agreement. Seller agrees to communicate GDMS-C's safety rules to Seller's Contractors.

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1.10Hazardous Substances

1.10.1GDMS-C uses a number of "hazardous substances" and some of these substances may be used in work areas where Seller and Seller's Contractors may perform Work.  The Material Safety Data Sheet (MSDS) kept on file by GDMS-C for any hazardous substances which are present in such work areas shall be made available for review by Seller and Seller's Contractors upon request.

1.10.2Seller agrees, and Seller shall ensure that Seller's Contractors each agree, not to deliver or transport any hazardous substances or materials onto GDMS-C's property without having first obtained prior written approval from GDMS-C's Environmental, Health and Safety Department, and Seller agrees, and Seller shall ensure that Seller's Contractors each agree, to comply with any instructions from such department regarding such substances and materials.

1.10.3Seller agrees, and Seller shall ensure that Seller's Contractors each agree, to immediately report any known spill of hazardous materials, hazardous substances, or hazardous wastes on GDMS-C's property whether caused or not by Seller or Seller's Contractors.  In addition, for spills of hazardous materials, hazardous substances, or hazardous wastes which are owned or controlled by Seller, Seller agrees that containment and clean-up shall be at the sole expense of Seller and shall be performed to the satisfaction of GDMS-C's Environmental, Health and Safety Department.

1.11Emergency Medical Aid

1.11.1Seller authorizes GDMS-C to administer minor first aid to Seller or Seller's Contractors for injuries incurred on GDMS-C's property.  In the event of a serious injury or if immediate emergency care is believed necessary for an illness, Seller authorizes GDMS-C to arrange for emergency response services at Seller's expense.

1.12Denial of Facility Access

1.12.1The Seller agrees that GDMS-C shall at all times have the right, for any reason, to deny or withdraw access to its property to the Seller or any Contractor.

1.13Without limitation or waiver of any of GDMS-C rights otherwise set forth in this Agreement, GDMS-C may stop the work of the Seller or the Contractor at any time and remove any Contractor from GDMS-C premises if the Seller or the Contractor fails to comply with their obligations herein.

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Annex 1 of Schedule E: Security Requirements Checklist ("SRCL")

Not Used.

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Schedule F

Not Used

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EX-10.16

Subcontract #:324556

SOW #: 1

Certain portions of this exhibit have been excluded because the information is both (i) not material and (ii) the type that the registrant customarily and actually treats as private or confidential. Omitted information has been noted in this document with a placeholder identified by the mark "[***]".

Schedule B-1 to Master Professional Services Agreement

between

General Dynamics Land Systems - Canada Corporation doing business as General
Dynamics Mission Systems - Canada ("GDMS-C")

and

KWESST Micro Systems Inc. ("Seller")

Statement of Work No. (1)

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This Statement of Work contains confidential and proprietary information of GDMS-C and Seller.

1.General Terms

1.1General

1.1.1This Statement of Work ("SOW") sets forth the Services and Deliverables to be provided by the Seller to GDMS-C to enable development and integration of a prototype solution that successfully integrates an Android device with LCSS showing a representative Battle Management Application and a surrogate Specialist Application ("Project").

1.2Objective

1.2.1The objective of this Project is to develop an integrated demonstrator of Tactical Applications on an Android host. More specifically to:

1.2.1.1Successfully integrate a representative Battle Management Application and a surrogate Specialist Application on the same Android device; and

1.2.1.2Support a compelling demonstration of tactical information exchange:

1.2.1.2.1between applications on the same Android device;

1.2.1.2.2amongst a community of Android devices; and

1.2.1.2.3with the mounted segment.

1.3Project Execution/Overview

1.3.1The Project will be organized to utilize agile methodology planning and reporting sequences. That is, for the expected duration of 6 months, the following cadence will be used:

1.3.1.1Bi-weekly "sprint" cycle will be used for technical tasks;

1.3.1.2Monthly progress reporting (financial, technical progress);

1.3.1.3Quarterly planning efforts (used to assess progress, work remaining, and work plans);

1.3.1.4End-of-quarter progress demonstrations;

1.3.1.5Seller will participate in bi-weekly virtual meetings where Seller will report on status (progress, issues, and risks);

1.3.1.6Meeting agendas, suitable times, and other details will be agreed between GDMS-C and Seller, but are expected to include:

1.3.1.6.1Project Kickoff meeting;

1.3.1.6.2Weekly or bi-weekly engineering meetings;

1.3.1.6.3Monthly Programme status meetings; and

1.3.1.6.4Following a loose agile cadence, quarterly planning session and end-of-quarter progress demonstration;

1.3.1.7Participation in technical design reviews will be agreed between GDMS-C and Seller, but are expected to include:

1.3.1.7.1High-level architecture review;

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1.3.1.7.2API/ICD review for critical interfaces;

1.3.1.7.3Demonstration plan and layout;

1.3.1.7.4Demonstration readiness review.

1.3.2Project Phases

1.3.2.1The project will consist of the following major phases, intended to structure and execute the target tasks to complete the requested deliverables. The phases are:

Phase 1 - Architect the Solution

Phase 2 - Develop/Buy/Demonstrate Critical Elements of the Solution

1.4Services

1.4.1The following Services shall be provided by the Seller in support of the Project:

1.4.1.1Phase 1: Define High Level Architecture - This phase is focused on identifying the elements of the solution, how they come together and the best path forward to realize and demonstrate the solution is fit for purpose. Key areas of investigation include:

1.4.1.1.1Exploration/early de-risking of:

1.4.1.1.1.1[***];

1.4.1.1.1.2[***];

1.4.1.1.1.3[***];

1.4.1.1.1.4[***];

1.4.1.1.1.5[***];

1.4.1.1.1.6[***]; and

1.4.1.1.1.7[***];

1.4.1.1.2Requirement Elicitation:

1.4.1.1.2.1What are the required services?

1.4.1.1.2.2What applications (available or requiring development) provide these services?

1.4.1.1.2.3What bearers are to be used, and what are their capabilities?

1.4.1.1.2.4What are the operational scenarios that will inform the deployment and IERs?

1.4.1.1.2.5[***]

1.4.2.3.1Develop a strawman architecture

1.4.2.3.1.1What are the elements?

1.4.2.3.1.2What is the data model?

1.4.2.3.1.3What is the over-the-air protocol?

1.4.2.3.1.4Define demonstration layout and capabilities.

1.4.2.1Phase 2: Procure and Integrate Initial Elements of the Solution - This phase is focused on identifying and sourcing elements that comprise the prototype solution. It expected to be 12 weeks in duration and will develop an end-of-PI demonstration suitable to be shown at the 2022 CANSEC trade-show (targeted for 1 June 2022). These elements may be procured or developed by GDMS-C or Seller. Key work elements include:

1.4.2.1.1Research to identify:

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1.4.2.1.1.1[***];

1.4.2.1.1.2[***];

1.4.2.1.1.3[***];

1.4.2.1.1.4[***]; and

1.4.2.1.1.5[***]

1.4.2.1.2Develop services and interfaces, as required.

1.4.2.1.3Develop a demonstration capability that highlights discriminating features of the solution. This demonstrator is planned to be showcased at the 2022 CANSEC trade-show.

1.4Acronyms

ACA - After Contract Award

API - Application Program Interface

DDS - Data Distribution Service

GPS - Global Positioning Service

GFE/GFI - Government Furnished Equipment/Government Furnished Information

ICD - Interface Control Document

OS - Operating System

PI - Program Increment

RTI - Real Time Innovations

TacCIS - Tactical Communication Information System

TNaaS - Tactical Networking as a Service

VMF - Variable Message Format

1.5Deliverables

1.6.1The following Deliverables shall be provided by the Seller in support of the Project:

Item #	Qty	Item Description	Notes	Part Number/SKU
1	3	Mount, PALS Armor, Tablet Series - Color - Tan		JG.MT.PALS.075
2	3	SLEEV, Tab Active 3 Case - Color - Tan		JG.SL.TAB.ACT3-QDD
7	3	Soldier Battery - Solopack	Solopack Battery	4-1311-0001
8	3	Battery Charger	Nerv-Centr Charger	4-1406-0001
11	3	Cable EUD to Mission Manager	Juggernaut USB-C to Might Mouse Plug	JG.CBL.QDK
14	3	Headset	INVISIO T7 Headset
15	3	Dual PTT	INVISIO V50 II
18		Load Carriage Items
19	3	Vest (Size L/XL) (Multi Cam)	TYR-PICO-MVW-MC	TYR-PICO-MVW-MC
20	3	Radio Pouch (Multi Cam)	TYR-CM0116-01C-MC	TYR-CM0116-01C-MC
21	3	Misc Cables Pouch (Multi Cam)	TYR-GP057-MC	TYR-GP057
22		Surveillance System
23	2	SPOTTER LRF PRO	LRF and Spotting Scope

4

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24	2	LRF Cable
25	2	NC BURD	Fast Acquisition Sight
26	2	Scout Scope Camera
27	4	USB to Hub Cable		808-053
28	2	TriPod	TACT 3-S Tripod

1.6.1.1The Seller shall perform work and provide all service deliverables described in Subsection 1.4 as required and directed by GDMS-C.

1.6.1.2The seller shall procure and provide the following pieces of equipment:

1.6.2All deliverables will be provided to GDMS-C.

1.6.3All deliverables, including outlines, interim, draft, final and updates will be provided to GDMS-C with schedules established during the program. Deliverables must be provided in English.

1.6.4For standard documentation: Seller will use MS Word, MS Excel, MS PowerPoint, MS Visio, or other document types as may be agreed on by the GDMS-C.

1.6.5GDMS-C will respond to Seller on deliverables for review or approval, with comment or an approval decision, within five (5) business days of receipt from the Seller.

1.6.6Status meetings will be conducted bi-weekly with status meeting notes and actions recorded and distributed using applications outlined in Subsection 1.3.

1.7Schedule

Number	Task reference	Description of the Deliverables	Quantity and Format	Due Date
1		Participation in kick-off, quarterly PI and bi-weekly sprint planning meetings, and periodic design reviews and project reviews.	Minutes, design artefacts, and documentation	As required
2	Phase 1	Procurement and delivery of the material/equipment deliverables identified in in Subsection 1.6.1.2	Proof of receipt of equipment to be retained at KWESST, or physical goods for equipment to be retained at GDMS-C facilities.	12 weeks after issuance of SOW.
3	Phase 2, PI1	Delivery of an end-of-PI demonstrator, suitable for inclusion at CANSEC, the definition of which is to be defined/agreed at the planning sessions for PI1 and PI2.	To be defined at PI planning sessions	24 weeks after issuance of SOW.

5

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1.8Resources required from Seller

1.8.1The following resources will be provided by the GDMS-C to the Seller:

1.8.1.1An overview and review of existing mounted solution.

1.8.1.1.1The existing solution is expected to provide candidate solution components; specific components to be reused are dependent on the architectural solution to be designed during Phase 1.

1.8.1.2An overview and access to uncontrolled TacAR router components.

1.8.1.2.1Due to GFE/GFI restrictions related to VMF, the integrated solution will use the non US-controlled version of its TacAR router, referred to as the International TacAR router

1.8.1.2.2This is expected to be used as a test harness during the development/integration activities

1.8.1.3Standard interface to send/receive messages

1.8.1.3.1In conjunction with the Seller, an API will be defined that allows messages to be sent and received using the Message Delivery Service on the Android device

1.8.1.4Message Delivery Service binary (i.e. TacAR) operating on Android device. This service will be based on the International TacAR router and will implement the agreed messaging API.

1.8.1.5Radio interface software module

1.8.1.5.1Message transmission and receiving will occur using the messaging API. The physical interface to/from the radio device is expected to be contained within the Message Delivery Service (or derivative software service) to be provided by GDMS-C.

1.8.1.6Test harness operating on standard data terminal

1.8.1.6.1Allows message exchange to be tested using standard Ethernet (or WiFi) interface

1.8.1.6.2No CNR radios required

1.8.1.7Normal development infrastructure (i.e. development PCs, compile machines, Android emulation devices) are expected to be provided by the GDMS-C for execution of their duties. Demonstration equipment and specialist test equipment will be provided by the Seller for usage on GDMS-C premises, or alternatively, for usage on Seller premises. Whenever feasible, the Seller requests that equipment needs be discussed during the quarterly planning efforts.

1.9Contacts

	Name	Title/Roll	Phone	Email
Seller	Rick Bowes	Program Manager	******	******
Seller	Warren Downing	Technical Lead	******	******

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GDMS-C	Tim Smith	Program Manager	******	******
GDMS-C	Jeff White	Technical Authority	******	******
GDMS-C	Kevin McMurray	Authorized Contracting Authority	******	******

1.10Acceptance

1.10.1Except as otherwise specifically provided below, criteria for acceptance of the Work, including without limitation the Deliverables, shall be as determined by the GDMS-C Program Manager. The Work, including the Deliverables shall be subject to review and approval by the GDMS-C Program Manager.

2.Commercial Terms

2.1Period of Performance

2.1.1The period of performance for Work shall commence December 2021 and complete May 2022 ("Period of Performance").

2.2Seller's Contractor(s') Availability

2.2.1Except as otherwise agreed with the GDMS-C Contracting Authority, there shall be no pre-set hours of work and the Seller's Contractors shall be available to perform the Work on any day of the week, Sunday through Saturday, in coordination with the Authorized Technical Representative.

2.2.2Except as otherwise specifically agreed in writing with the GDMS-C Contracting Authority, the Seller's Contractors shall not be entitled to claim Overtime for the performance of Services.

2.2.3Overtime is defined by the Ontario Labour Code as work in excess of forty-four (44) hours of work in a calendar week (Sunday through Saturday, inclusive), or on Statutory Holidays as defined therein.  Overtime shall be defined in accordance with the provisions of the applicable labour law in effect in the jurisdiction where Seller's Contractors are performing Services ("Overtime").

2.2.4If Overtime is to be specifically permitted by GDMS-C in writing, the following shall apply:

2.2.5"Full-Time Availability" means availability during the Period of Performance on a "Man-Day" basis, that is, eight (8) hours per day, Monday to Friday, within GDMS-C core business hours, subject to the provisions applicable to Overtime.  A Man-Day excludes Canadian statutory and GDMS-C company holidays, employee annual vacation, and sick days ("Excluded Days").

2.2.6Overtime consideration shall not be given to the period of time, in excess of Full Time Availability and on Excluded Days, during which the Seller's Contractors provide Services.

2.3GDMS-C Financial & In-Kind Contribution

2.3.1The basis of payment for Work, including Deliverables, provided under this SOW is as follows:

The firm fixed price for Work, including Deliverables, is $297,875, is stated in Canadian dollars, is inclusive of all overheads, mark-ups and fees, and is valid for the Period of Performance ("Price"). GDMS-C's liability to Seller for Work, including Deliverables, provided under this Statement of Work, excluding Sales Taxes (defined in the Agreement), shall not exceed the Price and Seller shall not adopt any changes in the Work, including Deliverables, that would cause an increase in the Price unless otherwise authorized in writing by the GDMS-C Contracting Authority. The Price for this SOW shall be payable by GDMS-C to Seller upon execution of this SOW and corresponding receipt of a valid invoice from the Seller.

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2.3.2The value of GDMS-C's in-kind contribution, as labour under this SOW, is $[***].

2.3.3The total Value of this SOW, as referenced in Section 23 (Offset Credits) in the Terms and Conditions of the Agreement is $[***]

2.4Work Location

2.4.1The KWESST development and initial integration activities will primarily occur at KWESST facilities. Final integration and demonstration activities will be completed at Seller's facilities: 155 Terence Matthews Crescent, Ottawa, Ontario, Canada, K2M 2A8.

2.5Travel and Living

2.5.1KWESST is not required to travel for this work.

2.5.2All payments are subject to government audit.

2.6Other Costs

2.6.1Any other costs that may be required to be incurred by the Seller in order to perform Work shall be subject to prior written agreement between GDMS-C and the Seller.

2.7Tracking and Reporting

2.7.1Reporting shall be provided by Seller on a weekly basis recording all work performed in support of this SOW.

In witness whereof, the Parties have caused this SOW to be executed by their duly-authorized representatives to be effective as of the Period of Performance stated above.

For and on behalf of: General Dynamics Land Systems - Canada Corporation doing business as General Dynamics Mission Systems - Canada		For and on behalf of: KWESST Micro Systems Inc.
/s/ Kevin McMurray		/s/ Rick Bowes
I warrant that I have authority to bind the company.		I warrant that I have authority to bind the company.
Signed by:		Signed by:
Name:	Kevin McMurray	Name:	Rick Bowes
Title:	Subcontracts Commercial Officer	Title:	VP Operations

8

EX-10.17

SUBCONTRACTOR AGREEMENT

I. The Parties. This Subcontractor Agreement ("Agreement") made on July 6, 2022, is between CounterCrisis Tech with a mailing address of 9 Goldridge Drive, Ottawa, Ontario, K2T 1C8 ("Contractor") and KWESST Micro Systems Inc. with a mailing address of 155 Terry Matthews Drive, Ottawa, Ontario, K2M 2A8 ("Subcontractor") both of whom agree as follows:

II. The Client. The Subcontractor acknowledges that any work performed under this Agreement must be in accordance with the latest version agreement(s) ("Prime Contract") made between the Contractor and Public Safety Canada with a mailing address of 425 Bloor Street East, Suite 597, Toronto, Ontario, M4W 3R4 ("Client").

III. Services Provided. Subcontractor agrees to complete the following: software configuration, development, integration, implementation, and delivery in accordance with the Project Description and Work Plan outlined in ANNEX A of the Prime Contract ("Services").  Specifically, these services apply to the following:

• Year 1 Work Plan items A, C, D, E, I, J, and K
• Year 2 Work Plan items A, and D
• Year 3 Work Plan items A, B, and C

IV. Subcontractor Responsibilities. Subcontractor shall be responsible for providing the following when performing their Services:

Labour - Including, but not limited to, employees, subcontractors and any other individuals or agents.

Materials - Including, but not limited to, all supplies and products.

Equipment - Including, but not limited to, machinery, accessories, or devices.

Travel - Including, but not limited to, ensuring that the above-mentioned Responsibilities are provided at the Location mentioned in Section V.

V. Location. The primary location for the Services completed by the Subcontractor shall be:

• Ottawa, Ontario ("Location").

• Determined at a later time by the Contractor ("Location") and agreed to by the Subcontractor.

VI. Commencement Date. The Subcontractor shall be permitted to begin the Services on July 6, 2022 ("Commencement Date").

VII. Completion. The Subcontractor will be required, unless otherwise stated under the terms of this Agreement, to complete the Services:

• By the specific Year 1 date of March 31, 2023.
• By the specific Year 2 date of March 31, 2024.
• By the specific Year 3 date of March 31, 2025.

VIII. Payment Amount. Payment for the Services shall be as follows:

• Year 1 $234,596;
• Year 2 $224,596; and
• Year 3 $214,596.

IX. In-Kind Contributions. Subcontractor in-kind contributions shall be as follows:

• Year 1 $21,389;
• Year 2 $22,458; and
• Year 3 $32,352.

If the Subcontractor asserts a claim which involves, in whole or in part, acts or omissions which are the responsibility of the Client or another person for whom a claim may be submitted, including but not limited to, claims for failure to pay, an extension of time, impacts, delay damages, or extra work, the Contractor shall present the Subcontractor's claim to the Client or other responsible party provided the Subcontractor presents to Contractor competent supporting evidence and in sufficient time for the Contractor to do so. The Subcontractor shall cooperate fully with the Contractor in any and all steps the Contractor takes in connection with prosecuting such a claim and shall hold harmless and reimburse the Contractor for all expenses, including legal expenses, incurred by the Contractor which arise out of the Contractor's submission of the Subcontractor's claims to the Client or other responsible parties. The Subcontractor shall be bound by any adjudication or award in any action or proceeding resolving such a claim.

X. Payment Method. Payment shall be made by the Contractor to the Subcontractor on a monthly basis in alignment with the Reporting Requirements and Payment Schedule outlined in ANNEX C of the Prime Contract.

Satisfaction of the completed Services by the Subcontractor shall be completed within a reasonable time period. "Satisfaction" shall be a determination, in good faith, made by the Contractor and in accordance with commonly accepted industry standards.

If the Client, or other responsible party delays in making any payment to the Contractor, from which payment to Subcontractor is to be made, Contractor shall have a reasonable time to make payment to Subcontractor. "Reasonable time" shall be determined in relation to relevant circumstances, but shall in no event be less time than required for Contractor and Subcontractor to pursue a conclusion to their legal remedies against the Client or other responsible party to obtain payment.

XI. Subcontracting. Subcontractor may not subcontract, either part or in whole, the Services authorized under this Agreement.

XII. Assignment. Subcontractor shall not have the right to assign any rights under this Agreement or any part of the Services issued herein. Subject to the foregoing, this Agreement shall be binding upon the parties' heirs, executors, successors and assigns.

XIII. Insurance. The Contractor shall require the Subcontractor to have liability insurance in alignment with the terms and conditions of the Prime Contract.

XIV. Resolution of Disputes. If a dispute arises concerning the provisions of this Agreement or the performance of any of the parties mentioned, the parties hereby agree to settle the dispute by equally paying for mediation as regulated under the laws of the Province of Ontario. The parties agree to enter into negotiations, in good faith, and through a neutral mediator in an attempted to resolve the dispute. If a resolution to the dispute cannot be made by mediation, the parties agree to enter into binding arbitration.

Completion, as determined under this Section, may be changed if the Services cannot begin or end due to circumstances beyond the control of the Contractor, or any other issues considered outside the control of the parties in this Agreement.

XV. Termination. During the course of this Agreement, Contractor or Subcontractor may, at any time and for any reason, terminate this Agreement for convenience with at least 30 business day(s) notice. In the event of termination for convenience, Subcontractor shall recover only the actual cost of work completed to the date of termination in approved units of work or percentage of completion.

XVI. Claims. If any claim is made by the Contractor or Subcontractor in connection with a Change Order or regarding any related issue with this Agreement or the performance of Services and/or Services to be provided, either party shall have the right to submit written notice of such claim through certified mail with return receipt. After receipt of a written claim by either party of this Agreement, the parties shall have 30 business day(s) to correct the claim prior to seeking a resolution under the instructions in Section XIII.

XVII. Change Orders. Any alteration or deviation from the Services mentioned or any other contractual specifications that result in a revision of this Agreement shall be executed and attached to this Agreement as a change order ("Change Order"). Both Parties shall mutually negotiate in good faith the additional compensation to Subcontractor for the change orders.

XVIII. Entire Agreement. This Agreement represents the entire agreement between the Contractor and Subcontractor. This Agreement supersedes any prior written or oral representations. Subcontractor suppliers are bound to the Contractor by the prime contract and any contract documents incorporated therein to the same extent as Contractor is bound to the Client insofar as they relate in any way, directly or indirectly, to the Services provided and covered in this Agreement.

XIX. Time. Time is of the essence of this Agreement. Subcontractor shall provide the Contractor with scheduling and reporting information in a form acceptable to the Contractor and shall conform to the Contractor's progress schedules, including any changes made by the Contractor in the scheduling of Services. Subcontractor shall coordinate its Services with that of all other contractors, subcontractors, and suppliers so as not to delay or damage their performance.

XX. Delays. Should the Subcontractor delay the Contractor, or any other contractors, subcontractors, or suppliers on the entire project, Subcontractor will indemnify the Contractor and hold Contractor harmless for any damages, claims, demands, liens, stop notices, lawsuits, attorneys' fees, and other costs or liabilities imposed on the Contractor connected with said delay. Among other remedies for Subcontractor's delay, the Contractor may supplement the Subcontractor's work and deduct associated costs at Contractor's election.

XXI. Inspection of Services. Subcontractor shall make the Services accessible at all reasonable times for inspection by the Contractor. Subcontractor shall, at the first opportunity, inspect all material and equipment delivered by others to be used or incorporated in the Subcontractor's Services and give prompt notice of any defect therein. Subcontractor assumes full responsibility to protect the work done hereunder until final acceptance by the Contractor or any authorized third (3^rd) party.

XXII. Labour Relations. Subcontractor shall maintain labour policies in conformity with the directions of the Contractor and under Provincial laws.

XXIII. Indemnification. To the fullest extent permitted by law, Subcontractor shall defend, indemnify and hold harmless the Client and Contractor along with any of their agents, employees, or individuals associated with their organization, in alignment with the terms of the Prime Contract, from claims, demands, causes of actions and liabilities of any kind and nature whatsoever arising out of or in connection with the Subcontractor's Services or operations performed under this Agreement and causes or alleged to be caused, in whole or in part, by any act or omission of the Subcontractor or anyone employed directly or indirectly by Subcontractor or on Subcontractor's account related to Subcontractor's Services hereunder. This indemnification shall extend to claims occurring after this Agreement is terminated as well as while it is in force. The indemnity shall apply regardless of any passively negligent act or omission of the Client or Contractor, or their agents or employees, but Subcontractor shall not be obligated to indemnify any party for claims arising from the active negligence, sole negligence, or willful misconduct of Client or Contractor or their agents or employees or arising solely by the designs provided by such parties. To the extent that Provincial law limits the defence or indemnity obligations of the Subcontractor either to Contractor or Client, the intent hereunder is to provide the maximum defense and indemnity obligations allowed by the Subcontractor under the law. The indemnity set forth in this Section shall not be limited by any insurance requirement or any other provision of this Agreement.

XXIV. Warranty. Subcontractor warrants to Client and Contractor that any and all materials and equipment furnished shall be new unless otherwise specified and that all Services provided under this Agreement will be performed, at a minimum, in accordance with industry standards. All work not conforming to these requirements, including substitutions not properly approved and authorized, may be considered defective. The warranty provided in this Section shall be in addition to and not in limitation of any other warranty or remedy required by law or by the Prime Contract.

XXV. Required Licenses. All parties of this Agreement, including but not limited to, Contractor, Subcontractor, other subcontractors, and all parties' direct or indirect employees and agents shall be licensed in accordance with respective Provincial laws where individuals are performing their service. All individuals under this agreement shall be regulated by their respective licensing board which has jurisdiction to investigate complaints made by any third (3^rd) parties.

XXVI. Confidentiality. For the purposes of this Agreement, "Confidential Information" shall mean any information or material that is proprietary to a party or designated as confidential by such party ("Disclosing Party") and received by another party ("Receiving Party") as a result of this Agreement. Confidential Information may be considered any information that is conceived, originated, discovered or developed in whole or in part by the Subcontractor in accordance with providing their Services. Confidential Information does not include (1) information that is or becomes publicly known without restriction and without breach of this Agreement or that is employed at or after the time the Receiving Party first learns of such information; (2) generic information or knowledge which the Receiving Party would have learned in the course of similar employment or work elsewhere; (3) information the Receiving Party lawfully receives from a third (3^rd) party without restriction of disclosure and without breach of a nondisclosure obligation; (4) information the Receiving Party rightfully knew prior to receiving such information from the Disclosing Party to the extent such knowledge was not subject to restrictions of further disclosure; or (5) information the Receiving Party develops independent of any information originating from the Disclosing Party.

A.)Prime Confidential Information. The following shall constitute Confidential Information of the Contractor and should not be disclosed to third (3^rd) parties: the deliverables, discoveries, ideas, concepts, software [in various stages of development], designs, drawings, specifications, techniques, models, data, source code, source files, object code, documentation, diagrams, flow charts, research, development, processes, procedures, "know-how", marketing techniques and materials, marketing and development plans, customer names and other information related to customers, price lists, pricing policies and financial information, this Agreement and the existence of this Agreement, the relationship between the Contractor and Subcontractor, and any details of the Service under this Agreement. Subcontractor agrees not to use or reference the Contractor and/or their names, likenesses, or logos ("Identity"). Subcontractor will not use or reference Contractor or their Identity, directly or indirectly, in conjunction with any other third (3^rd) parties.

B.)Non-Disclosure. The parties hereby agree that during the term hereof, and at all times thereafter, and except as specifically permitted herein or in a separate writing signed by the Disclosing Party, the Receiving Party shall not use, commercialize or disclose Confidential Information to any person or entity. Upon termination, or at any time upon the request of the Disclosing Party, the Receiving Party shall return to the Disclosing Party all Confidential Information, including all notes, data, reference materials, sketches, drawings, memorandums, documentation and records which in any way incorporate Confidential Information.

C.)Right to Disclose. With respect to any information, knowledge, or data disclosed to the Contractor by the Subcontractor, the Subcontractor warrants that the Subcontractor has full and unrestricted right to disclose the same without incurring legal liability to others, and that the Contractor shall have the full and unrestricted rights to use and publish the same as it may see fit. Any restrictions on Contractor's use of information, knowledge, or data disclosed by Subcontractor must be made known to Contractor.

XXVII. Notices. All notices under this Agreement shall be in writing and sent to the address of the recipient specified herein. Any such notice may be delivered by hand, by overnight courier, certified mail with return receipt, or first class pre-paid letter, and will be deemed to have been received (1) if delivered by hand - at the time of delivery; (2) if delivered by overnight courier - 24 hours after the date of delivery to courier with evidence from the courier; (3) if delivered by certified mail with return receipt - the date as verified on the return receipt; (4) if delivered by first class mail - three (3) business days after the date of mailing.

XXVIII. Injunctive Relief. Subcontractor acknowledges it would be difficult to fully compensate the Client and/or Contractor for damages resulting from any breach of this Agreement. Accordingly, in the event of any breach of this Agreement, the Client and/or Contractor shall be entitled to temporary and/or permanent injunctive relief to enforce such provisions.

XXIX. Severability. If any term, covenant, condition, or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated.

XXX. Independent Contractor. No term, covenant, condition, or provision of this Agreement shall be considered to create an employer and employee relationship, a master-servant relationship, or a principal and agent relationship between Subcontractor and/or any of the Subcontractor's employees and the Contractor or Client. All parties to this Agreement attest that the relationship between the Contractor and Subcontractor shall be recognized as the Subcontractor acting as an independent contractor.

XXXI. Force Majeure. Neither party shall be liable for any failure to perform under this Agreement when such failure is due to causes beyond that party's reasonable control, including, but not limited to, acts of State or governmental authorities, acts of terrorism, natural catastrophe, fire, storm, flood, earthquakes, accident, and prolonged shortage of energy. In the event of such delay, any date stated herein shall be extended by a period of time necessary by both Contractor and Subcontractor. If the delay remains in effect for a period more than thirty (30) days, Contractor has the right to terminate this Agreement upon written notice to the Subcontractor.

XXXII. Governing Law. This Agreement shall be governed under the laws in the Province of Ontario.

XXXIII. Attachments. The Contractor may attach any plans, schematics, drawings, details, or other information to assist the Subcontractor with the aforementioned Services. Any attachment made shall be made part of this entire Agreement.

IN WITNESS WHEREOF, this Agreement was signed by the parties under the hands of their duly authorized officers and made effective as of the undersigned date.

Contractor's Signature /s/ Don Williams

Date: July 6, 2022

Print Name: Don Williams, Founder & CEO

Company Name: CounterCrisis Tech

Subcontractor's Signature /s/ Rick Bowes

Date: July 6, 2022

Print Name: Rick Bowes, VP Digitization and Counter-Threat Products

Company Name: KWEEST Inc.

EX-10.18

Certain portions of this exhibit have been excluded because the information is both (i) not material and (ii) the type that the registrant customarily and actually treats as private or confidential. Omitted information has been noted in this document with a placeholder identified by the mark "[***]".

THIS LOAN AGREEMENT NO. 1 dated as of August 25, 2022

BETWEEN:	KWESST MICRO SYSTEMS INC., as Borrower;
AND:	[***], as Lender;

WITNESSETH:

WHEREAS the Borrower wishes to borrow certain monies from the Lender, and the Lender is prepared to lend a portion of such monies to the Borrower upon the terms and subject to the conditions herein contained;

NOW THEREFORE in consideration of the premises, the mutual covenants contained herein and for other consideration, the receipt and sufficiency of which are acknowledged, the Parties have agreed as follows:

ARTICLE 1

INTERPRETATION

1.1General Definitions

The capitalized words and expressions, wherever used in this Agreement or in any agreement ancillary hereto, unless there be something in the subject or the context inconsistent therewith, shall have the meaning ascribed thereto in Schedule "A".

1.2References to Agreements

Each reference in this Agreement to any agreement (including this Agreement and any other defined term that is an agreement) shall be construed so as to include such agreement (including any attached schedules) and each amendment, supplement, amendment and restatement, novation and other modification made to it at or before the time in question.  The terms "this Agreement", "this Loan Agreement", "hereof", "hereunder" and similar expressions refer to this agreement and not to any particular Article, Section, subsection, paragraph, subparagraph, clause or other portion of this agreement.

Loan Agreement no. 1 - Page 2

1.3Headings, etc.

The division of this Agreement into Articles, Sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

1.4Number and Gender

In this Agreement, words in the singular (including defined terms) include the plural and vice versa (the necessary changes being made to fit the context) and words in one gender include all genders.

ARTICLE 2

THE LOAN

2.1Loan

The Lender agrees, upon the terms and subject to the conditions of this Agreement, to lend to the Borrower, an amount of USD$ 200,000.00, on an unsecured basis.

2.2Expenses

The Lender shall retain an amount of USD$ 2,500.00 from the Loan in order to cover its expenses disbursed in connection with this Agreement.

2.3Purpose of the Loan

The Loan shall be used by the Borrower for general corporate purposes.

2.4Maturity Date

The Principal at Maturity and interest accrued thereon must be repaid on the earlier of (i) the date that is twelve (12) months and one (1) day from the Closing Date and (ii) the acceleration of the Loan pursuant to Section 12.1 below (such date, the "Maturity Date").

2.5Voluntary Repayment of Loan

The Borrower may, at any time prior to the close of business on the Maturity Date, voluntarily repay the whole or any part of the Loan, without penalty or premium, by issuing a Repayment Notice to the Lender. Any Repayment Notice shall be delivered to the Lender at least three (3) Business Days prior to the effective date of the relevant voluntary repayment.

Loan Agreement no. 1 - Page 3

ARTICLE 3

INTEREST AND BONUS SHARES

3.1Interest on Loan

The Borrower shall pay the Lender interest on the outstanding balance of the Loan at a rate per annum equal to six percent (6.0%), compounded monthly and not in advance. After an Event of Default, interest on the Loan will accrue, from the date of such Event of Default, at a rate per annum of eighteen percent (18%), compounded monthly.

3.2Computation of Interest

3.2.1Interest in respect of the Loan shall be computed on the basis of a 365-day year for the actual number of days elapsed;

3.2.2Interest payable on the Loan is calculated upon the daily outstanding balance of the Loan from and including the date it is advanced until, but excluding, the date it is repaid in full.

3.3Annual Equivalents

For the purposes of the Interest Act (Canada), the annual rates of interest to which are equivalent the rate determined in accordance with the provisions of Section 3.1 are the following rate: (the quoted rate) x (number of days in the year) ÷ 365 = % per annum.

3.4Payment of Interest

Interest shall be paid in cash by the Borrower at the Maturity Date (the "Interest Payment Date"). Interest shall accrue from the date of the Closing Date to the date of payment in full of the Principal at Maturity, together with any accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder. 

3.5[Bonus Shares

On the Closing Date, the Borrower will issue in favour of the Lender an aggregate number of common shares in the share capital of the Borrower (collectively, the "Bonus Shares"). In connection therewith, the Lender acknowledges and recognizes the following:

3.5.1the Lender shall receive the number of Bonus Shares as is equal to twenty percent (20%) of the total dollar amount of the Loan, (i) multiplied by the average daily Canadian foreign exchange rate as published by the Bank of Canada, and (ii) divided by the Market Price of the common shares of the Borrower on the Exchange, on the date that is immediately prior to the date of the news release of the Borrower announcing the Loan; and

3.5.2the Bonus Shares will be subject to a four (4) month and one (1) day hold period from the date of issuance as required under Applicable Law.]

Loan Agreement no. 1 - Page 4

ARTICLE 4

MANNER OF PAYMENTS

4.1Currency of Payments

All payments or repayments, as the case may be, of the Principal at Maturity or any part thereof or of interest shall be made in United States Dollars (USD) only.

4.2Payment on Any Business Day by 3:00 P.M. (Eastern Time)

Whenever any payment or repayment falls due on a day which is not a Business Day, such payment or repayment shall be made on the next following Business Day. Furthermore, any amount received after 3:00 P.M. (Eastern Time) on any Business Day shall be applied to the appropriate payment or repayment which was required to be made on such Business Day, on the next following Business Day. Until so applied, interest shall continue to accrue as provided in this Agreement on the amount of such payment or repayment.

ARTICLE 5

CONDITIONS PRECEDENT

5.1Closing Conditions

Closing shall occur upon the following conditions precedent being met to the satisfaction of the Lender or, as the case may be, waived by the Lender (the date on which such conditions precedent shall be met shall be referred to herein as the "Closing Date"):

5.1.1the Parties shall have received satisfactory evidence that the board of directors of the Borrower has approved the transactions contemplated in this Agreement;

5.1.2the Parties shall have received an executed copy of this Agreement;

5.1.3the Lender shall have received satisfactory evidence that the Borrower has received all necessary third-party acknowledgements and consents in connection with this Agreement and the other Loan Documents;

5.1.4the Lender shall have received a certificate or a direct registration statement evidencing the Bonus Shares and the issue thereof;

5.1.5the Lender shall have received satisfactory evidence that the Borrower has received all required regulatory approvals including the approval of the Exchange;

5.1.6no Default or Event of Default shall have occurred and be continuing;

5.1.7the representations and warranties made by the Borrower under this Agreement, are true and correct in all material respects as of the Closing Date;

Loan Agreement no. 1 - Page 5

5.1.8no Material Adverse Effect, as determined by the Lender in its reasonable discretion, shall have occurred and be continuing;

5.1.9the Parties shall have received an executed copy of the Concurrent Loan Agreement; and

5.1.10the Parties shall have received executed copies of the Call Option Agreements.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF
THE BORROWER

To induce the Lender to make the Loan available to the Borrower, the Borrower represents and warrants to and in favour of the Lender as follows:

6.1Existence

The Borrower is a corporation duly and validly incorporated or formed, organized, existing and in good standing under the Laws of its jurisdiction of organization.

6.2Authority

The Borrower has the legal capacity to (i) enter into this Agreement and the other Loan Documents, (ii) own and hold under lease its property, and (iii) conduct business substantially as presently conducted.

6.3Due Authorization

The Borrower has taken all necessary action to authorize the execution and delivery of this Agreement and the other Loan Documents, the creation and performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated herein and therein. The Borrower has duly executed and delivered this Agreement and the other Loan Documents.

6.4Enforceability

Each of the Loan Documents constitutes legal, valid and binding obligations of the Borrower, enforceable against it in accordance with its terms, subject only to those provisions of applicable laws relating to bankruptcy, insolvency, winding-up, dissolution, administration, reorganization, arrangement or other statutes or judicial decisions affecting the enforcement of creditors' rights in general and to general principles of equity under which specific performance and injunctive relief may be refused by a court in its discretion.

Loan Agreement no. 1 - Page 6

6.5Authorizations from Governmental Authorities and other Persons

The Borrower has obtained all Authorizations of or from all Governmental Authorities or other Persons which are necessary or required to authorize the execution and delivery of this Agreement, the other Loan Documents and to execute its obligations hereunder and thereunder.

6.6Accuracy of Information

No information furnished by the Borrower to the Lender in connection with any of the Loan Documents contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made and as of the date made. No undisclosed fact or liability is currently known to the Borrower which, in the Lender's reasonable discretion, has or could be expected to have a Material Adverse Effect.

6.7Validity of Loan Documents - Non-Conflict

None of the authorization, execution, delivery or performance of the Loan Documents by the Borrower, nor the consummation of any of the transactions contemplated in the Loan Documents to which Borrower is a party conflicts with, contravenes or gives rise to any default under the provisions of any indenture, instrument, agreement or undertaking to which the Borrower is a party or by which the Borrower may be, or any of its Business Assets are or may become bound or any Applicable Law.

6.8No Material Adverse Effect

Since March 31, 2022 (being the date of the last quarterly financial statements of the Borrower), there has been no undisclosed change and no undisclosed event has occurred which could reasonably be expected to have a Material Adverse Effect.

6.9No Default

No Default has occurred which has not been disclosed to the Lender and either remedied or expressly waived by the Lender in writing.

6.10Taxes

The Borrower has paid and discharged, and has caused its Material Subsidiaries to pay and discharge, all Taxes payable by it or its Material Subsidiaries when due except with respect to any such Tax which is being contested in good faith by appropriate proceedings and which is not required, by Applicable Law, to be paid prior to such contestation and for which appropriate reserves have been provided in its books and as to which neither any Lien has attached nor any foreclosure, distraint, seizure, attachment, sale or similar proceedings shall have been commenced, and the charges, accruals and reserves on its books in respect of Taxes are adequate, in its judgment.

Loan Agreement no. 1 - Page 7

ARTICLE 7

POSITIVE COVENANTS OF
THE BORROWER

So long as the Principal at Maturity or any other amount payable hereunder is outstanding and unpaid, and unless the Lender shall otherwise consent in writing, the Borrower hereby covenants that:

7.1Payment of Principal, etc.

The Borrower will pay when due any amount owed to the Lender under this Agreement or any other Loan Document in principal, interest and fees.

7.2Preservation of Existence, etc.

The Borrower will preserve and maintain its existence and preserve and maintain all Authorizations and registrations necessary or required in the normal conduct of its business and qualify and remain qualified and authorized to do business in each jurisdiction in which it carries on business or owns or leases material Business Assets.

7.3Listing on the Exchange

The Borrower's common shares shall remain listed on the Exchange and the Borrower shall comply in all material respects with the rules and policies of such exchange and all applicable securities laws, rules and regulations.

7.4Operations ran in the Normal Course of Business/Subsidiaries

The Borrower will run its operations in the normal course of business as currently operated by the Borrower. The Borrower shall cause its Material Subsidiaries to abide by all the covenants set forth in Article 7 and Article 8 of this Agreement.

7.5Use of Loan

The Borrower shall use the Loan exclusively for the purposes set out in Section 2.3.

7.6Authorizations

The Borrower will maintain, and take all actions necessary to maintain, in full force and effect the action taken by it to authorize the execution, delivery and performance in accordance with their respective terms of this Agreement, of the other Loan Documents and the consummation of the transactions contemplated herein and therein. The Borrower will obtain and maintain any Authorization of or from any Governmental Authority necessary or required under Applicable Law in order to carry on its business.

Loan Agreement no. 1 - Page 8

7.7Compliance with Applicable Law

The Borrower will comply with Applicable Law in all material respects.

7.8Payment of Taxes and Claims

The Borrower will pay and discharge all Taxes imposed upon it or upon its income, capital or profits or upon any properties belonging to it prior to the date on which penalties attach thereto, and all lawful claims for rents, labour, materials and supplies which, if unpaid, might become a Lien upon any of its properties; provided, however, that, no such Tax need be paid which is being contested in good faith by appropriate proceedings and for which appropriate reserves shall have been set aside on the appropriate books, but only so long as such Tax does not become a Lien, and no foreclosure, distraint, seizure, attachment, sale or similar proceedings shall have been commenced.

ARTICLE 8

NEGATIVE COVENANTS OF
THE BORROWER

So long as the Principal at Maturity or any other amount payable hereunder is outstanding and unpaid and unless the Lender shall otherwise consent in writing, which consent shall not be unreasonably withheld, the Borrower hereby covenants that:

8.1Liens

Other than any Liens existing on the Closing Date, which are listed in Schedule "B" hereto, and Liens securing Indebtedness incurred in respect of equipment financed by way of conditional sales contracts or capital lease agreements, the Borrower shall not grant or permit to exist any Lien of any kind with respect to any of the Borrower's or any of its Material Subsidiaries' Business Assets.

8.2Change in Business

The Borrower will not change the nature of its business or the business of any of its Material Subsidiaries in any material respect.

8.3Affiliate Transactions

The Borrower shall not (i) create any new Material Subsidiary not consistent with the Borrower's normal course of business or (ii) enter into or be a party to any transaction with any Material Subsidiary or director, officer, or employee of the Borrower or its Material Subsidiaries, except for routine employment and consulting transactions between the Borrower or its Material Subsidiaries and any of their respective directors, officers or employees regarding base salaries and customary employee benefits, consulting fees and equity incentive compensation made in the ordinary course of business.

Loan Agreement no. 1 - Page 9

ARTICLE 9

INFORMATION COVENANTS OF THE BORROWER

So long as the Principal at Maturity or any other amount payable hereunder is outstanding and unpaid and unless the Lender shall otherwise consent in writing, the Borrower covenants and agrees that:

9.1Notice of Litigation and Other Matters

The Borrower shall furnish to the Lender prompt notice of the following events after the Borrower has become aware thereof and has made a reasonable determination with respect thereto:

9.1.1the commencement of all litigations against the Borrower, or in any other way relating adversely to the Borrower or any of its Business Assets which, if adversely determined, singly or when aggregated with all other such litigations, could, in the Lender's reasonable discretion, have a Material Adverse Effect;

9.1.2any event or events which, singly or in the aggregate, could, in the Lender's reasonable discretion, reasonably be expected to have a Material Adverse Effect; and

9.1.3any Default or Event of Default.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES
OF THE LENDER

The Lender hereby represents and warrants to and in favour of the Borrower as follows:

10.1Existence

If the Lender is a corporation, it has been duly and validly incorporated or formed, organized, existing and in good standing under the Laws of its jurisdiction of organization.

10.2Authority and Enforceability

The Lender has the legal capacity to enter into this Agreement and as applicable, the other Loan Documents.

10.3Due Authorization

If the Lender is a corporation, it has taken all necessary action to authorize the execution and delivery of this Agreement and the other Loan Documents, the creation and performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated herein and therein. The Lender has duly executed and delivered this Agreement and the other Loan Documents.

Loan Agreement no. 1 - Page 10

10.4Enforceability

This Agreement constitutes legal, valid and binding obligations of the Lender, enforceable against it in accordance with its terms, subject only to laws relating to bankruptcy, insolvency, winding-up, dissolution, administration, reorganization, arrangement or other statutes or judicial decisions affecting the enforcement of creditors' rights in general and to general principles of equity under which specific performance and injunctive relief may be refused by a court in its discretion.

10.5Prospectus Exemption

The Lender is acquiring the Bonus Shares and the Shares for Debt, if applicable, as principal pursuant to an exemption from the prospectus requirements under section 2.3(1) of NI 45-106, being an "accredited investor" as defined under paragraph (m) of such definition in NI 45-106.

10.6Source of Funds

The funds representing the Loan do not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (the "PCMLA") and the Lender acknowledges that the Borrower may in the future be required by law to disclose the Lender's name and other information relating to this Agreement and the Lender's Loan hereunder, on a confidential basis, pursuant to the PCMLA. To the best of the Lender's knowledge, none of the funds to be paid by the Lender: (i) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada, the United States or any other jurisdiction; or (ii) are being tendered on behalf of a person or entity who has not been identified to the Lender, and the Lender shall promptly notify the Borrower if the Lender discovers that any of such representations ceases to be true, and shall provide the Borrower with appropriate information in connection therewith.

10.7Counsel

The Lender is solely responsible for obtaining such tax, investment, legal and other professional advice as it considers appropriate in connection with the execution, delivery and performance by it of this Agreement, any other Loan Document and the transactions contemplated hereunder.

ARTICLE 11

EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall constitute an Event of Default (each such event being herein referred to as an "Event of Default"):

11.1Non-Payment

The Borrower fails to pay when due (i) any amount of principal owed by it and outstanding hereunder or under any similar loan agreement or (ii) any amount of accrued interests outstanding hereunder or under any similar loan agreement, and such Default referred to in clause (ii) shall not be remedied within five (5) Business Days following written notice of such Default by the Lender to the Borrower.

Loan Agreement no. 1 - Page 11

11.2Misrepresentation/Notice Failure

Any representation or warranty made or deemed made by the Borrower under this Agreement or under any similar loan agreement, is found to have been, when made or deemed made, either incorrect or inaccurate in any material respect, or, Borrower fails to provide a Default Notice or a Similar Loan Default Notice as required under Section 15.1 hereunder.

11.3Covenants

The Borrower fails to perform, observe or comply with any other term, covenant or agreement contained in this Agreement or in any similar loan agreement, and such failure remains unremedied for thirty (30) days following written notice of such failure by the Lender.

11.4Insolvency

An Insolvency Event shall have occurred.

11.5Material Adverse Effect

An event or series of events occurs that, in the Lender's reasonable discretion, results or could reasonably be expected to result in a Material Adverse Effect.

11.6Unsatisfied Awards

Any one or more judgments are entered against the Borrower which judgments are not vacated, discharged, stayed or bonded pending appeal within thirty (30) days of the entry thereof or shall not have been vacated or discharged prior to the expiration of any such stay and involve a liability (not paid or fully covered by insurance) the amount of which, singly or when aggregated with all such liabilities of the Borrower exceeds CDN$1,000,000.

11.7Change of Control

The Borrower is party to a Change of Control Transaction or otherwise agrees to sell or dispose of all or in excess of 33% of its Business Assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction).

ARTICLE 12

REMEDIES

12.1Termination and Acceleration

12.1.1If an Event of Default shall have occurred and be continuing, the Lender may declare the Loan to be cancelled and accelerated (other than with respect to any Event of Default pursuant to Section 11.1 hereunder, in which case, the Principal at Maturity shall be automatically and immediately due and payable without need of any Lender action) or take any other action, commence any other suit, action or proceeding or exercise such other rights as may be permitted by Applicable Law (whether or not provided for under this Agreement) at such times and in such manner as the Lender may consider expedient, all without any additional notice, demand, presentment for payment, protest, noting of protest, dishonour, notice of dishonour or any other action being required.

Loan Agreement no. 1 - Page 12

12.1.2If the Loan is declared cancelled and accelerated pursuant to Section 12.1.1 hereunder, the Borrower may, subject to the prior approval of the Lender, apply to the Exchange in order to repay the Principal at Maturity and any amount of accrued interests on the Loan outstanding in common shares in accordance with Policy 4.3.

12.2Compensation and Set-Off

12.2.1In addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, after the occurrence of an Event of Default, the Lender is hereby authorized by the Borrower, at any time and from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to effect compensation, to set-off and to appropriate and to apply any and all deposits (general or special, time or demand, including Indebtedness evidenced by certificates of deposit, in each case whether matured or unmatured), and any other Indebtedness at any time held or owing by the Lender to or for the credit or the account of the Borrower against and on account of the obligations and liabilities of the Borrower to the Lender hereunder, although said obligations and liabilities, or any of them, shall be contingent or unmatured.

12.2.2For the purposes of the application of this Section, the Parties agree that the benefit of any term applicable to any Lender's deposit, credit indebtedness, liability or obligation referred to in this Section shall be lost immediately before the time when the Lender exercises its rights under this Section in respect of such deposit, credit indebtedness, liability or obligation of the Lender.

12.2.3Furthermore, in the exercise of its rights under this Section, where any Indebtedness of the Lender to the Borrower is not outstanding in the same currency as the Indebtedness of the Borrower to the Lender, then the Lender may effect all currency conversions with respect to any such Indebtedness as it considers appropriate in accordance with its normal practices by using its own rate of exchange in effect on the Business Day preceding that on which it exercised its rights under this Section.

Loan Agreement no. 1 - Page 13

ARTICLE 13

TAXES AND OTHER CHARGES

13.1No Payment of Additional Amounts

To the best of the knowledge of the Parties, as of the date of this Agreement, the Borrower is not required by Law to make any deduction or withholding in respect of any Taxes imposed on the Lender from any amount payable under this Agreement (the "Withholding Taxes"). However, if the Borrower, after the date hereof, becomes aware of circumstances giving rise to Withholding Taxes (including pursuant to a change in Law), then the Borrower shall inform the Lender in writing of the reasons giving rise to such Withholding Taxes and remit to the relevant Governmental Authority such Withholding Taxes. To the extent the Borrower deducts or retains any amount otherwise due and payable hereunder to the Lender to cover any Withholding Taxes, such amount shall be increased so that the Lender receives an amount equal to the total amount the Lender would have received had no amount been deducted or retained by the Borrower for such Withholding Taxes.

ARTICLE 14

PARTICIPATION RIGHT AND AGREEMENT TO LOCK-UP

14.1Participation right

14.1.1The Lender shall have the right to participate in any Subsequent Financing, on the same terms and at the same price per security as the investors in the Subsequent Financing, by purchasing up to such number of securities to be issued in such Subsequent Financing representing a hundred percent (100%) of the aggregate amount of the Principal at Maturity.

14.1.2The Borrower shall provide at least five (5) days' notice to the Lender prior to the initial closing of the Subsequent Financing.

14.2Agreement to Lock-Up

14.2.1The Lender hereby agrees that it will not, without the prior written consent of the Borrower, during the period commencing on the date of the closing of the Qualified Offering and ending ninety (90) days thereafter: (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Bonus Shares or any Shares for Debt held immediately prior to the closing of the Qualified Offering; or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of  such securities.

Loan Agreement no. 1 - Page 14

14.2.2The Lender further agrees to execute such agreements as may be reasonably requested by the Borrower that are consistent with this Section 14.2 or that are necessary to give further effect thereto.

ARTICLE 15

MISCELLANEOUS

15.1Seniority

The indebtedness evidenced by this Loan Agreement and the payment of the principal, interest, fees, penalties or other amounts due or payable hereunder shall be Senior to, and have priority in right of payment over, all indebtedness of the Borrower, now outstanding or hereinafter incurred. "Senior" as used herein shall be deemed to mean that, in the event of any default in the payment of the obligations represented by this Loan Agreement (after giving effect to "cure" provisions, if any) or of any liquidation, insolvency, bankruptcy, reorganization, or similar proceedings relating to the Borrower, all sums payable on this Loan Agreement shall first be paid in full, with interest, if any, before any payment is made upon any other indebtedness, now outstanding or hereinafter incurred, and, in any such event, any payment or distribution of any character which shall be made in respect of any other indebtedness of the Borrower, shall be paid over to the Lender for application to the payment hereof, unless and until the obligations under this Loan Agreement (which shall mean the Principal at Maturity and other obligations arising out of, premium, if any, interest on, and any costs and expenses payable under, this Loan Agreement) shall have been paid and satisfied in full.

15.2Notices

Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective Parties shall be deemed to have been duly given or made to the Party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, when delivered to such Party (by certified mail, postage prepaid, hand delivered, telecopier, email or other acceptable form of electronic communication) at its address and attention set forth with its signature below or at such other address as any of the Parties may hereafter notify the others in writing. The Borrower shall be required to provide written notice to Lender of any default under this Agreement (a "Default Notice") or with respect to any similar loan agreement (a "Similar Loan Default Notice") within five (5) days of the occurrence of such default. This Agreement and any other Loan Document may not be amended or otherwise modified without the prior written consent of the Lender.

15.3Rights and Recourses Cumulative

The rights and remedies of the Parties under this Agreement shall be cumulative and not exclusive of any right or remedy which the Parties would otherwise have and no failure or delay by the Parties in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right.

Loan Agreement no. 1 - Page 15

15.4Assignments by the Borrower

The rights of the Borrower hereunder are declared to be purely personal and may therefore not be assigned or transferred, nor can the Borrower assign or transfer any of its obligations, any such assignment being null and void insofar as the Lender is concerned and rendering any balance then outstanding of the Principal at Maturity immediately due and payable at the option of the Lender.

15.5Assignment by the Lender

The Lender may at any time assign all or any portion of the Loan with the prior written consent of the Borrower, which shall not be unreasonably withheld.

15.6Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument.

15.7Severability

Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction.

15.8Replacement of Previous Agreements

This Agreement replaces and supersedes all verbal or oral agreements, understandings and undertakings between the Lender and the Borrower relating to the Loan.

15.9Obligation to Pay Absolute

The obligations of the Borrower to make payments on the Principal at Maturity as and when due in accordance with this Agreement shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances without any right of compensation or set-off and notwithstanding any defence, right of action or claim of any nature whatsoever which the Borrower may at any time have or have had against the Lender, whether in connection with this Agreement or otherwise.

15.10Usury Laws

15.10.1To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury Laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Lender in order to enforce any right or remedy under this Agreement or any other Loan Document.

Loan Agreement no. 1 - Page 16

15.10.2Notwithstanding any provision to the contrary contained in any Loan Document, it is expressly agreed and provided that the total liability of the Borrower under the Loan Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable Law (the "Maximum Rate"), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Borrower may be obligated to pay under the Loan Documents exceed such Maximum Rate.

15.10.3It is agreed that if the maximum contract rate of interest allowed by Law and applicable to the Loan Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Loan Documents from the effective date thereof forward, unless such application is precluded by Applicable Law.

15.10.4If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Lender with respect to the Loan, or the Lender otherwise collects moneys that are determined to constitute interest that would otherwise increase the interest on the Loan to an amount in excess of the Maximum Rate, such excess shall be applied by the Lender to the unpaid Principal at or be refunded to the Borrower, the manner of handling such excess to be at the Lender's election.

15.11Governing Law

This Agreement and the interpretation and enforcement thereof shall be governed by and in accordance with the Laws of the Province of Ontario and the federal Laws of Canada applicable therein.

[Signature pages to follow]

Loan Agreement - Signature Page

IN WITNESS WHEREOF, the Parties hereto have signed this Agreement on the date and in the place first herein above mentioned.

	KWESST MICRO SYSTEMS INC., as Borrower
Per:
Address:
Attention:	Steve Archambault, Chief Financial Officer
Email:

Loan Agreement - Signature Page

	[***] as Lender
Per:
	[***]
Number of KWESST common shares currently held  required under TSX Venture Exchange rules
Address:
Attention:
Telephone:
Email:

SCHEDULE "A"

DEFINITIONS

"Affiliate" has the meaning ascribed to it from time to time in the Business Corporations Act (British Columbia);

"Applicable Law" means, with respect to any Person, any Law applicable to such Person or its properties or assets and any judgment or award binding on such Person or its properties or assets;

"Authorization" means any authorization, approval, consent, exemption, licence, permit, franchise or no-action letter from any Governmental Authority having jurisdiction with respect to any specified Person, property, transaction or event, or with respect to any of such Person's properties or assets;

"Bonus Shares" has the meaning ascribed thereto in Section 3.5;

"Borrower" refers to KWESST Micro Systems Inc. and includes any successor thereto;

"Business Assets" means the property and assets, tangible and intangible, corporeal and incorporeal, movable and immovable, of a specified Person;

"Business Day" means any day excluding Saturday, Sunday or any other day which in Ottawa, Ontario is a legal holiday or a day on which banks are authorized by law or by local proclamation to close; provided for the avoidance of doubt that no such banks shall be considered to be authorized by law or by local proclamation to close as a result of "stay at home", "shelter-in-place", "non-essential employee" or other similar orders or restrictions or the closure of any physical branch locations at the direction of any Governmental Authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in Ottawa, Ontario are generally open for use by customers on such day.

"Call Option Agreements" means that certain Call Option Agreement No. 1 and Call Option Agreement No. 2, each of which are between the Lender and certain insiders (as such term is defined in Policy 1.1) of the Borrower providing for two call options, each for a period of sixty (60) months from the Closing Date, to purchase a certain number of common shares of the Borrower the insiders currently own, the whole in accordance with the terms and conditions set forth therein.

"Capital Stock" means common shares, preferred shares or other equivalent equity interests (howsoever designated) of capital stock of a body corporate, equity preferred or common interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent such ownership interest;

"Change of Control Transaction" means the occurrence after the Closing Date of any of (a) an acquisition after the date hereof by any Person of effective control (whether through legal or beneficial ownership of share capital of the Borrower, by contract or otherwise) of in excess of 50% of the voting securities of the Borrower, (b) the Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with the Borrower and, after giving effect to such transaction, the shareholders of the Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the Borrower or the successor entity of such transaction, (c) the Borrower (and all of its subsidiaries, taken as a whole) sells or transfers all or substantially all of its Business Assets to another Person and the shareholders of the Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Borrower of an agreement to which the Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.

A - 1

"Closing Date" has the meaning ascribed thereto in Section 5.1;

"Concurrent Loan Agreement" means the loan agreement between the Borrower and the Lender for an amount of USD $200,000.00 to be entered into concurrently with this Agreement;

"Control" has the meaning ascribed to it from time to time in the Business Corporations Act (British Columbia), and "Controls" and "Controlled" shall have the correlative meanings;

"Default" means any Event of Default or any default, breach, failure, event, state or condition which, unless remedied or waived, with the lapse of time or giving of notice, or both, would constitute an Event of Default;

"Distribution", with respect to any Person, means the payment or declaration of any dividend or the making of any distribution of any kind or character (whether in cash or property but expressly excluding any such distribution by way of the payment of dividends by the issuance of Capital Stock) in respect of any class of the Capital Stock of such Person or to the holders of any class of its Capital Stock;

"Event of Default" means any of the events described in Article 11;

"Exchange" means the TSX Venture Exchange;

"Governmental Authority" means Canada, the Provinces thereof, any other sovereign country and any other regional, municipal, state, provincial, local or other subdivision of any jurisdiction, and any other governmental entity of any such jurisdiction and includes any agency, department, commission, office, régie, ministry, tribunal, central bank or other Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government;

"Indebtedness" of any Person means: (a) all obligations of such Person, contingent or otherwise for borrowed money, including obligations for borrowed money evidenced by bonds, debentures, notes or similar instruments, (b) all obligations of such Person, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person, (c) all capitalized lease liabilities and purchase money obligations of such Person, (d) net hedging obligations of such Person, (e) all obligations of such Person to pay the deferred purchase price of property or services to the extent such obligations bear interest (excluding trade accounts payable in the ordinary course of business), and (f) all contingent liabilities of such Person in respect of any of the foregoing;

A - 2

"Interest Payment Date" has the meaning ascribed thereto in Section 3.4;

"Insolvency Event" means the occurrence of any of the following events:

1.the Borrower applies for, consents to, or acquiesces in the appointment of a receiver, receiver and manager, statutory manager, trustee or similar official for all or substantially all of its assets; or

2.the Borrower is declared to be insolvent in a final judgment or admits in writing that it is unable to pay its debts generally when they fall due; or

3.the Borrower takes any steps to obtain or is granted protection from its creditors, under any Applicable Law; or

4.(a) the commencement of an involuntary proceeding against the Borrower (i) seeking bankruptcy, liquidation, reorganization, dissolution, winding up, a composition or arrangement with creditors, a readjustment of debts, or other relief with respect to it or its debts under any bankruptcy laws or other customary insolvency actions or (ii) seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its assets, the issuance of a writ of attachment, execution, or similar process, or like relief, and such involuntary proceeding shall remain undismissed and unstayed for a period of 30 days, (b) an order for relief is entered against the Borrower under the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) or any other present or future federal bankruptcy or insolvency Laws of Canada, (c) filing by the Borrower of an answer admitting the material allegations of a petition filed against it in any involuntary proceeding commenced against it, or (d) consent by the Borrower to any relief referred to in this paragraph or to the appointment of or taking possession by any such official in any involuntary proceeding commenced against it; or

5.anything analogous or having a substantially similar effect to any of the events specified above happens under the Law of any applicable jurisdiction, including, without limitation, the Borrower taking steps towards filing any plan of arrangement proceeding seeking to restructure its Indebtedness;

"Law" means any international treaty or any federal, provincial, territorial, state, municipal, county or local statute, law, ordinance, code, rule, regulation or order (including any consent, decree or administrative order) or any directive, guideline or policy of any Governmental Authority;

"Lender" means [***], and shall include its successors and assigns;

"Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner (which for the purposes hereof shall include a possessor under a title retention agreement and a lessee under a capital lease) including by way of mortgage, pledge, charge, lien, assignment by way of security, hypothecation, security interest, conditional sale agreement, deposit arrangement, deemed trust, title retention, capital lease, factoring or securitization arrangement;

A - 3

"Loan" means, as at any time, the aggregate principal amount which the Lender has agreed to make available to the Borrower pursuant to Section 2.1, any and all interest accruing and owing hereunder and all other moneys which from time to time may be owing and payable to Lender hereunder;

"Loan Documents" refers collectively to this Agreement, the certificates representing the Bonus Shares and the Shares for Debt, if applicable, the Concurrent Loan Agreement, the Call Option Agreements, and each other document, instrument or agreement entered into by or between the Borrower and the Lender in connection with the transactions contemplated herein or therein or which is supplemental hereto or thereto, and "Loan Document" refers to any one thereof;

"Market Price" has the meaning set forth in Policy 1.1;

"Material Subsidiary(ies)" means any Person (i) of which the Borrower, directly or indirectly, owns 50% or more of the equity securities of any kind in such Person, and (ii) the book value of the assets of such Person represents more than 50% of the total book value of the Borrower's consolidated assets;

"Material Adverse Effect" means any undisclosed fact to the Lender which could have a material adverse effect upon (i) the business, financial condition, operations or properties of the Borrower, taken as a whole on an unconsolidated basis, (ii) the rights and remedies of the Lender under this Agreement or the other Loan Documents, or (iii) the ability of the Borrower to perform its obligations under this Agreement;

"Maturity Date" has the meaning ascribed thereto in Section 2.4;

"NI 45-106" means National Instrument 45-106 - Prospectus Exemptions;

"Parties" refers collectively to the Borrower and the Lender, and "Party" refers to any one of them individually;

"Person" means any individual, corporation, company, limited liability company, estate, limited or general partnership, trust, joint venture, other legal entity, unincorporated association or Governmental Authority;

"Policy 1.1" means Policy 1.1 - Interpretation of the Corporate Finance Manual of the Exchange;

"Policy 4.3" means Policy 40.3 - Shares for Debt of the Corporate Finance Manual of the Exchange;

"Principal at Maturity" means USD $220,000.00;

"Qualified Offering" means an equity offering which lists the Borrower's common shares onto the Nasdaq or the NYSE American exchanges;

"Repayment Notice" means the notice to be sent to the Lender by the Borrower under Section 2.5;

A - 4

"Shares for Debt" means any common shares issued pursuant to Section 12.1.2 and in accordance with Policy 4.3;

"Subsequent Financing" means any subsequent equity financing prior to the Qualified Offering;

"Subsidiary(ies)" of any Person means any Person (i) which is Controlled, directly or indirectly by such first Person or (ii) a majority of whose voting Capital Stock, on a fully diluted basis, is owned directly or indirectly, beneficially or otherwise, by such first Person. A Person shall be deemed to be a Subsidiary of another Person if it is a Subsidiary of a Person that is that other's Subsidiary;

"Taxes" means all taxes of any kind or nature whatsoever including federal large corporation taxes, provincial capital taxes, realty taxes (including utility charges which are collectible like realty taxes), business taxes, property transfer taxes, income taxes, sales taxes, levies, stamp taxes, royalties, duties, and all fees, deductions, compulsory loans and withholdings imposed, levied, collected, withheld or assessed as of the Closing Date or at any time in the future, by any Governmental Authority having power to tax, together with penalties, fines, additions to tax and interest thereon, and "Tax" shall have a correlative meaning;

"United States Dollars" or "USD$" means the lawful currency of the United States;

"Withholding Taxes" has the meaning scribed thereto in Section 13.1.

A - 5

SCHEDULE "B"

EXISTING LIENS

[***]

B - 1

EX-21.1

Exhibit 21.1

List of Subsidiaries of KWESST Micro Systems Inc.

Entity Legal Name	Jurisdiction of Incorporation
KWESST U.S. Holdings Inc.	Delaware, United States
KWESST Public Safety Systems U.S. Inc.	Delaware, United States
KWESST Defense Systems U.S. Inc.	Delaware, United States
KWESST Public Safety Systems Canada Inc.	Ontario, Canada
2720178 Ontario Inc.	Ontario, Canada
Police Ordnance Company Inc.	Ontario, Canada
KWESST Inc.	Ontario, Canada

EX-23.1

September 16, 2022

To:  Whom it may concern:

Re: KWESST Micro Systems Inc.

In connection with the filing of this Amendment No.1 to Form F-1 Registration Statement of KWESST Micro Systems Inc. (the "Company") dated September 16, 2022, to be filed under the Securities Act of 1934 (U.S.), we consent to being named and to the use of our report dated November 22, 2021 to the shareholders of the Company on the following consolidated financial statements:

a)Consolidated statements of financial position as at September 30, 2020 and December 31, 2019.

b)Consolidated statements of loss and comprehensive loss, changes in shareholders' equity and cash flows for the nine month ended September 30, 2020 and twelve months ended December 31, 2019, and a summary of significant accounting policies and other explanatory information.

We report that we have read the Amendment No.1 to Form F-1 and all information therein and have no reason to believe that there are any misrepresentations in the information contained therein that are derived from the financial statements upon which we have reported or that are within our knowledge as a result of our audit of such consolidated financial statements.

Sincerely,

/s/ Kreston GTA LLP

Chartered Professional Accountants, Licensed Public Accountants

Markham, Canada

Kreston GTA LLP | 8953 Woodbine Avenue, Markham, Ontario, Canada, L3R 0J9, T. 905.474.5593 | www.krestongta.com
A member of Kreston International | A global network of independent accounting firms

EX-23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

KWESST Micro Systems Inc.

We, KPMG LLP, consent to the inclusion in this Amendment No.1 to Form F-1 Registration Statement of KWESST Micro Systems Inc. (the "Company") dated September 16, 2022 being filed with the United States Securities and Exchange Commission, of our report dated November 24, 2021, on the consolidated financial statements of the Company, which comprise the consolidated statement of financial position as at September 30, 2021, the related consolidated statements of net loss and comprehensive loss, changes in shareholders' equity and cash flows for the year ended September 30, 2021, and the related notes, which is included herein, and to the reference to our firm under the heading "Experts" included in the Amendment No.1 to Form F-1 Registration Statement.

/s/ KPMG LLP

September 16, 2022

Ottawa, Canada

EX-FILING FEES

Exhibit 107

Calculation of Filing Fee Tables

FORM F-1
(Form Type)

KWESST MICRO SYSTEMS INC.
(Exact Name of Registrant as Specified in its Charter)

Table 1: Newly Registered and Carry Forward Securities

	Security Type	Security Class Title(1)	Fee Calculation or Carry Forward Rule	Amount Registered	Proposed Maximum Offering Price Per Unit	Maximum Aggregate Offering Price(1)	Fee Rate	Amount of Registration Fee
Newly Registered Securities
Fees to be Paid	Equity	Common Units, each Common Unit consisting of one Common Share, no par value, and one Warrant to purchase one Common Share(2)(3)	Rule 457(o)			$13,225,000	$0.0000927	$1,225.95
Fees to be Paid	Equity	Common Shares included in the Common Units(3)	Rule 457(g)			(4)	$0.0000927
Fees to be Paid	Equity	Warrants included in the Common Units(3)	Rule 457(g)			(4)	$0.0000927
Fees to be Paid	Equity	Common Shares underlying Warrants included in the Common Units (at an exercise price of 125% of the price of the Common Units)(3)(5)	Rule 457(o)			$16,531,250	$0.0000927	$1,532.45

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Fees to be Paid	Equity	Pre-funded Units, each Pre-funded Unit consisting of one Pre-funded Warrant and one Warrant, each to purchase one Common Share(3)	Rule 457(o)		$0.0000927
Fees to be Paid	Equity	Pre-funded Warrants included in the Common Units(3)	Rule 457(g)	(4)	$0.0000927
Fees to be Paid	Equity	Common Shares underlying Pre-funded Warrants included in the Pre-funded Units (at an exercise price of $0.01)(3)	Rule 457(o)		$0.0000927
Fees to be Paid	Equity	Warrants included in the Pre-funded Units(3)	Rule 457(g)	(4)	$0.0000927
Fees to be Paid	Equity	Common Shares underlying Warrants included in the Pre-funded Units (at an exercise price of 125% of the price of the Units)(3)	Rule 457(o)		$0.0000927
Fees to be Paid	Equity	Warrants to be issued to the underwriter	Rule 457(g)	(4)	$0.0000927
Fees to be Paid	Equity	Common Shares underlying Warrants issued to the underwriter(3)(5)	Rule 457(o)	$826,563	$0.0000927	$76.62

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Fee Previously Paid	-	-	-	-	-	-	-	-
	Total Offering Amounts					$30,582,813		$2,835.02
	Total Fees Previously Paid							$2,835.02
	Total Fee Offsets							$0
	Net Fee Due							$0

(1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933. Assumes no sale of any Pre-funded Units in lieu of Common Units.

(2)Includes Common Shares and Warrants that may be purchased by the underwriter pursuant to its option to purchase additional Common Shares and Warrants to cover over-allotments. Assumes no sale of any Pre-funded Units in lieu of Common Units.

(3)Pursuant to Rule 416 under the Securities Act, there are also being registered such indeterminate number of additional securities as may be issued to prevent dilution resulting from share splits, share dividends or similar transactions.

(4)No registration fee required pursuant to Rule 457(g).

(5)The warrants are exercisable at a price per common share equal to 125% of the Common Unit offering price.

(6)We have agreed to issue to ThinkEquity LLC, Underwriter Warrants that are immediately exercisable at an exercise price equal to 125% of the price per Common Unit issued in the offering, representing up to 5.0% of the Common Shares included in the Common Units issued in the offering. Resales of the Underwriter Warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, as amended, are registered hereby. Resales of Common shares issuable upon exercise of the Underwriter Warrants are also being similarly registered on a delayed or continuous basis hereby. As estimated solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the Underwriter Warrants is $826,653, which is equal to 125% of $661,250 (5.0% of $13,225,000). See Underwriting.

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