F-1/A: Liberty Defense Files for IPO Amidst Growing Losses

Liberty Defense Holdings, Ltd. is pursuing an initial public offering on Nasdaq to raise capital for its AI-based security screening technologies, despite reporting significant losses and negative cash flows.

Summary

• Liberty Defense Holdings, Ltd. is seeking to raise approximately US$12.4 million (or US$14.5 million if the over-allotment option is fully exercised) through an initial public offering of 3,333,333 common shares on the Nasdaq Capital Market under the symbol DETX.
• The company's common shares are currently listed on the TSX Venture Exchange (SCAN), quoted on the OTCQB Venture Market (LDDFF), and listed on the Frankfurt Stock Exchange (E30); the OTCQB listing will cease upon Nasdaq approval.
• A 1-for-45 share consolidation (reverse stock split) is planned prior to the IPO's effective date, subject to TSXV approval, to meet Nasdaq's minimum bid price requirement.
• Preliminary estimates for the year ended December 31, 2025, indicate a net loss between US$12.8 million and US$14.5 million, a significant increase from US$8.8 million in 2024.
• Total revenue for 2025 is estimated to be between US$1.5 million and US$2.0 million, down from US$2.4 million in 2024, while total operating expenses are projected to rise to US$11.5 million US$12.0 million from US$5.8 million.
• The company reported a net loss of US$10,510,206 for the nine months ended September 30, 2025, compared to US$6,429,727 for the same period in 2024, and negative cash flow from operating activities of US$8,379,896.
• Liberty Defense develops and commercializes AI-based contactless security technology, including its HEXWAVE system for detecting concealed metallic and non-metallic threats, and the HD-AIT Upgrade Kit for airport body scanners.
• The HD-AIT Upgrade Kit is currently in the product development and TSA certification phase, with initial commercial sales anticipated in 2026, subject to successful completion of the certification process.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with caution. While the IPO aims to address critical funding needs and the company operates in a growing market with innovative technology, the significant and increasing losses, negative cash flows, and explicit 'going concern' doubt present substantial financial instability. The preliminary 2025 estimates show a worsening financial trend, overshadowing the positive technological developments and market opportunities.

Positives

• The company is an emerging leader in AI-based contactless security technology for detecting concealed metallic and non-metallic weapons and threats.
• HEXWAVE system offers superior detection effectiveness for both metallic and non-metallic threats, including liquid, plastic, and powder explosives, and 3D printed guns, using AI and 3D imaging.
• The HEXWAVE system allows for rapid, automated screening with high throughput (up to 700 people per hour) and significantly reduces false alarms, improving visitor experience and operational efficiency.
• The HD-AIT Upgrade Kit addresses a near-term market opportunity of approximately US$125 million from the TSA's plan to upgrade over 1,000 body scanners at U.S. airports over the next five years.
• Strategic global partnerships with companies like Rapiscan and Viken provide significant leverage and global reach for scaling the business.
• The management team possesses over two decades of experience in the security industry, including expertise in millimeter-wave applications and AI algorithm development.
• A self-reinforcing adoption cycle is anticipated, where increased customer acquisition leads to more data, improving detection accuracy and system performance, thereby attracting more customers.

Negatives

• The company has a history of losses and negative operating cash flows, with a net loss of US$10,510,206 for the nine months ended September 30, 2025, and US$8,845,163 for the year ended December 31, 2024.
• A working capital deficiency of approximately US$4.5 million as of September 30, 2025, and US$2.7 million as of December 31, 2024, raises substantial doubt about the company's ability to continue as a going concern.
• Preliminary estimates for the year ended December 31, 2025, project a decrease in total revenue to US$1.5 million US$2.0 million from US$2.4 million in 2024, and a significant increase in total operating expenses to US$11.5 million US$12.0 million from US$5.8 million.
• Independent registered public accountants identified material weaknesses in internal control over financial reporting, including issues with inventory impairment assessment, review of standard costs, account reconciliations, and check disbursement approvals.
• HEXWAVE revenue decreased by 37.2% for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to lower unit deliveries and shifted customer deployment schedules.
• Contract revenue decreased by 31.6% for the nine months ended September 30, 2025, reflecting the completion of major milestones under TSA contracts in 2024.
• The company is dependent on a single-source supplier, Analog Devices Inc. (ADI), for safety-critical components of HEXWAVE, accounting for approximately 22% of cost of goods sold, without a long-term purchase contract.

Risks

• The company is an early-stage company with a limited operating history and a history of losses, raising substantial doubt about its ability to continue as a going concern.
• Failure to achieve milestones on expected timeframes or at all may impair the ability to execute the business plan, potentially leading to delayed activities or the need for additional funding.
• Material weaknesses in internal control over financial reporting could lead to inaccurate financial results and a failure to meet reporting obligations.
• A significant portion of the business depends on sales to government agencies, which are subject to challenges, risks, and potential delays in contract revenue projects.
• The HD-AIT Upgrade Kit may not achieve TSA certification within the expected timeline or at all, delaying commercialization and expected revenue.
• The addressable markets for HEXWAVE and HD-AIT Upgrade Kit may be materially smaller than currently estimated, and regulatory, technical, adoption, and procurement uncertainties could adversely affect revenue potential.
• Reliance on a limited number of products (HEXWAVE) subjects the company to greater risk from changes in customer preference or increased competition.
• Rapid technological change could result in obsolescence or short product life cycles for the company's products.
• Product failures or perceived failures to detect threats could result in injury or loss of life, harming brand and reputation.
• Reliance on certain license agreements (MIT, Battelle) for key technology, which contain termination and other provisions that could materially and adversely affect the business.
• Dependence on a limited number of third parties for manufacturing, shipping, logistics, marketing, and sales, including a single-source supplier (ADI) for critical HEXWAVE components.
• Exposure to risks associated with international business, including legal uncertainty, tariffs, compliance with anti-corruption laws (FCPA, U.K. Bribery Act), and foreign exchange rate fluctuations.
• Vulnerability of internal computer systems to damage, failure, and cybersecurity threats, which could disrupt operations or compromise data.
• Low barriers to entry and high competition in the security industry could impact the ability to obtain contracts and affect future revenues and growth prospects.
• Substantial capital requirements and the risk of failing to raise additional capital, which could lead to significant dilution for existing shareholders.
• The company has granted competing security interests in substantially all assets of its wholly-owned subsidiary, Liberty Defense Technologies, Inc., which could materially adversely affect liquidity and operations if triggered by a default.
• Dependence on the Parabilis Credit Facilities, which are short-term, contain restrictive covenants, and include lender remedies that could materially harm the company if triggered.
• U.S. Holders of common shares may suffer adverse tax consequences if the company is characterized as a passive foreign investment company (PFIC).
• The company has no operating experience as a publicly traded company in the United States and will incur significantly increased costs and management time as a result.
• Inability to comply with Nasdaq's continued listing requirements could result in delisting, affecting market price and liquidity.
• The common shares have experienced and may continue to experience extreme share price volatility unrelated to actual operating performance.

Future Outlook

The company anticipates continued significant expenses and operating losses in the foreseeable future as it advances the commercialization of HEXWAVE and HD-AIT. Future revenues and existing cash, along with estimated IPO proceeds, are expected to fund operations and capital expenditures through June 30, 2026. Initial commercial sales of the HD-AIT Upgrade Kit are anticipated in 2026, subject to TSA certification. Efforts to reduce dependency on a single-source supplier for HEXWAVE components are in early stages, with an alternate supply path not expected before late 2026.

Management Comments

• Management believes that the expectations reflected in any forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct.
• Management is committed to overcoming challenges in the global economic environment and has taken proactive measures, including increasing product awareness, advancing customer pilots, and maintaining operational readiness.
• Management recognizes that current capital market conditions directly affect liquidity and working capital, and continued access to external financing is critical to support operations and growth initiatives until sustainable revenues are generated.
• Management believes that the increasing frequency and severity of violent incidents in public venues is prompting both businesses and governments to adopt more proactive and scalable security screening solutions, positioning the company to become a market leader.

Industry Context

StockSavvy.ai notes that Liberty Defense operates in the rapidly evolving security screening market, which is projected to grow from US$11 billion to US$22.4 billion by 2036 (7.5% CAGR). The company aims to disrupt this market, currently dominated by legacy metal detectors, with its AI-based millimeter-wave technology. The focus on contactless, high-throughput solutions aligns with a broader industry trend towards less intrusive and more effective security, driven by increasing concerns over mass shootings and emerging threats like 3D-printed weapons. The company's contracts with the TSA for the HD-AIT Upgrade Kit position it well within the government and aviation security sectors, where there is a significant push for technological advancements and upgrades to aging infrastructure.

Comparison to Industry Standards

• HEXWAVE's contactless, 3D-imaging, and AI-enabled screening technology represents a new generation compared to legacy metal detectors, which are prone to false alarms and require manual processes.
• The HEXWAVE system is designed to be up to twice as fast as old screening processes, offering increased throughput and reduced crowding, which is a key differentiator in urban security markets.
• Unlike traditional walk-through metal detectors, HEXWAVE reliably detects both metallic and non-metallic weapons (e.g., liquid, plastic, powder explosives, 3D printed guns, ceramic knives, ghost guns) while ignoring harmless items, addressing a critical gap in current security solutions.
• The HD-AIT Upgrade Kit aims to enhance existing TSA AIT systems, which are currently in use in airports, by offering greater detection capabilities and lower false alarm rates, potentially surpassing the performance of the original Leidos ProVision and ProVision 2 systems.
• The HD-AIT Upgrade Kit scans over a wider range of frequencies (10 to 40 GHz) compared to the Leidos Wideband System (20 to 40 GHz), which is expected to provide improved passenger MMW image details and allow passengers to wear more layers of clothing without compromising threat detection.
• The company's collaboration with TSA on an Open Architecture platform for the HD-AIT Upgrade Kit allows for integration with third-party AI vendor software, potentially offering more flexibility and adaptability than proprietary systems from competitors like Leidos.

Management Changes

Corporate Governance

Legal Proceedings

• Not currently engaged in any litigation or criminal proceedings.

Related Party Transactions

• Received working capital loans from certain directors and officers (Jay Adelaar, Nicole Ridgedale, Jennifer Frain) totaling approximately US$787,908 since January 1, 2023. These loans were unsecured, non-interest bearing, and lacked specified maturity dates. As of September 30, 2025, there was no outstanding balance.
• Daryl Rebeck, former Executive Chairman, participated in a non-brokered private placement on June 8, 2023, purchasing 1,111 units for CAD$100,000.

Stakeholder Impact

• **Shareholders:** Will experience immediate and substantial dilution if they purchase common shares in this offering due to the difference between the IPO price and the adjusted net tangible book value. Future financing may cause further dilution. The share consolidation may decrease liquidity. U.S. Holders may face adverse tax consequences if the company is classified as a PFIC. Management will have broad discretion over the use of IPO proceeds.
• **Employees:** The company's ability to attract and retain highly qualified management, clinical, and scientific personnel is critical to success. Growth may place significant demands on management and resources. Stock-based compensation is a key component of executive compensation.
• **Customers:** The company's mission is to protect communities and preserve peace of mind through superior security detection solutions. Product failures or defects could result in injury or loss of life, damaging the brand and reputation. Delays in product development or certification could impact customer access to new technologies.
• **Suppliers:** The company relies on a limited number of third parties for manufacturing and critical components, including a single-source supplier (ADI) for HEXWAVE, creating supply chain risks. Disruptions could delay production and increase costs.
• **Creditors:** The company has significant debt obligations, including Parabilis Credit Facilities, which contain restrictive covenants and lender remedies. The 'going concern' doubt highlights risks to creditors. Competing security interests in subsidiary assets could affect the company's ability to obtain additional financing.

Next Steps

• Complete the initial public offering and list common shares on the Nasdaq Capital Market under the symbol DETX.
• Effect a one-for-forty-five (1-for-45) share consolidation of common shares prior to the IPO's effective date, subject to TSXV approval.
• Utilize net proceeds from the IPO for working capital, commercialization of the HD-AIT Upgrade Kit, business development for HEXWAVE, and recurring engineering and cost reduction efforts for next-generation HEXWAVE.
• Continue optimizing unit economics, reducing production costs, and enhancing HEXWAVE system performance through ongoing engineering and supply chain improvements.
• Actively expand the commercial team and build channel partnerships to support broader market rollout of HEXWAVE in 2026.
• Achieve TSA certification for the HD-AIT Upgrade Kit to enable initial commercial sales in 2026.
• Complete fulfillment of the remaining HEXWAVE order backlog, including additional orders currently in production, during the first half of 2026.
• Continue efforts to evaluate potential design changes to reduce dependency on Analog Devices Inc. (ADI) for HEXWAVE components, with an alternate supply path not expected before late 2026.
• Remediate identified material weaknesses in internal control over financial reporting.
• Continue to pursue equity and/or debt financing to support operations and growth initiatives.

Key Dates

Recommendation

The filing reveals a company in a precarious financial state, marked by significant and increasing net losses, negative operating cash flows, and an explicit 'going concern' warning from its auditors. While the IPO aims to inject capital, the preliminary 2025 financial estimates show a worsening trend in revenue and expenses, indicating that the underlying business is struggling to achieve profitability. The substantial dilution for new investors, coupled with high operational risks such as reliance on a single-source supplier, certification delays, and intense competition in a rapidly evolving market, makes this a high-risk investment. A seasoned investor would likely view the current financial instability and operational challenges as outweighing the potential of its innovative technology, suggesting a 'sell' or 'avoid' stance until there is clear evidence of sustained revenue growth, improved profitability, and resolution of the going concern issue.

Keywords

AI-based security, Contactless security, Weapon detection, Millimeter wave technology, 3D imaging, HEXWAVE, HD-AIT Upgrade Kit, TSA certification, Public safety, Airport security, Urban security, IPO, Nasdaq listing, SEC filing, Risk factors, Financial losses, Going concern, Capital raise, Supply chain risk, Intellectual property licensing