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Emerging Markets Report

KWESST Microsystems Inc.

One on One With KWESST’s Executive Chairman, David Luxton | 06/09/2022

With a world in turmoil… rising inflation, COVID, rising gas prices, and not least of which, the war in Ukraine, there is much uncertainty in business and among investors. All the aforementioned, whether singularly or collectively, can and are impacting businesses. As such, we took a moment to communicate directly with KWESST Micro Systems Inc.’s (TSXV: KWE) (OTCQB: KWEMF) Executive Chairman David Luxton to discuss changing global conditions and KWESST’s perpetual effort to grow its business.

KWESST, as you should recall, develops and commercializes breakthrough next-generation tactical systems that meet the requirements of security forces and personal defense for overmatch capability against adversaries. The Company counts the US military and major global defense contractors as its customers.

Image of KWESST Executive Chairman David Luxton

EMR: KWESST describes its business as “Next Generation Tactical Systems.” What does that really mean, and how has the war in Ukraine changed the need for what KWESST does?

Luxton: KWESST’s “next-generation tactical systems” protect soldiers on the ground and make them more operationally effective by providing real-time situational awareness information on their smartphones, precision targeting, and counter-measures against threats like electronic detection and battlefield lasers.

The war in Ukraine is certainly a game changer, and the next-generation systems we’ve developed for tomorrow’s conflicts are required sooner because tomorrow’s conflicts are suddenly here today, against all expectations.

We’re seeing, especially, accelerated and in some cases urgent interest in our Phantom electronic decoy and our Battlefield Laser Defense System for NATO forces deploying to the Baltic region who might face the same Russian threats as Ukrainian forces.

Counter Drone - image of solider launching counter drone into sky

It’s worth noting that a big part of modern conflict is fought invisibly in the electro-magnetic spectrum, as well as with guns and steel on the ground. Enemy forces can readily locate Ukrainian or NATO troops from the electronic signatures given off by their radio, cell phone and data communications. They then target them with precision munitions – something the Ukrainians are acutely aware of from previous devastating attacks. KWESST’s Phantom electronic decoy mitigates this threat by creating false or “phantom” signals across the battlefield that appear to be NATO communications, thus deceiving and confusing adversaries. We are currently processing several NATO requests for the Phantom system. We are also accelerating ramp-up of production in anticipation of potential orders for early delivery.

Lasers are also a modern threat. They’re used to locate potential targets and to “paint” or tag them with an invisible electronic bullseye so that smart munitions can lock on for the kill. As well, there are now weaponized anti-personnel lasers that can detect anything optical such as sniper scopes, binoculars, range finders -even eyeballs- then zap them with a high-power laser energy beam and melt them. We spent the last three years developing a counter measure to this threat that will alert troops when lasers are present and even locate their source so they can be attacked and destroyed. This Battlefield Laser Defense System is now available, and we are expecting the first order from an overseas NATO country any day now.

Image of KWESST Battlefield Laser Detection System

EMR: You recently announced a financing that is earmarked to help the Company fulfill orders related to the conflict. Can you expand a little on why it was needed?

Luxton: In March we did a $2 million financing among insiders and a few of our larger shareholders just to be prudent in the face of volatile capital markets. The use of funds was to accelerate production and build inventory in the face of a changed operating environment as war broke out. Given the outsized returns on product sales this was a sensible investment, especially with the concerted NATO response and the need to urgently modernize NATO forces.

Military armored vehicle with the flag of Ukraine.

EMR: How significantly will the use of the Company’s products in Ukraine increase revenue and visibility for the Company’s technology?

Luxton: The war in the Ukraine has elevated KWESST’s visibility with NATO nations and intensified the pace of inquiries for our products.

In the very short term, we recognize that Ukraine’s immediate and urgent need is for warfighting equipment like jets, missiles and missile defense systems and anti-tank munitions. KWESST provides next-generation protective systems, not warfighting munitions. Although some of KWESST’s systems may be earmarked for the Ukraine, the overall pattern we are seeing is NATO countries seeking to procure for their own use in the event of a wider conflict. 

As with any military equipment, it’s not just a matter of delivering a piece of equipment. New systems, require training and technical support to bring them into service. It’s much more challenging to provide that once the shooting and bombing starts. So, we expect interest from NATO to translate into orders primarily for its own forces, with perhaps some sponsored supply into the Ukraine.

Image of KWESST Phantom Personal Worn Version

EMR: What should investors know about where the Company is headed?

Luxton: KWESST is a pure play in the defense and security market and could see accelerated growth in a time of war and as countries everywhere massively increase their defense spending and modernize what’s called their “soldier systems.” KWESST’s systems fit squarely within the plans of NATO forces to “digitize” the soldier, refit legacy weapon systems with integrated electronic sighting systems, equip soldiers with miniaturized tactical electronic warfare devices, and provide protective equipment against lasers. We believe these could become essential and ubiquitous in future conflicts, much like jammers against roadside bombs during the Afghanistan and Iraq conflicts. Those future conflicts have sadly now arrived, sooner than anyone anticipated, and defense stocks are already beginning to benefit.

Image of KWESST Team Awareness Kit Digitization

EMR: What else should our readers know about the impact of this conflict, directly and indirectly, David?

Luxton: As someone in the defense industry who has had to closely observe changes in geopolitical dynamics over many years, I share the view of expert analysts who see the invasion of Ukraine as the front line in what could become a gloves-off regional or even global conflict of democracies against brutal autocratic regimes. However this plays out, NATO and Western nations have woken up and a re-set in global security arrangements is underway and will be many years coalescing into something new. KWESST is well positioned to benefit from the inevitable modernization of forces that will occur throughout this re-set over the coming years. It is therefore a good time to be in this business, though, sadly, a dangerous new era for the world.

In the short term, we seek to assist Ukraine any way we can. Exactly how we might do that is of course a matter of security sensitivity. However, we anticipate that this will be through the supply of our systems to nations sponsoring military aid to the Ukraine as well as procurements for NATO forces deployed in the region. Even in war things may not happen overnight… I remember how long it took to field jammers against roadside bombs in the Middle East conflict. But sheer necessity will prevail, and KWESST is favorably positioned to benefit from the soldier modernization programs involved in what is likely to be a long game for years to come.

EMR: Thank you, Mr. Luxton.

Luxton: My pleasure.

About The Emerging Markets Report:
The Emerging Markets Report is owned and operated by Emerging Markets Consulting (“EMC”), a syndicate of investor relations consultants representing years of experience. Our network consists of stockbrokers, investment bankers, fund managers, and institutions that actively seek opportunities in the micro and small-cap equity markets.

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EMC was paid one hundred fifty thousand dollars by KWESST Micro Systems, Inc. on 03/08/2021. EMC and KWESST extended the agreement on 06/08/2021 and EMC has since been paid an additional six hundred thousand dollars. EMC does not independently verify any of the content linked-to from this editorial. | Please read our full disclaimer

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