Mr. Sean Homuth reports

KWESST UPDATES INVESTORS ON BUSINESS RAMP-UP IN FISCAL Q2, OUTLOOK FOR Q3

Kwesst Micro Systems Inc. is updating investors on the ramp-up of business in the fiscal second quarter of 2024 ending March 31, 2024, and the outlook heading into fiscal the third quarter ending June 30, 2024.

"Reorganization of our Arwen business in Q2 and ramp-up of our military digitization business have provided stronger revenue visibility, which we are pleased to share with investors," said Sean Homuth, Kwesst president and chief executive officer.

Arwen business grows following reorganization

Kwesst stated that its Arwen business, which it reorganized in late 2023, has been able to increase customer shipments in Q2 six-fold over the first quarter (including shipments anticipated through end-March). Anticipated Q2 revenue ($226,000) represents a run rate of approximately $1-million annually which is more than double Arwen revenue for fiscal 2023 of $400,000. The company foresees continued growth in the foreseeable future starting in Q3 and beyond, driven in part by take-up of its new 44-millimetre baton cartridge, with many law enforcement agencies in North America building up their inventories of less lethal products in response to anticipated escalation in frequency and severity of incidents of public unrest.

"I'm pleased with our team's progress in simplifying, outsourcing and improving the responsiveness of the Arwen supply chain," said Mr. Homuth. "The Arwen brand has been relied upon by law enforcement for over 40 years as a critical alternative to lethal force in high-risk policing operations. The introduction of 40 mm products addressing the largest part of the install base in the market as well as supply chain improvements, position us well to drive meaningful growth in the business."

Key military digitization programs

The DSEF (Directorate Land Command Systems Program Management Software Engineering Facility) program has ramped up and Kwesst has filled approximately half (five) of the positions required to staff the initial works tasks that are expected to yield approximately $2.2-million annually in revenue (over the five-year initial contract term). Progress against work has been slower than anticipated due to logistical delays with the customer. Upon staffing of the initial 11 positions, the company expects further work tasks that will grow the annualized revenue beyond this level. The company's maximum workshare under the program represents approximately $5-million per year in revenue over the five-year initial contract term.

In the company's press release of Feb. 15, 2024, the company announced that it expected to be under subcontract with a global defence contractor by mid-May to provide digitization services for a G7 miliary program with work scope of similar scale to the DSEF program. The company is pleased to guide that, while not yet complete, it now expects to be under contract within a month with work and revenue commencing mid-April on the program. The company now expects the maximum workshare under this task-based program to be approximately $48-million for the initial six-year term of the subcontract. The revenue impact for the company depends on timing and extent of task orders issued by the customer.

"The substantial progress made on the development of our digitization business demonstrates success in executing on our strategy of winning and delivering on long-term strategic military programs with multiyear revenue stability. We've demonstrated our ability to attract top talent to the DSEF program, and have also built a solid initial team that stands ready to deploy on the new program," said Mr. Homuth.

About Kwesst Micro Systems Inc.

Kwesst develops and commercializes breakthrough next-generation tactical systems for military and security forces. The company's current portfolio of offerings includes digitization of tactical forces for real-time shared situational awareness and targeting information from any source (including drones) streamed directly to users' smart devices and weapons. Other Kwesst products include countermeasures against threats such as electronic detection, lasers and drones. These systems can operate stand-alone or integrate seamlessly with OEM products and battlefield management systems, and all come integrated with TAK. The company also has a new proprietary non-lethal product line branded Para Ops with application across all segments of the non-lethal market, including law enforcement. The company is headquartered in Ottawa, Canada, with operations in Guelph, Ont., Canada, and Youngsville, N.C., as well as representative offices in London, United Kingdom, and Abu Dhabi, United Arab Emirates.

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