DETX — Q2 2026 Financial Report Analysis

Liberty Defense makes HEXWAVE, a walk-through scanner that uses millimeter-wave radio imaging and AI software to spot concealed guns and other weapons, both metal and non-metal. Q2 2026, the quarter ended June 30, was its first as a Nasdaq-listed company. The April 2026 IPO raised $20.0 million and moved the balance sheet from a $2.5 million shareholders' deficit to $9.0 million of equity. The operating business went backwards. Revenue fell to $42,202, down 90% from $429,849, because the company shipped zero HEXWAVE units in the quarter and its government development contract was almost finished. The net loss narrowed to $2.21 million from $3.76 million, but $1.41 million of that improvement came from a one-time, non-cash accounting gain on warrants, not from operations.

At a glance

• $42,202 of revenue, -90% YoY. All of it was software, training and warranty income on systems already installed. No new scanners were delivered in Q2. All six units shipped in the first half went out in Q1.
• $7.59 million of cash at June 30, up from $0.32 million at December 31. That came from the IPO. Operations used $7.97 million of cash in the first half, so the new money is not a long cushion.
• $1.115 million of HEXWAVE order backlog. Backlog means signed orders not yet delivered. It is about the size of one good quarter's revenue, and management expects to ship all of it in 2026.

Results

Liberty reports under IFRS (international accounting rules) in U.S. dollars. It files with the SEC as a foreign private issuer, so its quarterly statements come as a 6-K rather than a 10-Q. Figures are in U.S. dollars. Per-share figures reflect the 1-for-45 reverse share split that took effect on March 13, 2026.

First-half figures show the same pattern with less quarter-to-quarter noise. H1 revenue was $961,623, down 35.3% from $1,485,207. Operating loss was $6.06 million vs $7.18 million, and net loss was $4.93 million vs $7.54 million.

Why revenue collapsed

Liberty earns money in two ways: selling HEXWAVE units, and doing paid development work for the U.S. Transportation Security Administration (TSA) on an upgrade kit for airport body scanners (HD-AIT).

• HEXWAVE units: the company delivered 6 units in the first half, against 9 a year earlier. The average price was about $95,000 per unit, up from about $84,157. All six shipped in Q1. The MD&A blames "timing-related factors, including customer site readiness, installation scheduling, and the deferral of certain customer deployments into subsequent periods." It also cites a focus on "manufacturing optimization." Before the IPO, the company said it had been short of cash to buy inventory. It writes that it "historically ... experienced inventory constraints due to limited funding."
• TSA contract revenue was nil in Q2, down from $429,849, "primarily attributable to the completion of contract programming activities." Only $82,759 of the current TSA HD-AIT Phase II B award is left, due as a Q3 2026 milestone. Unless the TSA awards new work, this revenue stream is essentially finished.

Costs: overhead down, engineering up

General and administrative expense fell 42.6% to $1.35 million. Office/administration, stock-based compensation, legal fees and salaries all dropped. Engineering and R&D rose 54.6% to $0.97 million, driven mostly by office, rent and travel costs ($263,602 vs $7,289) and higher depreciation. Total operating expenses fell 22%. A worse gross loss offset most of that saving, so the operating loss improved only 2.4%.

What the headline numbers hide

• The smaller net loss is mostly an accounting gain. When Liberty became a U.S.-listed company it switched its functional currency from Canadian to U.S. dollars. After the switch, its older warrants priced in Canadian dollars no longer qualified as equity. They had to be booked as a liability, and setting that up produced a $1,330,381 non-cash gain, plus a further $79,448 gain from revaluing it. Take out both and the Q2 net loss is about $3.62 million, close to last year's $3.76 million. The underlying loss barely moved.
• Loss per share fell 85%, mostly because of dilution. The IPO and earlier private placements left the weighted share count about four times larger (5.16 million vs 1.28 million). Spreading a similar loss over four times as many shares cuts the per-share figure. It does not mean the business is losing less. (The MD&A's quarterly table gives Q2 2025 as -$3.25 per share. The income statement says -$2.94, and we use the statement figure.)
• Cost of sales was 29x revenue. HEXWAVE cost of revenue was $987,728 against $42,202 of HEXWAVE revenue. The MD&A says "additional inventory was recognized in cost of revenue." In the first half the company also wrote down inventory by $332,193 (vs $136,693) and wrote off $217,770 of TSA contract costs. Neither figure shows the cost of building a scanner when production is running normally.
• Cash burn grew while the reported loss shrank. Cash used in operations was $7.97 million in H1, up from $5.35 million, even though the net loss was smaller. $3.23 million of the gap was working capital. Liberty paid down overdue supplier bills and built inventory. Receivables and prepaids rose 45% to $1.81 million and inventory rose 49% to $1.77 million, while revenue fell. Of the IPO money, $4.76 million went to paying off payables and loans. The term loan fell from $2.62 million to $0.56 million, and the factoring line (borrowing against invoices) went to zero.
• How long the cash lasts. Management says current cash is "sufficient to fund planned operations for at least the next twelve months." Our own arithmetic is less comfortable. Before working-capital swings, operations used about $4.7 million in H1, roughly $2.4 million per quarter. On that basis $7.59 million covers about three quarters unless revenue rises meaningfully. The auditor-reviewed notes still include the standard going-concern language: future operations depend on raising money or reaching profitability.
• No guidance figures were given, so there is no change in guidance to compare.

Takeaway: The IPO fixed Liberty's balance sheet, not its business. Q2 shipped no scanners, TSA development revenue is nearly finished, and most of the smaller loss is a one-time warrant gain. Over the next two quarters, HEXWAVE has to turn its $1.1 million backlog and recent orders into deliveries quickly enough to slow a cash burn of roughly $2.4 million or more per quarter.

Outlook

Management "expects revenue recognition to be weighted toward the second half of fiscal 2026." It says it expects to deliver the remaining $1.115 million backlog during 2026, now that the IPO money can pay for inventory. It gave no numeric revenue guidance.

Since the quarter ended, Liberty has announced several new orders, none with a dollar value: two HEXWAVE systems for Cleveland Hopkins International Airport's aviation worker screening, two systems for a logistics/manufacturing customer's loss-prevention program (with more projected for 2027), and selections by a large state court system and a state department of corrections. By its own count it has more than 40 units at about 20 sites. Leadership is also changing. On October 13, 2026, CEO Bill Frain resigned, effective October 31, and COO Keith Teichmann becomes interim CEO. A new chairman and a new board member were announced in the same week.

Our read: the one number to watch in the Q3 report (likely mid-November, based on how long after quarter-end the Q2 report arrived) is HEXWAVE units delivered. At about $95,000 per unit, clearing the $1.115 million backlog means roughly a dozen systems. If Q3 and Q4 deliver that, the company also needs evidence of new orders to replace it. With the TSA program nearly done, HEXWAVE sales have to cover the cost base, and the operating loss has been running at about $3.5 million per quarter. A changing leadership team and a business that has sold units in single digits per half-year make the H2 ramp the main question. Unless deliveries step up sharply, the company will likely need to raise money again in 2027.