Filed Pursuant to Rule 424(b)(3)
| PROSPECTUS SUPPLEMENT No. 16 | Registration No. 333-275381 |
| (to prospectus dated December 4, 2023) | |
| PROSPECTUS SUPPLEMENT No. 12 | Registration No. 333-277045 |
| (to prospectus dated May 9, 2024) | |
| PROSPECTUS SUPPLEMENT No. 11 | Registration No. 333-279803 |
| (to prospectus dated June 4, 2024) |
Primary Offering of
24,406,752 COMMON SHARES,
10,833,333 WARRANTS TO PURCHASE COMMON SHARES,
10,833,333 COMMON SHARES UNDERLYING WARRANTS AND
4,400,106 COMMON SHARES UNDERLYING CONVERTIBLE NOTES
Primary Offering of
10,833,333 Common Shares
Secondary Offering of
40,582,699 Common Shares
SECONDARY OFFERING OF
20,000,000 COMMON SHARES
OF
LEDDARTECH HOLDINGS INC.
This prospectus supplement updates, amends and supplements the prospectus contained in the Registration Statement on Form F-4 of LeddarTech Holdings Inc. (Registration Statement No. 333-275381), effective as of December 4, 2023 (as updated, supplemented or amended from time to time, the “F-4 Prospectus”) and the prospectus contained in the Registration Statement on Form F-1 of LeddarTech Holdings Inc. (Registration Statement No. 333-277045), effective as of May 8, 2024 (as updated, supplemented or amended from time to time, the “F-1 Prospectus”) and the prospectus contained in the Registration Statement on Form F-1 of LeddarTech Holdings Inc. (Registration Statement No. 333-279803), effective as of June 4, 2024 (as updated, supplemented or amended from time to time, the “SEPA Shelf Prospectus” and, together with the F-4 Prospectus and the F-1 Prospectus, the “Prospectuses” and each a “Prospectus”). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectuses.
This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectuses with the information contained in our Annual Report on Form 20-F filed with the Securities and Exchange Commission on December 26, 2024, which is attached hereto.
This prospectus supplement is not complete without, and may not be delivered or utilized except in combination with each Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the respective Prospectuses, including any amendments or supplements thereto, and if there is any inconsistency between the information in such Prospectus or any prior amendment or supplement thereto and this prospectus supplement, you should rely on the information in this prospectus supplement.
Our common shares are listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “LDTC.” On December 24, 2024, the last reported sale price of our common shares as reported on Nasdaq was $0.80 per share. Our warrants are listed on Nasdaq under the symbol “LDTCW.” On December 24, 2024, the last reported sale price of our warrants as reported on Nasdaq was $0.08 per warrant.
Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” in each Prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectuses or this prospectus supplement are truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is December 26, 2024.
Attachments
| 1. | LeddarTech Holdings Inc. Annual Report on Form 20-F filed with the Securities and Exchange Commission on December 26, 2024. |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report:
Commission File Number: 001-41893
LEDDARTECH HOLDINGS INC.
(Exact name of Registrant as specified in its charter)
| Not applicable | Quebec, Canada | |
| (Translation of Registrant’s name into English) | (Jurisdiction of incorporation or organization) |
LeddarTech Inc.
4535, boulevard Wilfrid-Hamel, Suite 240
Quebec G1P 2J7, Canada
(418) 653-9000
(Address of principal executive offices)
4535, boulevard Wilfrid-Hamel, Suite 240
Quebec G1P 2J7, Canada
(514) 605-6574
david.torralbo@leddartech.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common shares, without par value | LDTC | Nasdaq Stock Market LLC | ||
| Warrants to purchase common shares | LDTCW | Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 30,204,676 common shares issued and outstanding as of September 30, 2024.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer | ☒ |
| Emerging growth company | ☒ |
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
| † | 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. |
Table of Contents
i
EXPLANATORY NOTE – AUDITED FINANCIAL STATEMENTS
On December 18, 2024, LeddarTech Holdings Inc. (the “Company”) furnished to the Securities and Exchange Commission under cover of Report of Foreign Issuer on Form 6-K the financial statements of the Company as of September 30, 2023 and 2024 and for the three years ended September 30, 2022, 2023 and 2024 (the “Form 6-K Financial Statements”). The audited financial statements included herein pursuant to Item 18 of this Annual Report on Form 20-F (the “Audited Financial Statements”) contain additional disclosures not included in the Form 6-K Financial Statements, including additional reconciliation regarding the recast of the Company’s audited and previously issued consolidated statement of loss and comprehensive loss, consolidated statements of cash flows and certain footnotes to reflect the discontinued operations relating to the Company’s cessation of its modules operations for the year ended September 30, 2022 (“Discontinued Operations”). See Note 7 to the Audited Financial Statements included herein. The Audited Financials also contain additional information with respect to the Company’s Discontinued Operations not contained in the 6-K Financial Statements, as well as additional footnote disclosures, including with respect to segments, inventory write-downs, previously-reported impairment loss and stock-based compensation.
ii
Explanatory Note – BUSINESS COMBINATION
On June 12, 2023, LeddarTech Holdings Inc., a company incorporated under the laws of Canada (“Newco”) entered into the Business Combination Agreement, as amended on September 25, 2023 (the “BCA”), by and among Newco, Prospector Capital Corp., a Cayman Islands exempted company (“Prospector”), and LeddarTech Inc., a corporation existing under the laws of Canada (“LeddarTech”).
On December 21, 2023 (the “Closing Date”), as contemplated in the BCA, Prospector, LeddarTech and Newco completed a series of transactions:
| ● | Prospector continued as a corporation existing under the laws of Canada (the “Continuance” and Prospector as so continued, “Prospector Canada”); |
| ● | Prospector Canada and Newco amalgamated (the “Prospector Amalgamation” and Prospector Canada and Newco as so amalgamated, “Amalco”); |
| ● | the preferred shares of LeddarTech converted into common shares of LeddarTech and, on the terms and subject to the conditions set forth in a plan of arrangement (the “Plan of Arrangement”), Amalco acquired all of the issued and outstanding common shares of LeddarTech from LeddarTech’s shareholders in exchange for common shares of Amalco having a negotiated aggregate equity value of $200 million (valued at $10.00 per share) plus an amount equal to the aggregate exercise price of LeddarTech’s outstanding “in the money” options immediately prior to the Prospector Amalgamation (the “Share Exchange”) plus additional Amalco “earnout” shares (with the terms set forth in the BCA); |
| ● | LeddarTech and Amalco amalgamated (the “Company Amalgamation” and LeddarTech and Amalco as so amalgamated, the “Company”); and |
| ● | in connection with the Company Amalgamation, the securities of Amalco converted into an equivalent number of corresponding securities in the Company (other than as described in the BCA with respect to the Prospector Class B ordinary shares) and each of LeddarTech’s equity awards (other than options to purchase LeddarTech’s class M shares) were cancelled for no compensation or consideration and LeddarTech’s equity plans were terminated (and the options to purchase LeddarTech’s class M shares became options to purchase common shares of the Company (the “Company Common Shares” or the “Common Shares”)). |
The Continuance, the Prospector Amalgamation, the Share Exchange, the Company Amalgamation and the other transactions contemplated by the BCA are hereinafter referred to as the “Business Combination” and the closing of the Business Combination, the “Closing”.
On June 12, 2023, concurrently with the execution of the BCA, LeddarTech entered into a subscription agreement (the “Subscription Agreement”) with certain investors, including investors who subsequently joined the Subscription Agreement (the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase secured convertible notes of LeddarTech (the “PIPE Convertible Notes”) in an aggregate principal amount of at least US$43.0 million (the “PIPE Financing”). PIPE Investors in certain tranches of the PIPE Convertible Notes received at the time of issuance of such notes warrants to acquire Class D-1 preferred shares of LeddarTech (the “Class D-1 Preferred Shares” and the warrants, the “PIPE Warrants”). All of the PIPE Warrants were exercised, and the Class D-1 Preferred Shares issued upon exercise of the PIPE Warrants entitled the PIPE Investors to receive approximately 8,553,434 Common Shares upon the closing of the Business Combination. Accordingly, the PIPE Investors held approximately 42.8% of the 20 million LeddarTech common shares outstanding immediately prior to the Closing. The PIPE Convertible Notes are convertible into the number of Common Shares determined by dividing the then-outstanding principal amount by the conversion price of US$10.00 per Common Share. The PIPE Financing closed on the Closing Date after the Business Combination.
Prior to the Closing Date, holders of an aggregate of 855,440 Prospector Class A ordinary shares, par value $0.0001 per share (the “Prospector Class A Shares”) representing approximately 39% of the total Prospector Class A Shares then outstanding, exercised their right to redeem those shares for approximately US$10.93 per share, or a total of approximately $9.3 million paid from Prospector’s trust account (the “SPAC Redemption”) in accordance with the terms of Prospector’s amended and restated memorandum and articles of association, as amended.
iii
Following the SPAC Redemption, and as part of a series of related steps in connection with the consummation of the Business Combination, Prospector distributed 1,338,616 Prospector Class A Shares to the holders on the Closing Date of the 1,338,616 Prospector Class A Shares that were not redeemed in connection with the Business Combination. Such distribution was not made with respect to any other Prospector or LeddarTech shares issued and outstanding prior to or upon consummation of the Business Combination.
On the Closing Date, the following securities issuances were made by the Company to Prospector’s securityholders following the SPAC Redemption and in connection with the above-referenced share distribution: (i) each outstanding Prospector Class A Share was exchanged for one Company Common Share, (ii) each outstanding non-voting special share of Prospector, a new class of shares in the capital of Prospector convertible into Prospector Class A Shares, was exchanged for one non-voting special share of the Company and (iii) each outstanding warrant of Prospector (the “Prospector Warrants”), which includes 965,749 Prospector Warrants that were issued upon conversion of the amount accrued under Prospector’s convertible note with Prospector Sponsor, LLC (the “Sponsor”) to finance Prospector’s transaction costs in connection with its initial business combination, was assumed by the Company and became a warrant of the Company (“Company Warrant” or “Warrant”).
On the Closing Date, following the SPAC Redemption and the foregoing issuances, LeddarTech’s shareholders immediately prior to the consummation of the Business Combination, including investors in the PIPE Financing, received Company Common Shares pursuant to the BCA representing approximately 69.5% of the Company Common Shares outstanding immediately following consummation of the Business Combination.
On December 22, 2023, the Common Shares and Warrants became listed on The Nasdaq Global Market (“Nasdaq”) under the symbols “LDTC” and “LDTCW”, respectively.
ABOUT THIS ANNUAL REPORT
Unless otherwise indicated and unless the context otherwise requires, “we,” “us,” “our,” “LeddarTech” or “the Company”, at all times prior to consummation of the Business Combination, refers to LeddarTech Inc. and its consolidated subsidiaries, and at all times following consummation of the Business Combination, refers to LeddarTech Holdings Inc. and its consolidated subsidiaries.
IMPORTANT INFORMATION ABOUT IFRS
Our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and referred to in this Annual Report as “IFRS.”
INDUSTRY AND MARKET DATA
The industry and market data relating to our business included in this Annual Report is based on our internal estimates and research, as well as publications, research, surveys and studies conducted by independent third parties not affiliated to us. Industry publications, studies and surveys generally state that they were prepared based on sources believed to be reliable, although there is no guarantee of accuracy. While we believe that each of these studies and publications is reliable, we have not independently verified the market and industry data provided by third-party sources. In addition, while we believe our internal research is reliable, such research has not been verified by any independent source. We note that assumptions underlying industry and market data are subject to risks and uncertainties, including those discussed under “Cautionary Note Regarding Forward-Looking Statements” and “Item 3.D. Risk Factors” of this Annual Report.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We and our subsidiaries and affiliates own or have rights to trademarks, trade names and service marks that they use in connection with the operation of their respective businesses. In addition, their names, logos and website names and addresses are their trademarks or service marks, including, but not limited to, LeddarVision™, LeddarSense™ and VayaVision™. Other trademarks, trade names and service marks appearing in this Annual Report are the property of their respective owners. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this Annual Report are listed without the applicable ®, ™ and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names and service marks.
iv
Cautionary Note Regarding Forward-Looking Statements
Some of the statements in this Annual Report on Form 20-F (including the information incorporated by reference herein, this “Annual Report”) that do not directly or exclusively relate to historical facts constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not a forward-looking statement. Forward-looking statements in this Annual Report and in any document incorporated by reference in this Annual Report may include, but are not limited to, statements about:
| ● | our ability to timely access sufficient capital and financing on favorable terms or at all; |
| ● | our ability to maintain compliance with our debt covenants, including our ability to enter into any forbearance agreements, waivers or amendments with, or obtain other relief from, our lenders as needed; |
| ● | our ability to execute on our business model, achieve design wins and generate meaningful revenue; |
| ● | our ability to successfully commercialize our product offering at scale, whether through the collaboration agreement with Texas Instruments, a collaboration with a Tier 2 supplier or otherwise; |
| ● | changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, projects, prospects and plans; |
| ● | changes in general economic and/or industry-specific conditions; |
| ● | our ability to retain, attract and hire key personnel; |
| ● | potential adverse changes to relationships with our customers, employees, suppliers or other parties (ix) legislative, regulatory and economic developments; |
| ● | the outcome of any known and unknown litigation and regulatory proceedings; |
| ● | the outcome of any known and unknown litigation and regulatory proceedings; and |
| ● | other factors discussed under the section titled “Item 3.D. Risk Factors” below. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and factors relating to our operations and business environment, including those discussed under the section titled “Item 3.D. Risk Factors” below, all of which are difficult to predict and many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements contained in this Annual Report, or the documents incorporated by reference in this Annual Report, to reflect any change in our expectations with respect to such statements or any change in events, conditions or circumstances upon which any such statement is based.
v
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
| A. | [Reserved.] |
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
| D. | Risk Factors |
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks and other information in this Annual Report, including our consolidated financial statements and related notes in connection with your ownership of our securities. If any of the events described below occur, our business and financial results could be materially adversely affected. This could cause the trading price of our securities to decline, perhaps significantly, and you therefore may lose all or part of your investment. The risks set out below are not exhaustive and do not comprise all of the risks associated with an investment in the Company. Additional risks and uncertainties not currently known to us or which we currently deem immaterial may also have a material adverse effect on our business, financial condition and results of operations.
References in this section to “we,” “us,” “our,” the “Company” or “LeddarTech” refer to LeddarTech Inc. and its subsidiaries prior to the consummation of the Business Combination, and LeddarTech Holdings Inc. and its subsidiaries subsequent to consummation of the Business Combination, unless the context otherwise requires or indicates otherwise.
Risks Related to Our Business
LeddarTech’s recent transition from a sensory hardware-focused development business model to a sensory software-focused development business model means that effectively we are a “pre-revenue” business, and the transition makes evaluating LeddarTech’s business and future prospects difficult and may increase the risk of your investment.
In fiscal 2022, LeddarTech transitioned its business activities into an automotive software business model pursuant to which it is developing and marketing raw data fusion and perception software solutions. Prior to this transition in its business plan, LeddarTech’s costs and revenues were principally related to the development, production and sale of hardware and sensor components. LeddarTech has a limited operating history under this new business model, and is operating in a rapidly evolving market. As a result, there is limited historical financial information that investors can use in evaluating LeddarTech’s business, strategy, operating plan, results, and prospects. Furthermore, LeddarTech has not yet successfully commercialized its software solutions.
1
We have an unproven business model in a new market and face significant challenges in a rapidly evolving industry. LeddarTech’s prospects may be considered speculative and any failure to commercialize LeddarTech’s strategic plans would have an adverse effect on LeddarTech’s operating results and business, harm LeddarTech’s reputation and could result in substantial liabilities that exceed LeddarTech’s resources.
We have a limited operating history under LeddarTech’s new unproven business model and LeddarTech’s operations are subject to all of the risks inherent in the establishment of a new business enterprise, including a lack of operating history under LeddarTech’s new business model. We cannot be certain that LeddarTech’s business strategy will be successful or that we will be solvent at any particular time. LeddarTech’s likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any company. If we fail to address any of these risks or difficulties adequately, LeddarTech’s business will likely suffer. Because of the numerous risks and uncertainties associated with developing and commercializing LeddarTech’s raw data fusion and perception software solutions, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in LeddarTech’s securities. An investor in LeddarTech’s securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of procedures and products in the sensory software industries. We may never successfully commercialize LeddarTech’s LeddarVision™ solutions and LeddarTech’s business may fail.
We have incurred significant operating losses and net cash outflows since inception, and it is uncertain when, if ever, we will generate meaningful revenue and profitability under LeddarTech’s new business model.
LeddarTech had an accumulated deficit of $644.2 million as at September 30, 2024, and, for the fiscal years ended September 30, 2024 and September 30, 2023, incurred a net loss from continuing expenses of $167.3 million and $43.8 million, respectively. For the fiscal year ended September 30, 2024, LeddarTech realized net cash outflows relating to operating and investing activities amounting to $40.9 million and $11.5 million, respectively, and for the fiscal year ended September 30, 2023, $36.7 million and $11.2 million, respectively. As of December 20, 2024, after giving effect to the completion of the Bridge Funding (as defined below) and including the US$9.89 million royalty fee under the software license agreement with Texas Instruments (the “TI Pre-paid Royalty Fee,” which is not obligated to be repaid but is characterized as debt under IFRS), the Company had approximately $106.4 million of indebtedness outstanding. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Management.” The Company is currently dependent on its shareholders, business partners and lenders to fund its operations, including the development of its technology. We have devoted most of LeddarTech’s financial resources to research and development activities. We expect to continue to incur substantial and increased expenses, losses and negative cash flows as we expand our development activities and progress with the commercialization of our products.
We have not achieved any OEM design wins, and while we have invested significant time, funds and efforts seeking OEM and Tier 1 and Tier 2 customer selection of our solutions, our solutions ultimately may not be chosen for use in production models. If we fail to achieve OEM design wins after incurring substantial expenditures in these efforts, our future business, results of operations and financial condition would be adversely affected.
We invest significant effort and money developing our sensory software solutions to support automotive advanced driver assistance systems (“ADAS”) or autonomous driving (“AD”) applications, developed by original equipment manufacturers (“OEMs”)” or automotive system integrators that are direct suppliers to OEMs (“Tier 1” suppliers) and suppliers to Tier 1 suppliers (“Tier 2” suppliers), which we intend to be incorporated in one or more specific vehicle models to be produced by the OEMs. We refer to the selection by a Tier 1 supplier of our software for inclusion in such ADAS or AD applications, for the purposes of submitting such applications to an OEM, as a “Tier 1 design and integration win.” We use the term “OEM design win” to refer to the selection by an OEM of our software, whether directly from us for integration in the ADAS or AD applications developed by the OEM, or through selection of a Tier 1 supplier’s ADAS or AD application integrating our software, for incorporation in specific vehicle models with identified SOPs. There is no assurance that a Tier 1 design and integration win will develop into an OEM design win.
We could expend significant resources pursuing, but fail to achieve, either a Tier 1 design and integration win or an OEM design win. While we are in various stages of discussion with Tier 1 suppliers and OEMs, we have not yet achieved an OEM design win, and there is no assurance that these assessments will result in either a Tier 1 design and integration win or an OEM design win or that we will otherwise successfully commercialize our product offering at scale, whether through the collaboration agreement with Texas Instruments or otherwise in the future.
2
After an OEM design win, it is typically difficult for a product or technology that did not receive the design win to displace the winner until the OEM issues a new request for quotation because an OEM will generally not change complex technology already integrated in its systems until a vehicle model is revamped. In addition, the firm with the winning design may have an advantage with the OEM going forward because of the established relationship between the winning firm and the OEM, which would make it more difficult for that firm’s competitors to win the designs for other production models. If we fail to win a significant number of OEM design competitions in the future, then our business, results of operations, and financial condition would be adversely affected.
Because we have not yet achieved an OEM design win, we cannot be certain as to our revenue model and anticipated pricing terms, whether royalty fees on a per unit basis, fees for engineering services and software licensing, data streams and other revenue sources. Additionally, future contracts with OEMs and Tier 1 suppliers may have certain contractual rights to cancel or delay their orders under certain circumstances. Such cancelations or delays could materially and adversely affect our ability to generate revenue (which could in turn affect our ability to raise needed capital on reasonable terms), diminish supplier or customer willingness to enter into transactions with us and have other adverse effects that may decrease our long-term viability. If our products are not successfully developed or commercialized, including because of a lack of capital, if we do not achieve broad market acceptance of our products and services, or if we cannot agree on attractive pricing terms with our target customers, we will not achieve profitability and our business may fail.
Even if we achieve OEM design wins, prospective customers may not purchase our solutions in any certain quantity, at any certain price or at all, and there may be significant delays between the time we achieve either a Tier 1 design and integration win or an OEM design win and the time a contract for production is agreed to and we are able to realize revenue. Any failure to obtain OEM or Tier 1 or Tier 2 customers for our solutions and services, whether following Tier 1 design and integration wins, OEM design wins or otherwise, would materially adversely affect our business, results of operations and financial condition.
If we achieve an OEM design win, any resulting contracts with customers may not require them to purchase our solutions in any certain quantity or at any certain price, and our sales could be less than we forecast if a vehicle model for which we achieved an OEM design win is unsuccessful (including for reasons unrelated to our solutions), if an OEM decides to discontinue or reduce production of a vehicle model or of the use of our solutions in a vehicle model, or if we face downward pricing pressure. As a result, achieving OEM design wins is not a guarantee of revenue, and our sales may not correlate with the achievement of additional OEM design wins. Moreover, pricing estimates are made at the time of a request for quotation by an OEM, so that worsening market or other conditions between the time of a request for quotation and an order for our solutions may require us to sell our solutions for a lower price than we initially expected. We may also face pricing pressures from our customers as a result of their restructuring, consolidation, and cost-cutting initiatives or as a result of increased competition. As a particular solution matures and unit volumes increase, we also generally expect its average selling price to decline. If we are not able to introduce solutions with additional features and functionality at higher price points to offset price reductions, then our business, results of operations, and financial condition would be adversely affected.
Furthermore, our solutions are technologically complex, incorporate many technological innovations, and are typically subject to significant safety testing, and OEMs generally must make significant commitments of resources to test and validate our solutions before including them in any particular vehicle model. Our low-level sensor fusion and perception technology controls supports ADAS and autonomous driving solutions control of various vehicle functions including engine, transmission, safety, steering, navigation, acceleration, and braking and therefore must be integrated effectively with the other systems of the vehicle developed by the OEMs, our Tier 1 customers, our Tier 2 customers, and other suppliers, and we may be unable to achieve the requisite level of interoperability in a vehicle model for our solutions to be implemented even after an OEM design win. We expect the integration cycles of our solutions with new OEMs to be approximately one to three years after an OEM design win, depending on the OEM and the complexity of the solution. These integration cycles result in our investment of resources prior to realizing any revenue from a vehicle model. An OEM may choose to cancel production of the vehicle model for which we achieved the OEM design win or cancel or postpone the vehicle model.
3
In connection with any OEM design wins, we would expect to receive preliminary estimates from OEMs of their anticipated production volumes for the models relating to those design wins. Those estimates may be revised significantly by the OEMs, potentially multiple times, and may not be representative of future production volumes associated with those OEM design wins, which could be significantly higher or lower than estimated. Furthermore, long development cycles or vehicle model cancellations or postponements would adversely affect our business, results of operations, and financial condition.
Our financial statements contain disclosure regarding the significant doubt about our ability to continue as a going concern. Our ability to execute our business plan, to fund our operations and to continue as a going concern depends on our ability to raise capital and the continuous support of our creditors.
Prior to 2022, we had been focused on research and development activities with a view to developing advanced detection and ranging systems and solutions based on light (“LiDAR”). As of September 30, 2024, we had an accumulated deficit of approximately $644.2 million. We do not know whether or when we will become profitable. Our losses have resulted principally from disbursements made in development and discovery activities. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended September 30, 2024 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We expect to continue to incur losses for the foreseeable future.
LeddarTech has limited sources of available liquidity and if it does not raise additional capital is expected to operate under an alternative operating plan. A reduction in LeddarTech’s operating costs may materially adversely affect LeddarTech in a number of ways.
LeddarTech has limited sources of liquidity. See “Item 5. Operating and Financial Review and Prospects—Liquidity and capital management,” and our historical combined financial statements and the accompanying notes included elsewhere in this Annual Report.
If LeddarTech does not raise additional capital in sufficient amounts LeddarTech will need to seek relief from its lenders and reduce its operating costs to ensure sufficient liquidity for its operations and to comply with the requirements of its debt obligations.
The Company has developed a flexible and scalable cost management plan to be implemented to the extent deemed necessary and appropriate so that LeddarTech can maintain operating costs at targeted levels (through strict cost control and budgeting discipline) to ensure operating costs will not exceed anticipated available liquidity. The cost management plan includes the possibility of significant reduction in product development expenditures, significant headcount reductions, and compensation adjustments. The extent to which the cost management plan would need to be implemented will be dependent upon several factors, including scope and terms of any forbearance agreement, waiver, amendment to, or relief from, the Minimum Cash Covenant (as defined herein) applicable to LeddarTech and the amount and extent to which the Company is able to raise additional capital in a timely manner, if at all.
It is expected that LeddarTech will need to implement the cost management plan to some degree if it is not successful in its efforts to raise sufficient amounts of additional capital, and depending on the level of relief from the Minimum Cash Covenant LeddarTech is able to negotiate with its lender. Implementation of the cost management plan, if necessary, may materially adversely affect LeddarTech in a number of ways, and would exacerbate risks to which LeddarTech is already subject. For example, a reduction in product development expenditures and headcount reductions may materially limit LeddarTech’s ability to complete, test and offer to the market a comprehensive suite of integrated features and services, and if LeddarTech is only able to offer a limited suite of features and services, it will be less likely to realize the full revenue and profitability potential of its solutions and less able to effectively compete in its targeted markets. Implementation of the cost management plan may also significantly reduce the number of Tier 1, Tier 2 and OEM customers that LeddarTech would be able to support, which in turn would be expected to have a material adverse effect on its revenue and potential profitability. See “— Any significant reduction in headcount as part of the Implementation of the Company’s cost management plan may have a material adverse effect on LeddarTech’s operations and future prospects” and “— We operate in a highly competitive, dynamic and rapidly changing market and compete against a large number of established competitors and new market entrants, some of whom have substantially greater resources.” Implementation of the cost management plan also may adversely affect LeddarTech’s ability to retain skilled software engineers and other key employees. See “— If we are unable to attract, retain, and motivate key employees, then our business, results of operations, and financial condition would be adversely affected.” Further, a reduction in headcount across LeddarTech may adversely affect LeddarTech’s ability to timely prepare and publish accurate financial information, develop effective internal controls over financial reporting and remediate existing significant deficiencies and material weaknesses (or identify significant deficiencies and material weaknesses in the future). See “— Risks Related to Ownership of Our Securities — We have previously identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, we may identify additional material weaknesses in the future.” In connection with any cost reduction plans or activities, the Company will be required to incur cash and non-cash expenses.
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LeddarTech’s liquidity position will be further constrained by the requirement to maintain a minimum cash balance. If LeddarTech is not able to maintain compliance with the minimum cash balance requirements, its debt obligations may be declared due and payable at a time when LeddarTech does not have sufficient resources to repay such debt obligations.
Pursuant to the terms of the amended and restated financing offer (the “Desjardins Credit Facility”) between LeddarTech and Fédération des Caisses Desjardins du Québec (“Desjardins”), LeddarTech has been required to maintain a minimum cash balance of $5.0 million (the “Minimum Cash Covenant”).
The Desjardins Credit Facility was amended on July 5, 2024 (Ninth Amendment), July 26, 2024 (Tenth Amendment), August 5, 2024 (Eleventh Amendment), August 14, 2024 (Twelfth Amendment), August 16, 2024 (Thirteenth Amendment) and December 6, 2024 (Fourteenth Amendment) to reduce the Minimum Cash Covenant to (i) $3.5 million from July 5, 2024 to July 6, 2024, (ii) $1.8 million from July 7, 2024 to July 26, 2024, (iii) $1.3 million from July 27, 2024 to August 5, 2024, (iv) $250,000 from August 6, 2024 to August 19, 2024, (v) $1.0 million from August 20, 2024 to December 6, 2024, (vi) $1.0 million from the earlier of (w) December 13, 2024 and (x) the date of the full disbursement of the first installment of the TI Pre-paid Royalty Fee (the “First Royalty Installment”) to the earlier of (y) the date of completion of one or more equity financing transactions generating gross proceeds of not less than US$35.0 million (including, without limitation, Common Shares sold pursuant to the Standby Equity Purchase Agreement, dated as of April 8, 2024, by and between LeddarTech and YA II PN, LTD.(“Yorkville”) (the “SEPA”), the TI Pre-paid Royalty Fee and the conversion of Bridge Loans into equity, the “Equity Financing”) (the “Short-Term Outside Date”) and (z) January 31, 2025, and (vii) $5.0 million at all times after the earlier of the Short-Term Outside Date and January 31, 2025. Desjardins also agreed, pursuant to the terms of the Eleventh Amendment, to temporarily postpone payment of interest for the months of July, August, September and October 2024 until the earlier of (x) the date on which a default under the Desjardins Credit Facility has occurred and is continuing, (y) the Short-Term Outside Date and (z) December 13, 2024 (which was automatically extended to January 31, 2025, upon full disbursement to the Company of the First Royalty Installment on December 12, 2024).
Additionally, the Desjardins Credit Facility was amended on August 16, 2024 (Thirteenth Amendment) and December 6, 2024 (Fourteenth Amendment) to align the Desjardins Credit Facility with the bridge facility entered into on August 16, 2024 by the Company and several of its principal shareholders and its principal lender (as amended, the “Bridge Facility”) by, among other amendments, (i) excepting from the required repayment of the Desjardins Credit Facility of 10% from the net proceeds of the Equity Financing, (ii) on the Short-Term Outside Date, requiring repayment, in an amount of (x) the outstanding principal amounts under the Desjardins Bridge Loan, (y) all other amounts owed to Desjardins under the Bridge Facility, and (z) any amount payable under the Desjardins Credit Facility, including amendment fees, with such cash payment to Desjardins estimated to be approximately $7.1 million, assuming completion of the Equity Financing on January 31, 2025. An additional $875,000 would be capitalized and added to the principal balance of the Desjardins Term Loan. The Fourteenth Amendment also provided that a failure to receive the First Royalty Installment by December 13, 2024, and a failure to complete the Equity Financing by January 31, 2025, would constitute liquidity events triggering repayment of the Desjardins Term Loan. The First Royalty Installment was received on December 12, 2024.
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While it is expected that receipt of the proceeds from the Bridge Facility and the TI Pre-Paid Royalty and other sources of capital, including the SEPA, may enable LeddarTech to comply with the Minimum Cash Covenant, LeddarTech may in the future be unable to comply with the minimum cash balance requirement, absent an agreement by the lender to further amend, waive or otherwise provide relief from this Minimum Cash Covenant, unless it raises additional capital and/or implements its cost management plan. If LeddarTech is unable to enter into a forbearance agreement, waiver or amendment with, or obtain other relief from, Desjardins, or following receipt of any such relief is nonetheless unable to comply with its terms, and as a result LeddarTech were to fail to comply with such minimum cash balance requirements, Desjardins would have the right to declare the Desjardins Credit Facility to be due and payable, and if it elected to do so, approximately $102.2 million aggregate principal amount of indebtedness of LeddarTech (including the Desjardins Term Loan, the PIPE Convertible Notes and the Bridge Loan) as of December 20, 2024 would also be subject to acceleration. While LeddarTech may seek additional financing to avoid or cure such an outcome or seek from Desjardins further forbearance, waiver or other relief from such requirements, there is no assurance that it would be able to do so on commercially reasonable terms, or at all. In such circumstances, LeddarTech’s ability to continue as a going concern would be materially and adversely affected and investors in LeddarTech’s common shares could lose all or a substantial part of their investment.
If LeddarTech does not raise additional capital or is not otherwise able to refinance the Desjardins Term Loan, investors may lose all or a substantial part of their investment.
The Desjardins Term Loan matures on January 31, 2026. As of September 30, 2024, the aggregate principal amount outstanding under the Desjardins Term Loan was $28.2 million. The Desjardins Term Loan requires that the Company, no later than August 5, 2025, shall have either (x) launched a formal merger and acquisition process with an investment bank selected by the board of directors of the Company and received expressions of interest in connection with such process, or (y) entered into a non-binding term sheet in respect of an equity or debt financing which would allow for the repayment in full of all amounts owing under the Desjardins Credit Facility. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Management — Financing Transactions — Desjardins Credit Facility.” If the Company is unable to timely enter into a term sheet for the refinancing of the Desjardins Term Loan, it may be compelled to begin a formal merger and acquisition process, which could result in a transaction with per share value lower than the market price, or no transaction at all. If the Company is unable to procure additional financing in amounts sufficient to repay the Desjardins Term Loan or otherwise refinance the Desjardins Term Loan, investors may lose all or a substantial part of their investment.
Upon the occurrence of a “liquidity event” under the Desjardins Credit Facility, including the failure to complete the Equity Financing by January 31, 2025, the Company would be obligated to repay all amounts under the Desjardins Credit Facility, and investors could lose all or a substantial part of their investment.
The Desjardins Credit Facility, as amended, provides that the Company must provide notice to Desjardins within two business days of a “liquidity event” and repay all amounts owing under the Desjardins Credit Facility. Liquidity events under the Desjardins Credit Facility, as amended, include a change of control of the Company, a sale of all or substantially all of the Company’s assets, the occurrence of a default under the Desjardins Credit Facility and the failure to complete the Equity Financing by January 31, 2025. If a liquidity event were to occur, Desjardins would have the right to declare the Desjardins Credit Facility to be due and payable, and if it elected to do so, approximately $102.2 million aggregate principal amount of indebtedness of LeddarTech (including the Desjardins Credit Facility, the PIPE Convertible Notes and the Bridge Loan) as of December 20, 2024 plus payment in kind (PIK) interest accrued on the PIPE Convertible Notes would also be subject to acceleration. While LeddarTech may seek additional financing to avoid or cure such an outcome or seek from Desjardins further forbearance, waiver or other relief from such requirements, there is no assurance that it would be able to do so on commercially reasonable terms, or at all. In such circumstances, LeddarTech’s ability to continue as a going concern would be materially and adversely affected and investors in LeddarTech’s Common Shares could lose all or a substantial part of their investment. See “Item 5. Operating and Financial Review and Prospects—Liquidity and capital management — Financing Transactions — Desjardins Credit Facility.”
Any significant reduction in headcount as part of the implementation of the Company’s cost management plan may have a material adverse effect on LeddarTech’s operations and future prospects.
Pursuant to the Company’s cost management plan, in the event the Company does not raise sufficient additional capital, we expect that LeddarTech will reduce its employee headcount. Such headcount reduction would result in a substantial decrease in the number of Company employees to the extent the cost management plan is fully implemented. The extent of any headcount reduction will be based primarily on management’s assessment of available liquidity, key operating and business needs, and prevailing conditions at the time. Any significant reduction in headcount has the potential to materially adversely affect our operations and future operating results, including by:
| ● | delaying our ability to timely deliver operational software solutions to our target customers; |
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| ● | impairing our ability to obtain requisite industry certifications, which would then need to be obtained by the Tier 1, Tier 2, or OEM customer; |
| ● | restricting our ability to calibrate and configure our software solutions for more than one set of sensor types, which may make our solutions less appealing to our customers and delay our ability to sell our software solutions to a broad range of Tier 1, Tier 2 and OEM customers; |
| ● | delaying our ability to expand the domain capabilities of our software solutions, such as being able to market our software solution for use in snow conditions without additional software capabilities being added to our solutions, which we would be unable to do on the same time frame as if we had not reduced our headcount; and |
| ● | further limiting our revenue opportunities due to the fact that a reduced headcount would constrain our ability to service a desired number of Tier 1, Tier 2 and OEM customers. |
Each of these potential consequences of any headcount reductions could adversely affect the marketability of our software solutions and the timing and extent of our ability to generate revenue. Additionally, significant headcount reductions may adversely impact our accounting and finance function, and make it more difficult to remediate existing significant deficiencies and material weaknesses. Reductions in headcount also will result in immediate severance and other cash costs, which could be significant and may therefore reduce the effectiveness and objectives of our cost management plan in the short-term. Realization of any of these consequences of a headcount reduction could materially adversely affect our business, results of operations, and financial condition.
We invest significantly in research and development, and to the extent our research and development efforts are unsuccessful, our competitive position would be negatively impacted and our business, results of operations and financial condition would be adversely affected.
To compete successfully, we must maintain successful research and development efforts, develop new solutions, and improve our existing solutions, all ahead of competitors. We are focusing our research and development efforts across several key emerging technologies, including computer vision, software-defined radar and solid-state LiDAR, low-level sensor fusion, and the LeddarVision™ Front — Entry-Level, LeddarVision™ Premium Surround and LeddarVision™ Parking systems. These are ambitious initiatives, and we cannot guarantee that all of these efforts will deliver the benefits we anticipate or be homologated as expected. We must make research and development investments based on our views of the most promising approaches to address future customer needs in rapidly evolving markets, and we cannot be certain that we will target our research and development investments appropriately, or correctly anticipate the manner in which these markets will evolve. To the extent our research and development efforts do not produce timely improvements in utility, accuracy, safety, cost and operational efficiency, our competitive position will be harmed. We do not expect all of our research and development investments to be successful. Some of our efforts to develop and market new solutions may fail, and the solutions we invest in and develop may be rejected by regulators or may not be well received by customers, who may adopt competing technologies. We make significant investments in research and development, and our investments at times may not contribute to our future operating results for several years, if at all, and such contributions at times may not meet our expectations or even cover the costs of such investments, which would adversely affect our business, results of operations, and financial condition.
We have incurred material charges in connection with our decision to exit our modules and components business, and may incur additional charges related to the related exit activities in the future.
In connection with the Company’s transition to a pure-play automotive software business model, the Company has exited its modules and components business. In connection with this decision, the Company incurred restructuring costs of approximately $46,000 during the fiscal year ended September 30, 2024. During the same period, the Company wrote down inventory by approximately $1.1 million. The Company may incur additional charges in connection with the exit from its modules and components business.
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Our historical financial information, historical financial results and operating and business history, which were achieved under our prior sensory hardware-focused business model, may not be representative of our future results under an AI-based fusion and perception software-focused business model.
The historical combined financial information included in this Annual Report may not be meaningful to an understanding of our results of operations, financial position, and cash flows in the future or what they would have been had we been pursuing our sensory software-focused business model strategy during the years presented. Our historical financial data presented in this Annual Report includes costs of our business under our prior sensory hardware-focused business strategy, which may not, however, reflect the expenses we would have incurred had we pursued our current sensory software-focused business model during the years presented. Actual costs that may have been incurred if we had pursued our sensory software-focused business model would depend on a number of factors, including the extent of research and development costs, data acquisition and storage costs, and other strategic decisions. See “Item 5. Operating and Financial Review and Prospects” and our historical combined financial statements and the accompanying notes included elsewhere in this Annual Report.
If we determine that our intangible assets have become impaired, we could incur significant charges that would have a material adverse effect on our results of operations and financial condition.
As of September 30, 2024, the amounts of intangible assets on our consolidated balance sheet subject to future impairment testing was $5.6 million. Pursuant to IAS 36, we capitalize costs for product development projects. Initial capitalization of costs is based on management’s judgment that the Company can demonstrate the existence of a market for the product developed and that it will have the technical and financial capacity to complete the project until commercialization. Therefore, we conduct regular tests to determine if impairment has occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of intangible assets and the implied fair value of the intangible assets in the period the determination is made. This testing of intangible assets for impairment requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market conditions; changes in business operations; changes in competition; or potential changes in the price of Common Shares and LeddarTech’s market capitalization. Changes in these factors, or changes in actual performance compared with estimates of our future performance, could affect the fair value of goodwill or other intangible assets, which may result in an impairment charge. We cannot accurately predict the amount or timing of any impairment of assets. Should the value of our goodwill or other intangible assets become impaired, we could incur significant charges that would have a material adverse effect on our results of operations and financial condition.
If we are unable to develop and introduce new solutions and improve existing solutions in a cost-effective and timely manner, then our competitive position would be negatively impacted and our business, results of operations, and financial condition would be adversely affected.
Our business, results of operations, and financial condition depend on our ability to complete development of our raw data fusion and perception software solutions for the automotive market and to develop and introduce new and enhanced solutions that incorporate and integrate the latest technological advancements in sensing and perception technologies, software and hardware, and camera, radar, LiDAR, mapping, and AI technologies to satisfy evolving customer, regulatory, and safety rating requirements. For example, we will need to complete the development in a cost-effective manner of new generations of our LeddarVision™ Front — Entry-Level and LeddarVision™ Surround View Solution, each of which are important components of our planned approach to address the ADAS consumer and off-road vehicle markets. This Annual Report contains descriptions of our current expectations regarding the time frame in which we expect to have our software solutions deployed by our Tier 1 and Tier 2 customers. These time periods are subject to significant uncertainty. We may encounter significant unexpected technical and production challenges, or delays in completing the development of these and other solutions and ramping production in a cost-efficient manner. The development of these and other new and enhanced solutions requires us to invest resources in research and development and also requires that we:
| ● | design innovative, accurate, and safety- and comfort-enhancing functions that differentiate our solutions from those of our competitors; |
| ● | continuously improve the reliability of, and reduce and ultimately remove the requirement for human intervention with, our ADAS and autonomous driving technology; |
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| ● | cooperate effectively on new designs and development with our customers, suppliers and partners; |
| ● | respond effectively to technological changes and product announcements by our competitors; and |
| ● | adjust to changing customer requirements, market conditions, and regulatory and rating standards quickly and cost-effectively. |
If we must significantly reduce our operating costs, we could experience delays in completing development of our solutions. If there are delays in, or if we fail to complete when expected or at all, our existing and new development programs, we may not be able to satisfy our customers’ requirements, achieve either Tier 1 design and integration wins or OEM design wins with our target customers, or achieve market acceptance of our solutions, and our business, results of operations, and financial condition would be adversely affected.
We operate in a highly competitive, dynamic and rapidly changing market and compete against a large number of established competitors and new market entrants, some of whom have substantially greater resources.
The markets for sensing technology applicable to the ADAS and AD industries are highly competitive, dynamic and rapidly changing. Our future success will depend on our ability to remain a leader in our targeted markets by continuing to develop and protect from infringement low-level sensor fusion and perception software in a timely manner and to stay ahead of existing and new competitors. Our competitors are numerous and they compete with us directly by offering sensor software and indirectly by attempting to solve some of the same challenges with different technology. We face competition from sensor fusion and perception software companies, Tier 1 suppliers, Tier 2 suppliers and other technology and automotive supply companies, and OEMS, and most of our principal competitors have significantly greater resources than we do. In the automotive market, our competitors have commercialized both LiDAR and non-LiDAR-based ADAS technology that have achieved market adoption, strong brand recognition and may continue to improve. Other competitors are working towards commercializing ADAS and autonomous driving technology and either by themselves, or with a publicly announced partner, have substantial financial, marketing, research and development and other resources. Some of our existing and prospective customers in the ADAS and AD markets have announced development efforts or made acquisitions directed at creating their own sensing technologies, which would compete with our solutions. We cannot be certain how close these competitors may be to commercializing autonomous driving systems or novel ADAS applications.
If our target customers purchase a competing solution from any of our competitors, it may be difficult to displace such competitor with our solutions until the OEM issues a new request for quotation because an OEM will generally not change complex technology already integrated in its systems until a vehicle model is revamped. Accordingly, it is important that the Company achieves both Tier 1 design and integration wins and OEM design wins with its target customers quickly. If we must significantly reduce our operating costs, we could experience delays in completing development of our solutions, and suffer significant competitive disadvantage.
Additionally, increased competition may result in pricing pressure and reduced margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely affect our business, results of operations and financial condition.
We expect that a substantial portion of future revenue will come from a small number of OEMs and Tier 1 and Tier 2 customers, and the loss of or a significant reduction in sales to, one or more of major Tier 1 or Tier 2 customers and/or the discontinued incorporation of our solutions by one or more major OEMs in their vehicle models, would materially adversely affect our business, results of operations and financial condition.
We seek to supply OEMs with the LeddarVision™ platform directly or through our arrangements with Tier 1 suppliers and Tier 2 suppliers, which are direct suppliers to OEMs. See “— Even if we achieve OEM design wins, prospective customers may not purchase our solutions in any certain quantity, at any certain price or at all, and there may be significant delays between the time we achieve either a Tier 1 design and integration win or an OEM design win and the time a contract for production is agreed to and we are able to realize revenue. Any failure to obtain OEM or Tier 1 or Tier 2 customers for our solutions and services, whether following Tier 1 design and integration wins, OEM design wins or otherwise, would materially adversely affect our business, results of operations and financial condition.”
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We believe our business, results of operations, and financial condition for the foreseeable future will likely depend on sales to a relatively small number of Tier 1 and Tier 2 customers and the incorporation of our solutions by a relatively small number of OEMs in their vehicle models. In the future, our target OEM and Tier 1 and Tier 2 customers may decide not to purchase our solutions or may alter their purchasing patterns, and OEMs may discontinue incorporation of our solutions in their vehicle models, including as a result of a transition to in-house solutions or solutions provided by our competitors, or their individual or aggregate production levels may decline due to a number of factors, including supply chain challenges and macroeconomic conditions. Further, the amount of revenue attributable to any single OEM or Tier 1 or Tier 2 customer, or our OEM and Tier 1 and Tier 2 customer concentration generally, may fluctuate in any given period. In the event we achieve OEM design wins in the future, the loss of one or more key OEM or Tier 1 or Tier 2 customers, a reduction in sales to any key OEM or Tier 1 customer, the discontinued or decreased incorporation of our solutions by a key OEM, or our inability to attract new significant Tier 1 and Tier 2 customers and OEMs would negatively impact our revenue and adversely affect our business, results of operations, and financial condition.
We have entered into strategic collaborations, but not yet signed commercial agreements, with Tier 1 and Tier 2 suppliers. If we fail to sign commercial agreements with those prospective customers, or to subsequently achieve an OEM design win with such customers, our future business, results of operations and financial condition would be adversely affected.
We are in various stages of discussion with Tier 1 and Tier 2 suppliers and OEMs, covering more than 30 design win opportunities. As a result of such discussions, we have previously publicly announced strategic collaborations with two Tier 1 suppliers in the automotive industry, FICOSA ADAS S.L. (“Ficosa”) and Trimble Inc. (“Trimble”). However, since the Trimble collaboration was established, Trimble completed an agreement to transfer its precision agricultural technology business (the division with which LeddarTech has a strategic collaboration) to a joint venture with AGCO Corp., forming PTx Trimble, LLC. AGCO owns 85% of the joint venture, with Trimble retaining the remaining 15%. Because there have been no activities in 2024 under this arrangement, we believe it is likely that this strategic collaboration will be terminated in 2025. See “Item 4.B. Business Overview – Customers.” We have recently announced collaborations with Tier 2 suppliers Arm Holdings plc and Texas Instruments, however we have not yet entered into commercial agreements with any Tier 1 supplier or OEM, and there is no assurance that these strategic collaborations will result in either commercial agreements or OEM design wins.
In the event we execute commercial agreements with prospective customers, such agreements may have contractual rights to cancel or delay orders, or the time frame for development and integration of our software may be extended beyond the timing provided for in such agreements, potentially resulting in the agreements expiring without generating revenue or achieving OEM design wins. Any subsequent renegotiation of such agreements may result in terms less favorable to us. Such cancelations, delays, expirations and renegotiations could materially and adversely affect our ability to generate revenue (which could in turn affect our ability to raise needed capital on reasonable terms), diminish supplier or customer willingness to enter into transactions with us and have other adverse effects that may decrease our long-term viability. See “— We have not achieved any OEM design wins, and while we have invested significant time, funds and efforts seeking OEM, Tier 1 and Tier 2 customer selection of our solutions, our solutions ultimately may not be chosen for use in production models. If we fail to achieve OEM design wins after incurring substantial expenditures in these efforts, our future business, results of operations and financial condition would be adversely affected.”
Product integration could face complications or unpredictable difficulties, which may adversely impact customer adoption of our products and our financial performance.
Our products are designed to function as part of a system, and therefore are to be integrated with other sensing technologies, software products and customer applications. Required integration efforts can be time-consuming and costly and there is no guarantee that results will be satisfactory to the end customer. These challenges are even more present in the automotive sector where components are subject to as much as several years of product and design validation before they are fitted into a vehicle program. While the Company expects to work with system integrators which lend their experience to these workstreams, there is no guarantee that unforeseen delays or setback would not arise that would impair our ability to launch with key programs across our sectors of focus.
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Our business may suffer from claims relating to, among other things, actual or alleged defects in our solutions. If our solutions actually or allegedly fail to perform as expected, publicity related to these claims could harm our reputation and decrease demand for our solutions or increase regulatory scrutiny of our solutions.
Our software products are complex and, from time to time, have had, and could have or could be alleged to have, defects in design, security vulnerabilities or other errors, failures, or other issues of not functioning in accordance with their specifications or as expected. Some errors or defects in our solutions have been, and could be, initially undetected and only discovered after they have been tested, commercialized, and deployed by customers. Alleged or actual defects in any of our solutions could result in adverse publicity for us, warranty claims, litigation against us, legal expenses and damages, our customers never being able to commercialize technology incorporating our solutions, negative publicity for our customers, and other consequences. Errors, defects, or security vulnerabilities could result in serious injury to or death of the end users of vehicles incorporating our solutions, or those in the surrounding area, including as a result of traffic accidents and collisions. If that is the case, we would incur significant additional development costs and product recall, repair, or replacement costs.
If any of our solutions are or are alleged to be defective, we may be required to participate in a recall involving such solutions. Each vehicle manufacturer has its own practices regarding product recalls and other product liability actions relating to its suppliers. However, as suppliers become more integrally involved in the vehicle design process, OEMs may look to their direct and indirect suppliers for contribution when faced with recalls and product liability claims. OEMs also require their suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. Depending on the terms under which we supply products to a Tier 1, Tier 2 or OEM customer, a vehicle manufacturer may attempt to hold us responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties if and when the OEM asserts that the solution supplied did not perform as warranted. Our potential liability may increase to the extent that OEMs increasingly purchase our products directly, as opposed to incorporating our solutions through indirect purchases from our Tier 1 customers or Tier 2 customers. Product liability, warranty, and recall costs would have an adverse effect on our business, results of operations, and financial condition. In addition, product liability claims present the risk of protracted litigation, legal fees, and diversion of management’s attention from the operation of our business, even if our defense of these claims is ultimately successful.
Furthermore, the automotive industry in general is subject to significant litigation claims due to the potentially severe consequences of traffic collisions or other accidents. As a provider of solutions related to, among other things, preventing traffic collisions and other accidents, we could be subject to litigation for traffic collisions or other accidents, even if our solutions or their features or the failure thereof did not cause any particular traffic collision or accident. We expect in the future that our technology may be involved in accidents resulting in death or personal injury, and such accidents where our solutions or their features are involved may be the subject of significant public attention. There also remains significant uncertainty in the legal implications to providers of emerging ADAS and AD technologies of traffic collisions or other accidents involving such technologies, particularly given variations in legal and regulatory regimes that are emerging in different jurisdictions, and we may become liable for losses that exceed the current industry norms as the regulatory and legal landscape develops.
Publicity regarding claims involving our solutions can also have an adverse effect on our reputation and the reputation for low-level sensor fusion technology, and the ADAS and AD solutions utilizing such technology, which could decrease consumer demand for vehicles incorporating these technologies. Further, enhanced publicity surrounding such claims may also increase the regulatory scrutiny of our platforms, which could have a material adverse effect on our ability to complete our business plans.
Although we intend to use disclaimers, limitations of liability, and similar provisions in our agreements with our customers, there is no assurance that any or all of these provisions will prove to be effective barriers to product liability claims. In addition, although we intend to procure and maintain product liability insurance in respect of our software solutions, there is no assurance that such insurance will be adequate to cover any or all of our potential losses as a result of large deductibles and broad exclusions. The cost of such insurance may substantial, and there can be no assurance that such insurance will be available in adequate amounts or on acceptable terms, or at all. Our insurers may also discontinue our insurance coverage, and we may be unable to find replacement insurance on acceptable terms, or at all.
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If we are unable to overcome our limited sensory fusion solutions sales history and are unable establish and maintain confidence in our long-term business prospects among our customer prospects and within our industry or are subject to negative publicity, then our future business, results of operations and financial condition would be adversely affected.
OEM, Tier 1 and Tier 2 customers may be less likely to purchase our sensor fusion solutions if they are not convinced that our business will succeed or that our service and support and other operations will continue in the long term.
Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among OEM customers, Tier 1 customers, Tier 2 customers, suppliers, analysts, ratings agencies and other parties in our products, long-term financial viability and business prospects. Maintaining such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as customer unfamiliarity with low-level sensor fusion solutions, any delays in scaling production, delivery and service operations to meet demand, competition and uncertainty regarding the future of ADAS and autonomous vehicles or our other services and our production and sales performance compared with market expectations.
We are highly dependent on the services of our senior executive officers and loss of key personnel could impair our success.
We are highly dependent on our senior executive officers, including Frantz Saintellemy, our President and Chief Executive Officer. Mr. Saintellemy and other members of our executive team are highly active in our management and allocate a significant amount of time to our company. The loss of Mr. Saintellemy or other members of our executive team would adversely affect our business because their loss could make it more difficult to, among other things, compete with other market participants, manage our research and development activities and retain existing customers or cultivate new ones, particularly if any such departure occurs while LeddarTech is operating under its cost management plan. Negative public perception of, or negative news related to, Mr. Saintellemy and other members of our executive team may adversely affect our brand, relationship with customers or standing in the industry.
If we are unable to attract, retain, and motivate key employees, then our business, results of operations, and financial condition would be adversely affected.
Hiring and retaining qualified executives, developers, engineers, technical staff, and sales representatives are critical to our business. The competition for highly skilled employees in our industry is increasingly intense. Competitors for technical talent increasingly seek to hire our employees. Changes in the interpretation and application of employment-related laws to our workforce practices may also result in increased operating costs and less flexibility in how we meet our changing workforce needs. To help attract, retain, and motivate qualified employees, we intend to use employee incentives such as share-based awards. Our employee hiring and retention also depend on our ability to build and maintain a diverse and inclusive workplace culture and be viewed as an employer of choice. If our share-based or other compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees would be weakened, which would harm our results of operations. Equity compensation has been, and will continue to be, an important part of our future compensation strategy and a significant component of our future expenses, which we expect to increase over time. Moreover, sustained declines in our stock price can reduce the retention value of our share-based awards. If we do not effectively hire, onboard, retain, and motivate key employees, then our business, results of operations, and financial condition would be adversely affected.
Unplanned changes in our management team can also disrupt our business. Our management and senior leadership team has significant industry experience, and their knowledge and relationships would be difficult to replace. Leadership changes may occur from time to time, and we cannot predict whether significant unplanned resignations will occur or whether we will be able to recruit qualified personnel. In addition, the relationships and reputation that members of our management and key leadership have established and maintain with our target Tier 1, Tier 2 and OEM customers contribute to our ability to maintain strong relationships with key partners and to identify new business opportunities.
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As part of growing our business, we may make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business, results of operations and financial condition could be materially adversely affected, and our stock price could decline.
From time to time, we may undertake acquisitions to add new products and technologies, acquire talent, gain new sales channels or enter into new markets or sales territories. In addition to possible shareholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets, businesses, key personnel, customers, vendors and suppliers require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our operations. Acquired assets or businesses may not generate the financial results we expect. Acquisitions could result in the use of substantial amounts of cash, dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
To date, we have limited experience with acquisitions and the integration of acquired technology and personnel. Failure to successfully identify, complete, manage and integrate acquisitions could materially and adversely affect our business, financial condition and results of operations and could cause our stock price to decline.
Continued pricing pressures and customer cost reduction initiatives may result in lower than anticipated margins, or losses, which may adversely affect our business.
Cost-cutting initiatives adopted by our customers often result in increased downward pressure on pricing. We expect that our agreements with customers may require step-downs in pricing over the term of the agreement or, if commercialized, over the period of production. In addition, our customers may reserve the right to terminate their supply contracts for convenience, which enhances their ability to obtain price reductions. Automotive OEMs also possess significant leverage over their suppliers because the automotive component supply industry is highly competitive, serves a limited number of customers and has a high fixed cost base. We expect to be subject to substantial continuing pressure from customers and suppliers to reduce the price of our products. It is possible that pricing pressures beyond our expectations could intensify as customers pursue restructuring, consolidation and cost-cutting initiatives. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability would be adversely affected.
The Company will need to raise additional funds to meet its capital requirements, and such funds may not be available on commercially reasonable terms, or at all, which could materially and adversely affect LeddarTech’s business, results of operations or financial condition and its ability to continue as a going concern.
LeddarTech will need to raise additional capital to, among other things, conduct research and development, and to complete development, testing, qualification, and marketing of its solutions, including its Surround View Solution (LVS-2+). If LeddarTech is not successful in raising additional capital, it is expected that it will need to implement a cost management plan that could have a number of material adverse effects on its business, operations and profitability. See “— LeddarTech has limited sources of available liquidity and if it does not raise additional capital is expected to operate under an alternative operating plan. A reduction in LeddarTech’s operating costs may materially adversely affect LeddarTech in a number of ways.” LeddarTech’s future capital requirements may be uncertain and actual capital requirements may be different from those it currently anticipates. LeddarTech may seek equity or debt financing to finance a portion of its future capital expenditures. Such financing might not be available to it in a timely manner or on terms that are acceptable, or at all.
LeddarTech’s ability to obtain the necessary financing to carry out its business plan is subject to a number of factors, including general market conditions and investor acceptance of its business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to it. In particular, recent disruptions in the financial markets and volatile economic conditions could affect its ability to raise capital. LeddarTech’s future capital needs and other business reasons could require it to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute its shareholders. The issuance of debt securities and incurrence of additional indebtedness would result in increased debt service obligations. Holders of any debt securities or preferred shares will have rights, preferences and privileges senior to those of holders of its Common Shares in the event of liquidation. Any financial or other restrictive covenants from any debt securities would restrict its operations or its ability to pay dividends to its shareholders.
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It is not possible to predict the actual number of shares we will sell to Yorkville under the SEPA, or the actual gross proceeds resulting from those sales.
On April 8, 2024, the Company entered into the SEPA with Yorkville, effective April 15, 2024, pursuant to which the Company has the right from time to time to issue and sell to Yorkville up to US$50.0 million in Common Shares over the course of 36 months after the date of the SEPA. We generally have the right to control the timing and amount of any sales of our Common Shares to Yorkville under the SEPA and, through December 17, 2024, we had issued a total of 5,490,000 Common Shares under the SEPA for gross proceeds of approximately US$9.0 million. We expect to issue additional Common Shares under the SEPA. Sales of our Common Shares, if any, to Yorkville under the SEPA will depend upon, among other things, market conditions, the trading price of our Common Shares, determinations by us as to the appropriate sources of funding for our business and operations, and other factors to be determined by us. We may ultimately decide to sell to Yorkville all, some or very few of the remaining Common Shares that may be available for us to sell to Yorkville pursuant to the SEPA.
Because the per-share price of any Common Shares that we may elect to sell to Yorkville under the SEPA, if any, will fluctuate based on the market prices of our Common Shares at the time we elect to sell such Common Shares, if any, it is not possible for us to predict prior to any such sales the number of Common Shares that we will sell to Yorkville under the SEPA, the purchase price per share that Yorkville will pay for Common Shares purchased from us under the SEPA, or the aggregate gross proceeds that we will receive from those purchases by Yorkville under SEPA. However, the SEPA has been negotiated so that Yorkville would always purchase our Common Shares pursuant to its terms at a discount to market and, accordingly, our shareholders may not experience a similar rate of return on any Common Shares purchased by them on the open market, which would not have the benefit of any such discounts. Any such at-the-market purchases may make it harder for our shareholders to profit from their investments in our Company, when compared to Yorkville or otherwise.
Yorkville will not be required to purchase any SEPA Shares if such sale would result in Yorkville’s beneficial ownership exceeding 9.99% of the then issued and outstanding Common Shares. Our inability to access a part or all of the amount available under the SEPA, in the absence of any other financing sources, could have a material adverse effect on our business. For more information, see “Item 5. Operating and Financial Review and Prospects—Liquidity and capital management — Financing Transactions — Standby Equity Purchase Agreement.”
We are affected by fluctuations in currency exchange rates, including those in connection with recent inflationary trends in the United States of America (“United States” or “U.S.”), Canada, and globally.
We are exposed to adverse as well as beneficial movements in currency exchange rates. Our functional currency is the Canadian dollar, and we incur financial expenses in connection with fluctuations in value due to foreign exchange differences between our monetary assets and liabilities denominated in U.S. dollars and other currencies. Our financial results are reported in Canadian dollars and a substantial portion of our payroll and other operating expenses are accrued in New Israel Shekels and U.S. dollars. A weakened Canadian dollar will increase the cost of expenses such as payroll, utilities, tax, marketing expenses, and capital expenditures. We anticipate that we will realize a substantial portion of our revenue in U.S. dollars. A decline in the value of the U.S. dollar relative to the Canadian dollar could adversely affect our reported revenue. Changes in exchange rates would adversely affect our business, results of operations, and financial condition.
Global or regional conditions can adversely affect our business, results of operations, and financial condition.
We have testing, research and development, sales and other operations in several other countries, and some of our business activities are concentrated in one or more geographic areas. As a result, our business, operating results, and financial condition, including our ability to test, design, develop, or sell products, and the demand for our solutions, are at times adversely affected by a number of global and regional factors outside of our control.
Adverse changes in global or regional economic conditions periodically occur, including recession or slowing growth, changes, or uncertainty in fiscal, monetary, or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT infrastructure, increases in unemployment and lower consumer confidence and spending. Adverse changes in economic conditions can significantly harm demand for our solutions and make it more challenging to forecast our operating results and make business decisions, including regarding prioritization of investments in our business. An economic downturn or increased uncertainty may also lead to increased credit and collectability risks, higher borrowing costs or reduced availability of capital markets, reduced liquidity, adverse impacts on our suppliers, failures of counterparties including financial institutions and insurers, asset impairments and declines in the value of our financial instruments.
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Additionally, VayaVision Sensing Ltd. (“VayaVision”), our subsidiary that conducts a substantial portion of our research and development activities, is located in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, as well as incidents of terror activities and other hostilities, and a number of state and non-state actors have publicly committed to its destruction. Political, economic and security conditions in Israel could directly affect our operations. We could be adversely affected by hostilities involving Israel, including acts of terrorism or any other hostilities involving or threatening Israel, the interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation or a significant downturn in the economic or financial condition of Israel. The current hostilities between Israel and Hamas, and any escalation of such hostilities, as well as any future armed conflicts, terrorist activities, tension along the Israeli borders or with other countries in the region, including Iran, or political instability in the region could disrupt international trading activities in Israel and may materially and negatively affect our business and could harm our results of operations. In connection with the current hostilities with Hamas, Israel has called up 360,000 reservists, including a number of VayaVision’s employees. The call-up of reservists, and any additional call-up in the future, could also negatively affect our business, and harm our results of operations.
Certain countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli companies, companies with large Israeli operations and others doing business with Israel and Israeli companies. The boycott, restrictive laws, policies or practices directed towards Israel, Israeli businesses or Israeli citizens could, individually or in the aggregate, have a material adverse effect on our business in the future.
We can be adversely affected by other global and regional factors that periodically occur, including:
| ● | geopolitical and security issues, such as armed conflict and civil or military unrest, political instability, human rights concerns and terrorist activity; |
| ● | natural disasters, public health issues (including the COVID-19 pandemic) and other catastrophic events; |
| ● | inefficient infrastructure and other disruptions, such as supply chain interruptions and large-scale outages or unreliable provision of services from utilities, transportation, data hosting or telecommunications providers; |
| ● | formal or informal imposition of new or revised export, import or doing-business regulations, including trade sanctions, tariffs, and changes in the ability to obtain export licenses, which could be changed without notice; government restrictions on, or nationalization of, our operations in any country, or restrictions on our ability to repatriate earnings from a particular country; |
| ● | adverse changes relating to government grants, tax credits or other government incentives, including more favorable incentives provided to competitors; |
| ● | differing employment practices and labor issues; |
| ● | ineffective legal protection of our intellectual property rights in certain countries; |
| ● | local business and cultural factors that differ from our current standards and practices; |
| ● | continuing uncertainty regarding social, political, immigration and tax and trade policies; and |
| ● | fluctuations in the market values of any of our investments, which can be negatively affected by liquidity, credit deterioration or losses, interest rate changes, financial results, political risk, sovereign risk, or other factors. |
Catastrophic events can adversely affect our business, results of operations, and financial condition.
Our operations and business, and those of our customers and direct and indirect vendors and suppliers of OEMs, can be disrupted by natural disasters, industrial accidents, public health issues (including the COVID-19 pandemic), cybersecurity incidents, interruptions of service from utilities, transportation, telecommunications or information technology systems and networks (“IT systems”) providers, production equipment failures or other catastrophic events. For example, we have at times experienced disruptions in our production processes as a result of power outages, improperly functioning equipment, and disruptions in supply of raw materials or components, including due to cybersecurity incidents affecting our suppliers. Global climate change can result in certain natural disasters occurring more frequently or with greater intensity, such as drought, wildfires, storms, sea-level rise, and flooding. The long-term effects of climate change on the global economy and the IT industry in particular are unclear, but could be severe.
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Catastrophic events could make it difficult or impossible to produce or deliver products to our customers, receive production materials from our suppliers or perform critical functions, which could adversely affect our revenue and require significant recovery time and expenditures to resume operations. While we maintain business recovery plans, some of our systems are not fully redundant and we cannot be sure that our plans will fully protect us from such disruptions. Furthermore, even if our operations are unaffected or recover quickly, if our customers or suppliers cannot timely resume their own operations due to a catastrophic event, we may experience reduced or cancelled orders or disruptions to our supply chain that would adversely affect our business, results of operations, and financial condition.
Disruptions in financial markets may adversely impact the availability and cost of credit and have other adverse effects on us and the market price of our stock.
Our ability to make scheduled payments on, or to refinance, our debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. The global equity and credit markets have experienced in the past, and may experience in the future, periods of extraordinary turmoil and volatility. These circumstances may materially and adversely impact liquidity in the financial markets at times, making terms for certain financings less attractive or in some cases unavailable. Disruptions and uncertainty in the equity and credit markets, including as a result of recent bank failures and uncertainty in the banking sector generally, may negatively impact our ability to refinance existing indebtedness and access additional financing for acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of our Common Shares. If we are not successful in refinancing our existing indebtedness when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of our common or preferred stock.
Risks Related to Our Intellectual Property Rights
We may not be able to adequately protect, defend or enforce our intellectual property rights, and our efforts to do so may be costly.
The success of our solutions and business depends in part on our ability to obtain patents and other intellectual property rights and to maintain adequate legal protection for our solutions in the United States, Canada and other international jurisdictions. If we are not able to adequately protect or enforce the proprietary aspects of our technology, competitors could be able to access, replicate or circumvent our proprietary technology and our business, results of operations, and financial condition could be adversely affected. We currently attempt to protect our technology through a combination of patent, copyright, trademark and trade secret laws, employee invention assignment agreements, employee and third-party non-disclosure agreements and similar means, all of which provide only limited protection. We have filed for patent and trademark registration in the United States, Canada and in certain other international jurisdictions. However, effective intellectual property protection may be unavailable in some countries where we operate or seek to enforce our intellectual property rights or more limited in foreign jurisdictions relative to those protections available in the United States, or may not be applied for in one or more relevant jurisdictions. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.
Our issued patents and trademarks and any pending or future patent and trademark applications that may result in issuances or registrations may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies. Even if we do timely seek patent protection, the coverage claimed in a patent application can be significantly reduced before a patent is issued, and its scope can be reinterpreted after issuance. As a result, we may not be able to protect our proprietary rights adequately in the United States, Canada or elsewhere. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products or services, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, results of operations, and financial condition.
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Despite our efforts, unauthorized parties may attempt to copy, reverse engineer, disassemble, disclose, obtain, or use our technologies or systems. Our competitors may also be able to independently develop similar products or services that are competitive to ours or design around our issued patents. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek to charge us a licensing fee or otherwise preclude or make costlier the use of our technology. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to prevent unauthorized parties from copying or reverse engineering our solutions, to determine the validity and scope of the proprietary rights of others or to block the importation of infringing products into the United States or other countries. We may be a party to claims and litigation as a result of alleged infringement by third parties of our intellectual property. Even when we sue other parties for such infringement, that suit may have adverse consequences for our business. Any such suit is likely to be time-consuming and expensive to resolve and may divert our management’s time and attention from our business, which could adversely affect our business, results of operations, and financial condition, and legal fees related to such litigation would increase our operating expenses and may reduce our net income. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us, alleging that we infringe their intellectual property or alleging that our intellectual property is invalid or unenforceable. Furthermore, any litigation initiated by us could result in a court or governmental agency invalidating or rendering unenforceable our patents or other intellectual property rights upon which the suit is based, which could adversely affect our business, results of operations, and financial condition.
We may become subject to claims and litigation brought by third parties alleging infringement by us of their intellectual property rights.
The industry in which our business operates is characterized by a large number of patents, some of which may be of questionable scope, validity, or enforceability, and some of which may appear to overlap with other issued patents. As a result, there is a significant amount of uncertainty in the industry regarding patent protection and infringement. In addition to these patents, participants in this industry typically also protect their technology, especially embedded software, through copyrights and trade secrets. In recent years, there has been significant litigation globally involving patents and other intellectual property rights.
In the event that we recruit employees from other technology companies, including certain potential competitors, and these employees are used in the development of solutions that are similar to the solutions they were involved in developing for their former employers, we may become subject to claims that such employees have improperly used or disclosed trade secrets or other proprietary information. We may also in the future be subject to claims by our suppliers, employees, consultants, or contractors asserting an ownership right in our patents or patent applications, as a result of the work they performed on our behalf. These claims and any resulting lawsuits, if resolved adversely to us, could subject us to significant liability for damages, impose temporary or permanent injunctions against our solutions or business operations or invalidate or render unenforceable our intellectual property. In addition, because patent applications can take many years until the patents issue, there may be applications now pending of which we are unaware, which may later result in issued patents that our solutions may infringe. If any of our solutions infringe a third party’s patent rights, or if we wish to avoid potential intellectual property litigation on any alleged infringement relating to our solutions, we could be prevented from selling, or we could elect not to sell, such solutions unless we obtain additional intellectual property rights and licenses, which may involve substantial royalty or other payments and may not be available on acceptable terms or at all. Alternatively, we could be forced to redesign one or more of our solutions to avoid any infringement or allegations thereof. Procuring or developing substitute solutions that do not infringe could require significant effort and expense, and we may not be successful in any attempt to redesign our solutions to avoid any alleged infringement.
A successful claim of infringement against us, or our failure or inability to develop and implement non-infringing technology, or license the infringed intellectual property rights, on acceptable terms and on a timely basis, could materially adversely affect our business, financial condition, and results of operations. A party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or obtain an injunction. An adverse determination also could invalidate our intellectual property rights and adversely affect our ability to offer our solutions to our customers. Additionally, we may face liability to our customers, business partners or third parties for indemnification or other remedies in the event that they are sued for infringement in connection with their use of our solutions. We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify, and hold harmless our customers, suppliers and other business partners from damages and costs which may arise from the infringement by our solutions of third-party patents or other intellectual property rights. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Furthermore, our defense of intellectual property rights claims brought against us or our customers, business partners or other related third parties, regardless of our success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention from our business, which could seriously harm our business. A claim that our solutions infringe a third party’s intellectual property rights, even if untrue, could adversely affect our relationships with our customers or suppliers, may deter future customers from purchasing our solutions and could seriously harm our reputation with our customers or suppliers, as well as our reputation in the industry at large.
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In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how that can be more difficult to protect or enforce, which could allow competitors to independently develop or commercialize superior technology, software and products.
We rely on proprietary information (such as trade secrets, know-how, and confidential information) to protect intellectual property that may not be patentable and may not be subject to copyright, trademark, trade dress or service mark protection, or that we believe is best protected by means that do not require public disclosure. Such proprietary information may be owned by us or disclosed to us by our licensors, suppliers or other third parties. We generally seek to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors, scientific advisors and other third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement, or misappropriation of our proprietary information, may be limited as to their term, and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information. We have limited control over the protection of trade secrets used by our third-party manufacturers and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, scientific advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in or to related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may afford little or no protection to our trade secrets.
We also rely on physical and electronic security measures to protect our proprietary information, but we cannot provide assurance that these security measures will not be breached or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to protect and enforce our intellectual property rights. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident would affect our competitive position and adversely affect our business, results of operations, and financial condition.
We use certain software and data governed by open-source licenses, which under certain circumstances could adversely affect our business, results of operations, and financial condition.
Certain of our software and data, as well as that of our customers and vendors, may be derived from or otherwise incorporate so-called “open source” software and data that is generally made available to the public by its authors and/or other third parties. Some open-source software is made available under licenses that impose certain obligations on us regarding modifications or derivative works we create based upon the open-source software. These obligations may require us to make source code for the derivative works available to the public and/or license such derivative works under a particular type of license, rather than the forms of license we customarily use to protect our intellectual property. Additionally, if we combine our proprietary software with open-source software in certain manners we could be required to release the source code of our proprietary software or to make our proprietary software available under open-source licenses to third parties at little or no cost or on unfavorable license terms. In the event that the copyright holder of, or other third party that distributes, open-source software alleges that we have not complied with the terms of an open-source license, we could incur significant legal costs defending ourselves against such allegations. If such claims are successful, we could be subject to significant damages, required to release the source code that we developed using that open-source software to the public, enjoined from distributing our software and/or required to take other actions that could adversely affect our business, results of operations, and financial condition.
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While we take steps to monitor the use of open-source software in our solutions, processes and technology and try to ensure that no open-source software is used in such a way as to require us to disclose the source code to the related product, processes, or technology when we do not wish to do so, such use could inadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from such third party for our solutions, processes, or technology, we could, under certain circumstances, be required to disclose the source code to our solutions, processes, or technology. This could harm our intellectual property position and adversely affect our business, results of operations, and financial condition.
Further, the use of open-source software can lead to vulnerabilities that may make our software susceptible to attack, and although some open-source vendors provide warranty and support agreements, it is common for such software to be available “as is” with no warranty, indemnity, or support. Although we monitor our use of such open-source code to avoid subjecting our solutions to unintended conditions, such use, under certain circumstances, could materially adversely affect our business, financial condition and operating results and cash flow, including if we are required to take remedial action that may divert resources away from our development efforts.
Our subsidiary has received Israeli government grants for certain of its research and development activities and it may receive additional grants in the future. The terms of those grants restrict our ability to transfer technologies outside of Israel, and we may be required to make payments in such cases.
Our subsidiary, VayaVision, received a total of approximately $3.0 million from the Israel Innovation Authority (“IIA”), of which approximately $1.5 million is subject to royalties. We may in the future apply to receive additional grants from the IIA to support our research and development activities. With respect to such grants we are committed to pay royalties at a rate of 3% on sales proceeds up to the total amount of grants received, linked to the dollar and bearing interest at annual rates linked to a benchmark rate, with a cumulative maximum value of 50%. Even after payment in full of these amounts, we will still be required to comply with the requirements of the Israeli Encouragement of Industrial Research, Development and Technological Innovation Law, 1984, or the “R&D Law,” and related regulations, with respect to those past grants. When a company develops know-how, technology or products using IIA grants, the terms of these grants and the R&D Law restrict the transfer outside of Israel of such know-how, and of the manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the IIA. Therefore, if aspects of our technologies are deemed to have been developed with IIA funding, the discretionary approval of an IIA committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. Furthermore, the IIA would impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel, including requiring retroactive redemption payments up to a maximum amount, or may not grant such approvals at all. While we have submitted a request to the IIA to permit the development work being done using aspects of technologies developed by VayaVision using IIA funding, there can be no assurance that such approvals will be granted on favorable terms, or at all. Failure to obtain such approvals could have a material adverse effect on our business, financial condition and results of operations.
In addition, the consideration available to our shareholders in a future transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA. Any such mergers require IIA approval and may require payments.
In addition to the above, any non-Israeli citizen, resident or entity that, among other things, (i) becomes a holder of 5% or more of the share capital or voting rights of VayaVision, (ii) is entitled to appoint one or more of the directors or the chief executive officer of VayaVision or (iii) serves as one of the directors or as the chief executive officer (including holders of 25% or more of the voting power, equity or the right to nominate directors in such direct holder, if applicable) is required to notify the IIA and undertake to comply with the rules and regulations applicable to the grant programs of the IIA, including the restrictions on transfer described above. Such notification will be required in connection with the investment being made by an investor. Approval for any transfer of IIA funded know-how, if requested, is within the discretion of the IIA. Furthermore, the IIA may impose conditions on any arrangement under which it permits us to transfer IIA funded know-how or manufacturing out of Israel.
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Risks Related to Privacy, Data, and Cybersecurity
Interruptions to our information technology systems and networks and cybersecurity incidents could adversely affect our business, results of operations, and financial condition.
We collect and maintain information in digital form that is necessary to conduct our business, and we rely on IT systems to process, transmit, and store electronic information, and to manage or support our business and consumer facing activities. Our operations routinely involve receiving, storing, processing, and transmitting confidential or sensitive information pertaining to our business, customers, suppliers, employees, and other sensitive matters, including trade secrets, other proprietary business information, and personal information. Although we have established physical, electronic, and organizational measures designed to safeguard and secure our systems to prevent a data breach or compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our IT systems and the processing, transmission, and storage of digital information, we cannot guarantee that such measures will be adequate to detect, prevent, or mitigate cyber incidents. The implementation, maintenance, segregation, and improvement of these measures requires significant management time, support, and cost. Moreover, there are inherent risks associated with developing, improving, expanding, and updating current systems, including the disruption of our data management, procurement, production execution, finance, supply chain, and sales and service processes. These risks may affect our ability to manage our data and inventory, procure parts or supplies, or produce, sell, deliver, and service our solutions, adequately protect our intellectual property, or achieve and maintain compliance with, or realize available benefits under, applicable laws, regulations, and contracts.
We cannot be sure that the IT systems upon which we rely, including those of our third-party vendors or suppliers, will be effectively implemented, maintained, or expanded as planned. While cyberattacks against our third-party vendors or suppliers have not materially adversely affected us to date, future cyberattacks on such third parties may cause significant disruptions and materially adversely affect our business, results of operations, and financial condition. In addition, despite the implementation of preventative and detective security controls, such IT systems are vulnerable to damage, shutdown, or interruption from a variety of sources, including telecommunications or network failures or interruptions, system malfunction, natural disasters, terrorism, and war. Additionally, our IT systems and products may be vulnerable to malicious acts by hackers, including through use of computer viruses, malware (including ransomware), phishing attacks, or denial of service attacks.
We regularly face attempts by others to gain unauthorized access, or to introduce malicious software, to our IT systems. Individuals or organizations, including malicious hackers, state-sponsored organizations, insider threats, including employees and third-party service providers, or intruders into our physical facilities, at times may attempt to gain unauthorized access to or corrupt our IT systems, products, or services. We are a target for computer hackers and organizations that intend to sabotage, take control of, or otherwise corrupt our processes, solutions, and services. We are also a target for malicious attackers who attempt to gain access to our network or data centers or those of our suppliers, customers, partners, or end users, steal proprietary information related to our business, products, employees, suppliers, and customers, interrupt our infrastructure, systems, and services or those of our suppliers, customers, or others, or demand ransom to return control of such systems and services. Such attempts are increasing in number and in technical sophistication, and if successful, expose us and the affected parties to risk of loss or misuse of confidential or other proprietary or commercially sensitive information, compromise personal information regarding users or employees, disrupt our business operations, and jeopardize the security of our facilities. Our IT infrastructure also includes products and services provided by third parties, and these providers may experience breaches of their systems and products that impact the security of our systems and our proprietary or confidential information.
We have experienced attempted data breaches, cyberattacks, and other similar incidents, none of which have resulted in a material adverse impact to our business or operations, but there can be no guarantee we will not experience an incident that would have such an impact. Such incidents, whether or not successful, could result in our incurring significant costs related to, for example, rebuilding internal systems, writing down inventory value, implementing additional threat protection measures, providing modifications to our solutions, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with incentives to maintain the business relationship, or taking other remedial steps with respect to third parties, as well as reputational harm. In addition, cybersecurity threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. There has also been an increase in cyberattack volume, frequency, and sophistication driven by the global enablement of remote workforces. We seek to detect and investigate unauthorized attempts and attacks against our network and solutions and to prevent their recurrence where practicable through changes to our internal processes and tools and changes or updates to our solutions. However, despite the implementation of preventative and detective security controls, we, and the third parties upon which we rely, remain potentially vulnerable to additional known or unknown cybersecurity threats. In some instances, we, our suppliers, our customers, and end users, can be unaware of an incident or its magnitude and effects. Even when a security breach is detected, the full extent of the breach may not be determined, and even if determined, a full investigation may require time and resources. Any actual or perceived security incident could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties, including our customers, and possible financial obligations for damages related to the theft or misuse of such information or inventory, any of which would adversely affect our business, results of operations, and financial condition. The costs related to cybersecurity breaches, attacks or other similar incidents or network or computer system disruptions typically would not be fully insured or indemnified. We cannot ensure that any limitations of liability provisions in our agreements with customers, service providers and other third parties with which we do business would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim in connection with a cybersecurity breach, attack or other similar incident.
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Security breaches and other disruptions of our in-vehicle systems and related data could impact the safety of our end users and reduce confidence in us and our solutions.
Our operations are rich in technology and computing and may be exposed to risks related to the stability of the information systems, their compatibility with the scope of its operations, information security, technical failures and overload of system servers. Impairment of the stability of computer systems and inability on our part to return its systems to normal operation within a reasonable time frame, or the lack of technological ability to meet commitments or the expectations of potential customers and strategic partners, may damage our reputation and harm its business outcomes. Our low-level sensor fusion and perception solutions contain complex information technology. These solutions, as integrated in ADAS and AD technologies, may affect the control of various vehicle functions including engine, transmission, safety, steering, navigation, acceleration, and braking. Hackers may attempt in the future to gain unauthorized access to modify, alter, and use such systems to gain control of, or to change, the functionality, user interface and performance characteristics of vehicles incorporating our solutions, or to gain access to data stored in or generated by the vehicle. In addition, as we transition to offering solutions that involve cloud-based solutions, including over-the-air updates, our solutions may increasingly be subject to cyber threats. Hackers may attempt to infiltrate, steal, corrupt, or manipulate such data on the cloud, which could also result in our low-level fusion technology malfunctioning. Malicious cybersecurity attacks against our technology, utilized by in-vehicle systems that relate to automotive safety and related data, such as the data described in the preceding sentence, could potentially lead to bodily injury or death of end users, passengers, and others. Any unauthorized access to or control of vehicles incorporating our solutions or their systems could adversely impact the safety of those vehicles, or result in legal or regulatory claims or proceedings, liability, or regulatory penalties. Moreover, new laws, such as the new data law in Massachusetts that would permit third-party access to vehicle data and related systems, could expose our vehicles and vehicle systems to third-party access without appropriate security measures in place, leading to new safety and security risks, and reducing trust and confidence in our solutions. In addition, regardless of their accuracy, reports of unauthorized access to our solutions, their systems, or data, as well as other factors that may result in the perception that our solutions, their systems, or data are capable of being hacked, could harm our reputation, and adversely affect our business, results of operations, and financial condition.
Failures or perceived failures to comply with privacy, data protection, and information security requirements, or theft, loss, or misuse of personal information about our employees, customers, end users, or other third parties, or other information, could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.
The theft, loss, or misuse of personal information collected, used, stored, or transferred by us to run our business could result in significantly increased business and security costs or costs related to defending legal claims. For example, data collected by the sensor of our solutions during the development cycle of a project may include personal information such as license plate numbers of other vehicles, facial features of pedestrians, appearance of individuals, GPS data, and geolocation data. Notwithstanding our efforts to protect the security and integrity of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if, for example, third parties improperly obtain and use the personal information of our customers, or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems may result in fines, penalties, and damages, harm our reputation, and adversely affect our business, results of operations, and financial condition.
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Data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services. We are subject to a variety of local, state, national and international laws, directives, and regulations that apply to the collection, use, retention, protection, security, disclosure, transfer, and other processing of personal data in the different jurisdictions in which we operate (“Data Protection Laws”). Any failure by us or our vendors or other business partners to comply with our public privacy notice or with U.S. federal, state, local, Canadian, Israeli, Chinese, or other foreign or international Data Protection Laws could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements, and other significant costs. Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. Because many Data Protection Laws are new or subject to recent revisions or updates, there is often little clarity as to their interpretation or best practices for compliance, as well as a lack of precedent for the scope of enforcement. Costs to comply with Data Protection Laws and implement related privacy and data protection measures are significant, and may require us to change our business practices and compliance manners. Any non-compliance could adversely affect our ability to collect, analyze, and store data, expose us to significant monetary penalties, damage to our reputation, result in suspension of online services or sites in certain countries, and even result in criminal sanctions. Even our inadvertent failure to comply with Data Protection Laws could result in audits, regulatory inquiries, or proceedings against us by governmental entities or other third parties. Any inability to adequately address data privacy or data protection, or other information security-related concerns, even if unfounded, to successfully negotiate privacy, data protection, or information security-related contractual terms with customers, or to comply with Data Protection Laws, could result in additional cost and liability to us, harm our reputation and brand, and could adversely affect our business, results of operations, and financial condition.
Risks Related to Our Industry
The current uncertain economic environment and inflationary conditions may adversely affect global vehicle production and demand for our solutions.
Our business depends on, and is directly affected by, the global automobile industry. Economic conditions in North America, Europe and Asia can have a large impact on the production volume of new vehicles, and, accordingly, have an impact on our revenue. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences, changes in interest rate levels and credit availability, consumer confidence and purchasing power, energy and fuel costs, fuel availability, environmental impact, governmental incentives, regulatory requirements, and political volatility, especially in energy-producing countries and growth markets. In addition, automotive production and sales can be affected by our customers’ ability to continue operating in response to challenging economic conditions, such as those caused by the COVID-19 pandemic, and in response to labor relations issues and shortages, supply chain disruptions, regulatory requirements, trade agreements and other factors. Moreover, automakers continue to face supply chain shortages, and we expect that global vehicle production will not fully recover from the impact of supply chain constraints in 2023. Furthermore, current uncertain economic conditions and inflation may contribute to a reduction in consumer demand, which may reduce vehicle production over at least the next several quarters. In addition to these general economic factors, uncertainties in specific markets may further contribute to lower vehicle production. For example, the disruption by Russia of gas supplies to Western Europe could significantly impact industrial production, including vehicle production, in significant markets such as Germany. We cannot predict when the impact of these factors on global vehicle production will substantially diminish. We believe that the expected continued constraint on global automotive production resulting from supply chain shortages and the effect of economic uncertainty will limit our ability to increase our revenue. More generally, the volume of automotive production in North America, Europe, China, and the rest of the world has fluctuated, sometimes significantly, from year to year, for many reasons, and such fluctuations give rise to fluctuations in the demand for our solutions. As a result, in addition to the impact of the current uncertainties that we anticipate to impact automotive production in the near term, adverse changes in economic or market conditions or other factors, including, but not limited to, general economic conditions, the bankruptcy of any of our customers or the closure of OEM manufacturing facilities may result in a reduction in automotive sales and production, and could have an adverse effect on our business, results of operations, and financial condition.
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ADAS and AD systems rely on a complex set of technologies, and there is no assurance that the rate of acceptance and adoption of these technologies will increase in the near future or that a market for fully autonomous vehicles will fully develop.
ADAS and AD systems rely on a complex set of technologies, which requires the coordinated development of sensing, mapping, object detection and classification as well as path planning and navigation. These functions and capabilities are in different stages of development, and their reliability must continue to improve in order to meet the higher standards required for AD. Sensing technology provides information to the car and includes the physical sensors, as well as object classification and perception software. In many cases, it will be sold as part of a system where it must work within the core AD platform of an OEM. If customer technology is not ready to be deployed in vehicle models when our sensing technology is ready for adoption, launch of production could be delayed, perhaps for a significant time period, which could materially adversely affect our business, results of operations and financial condition.
There are a number of additional challenges to AD, all of which are outside of our control, including market acceptance of AD, particularly fully AD, national or state certification requirements and other regulatory measures, concerns regarding litigation, cyber security risks, as well as a general aversion by some consumers to the idea of self-driving vehicles. There can be no assurance that the market will accept any vehicle model, including a vehicle containing our technology, in which case our future business, results of operations and financial condition could be adversely affected.
We operate in an industry that is new and rapidly evolving. The market and industry projections included in this Annual Report are subject to significant uncertainty. If markets for sensor fusion products develop more slowly than we expect, or long-term end-customer adoption rates and demand are slower than we expect, our operating results and growth prospects could be harmed.
We are pursuing opportunities in markets that are undergoing rapid changes, including technological and regulatory changes, and it is difficult to predict the timing and size of the opportunities. For example, ADAS and AD applications require complex technology and are subject to uncertainties with respect to, among other things, the rate of consumer acceptance and the impact of current or future regulations. Because these automotive systems depend on technology from many companies in addition to ours, commercialization of some ADAS or AD solutions could be delayed or impaired on account of certain technological components of our or others not being ready to be deployed in vehicles. Regulatory, safety or reliability developments, many of which are outside of our control, could also cause delays or otherwise impair commercial adoption of these new technologies, which will adversely affect our growth.
This Annual Report contains estimates and forecasts concerning our industry, including estimates of the growth of the market for higher levels of automation and for low-level fusion, that are based on industry publications and reports or other publicly available information as well as our internal estimates and expectations. These estimates and forecasts involve a number of assumptions and limitations, and are subject to significant uncertainty, and you are cautioned not to give them undue weight. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of the included information. We have not independently verified this third-party information. Similarly, our internal estimates and forecasts are based on a variety of assumptions, including assumptions regarding market acceptance of low-level sensor fusion and perception technology, AD and ADAS and the manner in which this new and rapidly evolving market will develop. While we believe our assumptions and the data underlying our estimates and forecasts are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our estimates and forecasts may prove to be incorrect. If third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that data, the market for our solutions may be smaller than we have estimated, our future growth opportunities and sales growth may be smaller than we estimate, and our future business, results of operations and financial condition may be adversely affected.
Our future financial performance will depend on our ability to make timely investments in the correct market opportunities. If one or more of these markets experience a shift in customer or prospective customer demand, then our solutions may not compete as effectively, if at all, and they may not be incorporated into commercialized end customer products. Given the evolving nature of the markets in which we operate, it is difficult to predict customer demand or adoption rates for our solutions or the future growth of the markets in which we operate. Even if the market for low-level sensor fusion and perception technology, ADAS and AD solutions grows substantially, there is no guarantee that demand for our solutions will correlate with that growth if we fail to effectively pursue such opportunities. If demand does not develop or if we cannot accurately forecast customer demand, then the size of our prospective markets or our future business, results of operations, and financial condition would be adversely affected.
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Risks Related to Regulations and Compliance
We are subject to a variety of laws and regulations that affect our operations and that could adversely affect our business, results of operations, and financial condition.
We are subject to laws and regulations worldwide that affect our operations and that differ among jurisdictions, including automotive safety regulations, regulations governing ADAS and AD technology, intellectual property ownership and infringement laws, tax laws, import and export regulations, anti-corruption laws, foreign exchange controls and cash repatriation restrictions, data privacy laws, competition laws, advertising regulations, employment laws, product regulations, environmental laws, health and safety requirements, consumer laws and national security laws. Compliance with such requirements can be onerous and expensive, and may otherwise adversely affect our business, results of operations, and financial condition.
Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, or agents will not violate such laws or our policies. There may also be laws and regulations that limit the functionality of our solutions or require us to adapt our solutions to retain functionality. For example, the regulatory environment in China creates challenges for the proliferation of our solutions in that market. Due to regulations there, we also depend on our partners in China in order to collect and analyze data, and such partners may choose to cease, or be unable to, continue cooperating with us. Other countries have, or may implement, similar restrictions. Violations of these laws and regulations can result in fines, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and damage to our reputation. The automotive and technology industries are subject to intense media, political, and regulatory scrutiny, which can increase our exposure to government investigations, legal actions, and penalties.
Our business, results of operations and financial condition may be adversely affected by changes in automotive safety regulations regarding ADAS and AD, which may increase our costs or delay or halt adoption of our sensor fusion solutions.
There are a variety of international, foreign, federal, and state regulations that apply to vehicle safety that could affect the marketability of our sensor fusion solutions. Regulations relating to AD include many existing vehicle standards that were not originally intended to apply to vehicles that may not have a human driver, and AD may never be globally approved. There has been relatively little mandatory government regulation of the self-driving industry to date. Currently, there are no Federal Motor Vehicle Safety Standards that relate to the performance of self-driving technology and no widely accepted uniform standards to certify self-driving technology and its commercial use on public roads. It is also possible that future self-driving regulations are not standardized, and our technology could become subject to differing regulations across jurisdictions. For example, in Europe, certain vehicle safety regulations apply to automated braking and steering systems, which may rely in part on sensor fusion technology, and certain treaties also restrict the legality of certain higher levels of automation, while certain U.S. states have legal restrictions on automation that many other states are also considering. Such regulations continue to rapidly change, which increases the likelihood of varying complex or conflicting regulations or may limit global adoption, impede our strategy, or negatively impact our long-term expectations for our investments in these areas.
Government safety regulations are subject to change based on a number of factors that are not within our control, including new scientific or technological data, adverse publicity regarding the industry, recalls, concerns regarding safety risks of AD and ADAS, accidents involving our sensor fusion solutions or those of our competitors, domestic and foreign political developments or considerations and litigation relating to our solutions and our competitors’ products. Changes in government regulations, especially those relating to ADAS and AD, could adversely affect our business, results of operations, and financial condition.
Regulations governing the automotive industry impose stringent compliance and reporting requirements in response to product recalls and safety issues in the automotive industry, including a duty to report, subject to strict timing requirements, safety defects with, or reports of injuries relating to, systems integrating our solutions and requirements that a manufacturer recall and repair vehicles that contain safety defects or fail to comply with applicable safety standards. If we do not rapidly address any safety concerns or defects involving our solutions, our business, results of operations, and financial condition would be adversely affected.
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If we fail to comply with the laws and regulations relating to the collection of withholding or sales tax and payment of income taxes in the various jurisdictions in which we do business, we could be exposed to unexpected costs, expenses, penalties and fees as a result of our non-compliance, which could harm our business.
By engaging in business activities in a number of jurisdictions, we become subject to various local laws and regulations, including requirements to collect withholding or sales tax within those jurisdictions, and the payment of income taxes on revenue generated from activities in those jurisdictions. A successful assertion by one or more jurisdictions that we were required to collect withholding, sales or other taxes or to pay income taxes where we did not could result in substantial tax liabilities, fees and expenses, including substantial interest and penalty charges, which could harm our business.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
A number of factors can increase our effective tax rates, which could reduce our net income, including:
| ● | changes in the volume and mix of profits earned and location of assets across jurisdictions with varying tax rates and the associated impacts of legislative actions affecting multi-national enterprises; |
| ● | changes in the valuation of our deferred tax assets and liabilities, and in associated deferred tax asset valuation allowance; |
| ● | adjustments to income taxes upon finalization of tax returns; |
| ● | increases in expenses not deductible for tax purposes, including equity-based compensation or impairments of goodwill; |
| ● | changes in available tax credits; |
| ● | changes in our ability to secure new, or renew existing, tax holidays and incentives; |
| ● | changes in U.S. federal, state, or foreign tax laws or their interpretation, including changes in the U.S. to the taxation of non-U.S. income and expenses and changes resulting from the adoption by countries of OECD recommendations or other legislative actions; and |
| ● | changes in accounting standards. |
We are subject to risks related to trade policies, sanctions, and import and export controls.
Trade policies and international disputes at times result in increased tariffs, trade barriers and other restrictions, which can increase our manufacturing costs, make our solutions less competitive, reduce demand for our solutions, limit our ability to sell to certain customers, limit our ability to procure components or raw materials or impede or slow the movement of our goods across borders. Increasing protectionism and economic nationalism may lead to further changes in trade policies and regulations, domestic sourcing initiatives, or other formal and informal measures.
Likewise, national security and foreign policy concerns may prompt governments to impose trade or other restrictions, which could make it more difficult to sell our solutions in, or restrict our access to, certain markets. In this regard, our business activities are subject to various trade and economic sanctions laws and regulations, including, without limitation, the U.S. Department of the Treasury’s Office of Foreign Assets Control’s sanctions programs and the Export Administration Regulations issued by the U.S. Department of Commerce. These rules may prohibit or restrict our ability to, directly or indirectly, conduct activities or dealings in or with certain countries or involving certain persons, or otherwise affect our business. New measures imposed by the United States, the European Union, or others could restrict certain of our operations and adversely affect our business, results of operations, and financial condition. Although we take steps to comply with applicable laws and regulations, our failure to successfully comply with applicable sanctions or export control rules may expose us to negative legal and business consequences, including civil or criminal penalties and government investigations.
In particular, in response to Russia’s invasion of Ukraine, the United States, the European Union, and several other countries are imposing far-reaching sanctions and export control restrictions on Russian entities and individuals. See “— The current conflict between Ukraine and Russia has exacerbated market instability and disrupted the global economy.”
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Additionally, tensions between the United States and China have led to increased tariffs and trade restrictions, including tariffs applicable to some of our solutions, and have affected customer ordering patterns. In addition to imposing economic sanctions on certain Chinese individuals and entities, the United States has imposed restrictions on the export of U.S.-regulated products and technology to certain Chinese technology companies. It is difficult to predict what further trade-related actions governments may take, which may include trade restrictions and additional or increased tariffs and export controls imposed on short notice, and we may be unable to quickly and effectively react to or mitigate such actions.
Trade disputes and protectionist measures, or continued uncertainty about such matters, could result in declining consumer confidence and slowing economic growth or recession, and could cause our customers to reduce, cancel, or alter the timing of their purchases with us. Sustained geopolitical tensions could lead to long-term changes in global trade and technology supply chains, and decoupling of global trade networks, which could adversely affect our business, results of operations, and financial condition.
Given our international supply chain and distribution, we are subject to import and export laws of multiple countries. Failure to comply with the requirements of such laws may lead to the imposition of additional taxes or duties on imports or exports, fines, or penalties.
The current conflict between Ukraine and Russia has exacerbated market instability and disrupted the global economy.
The current conflict between Ukraine and Russia has caused uncertainty about economic and political stability, increasing volatility in the credit and financial markets and disrupting the global economy. The United States, the European Union, and several other countries are imposing far-reaching sanctions and export control restrictions on Russian entities and individuals. These measures could constrain our ability to work with Russian companies or individuals in connection with the development of our solutions in the future. These sanctions and export controls may also contribute to higher oil and gas prices and inflation, which could reduce demand in the global automotive sector and therefore reduce demand for our solutions. There is also a risk that Russia, as a retaliatory action to sanctions, may launch cyberattacks against the United States, the European Union, or other countries or their infrastructures and businesses. Additional consequences of the conflict may include diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, and various shortages and supply chain disruptions. While we do not currently directly rely on goods or services sourced in Russia or Ukraine and thus have not experienced any direct disruptions, we may experience indirect disruptions in our supply chain. Any of the foregoing factors, including developments or effects that we cannot yet predict, may adversely affect our business, results of operations, and financial condition.
Risks Related to Ownership of Our Securities
The Company does not intend to pay cash dividends for the foreseeable future.
The Company currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Company’s board of directors and will depend on its financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.
If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.
The trading market for our Common Shares will depend in part on the research and reports that analysts publish about our business. The Company does not have any control over these analysts. If one or more of the analysts who cover the Company downgrade its Common Shares or publish inaccurate or unfavorable research about its business, the price of its Common Shares would likely decline. If few analysts cover the Company, demand for its Common Shares could decrease and its Common Share price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering the Company in the future or fail to publish reports on it regularly.
Our business and operations could be negatively affected if it becomes subject to any securities litigation or shareholder activism, which could cause the Company to incur significant expense, hinder execution of business and growth strategy and impact its stock price.
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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the stock price of Common Shares or other reasons may in the future cause it to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to the Company future, adversely affect its relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters.
Further, its stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.
The Common Shares being offered for resale by Yorkville in the prospectus that is part of the SEPA Registration Statement and by the Selling Securityholders in the prospectus that is part of the First Registration Statement represent a substantial percentage of our outstanding Common Shares, and the sales of such shares, or the perception that these sales could occur, could cause the market price of our Common Shares to decline significantly.
We previously registered for the offer and sale from time to time by Yorkville of up to 20,000,000 Common Shares pursuant to the SEPA Registration Statement. Further, the prospectus that is part of the First Registration Statement relates to the offer and sale from time to time by the Selling Securityholders named in the First Registration Statement or their permitted transferees of up to 40,582,699 Common Shares, which includes (i) 22,663,638 outstanding Common Shares beneficially owned by such Selling Securityholders, (ii) up to 6,632,416 Common Shares issuable upon the exercise of Private Placement Warrants held by Sponsor; (iii) up to 2,031,250 Common Shares issuable upon conversion of Class A Non-Voting Special Shares held by Sponsor; (iv) up to 4,378,500 Common Shares issuable upon the conversion of our secured convertible notes held by the applicable Selling Securityholders; (v) up to 263,890 Common Shares issuable upon the exercise of the Lender Warrants; (vi) up to 449,013 Common Shares issuable upon the exercise of the Legacy Director Warrants; (vii) up to 71,267 Common Shares issued or that remain issuable upon vesting or vesting and exercise, as applicable, of Director Awards; and (viii) up to 4,092,725 Common Shares issuable upon the conversion of Company Earnout Non-Voting Special Shares.
The number of Common Shares offered for resale under the prospectus that is part of the First Registration Statement and the SEPA Registration Statement significantly exceeds the number of Common Shares constituting our public float, and the sale of all Common Shares offered for resale by the Selling Securityholders under the First Registration Statement, the sale by Yorkville of all Common Shares offered for resale under the SEPA Registration Statement, or the perception that these sales could occur, could depress the market price of our Common Shares.
Even if the trading price of our Common Shares were to continue to trade significantly below US$10.00 per share, the offering price for the units sold in the Prospector IPO, certain of the Selling Securityholders under the First Registration Statement may still have an incentive to sell our Common Shares because they may still experience a positive rate of return on the securities they purchased due to the differences in the purchase prices paid by such Selling Securityholders and the public trading price of our Common Shares. Additionally, the SEPA has been negotiated so that Yorkville would always purchase our Common Shares pursuant to its terms at a discount to market. Accordingly, our shareholders may not experience a similar rate of return on any Common Shares purchased by them on the open market, which would not have the benefit of any such discounts and due to differences in the purchase prices. Any such at-the-market purchases may make it harder for our shareholders to profit from their investments in our Company, when compared to those certain Selling Securityholders under the First Registration Statement, Yorkville under the SEPA Registration Statement or otherwise.
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Future resales of Common Shares may cause the market price of the Company’s securities to drop significantly, even if the Company’s business is doing well.
Subject to certain exceptions, the PIPE Investors and LeddarTech shareholders prior to the Business Combination other than the PIPE Investors agreed not to transfer or sell their Common Shares for six months and four years, respectively, following the Closing. However, following the expiration of such lockup, the Sponsor, PIPE Investors and certain shareholders of the Company will not be restricted from selling Common Shares held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of Common Shares in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Common Shares. The Sponsor and the shareholders of LeddarTech Inc. immediately prior to completion of the Business Combination (including Common Shares issued in the PIPE Financing pursuant to the terms of the Subscription Agreement, but not including Common Shares reserved in respect of the LeddarTech equity awards outstanding as of immediately prior to the Closing that were converted into awards based on Common Shares) collectively owned approximately 69.5% of the outstanding Common Shares immediately following completion of the Business Combination.
As restrictions on resale end and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the Company’s share price or the market price of Common Shares could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
We need to raise substantial amounts of additional capital to address our liquidity needs and to realize our operational goals. The issuance of additional shares of the Common Shares would result in dilution of our shareholders and could have a negative impact on the market price of Common Shares.
In order to address our liquidity needs and to realize our operational goals without materially reducing our operational costs, the Company needs to raise substantial amounts of additional capital, which may include the issuance of additional equity securities. To the extent this occurs, it could impose significant dilution on our shareholders.
Any issuances of additional Common Shares would result in dilution of our shareholders and could have a negative impact on the market price of Common Shares and our ability to obtain additional financing.
For example, on April 8, 2024, in furtherance of addressing our liquidity needs, the Company entered into the SEPA with Yorkville, pursuant to which the Company has the right from time to time to issue and sell to Yorkville, up to US$50.0 million in Common Shares over the course of 36 months after the date of the SEPA. The SEPA Registration Statement covers the (i) up to 19,836,637 SEPA Advance Shares that we may, in our discretion, elect to issue and sell to Yorkville from time to time and (ii) 163,363 SEPA Commitment Shares that we issued to Yorkville in satisfaction of an upfront commitment fee under the SEPA. Through December 17, 2024, we issued a total of 5,490,000 Common Shares under the SEPA for gross proceeds of approximately US$9.0 million, leaving available 14,346,637 Common Shares available for sale under the SEPA Registration Statement. Without giving effect to any other potential future issuance other than pursuant to the SEPA, and assuming that the issue price for such sales is US$1.41 per share (the closing price on December 17, 2024), additional issuances up to the remaining US$41.0 million under the SEPA would represent in the aggregate approximately 29,078,014 million additional Common Shares or approximately 82% of the total number of Common Shares outstanding as of December 17, 2024, after giving effect to only such issuance. The timing, frequency, and the price at which we issue Common Shares are subject to market prices and management’s decision to sell Common Shares, if at all. For more information, see “Item 5. Operating and Financial Review and Prospects—Liquidity and capital management — Financing Transactions — Standby Equity Purchase Agreement.”
Our Common Shares have a short trading history on Nasdaq. An active trading market for our Common Shares may not be sustained and the market price of our Common Shares may be volatile.
Although our securities are listed on Nasdaq, the market for our Common Shares has demonstrated varying levels of trading activity. Prior to the listing, there was not a public market for any of our securities and the current level of trading may not be sustained in the future. The lack of an active market for our Common Shares may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.
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In addition, we cannot predict the price at which our Common Shares may trade on Nasdaq, and the market price of our Common Shares may fluctuate significantly in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on our Common Shares and our Common Shares may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of the Company’s securities may not recover and may experience a further decline.
Factors affecting the trading price of the Company’s securities may include:
| ● | actual or anticipated fluctuations in the Company’s quarterly financial results or the quarterly financial results of companies perceived to be similar to the Company; |
| ● | changes in the market’s expectations about the Company’s operating results; |
| ● | the public’s reaction to the Company’s press releases, the Company’s other public announcements and our filings with the SEC; |
| ● | speculation in the press or investment community; |
| ● | success of competitors; |
| ● | the Company’s operating results failing to meet the expectation of securities analysts or investors in a particular period; |
| ● | changes in financial estimates and recommendations by securities analysts concerning the Company or the market in general; |
| ● | operating and stock price performance of other companies that investors deem comparable to the Company; |
| ● | the Company’s ability to market new and enhanced products on a timely basis; |
| ● | changes in laws and regulations affecting the Company’s business; |
| ● | commencement of, or involvement in, litigation involving the Company; |
| ● | changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt; |
| ● | the volume of shares of the Common Shares available for public sale; |
| ● | any major change in the Company’s board or management; |
| ● | sales of substantial amounts of Common Shares by the Company’s directors, officers or significant shareholders or the perception that such sales could occur; and |
| ● | general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, breakouts of pandemics and epidemics and acts of war or terrorism. |
Broad market and industry factors may materially harm the market price of our Common Shares irrespective of the Company’s operating performance. The stock market in general and Nasdaq specifically have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our Common Shares, may not be predictable. A loss of investor confidence in the market for the stocks of other companies that investors perceive to be similar to the Company could depress its stock price regardless of its business, prospects, financial conditions or results of operations. A decline in the market price of our Common Shares also could adversely affect its ability to issue additional securities and its ability to obtain additional financing in the future. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert the Company’s management’s attention and resources, and could also require the Company to make substantial payments to satisfy judgments or to settle litigation.
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Nasdaq has notified the Company that the Company is not in compliance with certain continued listing requirements, and if we are unable to regain compliance with the listing requirements of the Nasdaq Global Market, our Common Shares may be delisted from the Nasdaq Global Market which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.
Our Common Shares are listed on the Nasdaq Global Market, and we are therefore subject to its continued listing requirements, including requirements with respect to the market value of publicly-held shares, market value of listed shares, and minimum bid price per share, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq Global Market.
On July 31, 2024, we received notice (the “Minimum Bid Price Notice”), from Nasdaq that we are not currently in compliance with the US$1.00 minimum closing bid price requirement of Nasdaq Listing Rule 5450(a)(1). The Minimum Bid Price Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(i), we have until January 25, 2025 to regain compliance with the minimum bid price requirement by having the closing bid price of our Common Shares meet or exceed US$1.00 per share for at least ten consecutive business days. If we do not regain compliance with the minimum bid price requirement by January 25, 2025, we may be eligible to transfer the listing of our Common Shares from the Nasdaq Global Market to the Nasdaq Capital Market if, at the time of such transfer, we meet the initial listing requirement for market value of publicly held shares (US$1.0 million) and all other initial listing standards for the Nasdaq Capital Market (except for the minimum bid price requirement) and provide Nasdaq with written notice of our intention to cure the minimum bid price requirement deficiency. In response, Nasdaq may provide us an additional 180 day period to satisfy the minimum bid price requirement. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are not eligible, Nasdaq will provide notice to us that our Common Shares will be subject to delisting as described below.
On August 5, 2024 we received notice (the “Minimum Market Value of Publicly Held Shares Notice”), from Nasdaq that we are not currently in compliance with the US$15.0 million minimum market value of publicly held shares requirement of Nasdaq Listing Rule 5450(b)(2)(C). The Minimum Market Value of Publicly Held Shares Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(D), we have until February 3, 2025 to regain compliance with the minimum market value of publicly held shares requirement by having the closing market value of publicly held shares meet or exceed US$15.0 million for at least ten consecutive business days.
On August 5, 2024 we received notice (the “Minimum Market Value of Listed Securities Notice”), from Nasdaq that we are not currently in compliance with the US$50.0 million minimum market value of listed securities requirement of Nasdaq Listing Rule 5450(b)(2)(A). The Minimum Market Value of Listed Securities Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(C), we have until February 3, 2025 to regain compliance with the minimum market value of listed securities requirement by having the closing market value of listed securities meet or exceed US$50.0 million for at least ten consecutive business days.
The foregoing notices had no immediate effect on the listing of our Common Shares and our Common Shares will continue to trade on the Nasdaq Global Market under the symbol “LDTC” at this time.
If we fail to regain compliance with any such requirements during the applicable compliance periods, we will receive notification from Nasdaq that our Common Shares are subject to delisting. At that time we may then appeal the delisting determination to a hearings panel. Such notification will have no immediate effect on our listing on the Nasdaq Global Market, nor will it have an immediate effect on the trading of our Common Shares pending such hearing. There can be no assurance, however, that we will be able to regain compliance with each of Nasdaq’s minimum market value of publicly held shares requirement, Nasdaq’s minimum market value of listed securities requirement, and Nasdaq’s minimum bid price requirement. If we regain compliance with each requirement, there can be no assurance that we will be able to maintain compliance with the continued listing requirements for the Nasdaq Global Market, or that our Common Shares will not be delisted from the Nasdaq Global Market in the future. In addition, we may be unable to meet other applicable listing requirements of the Nasdaq Global Market, in which case our Common Shares could be delisted notwithstanding our ability to demonstrate compliance with the minimum market value of publicly held shares, minimum market value of listed securities and the minimum bid price requirements.
Delisting from the Nasdaq Global Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our Common Shares. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities. Moreover, a delisting of our Common Shares could result in an event of default under our outstanding debt.
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If we are delisted from the Nasdaq Global Market and we are not able to list our Common Shares on another exchange, our Common Shares could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:
| ● | a limited availability of market quotations for our securities; |
| ● | a determination that our Common Shares are a “penny stock” which will require brokers trading in our Common Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and little or no analyst coverage for us; |
| ● | we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws; and |
| ● | a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form F-3) or obtain additional financing in the future. |
Recent market volatility could impact the stock price and trading volume of the Company’s securities.
The trading market for Common Shares could be impacted by recent market volatility, which volatility was greater in the technology industry. While the Company does not believe that it is more likely to be affected by market volatility than other public companies, recent stock run-ups, divergences in valuation ratios relative to those seen during traditional markets, high short interest or short squeezes, and strong and atypical retail investor interest in the markets may impact the demand for Common Shares.
A possible “short squeeze” due to a sudden increase in demand of Common Shares that largely exceeds supply may lead to price volatility in Common Shares. Investors may purchase Common Shares to hedge existing exposure or to speculate on the price of Common Shares. Speculation on the price of Common Shares may involve both long and short exposures. To the extent aggregate short exposure exceeds the number of Common Shares available for purchase, investors with short exposure may have to pay a premium to repurchase Common Shares for delivery to lenders. Those repurchases may in turn, dramatically increase the price of Common Shares. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in Common Shares that are not directly correlated to the operating performance of the Company.
The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Province of Québec’s securities legislation. The Exchange Act and securities laws applicable in the Province of Québec require the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, we will incur significant legal, accounting and other expenses that the Company did not previously incur. Our entire management team and many of its other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage its transition into a public company.
These rules and regulations will result in the Company incurring substantial legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for the Company to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for the Company to attract and retain qualified people to serve on its board of directors, its board committees or as executive officers.
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We have previously identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, we may identify additional material weaknesses in the future.
A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the consolidated financial statements will not be prevented or detected on a timely basis. Prior to the completion of the Business Combination, the Company was a private company, and we addressed our internal control over financial reporting with internal accounting and financial reporting personnel and other resources. In the course of preparing for the Business Combination in fiscal year 2022, we identified material weaknesses in our internal control over financial reporting. As of September 30, 2024, we have remediated our material weaknesses previously identified in the fiscal years ended 2023 and 2022. See “— Item 15 “Controls and Procedures” for additional information about these material weaknesses and our remediation efforts.
These remediation measures may be time-consuming, costly, and might place significant demands on our financial and operational resources. Moreover, significant operating cost reductions may materially adversely impact our accounting and finance function, and make it more difficult to maintain our remediated internal controls over financial reporting and disclosure controls.
If we are unable to further maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within the required time periods could be adversely affected. This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the capital markets and adversely impact our stock price.
We cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404 of the Sarbanes-Oxley Act.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our software solutions to new and existing customers.
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Because the Company is a public reporting company by means other than a traditional underwritten initial public offering, our shareholders may face additional risks and uncertainties.
Because the Company is a public reporting company by means of consummating the Business Combination rather than by means of a traditional underwritten initial public offering, there is no independent third-party underwriter selling Common Shares, and, accordingly, the Company’s shareholders do not have the benefit of an independent review and investigation of the type normally performed by an unaffiliated, independent underwriter in a public securities offering. Due diligence reviews typically include an independent investigation of the background of the company, any advisors and their respective affiliates, review of the offering documents and independent analysis of the plan of business and any underlying financial assumptions. In an underwritten initial public offering, a due diligence investigation would be conducted by an underwriter that would be subject to strict liability for any material misstatements or omissions in a registration statement.
In addition, because the Company did not become a public reporting company by means of a traditional underwritten initial public offering, security or industry analysts may not provide, or be less likely to provide, coverage of the Company. Investment banks may also be less likely to agree to underwrite follow-on or secondary offerings on behalf of the Company than they might if the Company became a public reporting company by means of a traditional underwritten initial public offering, because they may be less familiar with the Company as a result of not having performed similar work during the initial public offering process or because of more limited coverage by analysts and the media. The failure to receive research coverage or support in the market for Common Shares could have an adverse effect on the Company’s ability to develop a liquid market for Common Shares.
The Company is an emerging growth company subject to reduced disclosure requirements, and there is a risk that availing itself of such reduced disclosure requirements will make its Common Shares less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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Once we lose our “emerging growth company” status, we will no longer be able to take advantage of certain exemptions from reporting, and we will also be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will incur additional expenses in connection with such compliance and our management will need to devote additional time and effort to implement and comply with such requirements.
We qualify as a foreign private issuer within the meaning of the rules under the Exchange Act, and, as such, is exempt from certain provisions applicable to United States domestic public companies. The Company could lose its status as a foreign private issuer in the future, causing it to incur substantial costs, time and resources.
Because the Company is incorporated under the laws of Canada, you may face difficulties in protecting your interests and your ability to protect your rights through the U.S. federal courts may be limited. As a result, it may be difficult for investors to effect service of process within the United States upon the Company’s directors or officers, or enforce judgments obtained in the United States courts against the Company’s directors or officers.
As a foreign private issuer, the Company is permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq listing standards.
The Company is subject to the Nasdaq corporate governance listing standards. However, the Nasdaq rules will permit a foreign private issuer like the Company to follow the corporate governance practices of the Company’s home country. Certain corporate governance practices in Canada, which is the Company’s home country, may differ significantly from the Nasdaq corporate governance listing standards. For instance, the Company will not be required to:
| ● | have a majority of the board be independent (although all of the members of the audit committee must be independent under the Exchange Act); or |
| ● | have a compensation committee and a nominating committee to be comprised solely of “independent directors.” |
However, though Canada does not require a majority of independent directors, the Company has a majority of independent directors in accordance with the Nasdaq corporate governance standards. Should the Company instead rely on the “foreign private issuer” exemptions, shareholders may be afforded less protection than they otherwise would enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
The by-laws of the Company that are in effect designate the Superior Court of Justice of the Province of Québec, Canada and the appellate courts therefrom as the exclusive forum for certain litigation that may be initiated by the Company’s shareholders, which could limit the Company’s shareholders’ ability to obtain a favorable judicial forum for disputes with the Company.
Our by-laws provide that, unless the Company consents in writing to the selection of an alternative forum and except as set out below, the Superior Court of Québec, Canada and the appellate courts therefrom will, to the fullest extent permitted by law be the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action or proceeding asserting breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company, any action or proceeding asserting a claim arising pursuant to any provision of the Canada Business Corporations Act (the “CBCA”) or the articles or by-laws of the Company, or any action or proceeding asserting a claim related to the relationships among the Company, its affiliates and their respective shareholders, directors or officers (other than the business carried on by the Company or its affiliates).
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Our by-laws provide that, notwithstanding the foregoing, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will have exclusive jurisdiction for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act. The exclusive forum provision in our by-laws will not apply to actions arising under the Securities Act or the Exchange Act.
Our by-laws further provide that any person or entity purchasing or otherwise acquiring any interest in shares of the Company is deemed to have notice of and consented to the provisions of the Company’s by-laws described above.
The forum selection provisions in our by-laws may increase a shareholder’s cost and limit the shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage lawsuits against the Company and the Company’s directors, officers and other employees. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation, memorandum and articles of association and/or equivalent constitutional documents has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find this provision in our by-laws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on the Company’s business, financial conditions and results of operations.
The Company may be or may become a passive foreign investment company (“PFIC”), which could result in adverse U.S. federal income tax consequences to U.S. Holders.
If the Company is a PFIC for any taxable year, or portion thereof, that is included in the holding period of a U.S. Holder, such U.S. Holder may be subject to certain adverse U.S. federal income tax consequences in connection with the ownership and disposition of Common Shares and Warrants. No assurance can be given as to whether or not the Company will be treated as a PFIC for its current taxable year. In addition, no assurance can be given as to whether or not the Company will be a PFIC in future taxable years. The Company has not determined whether it will provide U.S. Holders with this information to make or maintain a QEF election if it determines it is a PFIC and has not committed to make a determination as to whether it is a PFIC. U.S. Holders are urged to consult their own tax advisors regarding the possible application of the PFIC rules to the Common Shares and Warrants. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see “Item 10.E. — Taxation — Material U.S. Federal Income Tax Considerations to U.S. Holders.”
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ITEM 4. INFORMATION ON THE COMPANY
| A. | History and development of the Company |
General
The Company’s legal and commercial name is LeddarTech Holdings Inc. LeddarTech Inc. was incorporated under the laws of Canada in 2007. LeddarTech Holdings Inc. was incorporated under the laws of Canada on April 12, 2023. Prior to the Business Combination, LeddarTech Holdings Inc. owned no material assets and did not operate any business. Following the consummation of the Business Combination, all of LeddarTech Inc.’s business is conducted by LeddarTech Holdings Inc., into which LeddarTech Inc. amalgamated. The address of the registered office of the Company is 4535, boulevard Wilfrid-Hamel, Suite 240, Quebec G1P 2J7, Canada, and the telephone number of the Company is (418) 635-9000.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC which is accessible at http://sec.report. Since we are a “foreign private issuer,” we are exempt from the rules and regulations under the Exchange Act prescribing 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 with respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. public companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC an Annual Report on Form 20-F containing financial statements audited by an independent accounting firm.
The website address of the Company is https://www.leddartech.com. The information contained on the website does not form a part of, and is not incorporated by reference into, this Annual Report.
Development of the Company
Founded in 2007 as LeddarTech Inc., the Company is an automotive software company headquartered in Quebec City Canada, with other main development centers in Montreal and Tel Aviv and business development offices in various locations around the world.
Prior to 2020, we focused our business on software and signal processing for smart sensing solutions, and revenue came primarily from the sale of hardware modules and components for the ADAS market, which generally relied on object-level fusion. Recognizing the limitations of current object-level sensor fusion technology and the potential of artificial intelligence (“AI”)-based low-level fusion (“LLF”) software, in 2020 we identified and acquired a 60% controlling interest in VayaVision, an Israeli company that had developed a low-level sensor fusion and perception software stack that was very complementary to our developed software. As more fully described below, LeddarTech acquired the remaining 40% of VayaVision in November 2023, following which VayaVision became a wholly-owned subsidiary of LeddarTech.
In 2022, we made the strategic decision to divest our hardware business of modules and components to focus solely on fusion and perception software centered on AI-based LLF for ADAS and AD. Our advanced detection and ranging systems and solutions based on light (“LiDAR”) components business was discontinued in late 2022, and the winding down of our hardware modules business through a last-time buy process was completed in September 2024. We are retaining the IP related to these businesses and have established three intellectual property (“IP”) licensing agreements to date, monetizing these assets through one-time licensing fees and royalty fees on production of sensing products integrating our IP. In connection with this transition to an exclusive focus on fusion and perception software, we have reduced headcount by approximately 70 employees who were engaged primarily in engineering, system architecture, applications and product management functions related to our modules and components businesses, and we are selling remaining inventory and have recognized restructuring and other charges. See “Item 5. Operating and Financial Review and Prospects —Discontinued activities.” To date, we have not generated any material revenue under our new business model.
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Business Combination
See “Explanatory Note” and “Item 5. Operating and Financial Review and Prospects – Business Combination and Public Company Costs” in this Annual Report for additional information regarding the Business Combination.
| B. | Business Overview |
Prior to the Business Combination, LeddarTech Holdings Inc. did not conduct any material activities other than those incidental to its formation and the matters contemplated by the BCA, such as the making of certain required securities law filings. Following the consummation of the Business Combination, all of LeddarTech’s business is conducted by LeddarTech Holdings Inc. into which LeddarTech Inc. amalgamated.
We are at the forefront of the automotive industry evolution, from driver awareness to active safety and advanced autonomy. Our mission is to deliver high-performance AI automotive software that enables the market to deploy ADAS features reducing the number of road accidents and making transportation more enjoyable and efficient. We pursue our mission by developing innovative AI-based LLF and perception software technology, which closely replicates elements of human perception. We believe that AI-based LLF is the cornerstone of next generation ADAS and AD systems.
We offer a crucial piece of the software stack for ADAS and AD applications, which provides critical information about the surroundings of the vehicle, enabling the implementation of safety features such as collision avoidance, emergency breaking or steering and driver assistance for tasks such as parking or driving in traffic jams. This software-only solution seeks to solve the limitations in currently used systems, such as their inability to scale up efficiently and cost-effectively to the level of safety required to adhere to new regulations and to meet consumers’ expectations. Our software achieves this by providing an innovative environmental sensing software solution based on what is called “AI-based low-level” sensor fusion and perception, which is sensor and processor-agnostic. We have been developing and refining this innovative software solution for more than seven years and, as a result, have built a strong and defendable IP and technology moat that is recognized by industry leaders and that we believe has given us a first-mover market advantage. Our main target markets are automotive ADAS and AD applications for OEMs, automotive system integrators that are direct suppliers to OEMs, Tier 1 suppliers and Tier 2 suppliers.
We also collaborate closely with leading computing companies such as Arm Holdings plc (“Arm”) and Texas Instruments Incorporated (“Texas Instruments”) to deliver greater value through optimization of software and computing solutions, leveraging their customer base, market influence, and extensive sales organizations to enhance our ability to win business with our target customers. On December 6, 2024, we entered into a collaboration agreement (the “Collaboration Agreement”) and a software license agreement (the “License Agreement”) with Texas Instruments to deliver a comprehensive, integrated platform solution for ADAS and AD markets through a combined offering featuring our LeddarVision™ AI-based low-level sensor fusion and perception stack pre-integrated and validated on Texas Instruments’ TDA4 and TDA5 scalable portfolio of System-on-Chip (“SoC”) and Accelerators (the “Combined Offering”). The Combined Offering is expected to provide to OEM and Tier 1 customers a comprehensive solution of advanced tools, simulation capabilities, data sets, and cloud services support, as well as full lifecycle support from innovation to deployment. The Collaboration Agreement and the License Agreement arose out of the Company and Texas Instruments having worked closely together for nearly two years on technology integration and optimization to create an open, comprehensive, high performance and cost-efficient solution for ADAS and AD systems that can serve the entire automotive OEM landscape and their Tier 1 suppliers and meet customer and regulatory demands. We expect the pre-integration of LeddarVision™ on the TDA4 SoC to facilitate accelerated time to market. The Combined Offering is planned to be demonstrated at the CES 2025 conference in January 2025.
We believe that we are the first company to demonstrate an automotive-embedded, AI-based low-level sensor fusion and perception product. Our leadership is reflected in industry awards from CES Innovation Awards, TECH.AD Detroit, and Konnect Cariad, and our first-mover position is evidenced by substantial foundational intellectual property.
Led by a team with deep experience and expertise in AI, machine learning and automotive software development, we developed the LeddarVision™ LLF and perception software stack, which we believe enables higher performance and lower-cost ADAS for the automotive industry and automated operations for off-road vehicles. We are in various stages of discussion with OEMs and ADAS/AD system and component suppliers and system integrators, covering more than 30 design win opportunities in automotive and truck markets, some of whom are actively evaluating LeddarVision™ towards making a formal selection for their programs or end customer programs. We have previously publicly announced strategic collaborations with Tier 1 and Tier 2 suppliers in the automotive industry, covering intended deployment of LeddarVision™ in production vehicles for ADAS applications. See “— Customers” below and “Item 3.D. Risk Factors — Risks Related to Our Business — We have entered into strategic collaborations, but not yet signed commercial agreements, with Tier 1 and Tier 2 suppliers. If we fail to sign commercial agreements with those prospective customers, or to subsequently achieve an OEM design win with such customers, our future business, results of operations and financial condition would be adversely affected.”
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Leveraging the advantages of LLF, we believe LeddarTech delivers high perception performance with nearly 2x range and greater reliability, at a nearly 30-40% lower sensor cost, than current object-level fusion alternatives adopted today. Because LeddarTech’s LLF and perception software stack is centralized, sensor agnostic and scalable, it provides OEMs and Tier 1 suppliers a range of cost saving and design-flexibility benefits, including, but not limited to, the following:
| ● | reduced costs by allowing use of fewer and less expensive sensors, which no longer require integrated software; |
| ● | allowing inter-operability of sensors, thereby reducing dependency on single suppliers for sensors with integrated software; |
| ● | operability with varying numbers and types (camera, radar, LiDAR, sonar) of sensors, allowing for efficient use of a single software platform across multiple vehicle makes and models, which gives OEMs the ability to change or upgrade sensors without major recoding and AI retraining of fusion software; |
| ● | reduced processing requirements and greater processor flexibility, which lowers costs and power consumption, increasingly important features for electric vehicles; and |
| ● | capability for “over-the-air” and “backwards compatible” upgrades to meet evolving regulatory requirements and consumer demand. |
We believe that the industry’s evolution to accident avoidance will be powered by AI-based low-level sensor fusion and perception technology. That shift is underway, and LeddarTech’s software solution is well-positioned to drive vehicle manufacturers’ successful transition towards “software defined vehicles.”
Industry Overview
Approximately 95 percent of automobile accidents are caused by human failure. Regulators have begun to mandate that vehicle manufacturers overcome human shortcomings with automated driver assistance. Additionally, the automotive industry is shifting both from warning systems to active safety systems, and from a hardware-defined to a software-defined vehicle approach, reducing development and maintenance costs, accelerating development cycles and improving ability to update vehicles sold via field updates (e.g., servicing at dealerships or wirelessly with over-the-air updates). High independence and adaptability to hardware is becoming required for greater software reuse and the ability to support a broad range of past, current and future vehicles with common software components. This approach reduces development time and related testing costs.
ADAS enables improved driver performance and increased vehicle and road safety. These systems use sensors such as radar, camera, sonar and LiDAR to detect and compensate for driver errors to prevent deaths and injuries by reducing accidents. Typical applications include adaptive cruise control, pedestrian detection and avoidance, lane departure warning and correction; traffic sign recognition; automatic emergency braking, and blind-spot detection. These systems aim to reduce traffic injuries and fatalities and warn drivers or take action on hazards they may not be aware of. Today, most ADAS applications are vision-based and may use object-level fusion, which means the perception is done separately by each sensor. The main limitation of this approach is that no single sensor possesses sufficient information to support all situations and environments and the information is filtered at the sensor level which is not available for post-detection fusion. For example, high definition (“HD”) cameras do not measure depth, while distance sensors such as LiDARs and radars lack sufficient resolution. When sensor data is not fused before the system makes a decision, the system may make that decision on limited or contradicting inputs. If an obstacle is detected by the camera but is not detected by the radar or LiDAR, the system may hesitate as to whether the vehicle should stop.
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Research from the American Automobile Association (“AAA”) published in 2020 demonstrated the limitations of vision-based and object-level fusion technology. Researchers in the study examined the frequency of glitches in ADAS utilizing a course of 4,000 miles of common driving scenarios. They found that, on average, there was a malfunction in these systems every 8 miles and they often failed to meet basic requirements, such as pedestrian identification. For example, these systems failed during lane departures and impending forward collisions. In fact, 73 percent of errors that occurred on public roads were linked to lane departure or driving too close to a guardrail or the center line. We believe that vision-only and object fusion-based architectures will struggle to meet increasing automotive regulations and consumer demands at reasonable costs.
Automotive ADAS Market Overview
Governments worldwide are introducing various initiatives to enhance road safety and encourage manufacturers to take steps to ensure vehicle safety. Consumer demand for easing driving tasks and an increased focus on safety also motivates the development and deployment of more ADAS content.
The Society of Automotive Engineering (SAE) International has defined six levels of automation, from no automation (Level 0) to full automation (Level 5). ADAS technologies, which rely on human oversight and intervention, are classified as Level 1 and Level 2 automation.
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The market is rapidly adopting and expanding the availability of Level 2 systems, which is projected for significant growth, while Level 3 systems have more recently started to reach the market.
Object-level fusion technology and other incumbent solutions, such as camera-only based solutions, have limited ability to scale from Level 1 to Level 2 and above due to poor performance across the various road and environmental conditions and due to the prohibitive cost of increasing the number of sensors and related computing costs. Additionally, the existing ADAS object-level fusion technology suffers from hardware dependence and limited performance. Leading industry players seek sensor fusion at scale and acknowledge the benefits of AI and low-level fusion.
“We need to successfully transition from classic, object-based sensor fusion to the more advanced approach of AI-based sensor fusion” Cristina Rico García, Ph.D., Head of Sensor Fusion at CARIAD.
“By fusing low-level detections centrally, the software can identify objects that would normally not be visible. This improves the reliability of detecting small, obscured or static targets. It also helps the system accurately identify and track multiple targets, such as those typically encountered in dense urban environments…” Aptiv, The Next-Gen ADAS Platform for Software-Defined Vehicles Whitepaper
At the same time, major industry leaders are moving away from single sensor to multi sensor platforms, with a number of OEMs having plans to include 25 or more separate sensors in their vehicles. Multi-sensor adoption by industry leaders is expected to drive greater demand for technologically superior low-level fusion. OEMs are in fact increasingly looking to migrate to software-defined vehicles, with software-defined vehicle development estimated to generate annual savings of approximately US$16.0 billion for automotive OEMs by 2030, according to a study by Roland Berger, a global consulting firm. Accordingly, OEMs expect to invest significantly in software solutions.
We believe that object-level fusion will be unable to economically scale to meet upcoming performance requirements and this creates a significant market opportunity as the benefits of low-level fusion increase with the complexity of the system. The Company is targeting that growing market with a view to winning OEM and Tier 1 programs to develop improved Level 2 and above ADAS systems, displacing vision-only and object fusion solutions. In 2019, 70% of vehicles sold had no automation, 21% had Level 1 systems, and 9% had Level 2 systems. By 2025, McKinsey expects the percentage of vehicles sold with Level 2 systems to increase to 43%, and by 2030, the percentage of vehicles sold with Level 2 and above systems to increase to 64%, with only 17% of vehicles sold having no automation.
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This anticipated growth directly translates to the ADAS software market, which was estimated at US$15.0 billion in 2020 according to a McKinsey report and is projected to reach US$42.0 billion by 2030, representing a compound annual growth rate (CAGR) of 11%. The ADAS software market can be further broken down into sub-categories, and the following table presents the areas we are currently targeting, representing approximately US$8.9 billion of the projected US$42.0 billion total in 2030. The remaining US$33.0 billion largely represents integration, testing, and validation efforts performed by customers.
| Market Size, US$ million | ||||||||||||||||
| Category | 2020 | 2025 | 2030 | 2035 | ||||||||||||
| Sensor Fusion | 292 | 970 | 1,149 | 2,140 | ||||||||||||
| Mapping & Localisation, SLAM | 272 | 1,019 | 1,574 | 3,582 | ||||||||||||
| Object Detection and Classification | 1,370 | 3,888 | 4,548 | 7,896 | ||||||||||||
| Path Planning | 380 | 1,280 | 1,586 | 3,051 | ||||||||||||
| Total | 2,314 | 7,157 | 8,857 | 15,240 | ||||||||||||
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ADAS systems have been deployed for several years already. Most car owners are already familiar with simple features like blind spot warning, front collision warning, and emergency braking, while advanced systems like Tesla’s Autopilot and GM’s Super Cruise are providing more advanced assistance features such as automated lane change, which control steering, acceleration, and braking functions of the vehicle. As highlighted by the tests performed by the AAA, however, these current systems still fail in relatively common and simple conditions. Moreover, the most advanced systems today are limited in their operating domains. For example, certain OEMs recommend car owners not to use such systems during difficult or uncertain driving conditions, such as in slippery or adverse weather conditions or when lane markings visibility is poor, among others.
The challenge to improve these systems is not only technological but economical. Performance and robustness must be improved while limiting the increase in the cost of sensors and computing, which are some of the most significant costs for those systems. ADAS is also only one of several functions of the vehicle contributing to significant growth in software content. The success of vehicle manufacturers is increasingly dependent on software, which leads to greater complexity and new challenges as the industry has historically been hardware centric. Vehicle manufacturers and their suppliers must adapt quickly to develop and deploy new software-enabled products, services and the corresponding processes and infrastructure required for managing software upgrades. The industry needs to change how they design vehicles and the vehicle architectures themselves. Most vehicle manufacturers are now transitioning to a software-defined vehicle approach, where the software architecture has priority, and the hardware is designed to satisfy the software platform requirements. One of the objectives of the software-defined vehicle approach is to have much greater adaptability to different hardware components, reducing the development and maintenance cost of software-centric systems.
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A secondary market that we address is off-road vehicles in industries such as agriculture, construction and mining. We estimate our addressable market to be approximately US$466.0 million by 2025 and approximately US$720.0 million by 2030 (approximately 9.1% CAGR). These markets have applications with shorter term needs for higher levels of automated driving with business cases with lower cost sensitivity to the ADAS market but which have high requirements on performance. Low-level sensor fusion similarly provides increased accuracy in understanding the environment around the vehicle and higher adaptability and flexibility. Given the good product/market fit and that we can address this market with the same base platform we are developing for the ADAS market, our strategy to allow our resources to reach this market is to work with system integrators acting as our channel thereto.
Our Products and Technology; the LeddarTech Solution
With ADAS and AD functions, reliable and accurate perception of the environment is critical to enable safe driving decisions. The information output from each sensor must be fused without filtering at the sensor level to more efficiently recreate the perceived environment and provide better and more reliable operation. The LeddarVision™ AI-based sensor fusion and perception solution provides an innovative approach to understanding the vehicle’s changing environment with LLF. The LeddarTech software solution encompasses 3D reconstruction, AI and computer vision to convert sparse data into a more precise 3D environmental model, contributing to improving the perception system’s performance.
LeddarVision™ consists of a software platform that enables multiple solutions for entry- to premium-level ADAS applications, each utilizing LeddarTech’s AI-based LLF software technology. Our software solutions combine sensor modalities, pushing the performance envelope far beyond object-fusion based ADAS solutions and increasing the effective range performance of sensors. We currently offer one solution for forward direction ADAS applications, called LeddarVision™ Front — Entry-Level (“LVF-E”). The LVF-E software product family is a comprehensive fusion and perception software stack supporting entry-level ADAS safety and highway assistance L2/L2+ applications. We also have the LeddarVision™ Surround View Solution (“LVS-2+”), which enables additional capabilities to the forward direction solutions, such as automated lane change and overtaking.
Our roadmap also includes design of parking and ADAS/AD in broad operating design domains (various weather conditions, road types and countries for example), in order to further address our customers needs. These applications are designed for the European New Car Assessment Programme’s (“EURO NCAP”) five-star rating system and General Safety Regulation 2022 (“GSR 2022”), as our OEM and Tier 1/Tier 2 target customers require. Our continued development of tailored software solutions will focus on high-volume automotive applications. We believe this approach allows us to address applications in both automotive and off-road markets efficiently.
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LeddarVision™ Front — Entry-Level (LVF-E)
The LVF-E is part of the LeddarVision™ Front-view (LVF) base family of LLF and perception software solutions covering 1V2R (one camera + two radars, noted as LVF-E) to 1V5R (one camera + five radars) sensor configurations. LVF-E targets L2/L2+ ADAS supporting EURO NCAP and GSR 2022 safety and in-lane highway assist applications.
Relative to object level fusion, LeddarTech’s LLF technology doubles the effective range of sensors, providing 150 meters of object detection coverage with 1V2R configuration built on low-cost sensors, consisting of a single wide field-of-view (“FoV”) (120°) front camera and two short-range front corner radars. The LVF-E software stack targets low-cost Electronic Control Units with deep-learning acceleration engines. LVF-E is the first to market LLF and perception implemented on TI’s TDA4-VE (8TOPs) low-cost SoC.
LVF-E implements a complete AI-based fusion and perception software stack handling sensors’ interface, calibration and synchronization, sensor fusion, object detection and classification, continuous tracking and stabilization, road model, speed traffic signs detection, vehicle odometry interface and ego-motion localization, providing a rich, real-time 3D comprehensive environmental model of the vehicle’s surroundings and application programming interface to L2/L2+ ADAS applications.
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LeddarVision™ Surround View Solution (LVS-2+)
The LVS-2+ is part of the LeddarVision™ Full Surround-view (LVS) family of LLF and perception software solutions covering 5V5R (five camera + five radars) and above sensor configurations. LVS-2+ integrated with LeddarTech’s LeddarVision™ Parking (LVP) technology into LeddarVision™ Unified (LVU) provides a single and unified software architectural approach, targeting L2/L2+ ADAS, supporting EURO NCAP and GSR 2022 safety and highway/urban assist and parking assist/automated parking applications. The Full Surround-view enhances support to traffic jam assist and highway assist ADAS applications, enabling automated lane changes, overtaking and extended speed range and ACC (typ 160kph and above). The LVS family can efficiently scale down to support Extended Front-view slim and lower cost 2V4R and 2V5R sensor configurations in the market.
LeddarTech’s LLF technology extends the effective range of sensing, providing 200 meters of object detection coverage with a single wide FoV (120°) 3 Mpx resolution (or better) front camera, single medium range radar (MRR) and two short-range front corner radars (SRRs). Adding four surround view cameras with wide FoV (195°) 2-3Mpx resolution and 2 back SRRs extends the back coverage to 100 meters and side front/back view coverage to 100 meters, providing enhanced Lane Change Assist support to the slim sensor configuration, typically provided by legacy premium solutions with more inflated sensor count (11V5R). The four additional Surround-view cameras also provide extended support to parking assist in the LVU unified configuration. The LVS-2+ software stack targets Electronic Control Units with 32 trillion operations per seconds and above deep-learning acceleration engines such as TI’s TDA4-High SoC.
LVS-2+ implements a very high-performance premium fusion and perception stack handling sensors’ interface, calibration and diagnostics, sensor synchronization, sensor fusion, object detection and classification continuous tracking and stabilization, trajectory prediction, road model, comprehensive traffic signs detection and traffic light detection, vehicle odometry interface, and ego-motion localization. Perception is extendable to include advanced unclassified objects and events (e.g., drivers cutting into traffic) free space detection, perception decomposition, ODD analysis, sensor coverage, and health monitoring.
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3D Red, Green, Blue plus Depth (“RGBD”) Modeling
LeddarVision™ integrates raw sensor data to generate a 3D RGBD model and incorporates 3D reconstruction to enrich and add robustness to the model. In addition, sensor data is fused intelligently, adding temporal information (i.e., information from multiple frames) and more accurate representations of a single measurement (i.e., multiple measurements of a single object enable reducing the measurement error). The 3D RGBD model allows the use of different sensors’ brands, resolutions and positioning without modifying the algorithms and reduces the testing, verification and validation required for the system when using a different set of sensors.
While the LeddarVision™ low-level fusion software solutions use raw data to construct an accurate RGBD 3D point cloud, proprietary upsampling algorithms enables the software to increase the sensors’ effective resolution. This breakthrough enhances lower-cost sensors and provides a high-resolution understanding of the environment. For example, this method can be applied for low-density scanning LiDARs, enabling the use of a lower-cost scanning LiDAR, e.g., with 32 beams, instead of an expensive high-density 64-beam LiDAR, to achieve the required performance. The sample results of the 3D reconstruction algorithm for a camera and lower-cost LiDAR are shown in the below image. The top picture represents the camera-only frame, the lower left the original LiDAR point cloud and the lower right the LeddarVision™ 3D reconstruction with upsampling.
The RGBD model created through low-level fusion is sent to a state-of-the-art “RGBD object detection” module that detects 3D objects in a 4-D domain. Meanwhile, the free space and road lanes are identified and accurately modeled in three dimensions, leading to an accurate geometric occupancy grid. This bird’s-eye-view grid of the world surrounding the vehicle is more accurate than using a camera-alone estimator. In addition, the RGBD model allows very accurate key point matching in 3D space, thus enabling very accurate ego-motion estimation. The LiDAR measurements on the static objects are accumulated over time, which allows the allocation of a larger portion of the distance measurements to moving targets. The acquired LiDAR measurements are further interpolated based on similarity cues from the HD image.
With its novel approach based on AI and proprietary IP, LeddarVision™ improves all aspects of the perception outcomes.
Ability to Add Enhanced Features
Our platform enables updates and enhancements to our software solutions, including the ability to expand the domain capabilities of our software solutions, such as being able to market our software solution for use in snow conditions. This ability to offer over-the-air updates to meet expanding consumer demand and evolving regulatory requirements makes our solution more attractive to our target market and may increase revenue generating opportunities for our core software solution.
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Our Competitive Strengths
We believe the following strengths position the Company for continued leadership in, and to capitalize on the opportunities for, providing sensor fusion and perception software solutions to the automotive ADAS and AD market:
| ● | Higher performance than competing solutions. As the market demand grows for safer and more efficient ADAS and AD solutions, LeddarTech’s disruptive AI-based LLF and perception software solution differentiates itself in the market through several years of investments in a low-level fusion solution, rather than legacy object-level fusion. LeddarTech’s solution is hardware independent and software-only. OEMs and Tier 1 and Tier 2 suppliers are increasingly requiring LLF, which favorably positions the Company. LeddarVision™ software processes sensor data at a low-level, before filtering, to efficiently achieve a more reliable understanding of the vehicle’s environment required for navigation decision making and safer driving. Low-level sensor fusion utilizes all the raw information output from each sensor without filtering at the sensor level for better and more reliable operation. As a result, this low-level sensor data fusion and perception solution provides superior performance, surpassing object-level fusion limitations in adverse scenarios like occluded objects, objects separation, camera/radar false alarms, blinding light (e.g., sun, tunnel) or distance/heading estimation. |
| ● | Lower costs than object-level fusion alternatives. LeddarTech’s LLF and perception software stack requires fewer sensors and lower computing requirements, and provides sensor cost savings of up to 30-40% in comparison to object-level fusion. In contrast to object-level fusion’s reliance on a high number of sensors, which number is expected to increase with the complexity of the driving automation level, by combining the raw data from all sensors through a unified software platform that reuses trained algorithms, LLF delivers higher performance, such as nearly doubling the effective range, with fewer and less expensive sensors. |
| ● | Collaborations with leading computing core and SoC suppliers to demonstrate and deliver cost-effective software and computing solutions and accelerated ADAS system development. LeddarTech’s LLF and perception software stack has been implemented and demonstrated on SoCs that deliver a cost-competitive solution for ADAS systems, such as the Texas Instruments TDA4 family of SoCs. LeddarTech is also closely collaborating with Arm, leveraging their advanced CPU and accelerator technologies to provide a standardized ADAS software architecture, which can be easily adapted across various Arm-based automotive platforms, reducing the need for extensive customization. LeddarTech and Arm have optimized critical performance-defining algorithms for upcoming Arm CPUs and accelerator technologies which helps minimize computational bottlenecks and enhances overall system efficiency. By delivering a pre-optimized and pre-ported LeddarVision™, the software is ready for integration and offers OEMs a head start on development efforts, speeding up automotive development cycles, allowing vehicle manufacturers to bring new features to market faster. |
| ● | Decoupling of perception software from sensors hardware. Hardware dependence of current perception software means that any change in sensor position or characteristics requires significant perception software re-coding, training and testing to achieve required performance and safety. By decoupling its AI-based LLF and perception software from hardware vendors (sensors and computing), LeddarTech provides an architecturally light solution, with shorter development cycles, less data collection and AI retraining for OEM’s and lower costs than heavier architectures (e.g., multiple software stacks to maintain, train, verify, validate and certify). |
| ● | Standard, scalable solutions. LeddarTech’s AI-based and software-only solution seeks to solve the limitation in currently used systems that are unable to scale efficiently either across features, sensors and sensor positions that vary across brands and models, or up to the level of sensory awareness required to adhere to new regulations and meet consumers’ expectations. LeddarTech’s standard, hardware-independent solutions integrate well with different models and numbers of sensors. This results in a single software platform capable of serving multiple brands and models, minimizing customization efforts. Thus, LeddarTech offers flexibility to work with the sensor and computing platforms that best meet the needs and interests of customers, with computing, maintenance, sensor and processor costs expected to be nearly 50% lower than those of current entry-level systems. |
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| ● | Strong and defendable IP moat and recognized global leadership. LeddarTech has invested extensively in automotive software for over a decade and has developed significant IP and expertise, including over 170 patent applications (87 granted) that cover the spectrum from localization and tracking to signal acquisition, and from fusion and perception to upsampling algorithms that leverage the most advanced automotive AI software to efficiently reconstruct a high-definition, unified 3D model with context-aware algorithms. Significant investments have been made in data collection, annotation and associated tools, including dedicated test and data collection vehicles to support the training of deep neural nets for object classification. Our extensive IP portfolio and long-term research and investment contributes to limit development costs and accelerate time-to-market. LeddarTech also developed the models to calibrate, unfold and match the data from multiple sensors. Our first-mover position is reinforced by substantial foundational intellectual property. Leading companies in the ADAS and AD industry, including BMW, GM, Toyota, Cruise (GM), Baidu, Waymo, Motional, Huawei, Aptiv, Mobileye, Bosch, ZOOX (Amazon) and Luminar, have recognized the existence of our patents as prior art and we believe our portfolio to be fundamental to the field of ADAS and AD. We believe LeddarTech is the first to demonstrate an automotive-embedded, low-level sensor fusion product. Additionally, the automotive industry has affirmed our technical innovation and leadership with multiple industry awards, including, but not limited to, the following: |
| ● | CES Innovation Award, 2023 Consumer Technology Association, in recognition of LeddarTech’s innovative contributions to automotive sensing and perception technologies; |
| ● | First Prize, Sensor Fusion and Perception Category, 2022 Tech.AD Detroit, in recognition of LeddarVision™’s 3D Environment Simulation Dashboard that enables customers to experience the Company’s LeddarVision™ technology demonstrated in real-world scenarios; and |
| ● | Winner, Volkswagen Group Innovation Tel Aviv 2022 Konnect and CARIAD Startup Challenge, in recognition of its sensor fusion and perception technology, with CARIAD expressing enthusiasm for working with LeddarTech to create an AI safety-related proof of concept. |
Our Competition
There are two main types of competing perception solutions: (1) vision-based, joint-hardware solutions where fusion may be done at the object level (e.g. Mobileye, Qualcomm and Nvidia) and (2) vision-based software decoupled solutions where fusion may be done on one modality and at the object level (e.g., BaseLabs, Aptiv and AutoBrains, Phantom Ai, StradVision or Helm Ai). Object-level fusion solutions are highly dependent on proprietary sensor and processor hardware developed by those companies. Many competing providers of low-level fusion software offer solutions that are essentially vision-centric systems. As the automotive industry moves toward multi-sensory low-level fusion, OEMs and Tier 1 suppliers have not yet succeeded in developing in-house solutions. As an early mover in the low-level fusion space, we believe that LeddarTech is the only company that is processor independent, sensor agnostic, and will be offering an embedded multi-sensor modality low-level fusion and perception solution integrated in low-cost automotive-grade SoCs and ECUs.
Compared to existing competing offerings we believe that we have a strong and sustainable position with a highly advanced and hardware-independent low-level fusion and perception software solution. Our solution supports vehicle manufacturers and their ADAS system suppliers in their efforts to economically increase ADAS system performance and robustness while enabling software-defined vehicle architectures that will require abstraction between the software and hardware. Our LeddarVision™ software stack is a platform offering based on a unique and proprietary AI-based low-level fusion and perception architecture that works with many sensors and can be ported to any processor in zonal or centralized ADAS and AD system implementation. LeddarVision™ has been designed to enable modularity and flexibility to vehicle manufacturers and their tiered suppliers for the development of ADAS applications that are future-proof. LeddarVision™ would support over-the-air updates and backward compatibility through a single unified software architecture for entry-level ADAS feature, premium complex ADAS and AD features, and advanced parking assist and auto-park features being developed for the next generation of vehicles.
We expect our close collaborations with leading computing core and SoC vendors such as Arm and Texas Instruments to provide tangible benefits to our customers, with pre-optimized and pre-ported hardware and software solutions which provide higher performance, lower system cost, reduce the need for extensive customization, and accelerating development cycles. We believe these collaborations further improve and demonstrate our competitive positioning versus both types of competing solutions mentioned above, both from the perspective of the benefits the solutions deliver and from the perspective of market validation and support of well-established and recognized suppliers.
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Growth Strategies
In order to accomplish our business objective of solidifying our leading position in AI-based sensor fusion and perception solutions for the passenger and off-road vehicle markets, we pursue the following strategies:
| ● | Leverage competitive strengths, market growth and demand for higher performance and economical ADAS to acquire and increase partnerships with OEMs and Tier-1 suppliers, displacing vision-only and object fusion based solutions. In serving OEMs and Tier-1 suppliers with the development of ADAS, our main contribution is unique and proprietary AI-based low-level fusion and perception software stack and integration support. We believe we have significant market momentum with various OEMs and Tier-1 and Tier 2 customers across the globe thanks to our great technology-product-market-fit. The automotive ADAS market is already thriving and growing quickly and the market pull and regulations are driving OEMs and Tier 1s to deliver improved ADAS solutions. Regulators have begun to mandate that car manufacturers overcome human shortcomings with automated driver assistance. As OEMs continue to adopt and evolve (or to “standardize”) ADAS technology for new model launches, we expect to achieve additional customers wins with our innovative LeddarVision™ AI-based fusion and perception software stack, which is well-positioned to economically address regulatory requirements and improve road safety. Once a program is awarded, the supply is guaranteed for many years as long as the corresponding vehicle models are in production. It is also common for vehicle manufacturers to reuse solutions across new vehicle models once a solution is well-proven. These factors create an attractive long-term business case for the Company while creating a compelling investment opportunity. |
| ● | Leverage collaborations with computing core and SoC suppliers such as Arm and Texas Instruments to increase our customer value proposition and to accelerate customer acquisition through their extensive customer base, market reach, global organization and industry recognition. By delivering a pre-optimized and pre-ported LeddarVision™ on Arm cores and Texas Instruments’ SoCs, the software is ready for integration and offers OEMs a head start on development efforts, speeding up automotive development cycles, allowing vehicle manufacturers to bring new features to market faster. Combined with the market validation and support from these companies to promote the joint solutions to customers, this can accelerate adoption, integration and deployment of our software and accelerate our organic growth. In particular, Texas Instruments and LeddarTech are working together to pursue multiple design win opportunities through joint marketing and business development. |
| ● | Monetize potential for significant value in data collection. Currently, OEMs are seeking to capture enough data to shift from physical testing to a virtual testing environment (expediting development and reducing costs), and regulators have considered building safety standards emulating the aviation industry to address simulated data. AI-based LLF and perception software requires and collects more data in the validation process due to the statistical interdependency among sensors. As a market leader in AI-based LLF and perception with embedded software product available for customer integration, the Company has accumulated, and continues to accumulate, a substantial time-to-market moat. We expect this data and resulting insights to be highly valuable to OEMs, Tier 1 and Tier 2 suppliers and many other key stakeholders in the automotive industry. |
| ● | Leverage offroad vehicles or industrial markets. Although the automotive ADAS market is attractive, one downside is that development cycles are longer than other markets like offroad vehicles or industrial markets. These markets are more fragmented in terms of vehicle types and tasks to be automated. However, the development cycles and time to revenue may be shorter as many applications consist of retrofitting vehicles already in operation. Additionally, many applications have less stringent regulatory environments, which allows for shorter development time. For these reasons, we are addressing offroad vehicles as a secondary market segment by servicing system integrators who can integrate our software to quickly develop tailored solutions for automating vehicles for their end customers. We have found that the core platform can be leveraged for these applications and requires limited effort to tap into this market in parallel with the automotive ADAS market. |
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Our ability to execute on our strategy will be adversely affected if we have to implement our cost management plan. See “Item 3.D. Risk Factors — Risks Related to Our Business — Any significant reduction in headcount as part of the implementation of the Company’s cost management plan may have a material adverse effect on the Company’s operations and future prospects.”
Customers
As of December 17, 2024, we are engaged with over a dozen passenger car and truck OEMs representing total lifetime volume opportunity of over 30 million vehicles. Several of these engagements have either achieved or are nearing the stage of formal quotation towards achieving an OEM design win or award of a substantial proof of concept project.
We are also engaged with several leading Tier 1 suppliers (which include engineering service firms that offer ADAS system integration) with the aim to have strategic collaboration for participation in OEM requests for quotes, acting as system integrators, which is an important role to fulfill OEM needs toward the adoption of ADAS solutions based on our software. Two of these Tier 1s / engineering service firms are actively supporting LeddarTech bidding on OEM RFQs.
One publicly announced and key strategic Tier 1 collaboration is with FICOSA ADAS S.L. (“Ficosa”). Ficosa is a leading global Tier 1 supplier dedicated to the research, development, production, and marketing of systems and parts for the automotive and mobility industry, with a recognized expertise in automotive vision systems, image engineering and machine vision. Ficosa offers a range of products to cover all vehicle segments, including an independent rear-view camera, independent intelligent rear-view camera, surround view system and autopark system, producing more than 8 million rear-view cameras on an annual basis globally. We have achieved a Tier 1 design and integration win (as described in “— Business Model” below) and entered into a strategic collaboration with Ficosa for the development of a smart automatic parking assistant. Through this collaboration, Ficosa will integrate the LeddarVision™ software into Ficosa’s advanced driver assistance systems (ADAS) for parking, enabling the full potential of the LeddarVision™ software to be combined with Ficosa’s leadership in cameras and vision systems in the automotive sector.
Engagements with computing partners (SoC suppliers) are also key to LeddarTech’s go to market strategy, as OEMs are directly engaged with them in their process of selecting this foundational component of their ADAS system architecture. OEMs are also looking for SoC + software bundle solutions and close collaboration with these suppliers can significantly contribute to OEM design wins (OEM selection of LeddarTech’s software for their ADAS system). Publicly announced collaborations include Texas Instruments, Arm and Black Sesame and LeddarTech has made significant progress with these partners in the course of 2024, supporting business development activities including many of the above engagements with OEMs and Tier 1s.
Publicly available indications of this progress in 2024 include the following press releases, which can be read in full on our website (www.leddartech.com):
| ● | Texas Instruments: |
| ● | June 28, 2024 News: LeddarTech Releases Production Samples of the LeddarVision Front-Entry (LVF-E) Comprehensive Low-Level Fusion and Perception Software Featuring the Ti TDA4-Q1 Processor for L2/L2+ ADAS Applications. |
| ● | October 3, 2024 News & Event: LeddarTech Showcases LeddarVision at AutoSens Europe: AI-Driven Innovation Enhanced With TI Processors and Arm Collaboration. |
| ● | December 9, 2024 News: LeddarTech Announces Collaboration with Texas Instruments for Advanced Driver Assistance Systems and Autonomous Driving Solutions. |
| ● | Arm: |
| ● | March 11, 2024 News: LeddarTech Collaborates With Arm on Future-Ready Software-Defined Vehicles. |
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| ● | March 27, 2024 News: LeddarTech Strengthens Collaboration With Arm, Showcasing ADAS Innovations at Embedded World 2024 on April 9-11 in Nuremberg, Germany. |
| ● | September 2024: A Leap Forward in Automotive Safety with LeddarTech and Arm (published case study). |
| ● | October 3, 2024 News & Event: LeddarTech Showcases LeddarVision at AutoSens Europe: AI-Driven Innovation Enhanced With TI Processors and Arm Collaboration. |
| ● | Black Sesame: |
| ● | CES 2024 announcement: collaboration to provide a joint solution offering for the surround-view premium L2/L2+ ADAS/AD market segment, leveraging Black Sesame Technologies’ A1000 SoC and LeddarTech’s LeddarVision LVS-2+ surround-view premium highway assist and 5-star NCAP/GSR 2022 AI-based low-level fusion and perception stack. |
Beyond the above engagements and collaborations, we have also entered into a strategic collaboration with Trimble, a Tier 1 supplier developing solutions and services for agriculture, construction and mining applications. However, since the collaboration was established, Trimble completed an agreement to transfer its precision agricultural technology business (the division with which LeddarTech has a strategic collaboration) to a joint venture with AGCO Corp. Because there have been no activities in 2024 under this arrangement, we believe it is likely that the this strategic collaboration will be terminated in 2025. See “Item 3.D. Risk Factors — Risks Related to Our Business — We have entered into strategic collaborations, but not yet signed commercial agreements, with Tier 1 and Tier 2 suppliers. If we fail to sign commercial agreements with those prospective customers, or to subsequently achieve an OEM design win with such customers, our future business, results of operations and financial condition would be adversely affected.”
Business Model
As a software company, the Company’s business model is unique and is intended to deliver attractive margins. The Company provides a mix of:
| ● | Software solutions developed and licensed for passenger, commercial and off-road vehicles. |
| ● | Perception products developed using LeddarVision™ to accelerate adoption of applications for highway, city, surround and parking ADAS. |
| ● | Data insights that are incredibly valuable to OEMs, Tier 1 and Tier 2 suppliers and many other key stakeholders in the automotive industry. |
| ● | Services, including adaptation and integration engineering resources and ongoing software maintenance to help customers maximize the value they see through the technology. |
Our business model depends on the achievement of design wins to generate revenue. We invest significant effort and money developing our sensory software solutions to support ADAS or AD applications, developed by OEMs or Tier 1 suppliers, which will be incorporated in one or more specific vehicle models to be produced by the OEMs. We refer to the selection by a Tier 1 supplier of our software for inclusion in such ADAS or AD applications, for the purposes of submitting such applications to an OEM, as a “Tier 1 design and integration win.” We use the term “OEM design win” to refer to the selection by an OEM of our software, whether directly from us for integration in the ADAS or AD applications developed by the OEM, or through selection of a Tier 1 supplier’s ADAS or AD application integrating our software, for incorporation in specific vehicle models with identified SOPs.
We continue to develop our solutions and to engage with more than 30 Tier 1 suppliers and OEMs. As solutions become ready for commercialization, we anticipate entering into commercial agreements with Tier 1 suppliers and/or OEMs to license our solutions. The Company introduced its first software product to the market with the availability of the LeddarVision™ Front — Entry-Level, B engineering samples for customer evaluation and integration into ADAS L2/L2+ safety applications on June 28, 2023. Most recently, the company announced the availability of LeddarVision™ Surround View Solution (LVS-2+), B engineering samples for customer evaluation, at CES 2024. The LVS-2+ was developed on the Nvidia Orin embedded system, with the flexibility to be ported to other embedded platforms. At this point, we expect several of our current customer engagements will move from demand creation to deep-dive customer evaluations. We also expect to complete several proofs of concept (“POC”) and proof-of-technology (“POT) assessments with various customers out of which we expect to generate some non-recurring engineering revenues (“NRE”).
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We anticipate that our future revenues will be almost entirely generated by our fusion and perception business, and that they will be primarily comprised of NRE revenues, software evaluation sales based on unit sales, licensing fees, royalty payments on per unit sales and maintenance fees. However, we do not anticipate generating significant revenue from our fusion and perception business until such time as we are able to enter into commercial arrangements with Tier 1 suppliers and OEMs. Key operating metrics for assessing our performance are expected to include the number and nature of commercial agreements we enter into, negotiated payment arrangements prior to our solutions being included in production vehicles, and unit sales of production vehicles incorporating our solutions. Our software licensing business model is expected to generate licensing revenue based in part upon the number of vehicles using our solutions that are sold, as well as licensing rights to data created or collected by our solutions. We anticipate that the terms and conditions of any such licensing arrangements will vary among OEMs and Tier 1 suppliers, and we are not able at this time to predict the actual terms and conditions of such commercial agreements. See “Item 5. Operating and Financial Review and Prospects — Key Factors Affecting LeddarTech’s Performance.”
Intellectual Property
A major part of the Company’s future revenue is expected to be derived from software licensing. We rely on a four-pronged approach to protect our intellectual property, which approach was formalized at the beginning of the Company. Our IP was recognized as a valuable asset from the foundation of the Company, both internally with the management team and externally with the investors. The Company’s history as a spin-off from a research center contributed to that recognition.
First, from inception we continuously maintain an innovation program and steadfastly invested in filing patent applications that would be both fundamental and discoverable. As a result, our portfolio currently comprises 174 patents in 71 families, of which 87 are granted, and 87 are pending. This portfolio has solid anteriority (starting in 2006) and coverage in eight different countries or regions (Canada, the United States, the European Union, Japan, China, Korea, India and Brazil). We have successfully asserted our patent rights against one company, Phantom Intelligence Inc., in the Federal Court of Canada. We actively monitor the landscape for potential infringements via our external IP counsel.
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Second, we have expanded our IP portfolio through the strategic acquisition of companies, including VayaVision in 2020, as well as strategic IP assets. We, with the assistance of our IP counsel, have made significant investments in broadening the coverage of this portfolio, and we expect to file several divisional and continuation applications in the coming months. We also have a formal M&A process through which we periodically consider expansions to our portfolio.
Third, we actively manage our trade secrets, including software source code and datasets, through employee contracts, supplier and customer agreements and non-disclosure agreements.
Fourth, although our primary commercial model is business-to-business, we have, since the inception of the Company, aimed to create a recognizable brand identity; to that effect, we have six registered trademarks, including “Leddar” and “LeddarTech,” registered in Canada, the United States, the European Union, the United Kingdom, Japan, China and Korea.
As a result of this methodical IP asset management program, today our patent portfolio ranks high in the influence and impact scores in patent search tools. This is due to a number of factors, including the breadth of the claims and the aforementioned anteriority, but also due to the number of citations recorded during the prosecution process of various competitor patents. As part of this process the leading companies in the ADAS and AD industry, including BMW, GM, Toyota, Cruise (GM), Baidu, Waymo, Motional, Huawei, Aptiv, Mobileye, Bosch, ZOOX (Amazon) and Luminar, have recognized the existence of our patents as prior art. Because of this recognition, we consider our portfolio to be fundamental to the field of ADAS and AD.
Regulations and Safety Standards
ADAS is meant to reduce human errors that lead to vehicle accidents, with the goal of saving lives. Various regulators are charged with ensuring that such technology built into vehicles achieves this goal and does not present a hazard. These organizations are continually defining, refining, and mandating automotive testing and regulations worldwide. Therefore, car manufacturers must comply with regulatory requirements and follow relevant standards. Subsequently, the OEM imposes requirements on their suppliers, including the Company, who must be aware of the various standards and enforce them in our product development. Below are some of the key organizations involved in setting, maintaining, and in some cases, enforcing these standards.
The INVEST in America Act, passed in late 2021, requires the U.S. Department of Transportation to issue requirements and standards regarding vehicle safety technologies. The National Highway Traffic Safety Administration is a department within the US Department of Transportation, and they manage and enforce automotive-related safety standards, including those developed internally, as well as some external standards from SAE. In addition, they license foreign and domestic manufacturers to sell their vehicles within the USA, and they have the power to block the import of vehicles that do not meet the Federal Motor Vehicle Safety Standards.
Part of the United Nations, the United Nations Economic Commission for Europe fosters economic harmonization among nations. For example, in 2012, the UNECE’s World Forum for Harmonization of Vehicle Regulation established new regulations intended to improve passenger safety, including Lane Departure Warning Systems, Child Restraint Systems, and Advanced Emergency Braking Systems.
The European Commission, through its authority, plays an active role in developing the EU’s overall strategy, designing and implementing policies as well as being responsible for planning, preparing, and proposing new European laws. A significant regulation influencing ADAS is Regulation 2019/2144 of the European Parliament and of the Council of November 27, 2019, regarding approval requirements for motor vehicles and their trailers, and systems, components, and separate technical units intended for such vehicles, advancing general safety and the protection of vehicle occupants and vulnerable road users.
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The EURO NCAP has a five-star rating system that ranks the safety of vehicles for the benefit of consumers and vehicle fleet managers. They derive these results by conducting tests on their own and accredited proving grounds. Their rankings from 0 to 5 stars are defined on their website:
| ● | 0-star safety: Meeting type-approval standards so it can legally be sold but lacking critical modern safety technology |
| ● | 1-star safety: Marginal crash protection and little in the way of crash avoidance technology |
| ● | 2-star safety: Nominal crash protection but lacking crash avoidance technology |
| ● | 3-star safety: At least average occupant protection but not always equipped with the latest crash avoidance features |
| ● | 4-star safety: Overall good performance in crash protection and all-round; additional crash avoidance technology may be present |
| ● | 5-star safety: Overall excellent performance in crash protection and well-equipped with comprehensive and robust crash avoidance technology |
The Japan Automobile Research Institute (“JARI”) is a foundation dedicated to automotive research and testing. It is responsible for drafting and promoting standards in addition to researching methods of combining automotive and information technologies. Tests are performed at JARI’s Shirosato Test Center 120 km (75 miles) northeast of Tokyo, Japan.
The China Automotive Technology and Research Center is a scientific research institute that helps China manage its automotive industry. It is now a part of State-owned Assets Supervision and Administration Commission of the State Council. Among other things, they are involved with C-NCAP, C-ECAP, and proving ground testing.
The International Organization for Standardization (“ISO”) develops and publishes international standards for various technologies, including automobiles. ISO 26262 defines a risk classification system, also known as an automotive safety integrity level (“ASIL”), for the functional safety of road vehicles. ISO 26262 defines four levels: A is the lowest level of risk, and D is the highest. Systems including airbags and anti-lock brakes get the highest level since their proper function is critical to safety, whereas less critical systems such as brake lights rate an A level. Most customers we serve are developing systems that are either ASIL C or ASIL D. Because the ASIL system is subject to some interpretation, in 2015, SAE International wrote J2980, Considerations for ISO 26262 ASIL Hazard Classification. This standard was revised in 2018. SAE J2980 provides better guidance for assessing the risks defined in ISO 26262.
We follow ISO 26262 (functional safety) and ISO 21488 (safety of the intended functionality) as automotive standards applicable to our software with regards to functional safety in the automotive industry. We also follow the Agile V-Model process and methodologies that focus on iterative software development.
We have collaboration between teams and we keep making progress in implementing the automotive industry-standard guidelines based on the Automotive Software Process Improvement Capability Determination (“ASPICE”).
To effectively develop software that adheres to automotive standards, LeddarTech developed a hybrid approach that incorporates the best practices of the methodologies. This approach includes a development process that involves continuous integration and testing, and regular communication and collaboration between the development team, product owners, and other stakeholders. In addition, using automated testing tools, code reviews, and risk assessments ensures that software is developed according to the standards and is of high quality. Regular monitoring and tracking of progress can also help identify potential issues early on, allowing for quick and efficient resolution.
Overall, an effective software development process following ISO 26262 and Agile ASPICE methodologies requires a balance between safety and agility, focusing on continuous improvement and collaboration. LeddarTech has implemented a unified process for managing functional safety, Safety of the Intended Functionality (or ISO 21448:2021) and cybersecurity to comply with applicable standards.
In terms of security, we also apply the following standards, which are relevant to our activities and may be required by our customers: ISO 27001/TiSAX (organizational security), ISO21434 (road vehicles cybersecurity), ISO 24089 (road vehicles software) and AITF 16949 (automotive quality management).
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Another area of applicable regulations is data privacy. We collect data on public roads and environments, with sensors such as cameras, that capture a lot of information. Data privacy regulations vary in each jurisdiction where data collection is being conducted. For our current activities, the relevant regions are Israel, Europe and the province of Québec (Canada). In Québec, An Act to modernize legislative provisions as regards the protection of personal information, applies, Israel is subject to the Protection of Privacy Law, 5741-1981 and the Protection of Privacy Regulations (data security) 5777-2017, and Europe is subject to the GDPR. We will need to assess and comply with applicable regulations in all regions we choose to collect data in the future.
Legal Proceedings
We are, from time to time, subject to various claims, lawsuits, and other legal and administrative proceedings arising in the ordinary course of business. However, we do not consider any such claims, lawsuits, or proceedings that are currently pending, individually or in the aggregate, to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition, or cash flows.
C. Organizational Structure
The organizational chart of the Company after giving effect to the Business Combination is included on page 132 of our registration statement on Form F-4 (File No. 333-275381) (“Form F-4”) and is incorporated hereby reference.
D. Property, Plants and Equipment
The Company does not own any real property. Our corporate headquarters are in Québec City, Canada, where we lease about 12,936 square feet of office space pursuant to leases that expire between 2024 and 2028. Additionally, we have an office of about 6,400 square feet in Montréal, Canada which contains research and development (“R&D”) and G&A functions, for which the lease expires in 2026. Furthermore, we lease a garage facility of 2,295 square feet in Quebec City, Canada, pursuant to a lease that expires in 2025. We lease approximately 17,000 square feet of office in Or Yehuda, Israel, which contains R&D, operations, and G&A functions to a lease expiring in 2027. Finally, we rent a temporary office space on a month-to-month basis in Shenzhen, China, for our local sales team. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following management’s discussion and analysis (“MD&A”) provides information concerning the financial condition and results of operations of the Company at and for the fiscal years ended September 30, 2024, 2023 and 2022 (“FY2024”, “FY2023” and “FY2022”, respectively). This MD&A should be read in conjunction with the audited annual consolidated financial statements of the Company for FY2024, FY2023 and FY2022 (restated).
The financial information reported herein have been prepared in accordance with International Financial Reporting Standard (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and is presented in Canadian dollars unless otherwise stated.
All per share amounts reflect amounts per common share and are based on unrounded amounts. Certain figures, such as interest rates and other percentages included in this MD&A, have been rounded for ease of presentation and certain other amounts that appear in this MD&A may similarly not sum due to rounding.
In addition to historical financial information, this MD&A contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3.D. Risk Factors.” For more information about forward-looking statements, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
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The Company presents non-IFRS financial measures to assess operating performance. The Company presents net earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA (loss)”) and Adjusted EBITDA (loss). These non-IFRS measures do not have standardized meanings under IFRS and are not likely to be comparable to similarly designated measures reported by other corporations. The reader is cautioned that these measures are being reported in order to complement, and not replace, the analysis of financial results in accordance with IFRS. Management uses both measures that comply with IFRS and non-IFRS measures, in planning, overseeing and assessing the Company’s performance.
The terms and definitions associated with non-IFRS financial measures as well as a reconciliation to the most comparable IFRS measures are included below under “—Non-IFRS Financial Measures.”
Amendment and Restatement of the audited annual consolidated financial statements
Subsequent to the issuance of the audited annual consolidated financial statements for FY2022, errors with respect to the recognition of a government grant liability from an Israel-United States Binational Industrial Research and Development (“BIRD”) Foundation, the measurement and recognition of research and development costs and other item were identified. Accordingly, the consolidated financial statements for FY2022 were restated to reflect adjustments made as a result of this correction of errors. Refer to Note 2 of the audited annual consolidated financial statements of the Company for FY2023 for more details.
Company Overview
LeddarTech was formed in 2007 under the Canada Business Corporations Act (the “CBCA”) and is at the forefront of the automotive industry evolution, from driver awareness to active safety and advanced autonomy. Our mission is to deliver high-performance AI automotive software that enables the market to deploy ADAS features reducing the number of road accidents and making transportation more enjoyable and efficient. We pursue our mission by developing innovative artificial intelligence (“AI”) based low-level fusion (“LLF”) and perception software technology, which closely replicates elements of human perception. We believe that AI-based LLF is the cornerstone of the next generation of automotive advanced driver assistance systems (“ADAS”) and autonomous driving (“AD”) systems.
On June 12, 2023, LeddarTech Holdings Inc., a company incorporated under the laws of Canada entered into the Business Combination Agreement, as amended on September 25, 2023 (the “BCA”), by and among LeddarTech Holdings Inc., Prospector Capital Corp., a Cayman Islands exempted company (“Prospector”), and LeddarTech Inc., a corporation existing under the laws of Canada.
Unless otherwise indicated and unless the context otherwise requires, “LeddarTech” or “the Company”, at all times prior to consummation of the Business Combination, refers to LeddarTech Inc. and its consolidated subsidiaries, and at all times following consummation of the Business Combination, refers to LeddarTech Holdings Inc. and its consolidated subsidiaries.
Refer to the following section entitled “— Business Combination and Public Company Costs” and to Note 4 of the to the audited annual consolidated financial statements of the Company for FY2024 for more details.
Discontinued Activities
In connection with the transition to a “pure play” automotive software business model, in FY2022 we made the strategic decision to discontinue our LiDAR components and our modules businesses. In September 2024, the Company ceased its Modules operations and presented these operations as discontinued operations. The results of operations and cash flows related to these businesses are reclassified as discontinued operations in the consolidated statements of loss and comprehensive loss and cash flows. Refer to Note 7 to the audited annual consolidated financial statements of the Company for FY2024 for more details.
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Business Combination and Public Company Costs
On December 21, 2023 (the “Closing Date”), as contemplated in the BCA, Prospector, LeddarTech and Newco completed a series of transactions:
| ● | Prospector continued as a corporation existing under the laws of Canada (the “Continuance” and Prospector as so continued, “Prospector Canada”); |
| ● | Prospector Canada and Newco amalgamated (the “Prospector Amalgamation” and Prospector Canada and Newco as so amalgamated, “Amalco”); |
| ● | the preferred shares of LeddarTech converted into common shares of LeddarTech and, on the terms and subject to the conditions set forth in a plan of arrangement (the “Plan of Arrangement”), Amalco acquired all of the issued and outstanding common shares of LeddarTech from LeddarTech’s shareholders in exchange for common shares of Amalco having a negotiated aggregate equity value of $200 million (valued at $10.00 per share) plus an amount equal to the aggregate exercise price of LeddarTech’s outstanding “in the money” options immediately prior to the Prospector Amalgamation (the “Share Exchange”) plus additional Amalco “earnout” shares (with the terms set forth in the BCA); |
| ● | LeddarTech and Amalco amalgamated (the “Company Amalgamation” and LeddarTech and Amalco as so amalgamated, the “Company”); and |
| ● | in connection with the Company Amalgamation, the securities of Amalco converted into an equivalent number of corresponding securities in the Company (other than as described in the BCA with respect to the Prospector Class B ordinary shares) and each of LeddarTech’s equity awards (other than options to purchase LeddarTech’s class M shares) were cancelled for no compensation or consideration and LeddarTech’s equity plans were terminated (and the options to purchase LeddarTech’s class M shares became options to purchase common shares of the Company (the “Company Common Shares” or the “Common Shares”)). |
The Continuance, the Prospector Amalgamation, the Share Exchange, the Company Amalgamation and the other transactions contemplated by the BCA are hereinafter referred to as the “Business Combination”.
On June 12, 2023, concurrently with the execution of the BCA, LeddarTech entered into a subscription agreement (the “Subscription Agreement”) with certain investors, including investors who subsequently joined the Subscription Agreement (the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase secured convertible notes of LeddarTech (the “PIPE Convertible Notes”) in an aggregate principal amount of approximately US$44.0 million (the “PIPE Financing”). PIPE Investors in certain tranches of the PIPE Convertible Notes received at the time of issuance of such notes warrants to acquire Class D-1 preferred shares of LeddarTech (the “Class D-1 Preferred Shares” and the warrants, the “PIPE Warrants”). All of the PIPE Warrants were exercised, and the Class D-1 Preferred Shares issued upon exercise of the PIPE Warrants entitled the PIPE Investors to receive approximately 8,553,434 Common Shares upon the closing of the Business Combination. Accordingly, the PIPE Investors held approximately 42.8% of the 20 million LeddarTech common shares outstanding immediately prior to the Closing. The PIPE Convertible Notes are convertible into the number of Common Shares determined by dividing the then-outstanding principal amount by the conversion price of US$10.00 per Common Share. The PIPE Financing closed on the Closing Date after the Business Combination.
Prior to the Closing Date, holders of an aggregate of 855,440 Prospector Class A ordinary shares, par value $0.0001 per share (the “Prospector Class A Shares”) representing approximately 39% of the total Prospector Class A Shares then outstanding, exercised their right to redeem those shares for approximately $10.93 per share, or a total of approximately $9.3 million paid from Prospector’s trust account (the “SPAC Redemption”) in accordance with the terms of Prospector’s amended and restated memorandum and articles of association, as amended.
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Following the SPAC Redemption, and as part of a series of related steps in connection with the consummation of the Business Combination, Prospector distributed 1,338,616 Prospector Class A Shares to the holders on the Closing Date of the 1,338,616 Prospector Class A Shares that were not redeemed in connection with the Business Combination. Such distribution was not made with respect to any other Prospector or LeddarTech shares issued and outstanding prior to or upon consummation of the Business Combination.
On the Closing Date, the following securities issuances were made by the Company to Prospector’s securityholders following the SPAC Redemption and in connection with the above-referenced share distribution: (i) each outstanding Prospector Class A Share was exchanged for one Company Common Share, (ii) each outstanding non-voting special share of Prospector, a new class of shares in the capital of Prospector convertible into Prospector Class A Shares, was exchanged for one non-voting special share of the Company and (iii) each outstanding warrant of Prospector (the “Prospector Warrants”), which includes (A) 965,749 Prospector Warrants that were issued upon conversion of the amount accrued under Prospector’s convertible note with the Sponsor to finance Prospector’s transaction costs in connection with its initial business combination (the “Prospector Private Warrants”) and (B) Prospector Warrants that were listed on The Nasdaq Stock Market LLC (the “Prospector Public Warrants”), was assumed by the Company and became a warrant of the Company (“Legacy SPAC Warrant”). At such time, the Prospector Private Warrants became the “Private Warrants” and the Prospector Public Warrants became the “Public Warrants.”
On the Closing Date, following the SPAC Redemption and the foregoing issuances, LeddarTech’s shareholders immediately prior to the consummation of the Business Combination, including investors in the PIPE Financing, received Company Common Shares pursuant to the BCA representing approximately 69.5% of the Company Common Shares outstanding immediately following consummation of the Business Combination.
On December 22, 2023, the Common Shares and Public Warrants became listed on The Nasdaq Global Market (“Nasdaq”) under the symbols “LDTC” and “LDTCW”, respectively. As a consequence of the Business Combination, the Company has become an SEC-registered company listed on Nasdaq, which has required the Company to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. The Company expects to incur additional significant annual expenses as a public company.
Accounting Treatment
The Business Combination was accounted for as a reverse asset acquisition in accordance with IFRS since Prospector does not meet the definition of a business in accordance with IFRS 3. Consequently, the Business Combination was accounted for under IFRS 2 as it relates to the stock exchange listing service received and under other relevant IFRS standards for cash and other assets acquired. Under this method of accounting, Prospector was treated as the “acquiree” for accounting purposes, the net assets of Prospector are recognized at their fair value, and no goodwill or other intangible assets are recorded. In accordance with IFRS 2, the difference between the fair value of the consideration paid (i.e., Company Common Shares and Company Class A Non-Voting Special Shares issued to Prospector shareholders) over the fair value of the identifiable net assets of Prospector was represented a service for the listing of the Company and was recognized as an expense.
LeddarTech has been determined to be the accounting acquirer based on an evaluation of the following facts and circumstances, and accordingly the Business Combination is treated as an acquisition of the listing service and assets of Prospector.
| ● | LeddarTech’s shareholders prior to consummation of the Business Combination have the greatest voting interest in the Company with an approximately 69.5% voting interest; |
| ● | The largest individual minority shareholder of the Company was a shareholder of LeddarTech prior to consummation of the Business Combination; |
| ● | Senior management of the Company is composed of a majority of senior management of LeddarTech prior to consummation of the Business Combination; |
| ● | Directors of LeddarTech prior to consummation of the Business Combination form a majority on the board of directors of the Company; |
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| ● | LeddarTech is the larger entity based on historical total assets and revenues; and |
| ● | LeddarTech’s operations comprise the ongoing operations of the Company. |
Basis of presentation
LeddarTech acquired a 60% interest in VayaVision in July 2020. VayaVision’s assets, liabilities and results of operations are reflected in LeddarTech’s consolidated financial statements, with the non-controlling interests’ share of net assets and results of operations reflected on LeddarTech’s consolidated statement of financial position and consolidated statement of loss and comprehensive loss. In order to satisfy a condition to closing of the Business Combination that LeddarTech purchase the remaining 40% interest in VayaVision, and in accordance with the terms of the option agreement entered into by LeddarTech and the VayaVision shareholders at the date of acquisition, LeddarTech exercised its contractual right to purchase the remaining 40% interest in VayaVision on November 1, 2023. The consideration paid by LeddarTech was $57,724, consisted of 66,550 Common Shares, after payment of the applicable withholding tax, which will entitle the shareholders to receive 5,548 Common Shares. The founding shareholders from whom LeddarTech purchased the majority of the remaining shares in VayaVision demanded that LeddarTech provide a tax indemnity as a condition to the purchase. LeddarTech believes the demand for a tax indemnity is without merit based on the terms and conditions of the option agreement, and at LeddarTech’s request the share transfer was recorded in VayaVision’s share registry and the Israeli Registrar of Companies. LeddarTech believes that, if the founding shareholders were to pursue a claim, it would not have a material adverse effect on the Company’s business, financial condition or results of operation. Following acquisition of the remaining 40% interest in VayaVision, none of VayaVision’s assets or results of operations from the date of acquisition will be allocated to non-controlling interest.
Recent Developments
Strategic Collaboration Agreement and Software License Agreement
On December 9, 2024, we announced that LeddarTech and Texas Instruments have entered into a strategic collaboration agreement and a software license agreement to enable a comprehensive, integrated platform solution for ADAS and AD markets. Under the license agreement, the Company will receive a total payment of approximately US$10.0 million in advance royalties, with the potential for additional royalties over time. An initial payment of US$5.0 million has been received by the Company. A subsequent payment of US$3.0 million will follow the completion of the demonstrator, which is planned to debut at the Consumer Electronics Show in Las Vegas next month and the final US$1.9 million will be contingent upon the execution of a client contract with an original equipment manufacturer (OEM).
Issuance of Common Shares Under the SEPA Agreement
In December 2024, the Company issued 5,940,000 common shares under the SEPA agreement, generating net proceeds of US$9.0 million. For more details, refer to “— Financing Transactions — Standby Equity Purchase Agreement” below.
Bridge Financing
On August 16, 2024, the Company also entered into an agreement in principle with several of its principal shareholders and its principal lender pursuant to which such parties agreed to fund the Company with an aggregate of US$9.0 million in bridge debt financing in order to meet the Company’s near-term obligations (the “Bridge Financing”) while the Company continued to progress its discussions, including with certain potential strategic investors, to secure US$35.0 million or more in additional equity capital (the “Equity Financing”). On December 6, 2024, a second amendment was made to the Bridge Financing modifying among other things, the maturity of the bridge loan from November 15, 2024 to December 13, 2024, which date was automatically extended upon the disbursement by Texas Instruments to LeddarTech of the full first installment of the TI Pre-paid Royalty Fee, to the earlier of (a) January 31, 2025 and (b) the business day following the Short-Term Outside Date.
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In connection with the Bridge Financing, one of our existing investors converted US$1.5 million of its existing convertible notes into common shares in the capital of the Company at an above-market conversion price of US$2.00 per share, reducing the convertible note balance by US$1.5 million. The Company also received additional Bridge Loans in an aggregate amount of approximately US$0.3 million from certain members of management and the board of directors (collectively, the “Additional Bridge Lenders” and, together with the Initial Bridge Lenders, the “Bridge Lenders”) in accordance with the terms of the Bridge Financing.
For more details, refer to caption “Bridge Financing” of the section entitled “Financing Transactions” of this MD&A.
Desjardins Credit Facility
In order to allow sufficient time to finalize the definitive documents in connection with the Bridge Financing described above, the Company also has entered into a series of amendments with Fédération des caisses Desjardins du Québec (“Desjardins”) with respect to the Amended and Restated Financing Offer dated as of April 5, 2023 (as amended, the “Desjardins Credit Facility”). Pursuant to previous amendments to the Desjardins Credit Facility, the Company and Desjardins had temporarily reduced the Company’s obligation to maintain an unencumbered cash balance (the “Minimum Cash Covenant”) from $5.0 million to the current requirement of $250,000 through August 14, 2024. Pursuant to the Fourteenth Amendment, Desjardins had temporary suspended the minimum cash covenant until the earlier of (a) December 13, 2024, and (b) the date of disbursement to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee. After this date, the Company will be required to maintain a minimum cash balance of $1.0 million until the earlier of (a) the Short-Term Outside Date, and (b) January 31, 2025, and a minimum cash balance of $5 million at all times after such date. For more details, see “— Financing Transactions —Desjardins Credit Facility.”
Financial Highlights
| FY2024 | FY2023 | FY2022 | ||||||||||
| Continuing operations | ||||||||||||
| Revenues | 477,812 | 197,556 | 633,850 | |||||||||
| Gross profit | 477,812 | 197,556 | 554,225 | |||||||||
| Loss from operations | (164,329,669 | ) | (44,948,815 | ) | (85,922,905 | ) | ||||||
| Finance costs, net | 3,063,252 | (729,958 | ) | (10,067,497 | ) | |||||||
| Loss before income taxes | (167,302,856 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||
| Net loss and comprehensive loss | (167,318,738 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||
| Net loss and comprehensive loss attributable to Shareholders of the Company | (167,016,426 | ) | (40,409,465 | ) | (71,320,063 | ) | ||||||
| Loss per share | ||||||||||||
| Net loss per share (basic and diluted) (in dollars) | (7.33 | ) | (241.09 | ) | (528.64 | ) | ||||||
| Weighted average shares outstanding (basic and diluted) (in thousands of shares) | 22,774,782 | 167,610 | 134,913 | |||||||||
| EBITDA (loss)(1) | (157,229,931 | ) | (42,738,031 | ) | (73,962,491 | ) | ||||||
| Adjusted EBITDA (loss)(1) | (30,395,262 | ) | (34,815,026 | ) | (41,361,058 | ) | ||||||
| Discontinued operations | ||||||||||||
| Net income (loss) and comprehensive income (loss) and net income (loss) and comprehensive income (loss) attributable to Shareholders of the Company | 1,123,039 | (7,582,632 | ) | 2,001,215 | ||||||||
| Net loss per share (basic and diluted) (in dollars) | 0.05 | (45.24 | ) | 14.83 | ||||||||
| (1) | EBITDA (loss) and Adjusted EBITDA (loss) are non-IFRS financial measures. Refer to section entitled “Non-IFRS Financial Measures” for more details. |
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Key Factors Affecting LeddarTech’s Performance
Following our transition to the pure-play automotive software business model (“Pure-Play business”), including the divestment of our modules and components businesses (“legacy businesses”), our revenues will no longer include revenues for the sale of LiDAR hardware and sensor components, and related servicing revenue. The revenues related to the legacy businesses represented $7.5 million for FY 2024 compared to $7.2 million for FY2023. The Company ceased its Modules operations in September 2024 and the Company does not expect to have any additional activities in this legacy business in the future.
Going forward, the Company’s financial position and results of operations will depend to a significant extent on our ability to (i) develop and expand commercial relationships with OEMs and Tier-1 suppliers, (ii) expand our ADAS market presence and benefit from regulatory mandates, (iii) leverage offroad vehicles and industrial markets and (iv) monetize potential for significant value in data collection. See “Item 4.B. Business Overview — Growth Strategies” and “Item 4.B. Business Overview — Business Model.” Key factor affecting our performance are expected to include the number and nature of commercial agreements we enter into with Tier 1 and Tier 2 suppliers and OEMs, negotiated payment arrangements prior to our solutions being included in production vehicles, and unit sales of production vehicles incorporating our solutions.
To the extent we are able to develop and expand our commercial relationships with Tier 1 and Tier 2 suppliers and OEMs, we anticipate that our future revenues will be primarily comprised of Non-Recurring Engineering services (“NRE”) revenues from completed Proof of Concept (“POC”) and Proof of Technology (“POT”) assessments, software evaluation sales based on unit sales, licensing fees, royalty payments on per unit sales and maintenance fees. Our software licensing business model is expected to generate licensing revenue based in part upon the number of vehicles using our solutions that are sold, as well as licensing rights to data created or collected by our solutions.
The Company is subject to a covenant to maintain a minimum unencumbered cash balance of at least $5.0 million, temporarily reduced to $1.0 million, under the terms of the Desjardins Credit Facility, as more fully described below. While it is expected that receipt of the proceeds from the Bridge Facility and other sources of capital, including the SEPA and the TI Pre-paid Royalty Fee, may enable LeddarTech to comply with the Minimum Cash Covenant, LeddarTech may again in the future be unable to maintain the minimum cash balance. In order for the Company’s anticipated financial resources to be sufficient to meet its capital requirements for the 12 months following the date hereof, the Company will need to raise additional capital, and if it raises an insufficient amount of capital, the Company will need to seek relief from its lenders and reduce its operating costs to ensure sufficient liquidity for its operations and to comply with the requirements of its debt obligations. In connection with any cost reduction plans or activities, the Company will be required to incur cash and non-cash expenses. See “Item 3.D. Risk Factors — Risks Related to Our Business — LeddarTech has limited sources of available liquidity and if it does not raise additional capital is expected to operate under an alternative operating plan. A reduction in LeddarTech’s operating costs may materially adversely affect LeddarTech in a number of ways.”
Restructuring Activities
Potential Implementation of Cost Management Plan. As of September 30, 2024 the Company had a cash balance of approximately $5.3 million, of which approximately $5.3 million was unrestricted. As described above, pursuant to the Fourteenth Amendment of the Desjardins Credit Facility, Desjardins had temporarily suspended the Minimum Cash Covenant until the earlier of (a) December 13, 2024, and (b) the date of disbursement to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee. After this date, the Company will be required to maintain a minimum cash balance of $1.0 million until the earlier of (a) the Short-Term Outside Date and (b) January 31, 2025, and a minimum cash balance of $5 million at all times after such date. For more details, refer to “— Financing Transactions —Desjardins Credit Facility” below. Continued compliance with the terms of the Desjardins Credit Facility may require reaching an agreement with Desjardins to obtain further relief from the current Minimum Cash Covenant.
The Company will need to raise substantial amounts of additional capital beyond the Bridge Financing, pursuant to the Equity Financing or otherwise. If we are unable to raise additional capital, we will not be able to remain in compliance with the covenants in our debt instruments or meet our debt service obligations. If we are successful in raising additional capital but in amounts insufficient to support normal business operations, we expect that the Company would need to implement a cost management plan as deemed necessary and appropriate so that it can manage compliance with the terms of any waiver or modified minimum cash balance requirement that it is able to negotiate with Desjardins. The Company would then have to maintain operating costs at targeted levels to ensure operating costs will not exceed anticipated available liquidity. Such cost management actions may include a reduction in product development activities (a key driver of our cash expenditures), as well as potentially significant reductions in staffing and bonuses. If the cost management plan is fully implemented, we expect to incur cash charges of up to approximately $3.3 million in connection with the implementation of the cost management plan, primarily related to severance expense related to headcount reduction. If the Company is not successful in raising additional capital and/or is unable to satisfy the Minimum Cash Covenant or to agree with Desjardins to a reduction in the Minimum Cash Covenant, the cash available may not be sufficient to fully implement the cost management plan.
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If implemented, the cost management plan would be expected to focus most of the Company’s resources (financial and human) on customer acquisition and design wins based on our existing software platform and the features we have released to date and less resources on continuous product improvement or new product development. Successfully executing on our operating and cost management plans and maintaining an adequate level of liquidity, however, will be subject to various risks and uncertainties, including how successful we are at achieving design wins and production contracts, our ability to manage expenses and the availability of additional sources of funding and/or ability to refinance existing funding. Our internal forecasts and projections of working capital reflect significant judgment and estimates for which there are inherent risks and uncertainties. We expect to continue to generate significant operating losses in the foreseeable future. See “— Subsequent Events” and “Item 3.D. Risk Factors — Risks Related to Our Business — LeddarTech has limited sources of available liquidity and if it does not raise additional capital is expected to operate under an alternative operating plan. A reduction in LeddarTech’s operating costs may materially adversely affect LeddarTech in a number of ways.”
Components of Results of Operations
Revenues. Historically, our revenue has been generated from the sale of products LiDAR hardware and sensor components, and related servicing revenue. Following our transition to the Pure-Play automotive software business model, our revenues will no longer include revenues from these businesses (legacy businesses), and we expect our revenues to be primarily comprised of non-recurring engineering revenues, software sales based on unit sales, licensing fees and maintenance fees.
Gross Profit. Gross profit represents our total revenues, less cost of sales, which historically have consisted of materials, equipment and salaries and related expenses. Following our transition to the Pure-Play automotive software business model, we expect our cost of goods sold to be primarily comprised of salaries and related expenses, data acquisition and storage fees.
Operating expenses. Operating expenses have historically been comprised of selling, general and administrative, stock-based compensation and research and development costs. Following our transition to the Pure-Play automotive software business model, we expect our operating expenses to be comprised of the same items.
Other (income) costs. Other (income) costs historically have been comprised of grant revenue and costs. Following our transition to the Pure-Play automotive software business model, we expect our Other (income) costs to be primarily comprised of the same items.
Results of Continuing Operations
Comparison of Years Ended September 30, 2024 and 2023
Revenues
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Products | — | — | — | — | ||||||||||||
| Services and other | 477,812 | 197,556 | 280,256 | 141.9 | ||||||||||||
| Total | 477,812 | 197,556 | 280,256 | 141.9 | ||||||||||||
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For FY2024, total revenues were $0.5 million for FY2024, an increase of $0.3 million or 141.9% compared to FY2023, mainly due to the increase of revenues from services, primarily explained by higher engineering services rendered to strategic external collaborators during the process of developing our ADAS software for FY2024. The revenues from products were nil in FY2024 and FY2023 considering the reclassification of the legacy businesses as discontinued operations in the consolidated statement of loss.
Gross profit
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Gross profit | 477,812 | 197,556 | 280,256 | 141.9 | ||||||||||||
| As a percentage of total revenues | 100.0 | % | 100.0 | % | — | — | ||||||||||
For FY2024, the gross profit was $0.5 million compared to a gross profit of $0.2 million for FY2023. This increase of gross profit of $0.3 million or 141.9% as compared to FY2023 is primarily attributable to the increase in revenue.
Operating expenses
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Marketing and product management | 4,012,238 | 4,097,931 | (85,693 | ) | (2.1 | ) | ||||||||||
| Selling | 2,795,060 | 3,126,324 | (331,264 | ) | (10.6 | ) | ||||||||||
| General and administrative | 17,927,408 | 18,990,598 | (1,063,190 | ) | (5.6 | ) | ||||||||||
| Research and development costs | 7,448,080 | 11,253,670 | (3,805,590 | ) | (33.8 | ) | ||||||||||
| Stock-based compensation | 1,715,512 | 2,436,974 | (721,462 | ) | (29.6 | ) | ||||||||||
| Listing expenses | 59,139,572 | — | 59,139,572 | 100.00 | ||||||||||||
| Transaction costs | 2,407,977 | 3,506,630 | (1,098,653 | ) | (31.3 | ) | ||||||||||
| Restructuring costs | 46,387 | 1,734,244 | (1,687,857 | ) | (97.3 | ) | ||||||||||
| Impairment losses related to intangible assets | 69,315,247 | — | 69,315,247 | 100.0 | ||||||||||||
| Total | 164,807,481 | 45,146,371 | 119,661,110 | 265.1 | ||||||||||||
Marketing and product management
For FY2024, marketing and product management expenses were $4.0 million compared to $4.1 million for FY2023. The decrease of $0.1 million or 2.1% as compared to FY2023 is primarily attributable to a decrease in salaries and related costs of $0.4 million and a decrease in advertising expenses of $0.1 million that partially offset with an increase in professional services costs.
Selling
For FY2024, selling expenses were $2.8 million compared to $3.1 million for FY2023. The decrease of $0.3 million or 10.6% as compared to FY2023 is primarily attributable to a decrease in salaries and related costs.
General and administrative
For FY2024, general and administrative expenses were $17.9 compared to $19.0 million for FY2023. The decrease of $1.1 million or 5.6% as compared to FY2023 is primarily attributable to a decrease in professional services costs of $1.8 million and salaries and related costs of $0.3 million, partially offset by an increase in insurance costs of $1.1 million.
Research and development costs
Research and development costs were $7.4 million for FY2024 compared to $11.3 million in FY2023. This decrease of $3.8 million or 33.8% is primarily attributable to the decrease in salaries and related costs and consulting fees, partially offset by an increase in subcontracting services expenses.
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Stock-based compensation
Immediately prior to the acquisition of Prospector, the Company adopted an Equity Incentive Plan (the “Plan”) for certain qualified directors, executive officers, employees and consultants. This Plan continues in full force and effect as the Company equity incentive plan following the Company Amalgamation. The number of shares available for issuance under the Plan shall not exceed 5,000,000 shares at any time. The Plan provides for the grant of unvested Common Shares, (i) share options (“options”), (ii) restricted share units (“RSUs”), (iii) deferred share units (“DSUs”) and (iv) performance share units (“PSUs”). Various vesting conditions may apply to each award and may include continued service, performance and/or other conditions. Following the adoption of the new equity incentive and the grants of the first awards of this plan, the Company closed off the reserve stock option balance related to the previous equity incentive plan, in the deficit.
For FY2024, the stock-based compensation expense was $1.7 million compared to $2.4 million for FY2023. This decrease of $0.7 million or 29.6% in FY2024 as compared to FY2023 is primarily due to a gain on modification of stock options realized in Q1-2024 of $6.0 million, in relation to the acquisition of Prospector and to the Plan of Arrangement. The gain partially offsets the stock-based compensation expense of $8.0 million recognized following the adoption of the Plan and initial grant in Q2-2024.
For additional information of stock-based compensation, refer to Notes 19 and 26 of the audited annual consolidated financial statements of the Company for FY2024.
Listing expenses
The listing expenses of $59.1 million for FY2024, as compared to nil for FY2023, represents the difference between the fair value of the Common Shares and Class A Non-Voting Special Shares issued to the shareholder of Prospector, net of the fair value of the assets acquired and liability assumes, which includes Public Warrants, Private Warrants and Vesting Sponsor Warrants. For additional information, refer to Note 4 of the FY2024 consolidated financial statements.
Transaction costs
For FY2024, the transaction costs were $2.4 million compared to $3.5 million for FY2023. This decrease of $1.1 million or 31.3% was due to fees related to the Business Combination. See “— Business Combination and Public Company Costs” for more details.
Restructuring costs
In connection with the initiatives related to the LeddarTech’s transition into a Pure-Play automotive software business model, restructuring costs of $46,000 were incurred in FY2024 and $1.7 million for FY2023 (excluding restructuring costs related to discontinued legacy businesses activities).
Impairment losses related to goodwill and intangible assets
During FY2024, impairment losses related to goodwill and intangible assets of $69.3 million was recognized. As a result of the annual strategic plan review, the Company concluded that certain intangible assets were no longer expected to be used when the test was performed at the asset level. The Company also performed a formal annual impairment test for its goodwill and intangible assets not yet available through the assessment of the recoverable amount of the CGU to which they belong. Due to a shift in the expected timing of future revenues and a substantial increase in the discount rate used to calculate the present value of future cash flows, the discounted cash flow test led to an expected recoverable amount that was below the carrying value of the assets. Accordingly, a goodwill impairment charge of $7.3 million and an impairment charge on development costs of $58.3 million and of other intangible assets of $3.7 million were recognized in FY2024.
Refer to Note 6 to LeddarTech’s annual audited consolidated financial statements for FY2024 for more details.
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Other (income) costs
Other (income) costs, composed of grant revenues and finance costs, net, were $3.0 million for FY2024 compared to an income of $1.1 million for FY2023, an increase of costs of $4.1 million or 368.6%.
Grant revenue
Grant revenue is mainly composed of the Scientific Research & Experimental Development (SR&ED) tax credit related to projects and eligible expenses incurred by the Company. For FY2024, the grant revenues were $0.1 million and the decrease of $0.3 million as compared to $0.4 million for FY2023 is mainly due to the decrease in research and development tax credits due to a lower level of eligible projects. Refer to Note 23 to LeddarTech’s annual audited consolidated financial statements for FY2024 for more details.
Finance costs, net
For FY2024, the finance costs, net, were $3.1 million compared to a finance income of $0.7 million in FY2023.
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Interest expenses (income) | 8,516,353 | (1,039,281 | ) | 9,555,634 | 919.4 | |||||||||||
| Loss (gain) on revaluation of financial instruments carried at fair value | (5,553,010 | ) | 21,100 | (5,574,110 | ) | (26,418 | ) | |||||||||
| Other | 99,909 | 288,223 | (188,314 | ) | (65.3 | ) | ||||||||||
| Total | 3,063,252 | (729,958 | ) | 3,793,210 | (519.6 | ) | ||||||||||
The increase of $3.8 million or 519.6% is primarily due to the following items.
| ● | Interest expenses: The increase of $9.6 million or 919.4% in FY2024 as compared to FY2023 was mainly due to an increase of interest expense on term loan of $1.0 million and on convertible notes of $6.7 million, an increase in SEPA commitment fees of $0.5 million, a decrease in gain on term loan modification of $4.1 million and a decrease in gain on other loan settlement of $1.6 million, partially offset by an increase of $4.3 million in capitalized borrowing costs. |
| ● | Loss (gain) on revaluation of instruments carried at fair value: The gain on revaluation of financial instruments carried at fair value of $5.6 million for FY2024 was mainly attributable to the remeasurement of warrant liability of $1.1 million and of conversion option of $5.7 million, partially offset by a decrease in fair value of the bridge loan of $1.2 million. |
| ● | Other: The decrease in other costs of $0.2 million or 65.3% for FY2024 was mainly due to a loss on conversion of conversion option of $0.4 million and an increase of $0.3 million of non-capitalizable financing costs, partially offset by the increase in foreign exchange gain of $0.6 million and a gain on lease modification of $0.2 million. |
Refer to Note 24 of the Company’s FY2024 annual audited consolidated financial statements for more details.
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Net Loss and comprehensive loss from continuing operations
Net Loss and comprehensive loss
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Net loss and comprehensive loss | (167,318,738 | ) | (43,841,777 | ) | (123,476,961 | ) | 281.6 | |||||||||
For FY2024, the net loss was $167.3 million compared to a net loss of $43.8 million for FY2023. This increase of net loss of $123.5 million or 281.6 % as compared to FY2023 is primarily attributable to the following elements:
| ● | the impairment losses related to goodwill and intangible assets of $69.3 million recognized in FY2024; |
| ● | the listing expense of $59.1 million relating to the business combination which occurred in Q1-2024; and |
| ● | the increase in finance cost, net, of $3.8 million, as explained previously; |
partially offset by,
| ● | the increase in gross profit of $0.3 million, primarily attributable to the increase in revenue from continuing operations in FY2024; |
| ● | the decrease in research and development costs of $3.8 million, due mainly to the decrease in salaries and related costs; |
| ● | the decrease in general and administrative expenses of $1.1 million, due primarily to a decrease in professional services and salaries and related costs of $2.1 million, partially offset by an increase in insurance costs of $1.1 million; and |
| ● | the decrease in transaction costs and restructuring costs of $1.1 million and $1.7 million, respectively |
Refer to sections entitled “— Operating expenses” and “—Other (income) costs” above for more details.
EBITDA (loss)(1) and Adjusted EBITDA (loss)(1)
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| EBITDA (loss) | (157,229,931 | ) | (42,738,031 | ) | (114,491,900 | ) | 267.9 | |||||||||
| Adjusted EBITDA (loss) | (30,395,262 | ) | (34,815,026 | ) | 4,419,764 | (12.7 | ) | |||||||||
| (1) | EBITDA (loss) and Adjusted EBITDA (loss) are non-IFRS financial measures. Refer to section entitled “Non-IFRS Financial Measures” for more details. |
For FY2024, the EBITDA (loss) was $157.2 million compared to an EBITDA (loss) of $42.7 million for FY2023. This increase in EBITDA (loss) of $114.5 million or 267.9% as compared to FY2023 is primarily attributable to the increase in net loss of $123.5 million as compared to FY2023, primarily due to the impairment losses related to goodwill and intangible assets of $69.3 million and the listing expense of $59.1 million related to the business combination which occurred in FY2024.
For FY2024, the Adjusted EBITDA (loss) was $30.4 million compared to an Adjusted EBITDA (loss) of $34.8 million for FY2023. This decrease in Adjusted EBITDA (loss) of $4.4 million or 12.7% in FY2024 as compared to FY2023 is primarily attributable to the increase in gross profit of $0.3 million and the decrease in research and development costs of $3.8 million.
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Net loss from discontinued operations
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Net profit (loss) and comprehensive profit (loss) | 1,123,039 | (7,582,632 | ) | 8,705,671 | (114.8 | ) | ||||||||||
For FY2024, net profit from discontinued operations was $1.1 million compared to a net loss of $7.6 million for FY2023. This increase in net profit of $8.7 million or 114.8% is mainly attributable to the impairment loss related to intangible assets of $5.8 million recognized in FY2023 and the increase in gross profit of $2.2 million in FY2024 as compared to FY2023. Refer to Note 7 to the Company’s annual audited consolidated financial statements for FY2024 for more details.
Comparison of Years Ended September 30, 2023 and 2022 excluding discontinued activities
Revenues
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Products | - | 52,144 | (52,144 | ) | (100.0 | ) | ||||||||||
| Services and other | 197,556 | 581,706 | (384,150 | ) | (66.0 | ) | ||||||||||
| Total | 197,556 | 633,850 | (436,294 | ) | (68.8 | ) | ||||||||||
For FY2023, total revenues were $0.2 million, a decrease of $0.4 million or 68.8% as compared to FY2022. This decrease is mainly due to the decrease in revenues from services and other of $0.4 million or 66.0%, is primarily a result of lower engineering services rendered in FY2023 to strategic external collaborators during the process of developing our ADAS software.
Gross profit
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Gross profit | 197,556 | 554,225 | (356,669 | ) | 64.4 | |||||||||||
| As a percentage of total revenues | 100.0 | % | 87.4 | % | 12.6 | |||||||||||
For FY2023, the gross profit was $0.2 million compared to a gross profit of $0.6 million for FY2022. This decrease of $0.4 million or 64.4% in FY2023 as compared to FY2022 is primarily attributable to the decrease of revenues of $0.4 million in FY2023 as compared to FY2022, as explained previously.
Operating expenses
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Marketing and product management | 4,097,931 | 3,280,864 | 817,067 | 24.9 | ||||||||||||
| Selling | 3,126,324 | 3,976,733 | (850,409 | ) | (21.4 | ) | ||||||||||
| General and administrative | 18,990,598 | 15,548,293 | 3,442,305 | 22.1 | ||||||||||||
| Research and development costs | 11,253,670 | 21,191,064 | (9,937,394 | ) | (46.9 | ) | ||||||||||
| Stock-based compensation | 2,436,974 | 4,272,673 | (1,835,699 | ) | (43.0 | ) | ||||||||||
| Listing expenses | - | - | - | 0.00 | ||||||||||||
| Transaction costs | 3,506,630 | - | 3,506,630 | 100.0 | ||||||||||||
| Restructuring costs | 1,734,244 | - | 1,734,244 | 100.0 | ||||||||||||
| Impairment loss related to intangible assets | - | 38,207,503 | (38,207,503 | ) | (100.0 | ) | ||||||||||
| Total | 45,146,371 | 86,477,130 | (41,330,759 | ) | (47.8 | ) | ||||||||||
Marketing and product management
For FY2023, marketing and product management expenses were $4.1 million compared to $3.3 million for FY2022. The increase of $0.8 million or 24.9% as compared to FY2022 is primarily attributable to higher salaries and related expenses in relation with product management and marketing activities in support of our pure-play automotive software business model.
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Selling
For FY2023, selling expenses were $3.1 million compared to $4.0 million, a decrease of $0.9 million or 21.4% as compared to FY2022, primarily attributable to the decrease in headcount in connection with LeddarTech’s transition into a pure-play automotive software business model.
General and administrative
For FY2023, general and administrative expenses were $19.0 million compared to $15.5 million for FY2022. The increase of $3.4 million or 22.1% as compared to FY2022 is primarily due to professional fees incurred for consulting and financing during FY2023.
Research and development costs
Research and development costs were $11.3 million for FY2023 compared to $21.2 million in FY2022. This decrease of $9.9 million or 46.9% is primarily due to management’s decision to discontinue the LiDAR components business and in connection with LeddarTech’s transition into a pure-play automotive software business model in late FY2022.
Stock-based compensation
For FY2023, stock-based compensation expenses were $2.4 million compared to $4.3 million for FY2022. This decrease of $1.8 million or 43.0% is primarily due to the decrease in stock-based compensation expense recorded for the ESOP of $0.7 million and VayaVision call option of $1.1 million, the decrease of $0.3 million on M-Options economy and the decrease of $0.3 million of capitalization as development costs, during FY2023.
For additional information of stock-based compensation, refer to Note 19 to the Company’s annual audited consolidated financial statements for FY2024 for more details.
Transaction costs
During FY2023, transaction costs were $3.5 million compared to nil for FY2022. These transaction costs were related to the proposed Business Combination and LeddarTech will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination.
Restructuring costs
The Company expects to complete the initiatives related to the LeddarTech’s transition into a pure-play automotive software business model over FY2023.
Restructuring costs of $1.8 million were incurred in FY2023. Furthermore, after the review of revenues forecasts on certain remaining programs divested following the transition to the pure-play automotive software business model, a write-down on inventories of $2.3 million and an onerous contract net loss of $1.4 million were recognized in net income (loss) from discontinued operations in FY2023.
Impairment loss related to intangible assets
During FY2023, an impairment loss related to intangible assets of $38.2 million was recognized due to the decrease in the expected recoverable amount of certain intangible assets, explained by the Company’s inability to reach a satisfactory financial agreement with one of the main partners of the Component business, after the discontinuation of the Lidar components business in late FY2022. Refer to Note 6 to the Company’s annual audited consolidated financial statements for FY2024 for more details.
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Other (income) costs
Other income, composed of grant revenue and finance costs, net, were $1.1 million for FY2023 compared to $10.5 million for FY2022, a decrease of $9.4 million or 89.5%.
Grant revenue
For FY2023, grant revenue was $0.4 million, which is comparable to those recognized in FY2022. The grant revenue is mainly composed of the Scientific Research & Experimental Development (SR&ED) tax credit related to projects and eligible expenses incurred by the Company.
Finance costs, net
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Interest expenses (income) | (1,039,281 | ) | (859,403 | ) | (179,878 | ) | (20.9 | ) | ||||||||
| Loss (gain) on revaluation of financial instruments carried at fair value | 21,100 | (7,129,238 | ) | 7,150,338 | (100 | ) | ||||||||||
| Other | 288,223 | (2,078,856 | ) | 2,367,079 | (113.9 | ) | ||||||||||
| Total | (729,958 | ) | (10,067,497 | ) | 9,337,539 | (92.7 | ) | |||||||||
The net finance income was $0.7 million for FY2023 compared to $10.1 million for FY2022. This decrease of $9.3 million or 92.7% was primarily due to the following items:
| ● | Interest expenses (income): The increase of $0.2 million or 20.9% in FY2023 as compared to FY2022 was mainly due to gain on Term loan modification of $4.3 million in FY2023 and the gain on other loan settlement of $1.6 million in FY2023, partly offset by the increase of interest expense, due to higher interest expenses on credit facility and on convertible loan and lower capitalized borrowing costs. Refer to “Liquidity and Capital Resources” section for more details. |
| ● | Loss (gain) on revaluation of financial instruments carried at fair value: The decrease of $7.2 million or 100.3% of change in FVTPL of financial instruments in FY2023 was mainly attributable to gains on revaluation of convertible loans in FY2022 of $6.1 million and of a contingent consideration payable of $1.3 million. |
| ● | Other: The increase of other expenses of $2.4 million or 113.9% in FY2023 was mainly due to a foreign exchange loss of $0.2 million in FY2023 as compared to a foreign exchange gain of $2.7 million for FY2022, mainly on the higher cash balance denominated in U.S. dollar during FY2022. |
Refer to Note 24 to the Company’s annual audited consolidated financial statements for FY2024 more details.
Net Loss and comprehensive loss
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Net loss and comprehensive loss | (43,841,777 | ) | (75,419,960 | ) | 31,578,183 | (41.9 | ) | |||||||||
For FY2023, the net loss was $43.8 million compared to a net loss of $75.4 million for FY2022. This decrease of net loss of $31.6 million or 41.9% as compared to FY2022 is primarily attributable to the decrease of operating expenses of $41.3 million for FY2023, partly offset by the negative impact on gross profit (loss) of the decrease of revenues in FY2023 compared to FY2022. As previously mentioned, the decrease of operating expenses of $41.3 million for FY2023 compared to FY2022 is mainly due the impairment losses related to intangible assets of $38.2 million recognized in FY2022, the decrease in FY2023 as compared to FY2022 of research and development expenses of $9.9 million and of stock-based compensation expenses of $1.8 million, partly offset by the increase of general and administrative expenses of $3.4 million, transaction costs of $3.5 million in FY2023 and the restructuring costs of $1.7 million in FY2023.
Refer to sections entitled “— Operating expenses” and “— Other (income) costs” above for more details.
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EBITDA(1) and Adjusted EBITDA(1)
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| EBITDA (loss) | (42,738,031 | ) | (73,962,491 | ) | 31,224,460 | (42.2 | ) | |||||||||
| Adjusted EBITDA (loss) | (34,815,026 | ) | (41,361,058 | ) | 6,546,032 | (15.8 | ) | |||||||||
| (1) | EBITDA (loss) and Adjusted EBITDA (loss) are non-IFRS financial measures. Refer to section entitled “Non-IFRS Financial Measures” for more details. |
For FY2023, the EBITDA (loss) was $42.7 million compared to an EBITDA (loss) of $74.0 million for FY2022. This decrease of EBITDA (loss) of $31.2 million or 42.2% as compared to FY2022 is primarily attributable to the impairment losses related to intangible assets of $38.2 million recognized in FY2022, the decrease in FY2023 as compared to FY2022 of research and development expenses of $9.9 million and of stock-based compensation expenses of $1.8 million, partly offset by the increase of general and administrative expenses of $3.4 million, the transaction costs of $3.5 million in FY2023 and the restructuring costs of $1.7 million in FY2023.
For FY2023, the Adjusted EBITDA (loss) was $34.8 million compared to an Adjusted EBITDA (loss) of $41.4 million for FY2022. This decrease of Adjusted EBITDA (loss) of $6.5 million or 15.8% in FY2023 as compared to FY2022 is primarily attributable to the decrease of research and development expenses of $9.9 million in FY2023 as compared to FY2022, partly offset by the increase of general and administrative expenses of $3.4 million in FY2023 as compared to FY2022.
Net profit (loss) from discontinued operations
| Change | ||||||||||||||||
| FY2023 | FY2022 | $ | % | |||||||||||||
| Net profit (loss) and comprehensive profit (loss) | (7,582,632 | ) | 2,001,215 | (9,583,847 | ) | (478.9 | ) | |||||||||
For FY2023, net loss from discontinued operations was $7.6 million compared to a net profit of $2.0 million for FY2022. This increase of net loss of $9.6 million or 478.9% is mainly attributable to the impairment loss related to intangible assets of $5.8 million recognized in FY2023 and the decrease of gross profit of $3.2 million in FY2023 as compared to FY2022. Refer to Note 7 to the Company’s annual audited consolidated financial statements for FY2024 for more details.
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Quarterly Results
The following table presents a summary of our quarterly consolidated financial results for FY2024 and FY2023.
| Three month periods ended | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | ||||||||||||
| Revenues | 50,561 | 253,150 | 122,101 | 52,001 | ||||||||||||
| Net loss and comprehensive loss attributable to Shareholders of the Company | ||||||||||||||||
| Continuing operations | (81,154,693 | ) | (7,065,204 | ) | (17,608,415 | ) | (61,188,114 | ) | ||||||||
| Discontinued operations | 276,926 | (389,437 | ) | 188,881 | 1,046,668 | |||||||||||
| Total | (80,877,767 | ) | (7,454,641 | ) | (17,419,534 | ) | (60,141,446 | ) | ||||||||
| Per share (basic and diluted) (in dollars) | ||||||||||||||||
| Continuing operations | (2.72 | ) | (0.24 | ) | (0.61 | ) | (17.06 | ) | ||||||||
| Discontinued operations | 0.01 | (0.01 | ) | 0.01 | 0.29 | |||||||||||
| Total | (2.71 | ) | (0.26 | ) | (0.61 | ) | (16.76 | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 29,865,648 | 29,153,504 | 28,770,930 | 3,587,572 | ||||||||||||
| Three month periods ended | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | ||||||||||||
| Revenues | 52,001 | 12,082 | - | 133,474 | ||||||||||||
| Net loss and comprehensive loss attributable to Shareholders of the Company | ||||||||||||||||
| Continuing operations | (8,172,189 | ) | (2,072,581 | ) | (11,265,503 | ) | (18,899,191 | ) | ||||||||
| Discontinued operations | (3,257,651 | ) | (1,802,803 | ) | (1,313,385 | ) | (1,208,794 | ) | ||||||||
| Total | (11,429,840 | ) | (3,875,384 | ) | (12,578,888 | ) | (20,107,985 | ) | ||||||||
| Per share (basic and diluted) (in dollars) | ||||||||||||||||
| Continuing operations | (48.76 | ) | (12.37 | ) | (67.21 | ) | (112.76 | ) | ||||||||
| Discontinued operations | (19.44 | ) | (10.76 | ) | (7.84 | ) | (7.21 | ) | ||||||||
| Total | (68.19 | ) | (23.12 | ) | (75.05 | ) | (119.97 | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 167,610 | 167,610 | 167,610 | 167,610 | ||||||||||||
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Comparison of Q4-2024 and Q4-2023
For Q4-2024, total revenues from continuing operations remained flat at $51,000 compared to $52,000 for Q4-2023. The revenues from products were nil in FY2024 and FY2023 due to the reclassification of the legacy businesses as discontinued operations in the consolidated statement of loss. The decrease of revenues is primarily a result of lower engineering services rendered to strategic external collaborators.
For Q4-2024, net loss and comprehensive loss attributable to Shareholders of the Company related to continuing operations was $81.2 million, an increase of $73.0 million or 893.1% as compared to Q4-2023. This increase was mainly attributable to the increase in impairment losses related to intangible assets and goodwill of $69.3 million, the increase in finance costs, net, of $2.6 million and the increase in restructuring costs of $0.4 million, partly offset by the decrease in transaction costs of $1.9 million, general and administrative expenses of $2.2 million and research and development costs of $1 million.
For Q4-2024, net profit and comprehensive profit attributable to Shareholders of the Company related to discontinued operations was $0.3 million compared to net loss and comprehensive loss attributable to Shareholders of the Company related to discontinued operations of $3.3 million for Q4-2023. This increase of $3.5 million or 108.4% as compared to Q4-2023 was mainly attributable to the decrease in impairment losses related to intangible assets and goodwill of $4.4 million, partially offset by the decrease of gross profit of $0.9 million.
For Q4-2024, the variations of the net profit (loss) and comprehensive profit (loss) attributable to Shareholders of the Company, related to continuing operations and to discontinued operations, per share (basic and diluted), are explained by the variation of the net profit (loss) and comprehensive profit (loss) attributable to Shareholders of the Company, as explained above, and the increase of the weighted average common shares outstanding, basic and diluted, due to the financing activities of FY2023 and FY2024, as described under “— Liquidity and Capital Resources.”
Comparison of other quarters of FY2024 and FY2023
Prior to Q3-2024, the variations of quarterly revenues of FY2024 and FY2023 were mainly attributable to the variation in the level of engineering services rendered by the Company to strategic external collaborators in the different projects of the Company and the impacts of the management’s decision to discontinue the LiDAR components business and in connection with LeddarTech’s transition into a pure-play automotive software business model in late FY2022.
Prior to Q3-2024, the quarterly variations of the net losses and net losses and comprehensive losses attributable to the shareholders of the Company were partly due to the variations of the operating expenses, mainly explained by the variations of selling expenses and research and development costs, a result of the management’s decision to discontinue the LiDAR components business and the LeddarTech’s transition into a Pure-Play automotive software business model. These variations of the net losses and net losses and comprehensive losses attributable to the shareholders of the Company were also impacted by the variation of the finance costs, mainly explained by the financing activities realized over the quarters of FY2024 and FY2023, and by the stock-based compensation expenses. The net loss and net loss and comprehensive loss attributable to the shareholders of the Company of Q1-2024 were also negatively impacted by the listing expenses of $59.1 million and by the transaction costs of $1.8 million of Q1-2024, partly offset by the impairment of intangible assets of $5.8 million recognized in Q1-2023.
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Selected Financial Position Information
The following table presents selected financial information from the consolidated Statements of Financial Position as of September, 2024 and 2023.
| September 30, | September 30, | |||||||
| As of | 2024 | 2023 | ||||||
| Total assets | 18,927,222 | 72,170,407 | ||||||
| Non-current financial liabilities | ||||||||
| Long-term debt | 79,306,811 | 47,725,583 | ||||||
| Redeemable stock options | - | 6,102,496 | ||||||
| Government grant liabilities | 789,127 | 899,489 | ||||||
| Total | 80,095,938 | 54,727,568 | ||||||
The decrease of total assets of $53.2 million from September 30, 2023 to September 30, 2024 is mainly attributable to the decrease in intangible assets of $40.3 million and in goodwill of $7.3 million, mainly due to the impairment losses related to goodwill and intangible assets of $69.3 million recognized in FY2024, the reduction of accounts receivable of $2.2 million, the decrease of government assistance and R&D tax credits receivable of $0.9 million, the decrease of inventory of $0.8 million and the decrease of right-of-use assets of $1.3 million. Refer to the “— Liquidity and Capital Resources” section for more details on cash variations.
The increase of non-current financial liabilities of $25.4 million from September 30, 2023 to September 30, 2024 is attributable to the increase in convertible loans of $30.0 million and to the increase of the bridge loan of $9.9 million, partially offset by the decrease of the redeemable stock options of $6.1 million and the gain on revaluation of financial instruments carried at fair value of $5.6 million recognized in FY2024. See “— Liquidity and Capital Resources” section for more details.
Liquidity and Capital Resources
Summary of the Consolidated Statements of cash Flows
| Change | ||||||||||||||||
| FY2024 | FY2023 | $ | % | |||||||||||||
| Net cash flows related to operating activities | (40,890,120 | ) | (36,651,124 | ) | (4,238,996 | ) | 11.6 | |||||||||
| Net cash flows related to investing activities | (11,528,753 | ) | (11,172,500 | ) | (356,253 | ) | 3.2 | |||||||||
| Net cash flows related to financing activities | 52,471,946 | 21,248,280 | 31,223,666 | 146.9 | ||||||||||||
| Effect of foreign exchange on cash | 159,971 | (394,515 | ) | 554,486 | (140.5 | ) | ||||||||||
| Net increase (decrease) in cash | 213,044 | (26,969,859 | ) | 27,182,903 | (100.8 | ) | ||||||||||
| Cash, beginning of year | 5,056,040 | 32,025,899 | (26,969,859 | ) | (84.2 | ) | ||||||||||
| Cash, end of period | 5,269,084 | 5,056,040 | 213,044 | 4.2 | ||||||||||||
Operating Activities
For FY2024, net cash outflows related to operating activities were $40.9 million, compared to $36.7 million for FY2023. The increase of $4.2 million or 11.6% in net cash outflows related to operating activities was primarily due to the unfavourable net change in non-cash working capital of $13.4 million during the FY2024 as compared to FY2023, partially offset by the decrease in FY2024 in research and development costs and general and administrative expenses and by the increase in FY2024 in gross profit from discontinued operations of $2.2 million.
Investing Activities
For FY2024, net cash outflows related to investing activities were $11.5 million compared to $11.2 million for FY2023. The increase in net cash outflows related to investing activities of $0.4 million or 3.2% is primarily explained by the increases in FY2024 as compared to FY2023 in additions to property and equipment of $0.3 million, additions to intangible assets of $0.6 million in FY2024 as compared to FY2023 and the decrease of grants received related to intangible assets and property and equipment of $0.3 million in FY2024 as compared to FY2023, partially offset by the increase of $0.7 million of R&D tax credit received in FY2024 as compared to FY2023.
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Financing Activities
For FY2024, net cash flows related to financing activities were $52.5 million compared to $21.2 million for FY2023. This increase of $31.2 million is primarily due to the issuance of convertible notes, net of debt issuance costs, of $29.5 million in Q1-2024, the issuance of Tranche 1 of the Bridge Loan, net of debt issuance costs, of $8.0 million in Q4-2024 and the cash acquired from a reverse asset acquisition of $19.8 million during Q1-2024, partly offset by the net proceeds from a debt issuance of $27.0 million during Q3-2023. Refer to the next section and to Note 15 of the audited annual consolidated financial statements of the Company for FY2024 for more details.
Liquidity and Capital Management
Since inception, LeddarTech has incurred cumulative losses from operations and negative cash flows from operating and investing activities and had an accumulated deficit of $644.2 million as of September 30, 2024, primarily driven by our investments in research and development activities, including fusion perception technologies, and our operating costs supporting our discontinued modules and components business. LeddarTech realized net losses from continuing operations of $167.3 million for FY2024 and of $43.8 million for FY2023.
For FY2024, LeddarTech had net cash outflows related to operating and investing activities amounting to $40.9 million and $11.5 million respectively, compared to $36.7 million and $11.2 million in FY2023, respectively. LeddarTech expects to continue to realize net losses and net negative cash flows from operations in the near term. LeddarTech’s principal sources of liquidity have been the issuance of equity, convertible notes and loans from third parties.
As of September 30, 2024, LeddarTech had total liabilities of $107.6 million, including $13.9 million in accounts payable, $28.2 million outstanding on the Desjardins Term Loan (credit facility), $40.3 million outstanding on the convertible notes issued as part of the PIPE Financing, $10.8 million outstanding under the IQ Loan Agreement (Term loan), $9.9 million of bridge loans (convertible and non-convertible), $2.2 million of lease liabilities, $1.6 million of government grant liabilities and total shareholders’ deficiency (total assets less total liabilities) of $88.6 million. For more details, see “— Financing Transactions —Desjardins Credit Facility” and to Notes 11, 15, 16, 17 and 18 of the audited annual consolidated financial statements of the Company for FY2024.
Results of Business Combination and PIPE Financing
On January 5, 2023, Prospector held an extraordinary general meeting at which Prospector’s shareholders approved amendments to Prospectors Amended and Restated Memorandum and Articles of Association to extend the date by which Prospector must complete a business combination from January 12, 2023 to December 31, 2023. In connection with this meeting, shareholders holding an aggregate of 30,305,944 Prospector’s Class A Shares, representing approximately 93.2% of the Prospector Class A Shares then outstanding, exercised their right to redeem their shares for $10.15 per share, for a total of approximately $307.6 million paid from Prospector’s Trust Account, leaving approximately $22.3 million in the Trust Account after such redemption.
On December 21, 2023, holders of an aggregate of 855,440 Prospector Class A Shares, representing approximately 39% of the total Prospector Class A Shares then outstanding, exercised their right to redeem those shares for approximately US$10.93 per share, for a total of approximately US$9.3 million paid from Prospector’s Trust Account, leaving approximately US$14.6 million in the Trust Account after such redemption.
As a result of consummation of the Business Combination and accounting for the foregoing redemption payments and receipt of funds from Trust Account, we received approximately $0.9 million in net proceeds from the Business Combination after accounting for our payment of approximately $5.3 million of transaction costs. We also received aggregate proceeds of approximately US$44.0 million from the PIPE Financing between June 12, 2023, when the Business Combination Agreement was entered into, and December 21, 2023, when the Business Combination was completed. See “ — PIPE Financing” below.
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Need for Additional Capital – Bridge Financing
The Company has limited sources of liquidity. As of September 30, 2024, the Company had a cash balance of $5.3 million, which increased to $20.8 million as of December 17, 2024 as a result of the receipt of the full first instalment of the TI Pre-paid Royalty Fee and transactions settled under the SEPA. See “— Recent Developments — Pre-paid Royalty, Collaboration Agreement and Software License Agreement with Texas” above and “— Financing Transactions — Standby Equity Purchase Agreement” below.
In order to address its near-term liquidity needs, in August 2024, the Company entered into an agreement in principle with several of its principal shareholders and its principal lender pursuant to which such parties agreed to fund the Company with an aggregate of US$9.0 million in bridge debt financing (the “Bridge Financing”). The Bridge Financing is intended to support the Company’s ability to satisfy its near-term liquidity needs while the Company continued to progress its discussions, including with certain potential strategic investors, to secure US$35.0 million or more in an additional equity capital (the “Equity Financing”). For more details, refer to “— Financing Transactions —Desjardins Credit Facility” of the section entitled “Financing Transactions.”
The Company will need to raise substantial amounts of additional capital in addition to the Bridge Facility, the TI Pre-paid Royalty Fee, pursuant to the Equity Financing or otherwise. If the Company is unable to raise additional capital, it will not be able to remain in compliance with the covenants in its debt instruments or meet its debt service obligations. If we are successful in raising additional capital but in amounts insufficient to support its normal operations, the Company will need to reduce its operating costs to ensure sufficient liquidity for its operations and to comply with the requirements of its debt obligations.
The Company has developed a flexible and scalable cost management plan to be implemented to the extent deemed necessary and appropriate so that LeddarTech can maintain operating costs at targeted levels (through strict cost control and budgeting discipline) to ensure operating costs will not exceed anticipated available liquidity. The cost management plan includes the possibility of significant reduction in product development expenditures, significant headcount reductions, and compensation adjustments. The extent to which the cost management plan would need to be implemented will be dependent upon several factors, including scope and terms of any forbearance agreement, waiver, amendment to, or relief from, the Minimum Cash Covenant applicable to LeddarTech and the amount and extent to which the Company is able to raise additional capital in a timely manner, if at all.
It is expected that LeddarTech will need to implement the cost management plan to some degree if it is not successful in its efforts to raise sufficient amounts of additional capital, and depending on the level of relief from the Minimum Cash Covenant LeddarTech is able to negotiate with its lender. Implementation of the cost management plan, if necessary, may materially adversely affect LeddarTech in a number of ways, and would exacerbate risks to which LeddarTech is already subject. For example, a reduction in product development expenditures and headcount reductions may materially limit LeddarTech’s ability to complete, test and offer to the market a comprehensive suite of integrated features and services, and if LeddarTech is only able to offer a limited suite of features and services, it will be less likely to realize the full revenue and profitability potential of its solutions and less able to effectively compete in its targeted markets. Implementation of the cost management plan may also significantly reduce the number of Tier 1 and OEM customers that LeddarTech would be able to support, which in turn would be expected to have a material adverse effect on its revenue and potential profitability.
Pursuant to the Company’s cost management plan, in the event the Company does not raise sufficient additional capital, we expect that LeddarTech will reduce its employee headcount. Such headcount reduction would result in a substantial decrease in the number of Company employees to the extent the cost management plan is fully implemented. The extent of any headcount reduction will be based primarily on management’s assessment of available liquidity, key operating and business needs, and prevailing conditions at the time. Any significant reduction in headcount has the potential to materially adversely affect our operations and future operating results, including by:
| ● | delaying our ability to timely deliver operational software solutions to our target customers; |
| ● | impairing our ability to obtain requisite industry certifications, which would then need to be obtained by the Tier 1 or OEM customer; |
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| ● | restricting our ability to calibrate and configure our software solutions for more than one set of sensor types, which may make our solutions less appealing to our customers and delay our ability to sell our software solutions to a broad range of Tier 1 and OEM customers; |
| ● | delaying our ability to expand the domain capabilities of our software solutions, such as being able to market our software solution for use in snow conditions without additional software capabilities being added to our solutions, which we would be unable to do on the same time frame as if we had not reduced our headcount; and |
| ● | further limiting our revenue opportunities due to the fact that a reduced headcount would constrain our ability to service a desired number of Tier 1 and OEM customers. |
Each of these potential consequences of any headcount reductions could adversely affect the marketability of our software solutions and the timing and extent of our ability to generate revenue. Additionally, significant headcount reductions may adversely impact our accounting and finance function and make it more difficult to remediate existing significant deficiencies and material weaknesses. Reductions in headcount also will result in immediate severance and other cash costs, which could be significant and may therefore reduce the effectiveness and objectives of our cost management plan in the short-term. Realization of any of these consequences of a headcount reduction could materially adversely affect our business, results of operations, and financial condition.
Further, a reduction in headcount across LeddarTech may adversely affect LeddarTech’s ability to timely prepare and publish accurate financial information, develop effective internal controls over financial reporting and remediate existing significant deficiencies and material weaknesses (or identify significant deficiencies and material weaknesses in the future). In connection with any cost reduction plans or activities, the Company will be required to incur cash and non-cash expenses.
Pursuant to the terms of the Minimum Cash Covenant in the Desjardins Credit Facility, LeddarTech has been required to maintain a minimum unencumbered cash balance of $5.0 million. Pursuant to amendments to the Desjardins Credit Facility, to give the Company sufficient time to finalize the definitive documentation for the Bridge Financing, the Minimum Cash Covenant had been suspended until the earlier of (a) December 13, 2024, and (b) the date of disbursement to LeddarTech of the full first installment of the TI Pre-paid Royalty Fee (received December 12, 2024) and after this date, LeddarTech will be required to maintain a minimum cash balance of $1.0 million until the earlier of (a) the Short-Term Outside Date, and (b) January 31, 2025, and a minimum cash balance of $5 million at all times after such date.
For more details, refer to “— Financing Transactions —Desjardins Credit Facility.”
LeddarTech may in the future be unable to comply with the Minimum Cash Covenant, absent an agreement by the lender to further amend, waive or otherwise provide relief from the Minimum Cash Covenant, unless it raises additional capital and/or is able to successfully implement its cost management plan. If LeddarTech is unable to enter into a forbearance agreement, waiver or amendment with, or obtain other relief from, Desjardins, or following receipt of any such relief is nonetheless unable to comply with its terms, and as a result LeddarTech were to fail to comply with such Minimum Cash Covenant, Desjardins would have the right to declare the Desjardins Term Loan to be due and payable, and if it elected to do so, approximately $89.6 million aggregate principal amount of indebtedness of LeddarTech (including the PIPE Convertible Notes) plus payment in kind (PIK) interest accrued on the PIPE Convertible Notes would also be subject to acceleration. While LeddarTech may seek additional financing to avoid or cure such an outcome or seek from Desjardins further forbearance, waiver or other relief from such requirements, there is no assurance that it would be able to do so on commercially reasonable terms, or at all. In such circumstances, LeddarTech’s ability to continue as a going concern would be materially and adversely affected and investors in LeddarTech’s Common Shares could lose all or a substantial part of their investment.
Financing Transactions
Set forth below is a summary description of recent financing transactions. Refer to Notes 4, 15, 16 and 18 of the Company’s audited annual consolidated financial statements for FY2024 for more details.
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Bridge Financing
In order to meet its near-term liquidity needs, on August 16, 2024, the Company, as borrower, and VayaVision, as guarantor, entered into the Bridge Facility (as amended by a First Amending Agreement, dated October 11, 2024, and Second Amending Agreement, dated December 6, 2024) with Desjardins, FS LT Holdings II LP, an affiliate of one of our principal shareholders (“FS”), and Investissement Québec (“IQ,” and collectively with Desjardins and FS, the “Bridge Lenders”) pursuant to which the Bridge Lenders agreed to lend to the Company the aggregate of up to US$9.0 million Bridge Loans in order to meet the Company’s near-term obligations while the Company continues to seek to close the Equity Financing.
In connection with the Bridge Facility, an affiliate of FS converted US$1.5 million aggregate principal amount of its PIPE Convertible Notes into Common Shares of the Company at a conversion price of US$2.00 per share. In addition, pursuant to the terms of the Bridge Facility, each of FS and IQ will have the right, but not the obligation, to convert its Bridge Loan into Common Shares at a conversion price of US$5.00 per share.
The Bridge Facility is comprised of two tranches, with the first tranche in the amount of US$6.0 million funded in equal amounts by the Bridge Lenders on August 19, 2024, and the second tranche in the amount of US$3.0 million funded in equal amounts by the Bridge Lenders on October 15, 2024. The second tranche of the Bridge Facility was conditioned on the absence of a default under the Bridge Loans and the receipt by the Company of a commitment, in form and substance satisfactory to the Bridge Lenders, from a strategic investor to invest a minimum amount of US$5.0 million in the Equity Financing. The second tranche included Bridge Loans in an aggregate amount of approximately US$334,000 from certain members of management and the board of directors.
Amounts outstanding under the Bridge Loans bear interest at the US base rate (currently 9.0%), plus 4.00%. Interest under the Bridge Loans is to be capitalized monthly (instead of being payable in cash) and added to the outstanding principal amount of the Bridge Loans. The Bridge Loans had a maturity date of November 15, 2024, since extended by a Second Amending Agreement to December 13, 2024, and further extended (upon receipt of the First Royalty Installment) to the earlier of January 31, 2025 and the business day following completion of the Equity Financing, and will be due and payable earlier upon the occurrence of certain other events, such as a change in control.
The approximately US$6.0 million of Bridge Loans funded by IQ and FS were issued at a 25% original issue discount (meaning that US$8.0 million of Bridge Facility debt issued by the Company in exchange for US$6.0 million in gross proceeds), provided, however, that no interest would accrue or be payable in respect of the amount of original issue discount.
Upon completion of one or more Equity Financing transactions generating gross proceeds of not less than US$35.0 million (including this offering, Common Shares sold pursuant to the SEPA, the TI Pre-paid Royalty Fee and the conversion described below of approximately US$6.0 million of Bridge Loans into equity):
| ● | FS and IQ would be obligated to convert their Bridge Loans (including the amount of the original issue discount) into securities of the Company issued in the Equity Financing at a price reflecting an approximately 11% discount to the offer price in the Equity Financing. |
| ● | The Company would be obligated to repay (i) first, to Desjardins, in respect of its Bridge Loan, the outstanding principal amounts under the Desjardins Bridge Loan and pay all other amounts owing to Desjardins under the Bridge Facility and (ii) second, to Desjardins, as lender under the Desjardins Credit Facility, any amount then payable under the existing Desjardins Credit Facility, including amendment fees, deferred interest and monthly fees, with the aggregate cash payment to Desjardins under the Bridge Facility and the Desjardins Credit Facility estimated to be approximately $7.1 million, assuming completion of the Equity Financing on January 31, 2025. An additional $875,000 would be capitalized and added to the principal balance of the existing $30 million term loan under the Desjardins Credit Facility (the “Desjardins Term Loan”). |
In the event the Company raises less than US$35.0 million in one or more Equity Financing transactions, FS and IQ would each have the right, but not the obligation, to convert their Bridge Loans (including the amount of original issue discount) into securities of the Company issued in the Equity Financing at a price reflecting aa approximately 11% discount to the offer price in the Equity Financing.
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The Bridge Facility contains certain affirmative and negative covenants, including without limitation, those set forth below:
| ● | Provision to the Bridge Lenders of certain information, including updates on the status of the Equity Financing. |
| ● | Limitations on debt incurrence, investments, dividends, repayments on the PIPE Convertible Notes or on the IQ Loan Agreement, amendments to the License Agreement and the Collaboration Agreement with Texas Instruments, any other agreements with Texas Instruments, certain license grants, liens, asset dispositions and capital expenditures. |
The Company has agreed to grant to the Bridge Lenders a first ranking hypothec and, if applicable, security interest on the universality of each of the Company’s and VayaVision’s movable (personal) and immovable (real) property, tangible and intangible, present and future, including their respective intellectual property, computer equipment, office supplies, furniture and equipment applicable, in each case to secure the obligations of the Company and VayaVision under the Bridge Facility.
IQ Credit Facilities
On January 23, 2020, the Company entered into a non-interest bearing loan agreement with IQ (the “PRSI”) providing for a loan of up to $19.8 million. The PRSI was then amended by (i) an amendment agreement executed as of March 30, 2021 and (ii) an amendment agreement dated June 12, 2023 (the “PRSI Amendment” and together with the PRSI, the “IQ Loan Agreement”) pursuant to which, inter alia, the loan was transformed into an interest-bearing loan (pay-in-kind interest at 12.0% per annum) and the amount available was reduced to approximately $19.3 million. In connection with this amendment, IQ’s hypothec on the universality of the Company’s assets was subordinated to that of Desjardins and the PIPE Investors. The loan is repayable in 42 equal monthly payments (including capitalized interest) starting after the moratory period ending on September 30, 2026. Interest accrues on the IQ Loan Agreement from the date of the PRSI Amendment at a rate of 12% per year which will be capitalized until the end of the aforementioned moratory period. As at June 30, 2024, there was $9.9 million outstanding under the loan.
In conjunction with the IQ Loan Agreement the Company issued 13,890 warrants in FY2021 to IQ with a strike price of $138.68, based on the total amount drawn as at September 30, 2021. The warrants may be exercised, in whole or in part, for a period of five years following the issue of the warrants. These warrants met the definition of a derivative liability and were therefore recorded at fair value. Once the warrants were issued to IQ, they met the fixed-for-fixed criteria for classifying financial instruments as equity since the warrants were settleable in a fixed number of Class C preferred shares at a fixed price per share. Upon each warrant issuance that was fully vested during the year ended September 30, 2021, the respective derivative warrant liability amount was reclassified to equity for an amount of $670,703. Refer to note 15, Warrants, of LeddarTech’s annual audited consolidated financial statements (restated) for FY2022 for more details.
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The IQ Loan Agreement contains certain affirmative and negative covenants and default provisions, including, without limitation, those set forth below:
| ● | Provision of annual audited consolidated financial statements, one-year projected financial statements annually, quarterly unaudited financial statements and an annual report from the independent auditors regarding certain expenses and related financing activities. |
| ● | Limitations on debt incurrence, liens, asset dispositions and asset locations. |
| ● | Obligation to maintain its core operations and intellectual property related to the project financed with the IQ Loan Agreement (LiDAR development) in the Province of Québec. |
| ● | Cross default in respect of obligations in excess of $100,000. |
The Company granted to IQ, as lender under the IQ Loan Agreement, a hypothec of $23.76 million over the universality the Company’s movable assets, present and future, ranking after the security of Desjardins (as defined below) and of the PIPE Investors.
On May 1, 2023, the Company entered into a secured temporary bridge loan with IQ (the “IQ Bridge Loan”) pursuant to which IQ extended to the Company a temporary term loan in an aggregate principal amount of $5.0 million disbursable in multiple tranches. As of June 12, 2023, an amount of $3.75 million had been disbursed. An amount equal to approximately $3.8 million representing the capital, interest, fees and other amounts owing by the Company to IQ under the IQ Bridge Loan was repaid in full on June 12, 2023 with PIPE Financing proceeds received at the completion of Tranche A and the IQ Bridge Loan and all security therefore were terminated.
Desjardins Credit Facility
On April 5, 2023, the Company, as borrower, and VayaVision, as guarantor, entered into the Desjardins Credit Facility with Desjardins. The Desjardins Credit Facility amended and restated an existing financing offer originally entered into in January 2020, as subsequently amended and restated and further amended, and under which the Company had borrowed $30.0 million in the form of the Desjardins Term Loan. The Company had also borrowed $2.5 million in the form of a bridge loan under the Desjardins Credit Facility (the “Desjardins Bridge Loan”). The Desjardins Bridge Loan was repaid in full with PIPE Financing proceeds received at the completion of Tranche A.
As at September 30, 2024, the aggregate principal amount outstanding under the Desjardins Term Loan was $28.2 million, and bore interest based on the Canadian prime rate of 7.0%, plus 9.00%. The Desjardins Term Loan matures on January 31, 2026, but is subject to earlier mandatory prepayment following: (i) the receipt of net cash proceeds from the sale of equity securities by the Company or a guarantor in excess of US$44.0 million (including from the PIPE Financing, but excluding amounts from the Trust Account), but only in the amount of 10.0% of such excess; (ii) the receipt of net cash proceeds from the sale of assets of the Company’s modules and components business units, to the extent of such net cash proceeds; and (iii) completion of the Business Combination, to the extent of any net cash proceeds from the Trust Account in excess of US$17.0 million. The Company may prepay, without penalty, amounts under the Desjardins Term Loan at any time. The Company has further agreed with Desjardins, no later than August 5, 2025, to have either (x) launched a formal merger and acquisition process with an investment bank selected by the board of directors of the Company and received expressions of interest in connection with such process, or (y) entered into a non-binding term sheet in respect of an equity or debt financing which would allow for the repayment in full of all amounts owing under the Desjardins Credit Facility.
A series of amendments were made to the Credit Facility on October 13, 2023 (Fourth Amendment), October 20, 2023 (Fifth Amendment), October 31, 2023 (Sixth Amendment) and December 8, 2023 (Seventh Amendment). These amendments modified the existing terms of the Desjardins Credit Facility to facilitate completion of the Business Combination by, among other things, (i) extending the latest date on which the Tranche B of the PIP Financing must be funded to December 22, 2023, (ii) extending the date on which the payment of interest for the months of October and November 2023 may be made, (iii) reducing the Minimum Cash Covenant for the period from the date of the disbursement of the Tranche A of the PIPE Financing until October 31, 2023 from $2.5 million to $1.5 million, to $0 until the Closing Date of the Business Combination and from $10.0 million to $5.0 million at all times after the Closing Date of the Business Combination and (iv) increasing the aggregate principal amount of the PIPE Financing to a minimum of $44.0 million.
In conjunction with the October 2023 Amendments to the Desjardins Credit Facility, LeddarTech issued to Desjardins warrants to purchase Common Shares at $0.01 per share, which warrants were assumed by the Company and were exercised by Desjardins on May 16, 2024 for 250,000 Common Shares at $0.01 per share.
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The warrants were recorded as a reduction of the Desjardins Credit Facility, with a corresponding increase in Reserve — Warrants in Equity of $1.6 million.
The Desjardins Credit Facility was further amended on July 5, 2024 (Ninth Amendment), July 26, 2024 (Tenth Amendment), August 5, 2024 (Eleventh Amendment), August 14, 2024 (Twelfth Amendment), August 16, 2024 (Thirteenth Amendment) and December 6, 2024 (Fourteenth Amendment) to reduce the Minimum Cash Covenant to (i) $3.5 million from July 5, 2024 to July 6, 2024, (ii) $1.8 million from July 7, 2024 to July 26, 2024, (iii) $1.3 million from July 27, 2024 to August 5, 2024, (iv) $250,000 from August 6, 2024 to August 19, 2024, (v) $1.0 million from August 20, 2024 to December 6, 2024, (vi) $1.0 million from the earlier of (w) December 13, 2024 and (x) the date of the full disbursement of the First Royalty Installment to the earlier of (y) the date of completion of one or more Equity Financing transactions (the “Short-Term Outside Date”) and (z) January 31, 2025, and (vii) $5.0 million at all times after the earlier of the Short-Term Outside Date and January 31, 2025. Desjardins also agreed, pursuant to the terms of the Eleventh Amendment, to temporarily postpone payment of interest for the months of July, August, September and October 2024 until the earlier of (x) the date on which a default under the Desjardins Credit Facility has occurred and is continuing, (y) the Short-Term Outside Date and (z) December 13, 2024 (which was extended to January 31, 2025, upon full disbursement to the Company of the First Royalty Installment).
Additionally, the Desjardins Credit Facility was amended on August 16, 2024 (Thirteenth Amendment) and December 6, 2024 (Fourteenth Amendment) to align the Desjardins Credit Facility with the Bridge Facility and this offering by, among other amendments, (i) excepting from the required repayment of the Desjardins Credit Facility of 10% from the net proceeds of the TI Pre-paid Royalty Fee and the Equity Financing, (ii) on the Short-Term Outside Date, requiring repayment, in an amount of (x) the outstanding principal amounts under the Desjardins Bridge Loan, (y) all other amounts owed to Desjardins under the Bridge Facility, and (z) any amount payable under the Desjardins Credit Facility, including amendment fees, with such cash payment to Desjardins estimated to be approximately $7.1 million, assuming completion of the Equity Financing on January 31, 2025. An additional $875,000 would be capitalized and added to the principal balance of the Desjardins Term Loan. The Fourteenth Amendment also provided that a failure to receive the First Royalty Installment by December 13, 2024, and a failure to complete the Equity Financing by January 31, 2025, would constitute liquidity events triggering repayment of the Desjardins Term Loan. The First Royalty Installment was received on December 12, 2024. See “Item 3.D. Risk Factors — Risks Related to Our Business — Upon the occurrence of a “liquidity event” under the Desjardins Credit Facility, including the failure to complete the Equity Financing by January 31, 2025, the Company would be obligated to repay all amounts under the Desjardins Credit Facility, and investors could lose all or a substantial part of their investment.”
While it is expected that receipt of the proceeds from the Bridge Facility and from this offering and other sources of capital, including the SEPA, may enable LeddarTech to comply with the Minimum Cash Covenant, LeddarTech may in the future be unable to comply with the minimum cash balance requirement, absent an agreement by the lender to further amend, waive or otherwise provide relief from this Minimum Cash Covenant, unless it raises additional capital and/or implements its cost management plan. If LeddarTech is unable to enter into a forbearance agreement, waiver or amendment with, or obtain other relief from, Desjardins, or following receipt of any such relief is nonetheless unable to comply with its terms, and as a result LeddarTech were to fail to comply with such minimum cash balance requirements, Desjardins would have the right to declare the Desjardins Term Loan to be due and payable, and if it elected to do so, approximately $109.5 million aggregate principal amount of indebtedness of LeddarTech (including the convertible notes issued in the PIPE Financing) as of June 30, 2024 plus payment in kind (PIK) interest accrued on the PIPE would also be subject to acceleration. While LeddarTech may seek additional financing to avoid or cure such an outcome or seek from Desjardins further forbearance, waiver or other relief from such requirements, there is no assurance that it would be able to do so on commercially reasonable terms, or at all. In such circumstances, LeddarTech’s ability to continue as a going concern would be materially and adversely affected and investors in LeddarTech’s Common Shares could lose all or a substantial part of their investment.
The Desjardins Credit Facility contains certain affirmative and negative covenants, including financial covenants, including, without limitation, those set forth below:
| ● | Maintenance of an unencumbered cash balance equal to or greater than $5.0 million following completion of the Business Combination. |
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| ● | Provision of audited annual financial statements, unaudited monthly and quarterly financial statements, cash flow projections, debt repayment plans and certifications regarding the foregoing. |
| ● | Limitations on debt incurrence, investments, dividends, repayments on convertible notes issued in the PIPE Financing or on the IQ Loan Agreement, liens, asset dispositions and capital expenditures. |
As discussed under “— Liquidity and Capital Management,” in the event we are unable to raise additional capital, we would likely need to enter into a forbearance agreement, waiver or amendment with respect to, or obtain a waiver or other relief from, the unencumbered cash balance covenant.
As of September 30, 2024, the Company was in compliance with all financial covenants under the Desjardins Credit Facility.
The Desjardins Credit Facility was amended to add a conversion feature at the option of the lender upon a liquidity event in February 2021, and to be then removed under the second amendment concluded in November 2021. The first and second amendments were considered fundamental changes to the terms of the Desjardins Credit Facility, and they were accounted for as extinguishments of the existing term loan and recognition of new loans, resulting in loss on extinguishment, calculated as the difference between the amount derecognized and the initial measurement of the modified loan recognized at fair value for a total loss of $0.6 million and $0.4 million, respectively. For more details, refer to note 24 to the Company’s annual audited consolidated financial statements for FY2023.
The Company granted to Desjardins a hypothec in the amount of $60.0 million over the universality of the Company’s movable assets, present and future. LeddarTech Holdings Inc. has guaranteed the obligations of the Company under the Desjardins Credit Facility and has granted to Desjardins a hypothec of $60.0 million over the universality LeddarTech Holdings Inc.’s movable assets, present and future. The Company also granted Desjardins a first ranking fixed charge and pledge over all of its shares in VayaVision. The Desjardins Term Loan also is guaranteed by VayaVision, and the payment obligations of VayaVision under said guarantee are limited to amounts that VayaVision may distribute as dividend to its shareholders under Israeli Companies Law. VayaVision also granted Desjardins a first ranking floating charge over all its rights (including goodwill), assets (tangible and intangible) and property of whatsoever nature and wheresoever located, both present and future. Certain intellectual property assets of VayaVision are subject to a master depositor escrow agreement entered into on June 12, 2023 by and between VayaVision and ESOP Management and Trust Services Ltd., as escrow agent, pursuant to which Desjardins is the primary beneficiary and the Hypothecary Representative (as defined below) is the secondary beneficiary (the “Israeli Escrow Agreement”) and certain intellectual property assets of the Company are subject to an amended and restated software escrow agreement entered into on June 12, 2023 by and among, the Company, Praxis Technology Escrow, as escrow agent, Desjardins, as primary beneficiary, and the Hypothecary Representative (as defined below), as secondary beneficiary (the “Canadian Escrow Agreement”).
Other loans
Under a license agreement for the worldwide exclusive use by the Company of an intellectual property in the development of its technology projects, the Company was required to make specified payments at specified dates or upon the occurrence or achievement of certain events. The Company was also required to make annual royalty payments through 2030 based on a variable royalty amount per unit of product sold that includes the underlying technology, subject to a minimum annual royalty payment of US$250,000. The intellectual property patent expires in 2030, which corresponds to the duration of the licensing agreement.
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The license agreement was amended in November 2020 to postpone the minimum royalty payment for calendar year 2021 of US$250,000 to 2030 and to defer the payment on some milestone obligations past due amounting to US$550,000, such amount bearing interest at 6% with full payment due on January 1, 2022. The changes were considered a fundamental change to the terms of the loan. Thus, the change was accounted for as an extinguishment of the existing term loan and recognition of a new loan resulting in the recognition of a gain of $0.2 million recorded in the consolidated statement of loss during the year ended September 30, 2021. Refer to note 24, Finance costs, net, of LeddarTech’s annual audited consolidated financial statements for FY2023 for more details. On June 6, 2023, the Company reached an agreement with the licensor pursuant to which the license was terminated and all of the Company’s payment obligations were deemed satisfied in exchange for the payment of US$100,000, of which US$50,000 was paid on June 15, 2023 and US$50,000 was paid on September 15, 2023.
PIPE Financing
On June 12, 2023, concurrently with the execution of the BCA described in “Business Combination and Public Company Costs” section, LeddarTech entered into the Subscription Agreement with certain investors, including the PIPE Investors, pursuant to which the PIPE Investors agreed to purchase the PIPE Convertible Notes in an aggregate principal amount of at least US$43.0 million (the “PIPE Financing”), payable in two tranches.
The issuance of the first tranche (“Tranche A”) of the PIPE Financing was contingent upon, among other things, the execution of the Business Combination Agreement. The Subscription Agreement provides that each PIPE Investor participating in Tranche A received (a) a secured convertible note issued by LeddarTech in a principal amount equal to such PIPE Investor’s Tranche A investment and convertible into Class D-1 Preferred Shares or into Common Shares after the Closing, with the Company as LeddarTech’s successor, at an initial conversion price of US$10.00 per share as provided in the Subscription Agreement, and (b) a warrant certificate entitling such PIPE Investor to purchase LeddarTech Inc. Class D-1 Preferred Shares at an exercise price of $0.01 per share at any time prior to the date that is 14 calendar days after the conditions of LeddarTech and the PIPE Investors to consummate the Tranche A transaction have been met, representing 2.75 Class D-1 Preferred Shares for each $100.00 of the Tranche A investment paid by such PIPE Investor under the Subscription Agreement.
The issuance of the second tranche of PIPE Convertible Notes (the “Tranche B Notes”) was contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Subscription Agreement provided that each PIPE Investor participating in Tranche B will receive a secured convertible note issued by NewCo in a principal amount equal to such PIPE Investor’s Tranche B investment and convertible into Common Shares, at an initial conversion price of US$10.00 per share as provided in the Subscription Agreement.
On October 30, 2023, LeddarTech entered into an amendment to the Subscription Agreement with the PIPE Investors, pursuant to which the PIPE Investors agreed to accelerate the timing of a portion of their purchase of Tranche B of the PIPE Financing (“Tranche B-1”), with the remaining portion to be purchased upon consummation of the Business Combination (“Tranche B-2”). The amendment to the Subscription Agreement provided that each PIPE Investor participating in Tranche B-1 would receive a secured convertible note issued by the Company in a principal amount equal to such PIPE Investor’s Tranche B-1 investment and convertible into Class D-1 Preferred Shares before the Closing or if the Closing does not occur, or into Common Shares after the Closing, with the Company as LeddarTech’s successor, as provided in the amendment, and (b) a warrant certificate entitling such PIPE Investor to purchase Class D-1 Preferred Shares at an exercise price of $0.01 per share on or before the first business day after the conditions of LeddarTech and the PIPE Investors to consummate the Tranche B-1 transaction have been met, representing 0.6 Class D-1 Preferred Shares for each US$100.00 of the Tranche B-1 investment paid by such PIPE Investor under the amendment.
The Tranche A subscription was completed in June 2023 and July 2023. Tranche B-1 was completed in October 2023 with the remaining Tranche B-2 completed at closing of the BCA. All of the PIPE Warrants were exercised, and the Class D-1 Preferred Shares issued upon exercise of the PIPE Warrants entitled the PIPE Investors to receive 8,553,434 Common Shares upon the closing of the Business Combination.
The convertible notes have an interest rate of 12% that compounds annually as an increase to the principal amount of the convertible notes and are convertible into the number of Common Shares determined by dividing the then-outstanding principal amount by the conversion price of US$10.00 per Common Share.
All the convertible notes issued in relation with the PIPE Financing are guaranteed by VayaVision and NewCo and the payment obligations of VayaVision thereunder are limited to amounts that VayaVision may distribute as dividends to its shareholders under Israeli Companies Law. VayaVision also granted to TSX Trust Company, as agent and hypothecary representative for the PIPE Investors pursuant to a collateral agency agreement dated as of June 12, 2023 (the “Hypothecary Representative”), a second ranking floating charge over all its rights (including goodwill), assets (tangible and intangible) and property of whatsoever nature and wheresoever located, both present and future. The Company granted to the Hypothecary Representative a hypothec in the amount of $60.0 million over the universality of the Company’s movable assets, present and future, ranking after the security of Desjardins. The Company also granted to the Hypothecary Representative a second ranking fixed charge and pledge over all of its shares in VayaVision. LeddarTech Holdings Inc. granted to the Hypothecary Representative a hypothec in the amount of $60.0 million over the universality of LeddarTech Holdings Inc.’s movable assets, present and future, ranking after the security of Desjardins. The Hypothecary Representative is also a secondary beneficiary under the Israeli Escrow Agreement and the Canadian Escrow Agreement.
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The Agreement contains customary covenants that provide for, among other things, limitations on indebtedness and fundamental changes, and reporting requirements.
Warrant liabilities
Upon close of the Business Combination, the Company assumed through the Transactions, public warrants, private warrants and vesting sponsor warrants (“Public Warrants”, “Private Warrants” and “Vesting Sponsor Warrants”, collectively “the Warrants”) in connection with the BCA and plan of arrangement. There was no transaction and no change in fair value of all warrants during the period.
Refer to Notes 4 and 16 of the Company’s audited consolidated financial statements for FY2024 for more details.
Capital stock
The Company is authorized to issue an unlimited number of common shares, without par value, an unlimited number of Class A Non-Voting Special Shares, Class B Non-Voting Special Shares, Class C Non-Voting Special Shares, Class D Non-Voting Special Shares, Class E Non-Voting Special Shares and Class F Non-Voting Special Shares and an unlimited number of preferred shares issuable in series.
Following the consummation of the Business Combination, there were (i) 28,770,930 Common Shares outstanding; (ii) 2,031,250 Class A Non-Voting Special Shares outstanding, (iii) 999,963 Class B Non-Voting Special Shares outstanding, (iv) 999,963 Class C Non-Voting Special Shares outstanding, (v) 999,963 Class D Non-Voting Special Shares outstanding, (vi) 999,963 Class E Non-Voting Special Shares outstanding, (vii) 999,963 Class F Non-Voting Special Shares outstanding, and (viii) no preferred shares outstanding.
Class A non-voting special shares issued through the Transactions to Sponsor in connection with the BCA and plan of arrangement will vest and convert into common shares, in equal thirds upon the volume weighted average price of the common shares exceeding US$12.00, US$14.00 and US$16.00, respectively, for any 20 trading days within any consecutive 30 trading day period commencing at least 150 days following the closing.
Classes B to F Non-Voting Special Shares issued through the Transactions were valued at the time of issuance at per share amounts ranging from $3.78 (US$2.84) to $5.22 (US$3.93) based on option pricing models that consider the vesting terms of the instruments issued.
During FY2024, 682,685 Common Shares were issued following the exercise of warrants, the exercise of RSUs, in connection with the BCA and in connection with the SEPA. Refer to Notes 15 and 19 of the Company’s audited annual consolidated financial statements for FY2024 for more details.
As of September 30, 2024, the Company held no Common Shares as treasury shares.
Refer to Notes 4, 18 and 19 of the Company’s audited annual consolidated financial statements for FY2024 for more details.
Redeemable stock options
The redeemable stock options, representing a non-current liability of $6.1 million as at September 30, 2023, were exercisable at any moment on or after the 10th anniversary of each plan (MSOP, MSOP II and MSOP III) or prior to this date if an IPO or Liquidation event occurs. As a part of the transaction, the redeemable stock options were converted into new non-redeemable stock options, representing a gain on modification of stock options of $6.0 million for FY2024.
Standby Equity Purchase Agreement
In furtherance of addressing our liquidity needs, on April 8, 2024, the Company entered into the SEPA with Yorkville, effective April 15, 2024, pursuant to which the Company, assuming satisfaction of certain conditions and subject to the limitations set forth in the SEPA, has the right from time to time, but not the obligation, to issue and sell to Yorkville up to US$50.0 million in Common Shares until the earlier of May 1, 2027 or the date on which the facility has been fully utilized. The Company has the right to terminate the SEPA upon five trading days’ prior written notice to Yorkville, subject to certain conditions.
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In accordance with our obligations under the SEPA, we have filed the SEPA Registration Statement with the SEC to register under the Securities Act the resale by Yorkville of the SEPA Shares. The Common Shares will be purchased at a price equal to (i) 96% of the VWAP of the Common Shares during the period commencing upon receipt by us of written confirmation of acceptance of the Advance Notice by Yorkville, and ending on 4:00 p.m. New York City time on the applicable Advance Notice date, subject to a volume threshold as described in the SEPA (“Option 1”) or (ii) 97% of the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the Advance Notice date (“Option 2”); provided, however, that with respect to any Option 2 Advance, we may establish a minimum acceptable price in each Advance Notice below which we will not be obligated to make any sales to Yorkville. Each Advance, if any, by the Company to Yorkville under the SEPA is subject to a maximum amount equal to (1) the greater of an amount equal to 100% of the daily trading volume of the Common Shares stock, as reported by Bloomberg L.P., during the five trading days immediately preceding an Advance Notice or (2) 500,000 Common Shares. Because shares issued under the SEPA are sold at a discount to the then-current market price, in light of the current market price the amount that could be raised pursuant to the SEPA may be significantly lower than US$50.0 million. For more information, see “Item 3.D. Risk Factors — Risks Related to Our Business — It is not possible to predict the actual number of shares we will sell to Yorkville under the SEPA, or the actual gross proceeds resulting from those sales.”
During any trading day within a Pricing Period (as defined in the SEPA), two conditions will trigger an automatic reduction to the amount of the Advance: either (i) with respect to an Option 1 Advance Notice, if the total number of Common shares traded on the applicable stock market or exchange during such Pricing Period is less than the volume threshold (as described in the SEPA), by the greater of (a) 30% of the trading volume of the Common Shares on the applicable stock market or exchange during such Pricing Period as reported by Bloomberg L.P., or (b) the number of Common Shares sold by Yorkville during such Pricing Period, but in each case not to exceed the amount requested in the Advance Notice or (ii) with respect to an Option 2 Advance Notice, if (A) VWAP of the Common Shares is below the minimum acceptable price in effect with respect to such Advance Notice, or (B) there is no VWAP (each such day, an “Excluded Day”), by 33% (the resulting amount of each Advance being the “Adjusted Advance Amount”), and each Excluded Day will be excluded from the Option 2 Pricing Period for purposes of determining the market price. Additionally, the total Common Shares in respect of each Advance with any Excluded Day(s) (after reductions have been made to arrive at the Adjusted Advance Amount) will be increased by such number of Common Shares (the “Additional Shares”) equal to greater of (a) the number of Common Shares sold by Yorkville on such Excluded Day(s), if any, or (b) such number of Common Shares elected to be subscribed for by Yorkville, and the subscription price per share for each Additional Share will be equal to the minimum acceptable price in effect with respect to such Advance Notice multiplied by 97% (without any further discount), provided that this increase will not cause the total Advance Common Shares to exceed the amount set forth in the original Advance Notice or any limitations set forth in the SEPA. Each Advance, if any, is subject to certain limitations, including that Yorkville cannot purchase any Common Shares that would result in it beneficially owning more than 9.99% of the Company’s outstanding voting power or number of Common Shares at the time of an Advance.
Through December 17, 2024, we issued a total of 5,490,000 Common Shares under the SEPA for net proceeds of approximately US$9.0 million. See “— Subsequent Events — Issuance of Common Shares under the SEPA” below.
Maturity analysis of contractual obligations
As at September 30, 2024, minimum commitments remaining under these agreements over the following years are as follows:
| Total | 2025 | 2026 – 2027 | 2028 – 2029 | 2030 and up | ||||||||||||||||
| License | 176,977 | 166,313 | 10,664 | - | - | |||||||||||||||
| Telecommunications | 298,251 | 155,600 | 142,651 | - | - | |||||||||||||||
| Cloud Services | 946,558 | 723,571 | 222,987 | - | - | |||||||||||||||
| Subcontracting Services | 698,470 | 698,470 | - | - | - | |||||||||||||||
| Accounts payable and accrued liabilities | 13,412,889 | 13,412,889 | - | - | - | |||||||||||||||
| Lease liabilities | 4,255,037 | 855,207 | 1,768,875 | 682,896 | 948,059 | |||||||||||||||
| Credit facility | 30,000,000 | - | 30,000,000 | - | - | |||||||||||||||
| Convertible loan | 64,018,174 | - | - | 64,018,174 | - | |||||||||||||||
| Term loan | 22,508,417 | - | 8,749,427 | 11,007,192 | 2,751,798 | |||||||||||||||
| 8,443,834 | 8,443,834 | - | - | - | ||||||||||||||||
| Government grant liability | 2,192,483 | 896,491 | 1,295,992 | |||||||||||||||||
| Total | 146,951,090 | 25,352,375 | 42,190,596 | 75,708,262 | 3,699,857 | |||||||||||||||
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Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various risks in relation to financial instruments. The main types of risks are foreign exchange risk, interest rate risk and liquidity risk. The Company currently does not use financial derivative instruments to manage these risks. While LeddarTech could enter into hedging contracts from time to time, any change in the cash flow and the fair value of the contracts may be offset by changes in the underlying value of the transactions being hedged. For more details refer to Note 28 of the Company’s audited annual consolidated financial statements for FY2024.
Foreign exchange risk
Since the Company operates internationally, it is exposed to foreign exchange risk as a result of potential exchange rate fluctuations related to non-intragroup transactions and the financing of the development activities of its subsidiary VayaVision who operates in Israeli using mainly USD and NIS currencies. The Company is also exposed to foreign exchange risk on its PIPE Convertible Notes and its Bridge Loans denominated in USD. Fluctuations in the Canadian dollar and the exchange rates could have potentially significant impact on the Company’s results of operations.
Interest rates
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates as described in the Notes 15 and 28 of the Company’s audited annual consolidated financial statements FY2024. The Company is also exposed to change in fair value of financial instruments with fixed interest rates.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or can only do so at excessive cost. The Company manages this risk by maintaining detailed cash forecasts and long-term operating and strategic plans. The adequacy of liquidity is assessed in view of operational needs, sales forecasts and maturity of indebtedness. The Company is confident that the future cash flows from operations and cash will allow for the realization of assets and settlement of liabilities in the normal course of business as they become due. The Company also continually monitors any financing opportunities to optimize its capital structure.
Accounting and disclosure matters
Significant accounting judgments, estimates and assumptions
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the amounts of revenue, expenses, assets and liabilities and the accompanying disclosures. Actual results could differ significantly from these estimates.
The key judgments, estimates and assumptions that have a risk of causing a material adjustment to the carrying value of certain assets and liabilities are related to:
| ● | Development costs; |
| ● | Discontinued operations; |
| ● | Government grant liability; |
| ● | Stock-based payments; |
| ● | Recoverable amount of a group of assets of a CGU; and |
| ● | Estimates for debt, including bifurcation. |
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For a more detailed discussion on these areas requiring the use of management estimates, judgments, and assumptions, please refer to Note 3 to the Company’s audited annual consolidated financial statements for FY2024.
Emerging Growth Company Status
As defined in Section 102(b)(1) of the JOBS Act, LeddarTech is an emerging growth company. As such, LeddarTech is eligible for and relies on certain exemptions and reduced reporting requirements provided by the JOBS Act, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.
LeddarTech will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of the fiscal year in which it has total annual gross revenue of US$1.07 billion or more during such fiscal year (as indexed for inflation), (ii) the date on which it has issued more than US$1 billion in non-convertible debt in the prior year period, (iii) the last day of the fiscal year following the fifth anniversary of the Prospector’s initial public offering, or (iv) when it has qualified as a “large accelerated filer,” which refers to when it (1) has an aggregate worldwide market value of voting and shares of common equity securities held by non-affiliates of US$700 million or more, as of the last business day of its most recently completed second fiscal quarter, (2) has been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act, for a period of at least twelve calendar months, (3) has filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act, and (4) is not eligible to use the requirements for “smaller reporting companies,” as defined in the Exchange Act.
Non-IFRS financial measures
EBITDA and Adjusted EBITDA are non-IFRS financial measures. A non-IFRS financial measure is a financial measure used to depict our historical or expected future financial performance, financial position or cash flow and, with respect to its composition, either excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in Company’s consolidated primary financial statements.
In Q2-2024, the Company started to use these two new non-IFRS financial measures because we believe these non-IFRS financial measures are reflective of our ongoing operating results and provide readers with an understanding of management’s perspective on and analysis of our performance.
Below are descriptions of the non-IFRS financial measures that we use to explain our results as well as reconciliations to the most directly comparable IFRS financial measures.
EBITDA (loss) is calculated as net earnings (loss) before interest expenses (income), deferred income taxes, depreciation of property and equipment, depreciation of right-of-use assets and amortization of intangible assets. The Company believes that EBITDA (loss) is a meaningful measurement since it is a key measure used to evaluate performance at a consolidated level. EBITDA (loss) is commonly reported and widely used by investors and lending institutions as an indicator of a company’s operating performance. EBITDA (loss) should not be considered as an alternative to net loss in measuring performance, nor should it be used as a measure of cash flow.
Adjusted EBITDA (loss) is calculated as EBITDA (loss), adjusted for foreign exchange gain (loss), loss (gain) on revaluation of financial instruments carried at fair value, gain or loss on lease modification, share-based compensation, listing expense, transaction costs, restructuring costs and impairment loss on intangible assets.
The Company believes that Adjusted EBITDA (loss) is a meaningful measure since it allows to assess the Company’s operating performance and financial position between periods without the variances created by the impact of the above-noted items. The Company believes that these measures are important supplemental measures because they eliminate items that are less indicative of our core business performance and could potentially distort the analysis of trends in our operating performance and financial position. The Company considers that these non-IFRS financial measures, in addition to the financial measures prepared in accordance with IFRS, enable investors to evaluate the Company’s operating results, underlying performance, and future prospects in a manner similar to management.
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The following tables set forth a reconciliation of Adjusted EBITDA and EBITDA to net loss reported in accordance with IFRS for FY2024, FY2023 and FY2022.
| FY2024 | FY2023 | FY2022 | ||||||||||
| Net loss from continued operations | (167,318,738 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||
| Deferred income taxes | 15,882 | - | - | |||||||||
| Depreciation of property and equipment | 783,081 | 1,274,597 | 1,448,867 | |||||||||
| Depreciation of right-of-use assets | 515,558 | 581,936 | 610,941 | |||||||||
| Amortization of intangible assets | 257,932 | 286,494 | 257,064 | |||||||||
| Interest expenses (income) | 8,516,354 | (1,039,281 | ) | (859,403 | ) | |||||||
| EBITDA (loss) from continuing operations | (157,229,931 | ) | (42,738,031 | ) | (73,962,491 | ) | ||||||
| Foreign exchange loss (gain) | (399,827 | ) | 224,057 | (2,749,505 | ) | |||||||
| Loss (gain) on revaluation of financial instruments carried at fair value | (5,553,010 | ) | 21,100 | (7,129,238 | ) | |||||||
| Gain on lease modification (Note 15) | (204,146 | ) | - | - | ||||||||
| Loss on exercise of conversion option | 366,957 | - | - | |||||||||
| Stock-based compensation | 1,715,512 | 2,436,974 | 4,272,673 | |||||||||
| Listing expense | 59,139,572 | - | - | |||||||||
| Transaction costs | 2,407,977 | 3,506,630 | - | |||||||||
| Restructuring costs | 46,387 | 1,734,244 | - | |||||||||
| Impairment loss related to property and equipment | - | - | - | |||||||||
| Impairment loss related to intangible assets | 69,315,247 | - | 38,207,503 | |||||||||
| Adjusted EBITDA (loss) from continuing operations | (30,395,262 | ) | (34,815,026 | ) | (41,361,058 | ) | ||||||
Internal Control over Financial Reporting
Prior to completion of the Business Combination, the Company was a private company and we addressed our internal control over financial reporting with internal accounting and financial reporting personnel and other resources.
In the course of preparing for the Business Combination, the Company identified material weaknesses in its internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim condensed consolidated financial statements may not be prevented or detected on a timely basis.
The following material weaknesses were identified by the Company:
| i. | Insufficient accounting personnel to execute the routine and non-routine accounting processes and apply segregation of duties over the execution and approval of journal entries. |
| ii. | The Company has not adequately assessed the effectiveness of its information technology controls to select and develop general control activities over technology to support its financial reporting activities. As a result, the Company places extensive reliance on spreadsheets for various financial processes, including data entries, calculations and analysis, which lack the robust controls and validation mechanisms present in an integrated financial software environment. In addition, the Company has inadequate documentation and a lack of effective review controls to validate the inputs and assumptions used in the data entries, calculations, and analysis in the spreadsheets. |
| iii. | Review controls regarding both routine accounting processes and accounting treatments for complex transactions that were not designed effectively to ensure that accounting transactions are properly recognized and measured in the consolidated financial statements. |
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We have taken steps to address these pervasive material weaknesses and have implemented our remediation plan which addressed the underlying causes of the previous years’ material weaknesses. We have assessed the resource needs and have employed appropriately qualified staff to perform routine accounting transactions. We have also engaged external advisors with subject matter expertise and additional external resources to provide assistance in assessing complex and highly subjective accounting transactions. Further, we have engaged an external resource to assist with the assessment of our control environment including, performance of a risk assessment; documentation of process flows; design and remediation of internal controls; and evaluation of the design and operational effectiveness of our internal controls. We engaged an external advisor to provide an assessment of our general IT Controls (GTIC) environment and are implementing the recommendations from the assessment. We have chartered a Security Steering Committee comprised of several members of the executive team. We continue to evaluate the longer-term resource needs of our various financial functions.
While we have made some upgrades to our enterprise resource planning (“ERP”) system to address internal control concerns, we are evaluating alternative ERP systems that may better fit our longer-term needs.
We have made enhancements to our control environment and have implemented control activities to prevent or detect material misstatements. As such, we conclude that our material weaknesses have been remediated as of September 30, 2024. Moreover, significant operating cost reductions may materially adversely impact our accounting and finance function and make it more difficult to remediate existing significant deficiencies and may give rise to additional material weaknesses. See “Item 3.D. Risk Factors — We have identified material weaknesses in our internal control over financial reporting, and we may identify additional material weaknesses in the future.”
Foreign Private Issuer Status
LeddarTech qualifies as a “foreign private issuer” as defined under SEC rules. Even after LeddarTech no longer qualifies as an emerging growth company, as long as LeddarTech continues to qualify as a foreign private issuer under SEC rules, LeddarTech is exempt from certain SEC rules that are applicable to U.S. domestic public companies, including:
| ● | the rules requiring domestic filers to issue financial statements prepared under U.S. GAAP; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; |
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial statements and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events; and |
| ● | the selective disclosure rules by issuers of material non-public information under Regulation FD. |
Notwithstanding these exemptions, LeddarTech will file with the SEC, within four months 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. In addition, LeddarTech will furnish with the SEC on Form 6-K periodic reports and other documents filed with the Canadian Securities Administrators.
LeddarTech may take advantage of these exemptions until such time as LeddarTech is no longer a foreign private issuer. LeddarTech would cease to be a foreign private issuer at such time as more than 50% of its outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of its executive officers or directors are U.S. citizens or residents, (ii) more than 50% of its assets are located in the United States or (iii) its business is administered principally in the United States.
Both foreign private issuers and emerging growth companies also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if LeddarTech no longer qualifies as an emerging growth company, but remains a foreign private issuer, LeddarTech will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
In addition, because LeddarTech qualifies as a foreign private issuer under SEC rules, LeddarTech is permitted to follow the corporate governance practices of Canada (the jurisdiction in which LeddarTech is organized) in lieu of certain Nasdaq corporate governance requirements that would otherwise be applicable to LeddarTech.
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If at any time LeddarTech ceases to be a foreign private issuer, LeddarTech will take all action necessary to comply with the SEC and Nasdaq Listing Rules, including by appointing a majority of independent directors to its board of directors and having compensation and nominating committees that are comprised solely of independent directors, subject to a permitted “phase-in” period.
Subsequent Events
Strategic Collaboration Agreement and a Software License Agreement
On December 9, 2024, the Company announced that LeddarTech and Texas Instruments have entered into a strategic collaboration agreement and a software license agreement to enable a comprehensive, integrated platform solution for ADAS an AD markets. Under the license agreement, Texas Instruments has agreed to make advanced royalty payments to catalyze joint commercialization.
The agreement outlines a total payment of approximately US$10 million in advance royalties, with the potential for additional royalties over time. An initial payment of US$5.0 million was received by the Company on December 12, 2024. A subsequent payment of US$3.0 million USD will follow the completion of the demonstrator, which is planned to debut at the Consumer Electronics Show in Las Vegas next month. The final US$1.9 million will be contingent upon the execution of a client contract with an original equipment manufacturer (OEM).
The consideration received in advance from Texas Instruments will be recorded as deferred revenue until the Company fulfills its related obligations.
For more details, refer to Notes 30 of the audited annual consolidated financial statements of the Company for FY2024.
Credit Facility and Bridge Financing
On December 6, 2024, in connection with the collaboration and license agreements with Texas Instruments and the advanced royalty payments provided thereunder (the “TI Pre-paid Royalty Fee”), LeddarTech entered into:
| ● | a fourteenth amendment of its Credit facility with Desjardins pursuant to which Desjardins has agreed to, among other things: (i) temporarily postpone payment of interest for a certain period of time, and (ii) temporarily suspend the Minimum Cash Covenant until the earlier of (a) December 13, 2024, and (b) the date of disbursement to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee. |
| ● | a second amendment of the Bridge Financing modifying among other things, the maturity of the bridge loan to December 13, 2024, which date will automatically be extended upon the disbursement by Texas Instruments to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee, to the earlier of (a) January 31, 2025 and (b) the business day following the Short-Term Outside Date. |
Also, on October 15, 2024, the Tranche 2 of the Bridge Financing was issued for an aggregate amount of US$2.8 million composed of US$0.9 million in Non-Convertible Bridge Loan and US$1.9 million in Convertible Bridge Loan.
Refer to caption “— Financing Transactions — Desjardins Credit Facility” for more details.
Issuance of Common Shares under the SEPA
Through December 17, 2024, the Company issued 5,490,000 common shares under the SEPA agreement, generating net proceeds of US$9.0 million. Refer to “— Financing Transactions — Capital stock — Standby Equity Purchase Agreement” for more details, “Item 3.D. Risk Factors — Risks Related to Our Business — It is not possible to predict the actual number of shares we will sell to Yorkville under the SEPA, or the actual gross proceeds resulting from those sales” and “Item 3.D. Risk Factors — Risks Related to Ownership of Our Securities — We need to raise substantial amounts of additional capital to address our liquidity needs and to realize our operational goals. The issuance of additional shares of the Common Shares would result in dilution of our shareholders and could have a negative impact on the market price of Common Shares.”
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| A. | Directors and Senior Management |
The following table sets forth our current directors and executive officers:
| Directors and Executive Officers | Age | Position/Title | ||
| Frantz Saintellemy | 51 | Director, Chief Executive Officer | ||
| Charles Boulanger | 67 | Director | ||
| Derek Kenneth Aberle | 54 | Chairman | ||
| Nick Stone | 47 | Director | ||
| Michelle Sterling | 57 | Director | ||
| Yann Delabrière | 74 | Director | ||
| Sylvie Veilleux | 59 | Director | ||
| Lizabeth Ardisana | 73 | Director | ||
| David Torralbo | 54 | Chief Legal Officer | ||
| Christopher Stewart | 56 | Chief Financial Officer |
The business address for each of the Company’s directors and executive officers is 4535, boulevard Wilfrid-Hamel, Suite 240 Québec G1P 2J7, Canada.
Biographical information concerning our directors and executive officers listed above is set forth below.
Frantz Saintellemy
Frantz Saintellemy, C.M., has served as President and Chief Executive Officer and a Director of the Company since the consummation of the Business Combination on December 21, 2023, having previously served as President and Chief Operating Officer of LeddarTech Inc. since October 2017. Mr. Saintellemy is an internationally recognized expert in deep technologies in automotive, IoT, sensing, semiconductors, and artificial intelligence. He is the 14th Chancellor and Chair of the Board of the University of Montreal.
Mr. Saintellemy is also the co-founder and chair of the board at Groupe 3737, a non-profit organization and entrepreneurial innovation hub across Canada. Groupe 3737 helps entrepreneurs and tech founders start, grow, accelerate, and succeed, with the strategic objective of developing more entrepreneurs, creating more successful companies, more jobs and sustainable financial independence across Canada.
Prior to joining LeddarTech, Mr. Saintellemy founded and co-founded several start-ups with multiple exits and has several published patents and papers to his credit. Mr. Saintellemy is also a founder member of the Quebec Innovation Council and served as vice-president of the board for the past four years.
Mr. Saintellemy is a member of the Order of Canada, awarded Québec Innovation Prize (2024), received the Medals of the National Assembly of Quebec and the Canadian Senate, named as Top 6 Canadian Innovators by the Canadian Senate, Top 15 Real Influencers (2023 - La Presse), Global Top 50 Exec. MBAs (2020 – Poets & Quants), MBA of the Year (2021 – AMBAQ), Canadians to Watch (Automotive News 2021), Top Performing Executive (2020 – World Executive Forum), Boston Consulting Group’s (BCG) Top 10 Young Tech Leaders to Watch and various other awards and distinctions.
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Charles Boulanger
Charles Boulanger has served as a Director of the Company since the consummation of the Business Combination on December 21, 2023. Mr. Boulanger previously served as the Chief Executive Officer of LeddarTech from 2012 through the consummation of the Business Combination. Mr. Boulanger is a seasoned board member with over 25 years of CEO experience who has served on over 15 boards with public and private companies having international operations in various industries such as deep tech (AI, software, microelectronics), automotive, software, life sciences, energy and environmental industries. Since 2008, he has served as President of Moody Management Inc., a private investment firm. Before LeddarTech, Mr. Boulanger was the Founder, President and Chief Executive Officer of Groupe Unipex SAS as of 2008. He was President of the Active Ingredients and Specialty Chemicals Division of Atrium Innovations (TSE: ATB) from 2004 to 2008. Before joining Atrium, Mr. Boulanger was the Founder and President of Quebec International following a partnership with Phénix Capital. Mr. Boulanger is a long time active investor, with a direct investment portfolio of about 15 companies and his participation as a sponsor/limited investor in five separate investment funds. He is currently on the boards of Pieridae Energy (TSE: PEA), Averna Technologies, LeddarTech and Fonds Innovexport Limited Partners committee. Mr. Boulanger is a graduate of Université Laval in mechanical engineering and holds a degree from the International Centre for Research and Studies in Management (CIREM).
Derek Aberle
Derek Aberle has served as Chairman of the board of directors of the Company since the consummation of the Business Combination on December 21, 2023 and was a member of the LeddarTech board of directors since November 2021. Mr. Aberle is Chief Executive Officer of Prospector. Since March 2022, Mr. Aberle has served on the board of directors of the Company. Mr. Aberle’s experience includes senior executive roles in large, global technology companies, early-stage technology companies as well as the investment community. Mr. Aberle spent 17 years at Qualcomm Incorporated, a global leader in mobile and related technologies and products, in a variety of senior executive roles. From 2014 to 2018, he served as President of Qualcomm with responsibility for all business units, including its licensing and semiconductor businesses, as well as its marketing organization and regional offices worldwide. Prior to that, Mr. Aberle served as EVP and Group President and as EVP and President of Qualcomm Technology Licensing. He was a member of Qualcomm’s executive committee for over a decade, helping to drive the company’s overall strategy. He led many of Qualcomm’s global growth initiatives, including in markets beyond smartphones as well as its expansion in China. During is tenure at Qualcomm, he also led Qualcomm’s technology and IP licensing business, established its 4G and 5G licensing programs, and structured and negotiated Qualcomm’s major license and other strategic agreements. Since leaving Qualcomm, Mr. Aberle co-founded Virewirx, Inc. (formerly XCOM Labs), a company focused on developing and commercializing advanced wireless technologies, where he presently serves as Executive Vice Chairperson. Mr. Aberle holds a B.A. in business economics from the University of California, Santa Barbara and a J.D. from the University of San Diego School of Law. In addition to LeddarTech, he is a board member for InterDigital, Inc. (IDCC), Virewirx, Inc. and EvoNexus (a Southern California incubator).
Nick Stone
Nick Stone has served as a Director of the Company since the consummation of the Business Combination on December 21, 2023 and was a member of the LeddarTech board of directors since November 2021. Mr. Stone was Chief Financial Officer and a director of Prospector and is currently a Partner at FS Investors, where he has worked since 2013. Prior to joining FS Investors in June 2011, Mr. Stone served as Vice President at TPG Capital, one of the world’s largest private equity funds from August 2007 to March 2011. Prior to joining TPG, Mr. Stone was an investment professional at Kohlberg Kravis Roberts& Co. focusing on investments in the healthcare space from 2003 to 2005. Prior to that, he was an analyst at Morgan Stanley, focusing on the technology sector. Mr. Stone graduated cum laude from Harvard University and was an Arjay Miller Scholar at the Stanford Graduate School of Business.
Michelle M. Sterling
Michelle Sterling has served as a Director of the Company since the consummation of the Business Combination on December 21, 2023. Ms. Sterling spent 25 years at Qualcomm Incorporated, a leading wireless communications technology company, including serving as Executive Vice President, Human Resources, from May 2015 until May 2020, and as Senior Vice President, Human Resources from October 2007 to May 2015. In addition to her deep knowledge of executive compensation, CEO and executive leadership succession, Ms. Sterling is well-experienced in the dynamic global technology market and its human capital implications. Prior to joining Qualcomm, Ms. Sterling served in various human resources roles at ABB Traction and Manpower, both in the New York area.
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Ms. Sterling currently serves on the Board of Directors, Compensation and Human Capital Committee for Coherent Corp., one of the largest photonics and compound semiconductor companies in the world (NYSE: COHR) and on the Board of Directors, Governance and Compensation and Human Capital Committees for Digital Turbine, an application and delivery content delivery platform (Nasdaq: APPS). Ms. Sterling formerly served on the Board of Directors, Security Committee and Chair of the Compensation and Human Capital Committee for TuSimple, an AD technology for the trucking industry (Nasdaq: TSP).
Ms. Sterling holds a bachelor’s degree in business management from the University of Redlands and holds a National Association Corporate Directors (NACD) Directorship certification.
Yann Delabrière
Yann Delabrière has served as a Director of the Company since the consummation of the Business Combination on December 21, 2023 and was a member of the LeddarTech board of directors since February 2021. Mr. Delabrière possesses over 30 years of experience in senior executive positions in the aerospace, identity, security and automotive industries. He was a Non-Executive Director of ST Microelectronics until May 2024. He was Chairman of the Board of IDEMIA until April 2023, a global leader in augmented reality, where he previously served as President and CEO. Until June 2024, Mr. Delabrière also served as Lead Independent Director of Alstom S.A., which develops and markets integrated systems that provide sustainable foundations for the future of transportation.
Mr. Delabrière served as Chairman and CEO of Faurecia (now FORVIA), a worldwide leader in automotive equipment, from February 2007 to June 2016, and as Chairman through May 2017, where his leadership led to the growth of the organization, particularly in North America and Asia, and helped restore its profitability and cash generation capabilities. Prior to Faurecia, Mr. Delabrière held the Chief Finance Officer position at PSA Peugeot Citroën (now Stellantis), beginning in 1990. In parallel to his position as CFO, Mr. Delabrière later became Chairman and Chief Executive Officer of PSA’s consumer finance unit. Mr. Delabrière served as non-executive director and chairman of the audit committee for Capgemini SE, a leading IT services company.
Between 2017 and 2020, Mr. Delabrière also lent his executive experience to the aerospace, identity and security industries. From 2017 to 2018, he was advisor to the board then CEO of Zodiac Aerospace, and oversaw the company’s sale to Safran Group in 2018. From 2018 to 2020 he was president and CEO for IDEMIA. Mr. Delabrière also previously occupied the roles of Non-Executive Director at Société Générale, Group CFO for the high-end retail group Printemps (now known as Kering) and CFO for the French export credit agency Coface after a term with the French Court of Auditors and three years within the French Foreign Trade Ministry beginning in 1983.
Mr. Delabrière holds a PhD in Mathematics, having graduated from the École Normale Supérieure and the École Nationale d’Administration. He is also a Chevalier de la Légion d’Honneur (Knight of the Legion of Honor) and Officier de l’Ordre National du Mérite (Officer of the National Order of Merit).
Sylvie Veilleux
Sylvie Veilleux was appointed as a Director of the Company effective as of January 29, 2024. She is a strategic global technology leader and former CIO with over three decades of experience, holding top management positions at several global technology firms. She served as the first Chief Information Officer at Dropbox (Nasdaq: DBX), where she developed the organization’s first global strategic IT function, enabling it to expand and scale before and after its IPO. Ms. Veilleux served in several critical technology roles at multinational firms such as Apple (Nasdaq: AAPL), Salesforce (NYSE : CRM), Mozilla Corporation and Franklin Templeton Investments (NYSE: BEN) where her expertise includes driving various digital transformation efforts at different points of maturity in both public and private companies, scaling for growth at inflection points such as IPO, M&A, and robust operations and cyber security leadership.
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Ms. Veilleux serves on the Leddartech (NASDAQ : LDTC) board as an independent director and member of the audit committee, and as an independent director and member of the audit committee for Softchoice (TSE : SFTC). Ms. Veilleux serves on several private companies as non-executive Board Chair and Compensation and Nomination Committee chair for Cinchy, an independent director for Prezi, and an independent director and member of the audit committee for QScale. Previous board service includes Europcar Mobility Group when it was a publicly traded company as an independent director and member of the Strategy Committee, the Nomination and Compensation and Human Capital Committee and Chair of the Tech and Cyber Committee, and as an independent director on the board of H1.
Ms. Veilleux was recognized by Forbes CIO NEXT 2021 Top 50, by Technology Magazine Top 100 Women in Technology 2021 and by the California Diversity Council in 2017 as a Distinguished Chief Information Officer. Ms. Veilleux studied Computer Science at the College de Limoilou in Quebec City, Canada.
Lizabeth Ardisana
Lizabeth Ardisana was appointed as a Director of the Company effective January 29, 2024. Ms. Ardisana is the CEO and the principal owner of the firm ASG Renaissance, LLC, which she founded in 1987. ASG Renaissance is a technical and communication services firm with experience providing services to clients in the automotive, environmental, defense, construction, healthcare, banking, and education sectors. As CEO of ASG Renaissance, she has worked on numerous alternative fuel, electric vehicle and advanced technology projects. Ms. Ardisana is also CEO of Performance Driven Workforce, LLC, a scheduling and staffing firm founded in 2015 and has since expanded into five states. Prior to starting ASG Renaissance, Ardisana worked at Ford Motor Company as an engineer.
Ms. Ardisana, a Hispanic and female business owner, is an active business and civic leader in Michigan. Ms. Ardisana has been a member of the board of directors of Huntington Bancshares Inc. from 2016 to 2023, a member of the board of directors of Clean Energy Fuels Corp. since December 2019 and a member of the board of directors of FirstMerit Corporation from 2013 to 2016. Ms. Ardisana has also held numerous leadership positions in various non-profit organizations, including the United Way for Southeastern Michigan, Skillman Foundation, CS Mott Foundation, Kettering University, Metropolitan Affairs Coalition and Focus: Hope. The governor of Michigan appointed her to the Executive Committee of the Michigan Economic Development Corporation, where she serves on its finance subcommittee. Ms. Ardisana is vice chair of the Wayne Health board of directors, serving on the audit committee.
Ms. Ardisana holds a bachelor’s degree in Mathematics and Computer Science from the University of Texas, a master’s degree in Mechanical Engineering from the University of Michigan and a master’s degree in Business Administration from the University of Detroit.
David Torralbo
David Torralbo has served as Chief Legal Officer of the Company since the consummation of the Business Combination on December 21, 2023. Mr. Torralbo joined LeddarTech as Chief Legal Officer in June 2022. Mr. Torralbo has over 20 years of experience specializing in corporate and securities law, public and private M&A, litigation, risk management and corporate governance. Prior to joining LeddarTech, Mr. Torralbo served as Chief Legal Officer at Nouveau Monde Graphite from January 2021. Prior to that, Mr. Torralbo served as Vice-President, CLO and member of the executive committee of Atrium Innovations Inc. for eight years, was a partner in the corporate group at Davies, Ward, Phillips & Vineberg, and earlier in his career, an associate in the London office of Clifford Chance. Mr. Torralbo earned his Bachelor of Civil Law (LL.L.) and common law (LL.B.) at the University of Ottawa and holds a Bachelor of Commerce (B.Com) from McGill University.
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Christopher Stewart
Christopher Stewart has served as Chief Financial Officer of the Company since the consummation of the Business Combination on December 21, 2023. Mr. Stewart joined LeddarTech as Chief Financial Officer in September 2023. Mr. Stewart has over 20 years of financial management experience at companies ranging from startups to large public companies. Mr. Stewart has previously served as the Chief Financial Officer of Bionano Genomics, Inc. from September 2020 until joining LeddarTech in September 2023. Prior to that, Mr. Stewart served as the Head of Maxwell Ultracapacitors at Tesla, Inc., a public electric vehicle and clean energy company, from May 2019 to July 2020, and as Vice President, Finance and Information Technology at Maxwell Technologies Inc., a public energy storage company, from July 2015 to May 2019 (at which point the company was acquired by Tesla, Inc.). In addition, Mr. Stewart held multiple leadership roles, including as Vice President, Finance at Entropic Communications and as Chief Financial Officer of V-ENABLE Inc. (currently GroundTruth), a leader in targeted mobile advertising. Mr. Stewart received his B.S. in Business Administration from the University of Southern California and his M.S. in Industrial Administration from Carnegie Mellon University.
| B. | Compensation |
Overview of Compensation of Executive Officers
The Company operates in a dynamic and rapidly evolving industry. To succeed in this environment and to achieve its business and financial objectives, the Company must be able to attract, retain and motivate a highly talented team of executive officers. The Company’s compensation philosophy is designed to align the compensation provided to its executives, including the Named Executive Officers as described below, with the achievement of business objectives, while also enabling the Company to attract, motivate and retain individuals who contribute to the Company’s long-term success. The Company continues to evaluate its philosophy and compensation program as circumstances require and plans to continue to review compensation on an annual basis. As part of this review process, the Company expects to be guided by the philosophy and objectives outlined above, as well as other factors, such as market competitiveness of its executive compensation relative to our publicly traded peers.
Currently, our executive officers and senior management receive fixed and variable compensation, as well as benefits that we believe are in line with Canadian-based, technology-focused companies in our market and with whom we compete for talent. The fixed component of their compensation consists primarily of base salary and is reviewed at least annually. The variable component typically consists of annual cash and equity incentives. During fiscal year 2024, equity incentives were granted in the form of options to purchase our Common Shares and restricted stock units (“Company RSUs”), which vest based on the passage of time or the achievement of specified performance goals. The Company expects to continue to award equity-based long-term incentives, which may be in the form of stock options, restricted stock units and other time-vesting or performance-based equity incentives under its omnibus equity-based incentive plan, as further described below.
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Summary Compensation Table
The following table shows the total compensation awarded to, earned by, or paid during each of the years ended September 30, 2024 and September 30, 2023 to LeddarTech’s Chief Executive Officer and LeddarTech’s two most highly compensated executive officers (other than the Chief Executive Officer) who were serving as executive officers on the last day of the fiscal year ended September 30, 2024. Those individuals are referred to collectively in this Annual Report as “Named Executive Officers.” All amounts set forth in the Summary Compensation Table are denominated in US dollars rather than Canadian dollars.
| Name and Principal Position(1) | Year | Salary (2) ($) | Bonus ($) | Stock Awards(3) ($) | Option Awards(4) ($) | Non-Equity Incentive Plan Compensatio(5) ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||
| Frantz Saintellemy | 2024 | 351,880 | — | 1,566,125 | 1,805,352 | 123,158 | — | — | 3,846,515 | ||||||||||||||||||||||||||
| President and Chief Executive Officer | 2023 | 284,746 | — | — | — | 78,305 | — | — | 363,051 | ||||||||||||||||||||||||||
| Charles Boulanger(6) | 2024 | 114,935 | — | 134,998 | — | — | — | — | 249,933 | ||||||||||||||||||||||||||
| Former Chief Executive Officer | 2023 | 344,246 | — | — | — | 212,297 | — | — | 556,543 | ||||||||||||||||||||||||||
| David Torralbo | 2024 | 259,280 | — | 481,730 | 240,755 | 64,042 | — | — | 1,045,807 | ||||||||||||||||||||||||||
| Chief Legal Officer | 2023 | 244,068 | — | — | — | 99,665 | — | 343,733 | |||||||||||||||||||||||||||
| Christopher Stewart | 2024 | 305,210 | — | 626,450 | 300,997 | 70,579 | — | — | 1,303,236 | ||||||||||||||||||||||||||
| Chief Financial Officer | 2023 | 8,183 | — | — | — | — | — | — | 8,183 | ||||||||||||||||||||||||||
| (1) | Titles reflect principal positions with LeddarTech as of September 30, 2024. Mr. Boulanger’s service as Chief Executive Officer and an employee of the Company ended upon the consummation of the Business Combination. Mr. Stewart commenced his position with LeddarTech on September 20, 2023. During fiscal year 2023, Mr. Saintellemy served as President and Chief Operating Officer. |
| (2) | Represents base salary amounts earned for the applicable fiscal year. Base salary values have been converted from C$ to US$ using the daily average exchange rate published by the Bank of Canada for September 27, 2024 of 0.7408, with respect to 2024 base salary values, and for September 29, 2023 of 0.7396 to 2023 base salary values. |
| (3) | The 2024 amounts in this column represent the aggregate grant date fair values of restricted stock units granted during the 2024 fiscal year estimated using the Black-Scholes model. Values have been converted from C$ to US$ using the daily average exchange rate published by the Bank of Canada for September 27, 2024 of 0.7408. |
| (4) | The 2024 amounts in this column represent the aggregate grant date fair values of options granted during the 2024 fiscal year estimated using the Monte Carlo option pricing model assuming an expected life of 10 years, exercise price of C$4.19, a risk-free interest rate of 4.02%, dividend yield of 0%, and an expected volatility of 68,73% based on historical or implied volatility of similar listed entities over a period similar to the life of the options. For 2024, the Monte Carlo weighted average value assigned is C$2.84 per option, or US$2.12 using the daily average exchange rate published by the Bank of Canada of 0.7472 for the January 8, 2024 grants. Values have been converted from C$ to US$ using the daily average exchange rate published by the Bank of Canada for September 27, 2024 of 0.7408. |
| (5) | Amounts represent cash awards earned for fiscal year 2024 and 2023 under the Company’s bonus incentive plan. Values have been converted from C$ to US$ using the daily average exchange rate published by the Bank of Canada on September 27, 2024 of 0.7408 for 2024 awards and September 29, 2023 of 0.7396 for 2023 awards. |
| (6) | Amounts reported for Mr. Boulanger for 2024 exclude amounts received as a non-employee director following the Closing of the Business Combination which are reported under “Compensation of Members of the Board of Directors” below. |
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Outstanding Equity Awards at Fiscal Year-End
The following table provides certain information regarding the outstanding equity awards granted to the Named Executive Officers that were outstanding as of September 30, 2024. In connection with the Business Combination, all outstanding LeddarTech option grants (other than options to purchase LeddarTech’s Class M shares) were cancelled for no compensation or consideration, LeddarTech’s existing equity plans were terminated, and the options to purchase LeddarTech’s Class M shares became options to purchase Common Shares. All dollar amounts set forth in the following table are denominated in US dollars rather than Canadian dollars.
| Option Awards | Stock Awards | |||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(1) | ||||||||||||||||
| Frantz Saintellemy | — | 863,100 | 4.19 | 01/08/2034 | ||||||||||||||||||
| 215,760 | (2) | 63,649 | ||||||||||||||||||||
| 143,840 | (2) | 42,433 | ||||||||||||||||||||
| 107,900 | (3) | 31,831 | ||||||||||||||||||||
| Charles Boulanger | — | — | — | — | 59,210 | (3) | 17,467 | |||||||||||||||
| David Torralbo | — | 115,100 | 4.19 | 01/08/2034 | ||||||||||||||||||
| 28,750 | (2) | 8,481 | ||||||||||||||||||||
| 28,750 | (2) | 8,481 | ||||||||||||||||||||
| 28,800 | (2) | 8,496 | ||||||||||||||||||||
| 57,500 | (3) | 16,963 | ||||||||||||||||||||
| Christopher Stewart | — | 143,900 | 4.19 | 01/08/2034 | ||||||||||||||||||
| 28,750 | (2) | 8,481 | ||||||||||||||||||||
| 28,750 | (2) | 8,481 | ||||||||||||||||||||
| 72,000 | (2) | 21,240 | ||||||||||||||||||||
| 57,500 | (3) | 16,963 | ||||||||||||||||||||
| (1) | Based on the closing price of the Common Shares on September 30, 2024 of $0.2950 per share. |
| (2) | Reflects time vesting RSUs with performance-based conditions. See “Principal Elements of Compensation—Equity Awards” for a discussion of the terms of the RSUs. |
| (3) | Reflects time vesting RSUs. See “Principal Elements of Compensation—Equity Awards” for a discussion of the terms of the RSUs. |
Principal Elements of Executive Compensation
Base Salaries
Annual base salaries provide a fixed element of compensation to the Company’s Named Executive Officers, reflecting their skill sets, experience, roles and responsibilities. Base salaries for the Company’s executive officers have generally been set at levels deemed advisable to attract and retain individuals within the market in which the Company competes for talent. Adjustments to base salaries are generally determined annually and may be adjusted based on factors such as performance, merit, experience, achievement of objectives and market competitiveness. Additionally, the Company also may adjust base salaries throughout the year to reflect promotions or other changes in the scope or breadth of a Named Executive Officer’s role or responsibilities.
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Annual Incentive Bonuses
The Company’s Named Executive Officers and other executive officers also are eligible to earn annual bonuses based on the achievement of corporate and departmental performance objectives that are determined and established by the Board at the beginning of each fiscal year. For fiscal year 2024, Messrs. Saintellemy, Stewart and Torralbo were eligible to receive a cash bonus of up to 100%, 50% and 50% of base salary, respectively. For fiscal year 2024, the corporate objectives under the incentive bonus plan applicable to Messrs. Saintellemy, Stewart and Torralbo were (i) business development goals, including entering into contracts with at least one major Tier 1 or OEM customer, (ii) software product development goals, (iii) financing objectives related to completing additional financing for the Company; and (iv) execution of cash management strategies:
Following a review of the level of achievement of the various performance measures, the Company’s Board of Directors determined that the aggregate level of achievement for Messrs. Saintellemy, Stewart and Torralbo was 35%, 46.25% and 49.40%, respectively, of target, with the corresponding payouts reflected above in the Summary Compensation Table.
Equity Awards
The Company’s Named Executive Officers and other executive officers are eligible for grants of equity awards under the Company’s Omnibus Incentive Plan, which for fiscal year 2024 consisted of stock options and RSUs. RSUs awarded to Named Executive Officers in fiscal 2024, which consisted of time-based and performance-based RSUs, represent the right to receive Common Shares upon vesting. Fully time-based RSUs vest over a three or four-year service period in equal annual installments, subject to continued service as of the applicable vesting date. RSUs that also contain performance criteria, or “PSUs,” vest in equal annual installments over a four-year service period and are subject to the attainment of specified performance goals. RSUs are used to encourage retention while aligning management with stockholders’ interests through stock ownership, and with respect to the PSUs, incentivize senior management to achieve important Company goals and milestones. Stock options are used to incentivize longer term performance as they provide opportunities to profit from an increase in the equity value of the Company, while also serving as an additional retention measure.
With respect to the PSUs granted in fiscal 2024, the board of directors chose the following performance criteria: (A) for Mr. Saintellemy, (i) 60% of his PSUs are subject to the Company achieving, within two years after grant, its first customer win with an OEM or Tier-1 supplier that will create production of a specified number of units for the Company’s fusion and perception products, and (ii) 40% of his PSUs are subject to the Company achieving, within four years after grant, certain production levels and revenues under a contract with an OEM or Tier-1; and (B) for each of Messrs. Stewart and Torralbo, (i) one grant of PSUs is subject to the same performance objectives as Mr. Saintellemy above, except at a weighting of 50% for each component, and (ii) a second grant of PSUs is subject to the Company achieving new financing at certain levels by January 31, 2025. Following any achievement of the PSU performance measures, the award will remain subject to the time-vesting conditions noted above.
The compensation and human capital committee has the discretion to grant equity awards at such times as it determines appropriate. Executive officers generally will be awarded an initial equity grant in connection with their commencement of employment, and all executive officers are entitled to receive annual equity grants in the form and amount as determined by the compensation and human capital committee in order to incentivize executive officers with respect to achieving certain corporate goals or to reward them for exceptional performance.
Other Benefits
The Named Executive Officers are eligible to participate in benefits available generally to salaried employees, including benefits under the Company’s health and welfare plans and arrangements, and vacation pay or other benefits under the Company’s medical insurance plan.
Equity Plans
Effective upon the consummation of the Business Combination, LeddarTech’s existing equity plans were terminated. The principal features of the Company’s current equity incentive plan are summarized below. This summary is qualified in its entirety by reference to the actual text of the plan, which is filed as an exhibit to this Annual Report.
Omnibus Incentive Plan
The purpose of the Company’s Omnibus Incentive Plan (the “Incentive Plan”) is to increase the interest in our welfare of qualified directors, executive officers, employees and consultants, who share responsibility for the management, growth and protection of our business, and to provide an incentive to such eligible participants to continue their services for the Company and to encourage such eligible participants whose skills, performance and loyalty to the objectives and interests of the Company are necessary or essential to its business. Through the Incentive Plan, the Company’s seeks to reward participants for their performance while working for the Company and provide a means through which the Company may attract and retain able employees to enter its employment or service.
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Eligibility and Administration. The Company’s directors, executive officers, employees and consultants, and directors, executive officers, employees and consultants of the Company’s subsidiaries are eligible to receive awards under the Incentive Plan. The Incentive Plan is administered by the Company’s board of directors with respect to awards to non-employee directors and by the compensation committee or plan administrator with respect to other participants (referred to collectively as the “plan administrator” below).
The plan administrator has the authority to make such determinations and such interpretations, and take such steps and actions in connection with, the proper administration and operations of the Incentive Plan as it may deem necessary or advisable. The plan administrator will also set the terms and conditions of all awards under the Incentive Plan, including any vesting and vesting acceleration conditions.
Shares Available under the Incentive Plan. The securities that may be acquired by participants under the Incentive Plan consist of authorized but unissued shares. The maximum number of shares available for issuance under the Incentive Plan shall not exceed at any time five million Common Shares issued and outstanding from time to time (the “Share Reserve”). The Share Reserve will increase as the number of issued and outstanding Common Shares will increase from time to time, as cancelled awards will be returned to the Share Reserve for reissuance if a participant cease to be an eligible participant and surrender any vested and/or unvested awards or otherwise fail to exercise their awards before the expiration date.
Under the Incentive Plan, if an outstanding award (or portion thereof) expires or is forfeited, surrendered, cancelled or otherwise terminated for any reason without having been exercised or settled in full, or if the Common Shares acquired pursuant to an award subject to forfeiture are forfeited, the Common Shares covered by such award, if any, will again be available for issuance under the Incentive Plan. Common Shares will not be deemed to have been issued pursuant to the Incentive Plan with respect to any portion of an award that will be settled in cash.
Awards. The Incentive Plan allows for the grant of unvested Common Shares (“Company Unvested Shares”), share options (“Company Options”), Company RSUs, deferred share units (“Company DSUs”) and share appreciation rights (“Company SARs”). No determination has been made in the Incentive Plan as to the types or amounts of awards that will be granted to certain individuals pursuant to the Incentive Plan. Certain awards under the Incentive Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the Incentive Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards will generally be settled in Common Shares but the plan administrator may provide for cash settlement (or a combination thereof) of any award (other than Company Options). A brief description of each award type follows.
| ● | Company Unvested Shares. The Company Unvested Shares will consist of Common Shares with such restrictions and vesting and other conditions placed upon such Common Shares as the plan administrator may determine at the time of grant (including a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the plan administrator may determine, the whole subject to the terms and conditions of the Incentive Plan. |
| ● | Company Options. Company Options will provide for the purchase of Common Shares in the future at an exercise price set on the grant date. The number and exercise price of the Company Options to be issued to eligible participants under the Incentive Plan will be set by the plan administrator. The term of a Company Option may not be longer than ten years from the date that such Company Option is granted and unless otherwise determined by the plan administrator, all unexercised Company Options will be cancelled at the expiry of their respective term. |
| ● | Company RSUs. Company RSUs will entitle, upon settlement, the participant to receive Common Shares issued from treasury or purchased on the open market at such purchase price (which may be zero) as determined by the plan administrator. The plan administrator may also elect to grant dividend equivalents in respect of unvested Company RSUs on the same basis as cash dividends declared and paid on Common Shares as if the participant was a shareholder of records of Common Shares on the relevant record date. |
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| ● | Company DSUs. Company DSUs will entitle, upon settlement, the participant to receive Common Shares issued from treasury or purchased on the open market at such purchase price (which may be zero) as determined by the plan administrator. Subject to the Company’s director compensation policy determined by the Company Board from time to time and the terms and conditions of the Incentive Plan, each eligible director (i) shall receive 100% of his or her equity retainer in the form of Company DSUs, and (ii) may elect to receive any percentage, up to 100%, of his or her cash retainer in the form of Company DSUs. The plan administrator may also elect to grant dividend equivalents in respect of unvested Company DSUs on the same basis as cash dividends declared and paid on Common Shares as if the participant was a shareholder of records of Common Shares on the relevant record date. |
| ● | Company SARs. Each Company SAR will entitle the participant to receive Common Shares having a value equal to the excess of the market value (as determined in accordance with the terms of the Incentive Plan) of a Common Share on the date of exercise over the price per Common Share to be payable upon vesting of each Company SAR, as determined by the plan administrator (which price shall not be less than 100% of the market value of the Common Share on the date of grant) multiplied by the number of Common Shares with respect to which the Company SAR shall have been exercised. No dividend equivalents shall be granted in connection with a Company SAR. The term of a Company SAR may not be longer than ten years from the date that such Company SAR is granted and unless otherwise determined by the plan administrator, all unexercised Company SARs will be cancelled at the expiry of their respective term. |
Vesting. Vesting conditions determined by the plan administrator may apply to each award and may include continued service, performance and/or other conditions. The plan administrator will also have the right to accelerate the date upon which any award becomes exercisable notwithstanding the vesting schedule set forth for such award, regardless of any adverse or potentially adverse tax consequence resulting from such acceleration.
Trigger Events. Except as otherwise provided in a grant agreement, employment agreement or other written agreement between the Company (including any affiliates) and the participant, or otherwise determined by the plan administrator, each award granted under the Incentive Plan will be subject to the following conditions:
| ● | Company Options and SARs. The Incentive Plan provides that upon the termination for cause of a participant, any Company Options or Company SARs granted to such participant, whether vested or unvested, will automatically terminate. The Incentive Plan further provides that upon a participant’s termination of employment without cause, (i) any unvested Company Option or Company SAR granted to such participant shall terminate and (ii) any vested Company Option or Company SAR granted to such participant may be exercised by such participant within the earlier of 90 days after the termination date and the expiry date of the award set forth in the grant agreement. If a participant ceases to be an eligible participant under the Incentive Plan as a result of participant’s resignation, the Incentive Plan will provide that (i) each unvested Company Option or Company SAR granted to such participant shall terminate and become void immediately upon resignation and (ii) each vested Company Option or Company SAR granted to such participant will cease to be exercisable on the earlier of 90 days following the termination date and the expiry date of the award set forth in the grant agreement. |
| ● | Company RSUs and DSUs. The Incentive Plan provides that upon termination for cause or upon the resignation of a participant, such participant’s Company RSUs and Company DSUs that have not vested shall be forfeited and cancelled on the termination date. The Incentive Plan further provides that upon a participant ceasing to be an eligible participant as a result of death, retirement or his or her employment or service relationship being terminated without cause, (i) if, on the applicable vesting date, the plan administrator determines that the vesting conditions were not met, then all unvested Company RSUs and Company DSUs granted to such participant shall be forfeited and cancelled, and (ii) if, on the applicable vesting date, the plan administrator determines that the vesting conditions were met, provided that all unvested Company RSUs and Company DSUs granted to such participant as of such date relating to a restriction period in progress shall remain outstanding and in effect until the applicable vesting date, the participant shall be entitled to receive that number of Common Shares or cash equivalent (or a combination thereof) as calculated based on the number of completed months of service of such participant in accordance with the Incentive Plan. |
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| ● | Company Unvested Shares. The Incentive Plan provides that upon a participant ceasing to be an eligible participant for any reason, any Company Unvested Shares that have not vested at such time will automatically and without any requirement of notice to such participant, or other action by or on behalf of the Company, be deemed to have been reacquired by the Company from such participant, and thereafter shall cease to represent any ownership in the Company by the participant or rights of the participant as a shareholder of the Company. |
Adjustments. The Incentive Plan provides that the plan administrator shall, subject to the required approval of any stock exchange, determine the appropriate adjustments or substitutions to be made in the following circumstances: (i) subdivision of Common Shares, (ii) consolidation of Common Shares, (ii) reclassification, reorganization or other change affecting the Common Shares, (iv) merger, amalgamation or consolidation of the Company with another corporation, or (v) transactions such as the distribution to all holders of securities in the capital of the Company or other assets of the Company. Such adjustments include adjustments to the exercise price of the awards, the number of shares to which a participant is entitled upon exercise of such awards, the immediate exercise of outstanding awards that are not otherwise exercisable or the number of kind of Common Shares reserved for issuance in order to maintain the economic rights of such participant.
Change of Control. In the event of a potential change of control, the plan administrator will have the power to modify the terms of the Incentive Plan and/or the awards (including causing the vesting of all unvested awards) to assist the participants to tender into a take-over bid or participating in any other transaction leading to a change of control, including to (i) terminate any or all awards provided that outstanding awards that have vested remain exercisable until the consummation of the change of control, and (ii) permit participants to conditionally exercise their Company Options or Company SARs, such conditional exercise to be conditional upon the take-up by the offeror of the Common Shares and other securities tendered to the take-over bid in accordance with the terms of the take-over bid (or the effectiveness of such other transaction leading to a change of control). If, however, the change of control is not completed within the timeframe specified therein, then (i) any conditional exercise of vested Company Options and/or Company SARs will be deemed to be null, void and of no effect, and such conditionally exercised awards will be deemed not to have been exercised, (ii) Common Shares which were issued pursuant to exercise of Company Options and/or Company SARs which vested in connection with the change of control will be returned by the participant to the Company and reinstated as authorized but unissued Common Shares, and (iii) the original terms applicable to awards which vested in connection with the change of control shall be reinstated.
Termination. The Incentive Plan will provide that the plan administrator may suspend, terminate, amend, or revise the Incentive Plan at any time without the consent of the participants, provided that such suspension, termination, amendment or revision will (i) not adversely alter or impair the rights of the participant without the consent of such participant (except as permitted by the provisions of the Incentive Plan), (ii) be in compliance with the applicable law and with the prior approval, if required, of the shareholders of the Company, the Nasdaq or any other regulatory body having authority over the Company, and (iii) be subject to shareholder approval, where required by law or the other requirements of the Nasdaq (subject to certain exceptions).
Employment Arrangements, Termination and Change in Control Benefits
The Company has entered into employment agreements with each of its Named Executive Officers who continue to serve as an executive officer as of the date of this Annual Report, as summarized below.
Frantz Saintellemy. Mr. Saintellemy and the Company are currently party to an employment agreement dated as of October 1, 2023, pursuant to which Mr. Saintellemy has served as President and Chief Executive Officer of the Company since the Closing Date of the Business Combination. The agreement further provides that Mr. Saintellemy will be nominated for election as a director at each meeting of shareholders in which directors are to be elected for so long as he serves as President and Chief Executive Officer.
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Under his employment agreement, Mr. Saintellemy is entitled to receive an annual base salary, which was initially set at C$475,000, and other benefits as may be adjusted annually in accordance with the terms of the employment agreement. In addition, and subject to approval of the Company’s board of directors, Mr. Saintellemy is entitled to receive an annual performance-based cash bonus at target level of achievement equal to 100% of base salary is eligible for equity grants as may be determined by the board of directors. In connection with his appointment as President and Chief Executive Officer, Mr. Saintellemy received (i) a one-time option grant under the Incentive Plan equal to 3.0% of the aggregate number of shares of the Company immediately following the closing of the Business Combination, which options time-vest over a four-year period, and (ii) a one-time restricted share unit grant equal to 1.625% of the aggregate number of shares of the Company immediately following the closing of the Business Combination, of which approximately a quarter time-vest over a three-year period and the remaining amount are subject to time-based and performance-based vesting as provided for in the agreement.
Under his employment agreement, Mr. Saintellemy is subject to certain non-competition and non-solicitation obligations during and for 12 months following termination of his employment, including restrictions on engaging in business in the Company’s industry sector and soliciting the Company’s clients and employees within certain territories. Mr. Saintellemy is also subject to confidentiality and intellectual property assignment covenants under his employment agreement. In the event that Mr. Saintellemy’s employment is unilaterally terminated without a serious reason, Mr. Saintellemy will be entitled to receive prior notice of 12 months or, at the Company’s discretion, pay in lieu of such notice. In the event Mr. Saintellemy’s employment is terminated without serious reason or by Mr. Saintellemy for good reason (as defined in the agreement), in either case 90 days before or 12 months after a change in control (as defined in the agreement), any unvested equity awards granted under the Incentive Plan shall vest and become immediately exercisable in accordance with and subject to the Incentive Plan and the applicable award agreement.
The foregoing description of Mr. Saintellemy’s employment agreement is a summary of the material features of such agreement, and is qualified in its entirety by reference to the employment agreement, which is filed as an exhibit to this Annual Report.
David Torralbo. Mr. Torralbo and the Company are currently party to an employment agreement dated as of June 20, 2022, pursuant to which Mr. Torralbo is employed as Chief Legal Officer and Corporate Secretary of the Company. Mr. Torralbo is entitled to receive an annual base salary as well as equity grants and other benefits as may be adjusted annually in accordance with the terms of the employment agreement and as determined by the Company’s board of directors. Subject to approval of the Company’s board of directors, Mr. Torralbo is entitled to receive an annual performance-based cash bonus at target level of achievement equal to 50% of base salary. In connection with the Business Combination, Mr. Torralbo received (i) a one-time option grant under the Incentive Plan equal to 0.40% of the aggregate number of shares of the Company immediately following the closing of the Business Combination, which options time-vest over a four-year period, and (ii) a one-time restricted share unit grant equal to 0.50% of the aggregate number of shares of the Company immediately following the Closing of the Business Combination, of which approximately one-third time-vest over a four-year period and the remaining amount is subject to performance-based and time-based vesting as provided for in the agreement.
In the event the Company terminates Mr. Torralbo’s employment without just and sufficient cause or in the event of a dismissal, Mr. Torralbo is entitled to receive a notice of twelve (12) months. The Company may, at its sole discretion, pay to Mr. Torralbo in lieu of such notice, in whole or in part, a salary indemnity equivalent to the portion not covered by such notice. Under his employment agreement, Mr. Torralbo is subject to certain non-competition obligations for twelve (12) months during and following the termination of his employment, and subject to certain non-solicitation obligations for eighteen (18) months during and following the termination of his employment, including restrictions on engaging in business in the Company’s industry sector and soliciting the Company’s clients and employees within certain territories. Mr. Torralbo is also subject to confidentiality and intellectual property assignment covenants under his employment agreement. This description of Mr. Torralbo’s employment agreement is a summary of the material features of such agreement, and is qualified in its entirety by reference to the employment agreement, which is filed as an exhibit to this Annual Report.
Chris Stewart. Mr. Stewart and the Company are currently party to an employment agreement effective as of September 20, 2023, pursuant to which Mr. Stewart serves as Chief Financial Officer of the Company. Under his employment agreement, Mr. Stewart is entitled to an annual base salary, which was initially set at US$300,000, and other benefits as may be adjusted annually in accordance with the terms of the employment agreement. In addition, and subject to approval of the Company’s board of directors, Mr. Stewart is entitled to receive an annual performance-based cash bonus at target level of achievement equal to 50% of base salary and Mr. Stewart is eligible for equity grants as may be determined by the board of directors. In connection with this hiring, Mr. Stewart received (i) a one-time option grant under the Incentive Plan equal to 0.5% of the aggregate number of shares of the Company immediately following the closing of the Business Combination, which options time-vest over a four-year period, and (ii) a one-time restricted share unit grant equal to 0.65% of the aggregate number of shares of the Company immediately following the closing of the Business Combination, of which approximately one-third time-vest over a four-year period and the remaining amount is subject to performance-based and time-based vesting as provided for in the agreement.
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Under his employment agreement, Mr. Stewart is subject to confidentiality and intellectual property assignment covenants. In the event that Mr. Stewart’s employment is terminated without cause (as defined in the agreement) or by Mr. Stewart for good reason (as defined in the agreement), Mr. Stewart will be entitled to receive continued payments of his base salary for 12 months following his termination along with other benefits. In the event Mr. Stewart’s employment is terminated without cause or by Mr. Stewart for good reason, in either case 90 days before or 12 months after a change in control (as defined in the agreement), any unvested equity awards granted under the Incentive Plan shall vest and become immediately exercisable in accordance with and subject to the Incentive Plan and the applicable award agreement.
The foregoing description of Mr. Stewart’s employment agreement is a summary of the material features of such agreement, and is qualified in its entirety by reference to the employment agreement, which is filed as an exhibit to this Annual Report.
Charles Boulanger. Prior to the consummation of the Business Combination, LeddarTech was party to an employment agreement with Charles Boulanger, in connection with his service as Chief Executive Officer, that terminated effective as of the closing of the Business Combination, a copy of which is filed as an exhibit to this Annual Report.
Compensation of Members of the Board of Directors
During fiscal year 2024, non-employee members of the Company’s board of directors received a fixed annual cash retainer of C$45,000 and an annual grant of RSUs with a grant date value of C$135,000 in connection with their service as directors. In addition, the chair of the board of directors received a retainer of C$45,000, the chair of each committee respectively received a retainer of C$10,000 (Audit Committee), C$7,500 (Compensation and Human Capital Committee) and C$5,000 (Nominating and Corporate Governance Committee) and the chair and non-chair members of board committees each received a retainer of C$10,000 (Audit Committee), C$7,500 (Compensation and Human Capital Committee) and C$5,000 (Nominating and Corporate Governance Committee). Management members of the Company’s board of directors received no additional compensation for their service as director or for attendance at meetings of the board of directors.
The table below summarizes the compensation paid by the Company to each non-employee director for service on the Company’s board of directors during the fiscal year ended September 30, 2024. All amounts set forth in the table below are denominated in US dollars rather than Canadian dollars.
| Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Total ($) | |||||||||
| Derek Aberle | 97,293 | 179,248 | 276,541 | |||||||||
| Lizabeth Ardisana | 33,516 | 168,185 | 201,701 | |||||||||
| Charles Boulanger(3) | 35,192 | 168,185 | 203,377 | |||||||||
| Yann Delabriere | 66,344 | 179,248 | 245,592 | |||||||||
| Nick Stone | 41,250 | 179,248 | 220,498 | |||||||||
| Michelle Sterling | 48,750 | 179,248 | 227,998 | |||||||||
| Sylvie Veilleux | 36,868 | 168,185 | 205,053 | |||||||||
| (1) | Values have been converted from C$ to US$ using the daily average exchange rate published by the Bank of Canada for September 27, 2024 of 0.7408. |
| (2) | Values represent the aggregate grant date fair value estimated using the Black-Scholes model. |
| (3) | Amounts for Mr. Boulanger exclude compensation received as Chief Executive Officer, which is reported in the Summary Compensation Table, as well as warrants to purchase 350,000 Common Shares at an exercise price of C$0.01 per share that were granted in connection with and in recognition of his service with LeddarTech Inc. (predecessor company) with an aggregate grant date fair value of US$1,169,000. |
| (4) | Amounts for Mr. Delabriere exclude warrants to purchase 22,503 Common Shares at an exercise price of C$0.01 per share granted in connection with and in recognition of his service with LeddarTech Inc. (predecessor company) with an aggregate grant date fair value of US$75,160. |
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| C. | Board Practices |
Election of Directors
At any general meeting of our shareholders at which directors are to be elected, a separate vote of shareholders entitled to vote will be taken with respect to each candidate nominated for director. Pursuant to the CBCA, any casual vacancy occurring on our Board may be filled by a quorum of the remaining directors, subject to certain exceptions.
Director Term Limits and Other Mechanisms of Board Renewal
We have not adopted director term limits or other automatic mechanisms of board renewal. Rather than adopting formal term limits, mandatory age-related retirement policies and other mechanisms of board renewal, the nominating and corporate governance committee, in preparation for the proxy circular in connection with the annual general meeting of the Company’s shareholders, annually will complete a skills and competencies matrix for the board as a whole and for individual directors. The nominating and corporate governance committee will also conduct a process for the assessment of the board, each committee and each director regarding his, her or its effectiveness and contribution, and will report evaluation results to our board of directors on a regular basis.
Director Independence
Under general Nasdaq listing standards, independent directors must comprise a majority of a listed company’s board of directors; however, as a foreign private issuer, the Company is permitted to follow its home country practices in lieu of this requirement. For purposes of Nasdaq rules, an independent director generally means a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under NI 58-101, a director is considered to be independent if he or she is independent within the meaning of Section 1.4 of National Instrument 52-110 — Audit Committees (“NI 52-110”).
Our board has determined that each of the directors on the board other than Messrs. Boulanger and Saintellemy qualify as independent directors, and therefore our board consists of a majority of “independent directors,” as defined under the rules of the NI 58-101 and Nasdaq relating to director independence requirements. In addition, our board is subject to the rules of the NI 52-110 and Nasdaq relating to the membership, qualifications, and operations of the audit committee, as discussed below. Mr. Boulanger is not independent by reason of the fact that he was LeddarTech’s Chief Executive Officer prior to the consummation of the Business Combination and Mr. Saintellemy is not independent by reason of the fact that he is currently President and Chief Executive Officer of the Company.
Mandate of the Board of Directors
Our board is responsible for supervising the management of the Company’s business and affairs, including providing guidance and strategic oversight to management. Our board has adopted a formal mandate that includes the following:
| ● | appointing the Company’s Chief Executive Officer; |
| ● | developing the corporate goals and objectives that our Chief Executive Officer is responsible for meeting and reviewing the performance of our Chief Executive Officer against such corporate goals and objectives; |
| ● | taking steps to satisfy itself as to the integrity of our Chief Executive Officer and other executive officers and that our Chief Executive Officer and other executive officers create a culture of integrity throughout the organization; |
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| ● | reviewing and approving our code of conduct and reviewing and monitoring compliance with the code of conduct and our enterprise risk management processes; |
| ● | reviewing and approving management’s strategic and business plans and our financial objectives, plans and actions, including significant capital allocations and expenditures; and |
| ● | reviewing and approving material transactions not in the ordinary course of business. |
Meetings of Independent Directors
Our board will hold regularly-scheduled quarterly meetings as well as ad hoc meetings from time to time. The independent members of our board of directors will also meet, as required, without the non-independent directors and members of management before or after each regularly scheduled board meeting.
A director who has a material interest in a matter before our board of directors or any committee on which he or she serves is required to disclose such interest as soon as the director becomes aware of it. In situations where a director has a material interest in a matter to be considered by our board of directors or any committee on which he or she serves, such director may be required to absent himself or herself from the meeting while discussions and voting with respect to the matter are taking place. Directors will also be required to comply with the relevant provisions of the CBCA regarding conflicts of interest.
Position Descriptions
Derek Aberle is the chairman of our board of directors (the “Chairman”). Our board has adopted a written position description for the Chairman which sets out his key responsibilities, including duties relating to determining the frequency, dates and locations of meetings and setting board of directors meeting agendas, chairing board of directors and shareholder meetings and carrying out any other or special assignments or any functions as may be requested by our board or management, as appropriate.
Our board has adopted a written position description for each of the committee chairs which will set out each of the committee chair’s key responsibilities, including duties relating to determining the frequency, dates and locations of meetings and setting committee meeting agendas, chairing committee meetings, reporting to our board and carrying out any other special assignments or any functions as may be requested by our board.
In addition, our board, in conjunction with the Chief Executive Officer, has developed and will implement a written position description for the role of our Chief Executive Officer.
Orientation and Continuing Education
Following the consummation of the Business Combination, we implemented an orientation program for new directors under which they will meet separately with the Chairman and members of the senior executive team and receive a briefing on various aspects of the Company, including product development, corporate strategy, human resources, business development and intellectual property strategy.
The chair of each committee is responsible for coordinating orientation and continuing director development programs relating to the committee’s mandate. The nominating and corporate governance committee is responsible for overseeing director continuing education designed to maintain or enhance the skills and abilities of our directors and to ensure that their knowledge and understanding of our business remains current.
Code of Business Conduct and Ethics
In connection with the consummation of the Business Combination, we adopted a code of business conduct and ethics (the “Code of Conduct”) applicable to all of our directors, officers and employees, including our President and Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similar functions, which is a “code of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC and which is a “code” under NI 58-101. The Code of Conduct sets out our fundamental values and standards of behaviour that are expected of directors, officers and employees with respect to all aspects of the Company’s business. The objective of the Code of Conduct is to provide guidelines for maintaining our integrity, reputation and honesty with a goal of honouring others’ trust in us at all times.
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The full text of the Code of Conduct is posted on our website at www.LeddarTech.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by reference herein. If we make any amendment to the Code of Conduct or grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC and the Canadian Securities Administrators. Under Item 16B of the SEC’s Form 20-F, if a waiver or amendment of the Code of Conduct applies to our principal executive officer, principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we will disclose such waiver or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.
Monitoring Compliance with the Code of Conduct
Our nominating and corporate governance committee is responsible for reviewing and evaluating the Code of Conduct at least annually and will recommend any necessary or appropriate changes to our board for consideration. The nominating and corporate governance committee assists our board with the monitoring of compliance with the Code of Conduct, and will be responsible for considering any waivers of the Code of Conduct (other than waivers applicable to members of the nominating and corporate governance committee, which shall be considered by the audit committee, or waivers applicable to our directors or executive officers, which shall be subject to review by our board as a whole).
Complaint Reporting
In order to foster a climate of openness and honesty in which any concern or complaint pertaining to a suspected violation of the law, the Code of Conduct or any of our policies, or any unethical or questionable act or behaviour, the Code of Conduct requires that our employees promptly report the violation or suspected violation. In order to ensure that violations or suspected violations can be reported without fear of retaliation, harassment or an adverse employment consequence, the Code of Conduct contains procedures that are aimed to facilitate confidential, anonymous submissions by our employees.
Diversity
We recognize the importance and benefit of fostering and promoting diversity among board members and senior management, and believe that boards of directors should have diverse backgrounds and possess a variety of skills, qualifications, experience and knowledge that complement the attributes of other board members and enable them to contribute effectively to the board’s oversight role. While we do not have formal policies regarding board diversity requirements or for the representation of women on the board of directors or senior management, the nominating and corporate governance committee and our senior executives will be expected to take gender and other diversity representation into consideration as part of their overall recruitment and selection process.
It is expected that the composition of our board will in the future be shaped by the selection criteria to be established by the nominating and corporate governance committee, which is expected to consider a variety of factors in addition to gender, race and ethnicity diversity considerations, including a potential director’s judgment, independence, business and educational background, stature, public service, conflicts of interest, integrity, ethics, diversity considerations, as well as his or her ability and willingness to devote sufficient time to serve on the our board. It is expected that diversity considerations also are taken into account with respect to senior management positions, including seeking to broaden recruiting efforts to attract and interview qualified female candidates, and committing to retention and training to ensure that our most talented employees are promoted from within the organization.
In accordance with Nasdaq’s listing requirements with respect to diversity of boards of directors, foreign private issuers listing on Nasdaq must have two diverse directors, or provide an explanation for not meeting such requirement, within two years for the date of listing or December 31, 2026, whichever is later. Foreign private issuers can meet the diversity requirement with either two female directors or one female director and one director who is an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in its home country or LGBTQ+.
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Committees of the Board of Directors
Upon Closing of the Business Combination, the Company established an audit committee, a compensation and human capital committee, and a nominating and corporate governance committee. Each committee has a written charter that is posted on the investor relations section of the Company’s website. The initial members of the Company’s committees were determined prior to the closing of the Business Combination.
Audit Committee
The Company currently has an audit committee of the board of directors consisting of Yann Delabrière (chair) and Sylvie Veilleux, and it is expected that Derek Aberle will be appointed to the audit committee prior to its next meeting. Applicable SEC, Nasdaq rules and NI 52-110 require that all members of the audit committee be independent, subject to applicable phase-in periods for newly listed companies. Each member of the audit committee is an independent director. All members of the audit committee must be “financially literate,” as such term is defined in NI 52-110 (except as may be permitted by NI 52-110). The audit committee is, among other things, directly responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent auditor, oversee management’s conduct of the Company’s financial reporting process (including the development and maintenance of systems of internal accounting and financial controls), oversee the integrity of the Company’s financial statements, oversee the performance of the internal audit functions, prepare certain reports required by the rules and regulations of the SEC and applicable Canadian securities laws, the review of the results and scope of the audit and other accounting related services, review and monitor management’s practices and policies with respect to the Company’s major security risks, including physical, information, and cybersecurity risks and maintain and monitor procedures for the receipt and treatment of complaints received by the Company regarding accounting, internal accounting controls or audit matters and the anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Our Board has established a written charter setting forth the purpose, composition, authority and responsibility of the audit committee consistent with the rules of Nasdaq, the SEC and the applicable Canadian securities laws.
Compensation and Human Capital Committee
The Company currently has a compensation and human capital committee of the board of directors consisting of Michelle Sterling (chair), Derek Aberle and Charles Boulanger. The compensation and human capital committee, among other things, reviews and approves, or recommends to the Company Board for approval, compensation of the Chief Executive Officer and other executive officers, oversees the administration of the Company’s incentive compensation plans, and prepares any report on executive compensation required by the rules and regulations of the SEC. The Company’s board of directors has established a written charter setting forth the purpose, composition, authority and responsibility of the compensation and human capital committee consistent with the rules of Nasdaq and the SEC, where applicable, and the guidance of the Canadian Securities Administrators. The compensation and human capital committee’s purpose is to assist the Company Board in its oversight of executive compensation, management development and succession, director compensation and executive compensation disclosure.
Nominating and Corporate Governance Committee
The Company currently has a nominating and corporate governance committee of the board of directors consisting of Derek Aberle (chair), Michelle Sterling and Lizabeth Ardisana. The nominating and corporate governance committee is, among other things, responsible for overseeing the selection of persons to be nominated to serve on the Company’s board of directors and oversee our corporate governance practices. The Company’s board of directors established a written charter setting forth the purpose, composition, authority and responsibility of the nominating and corporate governance committee.
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| D. | Employees |
As of September 30, 2024, we had approximately 130 permanent employees across nine countries, excluding contractors, temporary employees and interns. None of our employees are represented by a labor union, and we consider our employee relations to be good. To date, we have not experienced any work stoppages.
The Company is led by a seasoned management team, who have cumulated significant automotive ADAS and AD market experience and broader experience in high-tech and software-centric businesses. The Company now includes over 115 specialized engineers, scientists, and specialists in all facets of ADAS software development, ASPICE, and ISO 26262, including, but not limited to, the following:
| ● | a global algorithms group with machine learning and computer vision expertise dedicated to low-level fusion core platforms; |
| ● | an expertise in software embedded in various target processors, optimization of digital signal processing, and hardware accelerators for deep neural network efficiency; |
| ● | a dedicated team for data Engineering and DevOps with full CI/CD software integration and release; |
| ● | global dedicated test and automation team for verification and validation; and |
| ● | teams dedicated to data collection in Israel and Canada. |
We believe that the significant investments in our technology and the expertise and experience of this team provide a significant incentive for our customers to select the Company for their systems.
We may have to engage in a significant headcount reduction if our liquidity position requires us to implement our cost management plan. See “Item 3.D. Risk Factors — Risks Related to Our Business — Any significant reduction in headcount as part of the implementation of the Company’s cost management plan may have a material adverse effect on the Company’s operations and future prospects.”
| E. | Share Ownership |
For information regarding the share ownership of our directors and our Named Executive Officers, see “Item 7.A. Major Shareholders and Related Party Transactions-Major Shareholders.” For information as to the outstanding equity awards granted to our Named Executive Officers, see “Item 6.B. Directors, Senior Management and Employees—Overview of Compensation of Executive Officers—Outstanding Equity Awards.”
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| A. | Major Shareholders |
The following table sets forth information regarding beneficial ownership of the Company’s Common Shares based on 30,203,676 Common Shares issued and outstanding as of November 19, 2024, with respect to beneficial ownership of our shares by:
| ● | each person known by us to be the beneficial owner of more than 5% of our issued and outstanding Common Shares; |
| ● | each of our executive officers and directors; and |
| ● | all our executive officers and directors as a group. |
In accordance with SEC rules, individuals and entities below are shown as having beneficial ownership over Common Shares they own or have the right to acquire within 60 days, as well as Common Shares for which they have the right to vote or dispose of such Common Shares. In accordance with SEC rules, for purposes of calculating percentages of beneficial ownership, Common Shares which a person has the right to acquire within 60 days are included both in that person’s beneficial ownership as well as in the total number of Common Shares issued and outstanding used to calculate that person’s percentage ownership but not for purposes of calculating the percentage for other persons.
Except as indicated by the footnotes below, we believe that the persons named below have sole voting and dispositive power with respect to all Common Shares that they beneficially own. The Common Shares owned by the persons named below have the same voting rights as the Common Shares owned by other holders. We believe that, as of November 19, 2024, approximately 28% of our Common Shares are owned by record holders in the United States of America.
Unless otherwise indicated, the business address of each beneficial owner listed in the tables below (other than Messrs. Aberle and Stone) is c/o LeddarTech Holdings Inc., 4535, Boulevard Wilfrid-Hamel, Suite 240, Québec G1P 2J7, Canada.
| Beneficial Owner | Number of Common Shares | Percentage of All Common Shares | ||||||
| Executive Officers, Directors and Director Nominees | ||||||||
| Charles Boulanger(1)(2) | 395,262 | 1.3 | % | |||||
| Derek Aberle(1) | 149,678 | * | ||||||
| Nick Stone | 10,740 | * | ||||||
| Frantz Saintellemy(1)(2) | 337,791 | 1.1 | % | |||||
| Michelle Sterling | 10,740 | * | ||||||
| Yann Delabrière(1)(2)(3) | 33,255 | * | ||||||
| Lizabeth Ardisana | 8,055 | * | ||||||
| Sylvie Veilleux | 8,055 | * | ||||||
| David Torralbo(1) | 61,825 | * | ||||||
| Christopher Stewart | 100,350 | * | ||||||
| All directors and executive officers as a group (10 individuals) | 1,136,356 | 3.7 | % | |||||
| Five Percent or More Holders and Certain Other Holders | ||||||||
| Prospector Sponsor, LLC(4) | 13,371,827 | 37.2 | % | |||||
| FS LT Holdings LP(5) | 7,533,325 | 23.7 | % | |||||
| Investissement Québec(6) | 6,662,915 | 20.5 | % | |||||
| YA II PN, Ltd.(7) | 3,175,087 | 9.6 | % | |||||
| BDC Capital Inc.(8) | 2,007,304 | 6.6 | % | |||||
| FIL Limited(9) | 2,551,871 | 8.3 | % | |||||
| Entities associated with Desjardins Capital(10) | 1,571,722 | 5.2 | % | |||||
| * | Indicates beneficial ownership of less than 1% of total outstanding Common Shares. |
| (1) | Holdings reported include Common Shares issuable upon conversion of convertible notes before giving effect to any payment-in-kind (PIK) accrual. |
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| (2) | Holdings reported include (i) for Messrs. Boulanger, Saintellemy and Delabrière, shares underlying exercisable options as of November 15, 2024; (ii) for Messrs. Saintellemy, Stewart and Torralbo, options becoming exercisable within 60 days of November 15, 2024; (iii) for Messrs. Boulanger and Delabrière, shares underlying Legacy Director Warrants; and (iii) for Messrs. Saintellemy, Stewart and Torralbo, RSUs that will vest within 60 days of November 15, 2024. |
| (3) | Includes securities held by MM Consulting SAS over which Mr. Delabrière has voting and dispositive power. |
| (4) | Holdings reported include 782,500 shares issuable upon conversion of convertible notes (before giving effect to any PIK accrual) and 4,974,312 shares issuable upon exercise of exercisable warrants. Derek Aberle, Nick Stone, Steve Altman and Mike Stone are among the members of Prospector Sponsor, LLC and are its managers. Each manager has one vote, and the approval of a majority of the managers is required for approval of an action of the Sponsor. No individual manager exercises voting or dispositive control over any of the securities held by the Sponsor, even those in which he directly owns a pecuniary interest. Accordingly, none of the individuals will be deemed to have or share beneficial ownership of such securities. The business address of Prospector Sponsor LLC and its managers is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. |
| (5) | Holdings reported include 770,000 shares issuable upon conversion of convertible notes, before giving effect to any PIK accrual, and 800,000 shares issuable upon an optional conversion of outstanding bridge loans. The shares reported above are held in the names of FS LT Holdings LP and, with respect to the shares issuable upon conversion of outstanding bridge loans, FS LT Holdings II LP. FS Investment Management, L.P. is the general partner of FS LT Holdings LP and FS LT Holdings II LP and exercises sole voting and dispositive control of the securities held by such entities. Nick Stone Management II, LLC, is the general partner of FS Investment Management, L.P. Nick Stone is the manager of Nick Stone Management II, LLC. The business address of each of FS LT Holdings LP, FS LT Holdings II LP, FS Investment Management, L.P., Nick Stone Management II, LLC and Nick Stone is 1250 Prospect Street, Suite 200, La Jolla, CA 92037. |
| (6) | Based on a Schedule 13D/A filed with the SEC on August, 26, 2024, holdings reported include 1,500,000 shares issuable upon conversion of convertible notes (before giving effect to any PIK accrual), and 13,890 shares issuable upon exercise of exercisable warrants and 800,000 shares issuable upon an optional conversion of outstanding bridge loans. Investissement Québec (“IQ”) is a mandatary of the Government of the Province of Québec, Canada. Decisions to vote or dispose of LeddarTech’s securities are made (i) by the Government of Québec, through the adoption of a decree of the Cabinet or by the Minister of the Economy, Innovation and Energy, in both cases under recommendations of the personnel at the ministry and of IQ or (ii) with respect to securities acquired by IQ acting for its own account (and not as mandatary of the Government of Québec), by IQ’s Credit Committee (which is typically comprised of six (6) persons) upon recommendations of IQ’s personnel. Accordingly, no person individually can exercise voting or investment power over the shares held by IQ and none are deemed to have or share beneficial ownership of such securities. The business address for Investissement Quebec is 1001, boulevard Robert Bourassa, Suite 1000, Montréal, Québec H3B 0A7. |
| (7) | Based solely on a Schedule 13D filed with the SEC on April 18, 2024 by YA II PN, Ltd and other members of a group with respect to holdings as of April 15, 2024. As of such date, YA II PN, Ltd. disclosed it had direct ownership of 163,363 shares and deemed ownership of 3,011,724 additional shares which it reported it had the right to acquire within 60 days of the date of the Schedule 13D. YA II PN, Ltd. shares voting and dispositive over all such shares. |
| (8) | Holdings reported include 249,500 shares issuable upon conversion of convertible notes, before giving effect to any PIK accrual. BDC Capital Inc. is a wholly owned subsidiary of the Business Development Bank of Canada, which is a federal Crown corporation wholly owned by the government of Canada. BDC Capital Inc.’s investment decisions are ultimately made by its board of directors, which currently consists of 11 members. BDC Capital’s board of directors has delegated certain investment decision-making authority to subcommittees of the board and to certain members of its senior management, including the Executive Vice-President for BDC Capital Inc., currently Jérôme Nycz. As Executive Vice-President, Mr. Nycz holds authority to approve voting and disposition of the LeddarTech shares held by BDC Capital Inc. The business address of BDC Capital Inc. is 5 Place Ville Marie, Suite 100, Montréal, Québec H3B 2G2. |
| (9) | Holdings reported based on a Schedule 13G filed with the SEC on February 9, 2024 by FIL Limited, Pandanus Partners, L.P. and Pandanus Associates, Inc. (“Fidelity”) and include 500,000 shares issuable upon conversion of convertible notes (before giving effect to any PIK accrual). The filing also reported that Fidelity True North Fund had an interest in all shares reported as beneficially owned by the Fidelity reporting persons. The business address of Fil Limited is Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, HM19. |
| (10) | Reflects holdings beneficially owned by Capital régional et coopératif Desjardins (“CRCD”) and Desjardins-Innovatech S.E.C. (“Desjardins-Innovatech”) and include 179,500 shares issuable upon conversion of convertible notes held by CRCD and 179,500 shares issuable upon conversion of convertible notes held by Desjardins-Innovatech, in each case before giving effect to any PIK accrual. CRCD was constituted under and is governed by the Act constituting Capital régional et coopératif Desjardins, a law in the province of Québec, Canada. CRCD is a public joint stock investment company with more than 109,000 shareholders, none of whom hold more than 10% of the shares of CRCD or directly or indirectly exercise control over CRCD. CRCD generally has entrusted the management of its investments to Gestion Desjardins Capital Inc. (“Desjardins Capital Management”), as investment manager. Desjardins-Innovatech is a limited partnership constituted under the Civil Code of Quebec, managed by its general partner, Desjardins Capital Management, and having two limited partners: CRCD and the Fonds du développement économique. In its capacity as general partner of Desjardins-Innovatech, Desjardins Capital management’s decisions are ultimately made by its board of directors, which has delegated its investment decision-making authority to committees of the board and to certain members of its management. Accordingly, for both CRCD and Desjardins-Innovatech, no individual exercises voting or dispositive control over any of the securities, and none of the individuals is deemed to have or share beneficial ownership of such securities. The business address of each of CRCD and Desjardins-Innovatech is 2, Complexe Desjardins, Bureau 1717, Montréal, QC H5B 1B8. |
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.
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| B. | Related Party Transactions |
Certain Related Person Transactions Related to the Business Combination
On December 21, 2023, the Company, Prospector and LeddarTech, consummated the Business Combination pursuant to the terms of the BCA, pursuant to which, among other things, (i) Prospector Canada and AmalCo amalgamated, and, in connection therewith, the outstanding Class A common shares and warrants to purchase Class A common shares of Prospector Canada converted into an equivalent number of Common Shares and Warrants to purchase an equivalent number of Common Shares, respectively, (ii) the preferred shares of LeddarTech converted into common shares of LeddarTech and, on the terms and subject to the conditions set forth in the Plan of Arrangement, AmalCo acquired all of the issued and outstanding common shares of LeddarTech from LeddarTech’s shareholders in exchange for common shares of AmalCo having an aggregate equity value of US$200 million (at a negotiated value of US$10.00 per share) plus an amount equal to the aggregate exercise price of LeddarTech’s outstanding “in the money” options immediately prior to the Prospector Amalgamation plus additional AmalCo “earnout” shares (with the terms set forth in the BCA); (iii) LeddarTech and AmalCo amalgamated; and (iv) in connection with the foregoing, the securities of AmalCo converted into an equivalent number of corresponding securities in the Company, each of LeddarTech’s equity awards that was not canceled pursuant to the BCA and the Plan of Arrangement was exchanged for an equity award with respect to shares of the Company, LeddarTech’s equity plans were terminated (other than the Incentive Plan) and the options to purchase LeddarTech’s Class M shares became options to purchase Common Shares.
Registration Rights Agreement
At the closing of the Business Combination, the Company, the Sponsor and the PIPE Investors entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the Company agreed to undertake certain shelf registration obligations in accordance with the Securities Act, and certain subsequent related transactions and obligations, including, among other things, undertaking certain registration obligations, and the preparation and filing of required documents. The registration rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company bears the expenses incurred in connection with the filing of any such registration statements.
With respect to the PIPE Investors, the Registration Rights Agreement provides that the Common Shares (other than any shares issuable upon conversion of any securities obtained through the PIPE Financing) will be subject to a lock-up for a period of six months following the Closing.
With respect to the holders other than the PIPE Investors, the Common Shares will be subject to a lock-up for a period of four years following the Closing. Common Shares held by certain investors are subject to such lock-up through the delivery by the investors of letters of transmittal.
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With respect to the Sponsor, the Common Shares issued upon conversion of the Prospector Class B ordinary shares (par value US$0.0001 par value) held by Sponsor are subject to certain transfer restrictions until six months following the Closing, and Common Shares issued upon conversion of the Prospector Warrants held by Sponsor (the “Private Placement Warrants”) will be subject to certain transfer restrictions until 30 days following the Closing.
Investor Rights Agreement
Upon the Closing, the Company and IQ entered into an investor rights agreement (the “Investor Rights Agreement”), pursuant to which, among other things, IQ was granted certain rights with respect to the nomination of board members of the Company. IQ is a participant in the PIPE Financing and invested US$15.0 million in the PIPE Financing. The Investor Rights Agreement provides that so long as IQ holds more than 60% of the equity interests in the Company that it owns at closing of the PIPE Financing, IQ shall have the right to designate one individual for nomination for election of the Company Board subject to certain restrictions, provided, however, that IQ shall nonetheless maintain its nomination right in respect of the next shareholders meeting relating to the election of directors of the Company that is called after the date upon which IQ’s equity interest falls below the foregoing threshold.
Certain Financing Transactions
The Company is party to a loan agreement with IQ, a greater than 5% beneficial holder of the Company. See “Item 5. Operating and Financial Review and Prospects—Financing Transactions—IQ Credit Facilities.”
The Company is party to a credit facility with Desjardins, whose affiliates are collectively a greater than 5% beneficial holder of the Company. See “Item 5. Operating and Financial Review and Prospects—Financing Transactions—Desjardins Credit Facility.”
The Company is party to a credit facility with Desjardins, FS, and IQ, each of whom together with its affiliates is a greater than 5% beneficial holder of the Company. See “Item 5. Operating and Financial Review and Prospects— Liquidity and Capital Management —Need for Additional Capital – Bridge Financing.”
Certain Relationships and Related Person Transactions prior to the Business Combination
Subscription Agreement
On June 12, 2023, concurrently with the execution of the BCA, LeddarTech entered into a subscription agreement (the “Subscription Agreement”) with certain investors, including investors who subsequently joined the Subscription Agreement (the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase secured convertible notes of LeddarTech (the “PIPE Convertible Notes”) in an aggregate principal amount of at least US$43.0 million (the “PIPE Financing”). PIPE Investors in certain tranches of the PIPE Convertible Notes received at the time of issuance of such notes warrants to acquire Class D-1 preferred shares of LeddarTech (the “Class D-1 Preferred Shares” and the warrants, the “PIPE Warrants”). All of the PIPE Warrants were exercised, and the Class D-1 Preferred Shares issued upon exercise of the PIPE Warrants entitled the PIPE Investors to receive approximately 8,553,434 Common Shares upon the closing of the Business Combination. Accordingly, the PIPE Investors held approximately 42.8% of the 20 million LeddarTech common shares outstanding immediately prior to the Closing. The PIPE Convertible Notes are convertible into the number of Common Shares determined by dividing the then-outstanding principal amount by the conversion price of US$10.00 per Common Share. The PIPE Financing closed on the Closing Date after the Business Combination.
Each PIPE Investor participating in Tranche A received (a) a secured convertible note issued by LeddarTech in a principal amount equal to such PIPE Investor’s Tranche A investment and convertible into Class D-1 Preferred Shares or into common shares after the closing of the Business Combination, with the Company as LeddarTech’s successor, at an initial conversion price of US$10.00 per share as provided in the Subscription Agreement, and (b) a warrant certificate entitling such PIPE Investor to purchase Class D-1 Preferred Shares at an exercise price of $0.01 per share at any time prior to the date that is fourteen calendar days after the conditions of LeddarTech and the PIPE Investors to consummate the Tranche A transaction have been met, representing 2.75 Class D-1 Preferred Shares for each $100.00 of the Tranche A investment paid by such PIPE Investor under the Subscription Agreement. Altogether, such PIPE Investors received warrants to acquire 605,003 Class D-1 Preferred Shares of LeddarTech, which entitled the PIPE Investors received 8,176,940 common shares upon the closing of the Business Combination.
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The issuance of Tranche B convertible notes was contingent upon, among other things, the substantially concurrent consummation of the Business Combination. The Subscription Agreement provides that each PIPE Investor participating in Tranche B will receive a secured convertible note issued by Newco in a principal amount equal to such PIPE Investor’s Tranche B investment and convertible into common shares, at an initial conversion price of US$10.00 per share as provided in the Subscription Agreement. On October 30, 2023, LeddarTech entered into an amendment to the Subscription Agreement with the PIPE Investors, pursuant to which the PIPE Investors agreed to concurrently purchase approximately US$4.1 million aggregate principal amount of Tranche B-1 Notes, with approximately US$17.9 million aggregate principal amount of Tranche B-2 Notes purchased upon consummation of the Business Combination. The amendment to the Subscription Agreement provided that each PIPE Investor participating in Tranche B-1 receive a secured convertible note issued by LeddarTech in a principal amount equal to such PIPE Investor’s Tranche B-1 investment and convertible into Class D-1 Preferred Shares before the Closing or into common shares after the Closing, with the Company as LeddarTech’s successor, as provided in the amendment, and (b) a warrant certificate entitling such PIPE Investor to purchase Class D-1 Preferred Shares at an exercise price of $0.01 per share on or prior to the first business day after the conditions of LeddarTech and the PIPE Investors to consummate the Tranche B-1 transaction have been met, representing 0.6 Class D-1 Preferred Shares for each $100.00 of the Tranche B-1 investment paid by such PIPE Investor under the amendment.
Altogether, the PIPE Warrants entitled the PIPE Investors to receive approximately 8,493,570 common shares in connection with the closing of the Business Combination. Accordingly, the PIPE Investors held approximately 42.5% of the 20 million common shares outstanding immediately prior to the Closing, which entitled the PIPE Investors to receive approximately 42.5% of each class of the Company Earnout Non-Voting Special Shares being distributed to existing shareholders of LeddarTech.
The convertible notes have an interest rate of 12% that compounds annually as an increase to the principal amount of the convertible notes (the “PIK Interest”) and are convertible into the number of common shares determined by dividing the then-outstanding principal amount by the conversion price of US$10.00 per common share.
All the convertible notes issued in relation with the PIPE Financing are guaranteed by VayaVision and Newco and the payment obligations of VayaVision thereunder are limited to amounts that VayaVision may distribute as dividend to its shareholder under Israeli Companies Law. VayaVision also granted to TSX Trust Company, as agent and hypothecary representative for the PIPE Investors pursuant to a collateral agency agreement dated as of June 12, 2023 (the “Hypothecary Representative”), a second ranking floating charge over all its rights (including goodwill), assets (tangible and intangible) and property of whatsoever nature and wheresoever located, both present and future. The Company granted to the Hypothecary Representative a hypothec in the amount of $60.0 million over the universality of the Company’s movable assets, present and future, ranking after the security of Desjardins. The Company also granted to the Hypothecary Representative a second ranking fixed charge and pledge over all of its shares in VayaVision. The Company granted to the Hypothecary Representative a hypothec in the amount of $60.0 million over the universality of the Company’s movable assets, present and future, ranking after the security of Desjardins. The Hypothecary Representative is also a secondary beneficiary under the Israeli Escrow Agreement and the Canadian Escrow Agreement.
Certain Prospector Relationships and Related Person Transactions prior to the Business Combination
Prospector Ownership Interests in LeddarTech
Messrs. Aberle and Stone currently serve on the board of directors of the Company and previously served on the board of directors of LeddarTech. Messrs. Aberle and Stone also are managers of Sponsor, which beneficially holds approximately 38.7% of the Company, and Mr. Stone is a manager of FS Investors, which beneficially holds approximately 59.4% of the Company.
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Series D Financing
In November of 2021, LeddarTech decided to pursue a private Series D financing that was ultimately led by FS Investors, an affiliate of the Sponsor and of which Nick Stone, Prospector’s Chief Financial Officer and director, is a manager. FS Investors invested an aggregate of US$22,199,963.52 in the Series D financing. Of this amount, Mr. Stone, Steve Altman, a director of Prospector, and Jon Levy, a director of Prospector, invested US$750,000, US$4,000,000 and US$250,000, respectively, in the Series D financing through an investment vehicle created by FS Investors. Mr. Levy’s investment in the Series D financing is through a group that invested US$2,075,000 in the aggregate. Messrs. Stone, Altman and Levy are indirect limited partners of FS Investors. Derek Aberle, Prospector’s Chief Executive Officer and director, also participated in the investment round and invested US$499,941.67 in his individual capacity. Such Series D financing transaction closed on November 1, 2021 and both Messrs. Aberle and Stone subsequently joined LeddarTech’s board of directors in November 2021.
PIPE Financing
Prior to the execution of the BCA, LeddarTech entered into the Subscription Agreement with the PIPE Investors, pursuant to which the PIPE Investors agreed to purchase convertible notes of the Company in an aggregate principal amount of approximately US$44.0 million, payable in two tranches. The issuance of the first tranche of the PIPE Financing in the aggregate principal amount of approximately US$22.0 million occurred upon execution of the BCA. FS Investors, an affiliate of the Sponsor, was a participant in the PIPE Financing and invested US$9,200,000 in the PIPE Financing. Mr. Stone is an indirect limited partner of FS Investors and invested US$222,183 through FS Investors. The Sponsor was a participant in the PIPE Financing and invested US$7,825,000 in the PIPE Financing. Mr. Stone is a direct or indirect member of the Sponsor, and invested US$574,171 through the Sponsor. Mr. Aberle is also a member of the Sponsor and invested US$210,000 in his individual capacity in the PIPE Financing.
Other Related Person Transactions
Indemnification Agreements
Following the closing of the Business Combination, the Company entered into indemnification agreements with each of the directors and executive officers of the Company to provide contractual indemnification and advancements by the Company of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to the Company or, at the Company’s request, service to other entities, as officers or directors to the fullest extent permitted by applicable law.
Pursuant to the indemnification agreements, the Company also maintains standard policies of insurance under which coverage is provided (i) to its directors and officers against loss arising from claims made by reason of breach of duty or other wrongful act, while acting in their capacity as directors and officers of the Company, and (ii) to the Company with respect to payments which may be made by the Company to such officers and directors pursuant to any indemnification provision contained in the Articles of Arrangement and Bylaws of the Company, or otherwise as a matter of law.
Employment Agreements
In accordance with the BCA, upon the consummation of the Business Combination, we entered into employment agreements with certain of our executive officers. See the section titled “Item 6.B. Directors, Senior Management and Employees—Compensation—Executive and Director Compensation - Employment Arrangements, Termination and Change in Control Benefits.”
| C. | Interests of Experts and Counsel |
Not applicable.
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| A. | Consolidated Statements and Other Financial Information |
For consolidated financial statements and other financial information, see “Item 18. Financial Statements” of this Annual Report.
For information about legal proceedings involving the Company, see “Item 4. Information on the Company—B. Business Overview—Legal Proceedings” in this Annual Report.
Dividend Policy
We currently intend to retain future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.
| B. | Significant Changes |
None.
| A. | Offer and Listing Details |
Nasdaq Listing of Common Shares and Warrants
Our Common Shares and Warrants are listed on Nasdaq under the symbols “LDTC” and “LDTCW”, respectively. Holders of our Common Shares and Warrants should obtain current market quotations for their securities. There can be no assurance that our Common Shares and/or Warrants will remain listed on Nasdaq. If we fail to comply with the Nasdaq listing requirements, our Common Shares and/or Warrants could be delisted from Nasdaq. A delisting of our common shares will likely restrict the liquidity of our common shares and could inhibit or restrict our ability to raise additional financing, among other things.
On July 31, 2024, we received notice (the “Minimum Bid Price Notice”), from Nasdaq that we are not currently in compliance with the US$1.00 minimum closing bid price requirement of Nasdaq Listing Rule 5450(a)(1). The Minimum Bid Price Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(i), we have until January 25, 2025 to regain compliance with the minimum bid price requirement by having the closing bid price of our Common Shares meet or exceed US$1.00 per share for at least ten consecutive business days. If we do not regain compliance with the minimum bid price requirement by January 25, 2025, we may be eligible to transfer the listing of our Common Shares from the Nasdaq Global Market to the Nasdaq Capital Market if, at the time of such transfer, we meet the initial listing requirement for market value of publicly held shares (US$1.0 million) and all other initial listing standards for the Nasdaq Capital Market (except for the minimum bid price requirement) and provide Nasdaq with written notice of our intention to cure the minimum bid price requirement deficiency. In response, Nasdaq may provide us an additional 180 day period to satisfy the minimum bid price requirement. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are not eligible, Nasdaq will provide notice to us that our Common Shares will be subject to delisting as described below.
On August 5, 2024 we received notice (the “Minimum Market Value of Publicly Held Shares Notice”), from Nasdaq that we are not currently in compliance with the US$15.0 million minimum market value of publicly held shares requirement of Nasdaq Listing Rule 5450(b)(2)(C). The Minimum Market Value of Publicly Held Shares Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(D), we have until February 3, 2025 to regain compliance with the minimum market value of publicly held shares requirement by having the closing market value of publicly held shares meet or exceed US$15.0 million for at least ten consecutive business days.
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On August 5, 2024 we received notice (the “Minimum Market Value of Listed Securities Notice”), from Nasdaq that we are not currently in compliance with the US$50.0 million minimum market value of listed securities requirement of Nasdaq Listing Rule 5450(b)(2)(A). The Minimum Market Value of Listed Securities Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(C), we have until February 3, 2025 to regain compliance with the minimum market value of listed securities requirement by having the closing market value of listed securities meet or exceed US$50.0 million for at least ten consecutive business days.
The foregoing notices had no immediate effect on the listing of our Common Shares and our Common Shares will continue to trade on the Nasdaq Global Market under the symbol “LDTC” at this time. If we fail to regain compliance with any such requirements during the applicable compliance periods, we will receive notification from Nasdaq that our Common Shares are subject to delisting. For further discussion of the business risks associated with any potential delisting, see “Item 3.D. Risk Factors— Risks Related to Ownership of Our Securities — Nasdaq has notified the Company that the Company is not in compliance with certain continued listing requirements, and if we are unable to regain compliance with the listing requirements of The Nasdaq Global Market, our Common Shares may be delisted from The Nasdaq Global Market which could have a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.”
| B. | Plan of Distribution |
Not Applicable.
| C. | Markets |
A discussion of all stock exchanges and other regulated markets on which our securities are listed is provided under “Item 9.A. Offer and Listing Details” of this Annual Report and is incorporated herein by reference.
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
| A. | Share Capital |
Not applicable.
| B. | Memorandum and Articles of Association |
Annual Meetings
Under the CBCA, the Company must hold its first annual meeting of shareholders within 18 months after the date on which it was incorporated, and after that must hold an annual meeting not later than 15 months after the last annual meeting at such time and place in or outside the Province of Québec as may be determined by the directors of the Company or, in the absence of such a determination, at the place where the registered office of the Company is located.
Board and Shareholder Ability to Call Shareholder Meetings
The by-laws of the Company provide that meetings of the shareholders may be called by the board of directors at any time. In addition, under the CBCA, the holders of not less than 5% of the issued shares of a corporation that carry the right to vote at a meeting sought to be held may requisition that the directors call a meeting of shareholders for the purposes stated in the requisition. Upon receiving a requisition to call a meeting of shareholders, the directors must, within 21 days after receiving the requisition, call a meeting of shareholders to transact the business stated in the requisition unless a record date has been fixed for a meeting of shareholders and notice of the meeting has been given in accordance with the CBCA; the directors of the Company have called a meeting of shareholder and have given notice of the meeting in accordance with the CBCA; or the business of the meeting as stated in the requisition includes certain matters, including, but not limited to, a proposal the primary purpose of which is to enforce a personal claim or redress a personal grievance against the corporation or its directors, officers or security holders. If the directors do not call such a meeting within 21 days after receiving the requisition, any shareholder who signed the requisition may call the meeting. The corporation must reimburse the requisitioning shareholders for the expenses reasonably incurred by them in requisitioning, calling and holding the meeting unless the shareholders have not acted in good faith and in the interest of the shareholders of the corporation generally.
Shareholder Meeting Quorum
The by-laws of the Company provide that a quorum of shareholders is present at a meeting of shareholders if the holders of not less than 331/3% of the shares entitled to vote at the meeting are present in person or represented by proxy, irrespective of the number of persons actually present at the meeting.
Voting Rights
Under the CBCA, at any meeting of shareholders at which a quorum is present, any action that must or may be taken or authorized by the shareholders, except as otherwise provided under the CBCA, the Company Articles or by-laws, may be taken or authorized by an “ordinary resolution,” which is a simple majority of the votes cast by shareholders voting shares that carry the right to vote at general meetings. The by-laws of the Company provide that every motion put to a vote at a meeting of shareholders will be decided by a show of hands unless a ballot on the question is required or demanded. Votes by a show of hands or functional equivalent result in each person having one vote regardless of the number of shares such person is entitled to vote. If voting is conducted by ballot, each person is entitled to one vote for each share such person is entitled to vote.
There are no limitations on the right of non-resident or foreign owners to hold or vote Company securities imposed by Canadian law or by the charter or other constituent document of the Company.
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Shareholder Action by Written Consent
Under the CBCA, shareholder action without a meeting may be taken by a resolution signed by all the shareholders or their attorney authorized in writing entitled to vote on that resolution at a meeting of shareholders. A written resolution of shareholders is as valid as if it had been passed at a meeting of those shareholders. A written resolution of shareholders dealing with all matters required by the CBCA to be dealt with at a meeting of shareholders, and signed by all the shareholders or their attorney authorized in writing entitled to vote on that resolution at that meeting, satisfies all the requirements of the CBCA relating to that meeting of shareholders.
Access to Books and Records and Dissemination of Information
The Company must keep at its registered office, or at such other place as the CBCA may permit, the documents, copies, registers, minutes and other records which Company is required by the CBCA to keep at such places. The Company must prepare and maintain, among other specified documents, adequate accounting records. Under the CBCA, any director, shareholder or creditor of the Company may, free of charge, examine certain of the Company’s records during the usual business hours of the Company.
Election and Appointment of Directors
The articles do not provide for the board of directors to be divided into classes.
At any general meeting of the Company’s shareholders at which directors are to be elected, a separate vote of shareholders entitled to vote will be taken with respect to each candidate nominated for director. Pursuant to the CBCA, any casual vacancy occurring on the Company Board may be filled by a quorum of the remaining directors, subject to certain exceptions. If the Company does not have a quorum of directors, or if there has been a failure to elect the number of directors required by the Company Articles or the CBCA, the directors then in office must forthwith call a special meeting of shareholders to fill the vacancy and, if the directors fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder of the Company. Pursuant to the CBCA, where empowered by a special resolution, the Company directors may, between meetings of shareholders, appoint one or more additional directors, but the number of additional directors may not exceed one third times the number of directors required to have been elected at the last annual meeting of shareholders.
At least 25% of the Company’s directors must be resident Canadians. The minimum number of directors the Company may have is one and the maximum number of directors the Company may have is eleven, as set out in the Company Articles. The CBCA provides that any amendment to the Company Articles to increase or decrease the minimum or maximum number of the Company’s directors requires the approval of the Company’s shareholders by a special resolution.
Removal of Directors
Pursuant to the CBCA, the shareholders of the Company may remove any director before the expiration of his or her term of office by ordinary resolution at an annual or special meeting of shareholders, provided that, where the holders of any class or series of shares of the Company have an exclusive right to elect one or more directors, a director so elected may only be removed by an ordinary resolution at a meeting of the shareholders of that class or series. In that event, the shareholders may elect, by ordinary resolution, another individual as director to fill the resulting vacancy.
Proceedings of Board of Directors
At all meetings of the board, every question will be decided by a majority of the votes cast and, in the case of an equality of votes, the chair of the meeting will have a second or casting vote. A resolution of the directors or of any committee of the directors consented to in writing by all of the directors entitled to vote on it is as valid and effective as if it had been passed at a meeting of the directors or of the committee of the directors duly called and held.
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Requirements for Advance Notification of Shareholder Nominations
Pursuant to the by-laws and subject only to the CBCA, the articles of the Company and applicable securities laws, shareholders of record entitled to vote will nominate persons for election to the Board only by providing proper notice to the Company’s corporate secretary. In the case of annual meetings, proper notice must be given not less than 30 days prior to the date of the annual meeting. However, in the event that the annual meeting of shareholders is to be held on a date that is less than 50 days after the date (the “Notice Date”) that is the earlier of (i) the date that a notice of meeting is filed for such meeting, and (ii) the date on which the first public announcement of the meeting was made, the notice must be given on the 10th day following the Notice Date. In the case of a special meeting called for the purpose of electing directors and which is not also an annual meeting of shareholders, the notice must be given not later than the close of business on the 15th day following the date that is the earlier of (i) the date that a notice of meeting is filed for such meeting, and (ii) the date on which the first public announcement of the special meeting was made. Such notice must include, among other information, certain information with respect to each shareholder nominating persons for elections to the Board, disclosure about any proxy, contract, arrangement, understanding or relationship pursuant to which the nominating shareholder has a right to vote shares of the Company and any other information the Company may reasonably require to determine the eligibility of the nominee to serve as a director of the Company.
Approval of Amalgamations, Mergers and Other Corporate Transactions
Under the CBCA, certain corporate actions, such as: (i) amalgamations (other than with certain affiliated corporations); (ii) continuances; (iii) sales, leases or exchanges of all, or substantially all, the property of a corporation other than in the ordinary course of business; (iv) reductions of stated capital for any purpose, including in connection with the payment of special distributions (subject, in certain cases, to the satisfaction of solvency tests); and (v) other actions such as liquidations, or arrangements, must be approved by a special resolution of the Company’s shareholders.
In certain specified cases where share rights or special rights may be prejudiced or interfered with, a special resolution of shareholders to approve the corporate action in question affecting the share rights or special rights, is also required to be approved separately by the holders of a class or series of shares, including a class or series of shares not otherwise carrying voting rights. In specified extraordinary corporate actions, such as approval of plans of arrangements and amalgamations all shares have a vote, whether or not they generally vote and, in certain cases, have separate class votes.
Limitations on Director Liability and Indemnification of Directors and Officers
Under the CBCA, no provision in a contract, the articles, the by-laws or a resolution relieves a director or officer from the duty to act in accordance with the CBCA and its related regulations or relieves him or her from liability for a breach of the CBCA or its regulations.
A director is not liable under the CBCA for certain acts if the director exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance, in good faith, on (i) financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the auditor of the corporation to fairly reflect the financial position of the corporation; or (ii) a report of a person whose profession lends credibility to a statement made by that professional person.
Under the CBCA, the Company may indemnify its current or former directors or officers or another individual who acts or acted at the Company’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with the Company or another entity.
The CBCA also provides that the Company may advance monies to a director, officer or other individual for costs, charges and expenses reasonably incurred in connection with such a proceeding; provided that such individual must repay the monies if the individual does not fulfill the conditions described below.
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The CBCA permits indemnification only if such individual (i) acted honestly and in good faith with a view to the Company’s best interests, or the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the Company’s request; and (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful.
Under the by-laws, the Company indemnifies to the fullest extent permitted by the CBCA (i) any director or officer of the Company; (ii) any former director or officer of the Company; (iii) any individual who acts or acted at the Company’s request as a director or officer, or in a similar capacity, of another entity; and (iv) their respective heirs and legal representatives.
Derivative Suits and Oppression Remedy
Under the CBCA, a complainant (being a current or former director, officer or security holder of a corporation, which includes a beneficial shareholder, and any other person that a court considers to be a proper person to make such an application) of the Company may apply to the Superior Court of Québec for leave to bring an action in the name and on behalf of the Company or any of its subsidiaries, or to intervene in an existing action to which the Company or any of its subsidiaries is a party, for the purpose of prosecuting, defending or discontinuing an action on behalf of the Company or any of its subsidiaries.
No such action may be brought and no intervention in any action may be made unless the complainant has given the requisite notice of the application for leave to the directors of the Company or its subsidiary of the complainant’s intention to apply to the court and the court is satisfied that (i) the directors of the Company or its subsidiaries will not bring, diligently prosecute or defend or discontinue the action; (ii) the complainant is acting in good faith; and (iii) it appears to be in the best interests of the Company or its subsidiaries for the action to be brought, prosecuted, defended or discontinued.
Under the CBCA, the court in a derivative action may make any order it thinks fit.
Under the CBCA, a complainant may apply to the Superior Court of Québec for any interim or final order the court thinks fit, including, but not limited to, an order restraining the conduct complained of, where the court is satisfied that, in respect of the Company or any of its affiliates, any act or omission of the Company or any of its affiliates effects or threatens to effect a result, the business or affairs of the Company or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner, or the powers of the directors of the Company or any of its affiliates are, have been or are threatened to be exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the Company.
Exclusive Forum
The by-laws provide that, unless the Company consents in writing to the selection of an alternative forum and except as set out below, the Superior Court of Québec, Canada and the appellate courts therefrom will, to the fullest extent permitted by law be the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action or proceeding asserting breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company, any action or proceeding asserting a claim arising pursuant to any provision of the CBCA or the articles or by-laws, or any action or proceeding asserting a claim related to the relationships among the Company, its affiliates and their respective shareholders, directors or officers (other than the business carried on by the Company or its affiliates). The by-laws provide that, notwithstanding the foregoing, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will have exclusive jurisdiction for the resolution of any complaint asserting a cause of action arising under the U.S. Securities Act. The exclusive forum provision in the Company’s by-laws does not apply to actions arising under the Securities Act or the Exchange Act. Investors cannot waive compliance with the U.S. federal securities laws and the rules and regulations thereunder.
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Amendment of the Articles, By-laws and Alteration of Share Capital
Under the CBCA, the Company may amend the Company Articles by special resolution. For purposes of the CBCA, a special resolution is a resolution passed by a majority of not less than two-thirds of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote on that resolution. A special resolution is generally required to approve corporate matters that may materially affect the rights of shareholders or are of a transformative nature for the corporation, including, but not limited to, changes to the corporation’s authorized capital structure, changes to the rights privileges, restrictions and conditions in respect of any of the corporation’s shares, a change in the corporation’s name, the winding up, dissolution or liquidation of the corporation, and a plan of arrangement with shareholders.
Under the CBCA, the Company Board may, by resolution, make, amend or repeal any by-laws that regulate the business of affairs of the Company. Where the directors make, amend or repeal any by-law, they must submit the by-law, amendment or repeal to the Company’s shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the by-law, amendment or repeal. Where a by-law is made, amended or repealed by the directors, the by-law, amendment or repeal is effective from the date of the resolution of the directors until it is confirmed, amended or rejected by shareholders (or, if the directors fail to submit the by-law, amendment or repeal to shareholders, until the date of the shareholders meeting at which it should have been submitted).
| C. | Material Contracts |
Other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects – Business Combination and Public Company Costs,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report, including the below, we have not entered into any material contract during the two years immediately preceding the date of this Annual Report.
| D. | Exchange Controls |
There is no law, governmental decree or regulation in Canada that restricts the export or import of capital, or which would affect the remittance of dividends or other payments by the Company to non-resident holders of common shares, other than withholding tax requirements.
| E. | Taxation |
Material U.S. Federal Income Tax Considerations TO U.S. Holders
The following discussion is a summary of the material U.S. federal income tax considerations applicable to you if you are a U.S. Holder (as defined below) of Common Shares, as a consequence of the ownership and disposition of Common Shares and Warrants. This discussion addresses only those U.S. Holders that will hold Common Shares as capital assets within the meaning of Section 1221 of the Code (generally property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to any particular investor’s particular circumstances, including the alternative minimum tax, the Medicare tax on certain investment income and the different consequences that may apply to investors subject to special rules under U.S. federal income tax law, such as:
| ● | banks, financial institutions or financial services entities; |
| ● | broker-dealers; |
| ● | taxpayers that are subject to the mark-to-market tax accounting rules; |
| ● | tax-exempt entities; |
| ● | governments or agencies or instrumentalities thereof; |
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| ● | insurance companies; |
| ● | pension funds; |
| ● | mutual funds; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | persons that acquired Common Shares or Warrants pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation; |
| ● | “specified foreign corporations” (including controlled foreign corporations), passive foreign investment companies or corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | tax-exempt organizations (including private foundations); |
| ● | persons that hold Common Shares or Warrants as part of a “straddle,” “hedge,” “conversion,” “synthetic security,” “constructive ownership transaction,” “constructive sale,” “wash sale,” or other integrated or similar transaction for U.S. federal income tax purposes; |
| ● | persons that have a functional currency other than the U.S. dollar; |
| ● | U.S. expatriates or former long-term residents of the U.S.; |
| ● | persons owning or considered as owning (directly, indirectly, or through attribution) 5 percent (measured by vote or value) or more of the Common Shares; |
| ● | accrual method taxpayers that file applicable financial statements as described in Section 451(b) of the Code; |
| ● | partnerships (or entities or arrangements classified as partnerships or other pass-through entities for U.S. federal income tax purposes, including S corporations) and any beneficial owners of such partnerships or other pass-through entities; and |
| ● | persons who are not U.S. Holders, all of whom may be subject to tax rules that differ materially from those summarized below. |
If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) or other pass-through entity holds Common Shares or Warrants, the tax treatment of a partner or other member in such partnership or other pass-through entity will generally depend upon the status of the partner or other member, the activities of the partnership or other pass-through entity and certain determinations made at the partner or member level. If you are a partner or member of a partnership or other pass-through entity holding Common Shares or Warrants, you are urged to consult your tax advisor regarding the tax consequences to you of the ownership and disposition of Common Shares and/or Warrants by the partnership or other pass-through entity.
This discussion is based on the Code, the regulations promulgated by the U.S. Treasury Department (“Treasury Regulations”), and judicial and administrative interpretations thereof, all as of the date hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax considerations described herein. The Company has not sought, and does not intend to seek, any rulings from the Internal Revenue Service (the “IRS”) as to any U.S. federal income tax considerations described herein. Accordingly, there can be no assurance that the IRS will not take positions inconsistent with the considerations discussed below or that any such positions would not be sustained by a court.
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THIS DISCUSSION IS ONLY A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS ASSOCIATED WITH THE OWNERSHIP AND DISPOSITION OF COMMON SHARES AND WARRANTS. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF COMMON SHARES AND WARRANTS, INCLUDING THE APPLICABILITY AND EFFECTS OF U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX LAWS.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Common Shares or Warrants, as the case may be, that is:
| ● | an individual who is a U.S. citizen or resident of the United States; |
| ● | a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
| ● | a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons (within the meaning of the Code) who have the authority to control all substantial decisions of the trust or (B) that has in effect a valid election under applicable Treasury Regulations to be treated as a U.S. person. |
Tax Consequences of Ownership and Disposition of Common Shares and Warrants
Dividends and Other Distributions on Common Shares
Subject to the passive investment company (“PFIC rules”) discussed below under the heading “— Passive Foreign Investment Company Rules,” distributions on Common Shares will generally be taxable as a dividend for U.S. federal income tax purposes to the extent paid from the Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of the Company’s current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its Common Shares. Any remaining excess will be treated as gain realized on the sale or other disposition of the Common Shares and will be treated as described below under the heading “— Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares and Warrants.” The Company does not expect that it will maintain calculations of earnings and profits under U.S. federal income tax principles for purposes of determining whether a distribution is a dividend for U.S. federal income tax purposes. Thus, it is expected that the full amount of any distributions will be reported as dividends for U.S. federal income tax purposes. The amount of any distribution will include any amounts withheld by the Company (or another applicable withholding agent), which would include amounts expected to be payable in respect of Canadian income taxes, if any. Any amount treated as dividend income will be treated as foreign-source dividend income. Amounts treated as dividends that the Company pays to a U.S. Holder that is a taxable corporation generally will be taxed at regular rates and will not qualify for the dividends received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. With respect to non-corporate U.S. Holders, under tax laws currently in effect and subject to certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), dividends generally will be taxed at the lower applicable long-term capital gains rate only if the Common Shares are readily tradable on an established securities market in the United States (which should include Nasdaq) or the Company is eligible for benefits of the Convention between the United States of America and Canada with Respect to Taxes on Income and on Capital, and the Company is not treated as a PFIC with respect to such U.S. Holder at the time the dividend was paid or in the preceding taxable year and provided certain holding period requirements are met. The amount of any dividend distribution paid in Canadian dollars will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars at that time. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
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Subject to applicable limitations, non-refundable Canadian income taxes withheld from dividends on the Common Shares at a rate not exceeding the rate provided by the applicable treaty with the United States will be eligible for credit against the U.S. treaty beneficiary’s U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders are urged to consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, a U.S. Holder may deduct foreign taxes, including any Canadian income tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares and Warrants
Subject to the PFIC rules discussed below under the heading “— Passive Foreign Investment Company Rules,” upon any sale, exchange or other taxable disposition of Common Shares or Warrants, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the sum of (x) the amount cash and (y) the fair market value of any other property, received in such sale, exchange or other taxable disposition and (ii) the U.S. Holder’s adjusted tax basis in such Common Share or Warrant (determined as described above or below), in each case as calculated in U.S. dollars. Any such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder’s holding period for such Common Share or Warrant exceeds one year. Long-term capital gain realized by a non-corporate U.S. Holder generally will be taxable at a reduced rate. The deductibility of capital losses is subject to limitations. This gain or loss generally will be treated as U.S. source gain or loss.
If Common Shares or Warrants are sold, exchanged, or otherwise disposed of in a taxable transaction for Canadian dollars, the amount realized generally will be the U.S. dollar value of the Canadian dollars received based on the spot rate in effect on the date of sale, exchange, or other taxable disposition. If a U.S. Holder is a cash method taxpayer and the Common Shares are traded on an established securities market, Canadian dollars received will be translated into U.S. dollars at the spot rate on the settlement date of the taxable disposition. An accrual method taxpayer may elect the same treatment with respect to the taxable disposition of Common Shares traded on an established securities market, provided that the election is applied consistently from year to year. Such election cannot be changed without the consent of the IRS. Canadian dollars received on the taxable disposition of a Common Share or Warrant generally will have a tax basis equal to its U.S. dollar value as determined pursuant to the rules above. Any gain or loss recognized by a U.S. Holder on a sale, exchange, or other taxable disposition of the Canadian dollars will be ordinary income or loss and generally will be U.S.-source gain or loss.
A U.S. Holder generally will not recognize gain or loss upon the acquisition of a Common Share on the exercise of a Warrant for cash. A U.S. Holder’s tax basis in a Common Share received upon exercise of the Warrant generally will equal the sum of the U.S. Holder’s tax basis in such Warrant and the exercise price. It is unclear whether a U.S. Holder’s holding period for the Common Share received will commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant; in either case, the holding period will not include the period during which the U.S. Holder held the Warrant. If a Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the Warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current law. Subject to the PFIC rules discussed below, a cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. Holder’s tax basis in Common Shares received generally should equal the U.S. Holder’s tax basis in the Warrants exercised therefor. If the cashless exercise was not a realization event, it is unclear whether a U.S. Holder’s holding period for the Common Shares received would be treated as commencing on the date of exercise of the Warrants or the day following the date of exercise of the Warrants; in either case, the holding period will not include the period during which the U.S. Holder held the Warrants. If the cashless exercise were treated as a recapitalization, the holding period of the Common Shares received would include the holding period of the Warrants.
It is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. Holder could be deemed to have surrendered a number of Warrants equal to the number of Common Shares having a value equal to the exercise price for the total number of Warrants to be exercised. In such case, subject to the PFIC rules discussed below, the U.S. Holder would recognize capital gain or loss with respect to the Warrants deemed surrendered in an amount equal to the difference between the fair market value of the Common Shares that would have been received in a regular exercise of the Warrants deemed surrendered and the U.S. Holder’s tax basis in the Warrants deemed surrendered. In this case, a U.S. Holder’s aggregate tax basis in the Common Shares received would equal the sum of the U.S. Holder’s tax basis in the Warrants deemed exercised and the aggregate exercise price of such Warrants. In either case, it is unclear whether a U.S. Holder’s holding period for the Common Shares would commence on the date of exercise of the Warrants or the day following the date of exercise of the Warrants; in either case, the holding period will not include the period during which the U.S. Holder held the Warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to Common Shares received, there can be no assurance regarding which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
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Subject to the PFIC rules described below, if the Company purchases Warrants in an open market transaction, such purchase generally will be treated as a taxable disposition to the U.S. Holder, taxed as described above under “— Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Shares and Warrants.”
Possible Constructive Distributions
The terms of each Warrant provide for an adjustment to the number of Common Shares for which the Warrant may be exercised or to the exercise price of the Warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. U.S. Holders of Warrants would, however, be treated as receiving a constructive distribution from the Company if, for example, the adjustment increases such U.S. Holders’ proportionate interest in the Company’s assets or earnings and profits (e.g., through an increase in the number of Common Shares that would be obtained upon exercise or through a decrease in the exercise price of the Warrants), which adjustment may be made as a result of a distribution of cash or other property to the holders of Common Shares. Such constructive distribution to a U.S. Holder of Warrants would be treated as if such U.S. Holder had received a cash distribution from the Company generally equal to the fair market value of such increased interest (taxed as described above under “— Dividends and Other Distributions on Common Shares”).
Passive Foreign Investment Company Rules
The treatment of U.S. Holders of Common Shares and Warrants could be materially different from that described above if the Company is treated as a PFIC for U.S. federal income tax purposes. If the Company is a PFIC for any taxable year, U.S. Holders of Common Shares and Warrants may be subject to adverse U.S. federal income tax consequences with respect to dispositions of, and distributions with respect to, Common Shares and Warrants and may be subject to additional reporting requirements.
A foreign (i.e., non-U.S.) corporation will be classified as a PFIC for U.S. federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income or (ii) at least 50% of its assets in a taxable year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
No assurance can be given as to whether or not the Company will be treated as a PFIC for its current taxable year. In addition, no assurance can be given as to whether or not the Company will be a PFIC in future taxable years. The determination of PFIC status is inherently factual, is subject to a number of uncertainties, and can be determined only annually after the close of the taxable year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. There can be no assurance that the Company will or will not be determined to be a PFIC for the current taxable year or any future taxable year, and no opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or will be requested. U.S. Holders should consult their own U.S. tax advisors regarding our PFIC status.
It is not entirely clear how various aspects of the PFIC rules apply to the Warrants. Section 1298(a)(4) of the Code provides that, to the extent provided in Treasury Regulations, any person who has an option to acquire stock in a PFIC shall be considered to own such stock in the PFIC for purposes of the PFIC rules. No final Treasury regulations are currently in effect under Section 1298(a)(4) of the Code. However, proposed Treasury Regulations under Section 1298(a)(4) of the Code have been promulgated with a retroactive effective date (the “Proposed PFIC Option Regulations”). Each U.S. Holder is urged to consult its tax advisors regarding the possible application of the Proposed PFIC Option Regulations to an investment in the Warrants. Solely for discussion purposes, the following discussion assumes that the Proposed PFIC Option Regulations will apply to the Warrants.
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Although PFIC status is generally determined annually, if the Company is determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of Common Shares or Warrants and the U.S. Holder did not make either a qualifying electing fund (“QEF”) election or a mark-to-market election (collectively, the “PFIC Elections”) for the first taxable year of the Company in which it was treated as a PFIC, and in which the U.S. Holder held (or was deemed to hold) such shares or warrants, such U.S. Holder generally will be subject to special rules with respect to (i) any gain recognized by the U.S. Holder on the sale or other disposition of its Common Shares and Warrants (which may include gain realized by reason of transfers of such shares or warrants that would otherwise qualify as nonrecognition transactions for U.S. federal income tax purposes) and (ii) any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the Common Shares during the three preceding taxable years of such U.S. Holder or, if shorter, the portion of such U.S. Holder’s holding period for such shares that preceded the taxable year of the distribution) (together, the “excess distribution rules”).
Under these excess distribution rules:
| ● | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the Common Shares; |
| ● | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of the Company’s first taxable year in which the Company a PFIC, will be taxed as ordinary income; |
| ● | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder without regard to the U.S. Holder’s other items of income and loss for such year; and |
| ● | an additional amount equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder with respect to the tax attributable to each such other taxable year of the U.S. Holder. |
In general, if the Company is determined to be a PFIC, a U.S. Holder may be able to avoid the excess distribution rules described above with respect to Common Shares (but, under current law, not the Warrants) by making (or having made) a timely and valid QEF election (if eligible to do so) to include in income its pro rata share of the Company’s net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which the Company’s taxable year ends. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
If a U.S. Holder makes a QEF election with respect to its Common Shares in a year after the Company’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) Common Shares, then notwithstanding such QEF election, the excess distribution rules discussed above, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such U.S. Holder’s Common Shares, unless the U.S. Holder makes a purging election under the PFIC rules. Under one type of purging election, the U.S. Holder will be deemed to have sold such Common Shares at their fair market value and any gain recognized on such deemed sale will be treated as an excess distribution, as described above. As a result of such purging election, the U.S. Holder will have additional basis (to the extent of any gain recognized on the deemed sale) and, solely for purposes of the PFIC rules, a new holding period in the Common Shares.
Under current law, a U.S. Holder may not make a QEF election with respect to its Warrants. As a result, if a U.S. Holder sells or otherwise disposes of such warrants (other than upon exercise of such warrants) and the Company were a PFIC at any time during the U.S. Holder’s holding period of such warrants, any gain recognized generally will be treated as an excess distribution, taxed as described above. If a U.S. Holder that exercises such warrants properly makes and maintains a QEF election with respect to the newly acquired Common Shares (or has previously made a QEF election with respect to Common Shares), the QEF election will apply to the newly acquired Common Shares. Notwithstanding such QEF election, the excess distribution rules discussed above, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired Common Shares (which, while not entirely clear, generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the Warrants), unless the U.S. Holder makes a purging election under the PFIC rules. U.S. Holders are urged to consult their tax advisors as to the application of the rules governing purging elections to their particular circumstances.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed United States federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances.
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In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from the Company. The Company has not determined whether it will provide U.S. Holders with this information to make or maintain a QEF election if it determines it is a PFIC. In addition, there is no assurance that the Company will have timely knowledge of its status as a PFIC in the future or of such information in order for U.S. Holders to make or maintain a QEF election.
If a U.S. Holder has made a QEF election with respect to the Common Shares, and the excess distribution rules discussed above do not apply to such shares (because of a timely QEF election for the Company’s first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale of Common Shares generally will be taxable as capital gain and no additional interest charge will be imposed under the PFIC rules. As discussed above, if the Company is a PFIC for any taxable year, a U.S. Holder of Common Shares that has made a QEF election will be currently taxed on its pro rata share of the Company’s earnings and profits, whether or not distributed for such year. A subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable when distributed to such U.S. Holder. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. In addition, if the Company is not a PFIC for any taxable year, such U.S. Holder will not be subject to the QEF inclusion regime with respect to Common Shares for such a taxable year. As noted above, however, the Company has not determined whether it will provide U.S. Holders with information to make and maintain a QEF election if the Company determines it is a PFIC.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) Common Shares and for which the Company is determined to be a PFIC, such U.S. Holder generally will not be subject to the excess distribution rules described above with respect to its Common Shares. Instead, in general, the U.S. Holder will include as ordinary income in each taxable year the excess, if any, of the fair market value of its Common Shares at the end of its taxable year over its adjusted basis in its Common Shares. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. The U.S. Holder also will recognize an ordinary loss in respect of the excess, if any, of its adjusted basis in its Common Shares over the fair market value of its Common Shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its Common Shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of its Common Shares will be treated as ordinary income. Under current law, a mark-to-market election may not be made with respect to warrants.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including Nasdaq, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the Common Shares ceased to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consented to the revocation of the election. U.S. Holders are urged to consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to Common Shares under their particular circumstances.
If the Company is a PFIC and, at any time, has a non-U.S. subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if the Company receives a distribution from, or dispose of all or part of the Company’s interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. The Company has not determined whether it will cause any lower-tier PFIC to provide to a U.S. Holder the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. Moreover, there can be no assurance that the Company will have timely knowledge of the status of any such lower-tier PFIC. In addition, the Company may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance that the Company will be able to cause the lower-tier PFIC to provide such information. A mark-to-market election generally would not be available with respect to such lower-tier PFIC. U.S. Holders are urged to consult their tax advisors regarding the tax issues raised by lower-tier PFICs.
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A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form 8621 (whether or not a QEF or mark-to-market election is made) and such other information as may be required by the U.S. Treasury Department. Failure to do so, if required, will extend the statute of limitations until such required information is furnished to the IRS.
The rules dealing with PFICs and PFIC Elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of Common Shares and Warrants should consult their own tax advisors concerning the application of the PFIC rules to Common Shares and Warrants under their particular circumstances.
Additional Reporting Requirements
Certain U.S. Holders may be required to file an IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of property (including cash) to the Company. Substantial penalties may be imposed on a U.S. Holder that fails to comply with this reporting requirement, and the period of limitations on assessment and collection of U.S. federal income taxes will be extended in the event of a failure to comply. Furthermore, certain U.S. Holders who are individuals and certain entities will be required to report information with respect to such U.S. Holder’s investment in “specified foreign financial assets” on IRS Form 8938 (Statement of Specified Foreign Financial Assets), subject to certain exceptions. Specified foreign financial assets generally include any financial account maintained with a non-U.S. financial institution and should also include Common Shares and Warrants if they are not held in an account maintained with a U.S. financial institution. Persons who are required to report specified foreign financial assets and fail to do so may be subject to substantial penalties, and the period of limitations on assessment and collection of U.S. federal income taxes may be extended in the event of a failure to comply. U.S. Holders are urged to consult their tax advisors regarding the foreign financial asset and other reporting obligations and their application to an investment in Common Shares and Warrants.
Treasury Regulations meant to require the reporting of certain tax shelter transactions could be interpreted to cover transactions generally not regarded as tax shelters, including certain foreign currency transactions. Under the applicable Treasury Regulations, certain transactions are required to be reported to the IRS including, in certain circumstances, a sale, exchange, retirement or other taxable disposition of foreign currency, to the extent that such sale, exchange, retirement or other taxable disposition results in a tax loss in excess of a threshold amount. You should consult your tax advisor to determine the tax return obligations, if any, with respect to Common Shares and the receipt of Canadian dollars in respect thereof, including any requirement to file IRS Form 8886 (Reportable Transaction Disclosure Statement).
Information Reporting and Backup Withholding
Dividend payments with respect to Common Shares and proceeds from the sale, exchange or redemption of Common Shares or Warrants may be subject to information reporting to the IRS and possible United States backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes other required certifications, or who is otherwise exempt from backup withholding and establishes such exempt status.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s United States federal income tax liability, and a U.S. Holder generally may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.
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Certain Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations thereunder in force as of the date hereof (the “Tax Act”), generally applicable, as of the date hereof, to an investor who acquires as beneficial owner the Common Shares or Warrants from the selling securityholders pursuant to this Annual Report and who, at all relevant times, for the purposes of the Tax Act and any applicable tax treaty or convention (i) deals at arm’s length with the Company, the selling securityholders and each of the underwriters, and is not affiliated with the Company, the selling securityholders or any of the underwriters; (ii) is not and is not deemed to be a resident in Canada; and (iii) does not use or hold, and is not deemed to use or hold, the Common Shares or Warrants, or any Common Shares acquired on the exercise of the Warrants (collectively, referred to as the “Securities”), in connection with, or in the course of carrying on, a business in Canada (a “Non-Canadian Holder”). For the purposes of the following summary, the term “Common Shares” will include any Common Shares acquired upon the exercise of Warrants acquired by a Holder.
Special rules, which are not discussed in this summary, may apply to a Non-Canadian Holder that is an insurer carrying on business in Canada and elsewhere. Such Non-Canadian Holders should consult their own tax advisors.
This summary is based upon the current provisions of the Tax Act and counsel’s understanding of the current administrative policies published in writing by the Canada Revenue Agency (“CRA”) prior to the date hereof. This summary also takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”), and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. Except for the Proposed Amendments, this summary does not take into account or anticipate any changes in law or administrative policies, whether by legislative, regulatory, administrative or judicial action or decision, nor does it take into account other federal or any provincial, territorial or foreign tax legislation or considerations, which may be different from those discussed in this summary.
This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Non-Canadian Holder. Accordingly, Non-Canadian Holders should consult their own tax advisors with respect to their particular circumstances.
Currency
Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Common Shares and Warrants must be expressed in Canadian dollars. Amounts denominated in another currency must be converted into Canadian dollars using the exchange rate quoted by the Bank of Canada on the date such amounts first arose, or such other rate of exchange as is acceptable to the CRA.
Adjusted Cost Base of Securities
When Common Shares or Warrants are acquired by a Non-Canadian Holder who already owns Common Shares or Warrants, the cost of newly acquired Common Shares or Warrants will generally be averaged with the adjusted cost base of all Common Shares or Warrants, respectively, held by the Non-Canadian Holder as capital property immediately prior to the acquisition for the purpose of determining the Non-Canadian Holder’s adjusted cost base of a common Share or a Warrant, as the case may be, held by such Non-Canadian Holder.
Exercise of Warrants
No gain or loss will be realized by a Non-Canadian Holder of a Warrant upon the exercise of a Warrant to acquire a Common Share. When a Warrant is exercised, the Non-Canadian Holder’s cost of the Common Share acquired pursuant to the exercise thereof will be equal to the adjusted cost base of the Warrant to such Non-Canadian Holder, plus the amount paid on the exercise of the Warrant. For the purpose of computing the adjusted cost base to a Non-Canadian Holder of each Common Share acquired on the exercise of a Warrant, the cost of such Common Share must be averaged with the adjusted cost base to such Non-Canadian Holder of all other Common Shares (if any) held by the Non-Canadian Holder as capital property immediately prior to the exercise of the Warrant. A “cashless exercise” of a Warrant pursuant to its terms likely results in a disposition of the Warrant, which will be subject to the tax treatment described below under “- Disposition of Securities.” Non-Canadian Holders should consult their own tax advisors with respect to the tax consequences to them of a “cashless exercise” of Warrants.
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Dividends
Dividends paid or credited, or deemed to be paid or credited, on Common Shares to a Non-Canadian Holder generally will be subject to Canadian withholding tax. Under the Tax Act, the rate of withholding tax is 25% of the gross amount of such dividends, which rate may be subject to reduction under the provisions of an applicable income tax treaty. A Non-Canadian Holder who is resident in the United States for the purposes of the Canada United States Tax Convention, fully entitled to the benefits of such convention and the beneficial owner of the dividends, will generally be subject to Canadian withholding tax at a rate of 15% of the amount of such dividends.
Disposition of Securities
A Non-Canadian Holder who disposes or is deemed to dispose of a Security in a taxation year will not be subject to tax in Canada, unless the Security is, or is deemed to be, ’‘taxable Canadian property’’ to the Non-Canadian Holder at the time of disposition and the Non-Canadian Holder is not entitled to relief under an applicable income tax treaty between Canada and the country in which the Non-Canadian Holder is resident.
Provided the Common Shares are listed on a “designated stock exchange,” as defined in the Tax Act (which currently includes Nasdaq), at the time of disposition, the Common Shares generally will not constitute taxable Canadian property of a Non-Canadian Holder at that time, unless at any time during the 60-month period immediately preceding the disposition the following two conditions are met concurrently: (i) one or any combination of (a) the Non-Canadian Holder, (b) persons with whom the Non-Canadian Holder does not deal at arm’s length, and (c) partnerships in which the Non-Canadian Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships owned 25% or more of the issued shares of any class or series of shares of the Company; 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), or (d) an option in respect of, an interest in, or for civil law rights in, property described in any of (a) through (c), whether or not such property exists.
In the case of the Warrants, Warrants would generally be “taxable Canadian property” to a Non-Canadian Holder at a particular time if, at any time in the previous 60 months: (a) the Non-Canadian Holder held Warrants that provided such Non-Canadian Holder with the right to acquire 25% or more of the outstanding Common Shares or the Non-Canadian Holder held shares of the Company at that time that satisfy the requirement in paragraph (i) above; and (b) the requirement in paragraph (ii) above is satisfied at that time. Notwithstanding the foregoing, a Common Share or Warrant may otherwise be deemed to be taxable Canadian property to a Non-Canadian Holder for purposes of the Tax Act in certain limited circumstances.
Non-Resident Holders who dispose of Securities that are taxable Canadian property should consult their own tax advisors with respect to the requirement to file a Canadian income tax return in respect of the disposition in their particular circumstances.
| F. | Dividends and Paying Agents |
Not applicable.
| G. | Statement by Experts |
Not applicable.
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| H. | Documents on Display |
Documents concerning the Company referred to in this Annual Report may be inspected at the principal executive offices of the Company at 4535, boulevard Wilfrid-Hamel, Suite 240, Quebec G1P 2J7, Canada.
The Company is subject to certain of the informational filing requirements of the Exchange Act. Since the Company is a “foreign private issuer”, it is exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and the officers, directors and principal shareholders of the Company are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act with respect to their purchase and sale of common shares. In addition, the Company is not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. public companies whose securities are registered under the Exchange Act. However, the Company is required to file with the SEC an Annual Report on Form 20-F containing financial statements audited by an independent accounting firm. The SEC also maintains a website at http://www.sec.gov that contains reports and other information that the Company files with or furnishes electronically to the SEC.
| I. | Subsidiary Information |
Not applicable.
| J. | Annual Report to Security Holders |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosure about market risk is included in the section titled “Item 5. Operating and Financial Review and Prospects—Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report and is incorporated herein by reference.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
| A. | Debt Securities |
Not applicable.
| B. | Warrants and Rights |
Not applicable.
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
Not applicable.
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ITEM 13. DEFAULTS, DIVIDEND ARRANGEMENTS AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None, except as described elsewhere in this Annual Report or in the information incorporated herein by reference.
ITEM 15. CONTROLS AND PROCEDURES
| A. | Disclosure Controls and Procedures |
In the course of preparing for the Business Combination we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and Canadian Securities Administrators National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings). Disclosure controls and procedures include, without limitations, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on such evaluation, the Company concluded that it has remediated its previously reported material weaknesses in its disclosure controls and procedures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim condensed consolidated financial statements may not be prevented or detected on a timely basis.
The following material weaknesses were identified by the Company in its fiscal years ended September 30, 2023 and 2022:
| i. | Insufficient accounting personnel to execute the routine and non-routine accounting processes and apply segregation of duties over the execution and approval of journal entries. |
| ii. | The Company has not adequately assessed the effectiveness of its information technology controls to select and develop general control activities over technology to support its financial reporting activities. As a result, the Company places extensive reliance on spreadsheets for various financial processes, including data entries, calculations and analysis, which lack the robust controls and validation mechanisms present in an integrated financial software environment. In addition, the Company has inadequate documentation and a lack of effective review controls to validate the inputs and assumptions used in the data entries, calculations, and analysis in the spreadsheets. |
| iii. | Review controls regarding both routine accounting processes and accounting treatments for complex transactions that were not designed effectively to ensure that accounting transactions are properly recognized and measured in the consolidated financial statements. |
All of the above noted material weaknesses contributed to the restatement of the Company’s financial statements included in this Annual Report.
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We have taken steps to address these pervasive material weaknesses and have implemented our remediation plan which addressed the underlying causes of the previous years’ material weaknesses. We have assessed the resource needs and have employed appropriately qualified staff to perform routine accounting transactions. We have also engaged external advisors with subject matter expertise and additional external resources to provide assistance in assessing complex and highly subjective accounting transactions. Further, we have engaged an external resource to assist with the assessment of our control environment including, performance of a risk assessment; documentation of process flows; design and remediation of internal controls; and evaluation of the design and operational effectiveness of our internal controls. We engaged an external advisor to provide an assessment of our general IT Controls (GTIC) environment and are implementing the recommendations from the assessment. We have chartered a Security Steering Committee comprised of several members of the executive team. We continue to evaluate the longer-term resource needs of our various financial functions’ process flows; design and remediation of internal controls; and evaluation of the design and operational effectiveness of our internal controls. We engaged an external advisor to provide an assessment of our general IT Controls (GTIC) environment and are implementing the recommendations from the assessment. We have chartered a Security Steering Committee comprised of several members of the executive team. We continue to evaluate the longer-term resource needs of our various financial functions. We have taken steps to address these pervasive material weaknesses and expect to implement a remediation plan, which we believe will address their underlying causes. We have engaged external advisors with subject matter expertise and additional external resources to provide assistance in assessing the control environment and expect to further engage these external advisors to provide assistance with all elements of the internal controls over financial reporting program, including: performance of a risk assessment; documentation of process flows; design and remediation of internal controls; and evaluation of the design and operational effectiveness of our internal controls. We also expect to engage additional external advisors to provide assistance in the areas of information technology and financial accounting. We are evaluating the longer-term resource needs of our various financial functions.
While we have made some upgrades to our enterprise resource planning (“ERP”) system to address internal control concerns, we are evaluating alternative ERP systems that may better fit our longer-term needs. We have made enhancements to our control environment and have implemented control activities to prevent or detect material misstatements. As such, we conclude that our material weaknesses have been remediated.
| B. | Management’s Annual Report on Internal Control over Financial Reporting |
Our management is responsible for establishing, maintaining and assessing adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and Canadian Securities Administrators National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Prior to December 22, 2023, LeddarTech was a private company and addressed internal control over financial reporting with internal accounting and financial reporting personnel and other resources. In the course of preparing for the Business Combination, LeddarTech identified material weaknesses in its internal control over financial reporting, as described under “—Disclosure Controls and Procedures” above. The Company’s internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the recording of transactions of the Company’s assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with IFRS, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements, Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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As required by Section 404 of the Sarbanes-Oxley Act and related rules promulgated by the SEC, our management assessed the effectiveness of the Company’s internal controls over financial reporting and concluded that its previously identified material weaknesses, described under “—Disclosure Controls and Procedures” above have been remediated as of September 30, 2024.
| C. | Attestation Report of Registered Public Accounting Firm |
This Annual Report does not include an attestation report of our registered public accounting firm because our company is neither an accelerated filer nor a large accelerated filer, as such terms are defined in Rule 12b-2 under the Exchange Act.
| D. | Changes in Internal Control Over Financial Reporting |
Prior to the Business Combination, we were a private company with limited accounting personnel and other resources to address our internal control over financial reporting and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, as described above, in preparation for the Business Combination we identified material weaknesses in our internal control over financial reporting, which have subsequently been remediated as of September 30. 2024.
Other than remediation measures to address such material weaknesses, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
As of December 20, 2024, our audit committee consists of Yann Delabrière and Sylvie Veilleux, and it is expected that Derek Aberle will be appointed to the audit committee prior to its next meeting. Each member of the audit committee meets the criteria for independence set forth in the rules of the NI 58-101 and Nasdaq and is financially literate. Our board of directors has determined that Yann Delabrière qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise. For more information, see “Item 6.C. Directors, Senior Management and Employees—Board Practices—Committees of the Board of Directors—Audit Committee.”
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In connection with the consummation of the Business Combination, we adopted a Code of Conduct applicable to all of our directors, officers and employees, including our President and Chief Executive Officer, Chief Financial Officer, controller or principal accounting officer, or other persons performing similar functions, which is a “code of ethics” as defined in Item 16B of Form 20-F promulgated by the SEC and which is a “code” under NI 58-101. The Code of Conduct sets out our fundamental values and standards of behaviour that are expected directors, officers and employees with respect to all aspects of the Company’s business. The objective of the Code of Conduct is to provide guidelines for maintaining our integrity, reputation and honesty with a goal of honouring others’ trust in us at all times.
The full text of the Code of Conduct is posted on our website at www.LeddarTech.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by reference herein. If we make any amendment to the Code of Conduct or grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC and the Canadian Securities Administrators. Under Item 16B of the SEC’s Form 20-F, if a waiver or amendment of the Code of Conduct applies to our principal executive officer, principal financial officer, principal accounting officer or controller and relates to standards promoting any of the values described in Item 16B(b) of Form 20-F, we will disclose such waiver or amendment on our website in accordance with the requirements of Instruction 4 to such Item 16B.
Monitoring Compliance with the Code of Conduct
Our nominating and corporate governance committee is responsible for reviewing and evaluating the Code of Conduct at least annually and will recommend any necessary or appropriate changes to our board for consideration. The nominating and corporate governance committee assists our board with the monitoring of compliance with the Code of Conduct, and will be responsible for considering any waivers of the Code of Conduct (other than waivers applicable to members of the nominating and corporate governance committee, which shall be considered by the audit committee, or waivers applicable to our directors or executive officers, which shall be subject to review by our board as a whole).
Complaint Reporting
In order to foster a climate of openness and honesty in which any concern or complaint pertaining to a suspected violation of the law, the Code of Conduct or any of our policies, or any unethical or questionable act or behaviour, the Code of Conduct requires that our employees promptly report the violation or suspected violation. In order to ensure that violations or suspected violations can be reported without fear of retaliation, harassment or an adverse employment consequence, the Code of Conduct contains procedures that are aimed to facilitate confidential, anonymous submissions by our employees.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table represents aggregate fees billed to us for professional services rendered by our independent registered public accounting firm Richter LLP (PCAOB ID No. 989) Canada for the fiscal years ended September 30, 2024 and 2023, including the fees billed for professional services rendered to the Company for each of the two years ended September 30, 2024 and 2023. The fees were billed and are presented in Canadian dollars.
| For the Year Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| ($) | ($) | |||||||
| Audit Fees | 2,195,256 | |||||||
| Audit-Related Fees | — | |||||||
| Tax Fees | 34,531 | |||||||
| All Other Fees | 587,414 | |||||||
| Total | 2,817,201 | |||||||
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Audit Fees
Audit fees consist of audit services billed related to the audit and interim reviews of financial statements; and services related to comfort letters, consents and other services related to SEC matters.
Audit-Related Fees
Audit-related fees are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit fees. These fees primarily include accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and other accounting issues that occur from time to time.
Tax Fees
Tax fees consist of tax compliance and tax planning advice. Tax compliance services consisted of Federal, state and local income tax return assistance and Transfer pricing documentation. Tax planning services included advice related to structuring certain proposed transactions, including the Business Combination.
All Other Fees
All other fees are any additional amounts for products and services provided, other than the services reported above under Audit fees, Audit-related fees and Tax fees that do not conflict with audit services.
Audit Committee Pre-Approval
Our audit committee pre-approves auditing services and permitted non-audit services to be performed for us by our independent auditor, including the fees and terms thereof (subject to certain de minimis exceptions provided by law or regulation). Audit committee pre-approval of audit and non-audit services is not required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the audit committee. There were no services approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
E&Y notified LeddarTech and the Company on August 18, 2023 that they declined to stand for reelection as our independent registered public accounting firm with respect to the audit of our financial statements for the year ending September 30, 2023, effective upon the consummation of the Business Combination.
E&Y’s reports on our financial statements for the fiscal years ended September 30, 2022 and September 30, 2021, did not contain an adverse opinion or a disclaimer of opinion, and neither such report was qualified or modified as to uncertainty, audit scope, or accounting principle, except that the report on our financial statements for the fiscal years ended September 30, 2022 and September 30, 2021, contained a paragraph stating that there was substantial doubt about our ability to continue as a going concern.
135
During the fiscal years ended September 30, 2022 and September 30, 2021, and subsequent interim periods through the date of the Form F-4, (x) there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of E&Y, would have caused E&Y to make reference thereto in its reports on the financial statements for such years, and (y) there were no reportable events as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K, other than the material weakness in the internal control over financial reporting relating to (i) insufficient accounting personnel to execute the routine and non-routine accounting processes and apply segregation of duties over the execution and approval of journal entries, (ii) the Company has not adequately assessed the effectiveness of its information technology controls to select and develop general control activities over technology to support its financial reporting activities. As a result, the Company places extensive reliance on spreadsheets for various financial processes, including data entries, calculations and analysis, which lack the robust controls and validation mechanisms present in an integrated financial software environment. In addition, the Company has inadequate documentation and a lack of effective review controls to validate the inputs and assumptions used in the data entries, calculations, and analysis in the spreadsheets and (iii) review controls regarding both routine accounting processes and accounting treatments for complex transactions that were not designed effectively to ensure that accounting transactions are properly recognized and measured in the consolidated financial statements, as described in the section entitled “Item 3.D. Risk Factors — Risks Related to Ownership of Our Securities — We have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, we may identify additional material weaknesses in the future.” If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.
In October 2023, we engaged Richter LLP as our new independent registered public accountant for the fiscal year ending September 30, 2023, and for the financial periods going forward. This decision was approved by our board of directors.
ITEM 16G. CORPORATE GOVERNANCE
We are a “foreign private issuer” under applicable U.S. federal securities laws and our Common Shares are listed on the Nasdaq Global Market. Our Common Shares are not listed on any other securities exchange. Rule 5615(a)(3) of Nasdaq Stock Market Rules permits foreign private issuers to follow home country practices in lieu of certain provisions of the Rule 5600 Series, Rule 5250(b)(3), and Rule 5250(d). A foreign private issuer that follows home country practices in lieu of certain provisions of Nasdaq Stock Market Rules must disclose ways in which its corporate governance practices differ from those followed by domestic companies either on its website or in the annual report that it distributes to shareholders in the United States. A description of the ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to Nasdaq standards are set forth below.
The Canadian Securities Administrators have issued corporate governance guidelines pursuant to Policy Statement 58-201 to Corporate Governance Guidelines (the “Corporate Governance Guidelines”), together with certain related disclosure requirements pursuant to Regulation 58-101 respecting Disclosure of Corporate Governance Practices (“Regulation 58-101”). The Corporate Governance Guidelines are recommended as “best practices” for issuers to follow. The Company recognizes that good corporate governance plays an important role in its overall success and in enhancing shareholder value and, accordingly, it has adopted certain corporate governance policies and practices which reflect its consideration of the recommended Corporate Governance Guidelines.
136
The Company’s corporate governance practices differ from those followed by U.S. domestic companies pursuant to the Nasdaq Marketplace Rules in the following manner:
Executive Sessions: Nasdaq Stock Market Rule 5605(b)(2) requires that the independent board members of a company have executive sessions which are regularly scheduled and at which only independent directors are present. Although the Company has previously followed this Nasdaq Stock Market Rule it may not do so in the future or on a consistent or regularly scheduled basis. Under applicable Canadian rules, customs and practice, the Company’s independent directors are not required to hold executive sessions. However, the Company is subject to certain disclosure requirements prescribed in Regulation 58-101. In particular, the Company must disclose whether the independent directors hold executive sessions and, if such executive sessions are held, how many of these meetings have been held since the beginning of the Company’s most recently completed financial year. If the Company does not hold executive sessions, the Company must describe what its board of directors does to facilitate open and candid discussion among its independent directors.
Proxy Delivery Requirements: Nasdaq Stock Market Rule 5620(b) requires that a listed company that is not a limited partnership shall solicit proxies and provide proxy statements for all meetings of shareholders, and also provide copies of such proxy solicitation materials to Nasdaq. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act pursuant to rule 3a12-3 thereunder. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholder Approval Requirements: The Company does not follow Nasdaq Stock Market Rules 5635(a) and (b), which require 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). Additionally, the Company does not follow Nasdaq Stock Market Rule 5635(c), which requires shareholder approval of most equity compensation or purchase plans or arrangements and material amendments thereto (with a few limited exceptions), and this applies whether the securities issuable pursuant to such plan or arrangement are newly issued or bought over the open market. In lieu of following Nasdaq Stock Market Rules 5635(a), (b), and (c) the Company follows applicable Canadian corporate law, which requires shareholder approval for certain extraordinary fundamental changes or other corporate events.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
In December 2023, an insider trading policy was adopted by our board of directors governing the purchase, sale, and other dispositions of our securities by our directors, officers, and employees, to promote reasonable compliance with applicable insider trading laws, rules and regulations, and Nasdaq listing standards. Our insider trading policy is filed as Exhibit 11.1 to this Annual Report.
137
Risk Management and Strategy
We are committed to developing robust governance and oversight of cybersecurity risks and to implementing processes, controls and technologies designed to help assess, identify, and manage material risks. As described further in “— Governance” below, the Senior Director of IT, Quality, Functional Safety is responsible for the Company’s information security management system (“ISMS”) and, as part of its broader risk oversight, our board of directors oversees risks from information security threats both directly and through the audit committee of the board of directors. Our information technology (“IT”), infrastructure, applications, and networks are susceptible to potential impacts due to the escalating sophistication and frequency of cyber-attacks, data leaks and theft. Breaches in our technology systems, whether from circumventing security measures, denial-of-service attacks, hacking, phishing, computer viruses, ransomware, malware, employee errors, malfeasance, social engineering, vendor software supply chain compromises, physical breaches, or other actions, have the potential to compromise the confidentiality, availability, and integrity of crucial information. Such incidents may cause interruptions or malfunctions in our manufacturing systems, applications, and data processing, thereby disrupting other business operations.
We adhere to the internationally recognized ISO 27001 standard to ensure the confidentiality, integrity and availability of sensitive data. By implementing rigorous security policies, continuous monitoring and robust access controls under our ISMS, we protect our systems and data from potential threats. Our proactive approach to risk management and compliance ensures that both our products and processes meet the highest standards of security, fostering trust among clients, investors and industry professionals.
On September 18, 2024, the International Organization for Standardization (“ISO”) and the International Electrotechnical Commission (“IEC”) awarded the Company ISO/IEC 27001 certification, which represents a commitment to best-practice information security processes and establishes a robust information security management system (ISMS). This internationally recognized standard is the only information security management standard that is auditable, specifically outlining the requirements for managing information security risks. By proactively implementing ISO/IEC 27001, we systematically identify, manage and mitigate risks associated with information security threats, such as cyber-attacks, data leaks and theft. This approach strengthens the Company’s security posture and aligns its operations with global regulatory requirements, including GDPR and UNECE WP.
Our IT and cybersecurity team is tasked with assessing, identifying and managing risks related to cybersecurity threats and, under the leadership of the Senior Director of IT, Quality, Functional Safety, is responsible for:
| ● | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, services, and our broader IT environment; |
| ● | development of risk-based action plans to manage identified vulnerabilities and implementation of new protocols and infrastructure improvements; |
| ● | cybersecurity incident investigations; |
| ● | monitoring threats to sensitive data and unauthorized access to our systems; |
| ● | secure access control measures applied to critical IT systems, equipment and devices, designed to prevent unauthorized users, processes, and devices from assessing IT systems and data; |
| ● | developing and executing protocols to ensure that information regarding cybersecurity incidents is promptly shared with our board of directors, as appropriate, to allow for risk and materiality assessments and to consider disclosure and notice requirements; and |
| ● | developing and implementing training on cybersecurity, information security and threat awareness. |
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There were no cybersecurity incidents during the 2024 fiscal year, that resulted in an interruption to our operations, known losses of any critical data or otherwise had a material impact on our strategy, financial condition or results of operations. However, the scope and impact of any future incident cannot be predicted.
Governance
The Director of IT, Quality, Functional Safety is responsible for the Company’s ISMS. In this capacity, the company security officer oversees the enterprise-wide cybersecurity strategy, ensuring the development of policies and standards, the implementation of processes, and the management of architectural elements. The Director of IT, Quality, Functional Safety is responsible for assessing and managing material risks from cybersecurity threats, and is supported in delivering this function with an IT and cybersecurity team. The Director of IT, Quality, Functional Safety has over 17 years of experience overseeing information security, risk management, and compliance functions.
Our board of directors acknowledges the significance of robust cybersecurity management programs and actively participates in overseeing and reviewing our cybersecurity risk profile and exposures.
Additionally, as part of its broader risk oversight, our board of directors oversees risks from information security threats both directly and through the audit committee. As reflected in its charter, the Audit committee is required to periodically review and monitor management’s practices and policies with respect to (a) assessing, identifying and managing the Company’s major security risks, including physical, information, and data security and cybersecurity risks, and control thereof, and (b) the adequacy and effectiveness of disclosure controls and procedures associated with cybersecurity incident monitoring and reporting.
The Director of IT, Quality, Functional Safety may submit reports to the audit committee and other senior management members as appropriate. These reports provide insights into the evolving threat landscape, updates on the organization's cyber risks and threats, evaluations of the information security program, and the status of initiatives aimed at improving the information security program and its systems.
139
See “Item 18. Financial Statements.”
The audited consolidated financial statements of the Company are included in this Annual Report in Exhibit 99.1.
EXHIBIT INDEX
140
141
| * | Previously filed |
| † | Indicates management contract or compensatory plan or arrangement. |
| †† | Certain of the exhibits and schedules to these exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). The registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
142
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| LeddarTech Holdings Inc. | |||
| December 26, 2024 | By: | /s/ Frantz Saintellemy | |
| Name: | Frantz Saintellemy | ||
| Title: | Chief Executive Officer and Director | ||
143
Execution Copy
EIGHTH AMENDING AGREEMENT made as of June 4, 2024
| BETWEEN: | LeddarTech Holdings Inc.
(as “Borrower”) |
| AND: | Fédération des Caisses Desjardins du Québec
(as “Lender”) |
RECITALS
| A. | The Lender has addressed an amended and restated financing offer dated April 5, 2023 to the Borrower which has been accepted by the Borrower (as amended by a first amending agreement dated as of May 1, 2023, a second amending agreement dated as of May 31, 2023, a third amending agreement dated as of September 29, 2023, a fourth amending agreement dated as of October 13, 2023, a fifth amending agreement dated as of October 20, 2023, a sixth amending agreement dated as of October 31, 2023 and a seventh amending agreement dated as of December 8, 2023, the “Financing Offer”). |
| B. | The Borrower is the entity resulting from the amalgamation between LeddarTech Inc. and LeddarTech Holdings Inc. that took place on December 21, 2023. |
| C. | The Borrower and the Lender wish to amend the Financing Offer to modify the form of compliance certificate of Appendix “C” of the Financing Offer and to make the transition to CORRA. |
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
| 1. | Interpretation |
| 1.1 | Capitalized terms used herein and defined in the Financing Offer have the meanings assigned to them in the Financing Offer unless otherwise defined herein. |
| 1.2 | Other than as specifically provided herein, this Agreement shall not operate as a waiver of any right, power or privilege of the Lender and, except as amended hereby, all provisions of the Financing Offer will remain in full force and effect. |
| 2. | Amendments to the Financing Offer |
| 2.1 | Section 1.6 of Appendix “A” of the Financing Offer is amended as follows (changes underlined and struck-though): |
“1.6 CA Prime Rate: for any day, the greater of:
(a) the annual variable interest rate equal to the base rate announced by Desjardins from time to time as being its reference interest rate then in force to determine the interest rates on commercial loans granted by Desjardins in Canada in Canadian dollars, and
(b)the CDOR Rate for bankers’ acceptances with a the Adjusted Term CORRA for an interest period of one month, plus 1%;
provided that if the rate so determined would be less than the Floor, such rate will be deemed to be the Floor.”
| 2.2 | Section 1.7 of Appendix “A” of the Financing Offer is deleted. |
| 2.3 | Section 1 of Appendix “A” of the Financing Offer is amended by the addition of the following definitions: |
“1.3(A) Adjusted Term CORRA: means, for purposes of any calculation, the rate per annum equal to (a) Term CORRA for such calculation plus (b) a credit adjustment spread of 0.29547% (29.547 basis points); provided that if Adjusted Term CORRA as so determined would be less than the Floor, then Adjusted Term CORRA will be deemed to be the Floor.”
“1.4(A) Available Tenor: means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (i) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement, or (ii) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such date.”
“1.4(B) Benchmark: means, initially, the Term CORRA Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term CORRA Reference Rate, or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 11(a) of this Appendix.”
“1.4(C) Benchmark Replacement: means, with respect to any Benchmark Transition Event: the sum of: (i) the alternate benchmark rate that has been selected by Desjardins and the Borrower giving due consideration to (A) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for credit facilities denominated in the applicable currency and (ii) the related Benchmark
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Replacement Adjustment; provided that, if the Benchmark Replacement as so determined would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Security Documents.”
“1.4(D) Benchmark Replacement Adjustment: means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Desjardins and the Borrower giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (ii) any evolving or then- prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for credit facilities denominated in the relevant currency at such time.”
“1.4(E) Benchmark Replacement Date: means a date and time determined by Desjardins, which date will be no later than the earliest to occur of the following events with respect to the then-current Benchmark:
| (a) | in the case of paragraph (a) or (b) of the definition of “Benchmark Transition Event”, the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate, all Available Tenors of such Benchmark (or such component thereof); or |
| (b) | in the case of paragraph (c) of the definition of “Benchmark Transition Event,” the first date on which all Available Tenors of such Benchmark (or the published component used in the calculation thereof) has been or, if such Benchmark is a term rate, all Available Tenors of such Benchmark (or such component thereof) have been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non- representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such paragraph (c) and even if such Benchmark (or such component thereof) or, if such Benchmark is a term rate, any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date. |
For the avoidance of doubt, if such Benchmark is a term rate, the “Benchmark Replacement Date” will be deemed to have occurred in the case of paragraph (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available
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Tenors of such Benchmark (or the published component used in the calculation thereof).”
“1.4(F) Benchmark Transition Event: means the occurrence of one or more of the following events with respect to the then-current Benchmark:
| (a) | a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate, all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate, any Available Tenor of such Benchmark (or such component thereof); | |
| (b) | a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Relevant Governmental Body, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate, all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate, any Available Tenor of such Benchmark (or such component thereof); or |
| (c) | a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such Benchmark (or such component thereof) or, if such Benchmark is a term rate, all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative. |
For the avoidance of doubt, if such Benchmark is a term rate, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).”
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“1.4(G) Benchmark Unavailability Period: means, the period (if any) (a) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Security Document in accordance with Section 11 of this Appendix and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Security Document in accordance Section 11 of this Appendix.”
“1.7(A) Conforming Changes: means, with respect to either the use or administration of a Benchmark or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “CA Prime Rate”, the definition of “Business Day” or any similar or analogous definition, timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion, rollover or continuation notices, the applicability and length of lookback periods, the applicability of Section 11 of this Appendix and other technical, administrative or operational matters) that Desjardins decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by Desjardins in a manner substantially consistent with market practice (or, if Desjardins decides that adoption of any portion of such market practice is not administratively feasible or if Desjardins determines that no market practice for the administration of any such rate exists, in such other manner of administration as Desjardins decides is reasonably necessary in connection with the administration of this Agreement and the other Security Documents).”
“1.8(A) CORRA: means the Canadian Overnight Repo Rate Average administered and published by the Bank of Canada (or any successor administrator).”
“1.12(A) Floor: means a rate of interest equal to zero percent (0%) per annum.”
“1.21(A) Relevant Governmental Body: means the Bank of Canada, or a committee officially endorsed or convened by the Bank of Canada.”
“1.24(A) Term CORRA: means the Term CORRA Reference Rate for a tenor comparable to the applicable interest period on the day (such day, the “Periodic Term CORRA Determination Day”) that is two (2) Business Days prior to the first day of such interest period, as such rate is published by the Term CORRA Administrator; provided, however, that if as of 1:00 p.m. (Toronto time) on any Periodic Term CORRA Determination Day the Term CORRA Reference Rate for the applicable tenor has not been published by the Term CORRA Administrator and a Benchmark Replacement Date with respect to the Term CORRA Reference Rate has not occurred, then Term CORRA will be the Term CORRA Reference Rate for such tenor as published by the Term CORRA Administrator on the first preceding Business Day for which such Term CORRA Reference Rate for such tenor was published by the Term CORRA Administrator so long as such first preceding Business Day is not more than three (3) Business Days prior to such Periodic Term CORRA Determination Day.”
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“1.24(B) Term CORRA Administrator: means Candeal Benchmark Administration Services Inc., TSX Inc., or any successor administrator.”
“1.24(C) Term CORRA Reference Rate: means the forward-looking term rate based on CORRA.”
“1.24(D) Unadjusted Benchmark Replacement: means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.”
| 2.4 | Section 11 of Appendix “A” of the Financing Offer is replaced with the following Section: |
“11. BENCHMARK REPLACEMENT SETTING
| (a) | Benchmark Replacement. Notwithstanding anything to the contrary herein or in any Security Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior any setting of the then-current Benchmark, then (A) if a Benchmark Replacement is determined in accordance with clause (a) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Security Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any Security Document and (B) if a Benchmark Replacement is determined in accordance with clause (b) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Security Document in respect of any Benchmark setting at or after 5:00 p.m. (Toronto time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Borrower without any amendment to, or further action or consent of any other party to, this Agreement or any Security Document so long as Desjardins has not received, by such time, written notice of objection to such Benchmark Replacement from the Borrower. |
| (b) | Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, Desjardins will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any Security Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any Security Document. |
| (c) | Notices; Standards for Decisions and Determinations. Desjardins will promptly notify the Borrower of (i) the implementation of any Benchmark Replacement and (ii) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. Desjardins will notify the Borrower of (x) the removal or reinstatement of any tenor of a Benchmark pursuant to Section 11(d) of this Appendix and (y) the commencement of any Benchmark Unavailability Period. Any determination, decision or election that may be made by Desjardins pursuant to this Section 11 of this Appendix, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any Security Document, except, in each case, as expressly required pursuant to this Section 11 of this Appendix. |
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| (d) | Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any Security Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including Term CORRA) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by Desjardins in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then Desjardins may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then Desjardins may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor. |
| (e) | Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any pending request for an Advance of, conversion to or continuation of Advances, which are of the type that have a rate of interest determined by reference to the then-current Benchmark, to be made, converted or continued during any Benchmark Unavailability Period.” |
| 2.5 | Appendix “C” of the Financing Offer is hereby replaced with Appendix “C” to this Agreement (changes underlined). |
| 3. | Effectiveness and Conditions Precedent |
This Agreement will become effective on the date that the Lender notifies the Borrower that the following conditions precedent have been fulfilled:
| 3.1 | this Agreement has been executed by all parties; |
| 3.2 | no Default exists; |
| 3.3 | all fees and expenses owing by the Borrower to the Lender and its legal counsel due on the date of this Agreement shall have been paid and the Lender is authorized to debit the Borrower’s account and proceed to the payment of such fees and expenses. |
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| 4. | Representations and Warranties |
All of the representations and warranties contained in Article 2 of the Appendix A to the Financing Offer are true and correct on and as of the date hereof as though made on and as of the date hereof, except that, to the extent such representations and warranties relate to a specifically identified earlier date they shall be true and correct as of such earlier date.
| 5. | Default |
No Default has occurred and is continuing on the date hereof, except as otherwise waived.
| 6. | Cost and Expenses |
The Borrower agrees to pay on demand all reasonable costs and expenses of the Lender in connection with the preparation, execution, delivery and implementation and administration of this Agreement including the reasonable fees and expenses of counsel for the Lender.
| 7. | Counterparts |
This Agreement may be executed in any number of counterparts, all of which taken together constitute one and the same instrument. A party may execute this Agreement by signing any counterpart. Delivery by any party or other signatory of an executed counterpart of this Agreement by facsimile or electronic mail or in PDF format, or using any electronic signature, shall be equally effective as delivery of an original executed counterpart of this Agreement.
| 8. | Governing Law |
This Agreement is governed by and construed in accordance with laws of the Province of Quebec and the laws of Canada applicable therein.
[Signature pages follow]
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IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed as of the date and year first above written.
| Fédération des Caisses Desjardins du | ||
| Québec, as Lender | ||
| Per: | /s/ Jocelyn Larouche | |
| Title: | Jocelyn Larouche - Director, National Accounts, North Western Quebec | |
| Per : | /s/ Alexandre Chapdelaine | |
| Title: | Alexandre Chapdelaine, Managing Director and Market Lead, National Accounts | |
| LEDDARTECH HOLDINGS INC., as Borrower | ||
| Per : |  | |
[Eighth Amendment – LeddarTech Holdings Inc.]
APPENDIX “C” – COMPLIANCE CERTIFICATE
[Date]
Fédération des Caisses Desjardins du Québec
1170 rue Peel, bureau 600
Montréal (Québec) H3B 0A9
| Attention: | Alexandre Chapdelaine, Director Corporate Banking |
| Fax: | 514-281-4317 |
| Email: | alexandre.chapdelaine@desjardins.com |
With a copy to:
| Attention: | Administration des Financements, Grandes Entreprises |
| Fax: | 514-281-2686 |
| Email: | SUIVI_DES_ENGAGEMENTS_FINANCIERS_ET_GARANTIES@desjardins.com |
| RE: | LeddarTech Holdings Inc. |
Reference is made to the financing offer dated as of April 5, 2023 (as amended, restated, supplemented or otherwise modified from time to time, the “Financing Offer”) among LeddarTech Holdings Inc. (the “Borrower”) and Fédération des Caisses Desjardins du Québec. All terms used but not defined herein have the meaning given to them in the Financing Offer.
I am the Chief Financial Officer of the Borrower and I hereby certify in such capacity that:
| 1. | [To the best of my knowledge, but after reasonable enquiry, the representations and warranties set forth in the Financing Offer are still true and accurate in all material respects and that no default has occurred and is continuing.] |
| 2. | [On the last day of the [financial quarter / calendar month] ending on [●] [NTD: such certification must be given in respect of financial quarters or on a monthly basis, depending on the requirement under Section 7.2.3.] the Available Cash of the Borrower, calculated in accordance with the Financing Offer, was [●] (which must be within the limit of Section 7.1.2 which is [●]).] |
| 3. | [During the calendar month ending on [●], the amount of cash maintained by the Borrower and each of is Subsidiaries in deposit accounts not subject to first ranking security provided in favour of Desjardins has not exceeded $500,000 at an time.] |
or
[During the calendar month ending on [●], the amount of cash maintained by the Borrower and each of is Subsidiaries in deposit accounts not subject to first ranking security provided in favour of Desjardins has exceeded $500,000 on [●] [NTD: insert the date of the specific days on which the amount of cash has exceeded $500,000] and, as such, the Borrower has transferred or has caused any Subsidiary concerned to transfer within five Business Days to a deposit account maintained with Desjardins that is subject to first ranking security provided in favour of Desjardins an amount equal to the amount in excess of such $500,000 threshold.]
| 4. | [During the [financial quarter / calendar month] ending on [●] [NTD: such certification must be given in respect of financial quarters or on a monthly basis, depending on the requirement under Section 7.2.3.], the Borrower and the Guarantors [have raised a cumulative net equity amount of $[●] OR have not raised any cumulative net equity amount] by way of equity line of credit (commonly known as ELOC) or analogous instruments.] |
The details of all calculations supporting the above statements are set out in the attached annex. There has been no material change in the information contained in the corporate structure chart provided on the Effective Date and the Appendix “F” – Intellectual Property and Source Codes of the Financing Offer, except as specified in the attached annex.
| [Name and signature of CFO] |
FIRST AMENDING AGREEMENT made as of October 11, 2024
| BETWEEN: | LeddarTech Holdings Inc.
(as “Borrower”) |
| AND: | Federation des Caisses Desjardins du Quebec
(as “Desjardins”) |
| AND: | Investissement Québec
(as “IQ”) |
| AND: | FS LT Holdings II LP, by its general partner FS Investment, L.P., by its general partner Nick Stone Management II, LLC
(as “FS LT”, and collectively with Desjardins and IQ, the “Initial Bridge Lenders”) |
| AND: | Frantz Saintellemy
(as “F. Saintellemy”) |
| AND: | MM Consulting SAS
(as “MM Consulting”) |
| AND: | Charles Boulanger
(as “C. Boulanger”) |
| AND: | Derek Aberle
(as “D. Aberle”) |
| AND: | David Torralbo
(as “D. Torralbo”, and collectively with F. Saintellemy, MM Consulting, C. Boulanger and D. Aberle, the “Additional Bridge Lenders”, and collectively with the Initial Bridge Lenders, the “Bridge Lenders”) |
Recitals
| A. | The Initial Bridge Lenders have addressed a bridge financing offer dated August 16, 2024 to the Borrower which has been accepted by the Borrower (as further amended, supplemented, restated, replaced or amended and restated from time to time, the “Bridge Financing Offer”). |
| B. | Each Additional Bridge Lender wishes to become a party to the Bridge Financing Offer, be bound by the terms and provisions contained therein, and make available to the Borrower additional advances of indebtedness under the Bridge Financing Offer (collectively, the “Additional Advances”); and |
| C. | The Borrower and the Initial Bridge Lenders wish to amend the Bridge Financing Offer to, among other things, authorize each Additional Bridge Lender to become party to the Bridge Financing Offer and provide the conditions to enable a potential decrease of the commitments of the Initial Bridge Lenders. |
Now, therefore, the parties agree as follows:
| 1. | Interpretation |
| 1.1 | Capitalized terms used herein and defined in the Bridge Financing Offer have the meanings assigned to them in the Bridge Financing Offer unless otherwise defined herein. |
| 1.2 | Other than as specifically provided herein, this Agreement shall not operate as a waiver of any right, power or privilege of the Initial Bridge Lenders and, except as amended hereby, all provisions of the Bridge Financing Offer will remain in full force and effect. |
| 2. | Amendments to the Bridge Financing Offer |
| 2.1 | Section 2.2.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“2.2.1 The amount of the Desjardins Bridge Loan is in an aggregate amount of US$3,000,000. Following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, the amount of the Desjardins Bridge Loan shall be reduced to US$2,888,666.67.”
| 2.2 | Section 2.4.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“2.4.1 The principal amount of the Desjardins Bridge Loan shall be disbursed by way of two Advances: (a) a first Advance of US$2,000,000 available as of August 19, 2024 once the conditions precedent set forth in Section 7.3 have been fulfilled or waived, and (b) a second Advance of either (i) US$1,000,000 or (ii) following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, US$888,666.67 available on October 15, 2024 or shortly thereafter once the conditions precedent set forth in Section 7.4 have been fulfilled or waived.”
| 2.3 | Section 3.2.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“3.2.1 The amount of the IQ Bridge Loan is in an aggregate amount of US$3,000,000. Following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, the amount of the IQ Bridge Loan shall be reduced to US$2,888,666.67.”
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| 2.4 | Section 3.4.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“3.4.1 The principal amount of the IQ Bridge Loan shall be disbursed by way of two Advances: (a) a first Advance of US$2,000,000 available as of August 19, 2024 once the conditions precedent set forth in Section 7.3 have been fulfilled or waived, and (b) a second Advance of (i) US$1,000,000 or (ii) following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, US$888,666.67 available on October 15, 2024 or shortly thereafter once the conditions precedent set forth in Section 7.4 have been fulfilled or waived.”
| 2.5 | Section 3.6 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“3.6 Discount
The IQ Bridge Loan is issued at an issue discount (the “IQ Issue Discount”) such that (a) an amount representing 1/3 ofany outstanding principal amount under the IQ Bridge Loan of IQ’s first Advance and (b) following the disbursement of IQ’s second Advance, (i) an amount representing 1/3 of US$1,000,000, or (ii) following the disbursement of the Additional Advances, an amount representing 37.51% of the amount advanced by IQ for the second Advance, being US$888,666.67,is are payable concurrently with any outstanding principal amounts due under the IQ Bridge Loan. For greater certainty, the interest applicable to the IQ Bridge Loan is only calculated on the principal amount effectively disbursed by IQ and does not take into account the IQ Issue Discount.”
| 2.6 | Section 4.2.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“4.2.1 The amount of the FS LT Bridge Loan is in an aggregate amount of US$3,000,000. Following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, the amount of the FS LT Bridge Loan shall be reduced to US$2,888,666.67.”
| 2.7 | Section 4.4.1 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“4.4.1 The principal amount of the FS LT Bridge Loan may be disbursed by way of two Advances: (a) a first Advance of US$2,000,000 available as of August 19, 2024 once the conditions precedent set forth in Section 7.3 have been fulfilled or waived, and (b) a second Advance of (i) US$1,000,000 or (ii) following the disbursement of the Additional Advances and provided that the Initial Bridge Lenders disburse concurrently their respective second Advance, US$888,666.67 available on October 15, 2024 or shortly thereafter once the conditions precedent set forth in Section 7.4 have been fulfilled or waived.”
| 2.8 | Section 4.6 of the Bridge Financing Offer is amended as follows (changes underlined and struck through): |
“4.6 Discount
The FS LT Bridge Loan is issued at an issue discount (the “FS LT Issue Discount”) such that (a) an amount representing 1/3 ofany outstanding principal amount under the FS LT Bridge Loan of FS LT’s first Advance and (b) following the disbursement of FS LT’s second Advance, (i) an amount representing 1/3 of US$1,000,000, or (ii) following the disbursement of the Additional Advances, an amount representing 37.51% of the amount advanced by FS LT for the second Advance, being US$888,666.67,is are payable concurrently with any outstanding principal amounts due under the FS LT Bridge Loan. For greater certainty, the interest applicable to the FS LT Bridge Loan is only calculated on the principal amount effectively disbursed by FS LT and does not take into account the FS LT Issue Discount.”
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| 3. | Effectiveness and Conditions Precedent |
This Agreement will become effective on the date that the Initial Bridge Lenders notify the Borrower that the following conditions precedent have been fulfilled to their satisfaction:
| 3.1 | this Agreement has been executed by all parties; |
| 3.2 | receipt by the Initial Bridge Lenders a copy of each joinder agreement signed by the Additional Bridge Lenders; |
| 3.3 | on the basis of section 5 hereunder, no Default exists; and |
| 3.4 | all fees and expenses owing by the Borrower to the Initial Bridge Lenders and their legal counsel due on the date of this Agreement shall have been paid and Desjardins is authorized to debit the Borrower’s account and proceed to the payment of such fees and expenses. |
| 4. | Representations and Warranties |
The Borrower certifies that all of the representations and warranties contained in Article 2 of the Appendix A to the Bridge Financing Offer are true and correct on and as of the date hereof as though made on and as of the date hereof, except that, to the extent such representations and warranties relate to a specifically identified earlier date they shall be true and correct as of such earlier date.
| 5. | Consent |
Notwithstanding anything to the contrary, the Initial Bridge Lenders consent that each Additional Bridge Lender becomes party to the Bridge Financing Offer pursuant to section 6.2.1 of the Bridge Financing Offer.
| 6. | Default |
The Borrower certifies that no Default has occurred and is continuing on the date hereof.
| 7. | Cost and Expenses |
The Borrower agrees to pay on demand all reasonable costs and expenses of the Initial Bridge Lenders in connection with the preparation, execution, delivery and implementation and administration of this Agreement including the reasonable fees and expenses of counsel for the Initial Bridge Lenders.
| 8. | Counterparts |
This Agreement may be executed in any number of counterparts, all of which taken together constitute one and the same instrument. A party may execute this Agreement by signing any counterpart. Delivery by any party or other signatory of an executed counterpart of this Agreement by facsimile or electronic mail or in PDF format, or using any electronic signature, shall be equally effective as delivery of an original executed counterpart of this Agreement.
| 9. | Governing Law |
This Agreement is governed by and construed in accordance with laws of the Province of Quebec and the laws of Canada applicable therein.
[Signature pages follow]
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IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed as of the date and year first above written.
LEDDARTECH HOLDINGS INC., as Borrower |
| |
/s/ Frantz Saintellemy | ||
Name: | Frantz Saintellemy | |
| Title: | President and Chief Executive Officer | |
[First Amendment – LeddarTech Holdings Inc. – Bridge Loan]
FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC, as Initial Bridge Lender | ||||||
| Per: | /s/ Jocelyn Larouche | Per: | /s/ Alexandre Chapdelaine | |||
Name: | Jocelyn Larouche | Name: | Alexandre Chapdelaine | |||
| Title: | Director, National Accounts, North Western Quebec | Title: | Managing Director and Market Lead, National Accounts, North Western Quebec | |||
INVESTISSEMENT QUÉBEC, as Initial Bridge Lender | ||
/s/ Sébastien Plante | ||
Name: | Sébastien Plante | |
| Title: | Directeur principal, Investissement spécialisé - Québec | |
FS LT HOLDINGS II LP, by its general partner FS INVESTMENT, L.P., by its general partner NICK STONE MANAGEMENT II, LLC, as Initial Bridge Lender | ||
/s/ Nick Stone | ||
Name: | Nick Stone | |
| Title: | Manager | |
[First Amendment – LeddarTech Holdings Inc. – Bridge Loan]
| /s/ Frantz Saintellemy | |
| Frantz Saintellemy, as Additional Bridge Lender |
MM CONSULTING SAS, as Additional Bridge Lender | ||
/s/ Yann Delabrière | ||
Name: | Yann Delabrière | |
| Title: | ||
| /s/ Charles Boulanger | |
| Charles Boulanger, as Additional Bridge Lender |
| /s/ Derek Aberle | |
| Derek Aberle, as Additional Bridge Lender |
| /s/ David Torralbo | |
| David Torralbo, as Additional Bridge Lender |
[First Amendment – LeddarTech Holdings Inc. – Bridge Loan]
The Guarantor acknowledges receipt of this Agreement and agrees to its terms.
| VAYAVISION SENSING LTD., as Guarantor | ||
/s/ Frantz Saintellemy | ||
Name: | Frantz Saintellemy | |
| Title: | Chief Executive Officer | |
[First Amendment – LeddarTech Holdings Inc. – Bridge Loan]
The Existing Lender acknowledges receipt of this Agreement and agrees to its terms.
FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC, as Existing Lender | ||||||
| Per: | /s/ Jocelyn Larouche | Per: | /s/ Alexandre Chapdelaine | |||
Name: | Jocelyn Larouche | Name: | Alexandre Chapdelaine | |||
| Title: | Director, National Accounts, North Western Quebec | Title: | Managing Director and Market Lead, National Accounts, North Western Quebec | |||
[First Amendment – LeddarTech Holdings Inc. – Bridge Loan]
COLLABORATION AGREEMENT
This Collaboration Agreement (“Agreement”), effective as of the later date on the signature page (the “Effective Date”), is entered into by and between Texas Instruments Incorporated, a corporation organized under the laws of Delaware and having a principal place of business at 12500 TI Boulevard, Dallas, Texas 75243 (“TI”), and LeddarTech Holdings Inc., a company organized under the laws of Canada and having a principal place of business at 4535 boulevard Wilfrid-Hamel, Suite 240, Quebec (Quebec), G1P 2J7, Canada (“LT”). Each of TI and LT may be referred to in this Agreement as a “Party”.
WHEREAS, LT is a global software company that develops and provides comprehensive AI-based low-level sensor fusion and perception software that enables the deployment of ADAS, autonomous driving and parking applications.
WHEREAS, TI is a global semiconductor company that designs, manufactures and sells analog and embedded processing chips for markets such as industrial, automotive, personal electronics, communications equipment and enterprise systems.
WHEREAS, in order to combine the strengths and solutions of both companies, TI and LT wish to engage in a strategic collaboration to offer a joint solution to the worldwide automotive market.
NOW, THEREFORE, for the mutual promises contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto agree as follows:
| 1. | Definitions. |
| 1.1 | “Affiliate” will mean any legal entity directly or indirectly owned or controlled by, or owning or controlling, or under the same ownership or control as a Party for so long as such control exists. “Control” will mean the direct or indirect ownership of more than 50% of outstanding equity, or of the right to appoint by any other means, the directors or persons performing similar functions. |
| 1.2 | “Collaboration Roadmap” will have the meaning assigned to it in Section 2. |
| 1.3 | “Combined Offering” will mean LT’s LV and TI’s SOC as an integrated offering. |
| 1.4 | “Confidential Information” will have the meaning assigned to it in Section 6.1. |
| 1.5 | “Disclosing Party” will have the meaning assigned to it in Section 6.1. |
| 1.6 | “Excluded Liabilities” will have the meaning assigned to it in Section 10. |
| 1.7 | “Feedback” will have the meaning assigned to it in Section 6.4. |
| 1.8 | “Further Agreements” will have the meaning assigned to it in Section 2. |
| 1.9 | “Initial Term” will have the meaning assigned to it in Section 7.1. |
| 1.10 | “License Agreement” will have the meaning assigned to it in Section 5. |
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| 1.11 | “LV” will mean LeddarVision, LT’s AI-based low-level sensor fusion and perception software. |
| 1.12 | “Pre-paid Royalty Fee” will have the meaning assigned to it in Section 5.2. |
| 1.13 | “Receiving Party” will have the meaning assigned to it in Section 6.1. |
| 1.14 | “Renewal Term” will have the meaning assigned to it in Section 7.1. |
| 1.15 | “SOC” will mean system on chip. |
| 1.16 | “Software” will have the meaning assigned to it in Section 5. |
| 1.17 | “Target Customers” mean direct suppliers to automobile manufacturers and/or automobile Tier 1 suppliers. |
| 2. | Collaboration. The collaboration contemplated hereunder aims at offering a fully integrated solution that addresses the entire spectrum of needs in the worldwide automotive market, specifically in the fields of ADAS, automated driving and parking. The Parties intend to work together to develop the Combined Offering and commercialize such Combined Offering to the Target Customers to the extent and in a manner to be agreed to by the Parties. The Parties intend to work together in good faith on the collaborative efforts described in Exhibit A attached hereto and made a part hereof and any other collaborative efforts agreed to by the Parties in writing (the “Collaboration Roadmap”). The Parties acknowledge and agree that certain collaborative efforts described in the Collaboration Roadmap may require the Parties to enter into separate agreements to memorialize the Parties’ rights and obligations relating thereto (the “Further Agreements”) relating to, namely but not limited to, the compensation model, development work, support, the Licensing Agreement, statements of work and licenses of trademarks. The Parties acknowledge and agree that the collaboration contemplated under this Agreement is non-exclusive and each Party may work individually or with a third party on activities that may be similar to the activities contemplated hereunder, subject to the confidentiality terms of this Agreement. However, the Parties acknowledge and agree that the Combined Offering will be preferred, where appropriate and commercially feasible, over other collaborations or individual offerings. |
| 3. | Communication. Each Party will designate a representative(s) as the point person to coordinate the collaboration contemplated under this Agreement. Such representative(s) will meet regularly, but no less than quarterly, to discuss the progress of the various collaborative efforts, potential areas of collaboration and such other matters deemed appropriate, advisable or necessary by the representatives. The initial representative(s) for each Party are set forth below. Each Party may replace its representative by providing written notice thereof. |
Party | Representative(s) |
| TI | |
| LT |
TI Confidential – NDA Restricted
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| 4. | Marketing. The Parties intend to work together in good faith to market the Combined Offering to the Target Customers as set forth in the Collaboration Roadmap. In no event will either Party engage in any marketing efforts that mentions the other Party or its products or services without the other Party’s prior written consent, except that TI may mention the LV and its functionality and capability in marketing the Combined Offerings to the Target Customers. |
| 5. | License. The Parties intend to enter into a master license agreement whereby LT licenses the software listed on Exhibit C (collectively, the “Software”) to TI under terms and conditions to be agreed to by the Parties (the “License Agreement”). Notwithstanding the foregoing, the Parties agree that the License Agreement will include the following terms: |
| 5.1 | License scope. LT will grant to TI and its Affiliates, under all of LT’s intellectual property rights, a worldwide, perpetual (subject to the termination rights under the License Agreement), non-exclusive, nontransferable (except as expressly authorized in the License Agreement) and non-sublicensable (except as expressly authorized in the License Agreement) license to the Software to use, copy, develop, have developed, design, have designed, make, have made, offer to sell, sell, distribute, demonstrate and otherwise dispose of TI’s products with the Software embedded or incorporated into such products, subject to the terms and conditions to be further defined and agreed upon in the License Agreement. TI may sublicense the Software to its contractors solely for the purpose of exercising its rights under the License Agreement. |
| 5.2 | Pre-paid royalty fee. TI will advance a non-refundable payment of nine million eight hundred and ninety thousand United States Dollars ($9,890,000) (the “Pre-paid Royalty Fee”) to LT to be offset against future royalties due and payable according to the License Agreement. The Parties agree that this amount will not bear interest. The royalty fee and structure will be agreed to by the Parties and memorialized in the License Agreement. Notwithstanding the foregoing, LT acknowledges and agrees that the Pre-paid Royalty Fee shall be used by LT to support the development and commercialization of the Combined Offering. |
| 5.3 | Escrow arrangement. The Parties will enter into an escrow agreement with a third party escrow agent designated by LT and acceptable to TI, which will, among other terms, set forth the conditions under which TI will have access to and a continuing license to the source code of the Software. |
| 5.4 | Other terms. The Parties agree that the License Agreement will contain such other terms that are customary for licensing transactions, including but not limited to, warranty, indemnification, limitation of liability and governing law. |
| 5.5 | Maintenance and support. LT will provide maintenance and support to TI as outlined under the Further Agreements to enable it to develop and manufacture the Combined Offering and support TI’s customers. |
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| 6. | Confidential Information. |
| 6.1 | Definition. “Confidential Information” means any and all information disclosed by a Party or its Affiliates (collectively, the “Disclosing Party”) to the other Party or its Affiliates (collectively, the “Receiving Party”) that is proprietary or confidential information communicated to the Receiving Party by the Disclosing Party relating to or arising in connection with collaboration contemplated under this Agreement, including without limitation (a) the “know-how” and future plans of the Disclosing Party, (b) confidential business information relating to the Disclosing Party’s internal procedures, systems, customers, suppliers, purchases, or any other information the Disclosing Party deems as proprietary or confidential, (c) any confidential information provided by a third party to the Disclosing Party with respect to the collaboration (including such information obtained by the Receiving Party directly from such third party or by access to such third party’s facilities or materials) and (d) non-public information and materials disclosed or provided under this Agreement. The existence and terms of this Agreement will constitute the Confidential Information of both Parties, except that LT may attach this Agreement and/or describe the terms herein in any filing required by applicable securities legislation. |
| 6.2 | Confidentiality Obligations. The Disclosing Party shall retain all rights, title and interests in and to the Confidential Information and no license or right, either expressed or implied, in or to the Confidential Information, whether such license or right currently exists or hereafter is owned or controlled by the Disclosing Party, is granted to the Receiving Party under this Agreement except for the express rights granted herein. The Receiving Party shall (a) for a period of five (5) years after its receipt thereof, hold the Disclosing Party’s Confidential Information in confidence using the same degree of care as it uses to protect its own Confidential Information of a like nature but no less than reasonable care, (b) use the Confidential Information solely for the purposes of the Agreement and (c) not disclose it to any third party except its Affiliates or contractors who have a reasonable need to know such information for the purposes of performing its obligations under this Agreement and who have a legal obligation to keep such information confidential under terms that are no less restrictive than the terms contained herein. The Receiving Party will be liable for any breach of this Agreement by its Affiliates and contractors. |
| 6.3 | Exclusions. The restrictions under this Agreement will not apply to the extent that the Confidential Information: (a) was previously known by the Receiving Party, (b) is in the public domain, other than through a breach of this Agreement, (c) was lawfully obtained from a third party without a duty of confidentiality, (d) is independently developed by the Receiving Party without use of the Confidential Information or (e) is compelled by law to be disclosed, provided that, if legally permissible, the Receiving Party provides the Disclosing Party with prompt written notice of any efforts to compel disclosure and reasonably cooperates with the Disclosing Party’s lawful attempts to prevent such disclosure or to obtain a protective order, at the Disclosing Party’s sole expense. |
| 6.4 | Feedback. LT may in its discretion provide TI with Feedback relating to TI’s SOCs or the Combined Offering, which TI may use in the support and further development or commercialization of TI’s SOCs or the Combined Offering without any further obligation of any kind to LT, and TI may in its discretion provide LT with Feedback relating to LV or the Combined Offering, which LT may use in the support and further development or commercialization of LV or the Combined Offering without any further obligation of any kind to TI. For purposes of the foregoing, “Feedback” means suggestions, comments, feedback or other similar information relating to TI’s SOCs or LV (as applicable). For avoidance of doubt, this Section 6.4 does not grant a license of any patents or copyrights, provided that such a license may be granted in the License Agreement; each Party owns its Feedback; and this Section 6.4 does not supersede the obligations of the Receiving Party with respect to protection of Confidential Information if the Feedback constitutes Confidential Information. |
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| 7. | Term and Termination. |
| 7.1 | Term. This Agreement will commence on the Effective Date and will continue for a period of three (3) years from the Effective Date (the “Initial Term”). Thereafter, this Agreement will automatically renew for successive one (1) year periods (each, the “Renewal Term”) unless either Party provides the other Party with written notice of non-renewal at least sixty (60) days prior to the end of the Initial Term or Renewal Term. |
| 7.2 | Termination for Cause. This Agreement may be terminated by either Party as a result of (a) a breach by the other Party of a material term or condition of this Agreement that is not curable, (b) a breach by the other Party of a material term or condition of this Agreement that is curable but remains uncured for a period of thirty (30) days following the receipt of a notice thereof, (c) the winding up or liquidation of the other Party’s operations in the normal course of business, (d) a material violation of applicable laws or regulations, (e) the filing of a petition or proceeding seeking relief under the US Bankruptcy Code that is not dismissed within sixty (60) days after its filing or (f) the appointment of a receivership for all or substantially all of the other party’s assets. |
| 7.3 | Survival. Sections 6, 7.3, 8, 9, 10 and 11 shall survive the termination of this Agreement. |
| 8. | Representations and Warranties. Each Party represents and warrants that (a) it is duly organized and validly existing under the laws of its jurisdiction of incorporation or formation, (b) it has full corporate or other power and authority to enter into this Agreement and perform its obligations hereunder and (c) the execution and performance of its obligations under this Agreement will not result in any violation or breach of any agreement, court order, injunction or judgment. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES OR PROVIDES ANY WARRANTIES, REPRESENTATIONS OR CONDITIONS, EXPRESS OR IMPLIED AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT, AND ANY WARRANTIES THAT MAY ARISE FROM COURSE OF DEALING, COURSE OF PERFORMANCE, OR USAGE OF TRADE. |
| 9. | Intellectual Property. |
| 9.1 | Owner. Each Party shall retain sole ownership and control of any materials, information and technology, including any and all intellectual property rights therein or thereto, that such Party (a) owned, controlled, or had prior to the Effective Date, or (b) invented, acquired, developed or created after the Effective Date as a result of activities or transactions conducted outside the scope of this Agreement, or (c) invented, created, developed, improved and/or enhanced after the Effective Date in relation to (a) or (b) when providing its respective contributions under this Agreement. For any activities contemplated under the Collaboration Roadmap whereby new intellectual property may be developed or created, the Parties will enter into an agreement to address the ownership of such intellectual property. |
| 9.2 | No License. No license to a Party hereto, under any trademarks, patents, know-how and trade secrets, copyrights, or any other intellectual property rights, is granted or implied under this Agreement and all such license are subject to the execution of Further Agreements between the Parties. |
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| 10. | Limitation of Liability. EXCEPT FOR A BREACH OF THE CONFIDENTIALITY OBLIGATIONS OR MISUSE OF THE OTHER PARTY’S INTELLECTUAL PROPERTY WITH RESPECT TO ITS OBLIGATIONS HEREUNDER, OR EITHER PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (THE “EXCLUDED LIABILITIES”), NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, COLLATERAL, INDIRECT, PUNITIVE, INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES IN CONNECTION WITH OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF WHETHER IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR THE EXCLUDED LIABILITIES, IN NO EVENT WILL EITHER PARTY’S LIABILITY UNDER THIS AGREEMENT, INCLUDING FROM ANY WARRANTY, INDEMNITY, OR OTHER OBLIGATION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EXCEED US$100,000. THE PARTIES UNDERSTAND AND AGREE THAT THE FOREGOING LIABILITY LIMITATIONS ARE ESSENTIAL ELEMENTS OF THIS AGREEMENT AND THAT IN THE ABSENCE OF SUCH LIMITATIONS THE MATERIAL AND ECONOMIC TERMS OF THIS CONTRACT WOULD BE SUBSTANTIALLY DIFFERENT. |
| 11. | Miscellaneous. |
| 11.1 | Entire Agreement. This Agreement sets forth the entire understanding and agreement between the Parties with respect to the subject matter hereof, and will supersede all contemporaneous and prior understandings and agreements, whether orally or in writing, relating thereto. In the event of a conflict between this Agreement and an ancillary agreement with respect to the subject matter of the ancillary agreement, such ancillary agreement will prevail with respect to such subject matter. |
| 11.2 | Modification. This Agreement may not be amended or modified in any manner except by an instrument in writing signed by duly authorized representatives of each Party. |
| 11.3 | Waiver. The waiver by any Party of any default under this Agreement or of any condition contained herein will not be construed to constitute a waiver of any other default or breach, whether similar or not. |
| 11.4 | Enforceability. The invalidity or illegality of any provision within this Agreement will not affect the validity of any other provision of this Agreement. The Parties will construe the unaffected provisions as closely as possible to their original meanings. |
| 11.5 | Compliance with Laws. Each Party will materially comply with the applicable laws, statutes and ordinances in the performance of its obligations hereunder, including but not limited to import/exports laws, statutes, rulings and ordinances, as well as data and privacy laws and regulations. Neither Party will export, re-export, sell or transfer any information to be exchanged hereunder without first obtaining any necessary governmental authorization if so required. Each Party will, at its own expense, secure export and import authorizations necessary to fulfill its obligations under this Section. Each Party agrees not to deliver or provide to the other or its affiliates access to, or process or use from it, any content that may contain personal information or data that may be subject to privacy laws, data and/or personal information of any jurisdiction, until the Parties have entered into a written agreement on the terms and conditions of receipt and processing of any such content. |
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| 11.6 | Governing Law; Dispute Resolution. This Agreement will be governed by, and construed, interpreted and enforced in accordance with the substantive law of the State of New York, USA, without giving effect to its conflict of laws provisions. The Parties will first attempt to settle all disputes arising out of this Agreement through good faith negotiations by representatives of both Parties who have authority to finally settle such dispute. The Parties agree that non-exclusive jurisdiction for any dispute arising out of or relating to this Agreement lies within New York state courts and federal courts. Notwithstanding the foregoing, any judgment may be enforced in any United States or foreign courts. |
| 11.7 | Independent Contractors. This Agreement is not intended to create a relationship such as a partnership, franchise, joint venture, agency, or employment relationship. Both Parties remain independent contractors and neither is an agent, representative employee or legal partner of the other. |
| 11.8 | Assignment. This Agreement will not be assigned by either Party without the prior written consent of the other Party, such consent not to be unreasonably withheld, delayed or conditioned. Any attempted assignment in violation of this provision will be void, and of no effect. Notwithstanding the foregoing, upon providing twenty (20) days’ notice to the other Party, either Party may assign this Agreement, together with its rights and obligations hereunder, to a successor in connection with a reorganization, merger, consolidation, acquisition, or other transaction involving a substantial part of the business to which this Agreement relates, without the other Party’s prior written consent; provided that such successor in interest is not a competitor of the such other Party. Any assignment will not affect the obligations of the assigning Party with respect to the period before the assignment. Subject to the foregoing, this Agreement will be binding on successors and assignees and inure to the benefit of their permitted successors and assignees. |
| 11.9 | Resources: Each Party will be responsible for procuring and providing, at its own expense, the personnel, equipment, tools, materials, and other resources required to fulfill its roles and responsibilities as set forth in this Agreement (including, without limitation, the detailed roles and responsibilities which may be set forth in the Collaboration Roadmap or a Further Agreement). |
| 11.10 | Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original and together will constitute the same instrument. Signature page may be transmitted by PDF or electronically. |
| 11.11 | Language. This Agreement is executed in English only. Any translation of this Agreement into another language will be for reference only and without legal effect. |
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| 11.12 | Notices: Unless otherwise provided in this Agreement, any notices in connection with this Agreement will be in writing and (a) sent via email or (b) sent to the address first set forth above (unless otherwise directed by a Party in writing) by personal delivery or by internationally recognized delivery service (e.g., UPS, FedEx, DHL, etc.) and will be deemed given upon receipt by the addressee Party. |
| For LT, a copy to: | For TI, with a copy to: | |
| 100 Alexis-Nihon, #150, Saint-Laurent | 13532 N. Central Expressway | |
| Québec, Canada, H4M 2P1 | Dallas, Texas 75243 | |
| Attn: Chief Legal Officer | Attn: Worldwide Procurement & Logistics | |
| Email: david.torralbo@leddartech.com | Email: dlpipstaff@list.ti.com |
| 11.13 | Publicity. Neither Party shall, without securing the written consent of the other Party, publicly announce the existence of this Agreement, confirm or deny any details thereof, nor otherwise advertise or release any publicity in regard thereto. Unless agreed upon in writing, nothing in this Agreement conveys any rights to either Party to (a) use the other Party’s name or logo on marketing literature, websites, presentations, press releases or any other media form; or (b) use the other Party as a reference account. Notwithstanding the foregoing, the existence and terms of this Agreement may be disclosed to auditors, divested businesses and to the extent required by law or regulation so long as the party required to disclose the information provides the other party with timely prior notice of such requirement. |
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives.
| Texas Instruments Incorporated | LeddarTech Holdings Inc. | |||
| By: | /s/ Rob Simpson | By: | /s/ Frantz Saintellemy | |
| Name: | Rob Simpson | Name: | Frantz Saintellemy | |
| Title: | Vice President | Title: | President & CEO | |
| Date: | 12/6/2024 | Date: | 12/6/2024 | |
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SOFTWARE LICENSE AGREEMENT
This Software License Agreement (“Agreement”) is entered into by and between LeddarTech Holdings Inc., a company organized under the laws of Canada and having a principal place of business at 4535 boulevard Wilfrid-Hamel, Suite 240, Quebec (Quebec), G1P 2J7, Canada (“Licensor”), and TEXAS INSTRUMENTS INCORPORATED, a Delaware corporation having a place of business at 12500 TI Boulevard, Dallas, Texas 75243 (“TI”), and is effective as of the last date on the signature page (“Effective Date”).
WHEREAS, Licensor is a global software company that develops and owns comprehensive AI-based low-level sensor fusion and perception software that enables the deployment of ADAS, autonomous driving and parking applications.
WHEREAS, TI is a global semiconductor company that designs, manufactures and sells analog and embedded processing chips for markets such as industrial, automotive, personal electronics, communications equipment and enterprise systems.
WHEREAS, Licensor and TI have entered into a collaboration agreement dated as of December 5, 2024 (the “Collaboration Agreement”) pursuant to which Licensor and TI have agreed to engage in a strategic collaboration to offer a joint solution to the worldwide automotive market (the “Combined Offering”) involving certain Software (as defined below) of Licensor and the processor chips of TI.
WHEREAS, TI wishes to license the Software from Licensor, and Licensor wishes to grant such license, upon the terms and conditions under this Agreement.
NOW, THEREFORE, for the mutual promises contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
| 1. | DEFINITIONS. |
| 1.1. | “Acquirer” means a third party that acquires beneficial ownership or control of assets or interests of a party. |
| 1.2. | “Acquisition” means any change of beneficial ownership or control of (a) all or substantially all of the assets of, (b) a material portion of or (c) any material interest in: |
| (i) | Licensor, |
| (ii) | the Software or |
| (iii) | Licensor’s IP Rights in the Software |
| 1.3. | “Acquisition Closure” means that beneficial ownership or control passes to an Acquirer under an acquisition agreement. |
| 1.4. | “Acquisition Proposal” means any written proposal to or from Licensor for an Acquisition. |
| 1.5. | “Authorized User” means any person or entity authorized by TI to use the Licensor Products. Authorized Users may include but are not limited to TI employees, contractors, subcontractors and foundries. |
| 1.6. | “Bankruptcy Filing” means the filing of an assignment in bankruptcy, a proposal or a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada), an application for an initial order under the Companies’ Creditors Arrangement Act (Canada) or any other equivalent proceeding under any other equivalent Law of any jurisdiction. |
| 1.7. | “Confidential Information” will have the meaning assigned to it in Section 7.1. |
| 1.8. | “Disclosing Party” will have the meaning assigned to it in Section 7.1. |
| 1.9. | “Documentation” means Licensor’s user manuals, programmer guides, system guides, datasheets, specifications and related materials that pertain to the Software, and all fixes, modifications, changes, corrections, updates, upgrades, new versions and enhancements of such documents, in each case provided to TI by Licensor under this Agreement. |
| 1.10. | “IP Rights” means all patents, patent applications and other patent rights (including utility models) in all countries of the world issued or issuing on patent or utility model applications that are entitled to an effective filing date on or before expiration or termination of this Agreement; and all mask works, copyrights, trade secrets, know how and other intellectual property rights in all countries of the world; in each case that, during the term of this Agreement, the licensor owns or controls, or under which it has the right to grant licenses of the scope granted herein. |
| 1.11. | “Laws” means any and all laws, orders and regulations, including, but not limited to, any applicable securities, environmental, health, safety, industrial hygiene, wage and hour, employment and immigration laws, orders and regulations. |
| 1.12. | “Licensor Product(s)” means collectively the Software and Documentation. |
| 1.13. | “Receiving Party” will have the meaning assigned to it in Section 7.1. |
| 1.14. | “Software” means the LeddarVision development platform for use on TDA4 chips and to be ported on TDA5 chips, subject to availability, in object code form, including without limitation the basic fusion and perception modules, test programs and tools, created by or for the Licensor, to build ADAS solutions with the such processor chips of TI to produce TI Products for the purposes of the Combined Offering, and all fixes, modifications, changes, corrections, updates, upgrades, new versions and enhancements of such platform, in each case made or created, as the case may be, by or for the Licensor. |
| 1.15. | “Subsidiary” means a corporation or other entity at any time directly or indirectly owned or controlled by a party hereto for so long as such ownership or control exists. A corporation or other entity shall be treated as being owned or controlled by a party hereto if such party directly or indirectly (a) owns more than fifty percent (50%) of its outstanding voting shares, (b) is able to direct substantially all of its business affairs or (c) is able to exercise control over the majority of the composition of its board of directors or equivalent body. |
| 1.16. | “TI Products” means the final products comprising of the TDA4 and, subject to availability and porting, TDA5 chips of TI and the Software solely for use with such TI processor chips for the purposes of the Combined Offering. |
| 2. | LICENSE GRANT. |
| 2.1. | License. Licensor hereby grants to TI and its Subsidiaries, under all of Licensor’s IP Rights related to the Licensor Products, a non-exclusive, worldwide, irrevocable (subject to the termination provisions in Section 4), royalty-bearing license in and to the Licensor Products to use the Licensor Products during the term of this Agreement to: |
| (a) | access, test and verify the Licensor Products for subsequent incorporation into the TI Products; |
| (b) | design, have designed, develop, have developed, make, have made, market, demonstrate, distribute, import, export, sell, offer for sale, and support TI Products; and |
| (c) | sublicense, distribute, and demonstrate the TI Products which incorporate the Licensor Products. |
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| 2.2. | Authorized Users. TI may grant access to and use of the Licensor Products to Authorized Users in connection with the business of TI, including without limitation access and use by any of the following means: (a) on-site at TI, (b) at an Authorized User’s facility, and (c) via remote connection to TI’s network. |
| 2.3. | Copies. TI may copy Licensor Products, in whole or in part, to the extent required to support the exercise of the rights granted to TI under this Agreement; provided that copies of Licensor Products shall include the copyright notices and legends as provided by Licensor with the Licensor Products when delivered to TI and each such copy remains subject to the terms and conditions of this Agreement. The right to copy includes the allowance to include and distribute the Documentation within the documentation for the TI Products. |
| 2.4. | Permitted Use. TI shall not use the Licensor Products for any purposes beyond the scope of the licence granted in this Agreement. Without limiting the foregoing and except as otherwise expressly set forth in this Agreement, TI shall not at any time, directly or indirectly: (a) modify, or create derivative works of the Software or the Documentation, in whole or in part; (b) reverse engineer, disassemble, decompile, decode, adapt, or otherwise attempt to derive or gain access to the source code of the Software, in whole or in part; (c) remove any proprietary notices from the Software or the Documentation; or (e) use the Software in any manner or for any purpose that infringes, misappropriates, or otherwise violates any intellectual property right or other right of any person, or that violates any applicable Laws. |
| 2.5. | Royalties. The parties will negotiate in good faith to determine the royalties payable for the license granted in this Section 2 on a customer-by-customer basis. The royalties payable by TI shall be determined based on the relative value of the licensed Software to the Combined Offering versus other components of the Combined Offering. Appendix A sets out an example architecture that the parties will use as a reference when determining the royalties payable under this Agreement. The parties shall enter into an addendum to this Agreement for each customer engagement (the “Addendum”) to memorialize the applicable royalty rate and payment terms, and such other terms as may be appropriate with regards to such customer engagement. TI shall remit to Licensor nine million eight hundred and ninety thousand US Dollars (US$9,890,000) in pre-paid royalties (the “Pre-paid Royalty”) to offset future royalty obligations under this Agreement payable as follows: (a) five million US Dollars (US$5,000,000) shall be paid within thirty (30) days from the Effective Date, (b) three million US Dollars (US$3,000,000) shall be paid within five (5) days of delivery by Licensor to TI of the Software for demonstration at the CES 2025 conference, being the Software running in real time on the TDA4VH Development Board (Kit) running a Recorded Sequences Playback at target frame rate of 11 frames per second or better and (c) one million eight hundred and ninety thousand US Dollars (US$1,890,000) within five (5) days of the execution of an agreement by TI with a customer for the Combined Offering. |
| 3. | TRANSFER, ASSIGNMENT AND CONTINUING USE. |
| 3.1. | Prohibition. Except as otherwise provided in this Agreement, neither party shall assign nor transfer any of its rights or obligations, nor delegate any of its duties, hereunder without the prior written consent of the other party hereto (such consent not to be unreasonably delayed, conditioned or withheld) and any such attempted assignment shall be void. |
| 3.2. | Acquisition Proposal. If Licensor receives or submits an Acquisition Proposal, Licensor shall, within fifteen (15) days of receipt or submission of such Acquisition Proposal and subject to any confidentiality provisions contained in the Acquisition Proposal, provide a written notification to TI of the Acquisition Proposal, which notification shall include the proposed date of Acquisition Closure and the name and address of the proposed Acquirer. TI acknowledges that the aforementioned obligations are subject to the requirements of the applicable Laws regarding mergers and acquisitions. If Licensor is prohibited by such Laws from complying with this Section 3.2 within the specified period of time, it shall do so as soon as is legally permissible. In the event Licensor is acquired after this Agreement becomes effective under Section 4.1 below, but before it is terminated in accordance with Section 4, such Acquisition shall in no event modify or affect the rights and licenses granted in this Agreement in respect of Licensor Products, and this Agreement and all of its terms shall remain in full force and effect and continue to be binding on the Acquirer. |
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| 4. | TERM AND TERMINATION. |
| 4.1. | Term. The term of this Agreement shall begin on the Effective Date and shall continue until terminated in accordance with the terms of this Section 4. |
| 4.2. | Termination for Cause. This Agreement may be terminated by either party as a result of (a) a breach by the other party of a term or condition of this Agreement that is not curable, (b) a breach by the other party of a term or condition of this Agreement that is curable but remains uncured for a period of sixty (60) days after the date of notice thereof, or (c) a material violation of applicable Laws. |
| 4.3. | Automatic Termination. Unless otherwise terminated in accordance with this Section 4, this Agreement shall automatically terminate upon the execution by each of Licensor and TI of the master license agreement contemplated under the Collaboration Agreement. |
| 4.4. | Survival. Any terms of this Agreement that, by their nature, a reasonable person would expect to be extended beyond the termination of this Agreement shall survive such termination. The rights and licenses granted under this Agreement shall survive any termination of this Agreement (other than Licensor’s termination under Section 4.2 or a termination of this Agreement pursuant to Section 4.3) as to any activities that occurred prior to such termination. |
| 5. | LIMITED WARRANTY. |
| 5.1. | General Warranty. Each party represents and warrants that (a) it is duly organized and validly existing under the Laws of its jurisdiction of incorporation or formation, (b) it has full corporate or other power and authority to enter into this Agreement and perform its obligations hereunder and (c) the execution and performance of its obligations under this Agreement shall not result in any violation or breach of any agreement, court order, injunction or judgment. |
| 5.2. | Product and Maintenance Warranty. The Licensor represents and warrants that (a) the Software is free from viruses, backdoors, traps, “Trojan Horses,” “time bombs,” “spyware,” and any other feature or function that may disable, interfere with, monitor, terminate, slow, or modify the accuracy, availability or use of the Software (except access-control and/or security functions that may be specifically approved in advance in writing by TI); (b) the Software is complete and operates in conformance to the Documentation; (c) the Documentation is sufficient to allow a user reasonably proficient in the use of similar technology to use the Software effectively; (d) the Software is compatible with the equipment and software configurations recommended by Licensor and such equipment and configurations are adequate for execution of the Software; and (e) the maintenance and other support services provided by Licensor hereunder to build the Combined Offering, once agreed upon by TI and the Licensor for a customer, will be provided in a timely and workmanlike and professional manner. |
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| 5.3. | Bankruptcy Related Covenant. The Licensor acknowledges and confirms that this Agreement grants TI a right to use Licensor’s intellectual property as contemplated by section 32(6) of the Companies’ Creditors Arrangement Act (Canada). In the event of a Bankruptcy Filing, the Licensor shall not initiate, support or consent to any petition or other action that seeks the disclaimer or termination of this Agreement or that would otherwise interfere with the TI’s rights hereunder, unless TI fails to perform its obligations under this Agreement in relation to the use of the intellectual property (as provided by section 32(6) of the Companies’ Creditors Arrangement Act (Canada)) or the Agreement may otherwise be terminated pursuant to Section 4. |
| 5.4. | Warranty Disclaimer. Except as expressly provided herein, no warranty is provided hereunder. |
| 5.5. | Remedies. In the event of a breach of a warranty in Section 5.2 (a) through (d), and upon notice from TI, Licensor will, at no cost to TI, promptly correct any such breach and make such additions, modifications or adjustments to the Licensor Product as may be necessary to keep the Licensor Product operating in accordance with such warranty. If Licensor does not present a corrective action plan in respect of any such breach within ten (10) days of Licensor’s receipt of TI’s notice under this Section, then upon TI’s request and at TI’s option, the royalty fees for the Licensor Product shall be equitably reduced to a mutually agreed amount to account for the difference in functionality or usability caused by the failure of the Licensor Product to comply with the warranty and TI’s license for the applicable Licensor Product(s) shall remain in effect. |
| 6. | ESCROW OF SOFTWARE. |
| 6.1. | Escrow Agreement. Within ten (10) days from the Effective Date, the parties shall enter into an escrow agreement with an escrow agent designated by the Licensor and acceptable to TI whereunder Licensor shall deposit the source code of all Software to the escrow agent within five (5) days from the date of the execution of the escrow agreement (“Source Code Escrow Agreement”). TI shall be responsible for paying the escrow fees required under the Source Code Escrow Agreement. |
| 7. | CONFIDENTIALITY. |
| 7.1. | Definition. “Confidential Information” means any and all information disclosed by a party or its Subsidiaries (collectively, the “Disclosing Party”) to the other Party or its Subsidiaries (collectively, the “Receiving Party”) that is proprietary or confidential information communicated to the Receiving Party by the Disclosing Party relating to or arising in connection with collaboration contemplated under this Agreement, including without limitation (a) the “know-how” and future plans of the Disclosing Party, (b) confidential business information relating to the Disclosing Party’s internal procedures, systems, customers, suppliers, purchases, or any other information the Disclosing Party deems as proprietary or confidential and (c) any confidential information provided by a third party to the Disclosing Party with respect to the collaboration (including such information obtained by the Receiving Party directly from such third party or by access to such third party’s facilities or materials). Subject only to Section 7.3(f) herein, the existence and terms of this Agreement will constitute the Confidential Information of both Parties, except that Licensor may attach this Agreement and/or describe the terms herein in any filing required by applicable securities legislation. |
| 7.2. | Non-disclosure and Non-Use Obligations. The Disclosing Party shall retain all rights, title and interests in and to the Confidential Information and no license or right, either expressed or implied, in or to the Confidential Information, whether such license or right currently exists or hereafter owned or controlled by the disclosing party, is granted to the Receiving Party under this Agreement except for the express rights granted herein. The Receiving Party shall (a) for a period of five (5) years after its receipt thereof, hold the Disclosing Party’s Confidential Information in confidence using the same degree of care as it uses to protect its own Confidential Information of a like nature but no less than reasonable care, (b) use it solely for the purposes of the Agreement and (c) not disclose it to any third party except its Affiliates or contractors who have a reasonable need to know such information for the purposes of performing its obligations under this Agreement and who have a legal obligation to keep such information confidential under terms that are no less restrictive than the terms contained herein. The Receiving Party will be liable for any breach of this Agreement by its Affiliates and contractors. |
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| 7.3. | Exclusions. The restrictions under this Agreement will not apply to the extent that the Confidential Information: (a) was previously known by the Receiving Party, (b) is in the public domain, other than through a breach of this Agreement, (c) was lawfully obtained from a third party without a duty of confidentiality, (d) is independently developed by the Receiving Party without use of the Confidential Information, (e) is compelled by law to be disclosed, provided that, if legally permissible, the Receiving Party provides the Disclosing Party with prompt written notice of any efforts to compel disclosure and reasonably cooperates with the Disclosing Party’s lawful attempts to prevent such disclosure or to obtain a protective order, at the Disclosing Party’s sole expense, or (f) disclosure and production of this Agreement becomes necessary or desirable to enforce the terms thereof in the event of a Bankruptcy Filing on the part of the Licensor. |
| 8. | MAINTENANCE AND SUPPORT. |
Unless otherwise agreed to in an Addendum, Licensor shall assist TI with respect to any integration or support services needed to complete or maintain the Combined Offering, including but not limited to, providing fixes for errors and migration to future TI software development kit (SDK) releases. Licensor shall also promptly provide assistance and support to TI’s end customers of the Combined Offering to ensure that the Software is functional based on such end customers’ specifications or requirements, in accordance with the terms of such customer’s engagement as agreed upon by Licensor. The parties shall negotiate in good faith to determine the remuneration payable to the Licensor in connection with the services to be provided under this Section 8.
| 9. | INTELLECTUAL PROPERTY INDEMNIFICATION. |
| 9.1. | Indemnity. Notwithstanding any other provision of this Agreement, Licensor shall defend, indemnify, and hold TI, its Subsidiaries, their respective directors, officers and employees (collectively, the “Indemnified Parties”) harmless, at Licensor’s expense, from and against any and all claims, actions, damages, liabilities, costs and expenses, including without limitation reasonable attorney’s fees and expenses, arising out of any claims of infringement or misappropriation of any IP Rights of a third party alleged to have occurred because of Licensor Products or services provided by Licensor or the use of such Licensor Products or services under this Agreement. However, such indemnity shall not apply unless Licensor is promptly informed in writing and is given authority, information, and reasonable assistance requested, at Licensor’s expense, necessary to defend or settle such claim; provided, however, that failure to provide prompt written notice of a claim shall not release Licensor of its obligations hereunder unless such delay results in a significant negative impact to Licensor’s ability to defend against such claim. Licensor shall not enter into any settlement discussion or agreement relating to a claim unless it fully and irrevocably releases the Indemnified Parties of such claim. Licensor shall not be obligated to defend or be liable for costs and damages to the extent the infringement arises out of or from (a) a combination with products that Licensor does not and should not expect TI to use with the Licensor Product, or (b) a modification by TI of the Licensor Product as delivered by Licensor that has not been approved by Licensor in writing, if the infringement would not have occurred without such combination or modification, or (c) only the TI processor chips. |
| 9.2. | Corrective Action. In the event that any Licensor Product furnished hereunder is in Licensor’s or TI’s reasonable opinion likely to or becomes the subject of a claim of infringement or misappropriation of any IP Rights of a third party covered by the indemnity obligations in Section 9.1, Licensor at its sole expense shall use all reasonable efforts to procure for TI the right to continue exercising all the rights granted in respect of the Licensor Product. If Licensor is unable to obtain for TI said license rights under commercially reasonable terms, Licensor shall, at TI’s option and at Licensor’s expense, either modify or replace the Licensor Product to make it non-infringing but substantially functionally equivalent, which shall be licensed under this Agreement within a reasonable period of time not to exceed sixty (60) days unless otherwise agreed to by TI. |
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| 10. | LIMITATION OF LIABILITY. |
| 10.1 | Liability Cap. EXCEPT FOR (A) EACH PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR (B) EACH PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS HEREUNDER (COLLECTIVELY, THE “EXCLUDED LIABILITIES”), EACH PARTY’S AGGREGATE LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (REGARDLESS OF THE NATURE OF THE CLAIM) SHALL NOT EXCEED THE GREATER OF (A) THE PRE-PAID ROYALTY OR (B) ROYALTIES PAID FOR THE PARTICULAR LICENSOR PRODUCTS AND RELATED MAINTENANCE GIVING RISE TO THE CLAIM. |
| 10.2 | No Consequential Damages. EXCEPT FOR THE EXCLUDED LIABILITIES, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. |
| 11. | NOTICES. |
Notices relating to termination or breach must be in writing and delivered to the other party at the address below (or other address provided by a party in accordance with this Section): (a) in person; (b) via first class or registered or certified mail, postage prepaid; or (c) via next day express delivery service. All other notices must be in writing and delivered to the other party at the address below (or other address provided by a party in accordance with this Section): (i) in person; (ii) via first class or registered or certified mail, postage prepaid; (iii) via next day express delivery service; or (iv) via email. Notices sent by mail shall be deemed effective after (A) three (3) business days from the date of posting in the case of notices posted from a country to a destination in that same country; and (B) eight (8) business days from the date of posting in the case of notices posted internationally. Notices sent by e-mail shall be deemed effective after one (1) business day from date of sending, as long as successful transmission or delivery is confirmed. Notices delivered in person or by next day express delivery service shall be effective upon delivery.
If to TI | with a copy (which shall not constitute notice) to: | |
| Texas Instruments Incorporated | Texas Instruments Incorporated | |
| 13532 N. Central Expressway | 13588 N. Central Expressway, MS 3999 | |
| Dallas, TX 75243 | Dallas, TX 75243 | |
| Attn: Worldwide Procurement & Logistics | Attn: Law Department, WPL Counsel | |
| Email address: dlpipstaff@list.ti.com |
| If to Licensor: | with a copy (which shall not constitute notice) to: | |
| LeddarTech Holdings Inc. | LeddarTech Holdings Inc. | |
| 4535 boulevard Wilfrid-Hamel, Suite 240 | 4535 boulevard Wilfrid-Hamel, Suite 240 | |
| Quebec (Quebec), G1P 2J7, Canada | Quebec (Quebec), G1P 2J7, Canada | |
| Attn: Antonio Polo | Attn: Chief Legal Officer |
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| 12. | GENERAL. |
| 12.1. | Publicity. Neither party shall, without securing the written consent of the other party, publicly announce the existence of this Agreement, confirm or deny any details thereof, nor otherwise advertise or release any publicity in regard thereto. Unless agreed upon in writing, nothing in this Agreement conveys any rights to Licensor to (a) use TI’s name or logo on marketing literature, websites, presentations, press releases or any other media form; or (b) use TI as a reference account. Notwithstanding the foregoing and Section 7, the existence and terms of this Agreement may be disclosed to auditors, divested businesses and to the extent required by law or regulation so long as the party required to disclose the information provides the other party with timely prior notice of such requirement. |
| 12.2. | Supply Chain Practices. Licensor agrees to comply with applicable TI Supply Chain Responsibility requirements as established in TI’s Supplier Environmental and Social Responsibility Policy and Supplier Code of Conduct. Both are updated periodically and located at http://wpl.ext.ti.com. If requested, Licensor agrees to complete an annual self-assessment questionnaire with regards to its supply chain responsibility practices and comply with requested audits as required for verification. |
| 12.3. | Severability. If for any reason a court of competent jurisdiction finds any provision of this Agreement to be unenforceable, that provision shall be enforced to the maximum extent possible to effectuate the intent of the parties and the remainder of this contract shall continue in full force and effect. |
| 12.4. | Headings. The section and paragraph headings used herein are used for reference and convenience only and should not enter into the interpretation thereof. |
| 12.5. | Governing Law/Dispute Resolution. This Agreement is governed by and interpreted in accordance with the laws of the State of New York, without regard to conflict-of-laws principles. The parties expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods. The Parties agree that exclusive jurisdiction for any dispute arising out of or relating to this Agreement lies within New York state courts and federal courts. Notwithstanding the foregoing, any judgment may be enforced in any United States or foreign court and either party may seek injunctive relief in any United States or foreign court. Further, In the event of any dispute between the parties regarding performance under this Agreement, and prior to the commencement of any formal proceedings, the parties shall promptly attempt in good faith to reach a negotiated resolution. Each party shall designate a representative with authority to resolve the dispute to enter into discussions within thirty (30) days of a party’s request for negotiation. |
| 12.6. | Entire Agreement/Modification. Notwithstanding any terms contained in any Licensor purchase order acceptances or confirmations, “shrinkwrap” agreements delivered with the Licensor Products or “click-through” agreements provided on Licensor’s or any third party’s website, extranet, or any other media provided by or on behalf of Licensor, this Agreement, together with any appendices constitute the entire agreement and understanding between the parties relating to the subject matter hereof. This Agreement supersedes all contemporaneous and previous communications, representations, or agreements, either oral or written, with respect to the subject matter hereof, and no representations or statements of any kind made by any representative of Licensor or TI that are not stated in this Agreement shall be binding on Licensor or TI. Where an appendix conflicts with this Agreement, the terms of the appendix shall supersede those of the Agreement to the extent of such conflict. This Agreement and any appendix may be modified only by a written document signed by duly authorized representatives of both parties. |
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| 12.7. | Counterparts. This Agreement may be executed in one or more counterparts, which collectively shall constitute a single agreement between the parties. A scanned signature shall have the same legally binding effect as an original signature. |
| 12.8. | Independent Contractor. Licensor, in providing services under this Agreement, is acting as an independent contractor. Nothing in this Agreement is intended to create a partnership, joint venture, or agency relationship between the parties. |
| 12.9. | Waiver. Failure by either party to enforce any provision of this Agreement, shall not be deemed a waiver of future enforcement of that or any other provision. |
| 12.10. | Review of Counsel. TI and Licensor acknowledge and agree that each party and its counsel have had the opportunity to review this Agreement, and that the rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. |
| 12.11. | Compliance of Laws. Each party agrees that at all times it will comply with all applicable Laws. Each party agrees to timely certify compliance with such laws, orders and regulations in such form as the other party may reasonably request from time to time, and further to timely provide information to the other party, as reasonably requested, to enable the other party to comply with all applicable Laws. Neither party shall engage in corrupt practices, including public or private bribery or kickbacks. |
| 12.12. | No Third Party Beneficiaries. This Agreement is entered into solely between, and may be enforced only by, TI and Licensor. This Agreement will not be deemed to create any rights in any third parties, including employees, suppliers or customers of a party, or to create any obligations of a party to any such third parties. |
[Signature Page Follows]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by its duly authorized representative.
| TEXAS INSTRUMENTS INCORPORATED | LEDDARTECH HOLDINGS INC. | |||
| By: | /s/ Rob Simpson | By: | /s/ Frantz Saintellemy | |
| Name: | Rob Simpson | Name: | Frantz Saintellemy | |
| Title: | Vice President | Title: | President & CEO | |
| Date: | 12/6/2024 | Date: | 12/6/2024 | |
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INSIDER TRADING POLICY
The board of directors (the “Board”) of LeddarTech Holdings Inc. ("LeddarTech" or the “Company”), a publicly traded company subject to securities laws in Canada and the United States, has adopted this Insider Trading Policy (the “Policy”) to help prevent the illegal use or disclosure of confidential or other material non-public information about LeddarTech as well as other companies with which LeddarTech has a business relationship. This Policy sets forth the rules to follow concerning the trading in securities of LeddarTech, including common shares, warrants and options to purchase common shares (including the exercise of warrants or options), and any other securities that may be issued from time to time (collectively, “LeddarTech Securities”). It applies to all transactions in LeddarTech Securities, as well as “derivatives” and “related financial instruments” which may not be issued by LeddarTech and which, for purposes of this Policy, include (i) any instruments, agreements, securities or exchange contracts the value, market price or payment obligations of which are derived from, referenced to or based on the value, market price or payment obligations of a security of LeddarTech, or (ii) any other instruments, agreements or understandings that affect, directly or indirectly, a person or company’s economic interest in a security of LeddarTech, or any futures contracts or options traded on an exchange, such as exchange-traded put or call options or swaps relating to LeddarTech Securities.
The rules and procedures outlined in this Policy have been implemented in order to prevent improper trading in LeddarTech Securities. This Policy is also intended to ensure that all insiders (as defined below) act in accordance with applicable laws and the highest standards of ethical and business conduct. This Policy supplements, and does not replace, applicable securities laws in respect of insider trading.
SCOPE
| 1. | This Policy applies to directors, officers and employees of and consultants to LeddarTech and its subsidiaries. Such individuals, because they receive or may receive or have access to material non-public information (as described in the Section ‘‘Definition of Material Non-Public Information’’), are referred to in this Policy as “insiders”. Insiders must ensure that all restrictions applicable to them under this Policy are also observed (1) by family members who reside with them, anyone else who lives in their households and any family members who do not live in their households but whose transactions in LeddarTech Securities are directed by them or are subject to their influence or control (such as parents or children who consult with them before they trade in LeddarTech Securities), and (2) by entities (e.g., corporations, partnerships or trusts) that insiders (and any of the foregoing family members) control. For purposes of this Policy, such persons are also sometimes referred to as “insiders”. |
| 2. | It is the personal responsibility of each insider and any other person subject to this Policy to ensure that, when they trade or propose to trade in LeddarTech Securities or securities of companies with which LeddarTech has business dealings, they comply with all applicable securities laws and insider trading restrictions including those referred to in this Policy. The provisions of this Policy are qualified by the specific provisions of applicable law, which shall always apply regardless of this Policy. For greater certainty and without limiting the responsibilities of any person under this Policy, any breach of insider trading or tipping laws shall be deemed to be a breach of this Policy. |
GENERAL POLICY
| 3. | LeddarTech prohibits any insider who is aware of “material non-public information” regarding LeddarTech from, directly or indirectly: |
| (a) | trading of any LeddarTech Securities; |
| (b) | recommending the purchase or sale of any LeddarTech Securities; |
| (c) | disclosing (“tipping”) such information to persons within the Company whose duties do not require them to have such information, or outside of the Company to any other persons, such as family, friends, other shareholders of the Company, business associates and investors, unless the disclosure is made in accordance with the Company’s Disclosure Policy; or |
| (d) | assisting any person or entity engaged in the above activities. |
| 4. | The prohibition against insider trading is absolute. It applies even if the decision to trade is not based on such material non-public information. It also applies to transactions that may be necessary or justifiable for independent reasons (such as the need to raise funds for an emergency expenditure) and also to transactions of any size, whether large or very small. The only relevant factor remains whether the insider is in possession of any material non-public information regarding the Company at the time of the transaction. |
| 5. | Canadian and U.S. securities laws do not recognize any mitigating circumstances for insider trading. In addition, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for adhering to the highest standards of conduct. In some circumstances, insiders may be prohibited from pursuing a transaction even if such transaction had originally been contemplated before the insider became aware of the material non-public information. Consequently, even if an insider believes he or she may suffer an economic loss or sacrifice an anticipated profit by waiting to trade, they must wait. |
| 6. | In addition, it is the policy of the Company that no insider who, in the course of working for the Company, learns of or is otherwise aware of material non-public information about another publicly traded company with which the Company does business, including a partner or supplier of the Company, may trade in that company’s securities until the information becomes public or is no longer material. |
Definition of “Material Non-Public Information”
| 7. | Non-public information is information that has not been previously widely disseminated to the public and is not otherwise available to the general public. Information related to LeddarTech is generally considered as having been widely publicly disseminated only when (i) it has been released to the public by the Company through appropriate channels (e.g., by means of a press release or filing with the U.S. Securities and Exchange Commission (“SEC”)); and (ii) enough time has elapsed to permit the market to absorb the information. Although there is no fixed period for how long it takes the market to absorb information, out of prudence a person in possession of material non-public information should refrain from any trading activity for two (2) full Trading Days (as defined in Section 10 below) following its release. The circulation of market rumors, even if accurate, does not constitute information that has been publicly disseminated. |
| 8. | Information is material if there is a likelihood that a reasonable investor would consider it important in deciding whether to buy, hold or sell a security. Any information that may reasonably be expected to have a significant effect on the market price or value of the security is deemed material. Material information may be either positive or negative information. Information that something is likely to happen in the future, or that it may happen, can be deemed material. For examples of information or events that constitute potential material information, refer to Appendix A hereto. If you are unsure about the materiality of certain information or a specific transaction, please contact the Company’s Chief Legal Officer for advice. |
No Trading on Material Non-Public Information
| 9. | Insiders shall not, directly or indirectly, engage in any transaction involving a purchase or sale of LeddarTech Securities, during any period commencing upon the time on which the insider comes into possession of material non-public information about LeddarTech and ending as of the close of business on the second (2nd) Trading Day following public disclosure by LeddarTech of said information through the issuance of a press release or an SEC filing. A “Trading Day” means a day on which the NASDAQ is open for trading. |
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Other Company Securities
| 10. | No insider may trade in the securities of another company, such as LeddarTech partners, customers (existing and potential) and suppliers, at any time when the insider has material non-public information about that company or has material non-public information that could affect the share price of that company, when that information was obtained as a result of the insider’s employment or relationship to the Company. |
No Tipping
| 11. | No insider shall, directly or indirectly, disclose (“tip”) material non-public information about LeddarTech to any other person (including members of his or her immediate family or household, other employees or outside professional advisors), nor shall such insider make, directly or indirectly, recommendations or express opinions on the basis of material non-public information as to trading in LeddarTech Securities. This Policy should be read in conjunction with LeddarTech’s Disclosure Policy. |
No Hedging Transactions or Short Sales
| 12. | Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as forwards, equity swaps, collars and exchange funds. Such hedging transactions may permit an insider to continue to own LeddarTech Securities obtained through employee benefit plans or otherwise, but without the full risks and rewards of ownership. When that occurs, the insider may no longer have the same objectives as the Company’s other shareholders. Therefore, insiders are prohibited from engaging in any hedging or monetization activities including, without limitation, any use of financial instruments (such as options, puts, calls, forward contracts, futures, swaps, collars or units of exchange funds) or any other transactions that are designed to hedge or offset a decrease in the market value of any LeddarTech Securities beneficially owned by the insider, directly or indirectly, or in the value of any equity-based compensation awards of the insider (such as stock options, deferred share units, restricted share units and performance share units). Similarly, insiders are prohibited from short selling any LeddarTech Securities as such transactions may allow insiders to offset, or benefit from, a decrease in the market value of LeddarTech Securities. |
No Margin Accounts or Pledged Securities
| 13. | Securities held in a margin account or pledged as collateral for a margin loan may be sold without the holder’s consent by the broker if the holder fails to meet a margin call or by the lender in foreclosure if the holder defaults on the loan. Because a margin or foreclosure sale may occur when an insider is aware of material non-public information or otherwise is not permitted to trade, insiders are prohibited from holding LeddarTech Securities in a margin account or pledging LeddarTech Securities as collateral for a loan without first seeking pre-approval from the Audit Committee of the Board. An exception may be granted where an insider wishes to pledge LeddarTech Securities as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resorting to the pledged securities. An insider wishing to pledge LeddarTech Securities as collateral for a loan must submit a request for approval to the Chief Legal Officer at least two weeks prior to the proposed execution of documents evidencing the proposed pledge. |
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Speculative Trading
| 14. | LeddarTech recognizes that insiders may trade in LeddarTech Securities from time to time in compliance with the terms and conditions of this Policy including trading in common shares of LeddarTech acquired or received pursuant to equity compensation arrangements and through the implementation of automatic securities disposition plans/10b5-1 plans. However, insiders should refrain from frequent trading in LeddarTech Securities which would give rise to appearances of speculation. |
TRADING RESTRICTIONS
| 15. | In addition to the general prohibition against trading while in the possession of material non-public information, additional trading restrictions would also apply. |
Scheduled Blackout Periods
| 16. | The periods beginning ten (10) days prior to the end of each quarter (or fiscal year) and ending at the close of business on the second (2nd) Trading Day following the public disclosure of the financial results for that quarter (each, a “Scheduled Blackout Period”) are particularly sensitive, as members of the Board and certain employees may often possess material non-public information about the expected financial results for the quarter and year end. |
| 17. | Accordingly, to ensure compliance with this Policy and applicable securities laws, all members of the Board, all LeddarTech executive officers and certain other officers and employees designated by the Company from time to time to have access in the ordinary course of their employment to material non-public information (collectively, the “Designated Insiders”), such as finance and accounting team members, are prohibited from trading in LeddarTech Securities during Scheduled Blackout Periods, whether or not they possess material non-public information. Such Scheduled Blackout Periods shall apply regardless of whether such Designated Insiders received advance notice of the commencement of the Scheduled Blackout Periods. |
Additional Blackout Periods
| 18. | From time to time, LeddarTech may also require that members of the Board, selected employees, consultants and other relevant parties suspend any trading activities because of the existence or potential existence of material non-public information (an “Additional Blackout Period”). In the event of any such Additional Blackout Period, the Chief Financial Officer or Chief Legal Officer may distribute a notice, in writing or by email, instructing those persons not to engage in any trading of LeddarTech Securities until further notice without disclosing the facts giving rise to the imposition of such trading suspension. Alternatively, any Additional Blackout Period may be imposed, without any notice, through the procedures for pre-clearance of trades described herein. Notice of an Additional Blackout Period is confidential and should not be disclosed. |
Pre-Clearance of Trades by Designated Insiders
| 19. | To assist in preventing even the appearance of an improper insider trade, it is mandatory for all Designated Insiders to pre-clear their trades in LeddarTech Securities with the Chief Financial Officer or Chief Legal Officer or such other person as may be designated from time to time. |
| 20. | The notice of intention to carry out a trade should be provided in writing. Approval of any trade will also be provided in writing. No trade shall be carried out without obtaining prior approval from the Chief Financial Officer or the Chief Legal Officer. |
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| 21. | When in doubt, Designated Insiders are strongly encouraged to contact the Chief Financial Officer or the Chief Legal Officer in order to determine if, during a given period, they have the right to trade in LeddarTech Securities. |
| 22. | Each proposed transaction will be evaluated to determine if it raises insider trading concerns or other concerns under applicable securities laws. Clearance of a transaction is valid only for a period of three (3) Trading Days, unless revoked prior to that time. If the transaction order is not completed within that three (3) Trading Day period, clearance of the proposed transaction must be re-requested. If clearance is denied, the mere fact of such denial must be kept confidential by the person requesting such clearance. Reasons for denial of clearance need not be provided. |
Material Non-Public Information Regarding Other Companies
| 23. | This Policy and the guidelines described herein also apply to material non-public information relating to other companies with whom LeddarTech may transact business, including potential joint venture partners, customers, dealers, distributors and suppliers of LeddarTech, as well as potential merger or acquisition candidates. Information that may not be material to LeddarTech may nevertheless be material to one of those other companies and would accordingly prohibit trading or tipping. For the purposes of this Policy, information about such business partners should be treated in the same way as information related directly to LeddarTech. |
POST-TERMINATION OF EMPLOYMENT TRANSACTIONS
| 24. | This Policy continues to apply to transactions in LeddarTech Securities even after an individual has terminated employment or other services to LeddarTech or a subsidiary. As a result, if an individual is aware of material non-public information when the employment or service relationship terminates, he or she may not trade in LeddarTech Securities until that information has become public or is no longer material. |
TRANSACTIONS UNDER COMPANY PLANS
Stock Option Exercises
| 25. | This Policy does not apply to the cash exercise of an employee stock option acquired pursuant to the Company’s plans, or to the exercise of a tax withholding right pursuant to which a person has elected to have the Company withhold shares subject to an option to satisfy tax withholding requirements. This Policy does apply, however, to any sale of stock acquired as a result of such exercise, or sale of stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option. |
10b5-1 Automatic Trading Programs
| 26. | In addition, purchases or sales of LeddarTech Securities made pursuant to, and in compliance with, a written plan established by a director, officers, other employee or consultant that meets the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Canadian securities laws (a “10b5-1 Trading Plan”) may be made without restriction to any particular period; provided that (i) the Trading Plan was established in compliance with the requirements of Rule 10b5-1 of the Exchange Act and Canadian securities laws, including the inclusion of mandatory “cooling off” periods, at a time when the Company was not in a Scheduled Blackout Period or an Additional Blackout Period and such individual was not otherwise aware of any material non-public information relating to the Company or the securities subject to the 10b5-1 Trading Plan. Any 10b5-1 Trading Plan must be submitted for review and preclearance at least five (5) business days prior to the entry into the 10b5-1 Trading Plan. No further pre-clearance or approval of transactions conducted pursuant to the 10b5-1 Trading Plan will be required; however, any proposed amendments to or termination of an existing 10b5-1 Trading Plan is subject to these preclearance requirements. Insiders should note that their entry into, as well as any material amendments to or termination of, a Rule 10b5-1 Plan may require certain public disclosures by the Company. |
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INSIDER REPORTS
| 27. | Certain insiders of LeddarTech, such as directors, certain senior officers and certain significant shareholders (collectively, the “Reporting Insiders”), are subject to insider reporting requirements under Canadian securities laws. Reporting Insiders are required to file an initial report with each of the Canadian securities regulatory authorities within ten (10) days after such persons become Reporting Insiders of LeddarTech, disclosing any direct or indirect beneficial ownership of, or control or direction over, any LeddarTech Securities, including an interest in, or right or obligation associated with, a related financial instrument involving LeddarTech Securities. |
| 28. | Reporting Insiders are required to file an insider trading report within five (5) days of a change in: (i) the beneficial ownership of, control or direction over, whether direct or indirect, LeddarTech Securities; or (ii) a change in an interest in, or right or obligation associated with, a related financial instrument involving a LeddarTech Security. |
| 29. | Reporting Insiders must also file an insider trading report within five (5) days if the insider enters into, materially amends, or terminates an agreement, arrangement or understanding that (i) has the effect of altering, directly or indirectly, the Insider’s economic exposure to the Company; or (ii) involves, directly or indirectly, a LeddarTech Security or a related financial instrument involving a LeddarTech Security. |
| 30. | Rule 144 provides a safe harbor exemption to the registration requirements of the Securities Act of 1933, as amended, for certain resales of “restricted securities” and “control securities.” As applicable to LeddarTech Securities, “restricted securities” are securities acquired from the Company, or from an affiliate of the Company, in a transaction or chain of transactions not involving a public offering. “Control securities” are any securities owned by “affiliates” of the Company, such as directors, executive officers and 10% shareholders of the Company, including stock purchased in the open market and stock received upon exercise of stock options. Public sales of Company securities by affiliates must typically comply with the reporting, volume limitation, method of sale and notice (filing) requirements of Rule 144. |
| 31. | Any Reporting Insider failing to file reports within these time frames is subject to penalties from securities regulators, including fines and possible suspension from being eligible to act as a director or officer of a public company. Even though LeddarTech personnel may assist Reporting Insiders with such filings, the preparation and filing of these reports remain the sole responsibility of the individuals pursuant to applicable securities laws. |
POTENTIAL CRIMINAL AND CIVIL LIABILITY AND/OR DISCIPLINARY ACTION
Liability for Insider Trading and Tipping
| 32. | Violations of Canadian and U.S. securities laws relating to insider trading, tipping and other similar matters can result in civil and criminal penalties, including significant fines, penalties and imprisonment. Large penalties have been imposed even when the disclosing person did not profit personally from the trading. Companies and their controlling persons are also subject to liability if they fail to take reasonable steps to prevent insider trading by company personnel. |
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| 33. | It is important that insiders understand the breadth of activities that constitute illegal insider trading and the consequences, which can be severe. The securities authorities in Canada, the SEC and the Financial Industry Regulatory Authority in the United States, investigate and are very effective at detecting insider trading. These agencies, along with government prosecutors, pursue insider trading violations vigorously. Cases have been successfully prosecuted against trading by employees and others through foreign accounts, trading by family members and friends, and trading involving only a small number of shares. |
Possible Disciplinary Actions
| 34. | Insiders of LeddarTech who violate this Policy may be subject to disciplinary action by LeddarTech, up to and including termination of employment or their service with the Company. If it appears that any insider or other person may have violated securities laws, LeddarTech may refer the matter to the appropriate regulatory authorities, which could lead to penalties, fines or imprisonment. |
QUESTIONS
| 35. | All questions regarding this Policy should be referred to the Chief Financial Officer or the Chief Legal Officer. |
DATED December 21, 2023.
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APPENDIX A – EXAMPLES OF MATERIAL INFORMATION
Examples of developments that may give rise to material information include, but are not limited to, the following:
Changes in Corporate Structure
| ● | Changes in share ownership that may affect control of the Company; |
| ● | Major reorganizations, amalgamations or mergers; and |
| ● | Take-over bids, issuer bids or insider bids. |
Changes in Capital Structure
| ● | Public or private sales of additional securities; |
| ● | Planned repurchases or redemptions of securities; |
| ● | Planned splits of common shares or offerings of warrants or rights to buy shares; |
| ● | Any share consolidation, share exchange or stock dividend; |
| ● | Changes in dividend policies or payments; |
| ● | Possible initiation of a proxy fight; and |
| ● | Material modifications to rights of securityholders. |
Financial Results and Projections
| ● | Earnings, revenues, expenses, cash-flows from operations, liquidity and other non-public financial information; |
| ● | Financial projections generally; |
| ● | Significant increase or decrease in near-term earnings prospects, including affirmations of prior earnings guidance and whether the Company will or will not meet earnings expectations; |
| ● | Unexpected changes in the financial results for any periods; |
| ● | Shifts in financial circumstances, such as cash flow reductions, major asset write-offs or write-downs; |
| ● | Changes in the value or composition of the Company’s assets; and |
| ● | Any material change in the Company’s accounting policies or accounting restatements. |
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Business and Operations
| ● | Design wins or anticipated design wins, or selection of our software solutions for potential use by, or a significant partnership with, a vehicle manufacturer, component supplier or systems integrator, or loss or anticipated loss of an expected design win, selection or partnership; |
| ● | Development of a new product, opening of new locations and/or any development that affects the Company’s resources, technology, products or markets; |
| ● | A disruption in the Company’s operations or breach or unauthorized access of its property or assets, including its facilities and information technology infrastructure; |
| ● | A significant change in capital investment plans or corporate objectives; |
| ● | Significant new contracts, products, patents or services or significant losses of contracts or business; |
| ● | A significant change in the Company’s management/changes to the Board or executive officers, including the departure of the Company’s Chief Executive Officer, Chief Financial Officer or persons in equivalent positions; |
| ● | Commencement of, or developments in, material legal proceedings or regulatory matters; |
| ● | Major labour disputes or disputes with major contractors or suppliers; |
| ● | Employee layoffs; |
| ● | Cybersecurity or data security incidents; |
| ● | Waivers of corporate ethics and conduct rules for officers, directors and other key employees; |
| ● | Any notice that reliance on a prior audit is no longer permissible; |
| ● | De-listing of the Company’s securities or their movement from one quotation system or exchange to another; |
| ● | Events of default under material financing or other agreements; and |
| ● | Impending bankruptcy or financial liquidity problems. |
Acquisitions and Dispositions
| ● | Significant acquisitions or dispositions of assets, property or joint venture interests; and |
| ● | Material acquisitions of other companies, including take-over bid for, or merger with, another company. |
Changes in Credit Arrangements
| ● | Borrowing or lending of a significant amount of money; |
| ● | Any mortgaging or encumbering of the Company’s assets; |
| ● | Certain material defaults under debt obligations, agreements to restructure debt, or planned enforcement procedures by a bank or any other creditors; |
| ● | Changes in rating agency decisions; and |
| ● | Significant new credit agreements. |
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Frantz Saintellemy, certify that:
| 1. | I have reviewed this annual report on Form 20-F of LeddarTech Holdings Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditor and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
| By: | /s/ Frantz Saintellemy | |
| Date: December 26, 2024 | Frantz Saintellemy Chief Executive Officer and President |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Christopher Stewart, certify that:
| 1. | I have reviewed this annual report on Form 20-F of LeddarTech Holdings Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditor and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
| By: | /s/ Christopher Stewart | |
| Date: December 26, 2024 | Christopher Stewart | |
| Chief Financial Officer |
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of LeddarTech Holdings Inc. (the “Company”) on Form 20-F for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frantz Saintellemy, Chief Executive Officer and President of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| December 26, 2024 | /s/ Frantz Saintellemy |
| Frantz Saintellemy | |
| LeddarTech Holdings Inc. | |
| Chief Executive Officer and | |
| Director |
A signed original of this written statement required by Section 906 has been provided to LeddarTech Holdings Inc. and will be retained by LeddarTech Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of LeddarTech Holdings Inc. (the “Company”) on Form 20-F for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher Stewart, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| December 26, 2024 | /s/ Christopher Stewart |
| Christopher Stewart | |
| LeddarTech Holdings Inc. | |
| Chief Financial Officer and | |
| Director |
A signed original of this written statement required by Section 906 has been provided to LeddarTech Holdings Inc. and will be retained by LeddarTech Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Consolidated financial statements of
LeddarTech Holdings Inc.
For the year ended September 30, 2024
F-1
Independent Auditor’s report of Richter
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
LeddarTech Holdings Inc.
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial position of LeddarTech Holdings Inc. (the “Company”) as of September 30, 2024 and 2023, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ deficiency and cash flows for each of the two years in the period ended September 30, 2024, 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, 2024 and 2023 and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2024, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited the adjustments to the consolidated financial statements for the year ended September 30, 2022 to retrospectively apply the reporting of discontinued operations as described in Note 7 a). In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the consolidated financial statements for the year ended September 30, 2022 of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements for the year ended September 30, 2022 taken as a whole.
Going concern uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company does not have sufficient existing cash to support operations for at least the next year following the issuance of these financial statements which raises doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion
/s/ Richter LLP
We have served as the Company’s auditors since 2023.
December 24, 2024
Montreal, Québec
| MONTRÉAL | TORONTO | CHICAGO | |||
1981 McGill College Montréal QC H3A 0G6 514.934.3400 | 181 Bay St., #3510 Bay Wellington Tower Toronto ON M5J 2T3 416.488.2345 | 200 South Wacker Dr., #3100 Chicago, IL 60606 312.828.0800 | RICHTER.CA |
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
LeddarTech Holdings Inc. (formerly LeddarTech Inc.)
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the reporting of discontinued operations described in Note 7 a), the accompanying consolidated statement of loss and comprehensive loss and cash flows of LeddarTech Holdings Inc. (the “Company”) for the year ended September 30, 2022 (the 2022 consolidated financial statements before the effects of the adjustments discussed in Note 7 a) are not presented herein), including the related notes (collectively referred to as the “2022 consolidated financial statements”).
In our opinion, the 2022 consolidated financial statements, before the effects of the adjustments to retrospectively apply the reporting of discontinued operations described in Note 7 a), present fairly, in all material respects, the results of the Company’s financial performance and its cash flows for the year ended September 30, 2022, in conformity with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the reporting of discontinued operations described in Note 7 a) and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Richter LLP.
Basis for Opinion
These 2022 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 2022 consolidated financial statements, before the effects of the adjustments to retrospectively apply the reporting of discontinued operations described in Note 7 a), 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 auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit, 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.
Our audit included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
Chartered Professional Accountants
We served as the Company’s auditor from 2016 to 2023.
Montréal, Canada
July 26, 2023
F-3
LeddarTech Holdings Inc.
Consolidated statement of financial position
(in Canadian dollars)
[going concern uncertainty – note 1]
| As at September 30 | ||||||||||
| Notes | 2024 | 2023 | ||||||||
| $ | $ | |||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash | 5,269,084 | 5,056,040 | ||||||||
| Trade receivable and other receivables | 8 | 1,489,402 | 3,689,475 | |||||||
| Government assistance and R&D tax credit receivable | 1,287,468 | 2,179,423 | ||||||||
| Inventories | 9 | 467,344 | 1,246,946 | |||||||
| Prepaid expenses | 1,545,267 | 1,325,991 | ||||||||
| Total current assets | 10,058,565 | 13,497,875 | ||||||||
| Property and equipment | 10 | 1,336,604 | 2,071,457 | |||||||
| Right-of-use assets | 11 | 1,907,356 | 3,180,318 | |||||||
| Intangible assets | 12 | 5,569,683 | 45,838,108 | |||||||
| Prepaid financing fees | 55,014 | 264,523 | ||||||||
| Goodwill | — | 7,318,126 | ||||||||
| Total non-current assets | 8,868,657 | 58,672,532 | ||||||||
| Total assets | 18,927,222 | 72,170,407 | ||||||||
| Liabilities and shareholders’ deficiency | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | 13 | 13,887,269 | 13,570,905 | |||||||
| Provisions | 14 | — | 878,144 | |||||||
| Conversion option | 15 | 6,008 | 737,974 | |||||||
| Warrant liability | 16 | 629,506 | — | |||||||
| Bridge loans | 15 | 9,913,619 | — | |||||||
| Current portion of lease liabilities | 11 | 663,920 | 722,675 | |||||||
| Current portion of government grant liabilities | 17 | 829,216 | 568,807 | |||||||
| Total current liabilities | 25,929,538 | 16,478,505 | ||||||||
| Long-term debt | 15 | 79,306,811 | 47,725,583 | |||||||
| Redeemable stock options | 19 | — | 6,102,496 | |||||||
| Lease liabilities | 11 | 1,536,440 | 3,058,558 | |||||||
| Government grant liabilities | 17 | 789,127 | 899,489 | |||||||
| Total non-current liabilities | 81,632,378 | 57,786,126 | ||||||||
| Total liabilities | 107,561,916 | 74,264,631 | ||||||||
| Shareholders’ deficiency | ||||||||||
| Capital stock | 18 | 546,149,389 | 452,246,204 | |||||||
| Reserve – warrants | 16 | 2,682,111 | 670,703 | |||||||
| Reserve – stock options | 19 | 5,747,571 | 31,659,392 | |||||||
| Other component of equity | 955,863 | 2,869,188 | ||||||||
| Deficit | (644,169,628 | ) | (480,333,695 | ) | ||||||
| Equity (deficiency) attributable to owners of the capital stock of the parent | (88,634,694 | ) | 7,111,792 | |||||||
| Non-controlling interests | — | (9,206,016 | ) | |||||||
| Total shareholders’ deficiency | (88,634,694 | ) | (2,094,224 | ) | ||||||
| Total liabilities and shareholders’ deficiency | 18,927,222 | 72,170,407 | ||||||||
Commitments (Note 29); Subsequent events (Note 30)
See accompanying notes
| On behalf of the Board: | |
| Director | Director |
F-4
LeddarTech Holdings Inc.
Consolidated statement of changes in shareholders’ deficiency
(in Canadian dollars)
[going concern uncertainty – note 1]
| For the year ended September 30, 2024 | ||||||||||||||||||||||||||||||||||
| Notes | Capital stock | Reserve – warrants | Reserve – stock options | Other component of equity | Deficit | Equity (deficiency) attributable to owners of the capital stock of the parent | Non- controlling interests | Total shareholders’ deficiency | ||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Balance as at September 30, 2023 | 452,246,204 | 670,703 | 31,659,392 | 2,869,188 | (480,333,695 | ) | 7,111,792 | (9,206,016 | ) | (2,094,224 | ) | |||||||||||||||||||||||
| Shares issuance | 18 | 523,211 | — | — | (2,087 | ) | — | 521,124 | 521,124 | |||||||||||||||||||||||||
| Shares issued upon exercise of PIPE warrants | 15 | 2,059,081 | — | — | — | — | 2,059,081 | — | 2,059,081 | |||||||||||||||||||||||||
| Shares issued upon exercise of PIPE convertible options | 15 | 458,696 | — | — | 957,950 | — | 1,416,646 | — | 1,416,646 | |||||||||||||||||||||||||
| Dividend in share | 18 | 22,960,000 | — | — | — | (22,960,000 | ) | — | — | — | ||||||||||||||||||||||||
| Business combination | 4 | 65,372,812 | — | 117,246 | — | — | 65,490,058 | — | 65,490,058 | |||||||||||||||||||||||||
| Stock-based compensation | 19 | — | 2,011,408 | 6,008,105 | 506,774 | — | 8,526,287 | — | 8,526,287 | |||||||||||||||||||||||||
| Financing fees – credit facilities modification | 15 | — | 1,643,714 | — | — | — | 1,643,714 | — | 1,643,714 | |||||||||||||||||||||||||
| Warrants exercised | 15 | 1,646,214 | (1,643,714 | ) | — | — | — | 2,500 | — | 2,500 | ||||||||||||||||||||||||
| Options exercised | 19 | 825,447 | — | (377,780 | ) | (944,274 | ) | 492,426 | (4,181 | ) | — | (4,181 | ) | |||||||||||||||||||||
| Closing of previous equity incentive plan | 19 | — | — | (31,659,392 | ) | — | 31,659,392 | — | — | — | ||||||||||||||||||||||||
| Net loss and comprehensive loss | — | — | — | — | (165,893,387 | ) | (165,893,387 | ) | (302,312 | ) | (166,195,699 | ) | ||||||||||||||||||||||
| Exercise of call option | 18 | 57,724 | — | — | (2,431,688 | ) | (7,134,364 | ) | (9,508,328 | ) | 9,508,328 | — | ||||||||||||||||||||||
| Balance as at September 30, 2024 | 546,149,389 | 2,682,111 | 5,747,571 | 955,863 | (644,169,628 | ) | (88,634,694 | ) | — | (88,634,694 | ) | |||||||||||||||||||||||
See accompanying notes
F-5
LeddarTech Holdings Inc.
Consolidated statement of changes in shareholders’ deficiency
(in Canadian dollars)
[going concern uncertainty – note 1]
| For the year ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Notes | Capital stock | Reserv – warrants | Reserve – stock options | Other component of equity | Deficit | Equity attributable to owners of the capital stock of the parent | Non- controlling interests | Total shareholders’ equity (deficiency) | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Balance as at September 30, 2022 | 433,689,768 | 670,703 | 28,708,766 | 2,431,688 | (432,341,598 | ) | 33,159,327 | (5,901,084 | ) | 27,258,243 | ||||||||||||||||||||||||||
| Shares issuance | 18 | 18,556,436 | — | — | — | — | 18,556,436 | — | 18,556,436 | |||||||||||||||||||||||||||
| Stock-based compensation | 19 | — | — | 3,078,006 | 437,500 | — | 3,515,506 | — | 3,515,506 | |||||||||||||||||||||||||||
| Vesting of Vayavision’s shares | 19 | — | — | (127,380 | ) | — | — | (127,380 | ) | 127,380 | — | |||||||||||||||||||||||||
| Net loss and comprehensive loss for the period | — | — | — | — | (47,992,097 | ) | (47,992,097 | ) | (3,432,312 | ) | (51,424,409 | ) | ||||||||||||||||||||||||
| Balance as at September 30, 2023 | 452,246,204 | 670,703 | 31,659,392 | 2,869,188 | (480,333,695 | ) | 7,111,792 | (9,206,016 | ) | (2,094,224 | ) | |||||||||||||||||||||||||
See accompanying notes
F-6
LeddarTech Holdings Inc.
Consolidated statements of loss and comprehensive loss
[going concern uncertainty – note 1]
| For the years ended September 30, | ||||||||||||||||
| Notes | 2024 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | ||||||||||||||
(Recasted-Note 7) | (Recasted-Note 7) | |||||||||||||||
Continuing operations | ||||||||||||||||
| Revenue | ||||||||||||||||
| Products | — | — | 52,144 | |||||||||||||
| Services | 477,812 | 186,655 | 504,600 | |||||||||||||
| Other | -— | 10,901 | 77,106 | |||||||||||||
| 477,812 | 197,556 | 633,850 | ||||||||||||||
| Cost of sales | 10,11 | — | — | 79,625 | ||||||||||||
| Gross profit | 477,812 | 197,556 | 554,225 | |||||||||||||
| Operating expenses | 20 | |||||||||||||||
| Marketing and product management | 10,11 | 4,012,238 | 4,097,931 | 3,280,864 | ||||||||||||
| Selling | 11 | 2,795,060 | 3,126,324 | 3,976,733 | ||||||||||||
| General and administrative | 10,11,12,26 | 17,927,408 | 18,990,598 | 15,548,293 | ||||||||||||
| Stock based compensation | 19,26 | 1,715,512 | 2,436,974 | 4,272,673 | ||||||||||||
| Research and development costs (net of R&D tax credits of $176,857 in 2024, $225,609 in 2023 and $70,191 in 2022) | 9,10,11,23 | 7,448,080 | 11,253,670 | 21,191,064 | ||||||||||||
| Listing expense | 4 | 59,139,572 | — | — | ||||||||||||
| Restructuring costs | 5 | 46,387 | 1,734,244 | — | ||||||||||||
| Transactions costs | 4 | 2,407,977 | 3,506,630 | — | ||||||||||||
| Impairment loss related to goodwill and intangible assets | 6 | 69,315,247 | — | 38,207,503 | ||||||||||||
| 164,807,481 | 45,146,371 | 86,477,130 | ||||||||||||||
| Loss from operations | (164,329,669 | ) | (44,948,815 | ) | (85,922,905 | ) | ||||||||||
| Other (income) costs | ||||||||||||||||
| Grant revenue | 23 | (90,065 | ) | (377,080 | ) | (435,448 | ) | |||||||||
| Finance costs (income), net | 24 | 3,063,252 | (729,958 | ) | (10,067,497 | ) | ||||||||||
| Loss before income taxes from continuing operations | (167,302,856 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||||||
| Income taxes | 25 | 15,882 | — | — | ||||||||||||
| Net loss and comprehensive loss from continuing operations | (167,318,738 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||||||
| Discontinued operations | ||||||||||||||||
| Net income (loss) and comprehensive income (loss) from discontinued operations | 7 | 1,123,039 | (7,582,632 | ) | 2,001,215 | |||||||||||
| Net loss and comprehensive loss | (166,195,699 | ) | (51,424,409 | ) | (73,418,745 | ) | ||||||||||
| Attributable to: | ||||||||||||||||
| Non-controlling interests | (302,312 | ) | (3,432,312 | ) | (4,099,897 | ) | ||||||||||
| Equity holders of the parent | (165,893,387 | ) | (47,992,097 | ) | (69,318,848 | ) | ||||||||||
See accompanying notes
F-7
LeddarTech Holdings Inc.
Consolidated statements of loss and comprehensive loss (continued)
[going concern uncertainty – note 1]
| Notes | 2024 | 2023 | 2022 | |||||||||||
| $ | $ | $ | ||||||||||||
(Recasted-Note 7) | (Recasted-Note 7) | |||||||||||||
| Earnings per share | ||||||||||||||
| Net loss per common share, basic and diluted | 21 | (7.28 | ) | (286.33 | ) | (513.80 | ) | |||||||
| Weighted average common shares outstanding, basic and diluted | 21 | 22,774,782 | 167,610 | 134,913 | ||||||||||
| Earnings per shares for continuing operations | ||||||||||||||
| Net loss from continued operations per common share, basic and diluted | 21 | (7.33 | ) | (241.09 | ) | (528.64 | ) | |||||||
| Weighted average common shares outstanding, basic and diluted | 21 | 22,774,782 | 167,610 | 134,913 | ||||||||||
See accompanying notes
F-8
LeddarTech Holdings Inc.
Consolidated statements of cash flows
[going concern uncertainty – note 1]
| For the years ended September 30, | ||||||||||||||
| Notes | 2024 | 2023 | 2022 | |||||||||||
| $ | $ | $ | ||||||||||||
| (Recasted-Note | (Recasted-Note | |||||||||||||
| Operating activities | ||||||||||||||
| Net loss from continuing operations | (167,318,738 | ) | (43,841,777 | ) | (75,419,960 | ) | ||||||||
| Net income (loss) from discontinued operations | 7 | 1,123,039 | (7,582,632 | ) | 2,001,215 | |||||||||
| Net loss | (166,195,699 | ) | (51,424,409 | ) | (73,418,745 | ) | ||||||||
| Adjustments to reconcile net loss to net cash flows: | ||||||||||||||
| Write-down of inventories | 9 | 1,078,324 | 2,299,866 | 19,859 | ||||||||||
| Write-down of intangibles assets | 12 | 3,720,042 | — | — | ||||||||||
| Loss (gain) on disposal of property and equipment | 10 | (81,326 | ) | — | — | |||||||||
| Depreciation of property and equipment | 10 | 783,081 | 1,274,597 | 1,448,867 | ||||||||||
| Depreciation of right-of-use assets | 11 | 515,558 | 581,936 | 610,941 | ||||||||||
| Amortization of intangible assets | 12 | 257,932 | 286,494 | 257,064 | ||||||||||
| Impairment loss related to goodwill and intangible assets | 6 | 65,542,621 | 5,791,439 | 38,207,503 | ||||||||||
| Finance costs, net | 1,929,100 | (986,824 | ) | (7,376,716 | ) | |||||||||
| Listing expense | 4 | 59,139,572 | — | — | ||||||||||
| Transaction costs | 4 | 431,458 | 437,500 | — | ||||||||||
| Stock-based compensation | 19 | 1,715,512 | 2,436,974 | 4,590,336 | ||||||||||
| Redeemable stock options | — | — | (317,663 | ) | ||||||||||
| Gain on lease liability cancellation | 11 | (204,146 | ) | (78,607 | ) | — | ||||||||
| Loss on bridge loan | 15 | 1,201,380 | — | — | ||||||||||
| Loss on conversion option | 15 | 366,957 | — | — | ||||||||||
| Gain on government grant liability | 17 | (86,305 | ) | — | — | |||||||||
| Foreign exchange loss (gain) | (14,934 | ) | 308,854 | (1,756,535 | ) | |||||||||
| (29,900,873 | ) | (39,072,180 | ) | (37,735,089 | ) | |||||||||
| Net change in non-cash working capital items | 22 | (10,989,247 | ) | 2,421,056 | (391,808 | ) | ||||||||
| Net cash flows related to operating activities | (40,890,120 | ) | (36,651,124 | ) | (38,126,897 | ) | ||||||||
| Investing activities | ||||||||||||||
| Additions to property and equipment | 10 | (504,320 | ) | (188,775 | ) | (2,173,529 | ) | |||||||
| Disposal of property and equipment | 10 | 81,326 | 45,000 | — | ||||||||||
| Additions to intangible assets | 12 | (12,976,529 | ) | (12,356,950 | ) | (10,853,759 | ) | |||||||
| Grants received related to intangible assets and property and equipment | 10,12 | 13,713 | 268,460 | 986,295 | ||||||||||
| R&D tax credit received | 1,522,306 | 836,171 | — | |||||||||||
| Finance income received | 24 | 334,751 | 223,594 | 40,251 | ||||||||||
| Net cash flows related to investing activities | (11,528,753 | ) | (11,172,500 | ) | (12,000,742 | ) | ||||||||
| Financing activities | ||||||||||||||
| Debt issuance | 15 | 29,463,494 | 29,406,425 | — | ||||||||||
| Cash acquired from a reverse asset acquisition | 4 | 19,750,572 | — | — | ||||||||||
| Other loan settlement/reimbursed | 15 | — | (134,189 | ) | (768,850 | ) | ||||||||
| Interest paid on credit facility and other loan | (3,477,751 | ) | (4,773,512 | ) | (3,620,539 | ) | ||||||||
| Exercise of warrants | 15 | 337 | 7,992 | — | ||||||||||
| Debt issuance costs | (233,737 | ) | (2,119,392 | ) | — | |||||||||
| Bridge loans issuance proceed | 15 | 8,234,464 | 6,250,000 | — | ||||||||||
| Bridge loans settlement | 15 | — | (6,250,000 | ) | — | |||||||||
| Issuance and modification costs of convertible loans | 15 | — | — | (124,717 | ) | |||||||||
| Exercise of stock options | 19 | (4,181 | ) | — | 9,221 | |||||||||
| Share issuance proceed | 18 | 10,849 | — | 85,236,002 | ||||||||||
| Share issuance cost | 18 | — | — | (6,094,621 | ) | |||||||||
| Government grant liability issuance | 17 | — | — | 178,857 | ||||||||||
| Repayment principal amount of lease liabilities | 11 | (971,677 | ) | (687,150 | ) | (316,472 | ) | |||||||
| Interest paid on lease liability | 11 | (300,424 | ) | (451,894 | ) | (551,291 | ) | |||||||
| Net cash flows related to financing activities | 52,471,946 | 21,248,280 | 73,947,590 | |||||||||||
| Effect of foreign exchange on cash | 159,971 | (394,515 | ) | 2,005,632 | ||||||||||
| Net increase (decrease) in cash | 213,044 | (26,969,859 | ) | 25,825,583 | ||||||||||
| Cash, beginning of year | 5,056,040 | 32,025,899 | 6,200,316 | |||||||||||
| Cash, end of year | 5,269,084 | 5,056,040 | 32,025,899 | |||||||||||
See accompanying notes
F-9
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 1. | Reporting entity, nature of operations and going concern uncertainty |
Reporting entity
On June 12, 2023, LeddarTech Holdings Inc., a company incorporated under the laws of Canada entered into the Business Combination Agreement, as amended on September 25, 2023 (the “BCA”), by and among LeddarTech Holdings Inc., Prospector Capital Corp., a Cayman Islands exempted company (“Prospector”), and LeddarTech Inc., a corporation existing under the laws of Canada.
Unless otherwise indicated and unless the context otherwise requires, “LeddarTech” or “the Company”, at all times prior to consummation of the Business Combination, refers to LeddarTech Inc. and its consolidated subsidiaries, and at all times following consummation of the Business Combination, refers to LeddarTech Holdings Inc. and its consolidated subsidiaries.
Refer to Note 4, Acquisition of Prospector Capital Corp., for additional information on the amalgamation of the Company on December 21, 2023.
These consolidated financial statements are comprised of the accounts of LeddarTech and its wholly owned subsidiaries and the prior period amounts are those of LeddarTech, which continued as the operating entity under the same name following the amalgamation.
The Company’s subsidiaries are as follows:
| Name of subsidiary | Place of incorporation and operation | Proportion of ownership interest held by the Company | |
| September 30, 2024 | September 30, 2023 | ||
| LeddarTech USA Inc | U.S. | 100% | 100% |
| LeddarTech (Shenzhen) Sensing Technology Co., Ltd | China | 100% | 100% |
| Vayavision Sensing, Ltd. (“Vayavision”) (1) | Israel | 100% | 60% |
| LeddarTech Germany GmbH | Germany | 100% | 100% |
| (1) | As of November 1, 2023, the Company exercised its call option to acquire its remaining participation in Vayavision (Note 18). |
The Company’s head office is located at 240-4535, boul. Wilfrid-Hamel, Québec City, Québec, G1P 2J7, Canada.
Nature of operations
The Company deliver high-performance AI automotive software that enables the market to deploy ADAS features. The Company operates under one operating segment.
F-10
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 1. | Reporting entity, nature of operations and going concern uncertainty (continued) |
Going concern uncertainty
These consolidated financial statements were prepared on a going concern basis, which presumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. In its assessment to determine if the going concern assumption is appropriate, management considers all data available regarding the future for at least, without limiting to, the next twelve months from the date of the consolidated financial statements.
The Company has an accumulated deficit of $644,169,628 as at September 30 2024, and, for the year ended September 30, 2024, incurred a net loss of $166,195,699 and net cash outflows related to operating and investing activities amounting to $40,890,120 and $11,528,753 respectively. As at September 30, 2024, the Company had a cash balance of $5,269,084 and an outstanding credit facility of $30,000,000 with a maturity date of January 31, 2026.
Based on cash flow projections, the Company does not expect to have sufficient cash resources in the coming twelve months from the date of these consolidated financial statements, to develop its technology, to fund its operations and to comply with its credit facility covenants as renewed.
The ability of the Company to fulfill its obligations and finance its future activities depends on its ability to raise capital and the continuous support of its creditors. The Company has historically been successful in raising capital through issuances of equity and debt and refinancing its credit facilities (refer to Notes 15 and 18). Consequently, the Company believes its effort to raise sufficient funds to support its activities will be successful. However, there can be no certainty as to the ability of the Company to achieve successful outcomes to these matters. This indicates the existence of a material uncertainty that raises substantial doubt about the ability of the Company to continue as a going concern.
The accompanying consolidated financial statements do not purport to give effect to adjustments, if any, to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and be required to realize its assets and liquidate its liabilities in other than normal course of business.
These consolidated financial statements were approved for issuance by the Board of Directors of the Company on December 17th, 2024.
F-11
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies |
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
Basis of presentation
The consolidated financial statements are prepared on a historical cost basis, except for some financial instruments and Stock-based payment transactions, which are measured at fair value.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and those of its subsidiaries (refer to note 1).
The Company consolidates investees when, based on the evaluation of the substance of the relationship with the Company, it concludes that it controls the investees. The Company controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee, has power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee), and has the ability to affect those returns through its power over the investee.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Company’s accounting policies. All intercompany balances and transactions are eliminated upon consolidation.
When a subsidiary is not wholly owned, the Company recognizes the non-controlling interests’ (“NCI”) share of the net assets and results of operations in the subsidiary. A change in ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
Segments
The Company operates as one operating and reportable segment. The Company’s Chief Operating Decision Maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources. Revenue by location is disclosed in Note 7.
Foreign currency translation
a) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency. The Company determines the functional currency of each foreign operation and items included in the financial statements of each foreign operation are measured using that functional currency. The Canadian dollar is the functional currency of all foreign operations.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are reflected in the consolidated statement of loss.
F-12
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Financial instruments
| a) | Recognition and derecognition |
Financial instruments are recognized in the consolidated statement of financial position when the Company becomes a party to the contractual obligations of the instrument. On initial recognition, financial instruments are recognized at their fair value, and in the case of financial liabilities not at fair value through profit or loss (“FVTPL”), net of transaction costs that are directly attributable to the issue of such financial liabilities.
Financial assets are subsequently derecognized when payment is received in cash or other financial assets or if the debtor is discharged of its liability. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When the terms of the liability are substantially modified, such modification is treated as a debt extinguishment and results in the derecognition of the original liability and the recognition of a new liability at fair value. The difference in the respective carrying amounts is recognized in the consolidated statement of loss. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognized as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.
| b) | Classification |
Subsequent to initial recognition, financial instruments are measured according to the category to which they are classified. Financial instruments are classified and measured at amortized cost, or classified at FVTPL or designated at FVTPL, in which case they are subsequently measured at fair value.
The classification of financial assets and liabilities is driven by the Company’s business model for managing the assets or liabilities and their contractual cash flow characteristics. Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Financial liabilities are measured at amortized cost, unless the Company has opted to measure them at FVTPL.
The Company classifies cash and trade receivable, and other receivables (excluding commodity taxes receivable) as financial assets measured at amortized cost and accounts payable and accrued liabilities (excluding deferred revenue), term loan, credit facility (after modification as disclosed in note 24 (3)), convertible loan, non-convertible bridge loan, convertible bridge loan, other loan and the government grant liabilities as financial liabilities measured at amortized cost.
The Company has designated its credit facility (until modification) and its convertible loans, which contain embedded derivatives, as financial liabilities at FVTPL except that fair value changes due to credit risk are recorded in other comprehensive income (loss). The Company has elected to not disaggregate the interest accrued on the convertible loans from the change in fair value that is presented in the consolidated statement of loss as an unrealized loss (gain) on the revaluation of the convertible loans included in finance costs, net (Note 24).
| c) | Hybrid financial instruments and derivatives |
Hybrid financial instruments issued by the Company comprise PIPE Convertible loan and Convertible Bridge Loan that can be converted into a variable number of shares. A hybrid instrument contains both an embedded derivative and a host contract. If the embedded derivative is not closely related to the host it must be separated from the host contract and recorded at fair value, with any changes in fair value recognized in profit or loss.
F-13
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Financial instruments (continued)
The entire hybrid instrument may also be designated as FVTPL on initial recognition and measured at fair value through profit or loss.
Warrants and conversion options disclosed in Note 16 meet the definition of a derivative. Warrants and conversion options accounted for separately from the underlying convertible notes that are liability classified are initially and subsequently measured at fair value, and changes therein are accounted for through profit or loss.
The Company elected to designate the Convertible Bridge Loan at fair value.
| d) | Impairment of financial instruments |
The expected credit losses associated with debt instruments carried at amortized cost is assessed on a forward-looking basis. For trade accounts receivable, the Company applies a simplified approach in calculating expected credit losses and does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime expected credit losses at each reporting date.
Contingent consideration
Contingent consideration payable, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration payable meets the definition of a financial liability, it is subsequently remeasured to fair value at each reporting date. The contingent consideration payable resulting from a business combination is classified as a non-derivative financial liability when the Company is or may be obliged to deliver a variable number of the Company’s common shares. As such, it is subsequently remeasured to fair value at each reporting date and the change in fair value (including the change to the Company’s own credit risk) is presented in the consolidated statement of loss and comprehensive loss as an unrealized loss (gain) on revaluation of instruments carried at fair value included in finance costs, net (Note 24).
Inventories
Raw materials and finished goods are recorded at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. The cost of finished goods includes the cost of direct materials and labour, and a proportion of manufacturing overhead costs based on normal operating capacity. The net realizable value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining selling prices. If a decline in the price of raw materials indicates that the cost of the finished goods exceeds net realizable value, the raw materials are written down to the replacement cost of the materials, which is the best available measure of the net realizable value. When circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in selling prices, the amount of the previously recorded write-down is reversed, without exceeding original cost.
F-14
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Property and equipment
Property and equipment are initially recorded at cost and subsequently measured at cost, less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives as follows:
| Computer equipment | 3 years | |
| Office furniture and equipment | 5 years | |
| R&D equipment and tools | 5 years | |
| Stands and moulds | 4 and 10 years | |
| Leasehold improvements | Term of lease | |
| Vehicles | 5 years |
Estimated useful life and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis. The depreciation of property and equipment is recognized in the consolidated statement of loss in the expense category that is consistent with the function of the property and equipment or capitalized as development costs.
Leases
The Company assesses at contract inception whether a contract is, or contains, a lease; that is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized and any initial direct costs. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term, including renewal options the Company is reasonably certain to exercise, and the estimated useful lives of the assets as follows:
| Office premises | 3 to 15 years | |
| Other equipment | 3 to 5 years |
The depreciation of right-of-use assets is recognized in the consolidated statement of loss in the expense category that is consistent with the function of the right-of-use asset or capitalized as development costs.
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, which includes the net present value of fixed payments and the value of any options to extend a lease where the Company is reasonably certain to do so. In calculating the present value of lease payments, the Company uses the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.
F-15
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Leases (continued)
Lease payments on short-term leases with lease terms of less than 12 months or low-value leases are accounted for as expenses on a straight-line basis in the consolidated statement of loss. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. Acquisition-related costs are expensed as incurred.
The Company determines that it has acquired a business when the acquired set of activities and assets include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organized workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests (“NCI”) over the fair value of net identifiable assets acquired and liabilities assumed). Subsequently, goodwill is measured at cost less any accumulated impairment losses.
Intangible assets
Intangible assets consist of patents, licenses, software, others and development costs with finite useful lives. Intangible assets are initially recorded at cost and subsequently measured at cost, less accumulated amortization and impairment. In regard to patents, costs are capitalized during the application period and are being amortized from the grant date over the residual life of the patent, which does not exceed 20 years from the application date.
F-16
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Intangible assets (continued)
Amortization is calculated using the straight-line method over the assets’ estimated useful lives as follows:
| Patents | Life of the patent | |
| Licenses | 10 and 18 years | |
| Software | 3 years | |
| Others | 10 years | |
| Development costs | Period of expected future sales from the related project(1) |
| 1 | Amortization of the asset begins when development is completed, and the asset is available for use. |
Estimated useful life and the amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis. The amortization expense on intangible assets with finite useful lives is recognized in the consolidated statement of loss in the expense category that is consistent with the function of the intangible assets or capitalized as development costs.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that take a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. Developments costs related to the Company’s projects to develop and enhance the technology and capabilities of autonomous driving applications and advanced driver assistance systems (“ADAS”) are considered to be qualified assets eligible for borrowing costs capitalization. Borrowing costs consist of interest expense calculated using the effective interest method (this includes the effective interest on term loans and other debts including an implicit interest on convertible loans and credit facilities at FVTPL), interest on lease liabilities and other issuance costs that are incurred in connection with the borrowing of funds. Borrowing costs do not include gain or loss on revaluation of instruments carried at fair value. When the Company borrows funds specifically to obtain a particular qualifying asset, the borrowing costs that are directly related to that qualifying asset during the period are capitalized. When the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. Expenditure on qualifying assets includes only the expenditure resulting in the payment of cash, the transfer of other assets or the assumption of interest-bearing liabilities. The capitalization rate is the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period.
However, the Company excludes from this calculation borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended use or sale are complete. The amount of borrowing costs capitalized during a year shall not exceed the amount of borrowing costs incurred during that year.
F-17
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Research and development costs
Research costs are expensed as incurred. Development costs on an individual project are recognized as an intangible asset when the Company can demonstrate:
| ● | The technical feasibility of completing the intangible asset so that the asset will be available for use or sale; |
| ● | Its intention to complete the asset and its ability and intention to use or sell the asset; |
| ● | How the asset will generate future economic benefits; |
| ● | The availability of resources to complete the project; and |
| ● | The ability to measure the expenditure reliably during development. |
Impairment of non-financial assets
For the purposes of assessing impairment, assets are grouped in cash-generating units (“CGUs”), which represent the lowest levels for which there are separately identifiable cash inflows generated by those assets. Property and equipment, intangible assets, goodwill and right-of-use assets are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. In addition, development costs that are not yet available for use and goodwill are tested for impairment annually, regardless of the presence of indicators of impairment. In the case of indicators of impairment, or when a required annual test is performed, the asset’s recoverable amount is calculated to establish the amount of impairment loss, if any. If it is not possible to determine the recoverable amount for an individual asset, the recoverable amount of the asset’s CGU is then determined. The recoverable amount is the higher of an asset or CGU’s fair value less cost of disposal and value in use. Fair value less costs of disposal represent the amount an entity could obtain at the valuation date from the asset’s disposal in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. Value in use is the present value of estimated future cash flows discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimated future cash flows were not adjusted. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired.
An impairment loss is recognized in the amount by which the carrying amount of an asset or CGU exceeds its recoverable amount. When the recoverable amount of a CGU to which goodwill has been allocated is lower than the CGU’s carrying amount, the related goodwill is first impaired. Any excess amount of impairment is recognized and attributed to assets in the CGU, prorated to the carrying amount of each asset in the CGU. In allocating an impairment loss, the Company shall not reduce the carrying amount of an asset below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero.
The Company evaluates impairment losses for potential reversals when events or circumstances require such considerations, except for goodwill.
F-18
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Government grants and Research and development (“R&D”) tax credits
Government grants and Research and development (“R&D”) tax credits are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied and will continue to comply with all the conditions related to such assistance. The Company recognizes the grants as other income or as a reduction of capital expenditures in the period that the related expenses or expenditures are incurred.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) 1) as a result of a past event; 2) when it is more probable than not that an outflow of resources embodying economic benefits will be required to settle the obligation; and 3) when a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is accounted for in the consolidated statements of loss.
If the known expected settlement date exceeds twelve months from the date of recognition, provisions are discounted using a current pre-tax interest rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a financial expense. Provisions are reviewed periodically and adjusted as appropriate.
The provisions are related to onerous contracts. These represent firm customer purchase orders in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs are the cost of fulfilling the contracts.
Government grant liabilities
Government grants that include a reimbursement clause based on the Company sales of a specific program are accounted for as a financial liability. At initial recognition, the government grant is estimated at the present value of all future cash disbursements. After the initial recognition, the government grant is measured at amortized cost using the effective interest method. Assumptions underlying expected sales are reviewed annually and are used to derive expected repayment schedules. When the expected repayment schedule changes, the Company recalculates the carrying value of the government grant liability using the original effective interest rate, with the corresponding gain or loss accounted for in financial expenses.
F-19
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Capital stock
The Company classifies a financial instrument, or its component part, as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. In order to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if: a) the instrument includes no contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company and b) if the instrument will or may be settled in the Company’s own equity instruments, it is i) a non-derivative that includes no contractual obligation for the Company to deliver a variable number of its own equity instruments, or ii) a derivative that will be settled only by the Company exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.
The Company determined that its preferred shares containing conversion features as a whole are a non-derivative instrument.
Stock-based compensation
For equity-settled Stock-based payment transactions with parties other than employees, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. For transaction with parties other than employees, there is a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. If the Company cannot estimate reliably the fair value of the goods or services received, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. Any transactions costs incurred are expensed in the consolidated statements of loss.
The Company also offers equity-settled and cash-settled Stock-based compensation plans to its employees and directors, under which the Company receives services as consideration for equity instruments of the Company. The Company accounts for all forms of stock-based compensation using the fair value-based method.
a) Equity-settled compensation
The fair value of stock options is determined at the date of the grant using the Black-Scholes option pricing model. Where granted stock options vest in instalments over the vesting period (defined as graded vesting), the Company treats each instalment as a separate stock option grant.
The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense in the consolidated statement of loss for a period represents the movement in cumulative expense recognized at the beginning and end of that period and is credited to “Reserve – stock options.” No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Any consideration received by the Company in connection with the exercise of stock options is credited to “Capital stock.” Upon issuance of the shares, amounts recognized in “Reserve – stock options” are transferred to “Capital stock.”
F-20
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Stock-based compensation (continued)
b) Cash-settled compensation
A liability is recognized for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized in the consolidated statement of loss to the extent the employees have rendered service to date.
Defined contribution pension plans
The Company offers a defined contribution pension plan to its Canadian employees. The Company pays an annual contribution amounting to 3% of employee eligible salary on a civil year basis and has no legal or constructive obligation to pay further amounts. As a result, no related liability appears on the consolidated statement of financial position, except for the expense recognized for contributions due but not yet paid at the end of the reporting period. Contributions paid and payable to the defined contribution plan are expensed as incurred. The Company’s contribution related to the defined contribution plan for the year ended September 30, 2024, amounted to $212,630 ($283,545 in 2023, $400,658 in 2022), a portion of which was capitalized as intangible assets.
Additionally, the Company offers a defined contribution pension plan to employees of its Israeli subsidiary, which complies with the local laws in that country. The Company pays an annual contribution amounting to 8.33% of the employee eligible salary towards the severance pay component. The Company pays an annual contribution amounting to 6.5% of the employee eligible salary towards the pension component. The Company’s contribution related to the Israeli subsidiary defined contribution plan for the year ended September 30, 2024, amounted to $1,007,696 ($1,057,881 in 2023, $1,101,890 in 2022), a portion of which was capitalized as intangible assets.
Revenue recognition
Revenue from contracts with customers is recognized for each performance obligation, either over a period of time or at a point of time, depending on which method reflects the transfer of controls of the services underlying the particular performance obligation to the customer.
Revenue from sales of products in the consolidated statement of loss is recognized at the point in time when the Company has transferred control of the products to the buyer, which is generally on delivery of the product. The Company generally has a right to payment at the time of delivery, which is the same time that the Company has satisfied its performance obligation under the arrangement, as such a receivable is recognized as the consideration is unconditional and only the passage of time is required before the payment is due.
The Company recognizes revenue from sales of services over time because the customer simultaneously receives and consumes the benefits provided to them. The Company uses an input method in measuring progress of the services because there is a direct relationship between the Company’s effort (i.e., based on the labour hours incurred) and the transfer of service to the customer. The Company recognizes revenue on the basis of the labour hours expended relative to the total expected labour hours to complete the service.
Consideration received from customers for which the Company has an obligation to transfer products or services is recorded as a deferred revenue.
F-21
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Income taxes
a) Current income taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of loss and comprehensive loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
b) Deferred income taxes
The Company accounts for deferred income taxes using the liability method. Under this method, deferred income tax assets and liabilities are determined based on deductible or taxable temporary differences between the carrying amounts and tax bases of the assets and liabilities, using enacted or substantively enacted income tax rates expected to be in effect for the year in which differences are expected to reverse.
Deferred income tax assets are recorded only to the extent that it is probable that they will be recovered.
Fair value measurement
The fair value of a financial instrument is equal to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as at the measurement date. Fair value is based on the presumption that the transaction takes place in the principal market for the asset or liability. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
Fair value requires the use of valuation techniques and assumptions. Fair value amounts disclosed in these consolidated financial statements represent the Company’s estimate of the price at which a financial instrument could be sold or transferred between market participants. They are point-in-time estimates that may change in subsequent reporting periods due to market conditions.
All assets and liabilities for which fair value is measured in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
| Level 1 – | Valuation based on quoted prices in active markets (unadjusted) for identical assets or liabilities. | |
| Level 2 – | Valuation techniques based on 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). | |
| Level 3 – | Valuation techniques for which a significant input for the asset or liability is not based on observable market data (unobservable inputs). |
F-22
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 2. | Summary of accounting policies (continued) |
Discontinued operations
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss.
Cash flows from discontinued operations are included in the consolidated statement of cash flows and are disclosed separately in Note 7. The Group includes proceeds from disposal in cash flows from discontinued operations.
Additional disclosures are provided in Note 7. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise.
New and amended standards and interpretations
The company is currently assessing the potential impact of new standards and amendments on its financial statements, which are effective for annual periods beginning on or after 1 January 2024 (unless otherwise stated). The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Amendments to IFRS 16 - Lease Liability in a Sale and Leaseback
The amendments in IFRS 16 specify the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of the gain or loss that relates to the right of use it retains.
Amendments to IAS 1 - Classification of Liabilities as Current or Non-current
The amendments to IAS 1 specify the requirements for classifying liabilities as current or non-current. The amendments clarify:
| ● | What is meant by a right to defer settlement |
| ● | That a right to defer must exist at the end of the reporting period |
| ● | That classification is unaffected by the likelihood that an entity will exercise its deferral right |
| ● | That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. |
In addition, an entity is required to disclose when a liability arising from a loan agreement is classified as non-current and the entity’s right to defer settlement is contingent on compliance with future covenants within twelve months.
Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7
The amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures clarify the characteristics of supplier finance arrangements and require additional disclosure of such arrangements. The disclosure requirements in the amendments are intended to assist users of financial statements in understanding the effects of supplier finance arrangements on an entity’s liabilities, cash flows and exposure to liquidity risk.
F-23
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 3. | Significant accounting judgments, estimates and assumptions |
The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the amounts of revenue, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. These estimates and assumptions also affect the disclosure of contingencies at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the year.
Judgments
Development costs
The Company capitalizes costs for product development projects. Initial capitalization of costs is based on management’s judgment that the Company can demonstrate the existence of a market for the product developed and that it will have the technical and financial capacity to complete the project until commercialization.
Discontinued operations
In September 2024, Company ceased its Modules operations. The timing at which the criteria of IFRS 5, Non-current assets held for sale and discontinued operations, were met is based on management’s judgment.
Estimates and assumptions
Government grant liabilities
The Company has government grants that include reimbursement clauses based on the sales of a specific program. In order to account for the present value under the effective interest method, or upon initial recognition, management must estimate the future sales over the expected duration of reimbursement. These forecasts are used to determine the expected repayment schedule. Refer to Note 17.
Stock-based payments
The Company initially measures at fair value the cost of equity-settled transactions using the Black-Scholes model. Transactions of the year include equity-settled transactions with employees and management under the equity incentive plan (Note 19) and the issuance of Non-Voting Special Shares and Earnout Non-Voting Special Shares as part of the BCA (Note 4 and 18). Estimating fair value requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and the fair value of the shares of the Company at the grant date.
Recoverable amount of a group of assets or a CGU
When an impairment test is performed on an asset or a CGU, management estimates the recoverable amount of the asset or CGU based on its fair value less costs of disposal or its value in use. These estimates are based on valuation models requiring the use of a number of assumptions such as forecasts of future cash flows, pre-tax discount rate (WACC). These assumptions have a significant impact on the results of impairment tests and on the impairment charge, as the case may be, recorded in the consolidated statement of loss. Refer to Note 6.
F-24
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 3. | Significant accounting judgments, estimates and assumptions (continued) |
Significant estimates for debt, including bifurcation
The Company holds certain financial instruments, including the convertible loan and the credit facility, which requires management to make significant estimates and assumptions that affect the reported amounts in the consolidated financial statements. The following provides information about the key estimates associated with the valuation of debt instruments, specifically those that involve bifurcation.
i. Bifurcation of debt instruments:
The Company has debt instruments with embedded features that may require bifurcation for accounting purposes. Bifurcation separates the host contract and the embedded features to be accounted for separately. The valuation of the embedded features, such as conversion options or detachable warrants, is a significant estimate that involves subjective judgment and market-based assumptions.
ii. Valuation methodology:
The fair value of the bifurcated embedded features is determined using a combination of valuation techniques, including option pricing models and market-based observable inputs. Significant inputs to the valuation model include, but are not limited to, the expected term of the embedded feature, volatility, risk-free interest rates, and credit spreads.
iii. Assumptions and uncertainties:
Company’s estimates of fair value involve inherent uncertainties due to the subjective nature of certain inputs. Changes in assumptions related to volatility, credit spreads, or other market conditions could materially impact the fair value measurement. Additionally, the Company considers the possibility of changes in the terms of the debt instrument that may trigger reassessment of the bifurcation.
The Company measured its convertible loans and the credit facility, including embedded derivatives, up to November 1, 2021, at fair value with any changes in fair value recognized in the consolidated statement of loss (except that fair value changes due to credit risk are recorded in other comprehensive income (loss), if any). The fair value determination was estimated using the expected value method, which is the sum of probability weighted amounts discounted in a range of possible outcome. Refer to Note 15 for disclosures relating to the convertible notes and credit facility.
F-25
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 3. | Significant accounting judgments, estimates and assumptions (continued) |
Term loan
The Company initially measured its term loan at fair value using a discounted cash flow model including the estimate of the market rate of interest specific to the borrowing.
Contingent consideration payable
The Company measured the contingent consideration payable at fair value with any changes in fair value recognized in the consolidated statement of loss (including the fair value changes due to credit risk, if any) up until the settlement of the contingent consideration payable on issuance of the common shares. The fair value was determined based on the number of common shares that the Company expected to issue based on specific conditions multiplied by the fair value of the Company’s common shares. Refer to 24 for gain on revaluation of contingent consideration for year ended September 30, 2022.
| 4. | Acquisition of Prospector Capital Corp. |
On December 21, 2023, the Company completed a plan of arrangement pursuant to a BCA with Prospector and LeddarTech Holdings Inc. Pursuant to the plan of arrangement and BCA, Prospector amalgamated with LeddarTech Holdings Inc., a wholly owned subsidiary of the Company which was incorporated for the purpose of effecting the business combination, to form “Amalco”. Also pursuant to the plan of arrangement, after the preferred shares of LeddarTech converted into common shares of LeddarTech, Amalco acquired all of the issued and outstanding common shares of LeddarTech from LeddarTech’s shareholders in exchange for common shares of Amalco, and LeddarTech and Amalco amalgamated. The Transactions are accounted for as a reverse asset acquisition in accordance with IFRS 2, Stock-based Payment (“IFRS 2”) since Prospector does not meet the definition of a business in accordance with IFRS 3, Business Combinations (“IFRS 3”).
On closing, the Company accounted for the fair value of the common shares issued to Prospector shareholders at the market price of Prospector’s publicly traded common shares on December 21, 2023. The fair value of the Class A Non-Voting Special Shares was determined using an option pricing model that considers the vesting terms of the instruments issued, which are subject to a seven-year vesting pursuant to which such Class A Non-Voting Special Shares will vest and convert into common shares, in equal thirds upon the volume weighted average price of the common shares exceeding US$12.00, US$14.00 and US$16.00, respectively, for any 20 trading days within any consecutive 30 trading day period commencing at least 150 days following the closing. As part of the amalgamation, the Company acquired cash, accounts payable and accrued liabilities and warrant liabilities. The difference between the fair value of the consideration paid over the fair value of the identifiable net assets of Prospector represents a service for the listing of the Company and is recognized as a listing expense in the consolidated statement of loss and comprehensive loss.
The following table reconciles the fair value of elements of the Transactions:
| $ | ||||
| Fair value of consideration transferred | ||||
| 8,770,930 common shares | 55,257,187 | |||
| 2,031,250 Class A Non-Voting Special Shares | 10,115,625 | |||
| 65,372,812 | ||||
| Fair value of assets acquired, and liabilities assumed | ||||
| Cash | 19,477,645 | |||
| Accounts payable and accrued liabilities | (11,497,830 | ) | ||
| Warrant liability 1 | (1,746,575 | ) | ||
| Net asset acquired | 6,233,240 | |||
| Listing expense | 59,139,572 | |||
| 1 | Warrant liability includes Public Warrants, Private Warrants and Vesting Sponsor Warrants. See Note 16 for additional information. |
As at September 30, 2024, total transaction costs of $2,407,977 in connection with the Transaction were expensed as incurred in the consolidated statements of loss and comprehensive loss.
F-26
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 5. | Restructuring costs |
In 2023, LeddarTech announced restructuring initiatives driven by a change in the focus of the Company’s operations, now focused on services and products targeted at the ADAS and AD markets. These initiatives, consisting of the reduction of the workforce, have mostly been completed over the fiscal year ending September 30, 2023. In 2024, restructuring costs of $46,387 were incurred and paid.
| 6. | Impairment of goodwill and intangible assets |
In the fourth quarter of 2024, the Company conducted two impairment tests: one on certain specific assets and one on its CGU.
These tests considered the assumptions of the strategic plan that was reviewed during the fourth quarter of 2024. This plan incorporated a significant shift out in the expected timing of future revenue for certain developed or acquired technologies, as well as an increase in the companies cost of capital as a result of the variability in the companies share price and other factors.
Specific assets level:
Through the review of its strategic plan, certain development costs and licenses were no longer expected to be used, and a test was performed at these assets level. These assets had a carrying amount of $3.7 million and were completely written-off, resulting in an impairment expense of the same amount.
CGU level:
The Company also performed a formal annual impairment test for its goodwill and intangible assets not yet available through the assessment of the recoverable amount of the CGU to which they belong.
The recoverable amount of the CGU has been determined based on its value-in-use. The value-in-use is calculated using cash flow projections from financial forecasts approved by senior management covering a five-year period. The projected cash flows have been updated to reflect a delay in the expected timing for implementation of LeddarTechs software. The pre-tax discount rate applied to cash flow projections is 40.75% and cash flows beyond the five-year period are extrapolated using a 2.5% growth rate. It was concluded that the fair value less costs of disposal did not exceed the value-in-use. As of September 30, 2024, as a result of this analysis, management has recognized a goodwill impairment charge of $7.3 million and an impairment charge on development costs of $58.3 million.
F-27
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 6. | Impairment of goodwill and intangible assets (continued) |
Key assumptions used in value in use calculations and sensitivity to changes in assumptions:
The calculation of value-in-use is most sensitive to the following assumptions:
| ● | Discount rate |
| ● | Market share during the forecast period |
| ● | Gross margin |
| ● | Growth rate used to extrapolate cash flows beyond the forecast period |
Discount rate − Discount rates represent the current market assessment of the risks specific to the CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Company and its operating segment and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Company’s investors. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service. Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate.
Any rise or decrease in the pre-tax discount rate from the current level of 40.75% would result in a significant variation of the recognized impairment expense.
Market share assumption − When using industry data for growth rates (as noted below), these assumptions are important because management assesses how the Company’s position, relative to its competitors, might change over the forecast period. Management expects the Company’s share of the market to increase over the forecast period.
Although management expects the Company’s market share to increase over the forecast period, any increase or decline in the expected market share would result in a significant variance of the recognized impairment expense.
Gross margin − Gross margins are based on the expected values to be achieved at the beginning of the budget period. These are increased over the budget period for anticipated efficiency improvements.
Decreased demand can lead to a decline in the gross margin. Any increase or decrease in the gross margin would result in a significant variance of the recognized impairment expense.
Growth rate estimate − Rates are based on published industry research.
Management recognizes that the speed of technological change and the possibility of new entrants can have a significant impact on growth rate assumptions. The effect of new entrants is not expected to have an adverse impact on the forecasts but could yield a reasonably possible alternative to the estimated long-term growth rate of 2.5%. Any rise or reduction in the long-term growth rate would result in a significant variance of the recognized impairment expense.
F-28
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 7. | Discontinued operations |
In September 2024, the Company ceased its Modules operations. The results of operations and cash flows related to this business are reclassified as discontinued operations in the consolidated statements of loss and comprehensive loss and cash flows as follows:
| Consolidated statements of loss and comprehensive loss | ||||||||||||
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue | ||||||||||||
| Products | 7,419,695 | 7,151,449 | 8,093,462 | |||||||||
| Services | 62,210 | 64,810 | 38,809 | |||||||||
| Other | 59,831 | 33,363 | — | |||||||||
| 7,541,285 | 7,249,622 | 8,132,271 | ||||||||||
| Cost of sales | 5,608,917 | 7,521,846 | 5,231,093 | |||||||||
| Gross profit | 1,932,368 | (272,224 | ) | 2,901,178 | ||||||||
| Operating expenses | ||||||||||||
| Research and development costs, net | 855,293 | 1,465,423 | 866,847 | |||||||||
| Restructuring costs | — | 22,189 | — | |||||||||
| Impairment loss related to property and equipment | 38,612 | — | — | |||||||||
| Impairment loss related to intangible assets | — | 5,791,439 | — | |||||||||
| 893,905 | 7,279,051 | 866,847 | ||||||||||
| Income (loss) from operations | 1,038,463 | (7,551,275 | ) | 2,034,331 | ||||||||
| Other (income) costs | ||||||||||||
| Gain on fixed assets disposal | (84,576 | ) | — | — | ||||||||
| Finance costs, net | — | 31,357 | 33,116 | |||||||||
| Income (loss) before income taxes | 1,123,039 | (7,582,632 | ) | 2,001,215 | ||||||||
| Income taxes | — | — | — | |||||||||
| Net income (loss) and comprehensive loss from discontinued operations | 1,123,039 | (7,582,632 | ) | 2,001,215 | ||||||||
| Earnings (loss) per share | ||||||||||||
| Net income (loss) per common share, basic and diluted | 0.05 | (45.24 | ) | 14.83 | ||||||||
| Weighted average common shares outstanding, basic and diluted | 22,774,782 | 167,610 | 134,913 | |||||||||
F-29
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 7. | Discontinued operations (continued) |
| Consolidated statements of cash flows | ||||||||||||
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Cash flows related to operating activities | 1,169,278 | (5,420,025 | ) | (2,978,135 | ) | |||||||
| Cash flows related to investing activities | — | 10,000 | (81,227 | ) | ||||||||
| Cash flows related to financing activities | — | — | — | |||||||||
| Cash flows (used in) provided by discontinued operations | 1,169,278 | (5,410,025 | ) | (3,059,362 | ) | |||||||
| a) | Recasted financial statements |
For the years ended September 30, 2023 and 2022, the Company recast its audited and previously issued consolidated statement of loss and comprehensive loss, consolidated statements of cash flows and certain footnotes to reflect the discontinued operations.
Further, the Company also reclassified certain operating expenses between the operating expense categories below to align the year ended 2023 with the presentation in the year ended September 30, 2024.
The following tables show the adjustments made to the previously reported Consolidated statements of loss and comprehensive loss, consolidated statements of cash flows and operating expenses for the year ended September 30, 2022.
F-30
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 7. | Discontinued operations (continued) |
| a) | Recasted financial statements (continued) |
Consolidated statements of loss and comprehensive loss
| Year ended September 30, 2022 | ||||||||||||
| As previously reported | Adjustments | As recast | ||||||||||
| $ | $ | $ | ||||||||||
| Revenue | ||||||||||||
| Products | 8,145,606 | (8,093,462 | ) | 52,144 | ||||||||
| Services | 543,409 | (38,809 | ) | 504,600 | ||||||||
| Other | 77,106 | — | 77,106 | |||||||||
| 8,766,121 | (8,132,271 | ) | 633,850 | |||||||||
| Cost of sales | 5,310,718 | (5,231,093 | ) | 79,625 | ||||||||
| Gross profit | 3,455,403 | (2,901,178 | ) | 554,225 | ||||||||
| Operating expenses | ||||||||||||
| Marketing and product management | 3,280,864 | — | 3,280,864 | |||||||||
| Selling | 3,976,733 | — | 3,976,733 | |||||||||
| General and administrative | 15,548,293 | — | 15,548,293 | |||||||||
| Research and development costs, net | 22,057,911 | (866,847 | ) | 21,191,064 | ||||||||
| Stock based compensation | 4,272,673 | 4,272,673 | ||||||||||
| Impairment loss related to intangible assets | 38,207,503 | — | 38,207,503 | |||||||||
| 87,343,977 | (866,847 | ) | 86,477,130 | |||||||||
| Loss from operations | (83,888,574 | ) | (2,034,331 | ) | (85,922,905 | ) | ||||||
| Other (income) costs | ||||||||||||
| Grant revenue | (435,448 | ) | — | (435,448 | ) | |||||||
| Finance costs, net | (10,034,381 | ) | (33,116 | ) | (10,067,497 | ) | ||||||
| Loss before income taxes from continuing operations | (73,418,745 | ) | (2,001,215 | ) | (75,419,960 | ) | ||||||
| Income taxes | — | — | — | |||||||||
| Net loss and comprehensive loss from continuing operations | (73,418,745 | ) | (2,001,215 | ) | (75,419,960 | ) | ||||||
| Discontinued operations | ||||||||||||
| Net income (loss) and comprehensive income (loss) from discontinued operations | — | 2,001,215 | 2,001,215 | |||||||||
| Net loss and comprehensive loss | (73,418,745 | ) | — | (73,418,745 | ) | |||||||
| Net loss and comprehensive loss attributable to: | ||||||||||||
| Non-controlling interests | (4,099,897 | ) | — | (4,099,897 | ) | |||||||
| Equity holders of the parent | (69,318,848 | ) | — | (69,318,848 | ) | |||||||
| Earnings (loss) per share | ||||||||||||
| Net income (loss) per common share, basic and diluted | (513.80 | ) | 14.83 | (528.64 | ) | |||||||
| Weighted average common shares outstanding, basic and diluted | 134,913 | 134,913 | 134,913 | |||||||||
Consolidated statements of cash flows
| Year ended September 30, 2022 | ||||||||||||
| As previously reported | Adjustments | As recast | ||||||||||
| $ | $ | $ | ||||||||||
| Net loss | (73,418,745 | ) | (2,001,215 | ) | (75,419,960 | ) | ||||||
| Net income from discontinued operations | — | 2,001,215 | 2,001,215 | |||||||||
F-31
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 7. | Discontinued operations (continued) |
| a) | Recasted financial statements (continued) |
Operating expenses
Year ended September 30, 2022 | ||||||||||||
| As previously reported | Adjustments | As recast | ||||||||||
| $ | $ | $ | ||||||||||
| Employee benefit expenses | 30,802,594 | (713,917 | ) | 30,088,677 | ||||||||
| Stock-based compensation | 4,272,673 | — | 4,272,673 | |||||||||
| Research costs | 2,074,830 | (89,788 | ) | 1,985,042 | ||||||||
| Impairment loss related to intangible assets | 38,207,503 | — | 38,207,503 | |||||||||
| Marketing expenses | 917,223 | — | 917,223 | |||||||||
| Selling expenses | 299,382 | — | 299,382 | |||||||||
| Depreciation of property and equipment | 1,291,048 | — | 1,291,048 | |||||||||
| Product line management expenses | 47,965 | — | 47,965 | |||||||||
| Recruitment fees | 791,788 | (11,662 | ) | 780,126 | ||||||||
| Professional fees | 3,852,140 | — | 3,852,140 | |||||||||
| Other expenses | 1,176,515 | — | 1,176,515 | |||||||||
| Subcontractor services | 2,006,904 | (26,404 | ) | 1,980,500 | ||||||||
| Travel expenses | 482,358 | (11,864 | ) | 470,494 | ||||||||
| Amortization of intangible assets | 257,064 | — | 257,064 | |||||||||
| Insurance | 373,311 | — | 373,311 | |||||||||
| Research and development tax credits | (70,191 | ) | — | (70,191 | ) | |||||||
| Depreciation expense on right of use assets | 560,870 | (13,212 | ) | 547,658 | ||||||||
| Total operating expenses | 87,343,977 | (966,847 | ) | 86,477,130 | ||||||||
Revenue by location
For years ended September 30, 2024, 2023 and 2022, the revenue by location, which is determined based on the primary billing address of the customer, is as follows:
| Year ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| France | 2,594,091 | 2,433,571 | 775,891 | |||||||||
| Canada | 1,506,247 | 131,675 | 709,172 | |||||||||
| United States | 1,481,493 | 2,863,154 | 4,609,147 | |||||||||
| Japan | 1,068,814 | 124,384 | 263,752 | |||||||||
| Turkey | 493,407 | - | 156,420 | |||||||||
| South Korea | 478,024 | 744,466 | 502,461 | |||||||||
| Czech Republic | 176,809 | - | ||||||||||
| United Kingdom | 125,529 | - | 300,211 | |||||||||
| Poland | 77,809 | 116,810 | ||||||||||
| Hong Kong | 50,306 | 646,696 | 296,838 | |||||||||
| Columbia | 31,807 | 54,767 | - | |||||||||
| Germany | - | 182,351 | 266,662 | |||||||||
| Italy | - | - | 171.237 | |||||||||
| New Zealand | - | - | 71,015 | |||||||||
| China | - | - | 125,441 | |||||||||
| Other | (65,239 | ) | 149,304 | 517,874 | ||||||||
| Total revenue | 8,019,097 | 7,447,178 | 8,766,121 | |||||||||
| Revenue from continuing operations | (477,812 | ) | (197,556 | ) | (633,850 | ) | ||||||
| Revenue from discontinued operations | 7,541,285 | 7,249,622 | 8,132,271 | |||||||||
F-32
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 8. | Trade receivable and other receivables |
| As at September 30, | ||||||||
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Trade accounts receivable | 670,960 | 1,663,495 | ||||||
| Commodity taxes receivable | 338,456 | 1,407,560 | ||||||
| Others | 479,986 | 618,420 | ||||||
| 1,489,402 | 3,689,475 | |||||||
Trade accounts receivable are non-interest bearing and normally due within 30 days from the date an invoice is issued. Bad debt expense amounted to Nil as at September 30, 2024 (Nil as at September 30, 2023).
| 9. | Inventories |
| As at September 30, | ||||||||
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Raw materials | 164,159 | 942,860 | ||||||
| Finished goods | 303,185 | 304,086 | ||||||
| 467,344 | 1,246,946 | |||||||
Inventories recognized as cost of sales expense in the net loss from discontinued operations for the years ended September 30, 2024, 2023 and 2022 was $2,571,054, $7,521,845 and $5,241,718, respectively. The Company recognized $1,078,324, $2,299,866 and $19,859 of inventory write-downs during the 12 months ended September 30, 2024, 2023 and 2022, respectively. The write-downs related to inventory obsolescence were recorded in the net loss from discontinued operations.
| 10. | Property and equipment |
| Computer equipment | Office furniture and equipment | R&D equipment and tools | Stands and moulds | Leasehold improvements | Vehicles | Total | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| October 1, 2023 | 5,015,523 | 1,073,834 | 1,206,115 | 898,697 | 1,125,039 | 192,205 | 9,511,413 | |||||||||||||||||||||
| Additions | 236,352 | 5,005 | 166,485 | — | — | 96,478 | 504,320 | |||||||||||||||||||||
| Disposals | — | (12,100 | ) | — | — | — | — | (12,100 | ) | |||||||||||||||||||
| Write-offs | (19,935 | ) | (295,287 | ) | (87,418 | ) | (726,723 | ) | — | — | (1,129,363 | ) | ||||||||||||||||
| September 30, 2024 | 5,231,940 | 771,452 | 1,285,182 | 171,974 | 1,125,039 | 288,683 | 8,874,270 | |||||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||||||
| October 1, 2023 | 4,292,037 | 960,597 | 994,114 | 629,731 | 416,400 | 147,077 | 7,439,956 | |||||||||||||||||||||
Depreciation(1) | 640,962 | 25,892 | 97,808 | 265,897 | 134,871 | 35,132 | 1,200,562 | |||||||||||||||||||||
| Write-offs | (19,935 | ) | (268,776 | ) | (87,418 | ) | (726,723 | ) | — | — | (1,102,852 | ) | ||||||||||||||||
| September 30, 2024 | 4,913,064 | 717,713 | 1,004,504 | 168,905 | 551,271 | 182,209 | 7,537,666 | |||||||||||||||||||||
| Net book value | ||||||||||||||||||||||||||||
| September 30, 2024 | 318,876 | 53,739 | 280,678 | 3,069 | 573,768 | 106,474 | 1,336,604 | |||||||||||||||||||||
| 1 | Depreciation of $340,545 related to property and equipment is capitalized in development costs as they are used in development projects that are eligible for capitalization. |
F-33
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 10. | Property and equipment (continued) |
| Computer equipment | Office furniture and equipment | R&D equipment and tools | Stands and moulds | Leasehold improvements | Vehicles | Total | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| October 1, 2022 | 4,867,724 | 1,108,834 | 1,166,561 | 898,697 | 1,133,617 | 192,205 | 9,367,638 | |||||||||||||||||||||
| Additions | 147,799 | — | 49,554 | — | (8,578 | ) | — | 188,775 | ||||||||||||||||||||
| Disposals | — | (35,000 | ) | (10,000 | ) | — | — | — | (45,000 | ) | ||||||||||||||||||
| September 30, 2023 | 5,015,523 | 1,073,834 | 1,206,115 | 898,697 | 1,125,039 | 192,205 | 9,511,413 | |||||||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||||||
| October 1, 2022 | 3,376,015 | 856,301 | 657,734 | 497,133 | 259,710 | 97,736 | 5,744,629 | |||||||||||||||||||||
Depreciation(1) | 916,022 | 104,296 | 336,380 | 132,598 | 156,690 | 49,341 | 1,695,327 | |||||||||||||||||||||
| September 30, 2023 | 4,292,037 | 960,597 | 994,114 | 629,731 | 416,400 | 147,077 | 7,439,956 | |||||||||||||||||||||
| Net book value | ||||||||||||||||||||||||||||
| September 30, 2023 | 723,486 | 113,237 | 212,001 | 268,966 | 708,639 | 45,128 | 2,071,457 | |||||||||||||||||||||
| 1 | Depreciation of $420,730 related to property and equipment is capitalized in development costs as they are used in development projects that are eligible for capitalization. |
Depreciation is included in the consolidated statement of loss as follows:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Cost of sales(1) | 270,806 | 214,828 | 157,819 | |||||||||
| Marketing and product management | 7 | 1,686 | 624 | |||||||||
| General and administrative expenses | 415,083 | 794,273 | 1,108,835 | |||||||||
| Research and development costs | 97,185 | 263,810 | 181,589 | |||||||||
| 783,081 | 1,274,597 | 1,448,867 | ||||||||||
| 1 | Depreciation recognized as an expense in cost of sales is included in Net income (loss) and comprehensive income (loss) from discontinued operations |
F-34
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 11. | Leases |
The Company has lease contracts for office premises and other equipment. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets.
Set out below are the carrying amounts of right-of-use assets recognized and the movements during the year:
| Office premises | Other equipment | Total | ||||||||||
| $ | $ | $ | ||||||||||
| September 30, 2022 | 5,881,811 | 10,563 | 5,892,374 | |||||||||
| Lease modification | (879,689 | ) | — | (879,689 | ) | |||||||
| Reassessment of the right-of-use assets | (888,426 | ) | — | (888,426 | ) | |||||||
Depreciation(1) | (938,071 | ) | (5,870 | ) | (943,941 | ) | ||||||
| September 30, 2023 | 3,175,625 | 4,693 | 3,180,318 | |||||||||
| Lease modification | 3,968 | — | 3,968 | |||||||||
| Reassessment of the right-of-use assets | (462,032 | ) | (4,398 | ) | (466,430 | ) | ||||||
Depreciation(1) | (810,500 | ) | — | (810,500 | ) | |||||||
| September 30, 2024 | 1,907,061 | 295 | 1,907,356 | |||||||||
| 1 | Depreciation of $294,942 ($362,005 in 2023 and $120,236 in 2022) related to right-of-use assets is capitalized in development costs as they are used in development projects that are eligible for capitalization. |
Set out below are the carrying amounts of lease liabilities and the movements during the years ended September 30:
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Balance, beginning of year | 3,781,233 | 6,579,103 | ||||||
| Additions | — | — | ||||||
| Lease modification | (214,057 | ) | (958,296 | ) | ||||
| Reassessment of the lease liability | (462,032 | ) | (888,426 | ) | ||||
| Accretion of interest | 300,424 | 401,229 | ||||||
| Gain on foreign exchange | 66,894 | (213,333 | ) | |||||
| Lease payments | (1,272,102 | ) | (1,139,044 | ) | ||||
| Balance, end of year | 2,200,360 | 3,781,233 | ||||||
| Current | 663,920 | 722,675 | ||||||
| Non-current | 1,536,440 | 3,058,558 | ||||||
F-35
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 11. | Leases (continued) |
Depreciation of right-of-use assets is included in the consolidated statement of loss as follows:
| Year ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Cost of sales(1) | 37,098 | 48,542 | 50,071 | |||||||||
| Marketing and product management | 66,686 | 5,778 | 11,303 | |||||||||
| Selling expenses | - | 5,526 | 11,247 | |||||||||
| General and administrative expenses | 408,752 | 455,932 | 237,596 | |||||||||
| Research and development costs | 3,022 | 66,158 | 300,724 | |||||||||
| 515,558 | 581,936 | 610,941 | ||||||||||
| 1 | Depreciation of right-of-use assets recognized as an expense in cost of sales is included in Net income (loss) and comprehensive income (loss) from discontinued operations |
The maturity analysis of lease liabilities based on contractual undiscounted payments is as follows:
| $ | ||||
| Less than 1 year | 855,207 | |||
| 1 to 5 years | 2,451,771 | |||
| More than 5 years | 948,059 | |||
| 4,255,037 | ||||
F-36
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 11. | Leases (continued) |
The following are the amounts recognized in net loss:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Depreciation expense of right-of-use assets (1) | 515,558 | 581,936 | 610,941 | |||||||||
| Interest expense on lease liabilities (2) | 300,424 | 401,229 | 551,291 | |||||||||
| Expense relating to short-term leases | — | — | 16,649 | |||||||||
| Expense relating to leases of low-value assets | — | — | 37,477 | |||||||||
| Variable lease payments | — | — | 2,805 | |||||||||
| Gain on foreign exchange | 66,894 | (213,333 | ) | (55,852 | ) | |||||||
| 882,876 | 769,832 | 1,163,311 | ||||||||||
| (1) | Depreciation of right-of-use assets of $37,098, $48,542 and $50,071 is included in Net income (loss) and comprehensive income (loss) from discontinued operations for the years ended September 30, 2024, 2023 and 2022 respectively. |
| (2) | Interest expense on lease liabilities includes for the year ended September 31, 2022, includes $33,116 of interest expense which is presented in the Net income (loss) and comprehensive income (loss) from discontinued operations. |
During the year, the Company entered into lease modifications for its Toronto, Montreal and Québec city locations, in order to cancel a renewal option, decrease of a lease term and reduce the rented square footage. As per the amendments, a gain on lease modification of $204,146 was recorded.
F-37
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 12. | Intangible assets |
| Patents | Licenses | Software | Development costs2 (not amortized) | Development costs (amortized) | Others | Total | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| September 30, 2023 | 3,450,455 | 1,186,337 | 575,719 | 43,267,013 | 1,808,860 | 94,810 | 50,383,194 | |||||||||||||||||||||
| Additions | 583,915 | — | — | 13,701,764 | — | — | 14,285,679 | |||||||||||||||||||||
| Borrowing costs(1) | — | — | — | 8,243,628 | — | — | 8,243,628 | |||||||||||||||||||||
| Write-off component (Note 7) | — | — | — | (3,720,042 | ) | — | — | (3,720,042 | ) | |||||||||||||||||||
| R&D tax credit (Note 25) | — | — | — | (346,580 | ) | — | — | (346,580 | ) | |||||||||||||||||||
| Grants (Note 23) | — | — | — | (13,713 | ) | — | — | (13,713 | ) | |||||||||||||||||||
| September 30, 2024 | 4,034,370 | 1,186,337 | 575,719 | 61,132,070 | 1,808,860 | 94,810 | 68,832,166 | |||||||||||||||||||||
| Accumulated amortization and impairment | ||||||||||||||||||||||||||||
| September 30, 2023 | 1,059,007 | 1,183,761 | 520,998 | — | 1,708,264 | 73,056 | 4,545,086 | |||||||||||||||||||||
| Amortization(3) | 391,012 | 2,576 | 32,110 | — | 100,596 | 5,222 | 531,516 | |||||||||||||||||||||
| Impairment (Note 6) | — | — | — | 58,185,884 | — | — | 58,185,884 | |||||||||||||||||||||
| September 30, 2024 | 1,450,019 | 1,186,337 | 553,108 | 58,185,884 | 1,808,860 | 78,278 | 63,262,486 | |||||||||||||||||||||
| Net book value | ||||||||||||||||||||||||||||
| September 30, 2024 | 2,584,351 | — | 22,611 | 2,946,186 | — | 16,532 | 5,569,680 | |||||||||||||||||||||
| 1 | The capitalization rates used to determine the amount of general borrowing costs eligible for capitalization during year ended September 30, 2024 was 22.8%. |
| 2 | The unamortized development costs are not yet available for use and amortization will begins when development is completed, and the asset is available for use. Such development costs are related to projects to develop and enhance the technology and capabilities with respect to autonomous driving and ADAS applications. |
| 3 | Depreciation of $273,584 ($117,535 in 2023 and $227,873 in 2022) related to intangible assets is capitalized in development costs as they are used in development projects that are eligible for capitalization. |
F-38
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 12. | Intangible assets (continued) |
| Patents | Licenses | Software | Development costs2 (not amortized) | Development costs (amortized) | Others | Total | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||
| October 1, 2022 | 2,321,660 | 2,610,533 | 575,719 | 68,117,368 | 1,808,860 | 94,810 | 75,528,950 | |||||||||||||||||||||
| Additions | 1,128,795 | — | — | 12,769,457 | — | — | 13,898,252 | |||||||||||||||||||||
| Borrowing costs(1) | — | — | — | 3,898,829 | — | — | 3,898,829 | |||||||||||||||||||||
| Write-offs(3) | — | (1,424,196 | ) | — | (40,993,947 | ) | — | — | (42,418,143 | ) | ||||||||||||||||||
| R&D tax credits (Note 24) | — | — | — | (256,234 | ) | — | — | (256,234 | ) | |||||||||||||||||||
| Grants (Note 22) | — | — | — | (268,460 | ) | — | — | (268,460 | ) | |||||||||||||||||||
| September 30, 2023 | 3,450,455 | 1,186,337 | 575,719 | 43,267,013 | 1,808,860 | 94,810 | 50,383,194 | |||||||||||||||||||||
| Accumulated amortization and impairment | ||||||||||||||||||||||||||||
| October 1, 2022 | 798,878 | 1,147,272 | 476,003 | 36,602,380 | 1,675,906 | 67,322 | 40,767,761 | |||||||||||||||||||||
| Amortization | 260,129 | 36,489 | 44,995 | 24,324 | 32,358 | 5,734 | 404,029 | |||||||||||||||||||||
| Impairment(3) | — | 1,424,196 | — | 4,367,243 | — | — | 5,791,439 | |||||||||||||||||||||
| Write-offs | — | (1,424,196 | ) | — | (40,993,947 | ) | — | — | (42,418,143 | ) | ||||||||||||||||||
| September 30, 2023 | 1,059,007 | 1,183,761 | 520,998 | — | 1,708,264 | 73,056 | 4,545,086 | |||||||||||||||||||||
| Net book value | ||||||||||||||||||||||||||||
| September 30, 2023 | 2,391,448 | 2,576 | 54,721 | 43,267,013 | 100,596 | 21,754 | 45,838,108 | |||||||||||||||||||||
| 1 | The capitalization rate used to determine the amount of general borrowing costs eligible for capitalization during the year ended September 30, 2023 was 17%. |
| 2 | Including $43,267,013 not yet available for use for which amortization begins when development is completed, and the asset is available for use. Such development costs are related to projects to develop and enhance the technology and capabilities with respect to autonomous driving and ADAS applications. |
| 3 | During the fiscal year 2023, an impairment expense amounting to $5,791,439 was recognized: |
| i. | During the first quarter of 2023, the Company reviewed its September 30,2022 transition plan resulting in certain development costs and licenses no longer expected to be used. Consequently, certain intangible assets were no longer expected to be used and the test was performed at the asset level. These assets had a carrying amount of $5,791,439 and were completely written-off, resulting in an impairment expense of the same amount, including the license related to the development of Components technology projects for $1,424,196; |
| ii. | The Company performs an annual impairment test for its goodwill and intangible assets not yet available through the assessment of the recoverable amount of the CGU to which they belong. The CGU selected for impairment testing was identified based on the level at which goodwill is monitored for internal management purposes, and to which the intangible assets not yet available for use pertain; and |
The recoverable amount of the CGU is determined based on the higher of its value-in-use and fair value less costs to sell. The value-in-use is calculated using discounted cash flow projections, taking into consideration management’s best estimates of future cash flows, growth rates, and appropriate discount rates. The discount rate of 33.65% is based on an estimated weighted average cost of capital (“WACC”) for the Company, adjusted to reflect the risks related to the projected cash flows of the CGU.
The recoverable amount of the CGU, including goodwill and intangible assets not yet available for use, exceeds its carrying amount. The model is particularly sensitive to the future expected cash flows in the upcoming periods, should these not be realized, an impairment loss may be needed in future periods.
F-39
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 12. | Intangible assets (continued) |
Amortization is included in the consolidated statement of loss as follows:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| General and administrative expenses | — | 52,160 | 127,764 | |||||||||
| Research and development costs | 257,932 | 234,334 | 129,300 | |||||||||
| 257,932 | 286,494 | 257,064 | ||||||||||
During the year ended September 30, 2022, the Company recorded an impairment loss of $38,207,503. The impairment loss was recorded as a result of the Company’s transition into an automotive software business model. Certain intangible assets were no longer expected to be used, and the test was performed at the asset level. The assets had a carrying value of $7,975,234 and were completely written off resulting in an impairment expense of the same amount. Certain intangible assets within the CGU were still expected to be used but their recoverable amount ($2,233,781) was determined to be less than their related carrying value ($32,466,050). Consequently, an impairment loss of $30,232,269 was recognized. The value in use of these assets were determined to be higher than the fair value less cost of disposal, hence corresponding to the recoverable amount. The value in use is based on the net present value of the future cash flows expected to arise from a potential license agreement, discounted at a rate of 27.5%. The discount rate is based on an estimated weighted average cost of capital (“WACC”) for the Company, adjusted to reflect the risks related to the projected cash flows of these assets. The model is particularly sensitive to the future expected cash flows in the upcoming periods, should these not be realized, an impairment loss may be needed in future periods.
| 13. | Accounts payable and accrued liabilities |
| As at September 30, | ||||||||
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Trade payables and accrued liabilities | 7,494,326 | 6,466,196 | ||||||
| Salaries and fringe benefits | 4,706,033 | 5,757,652 | ||||||
| Interest payable on credit facility | 903,901 | 221,247 | ||||||
| Deferred revenue (Note 7) | 474,380 | 1,104,229 | ||||||
| Others | 308,629 | 21,581 | ||||||
| 13,887,269 | 13,570,905 | |||||||
F-40
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 14. | Provisions |
The following table details the changes in provisions between September 30, 2024 and 2023:
| Onerous contracts | ||||
| $ | ||||
| Balance, as at September 30, 2022 | — | |||
| New provisions | 1,652,216 | |||
| Revision of estimations | (287,021 | ) | ||
| Provisions utilized | (487,051 | ) | ||
| Balance, as at September 30, 2023 | 878,144 | |||
| Revision of estimations | (8,736 | ) | ||
| Provisions utilized | (869,408 | ) | ||
| Balance, as at September 30, 2024 | — | |||
F-41
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt |
The following table details the maturities and weighted average interest rates related to long-term debt as at September 30, 2024 and 2023:
| Final | Weighted average effective interest rate | September 30, 2024 | September 30, 2023 | |||||||||||||
| maturity | % | $ | $ | |||||||||||||
| Convertible loan (a) | 2028 | 23.36 | 40,309,902 | 11,258,950 | ||||||||||||
| Credit facility (b) | 2026 | 14.12 | 28,229,902 | 28,747,705 | ||||||||||||
| Term loan | 2030 | 33.65 | 10,767,007 | 7,718,928 | ||||||||||||
| Non-convertible bridge loan (c) | 2024 | 155.04 | 3,059,996 | — | ||||||||||||
| Convertible bridge loan (c) | 2024 | — | 6,853,623 | — | ||||||||||||
Total debt | 27.45 | 89,220,430 | 47,725,583 | |||||||||||||
| Bridge loans | 9,913,619 | — | ||||||||||||||
| Long-term debt | 79,306,811 | 47,725,583 | ||||||||||||||
| a) | Convertible loan |
On June 12, 2023, concurrently with the execution of the BCA described in Note 4, LeddarTech entered into a subscription agreement (the “Subscription Agreement”) with certain investors, including investors who subsequently joined the Subscription Agreement (the “PIPE Investors”), pursuant to which the PIPE Investors agreed to purchase secured convertible notes of LeddarTech (the “PIPE Convertible Notes”) in an aggregate principal amount of at least US$43.0 million (the “PIPE Financing”).
The PIPE Convertible Notes are denominated in US Dollars with a term of 60 months after issuance of Tranche B. They bear interest at a rate of 12% compounded annually and added to the principal amount of the notes. The PIPE Convertible Notes include a conversion option allowing the holders of the PIPE Convertible Notes, at any time before maturity, to convert the outstanding principal amount into Common Shares using a conversion price of US$10.00 per Common Share.
PIPE Investors in certain tranches of the PIPE Convertible Notes received at the time of issuance of such notes warrants to acquire Class D-1 preferred shares of LeddarTech (the “Class D-1 Preferred Shares” and the warrants, the “PIPE Warrants”) exercisable at the cost of US$0.01 per share.
The PIPE Convertible Notes are secured by a hypothec in the amount of US$60,000,000 over the universality of the Company’s movable assets, present and future, ranking after the security of Credit Facility (Note 15b)). The Agreement contains customary covenants that provide for, among other things, limitations on indebtedness and fundamental changes and reporting requirements.
The PIPE Convertible Notes represent a hybrid financial instrument with a conversion option requiring separation. The debt host portion (the “Host”) of the instrument is classified at amortized cost, whereas the conversion option embedded derivative is classified at fair value through profit and loss (“FVTPL”).
F-42
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt (continued) |
Host Amortized cost | Conversion option FVTPL | PIPE Warrants FVTPL | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance, October 1, 2022 | - | - | - | - | ||||||||||||
| Issuance of Tranche A-1 and 595,650 warrants | 9,982,830 | 704,677 | 18,269,759 | 28,957,266 | ||||||||||||
| Issuance of Tranche A-2 and 9,354 warrants | 158,277 | 12,197 | 278,685 | 449,159 | ||||||||||||
| Exercise of warrants | - | - | (18,548,444 | ) | (18,548,444 | ) | ||||||||||
| Interest accretion | 1,067,932 | - | - | 1,067,932 | ||||||||||||
| Fair value adjustment | - | 21,100 | - | 21,100 | ||||||||||||
| Foreign exchange | 49,911 | - | - | 49,911 | ||||||||||||
| Balance, September 30, 2023 | 11,258,950 | 737,974 | - | 11,996,924 | ||||||||||||
| Issuance of Tranche B-1 and 24,322 warrants | 2,539,580 | 962,726 | 2,059,081 | 5,561,387 | ||||||||||||
| Issuance of Tranche B-2 | 19,605,580 | 3,985,230 | - | 23,590,810 | ||||||||||||
| Exercise of warrants | - | - | (2,059,081 | ) | (2,059,081 | ) | ||||||||||
| Interest accretion | 7,814,332 | - | - | 7,814,332 | ||||||||||||
| Exercise of conversion option | (1,049,482 | ) | (207 | ) | - | (1,049,689 | ) | |||||||||
| Fair value adjustment | - | (5,679,715 | ) | - | (5,679,715 | ) | ||||||||||
| Foreign exchange | 141,077 | - | - | 141,077 | ||||||||||||
| Balance, September 30, 2024 | 40,310,037 | 6,008 | - | 40,316,045 | ||||||||||||
The PIPE Convertible Notes and Warrants were issued in tranches. Upon issuance of each tranche, the proceeds were initially allocated to the warrants, when applicable, and conversion option. The carrying amount of the debt is then initially determined by deducting the transaction fees and the fair value of the conversion option and warrants from the proceeds received. Transaction fees of $529,047 were incurred in relation to the PIPE Convertible Notes and Warrants. The fees were allocated in proportion of the amount of each tranche, then further allocated based on the relative value of each component. For the year ended September 30, 2024, $345,394 was recognized as a reduction of the PIPE Convertible Notes (2023 - $92,583) and $125,462 was recognized in net loss under Transaction costs (2023 - $171,940).
F-43
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt (continued) |
The fair value of the conversion option embedded derivative and the warrants were determined using the Black-Scholes option pricing model and the following assumptions that are Level 3 inputs:
| 2024 | ||||||||||||
| Tranche B-1 | Tranche B-2 | |||||||||||
| Conversion option | Warrants | Conversion option | ||||||||||
| Fair value of the underlying share | US$4.74 | US$61.09 | US$4.74 | |||||||||
| Exercise price | US$10.00 | US$0.01 | US$10.00 | |||||||||
| Risk-free interest rate | 4.05 | % | 4.89 | % | 3.23 | % | ||||||
| Expected volatility | 60 | % | 60 | % | 60 | % | ||||||
| Expected life | 5.00 years | 0.04 years | 5.00 years | |||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
| Fair value | $ | 2.37 | $ | 84.65 | $ | 2.22 | ||||||
| 2023 | ||||||||||||||||
| Tranche A-1 | Tranche A-2 | |||||||||||||||
| Conversion option | Warrants | Conversion option | Warrants | |||||||||||||
| Fair value of the underlying share | US$1.67 | US$22.92 | US$1.75 | US$22.60 | ||||||||||||
| Exercise price | US$10.00 | US$0.01 | US$10.00 | US$0.01 | ||||||||||||
| Risk-free interest rate | 3.64 | % | 4.66 | % | 3.92 | % | 4.81 | % | ||||||||
| Expected volatility | 60 | % | 60 | % | 60 | % | 60 | % | ||||||||
| Expected life | 5.00 years | 0.04 years | 5.00 years | 0.04 years | ||||||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Fair value | $ | 0.33 | $ | 30.56 | $ | 0.36 | $ | 29.79 | ||||||||
F-44
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt (continued) |
The fair value of the conversion option embedded derivative at year end were determined using the Black-Scholes option pricing model and the following assumptions:
| 2024 | 2023 | |||||||
| Fair value of the underlying share | US$0.30 | US$1.75 | ||||||
| Exercise price | US$10.00 | US$10.00 | ||||||
| Risk-free interest rate | 2.73 | % | 4.25 | % | ||||
| Expected volatility | 60 | % | 60 | % | ||||
| Expected life | 3.71 years | 4.71 years | ||||||
| Dividend yield | 0 | % | 0 | % | ||||
| Fair value | $ | 0.001 | $ | 0.33 | ||||
| b) | Amendments to the Credit Facility |
A series of amendments were made to the Credit Facility on October 13, 2023, October 20, 2023, October 31, 2023, December 8, 2023, July 5, 2024, July 26, 2024, August 5, 2024 and August 16, 2024. These amendments modify the existing terms in order to (i) extend the latest date on which the Tranche B of the SPAC Offering must be funded to December 22, 2023, (ii) extend the date on which the payment of interest for the months of October and November 2023 may be made, (iii) reduce the gradually the Available Cash requirement from $5.0 million at all times after the DE-SPAC date to $250,000 until August 14, 2024. and (iv) to increase the aggregate principal amount of the PIPE financing to a minimum of $44,000,000.
In conjunction with the Credit Facility October 2023 Amendments, the Company issued warrants to purchase Company Common Shares at $0.01 per share, which warrants will be assumed by the Company and exercisable for 250,000 Company Common Shares at $0.01 per share.
The warrants may be exercised, in whole or in part, for a period of five years following completion of the Business Combination and will be subject to a lock-up with one third being released four months after closing, another third being released eight months after closing and the final third being released 12 months after closing.
The warrants were recorded as a reduction of the Credit Facility, with a corresponding increase in Reserve – Warrants in Equity of $1,643,714.
During the year ended September 30, 2024, 250,000 common shares were issued following the exercise of those warrants on May 28, 2024. The corresponding balance in Reserve – Warrants in Equity of $1,643,714 was reclassified to Capital Stock.
Following the latest amendments to the Credit Facility, the payments of interest for the month of July 2024 to October 2024 are postponed to the earlier of the Short-Term Outside date and November 15, 2024.
F-45
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt (continued) |
The Company must pay a monthly fee of $125,000 per month starting July 5th, 2024 until the Short-Term Outside Date. The payment of the monthly fees applicable for the month of August 2024 and for the months up until (and including) the earlier of (i) the Short-Term Outside Date and (ii) November 15, 2024 will be due at the earlier date of (i) the Short-Term Outside Date and (ii) November 15, 2024. Following the Short-Term Outside Date and until the Borrower provides Desjardins with a recapitalization plan in form and substance satisfactory to Desjardins, a monthly fee in the amount of $75,000 will be earned and payable on the first day of each month.
| c) | Bridge loans |
In August 2024, LeddarTech closed a bridge financing in an aggregate principal amount of US$9.0 million (the “Bridge Loans”) issuable in two tranches. Tranche 1 of the Bridge Loan was issued in August 2024 at a discount of 25% for an aggregate amount of US$6,222,667, of which US$4,222,667 is convertible (the “Convertible Bridge Loan”) and US$2,000,000 is not convertible (the “Non-Convertible Bridge Loan”).
The Company also received in August 2024, additional Bridge Loans in an aggregate amount of approximately US$334,000 from certain members of management and the board of directors (collectively).
The Bridge Loans are denominated in US Dollars and repayable at maturity on November 15, 2024. The Bridge Loans bear interest at US base rate +4% calculated on the discounted balance, compounded monthly and added to the principal amount.
The Convertible Bridge Loan includes the following material conversion and settlement options available to the holder:
| ● | Maturity conversion option: The holder of the Convertible Bridge Loan can convert at maturity the outstanding principal amount into Common Shares using a conversion price of $5.00 per Common Share. |
| ● | Automatic conversion: Upon an offering on the Nasdaq Global Market for aggregate gross proceeds of US$35,000,000 or more, the outstanding principal amount will automatically be converted into securities of such offering with a value equivalent to 112.5% of the outstanding principal amount. |
| ● | Optional conversion: Upon an offering on the Nasdaq Global Market for aggregate gross proceeds of less than US$35,000,000, the holder of the Convertible Bridge Loan can convert the outstanding principal amount into securities of such offering with a value equivalent to 112.5% of the outstanding principal amount. |
| ● | The Convertible Bridge Loan also includes redemption mechanisms in the event of a change of control or an event of default. |
Upon any offering on the Nasdaq Global Market, the Company is required to repay immediately the Non-Convertible Bridge Loan. The Non-Convertible Bridge Loan is classified at amortized cost.
F-46
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 15. | Bridge loans and long-term debt (continued) |
The Convertible Bridge Loan represent a hybrid financial instrument with embedded derivatives requiring separation. The Company has elected to classify the entire instrument at fair value through profit and loss (“FVTPL”).
Transaction fees of $115,355 were incurred in relation to the Bridge Loan. The fees were allocated in proportion of the amount of the Convertible Bridge Loan and the Non-Convertible Bridge Loan. For the year ended September 30, 2024, $37,076 was recognized as a reduction of the Non-Convertible Bridge Loan and $78,279 was recognized in net loss under Transaction costs.
| Non-Convertible Bridge Loan Amortized cost | Convertible Bridge Loan FVTPL | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Balance, October 1, 2023 | - | - | - | |||||||||
| Issuance of Tranche 1 | 2,613,300 | 5,714,630 | 8,327,930 | |||||||||
| Interest accretion | 477,776 | - | 477,776 | |||||||||
| Fair value adjustment | - | 1,201,172 | 1,201,172 | |||||||||
| Foreign exchange | (31,080 | ) | (62,179 | ) | (93,259 | ) | ||||||
| Balance, September 30, 2024 | 3,059,996 | 6,853,623 | 9,913,619 | |||||||||
F-47
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 16. | Warrant liability |
| As at September 30, 2024 | ||||||||
| Number | $ | |||||||
| Public and Private Warrants | 16,049,080 | 578,446 | ||||||
| Vesting Sponsor Warrants | 1,416,670 | 51,060 | ||||||
| 17,465,750 | 629,506 | |||||||
Upon close of the acquisition of Prospector, the Company assumed through the Transactions, public warrants, private warrants and vesting sponsor warrants (“Public Warrants”, “Private Warrants” and “Vesting Sponsor Warrants”, collectively “the Prospector Warrants”) in connection with the BCA and plan of arrangement (Note 4).
The Warrants each entitle their holders to purchase one common share at an exercise price of US$11.17 per common share, which is variable in $CDN. Accordingly, they are classified as a liability rather than equity as the Warrants do not meet the ‘fixed for fixed’ requirement. The Public and Private Warrants are exercisable and will expire on December 21, 2030. The Vesting Sponsor Warrants are identical to the Public and Private Warrants, except that the Vesting Sponsor Warrants will be deemed vested in equal thirds upon the volume weighted average price of the common shares exceeding US$12.00, US$14.00 and US$16.00, respectively, for any 20 trading days within any consecutive 30 trading day period commencing at least 150 days following the closing. None of the Vesting Sponsor Warrants are redeemable by the Company.
The Warrants were initially recorded at their fair value (Note 28). The fair value of the Warrants is reassessed at the end of each reporting period with subsequent changes in fair value recognized through profit or loss. The Public Warrants are considered a level 1 financial instrument as the valuations at the end of each reporting period are based on the trading price of the Public Warrants on the Nasdaq, which are quoted and observable market prices. The Private Warrants are a level 2 financial instrument, as the valuations are based on the quoted and observable market prices of the Public Warrants. The Vesting Sponsor Warrants are a level 3 financial instrument, as the valuations are based on the quoted and observable market prices of the Public Warrants but also unobservable data.
The following table details the changes in warrant liability between December 21, 2023 and September 30, 2024:
| Warrant liability | ||||
| $ | ||||
| Balance, as at December 21, 2023 (issuance date) | 1,746,575 | |||
| Revaluation of warrant liability | (1,117,069 | ) | ||
| Balance, as at September 30, 2024 | 629,506 | |||
F-48
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 17. | Government grant liabilities |
As at the acquisition date of Vayavision, a government grant liability of $420,000 was recognized at its fair value. Prior to the acquisition, Vayavision obtained an innovation grant from the Israeli Innovation Authority (“IIA”) in the amount of $1.5 million (NIS4 million) to support the development of the technology. The liability is repaid in the form of a royalty payment calculated [annually] at 3% of sales of Vayavision products developed using the funds provided by the IIA. The government grant liability bears an annual interest rate based on SOFR as published by the Bank of Israel.
After initial recognition, the liabilities are measured at amortized cost using the effective interest method. The effective interest rate is 30.3%.
Assumptions underlying grant repayments are reviewed at least annually. As at September 30, 2024, the Company revised the estimated repayment schedule, taking into account updated assumptions and data. This resulted in an accretion gain of $252,874 (2022 – accretion gain of $74,335), which was included in Financial costs, net (Note 24).
As at September 30, 2024, the Company also has a government grant liability of $567,922 (US$420,715) related to the repayment of a grant received by Vayavision from Israel-United States Binational Industrial Research and Development (“BIRD”) Foundation to support the development of the technology with a partner ($568,807 or US$420,715 as at September 30, 2023). The total amount received by Vayavision is repayable through royalties of 5% of sales of Vayavision products developed through the funds provided by BIRD, adjusted for certain index, and it is non-interest bearing. Obligations under the grant agreement with BIRD are jointly and severally assumed by Vayavision and its partner in the development project.
As a result of a default event occurred during the first quarter of 2023, the Company reclassified, as of December 31, 2022, the BIRD government grant liability as a short-term liability since the Company is now considering the amounts received as refundable grant are due within the next twelve months.
| $ | ||||
| Balance, as at September 30, 2023 | 1,468,296 | |||
| Accretion interest expense | 271,088 | |||
| Gain on remeasurement due to change in forecast | (86,305 | ) | ||
| Foreign exchange gain | (34,736 | ) | ||
| Balance, as at September 30, 2024 | 1,618,343 | |||
| Current | 829,216 | |||
| Non-current | 789,127 | |||
F-49
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 18. | Capital stock |
The Company is authorized to issue an unlimited number of common shares, without par value, an unlimited number of Class A Non-Voting Special Shares, Class B Non-Voting Special Shares, Class C Non-Voting Special Shares, Class D Non-Voting Special Shares, Class E Non-Voting Special Shares and Class F Non-Voting Special Shares and an unlimited number of preferred shares issuable in series.
Following the consummation of the Business Combination, there were approximately (i) 28,770,930 Common Shares outstanding; (ii) 2,031,250 Class A Non-Voting Special Shares outstanding, (iii) 999,963 Class B Non-Voting Special Shares outstanding, (iv) 999,963 Class C Non-Voting Special Shares outstanding, (v) 999,963 Class D Non-Voting Special Shares outstanding, (vi) 999,963 Class E Non-Voting Special Shares outstanding, (vii) 999,963 Class F Non-Voting Special Shares outstanding, and (viii) no preferred shares outstanding.
Common shares
| Number of Shares | Amount $ | |||||||
| Balance, as at September 30, 2023 | 167,610 | 9,894,326 | ||||||
| Issuance of common shares upon exercise of the call option | 66,550 | 57,724 | ||||||
| Class A, B, C, D-1 and D-2 preferred shares exchange for common shares | 239,766,119 | 444,410,959 | ||||||
| Common shares converted per business combination | (240,000,279 | ) | (454,361,009 | ) | ||||
| Issuance of new common shares per business combination | 20,000,000 | 454,361,009 | ||||||
| Issuance to Prospector shareholders (Note 4) | 8,770,930 | 55,257,187 | ||||||
| Issuance of common shares | 1,432,746 | 3,453,569 | ||||||
| Balance, as at September 30, 2024 | 30,203,676 | 513,073,765 | ||||||
Issuance of common shares
During the year ended September 30,2024, 682,685 Common Shares were issued following the exercise of warrants (Note 15), the exercise of RSU (Note 19), in connection with the BCA (Note 19) and in connection with the Standby Equity Purchase Agreement.
Standby Equity Purchase Agreement
On April 8, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”) for a period of 3 years, or on the date on which the Investor shall have made payment pursuant to the Commitment Amount. Pursuant to the SEPA, assuming satisfaction of certain conditions and subject to the limitations set forth in the SEPA, the Company will have the right from time to time, but not the obligation, to issue and sell to Yorkville up to $50.0M (the “Commitment Amount”) of its common shares. The Company may also require Yorkville to purchase Common share under the SEPA up to 500,000 Shares of Common Stock. The Company also agreed to pay Yorkville a commitment fee equal to 0.75% of the Commitment Amount.
F-50
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 18. | Capital stock (continued) |
Standby Equity Purchase Agreement (continued)
During the three months ended June 30, 2024,166,696 common shares were issued to cover the commitment fee.
Exercise of call option
As of November 1, 2023, the Company exercised its call option to acquire its remaining participation in Vayavision. Per the original Share Purchase Agreement (“SPA”) conditions, the purchase of the Vayavision of Common shares was paid in exchange of Common Shares of the Company, based on a determined ratio and already detailed in the SPA.
This transaction resulted in an increase in the Company’s interest in Vayavision from 60.0% to 100.0% and was accounted for as an equity transaction. The purchase price of $57,724 was equity-settled. As a result, the carrying value of (i) non-controlling interests of $9,508,328 and (ii) the related other component of equity of $2,431,688 were reversed leading to a reduction of deficit of $7,134,364.
Special Shares
Upon close of the acquisition of Prospector, the Company issued through the Transactions, 2,031,250 Class A Non-Voting Special Shares having a value of $10,115,625 to Prospector Sponsor in connection with the BCA and plan of arrangement (Note 4).
The Class A Non-Voting Special Shares will vest and convert into common shares, in equal thirds upon the volume weighted average price of the common shares exceeding US$12.00, US$14.00 and US$16.00, respectively, for any 20 trading days within any consecutive 30 trading day period commencing at least 150 days following the closing.
On December 21, 2023, LeddarTech shareholders were issued 4,999,815 Earnout Non-Voting Special Shares of an aggregate fair value of $22,960,000 consisting of the following:
| ● | 999,963 Class B Non-Voting Special Shares all of which shall automatically convert to an equal number of Common Shares if (y) on any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period commencing at least one hundred and fifty (150) days following the Closing Date, the Common Shares achieve a VWAP of greater than $12.00; or (z) there occurs any Change of Control Transaction with a valuation of the Common Shares that is greater than $12.00 per Common Share; |
| ● | 999,963 Class C Non-Voting Special Shares all of which shall automatically convert to an equal number of Common Shares if (y) on any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period commencing at least one hundred and fifty (150) days following the Closing Date, the Common Shares achieve a VWAP of greater than $14.00 or (z) there occurs any Change of Control Transaction with a valuation of the Common Shares that is greater than $14.00 per Common Share; |
F-51
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 18. | Capital stock (continued) |
Special Shares (continued)
| ● | 999,963 Class D Non-Voting Special Shares all of which shall automatically convert to an equal number of Common Shares if (y) on any twenty (20) Trading Days within any thirty (30) consecutive Trading Day period commencing at least one hundred and fifty (150) days following the Closing Date, the Common Shares achieve a VWAP of greater than $16.00 or (z) there occurs any Change of Control Transaction with a valuation of the Common Shares that is greater than $16.00 per Common Share; |
| ● | 999,963 Class E Non-Voting Special Shares all of which shall automatically convert to an equal number of Common Shares if (y) the Company enters into its first customer contract with an OEM (or with a Tier-1 who has a contract with an OEM and meets the same conditions) that represents a design win for the Company for an OEM series production vehicle that will create at least 150,000 units a year in volume for its fusion and perception products or (z) there occurs any Change of Control Transaction with a valuation of the Common Shares that is greater than $10.00 per Common Share; and |
| ● | 999,963 Class F Non-Voting Special Shares all of which shall automatically convert to an equal number of Common Shares if (y) the Company (i) sends out its first undisputed invoice for payment for product delivery for OEM installation against a contract with an OEM (or with a Tier-1 who has a contract with an OEM) needing in excess of 150,000 units a year in volume for its fusion and perception products and (ii) appropriately books that invoice as revenue in accordance with IFRS requirements or (z) there occurs any Change of Control Transaction with a valuation of the Common Shares that is greater than $10.00 per Common Share. |
The Earnout Non-Voting Special Shares are valued at per share amounts ranging from $3.78 (US$2.84) to $5.22 (US$3.93) based on option pricing models that considers the vesting terms of the instruments issued and the following weighted average assumptions:
| Fair value of the underlying share | US$4.74 | |||
| Exercise price | — | |||
| Risk-free interest rate | 3.23 | % | ||
| Expected volatility | 60 | % | ||
| Expected life | 7.00 years | |||
| Dividend yield | 0 | % | ||
F-52
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 18. | Capital stock (continued) |
As at September 30, 2024, the following shares were issued and outstanding:
| Number of Shares | Amount $ | |||||||
| Common shares | 30,203,676 | 513,073,764 | ||||||
| Class A Non-Voting Special Shares | 2,031,250 | 10,115,625 | ||||||
| Class B Non-Voting Special Shares | 999,963 | 5,220,000 | ||||||
| Class C Non-Voting Special Shares | 999,963 | 4,970,000 | ||||||
| Class D Non-Voting Special Shares | 999,963 | 4,740,000 | ||||||
| Class E Non-Voting Special Shares | 999,963 | 4,250,000 | ||||||
| Class F Non-Voting Special Shares | 999,963 | 3,780,000 | ||||||
| 37,234,741 | 546,149,389 | |||||||
| 19. | Stock-based compensation |
M-option
Preceding closing of the acquisition of Prospector (Note 4), pursuant to the Plan of Arrangement, each of 12,577 M-Options have been exchanged for an option to purchase one common shares of the Company.
The replacement options have an exercise price of $0.01. The M-option redemption feature was not carried to the replacement option and as a result, the replacement options are classified as equity.
Upon replacement of the award, the fair value of the option of $117,246 was recognized in reserve – stock option and the redeemable stock option liability of $6,102,496 was reversed, resulting in a gain on modification of stock options of $5,985,250 in the consolidated statement of loss.
Stock-based compensation related to the BCA
On May 1st, 2023, the Company entered into an agreement with a service provider regarding the BCA described in note 4. The agreement implies, upon the completion of the BCA, a transaction fee payable in exchange of a number of common shares of the Company equivalent to US$700,000. During the first quarter of 2024, a portion ($506,774) of the transaction fee was recognized as transaction costs in the Consolidated statement of loss, with a counterparty in Other components of equity.
During the year ended September 30, 2024, 198,684 common shares were issued in conjunction with this agreement to settle a transaction fee payable. As a result, an amount of $615,057 was reclassified from Other components of equity to Capital Stock and an amount of $329,217 was reclassified from Other components of equity to contributed surplus.
F-53
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 19. | Stock-based compensation (continued) |
Equity Incentive Plan
Immediately prior to the acquisition of Prospector, the Company adopted an Equity Incentive Plan (the “Plan”) for certain qualified directors, executive officers, employees and consultants. This Plan continues in full force and effect as the Company equity incentive plan following the Company Amalgamation. The number of shares available for issuance under the Plan shall not exceed at any time 5,000,000 shares.
The Plan provide for the grant of unvested Company Common Shares, (i) share options (“options”), (ii) restricted share units (“RSUs”), (iii) deferred share units (“DSUs”) and (iv) performance share units (“PSUs”). Various vesting conditions may apply to each award and may include continued service, performance and/or other conditions.
Following the adoption of the new equity incentive and the grants of the first awards of this Plan, the Company closed off the reserve stock option balance related to the previous equity incentive plan, in the deficit.
(i) Options
The Company has a stock option plan as part of the incentive plan in which options to purchase common shares are issued to officers and key employees. Under this plan the options will vest between the grant date and March 2028.
Options are expensed over the vesting period. The related compensation expense is included in the stock-based compensation expense.
For the year ended September 30, 2024, movements in outstanding options were as follow:
| Number of stock options | Exercise price(1) $ | |||||||
| Balance, as at September 30, 2023 | — | — | ||||||
| Granted | 1,438,600 | 2,84 | ||||||
| Balance, as at September 30, 2024 | 1,438,600 | 2,84 | ||||||
| (1) | Weighted average exercise price |
The compensation expense with respect to the Options plan amount to $1,723,475.
(ii) RSUs
The Company has an RSU as part of the incentive plan for management and key employees. Under this plan, RSUs will vest between the grant date and March 2028 to employees who are still employed by the Company on the exercise date.
RSUs are expensed on an earned basis. The related compensation expense is included in stock-based compensation expense.
F-54
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 19. | Stock-based compensation (continued) |
(ii) RSUs (continued)
For the year ended September 30, 2024, movements in outstanding RSUs were as follow:
| Year ended September 30, 2024 Number of units | ||||
| Balance, as at September 30, 2023 | — | |||
| Granted | 1,820,892 | |||
| Forfeited | (147,598 | ) | ||
| Exercised | (67,125 | ) | ||
| Balance, as at September 30, 2024 | 1,606,169 | |||
The compensation expense with respect to the RSU plan amounts to $2,993,869
During the year ended September 30, 2024, 67,125 RSU were exercised and converted into a corresponding number of common shares.
(iii) PSUs
The Company has a PSU plan as part of the incentive plan for management and key employees. Under this plan, PSUs generally vest over a period of four years to employee who are still employed by the Company on the exercise date.
PSUs are expensed on an earned basis. The related compensation expense is included in stock-based compensation expense.
For the year ended September 30, 2024, movements in outstanding PSUs were as follow:
| Year ended September 30, 2024 Number of units | ||||
| Balance, as at September 30, 2023 | — | |||
| Granted | 733,080 | |||
| Balance, as at September 30, 2024 | 733,080 | |||
The compensation expense with respect to the PSU plan amounts to $1,290,763
F-55
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 19. | Stock-based compensation (continued) |
(iv) Warrants
The Company has a Warrants plan as part of the incentive plan for management and key employees. Under this plan, Warrant generally vests immediately to the directors who are still employed by the Company on the exercise date.
Warrants are expensed on an earned basis. The related compensation expense is included in stock-based compensation expense.
For the year ended September 30, 2024, movements in outstanding Warrants were as follow:
| Year ended September 30, 2024 Number of units | ||||
| Balance, as at September 30, 2023 | — | |||
| Granted | 449,013 | |||
| Balance, as at September 30, 2024 | 443,013 | |||
The compensation expense with respect to the Warrants plan amounts to $2,011,408
(v) Total stock-based compensation expense
The total stock-based compensation expense has been included in the consolidated statement of loss as indicated in the following table:
| 2024 | 2023 | 2022 | ||||||||||
| Stock options | 1,723,475 | — | — | |||||||||
| Restricted share units (RSUs) | 2,993,869 | — | — | |||||||||
| Performance share units (PSUs) | 1,290,763 | — | — | |||||||||
| Warrants | 2,011,408 | — | — | |||||||||
| Gain on modification of stock options | (5,985,250 | ) | — | — | ||||||||
| ESOP, equity-settled | — | 2,474,955 | 3,223,540 | |||||||||
| Vayavision call option, equity-settled | — | 603,051 | 1,693,517 | |||||||||
| Reserve stock options movement | 2,034,265 | 3,078,006 | 4,917,057 | |||||||||
| M-Options, cash settled | — | — | (317,663 | ) | ||||||||
| Capitalized as development costs | (318,753 | ) | (641,032 | ) | (326,721 | ) | ||||||
| Total stock-based compensation expenses | 1,715,512 | 2,436,974 | 4,272,673 | |||||||||
F-56
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 20. | Operating expenses |
Operating expenses by nature include the following:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
(Recasted-Note 7) | (Recasted-Note 7) | |||||||||||
| Employee benefit expenses | 16,222,815 | 21,663,997 | 30,088,677 | |||||||||
| Stock-based compensation | 1,715,512 | 2,436,974 | 4,272,673 | |||||||||
| Research costs | 2,201,697 | 3,313,386 | 1,985,042 | |||||||||
| Impairment loss related to intangible assets | 69,315,247 | — | 38,207,503 | |||||||||
| Marketing expenses | 684,547 | 917,970 | 917,223 | |||||||||
| Selling expenses | 32,740 | 62,965 | 299,382 | |||||||||
| Depreciation of property and equipment | 512,275 | 1,059,769 | 1,291,048 | |||||||||
| Product line management expenses | 11,418 | 3,919 | 47,965 | |||||||||
| Recruitment fees | 152,489 | 377,679 | 780,126 | |||||||||
| Professional fees | 5,415,402 | 6,763,019 | 3,852,140 | |||||||||
| Other expenses | 2,267,706 | 2,010,929 | 1,176,515 | |||||||||
| Subcontractor services | 2,220,592 | 1,331,573 | 1,980,500 | |||||||||
| Travel expenses | 494,763 | 754,869 | 470,494 | |||||||||
| Amortization of intangible assets | 257,932 | 286,494 | 257,064 | |||||||||
| Insurance | 1,453,193 | 373,251 | 373,311 | |||||||||
| Research and development tax credits | (176,856 | ) | (225,609 | ) | (70,191 | ) | ||||||
| Depreciation expense on right of use assets | 478,460 | 508,556 | 547,658 | |||||||||
| Business acquisition costs | 2,407,977 | 3,506,630 | — | |||||||||
| Listing expense | 59,139,572 | — | — | |||||||||
| 164,807,481 | 45,146,371 | 86,477,130 | ||||||||||
F-57
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 21. | Loss per share |
Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of common shares outstanding.
The following table reflects the calculation of net loss attributable to equity holders of the parent and the computation of basic and diluted loss per share for the periods indicated:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
(Recasted-Note 7) | (Recasted-Note 7) | |||||||||||
| Loss from continuing operations attributable to equity holders of the parent | (167,016,426 | ) | (40,409,465 | ) | (71,320,063 | ) | ||||||
| Gain (Loss) from discontinuing operations attributable to equity holders of the parent | 1,123,039 | (7,582,632 | ) | 2,001,215 | ||||||||
| Loss attributable to equity holders of the parent | (165,893,387 | ) | (47,992,097 | ) | (69,318,848 | ) | ||||||
| Weighted average number of common shares basic and diluted | 22,774,782 | 167,610 | 134,913 | |||||||||
| Basic and diluted loss from continuing operations, per common share | (7.33 | ) | (241.09 | ) | (528.64 | ) | ||||||
| Basic and diluted loss from discontinuing operations, per common share | 0.05 | (45.24 | ) | 14.83 | ||||||||
| Basic and diluted loss per common share | (7.28 | ) | (286.33 | ) | (513.80 | ) | ||||||
The effect of dilution from outstanding stock options, convertible preferred stocks, credit facility, convertible loans, warrants, put and call options and contingent consideration payable were excluded from the calculation of the weighted average number of common shares for diluted loss per common share for the years ended September 30, 2024, 2023 and 2022 as they are antidilutive.
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Outstanding employee stock option | 1,438,000 | 441,662 | 1,710,022 | |||||||||
| Convertible preferred stock | 7,031,065 | 6,581,392 | 5,976,388 | |||||||||
| Warrants | 13,890 | 13,890 | 13,890 | |||||||||
| Put and call options recognized as other component of equity | - | 94,931 | 94,931 | |||||||||
| Conversion options | 4,400,106 | 2,200,053 | - | |||||||||
F-58
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 21. | Loss per share (Continued) |
Basic loss per share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of common shares outstanding.
The potential effect of dilution from outstanding stock options, convertible preferred stocks, warrants, and put and call options were excluded from the calculation of the diluted loss per common share since the Company incurred losses and the inclusion of these instruments would have an antidilutive effect.
| 22. | Additional information included in the consolidated statement of cash flows |
Changes in non-cash working capital items:
| As at September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Trade receivable and other receivables | 2,200,073 | 96,806 | (2,219,607 | ) | ||||||||
| Government assistance and R&D tax credits receivable | (283,771 | ) | (205,042 | ) | 553,097 | |||||||
| Inventories | (298,722 | ) | (609,663 | ) | (541,093 | ) | ||||||
| Prepaid expenses | (219,276 | ) | (273,497 | ) | 95,795 | |||||||
| Prepaid financing fees | (55,014 | ) | — | — | ||||||||
| Accounts payable and accrued liabilities | (11,454,393 | ) | 2,534,308 | 1,720,000 | ||||||||
| Provisions | (878,144 | ) | 878,144 | — | ||||||||
| (10,989,247 | ) | 2,421,056 | (391,808 | ) | ||||||||
F-59
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 23. | Government grants |
| Year ended September 30, 2024 | ||||||||||||
Grant recognized in statement of loss | Grant recorded against carrying amount of intangible assets (Note 12) | Total grant | ||||||||||
| $ | $ | $ | ||||||||||
| Other grants | 90,065 | 13,713 | 103,778 | |||||||||
| Total grants | 90,065 | 13,713 | 103,778 | |||||||||
| R&D tax credit | — | 346,580 | 346,580 | |||||||||
| Total grants and R&D tax credits | 90,065 | 360,293 | 450,358 | |||||||||
| Year ended September 30, 2023 | ||||||||||||
Grant recognized in statement of loss | Grant recorded against carrying amount of intangible assets (Note 12) | Total grant | ||||||||||
| $ | $ | $ | ||||||||||
| Other grants | 377,080 | 268,460 | 645,540 | |||||||||
| Total grants | 377,080 | 268,460 | 645,540 | |||||||||
| R&D tax credit | 225,609 | 256,234 | 481,843 | |||||||||
| Total grants and credits | 602,689 | 524,694 | 13 | |||||||||
| Year ended September 30, 2022 | ||||||||||||
Grant recognized in statement of loss | Grant recorded against carrying amount of intangible assets (Note 12) | Total grant | ||||||||||
| $ | $ | $ | ||||||||||
| Canada Emergency Wage Subsidy | 83,735 | 33,684 | 117,419 | |||||||||
| Other grants | 351,713 | 917,104 | 1,268,817 | |||||||||
| Total grants | 435,448 | 950,788 | 1,386,236 | |||||||||
| R&D tax credit | 70,191 | 776,050 | 846,241 | |||||||||
| Total grants and R&D tax credits | 505,639 | 1,726,838 | 2,232,477 | |||||||||
F-60
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 23. | Government grants (continued) |
The R&D tax credit is recognized as a reduction of research and development costs in the consolidated statements of loss and comprehensive loss.
The amounts recorded in reduction of property and equipment and intangible assets were $Nil and $13,713 respectively ($Nil and $524,694 in 2023, respectively).
Within Canada, the Company participated in the Canada Emergency Wage Subsidy (“CEWS”), a grant measure of the Canadian government as a response to the COVID-19 pandemic. CEWS provides qualifying companies with a monthly financial support grant based on payroll, subject to certain caps. Eligibility is triggered by and scaled according to the reduction in year-over-year Canadian revenue on a month-by-month basis.
Within Canada, the Company participated in the Industrial Research Assistance Program (“IRAP”) with the National Research Council of Canada. IRAP provides fundings for eligible projects to companies, to increase their innovation capacity and take ideas to market.
Within Israel, the Company participated in the Israeli National Authority for Technological Innovation (“IIA”). IIA provides fundings for eligible projects to companies, to effectively address the dynamic and changing needs of the local and international innovation ecosystems.
There are no unfulfilled conditions or contingencies attached to the above grants.
F-61
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 24. | Finance costs, net |
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Interest expenses (income) | ||||||||||||
| Interest income | (334,751 | ) | (223,594 | ) | (40,251 | ) | ||||||
| Gain on government grant liability modification | (252,874 | ) | (4,332,173 | ) | — | |||||||
| Gain on other loan settlement | — | (1,605,561 | ) | — | ||||||||
| Interest expense on term loan (Note 15) | 3,048,079 | 2,016,587 | 1,830,360 | |||||||||
| Interest expense on lease liabilities | 300,424 | 369,872 | 518,175 | |||||||||
| Interest expense on credit facility (Note 15) | 4,827,753 | 4,843,390 | 3,630,814 | |||||||||
| Interest expense on convertible notes (Note 15) | 7,814,330 | 1,067,932 | — | |||||||||
| Interest expense on bridge loans | 477,776 | 138,347 | — | |||||||||
| Interest expense on short term liability | 95,381 | — | — | |||||||||
| Interest expense on other loan (Note 15) | — | 160,413 | 274,263 | |||||||||
| Accretion and remeasurement of government grant liability (Note 17) | 271,088 | 74,335 | (78,567 | ) | ||||||||
| Bridge loans issuance cost | — | 350,000 | — | |||||||||
| SEPA commitment fee (Note 18) | 512,775 | — | — | |||||||||
| Capitalized borrowing costs (Note 12)(1) | (8,243,627 | ) | (3,898,829 | ) | (6,994,197 | ) | ||||||
| 8,516,354 | (1,039,281 | ) | (859,403 | ) | ||||||||
| Loss (gain) on revaluation of instruments carried at fair value | ||||||||||||
| Warrant liability (Note 16) | (1,117,069 | ) | — | — | ||||||||
| Bridge loan | 1,201,379 | — | — | |||||||||
| Convertible loans(2) | — | — | (6,089,300 | ) | ||||||||
| Contingent consideration payable(4) | — | — | (1,265,043 | ) | ||||||||
| Credit facility | — | — | 225,105 | |||||||||
| Conversion option (Note 15) | (5,637,321 | ) | 21,100 | — | ||||||||
| (5,553,011 | ) | 21,100 | (7,129,238 | ) | ||||||||
| Other | ||||||||||||
| Loss (gain) on lease modification (Note 11) | (204,146 | ) | — | — | ||||||||
| Non-capitalizable financing costs | 255,281 | — | — | |||||||||
| Modification of convertible loans (Note 15)(2) | 9,645 | — | 124,717 | |||||||||
| Net loss on debt extinguishments(3) | — | — | 454,092 | |||||||||
| Loss on exercise of conversion option | 366,957 | — | — | |||||||||
| Bank charges | 71,999 | 64,166 | 91,840 | |||||||||
| Foreign exchange loss (gain) | (399,827 | ) | 224,057 | (2,749,505 | ) | |||||||
| 99,909 | 288,223 | (2,078,856 | ) | |||||||||
| Finance costs, net | 3,063,252 | (729,958 | ) | (10,067,497 | ) | |||||||
| (1) | The capitalization rate used to determine the amount of general borrowing costs eligible for capitalization during the years ended September 30, 2024, 2023 and 2022 was 22.8%, 17% and 16%, respectively. |
| (2) | On November 1, 2021, the Company amended the convertible loans to increase the discount of the conversion feature to 28% of the Class D-1 preferred shares to be issued. The change in fair value between September 30, 2021, and November 1, 2021, of $6,089,300 was recognized as a gain on revaluation in the consolidated statements of loss. The Company incurred costs for this modification of $124,717. |
| (3) | During the year ended September 30, 2022, the Company recorded a net loss on debt extinguishment of $454,092. The terms of the term loan were modified to remove the substantive equity conversion feature. The change was considered a fundamental change to the terms of the credit facility and was accounted for as an extinguishment of the existing term loan and recognition of a new loan. The carrying value of the term loan on November 1, 2021, amounting to $30,000,000 was derecognized and a loss on extinguishment, calculated as the difference between the amount derecognized and the initial measurement of the modified loan recognized at fair value amounting to $30,000,000, including transaction costs of $454,092. The new term loan is designated at amortized cost (Note 15). |
| (4) | On July 6, 2022, all remaining contingent shares were issued (42,594 common shares) to the selling shareholders, for a fair value of $2,215,739, resulting in a gain on revaluation of $1,265,043 recorded in Finance Costs, net in the consolidated statements of loss and comprehensive loss. |
F-62
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes |
The reconciliation of the income tax provision (recovery) calculated using the combined Canadian federal and provincial statutory income tax rate with the income tax provision (recovery) in the consolidated financial statements is as follows:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Loss before income taxes | (166,179,817 | ) | (51,424,409 | ) | (73,418,745 | ) | ||||||
| Income taxes at the Canadian statutory tax rate of 26.50% (26.50% in 2023 and 26,50% in 2022) | (44,037,651 | ) | (13,760,987 | ) | (19,455,967 | ) | ||||||
| Tax effect from: | ||||||||||||
| Effect of differences in tax rates in other jurisdictions | 4,823,250 | 903,064 | 659,121 | |||||||||
| Non-deductible items | 621,053 | 574,922 | 8,131,886 | |||||||||
| Listing expense | 15,671,987 | — | — | |||||||||
| Foreign exchange effect of translation of foreign subsidiaries in the functional currency | 143,568 | — | — | |||||||||
| Items recorded in shareholders' equity | (597,512 | ) | — | — | ||||||||
| Tax losses and deductible temporary differences for which no deferred income tax assets is recognized | 19,505,818 | 11,436,187 | 10,696,915 | |||||||||
| Utilization of previously unrecognized deferred income tax assets | (14,490 | ) | — | — | ||||||||
| Adjustment in respect of prior years | 3,910,028 | 846,814 | (31,955 | ) | ||||||||
| Other | (26,051 | ) | — | — | ||||||||
| Income tax expense (recovery) | — | — | — | |||||||||
F-63
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes (continued) |
Deferred income tax assets and liabilities on temporary differences and unused tax losses are as follows:
Balance as at October 1, 2023 | Credited (charged) to the statement of loss | Credited (charged) to the shareholders’ equity | Balance as at September 30, 2024 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financing fees | 2,124,929 | (44,734 | ) | — | 2,080,195 | |||||||||||
| Provision and accruals | 519,097 | 202,227 | — | 721,324 | ||||||||||||
| Research and development cost | 5,361,039 | 2,319,700 | — | 7,680,739 | ||||||||||||
| Losses carried forward | 55,679,194 | 9,974,804 | — | 65,653,998 | ||||||||||||
| Convertible loan | 12,175 | 3,117 | — | — | ||||||||||||
| Property and equipment | — | 1,138,543 | — | 1,138,543 | ||||||||||||
| Lease liabilities | 924 944 | (384,600 | ) | — | 540,344 | |||||||||||
| Government grant liability | 152,074 | (117,287 | ) | — | 34,787 | |||||||||||
| Deferred income grants | 120,573 | 1 | — | 120,574 | ||||||||||||
| Total deferred tax assets | 64,894,025 | 13,091,773 | — | 77,970,506 | ||||||||||||
| Property and equipment | (52,996 | ) | 52,996 | — | — | |||||||||||
| Intangible assets | (4,207,715 | ) | 4,054,968 | — | (152,747 | ) | ||||||||||
| Right-of-use assets | (745,340 | ) | 298,368 | — | (446,972 | ) | ||||||||||
| Convertible loan | — | — | — | — | ||||||||||||
| Debt discount-Grant/warrants | (2,995,821 | ) | 2,176,742 | 435,585 | (383,494 | ) | ||||||||||
| Grant receivable | (23,189 | ) | (837 | ) | — | (24,026 | ) | |||||||||
| Conversion option liability | 5,592 | (182,682 | ) | (1,311,209 | ) | (1,488,299 | ) | |||||||||
| Total deferred tax liabilities | (8,019,469 | ) | 6,399,555 | (875,624 | ) | (2,495,538 | ) | |||||||||
| Net deferred tax assets (liabilities) | 56,874,556 | 19,491,328 | (597,512 | ) | 75,768,373 | |||||||||||
| Unrecognized net deferred tax assets | (56,874,556 | ) | (19,491,328 | ) | 597,512 | (75,768,373 | ) | |||||||||
| Recognized net deferred tax (liabilities) | — | — | — | — | ||||||||||||
F-64
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes (continued) |
Balance as at October 1, 2022 | Credited (charged) to the statement of loss | Credited (charged) to the shareholders’ equity | Balance as at September 30, 2023 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financing fees | 1,970,593 | 154,336 | — | 2,124,929 | ||||||||||||
| Provision and accruals | 519,550 | (453 | ) | — | 519,097 | |||||||||||
| Research and development cost | 4,700,695 | 660,343 | — | 5,361,039 | ||||||||||||
| Losses carried forward | 43,648,546 | 12,030,648 | — | 55,679,194 | ||||||||||||
| Convertible loan | — | 12,175 | — | 12,175 | ||||||||||||
| Lease liabilities | 1,520,988 | (596,044 | ) | — | 924,944 | |||||||||||
| Government grant liability | 140,547 | 11,527 | — | 152,074 | ||||||||||||
| Deferred income grants | 120,573 | — | — | 120,573 | ||||||||||||
| Other debt discount | 420,004 | (420,004 | ) | — | - | |||||||||||
| Total deferred tax assets | 53,041,496 | 11,852,528 | — | 64,894,025 | ||||||||||||
| Property and equipment | (326,154 | ) | 273,159 | — | (52,996 | ) | ||||||||||
| Intangible assets | (5,036,692 | ) | 828,977 | — | (4,207,715 | ) | ||||||||||
| Right-of-use assets | (1,347,385 | ) | 602,045 | — | (745,340 | ) | ||||||||||
| Debt discount-Grant/warrants | (2,309,719 | ) | (686,102 | ) | — | (2,995,821 | ) | |||||||||
| Grant receivable | (38,156 | ) | 14,967 | — | (23,189 | ) | ||||||||||
| Conversion option liability | — | 5,592 | — | 5,592 | ||||||||||||
| Total deferred tax liabilities | (9,058,106 | ) | 1,038,637 | — | (8,019,469 | ) | ||||||||||
| Net deferred tax assets (liabilities) | 43,983,390 | 12,891,166 | — | 56,874,556 | ||||||||||||
| Unrecognized net deferred tax assets | (43,983,390 | ) | (12,891,166 | ) | — | (56,874,556 | ) | |||||||||
| Recognized net deferred tax (liabilities) | — | — | — | — | ||||||||||||
F-65
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes (continued) |
Balance as at October 1, 2021 | Credited (charged) to the statement of loss | Credited (charged) to the shareholders’ equity | Balance as at September 30, 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financing fees | 358,581 | (154,408 | ) | 1,766,420 | 1,970,593 | |||||||||||
| Provision and accruals | 381,341 | 138,209 | — | 519,550 | ||||||||||||
| Research and development cost | 5,361,422 | (660,727 | ) | — | 4,700,695 | |||||||||||
| Losses carried forward | 31,951,781 | 11,696,765 | — | 43,648,546 | ||||||||||||
| Convertible loan | 7,152,109 | (7,152,109 | ) | — | — | |||||||||||
| Lease liabilities | 1,128,610 | 392,378 | — | 1,520,988 | ||||||||||||
| Government grant liability | 96,044 | 44,503 | — | 140,547 | ||||||||||||
| Deferred income grants | 120,573 | — | — | 120,573 | ||||||||||||
| Other debt discount | 514,938 | (94,934 | ) | — | 420,004 | |||||||||||
| Total deferred tax assets | 47,065,399 | 4,209,677 | 1,766,420 | 53,041,496 | ||||||||||||
| Property and equipment | (251,862 | ) | (74,292 | ) | — | (326,154 | ) | |||||||||
| Intangible assets | (11,535,305 | ) | 6,498,613 | — | (5,036,692 | ) | ||||||||||
| Right-of-use assets | (1,041,824 | ) | (305,561 | ) | — | (1,347,385 | ) | |||||||||
| Debt discount-Grant/warrants | (2,716,353 | ) | 406,634 | — | (2,309,719 | ) | ||||||||||
| Grant receivable | — | (38,156 | ) | — | (38,156 | ) | ||||||||||
| Total deferred tax liabilities | (15,545,344 | ) | 6,487,238 | — | (9,058,106 | ) | ||||||||||
| Net deferred tax assets (liabilities) | 31,520,055 | 10,696,915 | 1,766,420 | 43,983,390 | ||||||||||||
| Unrecognized net deferred tax assets | (31,520,055 | ) | (10,696,915 | ) | (1,766,420 | ) | (43,983,390 | ) | ||||||||
| Recognized net deferred tax (liabilities) | — | — | — | — | ||||||||||||
F-66
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes (continued) |
As at September 30, 2024, the year of expiry of operating losses in the consolidated statement of financial position are as follows, presented by tax jurisdiction:
| Canada | ||||||||||||||||
Year | Federal | Quebec | USA | Israel | ||||||||||||
| of expiry | $ | $ | $ | $ | ||||||||||||
| 2027 | 1,586,446 | 1,504,740 | — | — | ||||||||||||
| 2028 | 1,365,399 | 1,311,824 | — | — | ||||||||||||
| 2029 | 2,303,130 | 2,280,459 | — | — | ||||||||||||
| 2030 | 1,375,780 | 1,306,718 | — | — | ||||||||||||
| 2031 | 3,482,936 | 3,482,936 | — | — | ||||||||||||
| 2032 | 3,266,503 | 3,275,941 | — | — | ||||||||||||
| 2033 | 3,408,474 | 3,444,648 | — | — | ||||||||||||
| 2034 | 885,475 | 885,963 | — | — | ||||||||||||
| 2035 | — | — | — | — | ||||||||||||
| 2036 | 15,542,450 | 15,638,499 | — | — | ||||||||||||
| 2037 | 22,974,686 | 22,727,051 | — | — | ||||||||||||
| 2038 | 28,727,803 | 28,444,120 | — | — | ||||||||||||
| 2039 | 33,860,655 | 33,548,568 | — | — | ||||||||||||
| 2040 | 29,975,342 | 29,600,226 | — | — | ||||||||||||
| 2041 | 37,595,360 | 38,085,889 | — | — | ||||||||||||
| 2042 | 8,365,418 | 8,454,445 | — | — | ||||||||||||
| 2043 | 14,845 | 15,617 | — | — | ||||||||||||
| 2044 | 26,579,369 | 26,968,102 | — | — | ||||||||||||
| Indefinite | — | — | 588,790 | 43,999,987 | ||||||||||||
| 227,831,171 | 227,458,086 | 588,790 | 43,999,987 | |||||||||||||
As at September 30, 2024, deferred income tax assets of $Nil (2023 - $4,644,561) is recognized in the consolidated statement of financial position in respect of these operating losses.
F-67
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 25. | Income taxes (continued) |
As at September 30, 2024, the R&D tax credits accumulated, for which no tax credits receivable were recognized, that will be deductible against income taxes payable in the consolidated statement of financial position as well as their respective year of expiry, are as follows:
| Years of investment tax credits | Federal $ | Year of expiry | ||||
| 2009 | 1,562 | 2025 | ||||
| 2009 | 1,257 | 2026 | ||||
| 2010 | 18,655 | 2027 | ||||
| 2011 | 9,843 | 2028 | ||||
| 2012 | 7,069 | 2029 | ||||
| 2016 | 9,718 | 2033 | ||||
| 2017 | 51,182 | 2035 | ||||
| 2017 | 25,029 | 2036 | ||||
| 2018 | 480,243 | 2037 | ||||
| 2019 | 1,134,507 | 2038 | ||||
| 2020 | 1,389,834 | 2039 | ||||
| 2021 | 1,243,043 | 2040 | ||||
| 2022 | 1,359,218 | 2041 | ||||
| 2023 | 932,549 | 2042 | ||||
| 2023 | 183,559 | 2043 | ||||
| 2024 | 747,159 | 2044 | ||||
| 7,594,427 | ||||||
In addition, the difference between the carrying value and tax basis of research and development costs amounts to $26,265,977 at the federal level and $28,112,808 at the provincial level. These costs can be carried forward indefinitely against future years’ taxable income in their respective tax jurisdiction. No deferred income tax assets have been accounted for in connection with these benefits.
As at September 30, 2024, there are no taxable temporary differences associated with investment in a subsidiary. As at September 30, 2023, no deferred tax liability was recognized on the taxable temporary difference of $2,334,066 in respect of investment in a subsidiary on the basis that management determined that it was not probable that the taxable difference would reverse in a foreseeable future.
F-68
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 26. | Related party transactions |
Compensation of key management personnel
The Company’s directors and members of the executive committee are the Company’s key management personnel. Compensation awarded to key management include the following:
| Years ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| $ | $ | $ | ||||||||||
| Salaries and short-term employee benefits | 2,305,749 | 1,883,078 | 2,050,590 | |||||||||
| Stock-based compensation | 5,939,192 | 850,271 | 1,134,006 | |||||||||
| 8,244,941 | 2,733,349 | 3,184,596 | ||||||||||
Transactions with related parties
| Years ended September 30, | ||||||||||||
| Entity with significant influence over the Company | 2024 | 2023 | 2022 | |||||||||
| $ | $ | $ | ||||||||||
| Consolidated statement of loss | ||||||||||||
| Interest on convertible loans | 3,023,652 | — | — | |||||||||
| Loss on exercise of conversion option | 366,957 | — | — | |||||||||
| Gain on revaluation of convertible loans | — | — | (704,912 | ) | ||||||||
F-69
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 27. | Capital management |
The Company views capital as the sum of credit facility, term loan, bridge loan, convertible notes, redeemable stock options, other loan, government grant liabilities, contingent consideration payable and equity (deficiency) attributable to owners of the capital stock of the parent, net of cash. The Company’s objectives, when managing capital, are to safeguard the Company’s ability to continue as a going concern, in order to provide an adequate return to shareholders and maintain sufficient level of funds to finance its commercialization activities, research and development activities, general and administrative expenses, working capital and overall capital expenditures, including those associated with intangible assets.
To maintain or adjust the capital structure, the Company may issue new shares, issue new debt or dispose assets, all of which are subject to market conditions and the terms of the underlying third-party agreements. The Company is not subject to any capital requirements imposed by a regulator.
No changes were made to the objectives, policies and processes for managing capital during the years ended September 30, 2024 and 2023. The total capital is calculated as follows:
| As at September 30, | ||||||||
| 2024 | 2023 | |||||||
| $ | $ | |||||||
| Credit facility | (28,229,902 | ) | (28,747,705 | ) | ||||
| Term loan | (10,767,007 | ) | (7,718,928 | ) | ||||
| Bridge loan | (9,913,619 | ) | — | |||||
| Convertible notes | (40,309,902 | ) | (11,258,950 | ) | ||||
| Redeemable stock options | — | (6,102,496 | ) | |||||
| Derivative warrant liability | (629,506 | ) | — | |||||
| Government grant liabilities | (1,618,343 | ) | (1,468,296 | ) | ||||
| Less: cash | 5,269,084 | 5,056,040 | ||||||
| Net debt | (86,199,195 | ) | (50,240,335 | ) | ||||
| Equity (deficiency) attributable to owners of the capital stock of the parent | (88,634,694 | ) | 7,111,792 | |||||
| (174,833,889 | ) | (43,128,543 | ) | |||||
F-70
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 28. | Financial instruments |
The classification of financial instruments as well as their carrying amounts are presented in the table below:
| September 30, 2024 | ||||||||||||
| Amortized cost | FVTPL | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Financial assets | ||||||||||||
| Cash | 5,269,084 | — | 5,269,084 | |||||||||
| Accounts receivable(1) | 1,150,946 | — | 1,150,946 | |||||||||
| Current financial assets | 6,420,030 | — | 6,420,030 | |||||||||
| Financial liabilities | ||||||||||||
| Accounts payable and accrued liabilities2 | 13,412,889 | — | 13,412,889 | |||||||||
| Credit facility | 28,229,902 | — | 28,229,902 | |||||||||
| Convertible bridge loan | — | 6,853,623 | 6,853,623 | |||||||||
| Non-convertible bridge loan | 3,059,996 | 3,059,996 | ||||||||||
| Warrant liability | — | 629,506 | 629,506 | |||||||||
| Term loan | 10,767,007 | — | 10,767,007 | |||||||||
| Convertible notes | 40,309,902 | — | 40,309,902 | |||||||||
| Conversion option | — | 6,008 | 6,008 | |||||||||
| Government grant liabilities | 1,618,343 | — | 1,618,343 | |||||||||
| Total | 97,398,039 | 7,489,137 | 104,887,176 | |||||||||
| Current | 17,302,101 | 7,489,137 | 24,791,238 | |||||||||
| Non-current | 80,095,938 | — | 80,095,938 | |||||||||
F-71
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 28. | Financial instruments (continued) |
| September 30, 2023 | ||||||||||||
| Amortized cost | FVTPL | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Financial assets | ||||||||||||
| Cash | 5,056,040 | — | 5,056,040 | |||||||||
| Accounts receivable(1) | 2,281,915 | — | 2,281,915 | |||||||||
| Current financial assets | 7,337,955 | — | 7,337,955 | |||||||||
| Financial liabilities | ||||||||||||
| Accounts payable and accrued liabilities2 | 12,466,676 | — | 12,466,676 | |||||||||
| Credit facility | 28,747,705 | — | 28,747,705 | |||||||||
| Term loan | 7,718,928 | — | 7,718,928 | |||||||||
| Convertible notes | 11,258,950 | — | 11,258,950 | |||||||||
| Conversion option | — | 737,974 | 737,974 | |||||||||
| Government grant liabilities | 1,468,296 | — | 1,468,296 | |||||||||
| Total | 61,660,555 | 737,974 | 62,398,529 | |||||||||
| Current | 13,035,483 | 737,974 | 13,773,457 | |||||||||
| Non-current | 48,625,072 | — | 48,625,072 | |||||||||
| 1 | Excluding commodity taxes receivable, as these amounts do not represent a contractual right to receive cash or another financial asset. |
| 2 | Excluding deferred revenue, as these amounts do not represent a contractual obligation to deliver cash or another financial asset. |
Financial risk management
The Company is exposed to various types of risks due to the nature of the business activities it carries on, including those related to the use of financial instruments. The Company does not use financial derivatives to manage those risks.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or can only do so at excessive cost. The Company manages this risk by maintaining detailed cash forecasts and long-term operating and strategic plans. The adequacy of liquidity is assessed in view of operational needs, sales forecasts and maturity of indebtedness. The Company is confident that the future cash flows from operations and financing will allow for the realization of assets and settlement of liabilities in the normal course of business as they become due. The Company also continually monitors any financing opportunities to optimize its capital structure.
F-72
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
28. | Financial instruments (continued) |
The following table summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:
| September 30, 2024 | ||||||||||||||||
| Less than 1 year | 1 to 5 years | More than 5 years | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Accounts payable and accrued liabilities | 13,412,889 | — | — | 13,412,889 | ||||||||||||
| Credit facility | — | 30,000,000 | — | 30,000,000 | ||||||||||||
| Convertible loan | — | 64,018,174 | — | 64,018,174 | ||||||||||||
| Term loan | — | 19,756,619 | 2,751,798 | 22,508,417 | ||||||||||||
| Bridge loan | 8,443,834 | — | — | 8,443,834 | ||||||||||||
| Government grant liabilities | 896,491 | 1,295,992 | — | 2,192,483 | ||||||||||||
| Total | 22,753,214 | 115,070,785 | 2,751,798 | 140,575,797 | ||||||||||||
| September 30, 2023 | ||||||||||||||||
Less than 1 year | 1 to 5 years | More than 5 years | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Accounts payable and accrued liabilities | 12,466,676 | — | — | 12,466,676 | ||||||||||||
| Redeemable stock options | — | 6,102,496 | — | 6,102,496 | ||||||||||||
| Credit facility | 4,766,345 | 38,568,461 | — | 43,334,806 | ||||||||||||
| Convertible loan | — | 39,610,854 | — | 39,610,854 | ||||||||||||
| Term loan | — | 21,317,876 | 13,412,208 | 34,730,084 | ||||||||||||
| Government grant liabilities | 568,807 | 1,209,857 | — | 1,778,664 | ||||||||||||
| Total | 17,801,828 | 106,809,544 | 13,412,208 | 138,023,580 | ||||||||||||
Credit risk
Credit risk is the risk of a financial loss resulting from the counterparty’s inability or refusal to fully meet its contractual obligations. The Company’s maximum exposure to credit risk is equal to the amounts recorded as cash and trade accounts receivable. Cash is maintained with high-credit quality financial institutions. Management considers the risk of non-performance related to cash to be minimal.
As at September 30, 2024, the balance receivable from one client represents 63% of trade accounts receivable (two clients represented 69% as at September 30, 2023).
An impairment analysis is performed at each reporting date on individual basis for major items. Generally, the Company does not require collateral or other security from customers for trade accounts receivable; credit is extended following an evaluation of creditworthiness.
To manage credit risk, the Company insures 0% as at September 30, 2024 (39% in 2023), of its accounts receivable through Exportation and Development Canada.
F-73
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 28. | Financial instruments (continued) |
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates. The Company is exposed to future cash flow risk with respect to the floating interest rate on its operating loan and its credit facility. The Company is exposed to change in fair value of financial instruments with fixed interest rates.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Company’s net loss is affected through the impact on floating rate borrowings, as follows:
| Increase/ decrease in basis points | Effect on loss before income taxes $ | |||||||
| Credit facility, convertible notes, term loan and bridge loan | +200 | 2,398,194 | ||||||
| -200 | (2,398,194 | ) | ||||||
| Government grant liability | +200 | 29,160 | ||||||
| -200 | (29,160 | ) | ||||||
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years.
Foreign exchange risk
Since the Company operates internationally, it is exposed to foreign exchange risk as a result of potential exchange rate fluctuations related to non-intragroup transactions. Fluctuations in the Canadian dollar and the exchange rates could have potentially significant impact on the Company’s results of operations.
F-74
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 28. | Financial instruments (continued) |
If these variations were to occur, the impact of +5% appreciation of the USD, EUR and NIS currencies on the Company’s consolidated net loss and deficit for financial instruments held would be an increase (decrease) of net loss and deficit as follows:
| Year ended September 30, | |||||||||||||
| Change in foreign exchange rate | 2024 | 2023 | |||||||||||
| USD | +5% | (2,519,428 | ) | 592,954 | |||||||||
| EUR | 7,591 | (10,296 | ) | ||||||||||
| NIS | (130,945 | ) | 171,980 | ||||||||||
A 5% weakening of the exchange rate would have had an equal but opposite effect on the amount shown above, assuming that all other variables remain constant.
| 29. | Commitments |
Other than commitments already disclosed in notes 11 for leases and notes 15 for long-term debt, the Company is committed to minimum amounts under long-term agreements for license and telecommunications and office equipment, which expire at the latest in 2025. The Company has also entered into a development contract.
As at September 30, 2024, minimum commitments remaining under these agreements over the following years are as follows:
| Total | 2025 | 2026 | 2027 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cloud services | 946,558 | 723,571 | 212,087 | 10,900 | ||||||||||||
| Subcontracting services | 698,470 | 698,470 | — | — | ||||||||||||
| License | 176,977 | 166,313 | 10,664 | — | ||||||||||||
| Telecommunications | 298,251 | 155,600 | 87,630 | 55,020 | ||||||||||||
| 2,120,256 | 1,743,954 | 310,381 | 65,920 | |||||||||||||
F-75
LeddarTech Holdings Inc.
Notes to the consolidated financial statements
(in Canadian dollars)
September 30, 2024
| 30. | Subsequent events |
Strategic collaboration agreement and a software license agreement
On December 9, 2024, the Company announced that LeddarTech and Texas Instruments (“TI”) have entered into a strategic collaboration agreement and a software license agreement to enable a comprehensive, integrated platform solution for ADAS an AD markets. Under the license agreement, TI has agreed to make advanced royalty payments to catalyse joint commercialization.
The agreement outlines a total payment of approximately US$10 million in advance royalties, with the potential for additional royalties over time. An initial payment of US$5.0 million was received by the Company on December 12, 2024. A subsequent payment of US$3.0 million USD will follow the completion of the demonstrator, which is planned to debut at the Consumer Electronics Show in Las Vegas next month. The final US$1.9 million will be contingent upon the execution of a client contract with an original equipment manufacturer (OEM).
The consideration received in advance from TI will be recorded as deferred revenue until the Company fulfills its related obligations.
Credit Facility and Bridge Financing
On December 6, 2024, in connection with the collaboration and license agreements with TI and the advanced royalty payments provided thereunder (the “TI Pre-paid Royalty Fee”), LeddarTech entered into:
| - | a fourteenth amendment of its Credit facility with Desjardins pursuant to which Desjardins has agreed to, among other things: (i) temporarily postpone payment of interest for a certain period of time, and (ii) temporarily suspend the minimum cash covenant until the earlier of (a) December 13, 2024, and (b) the date of disbursement to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee. |
| - | a second amendment of the Bridge Financing modifying among other things, the maturity of the bridge loan to December 13, 2024, which date will automatically be extended upon the disbursement by TI to LeddarTech of the full first instalment of the TI Pre-paid Royalty Fee, to the earlier of (a) January 31, 2025 and (b) the business day following the Short-Term Outside Date. |
Also, on October 15, 2024, the Tranche 2 of the Bridge Financing was issued for an aggregate amount of US$2.8 million composed of US$0.9 million in Non-Convertible Bridge Loan and US$1.9 million in Convertible Bridge Loan.
Issuance of common shares under the SEPA agreement
In December 2024, the Company issued 5,490,000 common shares under the SEPA agreement (refer to Note 18), generating net proceeds of US$9 million.
F-76