Filed pursuant to Rule 424(b)(3)
Registration No. 333-277063
PROSPECTUS
SUPPLEMENT NO. 1
(to Prospectus dated May 10, 2024)
New Horizon Aircraft Ltd.
Primary Offering of
Up to 15,443,305 Class A Ordinary Shares
Upon the Exercise of Warrants
Secondary Offering of
Up to 10,562,939 Class A Ordinary Shares
Up to 565,375 Warrants
This prospectus supplement
updates and supplements the prospectus dated May 10, 2024 (as may be further supplemented or amended from time to time, the “Prospectus”),
which forms a part of our Registration Statement on Form S-1 (File No. 333-277063).
This prospectus supplement
is being filed to update and supplement the Prospectus with the information contained in our Annual Report on Form 10-K for the year ended
May 31, 2024, filed with the U.S. Securities and Exchange Commission on August 15, 2024 (the “Annual Report”). Accordingly,
we have attached the Annual Report to this prospectus supplement.
This prospectus supplement
is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is required
to be delivered with this prospectus supplement. If there is any inconsistency between the information in the Prospectus and this prospectus
supplement, you should rely on the information in this prospectus supplement.
Our Class A ordinary shares,
no par value per share (the “Class A Ordinary Shares”), and warrants to purchase Class A Ordinary Shares (the “Warrants”)
are listed on the Nasdaq Stock Market LLC under the symbols “HOVR” and “HOVRW”, respectively. On August 15, 2024,
the closing price of our Class A Ordinary Shares was $0.74 per share and the closing price of our Warrants was $0.02 per Warrant.
We are an “emerging
growth company” and a “smaller reporting company” as such terms are defined under the federal securities laws and, as
such, are subject to certain reduced public company reporting requirements.
Investing in our securities
involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors”
beginning on page 6 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August
16, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-41607
NEW HORIZON AIRCRAFT LTD.
(Exact name of registrant as specified in its charter)
| British Columbia, Canada |
|
98-1786743 |
| (State or other jurisdiction of |
|
(IRS Employer |
| incorporation or organization) |
|
Identification No.) |
| |
|
|
|
3187 Highway 35
Lindsay, Ontario |
|
K9V 4R1 |
| (Address of principal executive offices) |
|
(Zip Code) |
(613) 866-1935
(Registrant’s telephone number, including
area code)
Former Fiscal Year End December 31
(Former name, former address and former fiscal
year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
| |
|
|
|
|
| Class A Ordinary Shares, no par value |
|
HOVR |
|
The Nasdaq Stock Market LLC |
| |
|
|
|
|
| Warrants, each warrant exercisable for one Class A Ordinary Shares at an exercise price of $11.50 per share |
|
HOVRW |
|
The Nasdaq Stock Market LLC |
Securities registered pursuant to section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 (Section 232.405
of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer |
☐ |
Accelerated filer |
☐ |
| Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
| |
Emerging growth company |
☒ |
If an emerging growth company, 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 whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting stock held
by non-affiliates of the Registrant on November 30, 2023, based on the closing price of $10.58 for shares of the Registrant’s Class
A ordinary shares as reported by The Nasdaq Global Market, was approximately USD $121,670,000. Class A ordinary shares beneficially owned
by each executive officer, director, and holder of more than 10% of our common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of August 15, 2024, there were 18,607,931 of the registrant’s
Class A ordinary shares, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Various statements in this
Annual Report on Form 10-K of New Horizon Aircraft Ltd. are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other
than statements of historical facts, included in this report, including statements regarding our strategy, future operations, future financial
position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements
are subject to risks and uncertainties (some of which are beyond our control) and are based on information currently available to our
management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“may,” “plan,” “contemplates,” “predict,” “project,” “target,”
“likely,” “potential,” “continue,” “ongoing,” “will,” “would,”
“should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements.
The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from
those projected in our forward-looking statements. Such forward-looking statements are based on current expectations and involve inherent
risks and uncertainties, including risks and uncertainties that could delay, divert or change these expectations, and could cause actual
results to differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are
not limited to, those factors described under Part I, Item 1A: “Risk Factors.” Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these
forward-looking statements.
This report contains market
data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations,
and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While
we believe the market position, market opportunity and market size information included in this report is generally reliable, such information
is inherently imprecise and subject to change.
All written and oral forward-looking
statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this section. We caution investors not to rely on the forward-looking statements we make or that are made
on our behalf as predictions of future events. We undertake no obligation and specifically decline any obligation to update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable
securities laws.
We encourage you to read the
management’s discussion and analysis of our financial condition and results of operations and our consolidated financial statements
contained in this Annual Report on Form 10-K. There can be no assurance that we will in fact achieve the actual results or developments
we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore,
we can give no assurances that we will achieve the outcomes stated in those forward-looking statements, projections and estimates.
PART I
CERTAIN TERMS AND
CONVENTIONS
All references to
“we,” “us,” “our,” “New Horizon,” the “Company” or similar terms used in this
annual report refer to New Horizon Aircraft Ltd., a British Columbia company, including its consolidated subsidiaries, unless the context
otherwise indicates.
All references in
this document to “Dollars” are expressed in Canadian Dollars (“CAD”, “$CAD”) and in ’000s (except
per share data), unless otherwise indicated.
“Amalgamation”
refers to the amalgamation of Merger Sub and Horizon in connection with the Business Combination, the resulting company, “Amalco,”
with Amalco being the wholly owned subsidiary of Pono.
“Articles”
refers to the governing documents of New Horizon Aircraft Ltd., adopted on January 11, 2024 in connection with the SPAC Continuance.
“BCBCA”
refers to the Business Corporations Act (British Columbia), as now in effect and as it may be amended from time to time.
“Business Combination
Agreement” refers to the business combination agreement, dated, August 15, 2023, by and among Pono, Pono Three Merger Acquisitions
Corp., a British Columbia company and wholly-owned subsidiary of Pono (“Merger Sub”) and Robinson Aircraft Ltd., d/b/a Horizon
Aircraft (“Legacy Horizon”).
“Business Combination”
refers to the transactions related to the Business Combination Agreement, pursuant to which Pono was continued and de-registered from
the Cayman Islands and redomesticated as a British Columbia company on January 11, 2024, Merger Sub and Legacy Horizon were subsequently
amalgamated under the laws of British Columbia, and Pono changed its name to New Horizon Aircraft Ltd.
“$,”
“$CAD,” “CAD,” or “Dollars” refers to the lawful currency of Canada (expressed in Canadian dollars).
“Class A ordinary
shares” refers to the Class A ordinary shares, no par value per share, of New Horizon Aircraft Ltd.
“Initial Public
Offering” or “IPO” refers to the initial public offering of 11,500,000 units, with each unit consisting of one Class
A ordinary share, par value $0.0001 per share (the “Pono Class A ordinary shares”) and one warrant to purchase one Pono Class
A ordinary share, and each unit being sold at an offering price of $10.00 per unit, which closed on February 14, 2023 and the registration
statement on Form S-1 of which was declared effective by the SEC on February 9, 2023.
“Legacy Horizon”
refer to Robinson Aircraft, Ltd. d/b/a Horizon Aircraft, a British Columbia company, prior to the Business Combination.
“Pono”
refers to Pono Capital Three, Inc., a Cayman Islands blank check company incorporated for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business combination with one or more businesses, which in connection with
the Business Combination, was continued and de-registered from the Cayman Islands and redomesticated as a British Columbia company and
changed its name to New Horizon Aircraft Ltd.
“Public Warrants”
refers to warrants to purchase the Class A ordinary shares at an exercise price of $11.50 per share.
SPAC Continuance”
refers to the domestication of Pono as a British Columbia company in connection with the Business Combination.
“USD
$,” “USD” or “U.S. Dollars” refers to the legal currency of the United States.
Item 1. Business.
Overview
We are an advanced aerospace
Original Equipment Manufacturer (“OEM”) that is designing a next generation hybrid electric Vertical Takeoff and Landing (“eVTOL”)
aircraft for the Regional Air Mobility (“RAM”) market. Our aircraft aims to offer a more efficient way to move people and
goods at a regional scale (i.e., from 50 to 500 miles), help to connect remote communities, and will advance our ability to deal with
an increasing number of climate related natural disasters such as wildfires, floods, or droughts.
The product we are designing
and delivering is a hybrid electric 7-seat aircraft, called the Cavorite X7, that can take off and land vertically like a helicopter.
However, unlike a traditional helicopter, for the majority of its flight it will return to a configuration much like a traditional aircraft.
This would allow the Cavorite X7 to fly faster, farther, and operate more efficiently than a traditional helicopter. Expected to travel
at speeds up to 250 miles per hour at a range over 500 miles, we believe that this aircraft will be a disruptive force to RAM travel.
The new and developing eVTOL aircraft market has been made possible by
a convergence of innovation across many different technologies. Batteries, immense strength of light materials, computing power, simulation,
and propulsion technology have all crossed a critical threshold to enable viable aircraft designs such our Cavorite X7. This has resulted
in the establishment and rapid growth of the Advanced Air Mobility (“AAM”) market. Morgan Stanley has projected that the eVTOL
aircraft market could reach USD $1 trillion (in the base case) by 2040 and USD $9 trillion by 2050.
The Cavorite X7 architecture
is based on our patented fan-in-wing (“Horizon Omni-modal VeRtical (HOVR) Wing” or “HOVR Wing”) technology, which
has been developed and tested over the last several years. While most of our competitors rely on open rotor designs, our HOVR Wing
uses a series of ducted electric fans located inside the wings to produce vertical lift. After a demanding vertical takeoff, the aircraft
accelerates forward. At a safe speed, the wings close to conceal the fans in the wings and the aircraft returns to a highly efficient
configuration. The ability to take off and land like a helicopter but fly forward like a normal aircraft is the key to its performance.
A picture of Horizon’s 50%-scale prototype
that is currently in active flight testing
The aircraft is also powered
by a hybrid electric main engine. For vertical flight, electrical power for the powerful ducted fans in the wings and canards comes from
two sources: an on-board generator driven by an internal combustion engine and an array of batteries. Augmenting the battery power with
generator power allows us to reduce battery size, recharge the aircraft after vertical takeoff or landing, and increase safety. This aircraft
able to operate in austere locations without power, unlike other pure electric designs that will be forced to fly from charging station
to charging station.
We believe that the technology
and configuration advantages of our Cavorite X7 aircraft will represent a significant market advantage. It is anticipated that our aircraft
will be cheaper to own and operate than helicopters with similar payload characteristics and will travel almost twice as fast. The specifications
for the aircraft call for it to be able to carry seven people with a useful load of 1,500 lbs., almost twice the carriage capacity of
many of our competitors. We believe the combination of carrying more people or goods, traveling faster, and operating more efficiently
will provide a strong economic model for broad adoption.
Our business operating model
is predicated on building and selling Cavorite X7 aircraft for both civilian and military use. We also believe that the extensive intellectual
property developed to enable the successful operation of our aircraft could be licensed to third parties to generate significant profit.
We have designed, built, and
initiated testing of a 50%-scale prototype of our Cavorite concept. This sub-scale prototype has been through hover testing and the team
is currently working towards transition to forward flight. We have received a Special Flight Operations Certificate (SFOC) from Transport
Canada Civil Aviation (“TCCA”) that allows outdoor untethered flight of our sub-scale prototype. Our SFOC #930370 will remain
effective until its expiry on August 1st of 2025 at which point Horizon will require a formal extension to allow continued
untethered test flying. We have also partnered with Cert Centre Canada (3C) for development of a certification basis that will be used
to form the foundation for Type Certification with TCCA. Receiving a Type Certificate in accordance with stated regulatory standards
will certify compliance to the applicable airworthiness standards for the Cavorite X7, something that is a necessary prerequisite for
using the aircraft in commercial operations. We believe our aircraft will be one of the first eVTOL aircraft to be certified for flight
into known icing conditions (FIKI), dramatically increasing its operational utility. We believe we can receive Type Certification in 2027.
Patents and other Intellectual Property
In order to protect the novel
technologies that underpin the Cavorite X7 design, we have accumulated 22 issued and allowed patents thus far, the earliest expiry of
which will be 2035. The most significant of these patents are US non-provisional utility patents that protect the core fan-in-wing invention
and various other novel details required to enable its practical use. Amongst these issued patents are several design patents that seek
to protect the shape of the Cavorite X7 with its distinct forward swept main wings, unique empennage, and forward canards. Other intellectual
property exists in the areas of hybrid-electric propulsion; ducted fan propulsion unit blade and stator design, cooling, and electrical
control; control systems including novel yaw control software and hardware; and digital twin simulation.
The eVTOL Industry, Total Addressable Market
and its Drivers
The eVTOL aircraft market is a developing sector within the transportation
industry. This market sector is dependent on the successful development and implementation of eVTOL aircraft and networks, none of which
are currently in commercial operation. Morgan Stanley have projected that the eVTOL market for moving people and moving goods could be
between USD $1 trillion by 2040 and USD $9 trillion by 2050, as set forth in the “Morgan Stanley Research, eVTOL/Urban
Air Mobility TAM Update” report released in May 2021 (the “Morgan Stanley Report”).
Furthermore, in its 2021 Regional Air Mobility
report, NASA has highlighted that while the United States has over 5,000 airports, only 30 of them support 70% of all travelers.1
This report highlights that the average American lives within 16 minutes of an airport yet must travel hours to larger hubs
for even shorter regional travel. It is little wonder that 73% of Americans prefer road travel over flying, even if that means spending hours
in gridlocked traffic. We believe there is a significant opportunity to improve regional travel through the use of intelligently designed
VTOL aircraft.
Regional Air Mobility
Regional Air Mobility (RAM)
is simply a term that represents a faster, more efficient way of moving people and goods between 50 and 500 miles. With the development
of more economical, versatile, and safe aircraft like Horizon Aircraft’s Cavorite X7 concept that can flexibly travel between regional
locations, it is little wonder that the market demand is high for these types of machines.
NASA highlights that RAM has
the potential to fundamentally change how we travel and receive our goods by “bringing the convenience, speed, and safety of
air travel to all Americans, regardless of their proximity to a travel hub or urban center” and “[t]hrough targeted investments,
RAM will increase the safety, accessibility, and affordability of regional travel while building on the extensive and underutilized federal,
state, and local investment in our nation’s local airports.”
New types of aircraft capable
of operating with very limited ground infrastructure can deliver critical supplies to remote communities, transport critically injured
people to the hospital faster and more efficiently, help with disaster relief operations, and can help service people around the world
in special military missions.
Another report from Morgan
Stanley projects that eVTOL technology is expected to revolutionize logistics due to advantages in speed, efficiency and accessibility
over current trucks, airplane and train freight transportation. In addition, the Morgan Stanley Report cites the potential for eVTOL technology
to provide a viable and affordable transportation solution in geographic locations without a current viable solution (such as rural or
island communities) and to expand the possibilities for 24-hour delivery or overnight parcel delivery in regions where existing transport
modes are simply too slow.
The large RAM market opportunity is precipitated by a transportation system
that is insufficient to handle increasing demand without time delays, high infrastructure and maintenance costs and adverse environmental
impact. Since 1990, global passenger flows have increased by more than 125% across all major modes of travel while global trade volume
has increased by approximately 200%. To counter the rapidly increasing demand for mobility and logistics, governments worldwide are investing
a total of approximately USD $1 trillion per annum into transport infrastructure, which is three times more compared to twenty years
ago. Despite these investments, our regional transport systems have fundamentally not improved.
In response, governments are
increasing their support for the development of both urban and regional eVTOL networks, and sustainable aviation more generally, through
regulatory incentives and investment. For example, the Canadian government recently announced the Initiative for Sustainable Aviation
Technology (INSAT) where $350M will be invested into innovative companies focused on sustainable aviation solutions. We believe that Horizon
Aircraft could be an ideal match for the recent government funding opportunities.
The History of Horizon Aircraft
Horizon was founded in 2013
to develop an innovative prototype amphibious aircraft. However, as we investigated the latest advancements in the areas of electric motor
and battery technologies, we began to understand that a new type of aircraft concept was possible. With this realization, the experienced
aircraft development team shifted to developing the unique Cavorite X-series concept, eventually settling on a 7-place hybrid eVTOL
aircraft. In June of 2021, Horizon was acquired by Astro Aerospace Ltd. (“Astro”), an OTCQB-listed company, in an all-stock
deal. In August of 2022, after funding challenges, Astro agreed to unwind the deal and Horizon was sold back to its original shareholders.
In subsequent events, Astro Aerospace Ltd. became a revoked public company after failing to submit timely financial information.
| 1 | NASA,
REGIONAL AIR MOBILITY (2021), https://sacd.larc.nasa.gov/wp-content/uploads/sites/167/2021/04/2021-04-20-RAM.pdf. |
After re-privatizing from
Astro, Horizon successfully raised funding to support the continued development and testing of its sub-scale prototypes as well as to
continue progress on the detailed design of a full-scale technical demonstrator aircraft.
Sub-Scale Prototypes
We have built many sub-scale
prototype aircraft. Starting with a smaller 1/7th-scale aircraft, we are now flight testing a half-scale prototype. This large
prototype has a 20-foot wingspan, weighs almost 500 lbs., and is roughly 15 feet long. This aircraft has been through successful hover
testing, and the team has investigated forward transition speeds up to 70 mph in a wind tunnel. All testing has yielded positive results,
and the aircraft is performing significantly above initial expectations for both power and stability.
Full-Scale Cavorite X7 Aircraft Concept
Based on positive initial
testing results, the team is actively improving the design of a full-scale technical demonstrator aircraft. For example, the aircraft
will be designed to hold seven (7) people: six (6) passengers and one (1) pilot. Updated performance estimates from early
sub-scale testing indicate that the full-scale hybrid electric Cavorite X7 will be able to travel at speeds up to 250 mph and carry 1,500
lbs. of useful load over 500 miles with the appropriate fuel reserves. The team has identified and begun negotiating with key suppliers
globally to meet the specifications of the Cavorite X7.
Business Combination
On February 14, 2023, Pono
consummated its Initial Public Offering. On January 12, 2024 (the “Closing Date”), we consummated the Business Combination
which resulted in the combination of Pono with Legacy Horizon, pursuant to the previously announced Business Combination Agreement, following
the approval at the extraordinary general meeting of the shareholders of Pono held on January 4, 2024. On January 10, 2024, pursuant to
the Business Combination Agreement, the Company initiated the SPAC Continuance when Pono was continued and de-registered from the Cayman
Islands when the Cayman Islands Registrar of Companies issued a Certificate of De-Registration. On January 11, 2024, the Company completed
the SPAC Continuance and redomesticated as a British Columbia company and in connection therewith, effected the Articles, under the laws
of British Columbia. Pursuant to the Business Combination Agreement, on January 12, 2024, Merger Sub and Legacy Horizon were amalgamated
under the laws of British Columbia, and Pono changed its name to New Horizon Aircraft Ltd.
Our Competitive Strengths
We believe that our business
benefits from several competitive strengths, including the following:
Proprietary Ducted Fan-in-Wing Technology — the
“HOVR Wing” System
The majority of our competitors
use “open propeller” eVTOL vertical lift architectures. We employ our own proprietary HOVR Wing technology that provides a
number of important advantages:
| |
● |
More Efficient: Ducted fans are significantly more efficient than open propellers of similar diameter, using much less power for the same levels of thrust. Our unique HOVR Wing system also generates significant induced lift over the wing, further reducing the amount of momentum lift required by the electric ducted fans and improving efficiency. |
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● |
Lower Noise: The presence of ducts around the fans stops the noise from radiating freely into the environment. Furthermore, we will employ acoustic liners within the fan duct that lower the noise further. We expect this to enable the Cavorite X7 aircraft to land at a large number of locations close to high population densities. |
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● |
Fly Enroute Like a Normal Aircraft: The HOVR Wing has the ability to return to a configuration exactly like a normal aircraft for efficient enroute flight. This aerodynamically efficient enroute configuration is the key to its impressive performance metrics. |
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● |
CTOL, STOL, VTOL: The HOVR Wing concept also naturally supports Conventional Takeoff and Landing (“CTOL”), able to take off and land from a conventional runway like a traditional aircraft, should that be required. It can also conduct Short Takeoff and Landing (“STOL”) operations, something that is anticipated to be very useful for regional flight operators. In CTOL and STOL operations the aircraft will also be able to carry more payload. Finally VTOL operations will open up remote landing opportunities, special missions, and dramatically expand its unique utility. |
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Flight into Known Icing: We believe the Cavorite X7 will be one of the first VTOL aircraft that could be successfully certified for flight into known icing conditions. Being able to operate in poor weather should expand the operational capability of the aircraft and further reinforce strong commercial business cases. |
Agile Team with Significant Aerospace and
Operational Experience
We were founded by a team with deep experience in the aerospace industry.
Our team boasts individuals who have led the design, construction and testing of clean sheet aircraft and have combined industry experience
of more than 200 years. The leadership team within New Horizon also includes personnel with significant experience in human resources
and information technology which we believe will facilitate cohesion, effectiveness and security as the company continues to grow.
Operational Experience
Many of our principal engineers
and technicians have significant operational experience. Many are active pilots. For example, our CEO was an active CF-18 fighter pilot
for nearly 20 years and holds a commercial Airline Transport Pilot’s License. This experience allows the team to visualize
operating this unique aircraft in the real world. Design considerations for easy field repair, safety, performance, and a focus on lowering
operational costs has been foundational to the Cavorite X7 concept and development. We believe this deep operational experience and design
consideration has led to a machine concept that will support for-profit operators, thereby increasing demand for the aircraft.
Our Strategy
Build Aircraft for the Rapidly Growing Regional
Air Mobility Market
We are focusing our initial
services on Regional Air Mobility. Beyond simple movement of cargo and people at the regional level — 50 to 500 miles — the
aircraft will be able to economically conduct a number of unique missions such as:
| |
● |
Medical Evacuation: Able to travel almost twice the speed as a traditional helicopter and at significantly lower operating costs. Delivering people or other time sensitive materials to a hospital in half the time of current helicopters has the potential to save many lives. |
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● |
Remote Resupply: Many remote communities around the world suffer from anxiety about delivery of critical goods. Without the runway infrastructure to support traditional aircraft remote deliveries, the Cavorite X7 will be able to deliver critical medical supplies, food, and other important goods directly to these areas. |
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● |
Disaster Relief: As global climate conditions become more extreme, a hybrid electric eVTOL like the Cavorite X7 offers a unique way to save lives when a weather disaster strikes. Able to land almost anywhere and operate without power infrastructure due to its hybrid electric architecture, the Cavorite X7 could help people when climate disaster strikes. |
| |
● |
Military Missions: An aircraft capable of travelling at speeds almost twice that of a traditional helicopter offers unique military capability. Casualty evacuation, forward operating base resupply and other Special Operations will help Allied Servicepeople around the world. |
Develop Unique Technologies That Can be
Broadly Licensed to Generate Revenue
We feel that the technology
we are developing for the Cavorite X7 aircraft may be broadly useful across the industry. For example, the unique HOVR Wing concept could
support other designs across the industry or within military applications. These technologies offer potential to significantly boost revenue.
Our Cavorite X7 Hybrid eVTOL Aircraft Concept
Our full-scale Cavorite X7
Hybrid eVTOL aircraft is in the detailed design phase. The combination of unique architecture, hybrid power, and proprietary ducted fan-in-wing
technology enables it to take off and land vertically while also flying at speeds much greater than a typical helicopter. We anticipate
that the final production aircraft will be able to carry six (6) passengers and one (1) pilot at ranges over 500 miles and at
speeds up to 250 miles per hour.
Ducted Fan-in-Wing “HOVR Wing”
Technology
Our unique HOVR Wing technology
is described above and is protected by a US non-provisional utility patent. This technology allows the aircraft to return to an aerodynamically
efficient configuration enroute. The ability to fly as a traditional aircraft enroute has many operational advantages and may offer a
faster route to certification for commercial use.
During a vertical takeoff,
an array of electrically powered ducted fans located in the wings and canards provide the required lift. For transition to forward flight,
the aircraft starts its rear pusher propeller and accelerates forward to a safe speed at which point the canards and wings close systematically
to conceal the fans within the wings. At this point, the aircraft is in a normal configuration much like a traditional aircraft. The balance
of the mission can then be conducted in a highly efficient manner. For landing, the reverse process occurs.
Not only is this concept extremely
efficient enroute, but it is also very safe. During hover, multiple fans can fail with the aircraft still able to maintain hover. For
example, the 50%-scale aircraft is able to hover with 20% of its fans disabled. Furthermore, as discussed below, there are two sources
of electricity for the fans: an onboard generator and a battery array. Even at moderate forward speed the generator can support the full
electrical power requirements in the event of a dramatic full battery array failure. For increased durability, each fan unit is electrically,
mechanically, and thermally isolated from the others, reducing the chances of a cascading failure.
This aircraft concept also
naturally allows for Conventional Takeoff and Landing (CTOL) as well as Short Takeoff and Landing (STOL). If one end of the mission calls
for loading of precious cargo at an airport logistics hub or delivery to an airport, the Cavorite X7 can easily operate like a traditional
aircraft. Notably, in CTOL and STOL operational modes, the aircraft’s payload would also increase.
The Cavorite X7 hybrid eVTOL during transition
to forward flight
Hybrid Electric Power System
By their very nature, VTOL
aircraft will excel at delivering critical goods and services to remote locations. These remote locations may not have the charging infrastructure
to support purely electric VTOL aircraft. The Cavorite X7 will use a hybrid power system. This system will provide two sources of electrical
power during demanding vertical takeoff and landing operations and will allow the battery array to re-charge in flight and after a mission.
The batteries will be designed for high power draw, so they will naturally support quick charging.
For remote operations, the
aircraft effectively becomes a power generation station. After landing the aircraft can recharge itself in minutes and will be able to
produce usable power should that be required (e.g., disaster relief mission where the power grid is offline). For example, in a disaster
relief mission the Cavorite X7 could land in a parking lot and provide charging and/or power for communications that has been disrupted.
The hybrid power system will
also be more efficient, emitting less greenhouse gas emissions than a traditional turbine engine when compared to a traditional helicopter.
This is for two reasons. First, the aircraft draws significant electrical energy from the battery array during vertical takeoff and landing,
reducing emissions during this phase. Second, enroute the aircraft is in a very aerodynamically efficient configuration as compared to
a helicopter, dramatically lowering the power required to travel at a given speed and therefore reduce emissions enroute. The combination
of these two factors is a compelling sustainability improvement over current VTOL aircraft.
Safety by Design
The safety, performance, and
reliability of our aircraft will be key factors in achieving customer acceptance of our aircraft for commercial use. First and foremost,
our aircraft design is focused on safety. There are several important considerations in the design concept that augment safety:
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The hybrid electric system will be designed to provide two sources of electrical power for the vertical lifting fans. |
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The aircraft can hover with more than 20% of the fans disabled, returning the aircraft to safety in the case of a fan failure. |
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Each vertical lifting fan is mechanically contained, preventing catastrophic blade loss from damaging adjacent fan units. |
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Each vertical lifting fan is both electrically and thermally isolated. This will help to avoid any cascading electrical problems or thermal runaways from reaching adjacent fan units. |
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With only moderate forward speed, the generator can support all electrical demand for the vertical fan array. This provides additional safety in the event of a catastrophic battery failure. |
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The aircraft is able to fly normally with all of the wings and canards in the open position, should any of them fail to move as commanded. |
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In the event of a vertical lift system failure, the aircraft can land (or take off) conventionally. It can also operate in STOL mode, should that be required. |
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With the wings closed during ground operations there will be no exposed fans, increasing passenger safety. |
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An early focus in the design process on human factors will ensure that the aircraft is easy to fly, increasing safety in all flight operations. |
Performance
The X7 concept will also benefit
from significant performance. First, due to its aerodynamically efficient configuration enroute, it will be fast. We are anticipating
a maximum dash cruise speed of 250 knots, with a more efficient enroute speed likely just over 200 knots. Our initial calculations also
indicate that in VTOL mode it will have a 1,500 lb. useful load, which is the amount of combined fuel and payload it can carry. This could
increase to 1,800 lbs. when the aircraft operates in STOL or CTOL modes. Finally, our initial estimates indicate the aircraft will be
able to travel 500 miles with medium payloads with full operational fuel reserves. This is an aircraft concept that was designed to do
work in the real world, and we believe our customers will recognize and appreciate this.
Flight into Known Icing and Other Operational
Challenges
We believe that this concept
may be one of the only viable VTOL designs that could be certified for Flight Into Known Icing (FIKI). This is due to its unique characteristic
of flying like a traditional aircraft for enroute flight, without multiple open rotors that could accumulate ice. Transition to and from
vertical flight would occur in Visual Meteorological Conditions (VMC)–essentially clear of any clouds — so enroute
there would only be one propeller exposed to icing conditions should there be a requirement to fly through clouds that could cause ice
accumulation. This propeller can be electrically heated for anti-icing purposes, something that is very common in commercial regional
turboprop operations. Furthermore, with a significant amount of on-board electrical power available enroute, electrothermal coatings may
be used to help prevent or remove ice on lift surfaces. Finally, with a turbine engine the aircraft systems will have access to warm bleed
air that could be circulated for anti-icing or de-icing.
Bird strikes are also an area
of concern for commercial flight. Our aircraft concept has only one exposed propeller that is partially protected by the fuselage. Unlike
many compound open rotor designs where losing one blade may cause a cascading failure, our aircraft operates like any number of the thousands
of commercial regional aircraft already certified and operating profitably.
Bad weather is also a challenge
for regional commercial flight operations. The Cavorite X7’s hybrid power system and efficient enroute configuration will likely
make it more resilient in the face of bad weather. Increased speed and range over pure electric VTOL regional aircraft should allow for
increased versatility, able to divert to a backup airfield or vertiport, go around unexpected storms, or deal with unexpected winds that
could negatively impact slower designs. We feel that this, coupled with FIKI certification, could offer a significant operational advantage
over our competitors.
Aviation Regulations
In Canada and the U.S., civil
aviation is regulated by the TCCA and the Federal Aviation Administration (FAA) respectively. These two regulatory bodies control all
aspects of certifying a new aircraft for commercial flight (Type Certification), production of that aircraft (Production Certification)
and issuance of an Air Operations Certificate (AOC) to organizations who wish to use the aircraft in commercial operations.
We intend to seek approval
for the design of the Cavorite X7 by obtaining a Type Certificate under TCCA using Canadian Air Regulations (CAR) §523 under Normal
Category, Level 2 — for aeroplanes with 2 to 6 passengers. Due to the innovative design of the Cavorite X7, it is expected
that TCCA will invoke certain regulations and standards from CAR §527, (helicopter certification requirements) and
additional Special Conditions. We have engaged Flight Test Centre of Excellence (3C) as partners who will perform the role of
Applicant’s Representative for the certification effort. 3C has extensive expertise in developing and executing aircraft
certification programs and are helping to prepare our formal application to TCCA. We have also had initial discussions with the FAA
and plan to run a parallel program that would greatly expedite certification for use in the United States.
While working towards a Type
Certificate for our aircraft that will enable sales for commercial use, we will also be pursuing a Production Certificate. Once obtained,
this will allow volume manufacturing to meet the demand that we anticipate. Companies wishing to use our aircraft for commercial use will
require an AOC.
Since we will not be permitted
to deliver commercially produced aircraft to customers until we have obtained TCCA type certification, no material sales revenue will
be generated before TCCA certification issuance. The process of obtaining a valid type certificate, production certificate and airworthiness
certificate for the Cavorite X7 will take several years. Any delay in the certification process could negatively impact us by requiring
additional funds be spent on the certification process and by delaying our ability to sell aircraft.
Marketing
Our marketing strategy is
intended to build industry and consumer awareness of our technology. We are working with several external firms to develop and execute
a robust marketing plan. Marketing efforts will include comprehensive Communication, Investor Relations, and Public Relations plans to
ensure consumer understanding, investor confidence, and entering the public consciousness as developmental operations continue. Our overarching
value proposition will focus on the benefits of our Cavorite X7 platform and its wide array of operational capabilities, while maintaining
the highest of safety standards. We also believe that the striking visual design of the aircraft coupled with market leading utility will
be a point of differentiation from our competition.
Competition
We acknowledge the competitive
nature of the current VTOL landscape in North America and around the world. Alternative technologies, either known or unknown, could bring
more attractive VTOL designs to the marketplace. We believe that our primary competition for market share will come from similar minded
companies that come to realize that Regional Air Mobility may offer a more compelling initial business case for early VTOL designs. These
companies could employ similar design architectures alongside hybrid electric power systems and challenge our Cavorite X7. However, at
present the vast majority of our competition are pursuing purely electric flight, which leaves most lagging behind from a speed, range
and cargo carrying capability.
Human Capital
As of August 15, 2024, we had 14 employees in Canada and 2 employees
outside of Canada. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union.
We consider our relationship with our employees to be good. We believe that our turnover and productivity levels are at acceptable levels.
Properties
New Horizon leases office
space and an aircraft hangar in Lindsay Ontario, which serves as the corporate headquarters, and office space and light composite manufacturing
space in Haliburton Ontario. New Horizon believes that these properties are sufficient for its business and operations as currently conducted.
Corporate Information
On January 11, 2024, we continued
and de-registered from the Cayman Islands and redomiciled under the laws of the Province of British Columbia, Canada. Our principal executive
offices are located at 3187 Highway 35, Lindsay, Ontario, K9V 4R1, and our telephone number is (613) 866-1935. Our website is https://www.horizonaircraft.com/.
Our website and the information on or that can be accessed through such website are not part of this prospectus.
Legal Proceedings
As of August 15, 2024, we were not a party to any material legal proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of the outcome,
litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity
and reputational harm and other factors.
Item 1A. Risk Factors.
The following risk factors
apply to the business and operations of New Horizon and its consolidated subsidiaries. The occurrence of one or more of the events or
circumstances described in these risk factors, alone or in combination with other events or circumstances, may adversely affect the ability
to realize the anticipated benefits of the Business Combination and may have an adverse effect on the business, cash flows, financial
condition and results of operations of New Horizon. We may face additional risks and uncertainties that are not presently known to us
or that we currently deem immaterial, which may also impair our business, cash flows, financial condition and results of operations.
All figures noted are in thousands of Canadian dollars unless noted
otherwise.
Risks Related to Our Business and Industry
We have incurred losses and expect to incur
significant expenses and continuing losses for the foreseeable future, and we may not achieve or maintain profitability.
We have incurred significant
operating losses. Our operating losses were $8,160 and $1,247 for the years ended May 31, 2024 and 2023, respectively. We expect
to continue to incur losses for the foreseeable future as we develop our aircraft.
We have not yet started commercial
operations, making it difficult for us to predict our future operating results, and we believe that we will continue to incur operating
losses until at least the time we begin commercial operations. As a result, our losses may be larger than anticipated, and we may not
achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase profitability.
We expect our operating expenses
to significantly increase over the next several years as we complete our aircraft design, build, testing and manufacturing. We expect
the rate at which we incur losses will be significantly higher for 2024 through at least 2027 as we engage in the following activities:
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continuing to design our Cavorite X7 hybrid eVTOL aircraft with the goal of having such aircraft certified and ultimately produced; |
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engaging suppliers in the development of aircraft components and committing capital to serial production of those components; |
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building our production capabilities to assemble and test the major components of our aircraft : propulsion systems, energy system assembly and aircraft integration, as well as incurring costs associated with outsourcing production of subsystems and other key components; |
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hiring additional employees across design, production, marketing, administration and commercialization of our business; |
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engaging with third party providers for design, testing, certification and commercialization of our products; |
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building up inventories of parts and components for our aircraft; |
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further enhancing our research and development capacities to continue the work on our aircraft’s technology, components, hardware and software performance; |
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testing and certifying the performance and operation of our aircraft; |
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working with third-party providers to train our pilots, mechanics and technicians in our proprietary aircraft operation and maintenance; |
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developing and launching our digital platform and customer user interface; |
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developing our sales and marketing activities and developing our vertiport infrastructure; and |
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increasing our general and administrative functions to support our growing operations and our responsibilities as a public company. |
Because we will incur the
costs and expenses from these efforts before we receive any associated revenue, our losses in future periods will be significant. In addition,
we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in the revenue we
anticipate, which would further increase our losses. Furthermore, if our future growth and operating performance fails to meet investor
or analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring customers or expanding
our operations, this could have a material adverse effect on our business, financial condition and results of operations.
The eVTOL market may not continue to develop,
eVTOL aircraft may not be adopted by the transportation market, eVTOL aircraft may not be certified by transportation and aviation authorities
or eVTOL aircraft may not deliver the expected reduction in operating costs or time savings.
eVTOL aircraft involve a complex
set of technologies and are subject to evolving regulations, many of which were originally not intended to apply to electric and/or VTOL
aircraft. Before any eVTOL aircraft can fly passengers, manufacturers and operators must receive requisite regulatory approvals, including — but
not limited to — aircraft type certificate and certification related to production of the aircraft (i.e., a Production
Certificate). No eVTOL aircraft have passed certification by TCCA, EASA or the FAA for commercial operations in Canada, Europe or the
United States, respectively, and there is no assurance that our current serial prototype for the Cavorite X7 aircraft will receive
government certification in a way that is market-viable or commercially successful, in a timely manner or at all. Gaining government certification
requires us to prove the performance, reliability and safety of its Cavorite X7 aircraft, which cannot be assured. Any of the foregoing
risks and challenges could adversely affect our prospects, business, financial condition and results of operations.
The success of our business depends on the
safety and positive perception of our aircraft, the establishment of strategic relationships, and of our ability to effectively market
and sell aircraft that will be used in Regional Air Mobility services.
We expect that the success
of selling our aircraft will be highly dependent on our target customers’ embrace of Regional Air Mobility and eVTOL vehicles, which
we believe will be influenced by the public’s perception of the safety, convenience and cost of our Cavorite X7 specifically but
also of the industry as a whole. As a new industry, the public has low awareness of Regional Air Mobility and eVTOL vehicles, which will
require substantial publicity and marketing campaigns in a cost-effective manner to effectively and adequately target and engage our potential
customers. If we are unable to demonstrate the safety of our aircraft, the convenience of our aircraft, and the cost-effectiveness of
our use in Regional Air Mobility services as compared with other commuting, goods transportation, airport shuttle, or regional transportation
options, our business may not develop as we anticipate we could, and our business, revenue and operations may be adversely affected. Further,
our sales growth will depend on our ability to develop relationships with infrastructure providers, airline operators, other commercial
entities, municipalities and regional governments and landowners, which may not be effective in generating anticipated sales, and marketing
campaigns can be expensive and may not result in the acquisition of customers in a cost-effective manner, if at all. If conflicts arise
with our strategic counterparties, the other party may act in a manner adverse to we and could limit our ability to implement our strategies.
Our strategic counterparties may develop, either alone or with others, products or services in related fields that are competitive with
our products and services.
We have a limited operating history and
face significant challenges to develop, certify, and manufacture our aircraft. Our Cavorite X7 eVTOL aircraft remains in development,
and we do not expect to deliver any aircraft until 2027, at the earliest, if at all.
We were incorporated in 2013,
and we are developing an aircraft for the emerging Regional Air Mobility market, which is continuously evolving. Although our team has
experience designing, building and testing new aircraft, we have no experience as an organization in volume manufacturing of our planned
Cavorite X7 aircraft. We cannot assure that us or our suppliers and other commercial counterparties will be able to develop efficient,
cost-effective manufacturing capability and processes, and reliable sources of component supplies that will enable us to meet the quality,
price, engineering, design and production standards, as well as the production volumes, required to successfully produce and maintain
Cavorite X7 aircraft. Based on our current testing and projections, we believe that we can achieve our business plan and forecasted performance
model targets in terms of aircraft range, speed, energy system capacity, and payload for our full-scale Cavorite X7 aircraft; however,
we currently only have a 50%-scale prototype aircraft completed and undergoing flight testing.
Detailed design of our full-scale
Cavorite X7 aircraft has not yet been completed, and many of the systems, the aerodynamics, the structure, and other critical elements
of the design have yet to be designed, produced, and tested at full-scale. As such, we might not achieve all, or any, of our performance
targets, which would materially impact our business plan and results of operations.
You should consider our business
and prospects in light of the risks and significant challenges we face as a new entrant into a new industry, including, among other things,
with respect to our ability to:
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design, build, test and produce safe, reliable and high-quality Cavorite X7 aircraft and scale that production in a cost- effective manner; |
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obtain the necessary certification and regulatory approvals in a timely manner; |
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build a well-recognized and respected brand; |
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establish and expand our customer base; |
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properly price our aircraft, and successfully anticipate the demand by our target customers; |
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improve and maintain our manufacturing efficiency; |
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maintain a reliable, secure, high-performance and scalable technology infrastructure; |
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predict our future revenues and appropriately budget for our expenses; |
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anticipate trends that may emerge and affect our business; |
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anticipate and adapt to changing market conditions, including technological developments and changes in competitive landscape; |
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secure, protect and defend our intellectual property; and |
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navigate an evolving and complex regulatory environment. |
If we fail to adequately address
any or all of these risks and challenges, our business may be materially and adversely affected.
The Regional Air Mobility market for eVTOL
passenger and goods transport services does not exist; whether and how it develops is based on assumptions, and the Regional Air Mobility
market may not achieve the growth potential we expect or may grow more slowly than expected.
Our estimates for the total
addressable market for eVTOL Regional Air Mobility, regional passenger and goods transport, and military use are based on a number of
internal and third-party estimates, including customers who have expressed interest, assumed prices at which we can offer our services,
assumed aircraft development, estimated certification and production costs, our ability to manufacture, obtain regulatory approval and
certification, our internal processes and general market conditions. While we believe our assumptions and the data underlying our estimates
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 may prove to be incorrect,
which could negatively affect our operating revenue, costs, operations and potential profitability.
We may be unable to adequately control the
costs associated with our pre-launch operations, and our costs will continue to be significant after we commence operations.
We will require significant
capital to develop and grow our business, including designing, developing, testing, certifying and manufacturing our aircraft, educating
customers of the safety, efficiency and cost-effectiveness of our unique aircraft and building our brand. Our research and development
expenses were $880 and $676 in 2024 and 2023, respectively, and we expect to continue to incur significant expenses which will impact
our profitability, including continuing research and development expenses, manufacturing, maintenance and procurement costs, marketing,
customer and payment system expenses, and general and administrative expenses as we scale our operations. Our ability to become profitable
in the future will not only depend on our ability to successfully market our aircraft for global use but also our ability to control our
costs. If we are unable to cost efficiently design, certify, manufacture, market, and deliver our aircraft on time, our margins, profitability
and prospects would be materially and adversely affected.
We are a relatively small company in comparison
to current industry leaders in the Regional Air Mobility market. We may experience difficulties in managing our growth.
With under 20 employees currently,
we expect to experience significant growth in team size as we experience an increase in the scope and nature of our research and development,
manufacturing, testing, and certification of our aircraft. Our ability to manage our future growth will require us to continue to improve
our operational, financial and management controls, compliance programs and reporting systems. We are currently in the process of strengthening
our compliance programs, including our compliance programs related to internal controls, intellectual property management, privacy and
cybersecurity. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in existing
controls, programs, systems and procedures, which could have an adverse effect on our business, reputation and financial results. We also
may not be able to grow the team in a timely manner or hire the expertise required in order to successfully continue our aircraft development.
Our forward-looking operating information
and business plan forecast relies in large part upon assumptions and analyses that we have developed or obtained from respected third
parties. If these assumptions or analyses prove to be incorrect, our actual operating results may be materially different from our forecasted
results.
Our management has prepared
our projected financial performance, operating information and business plan, which reflect our current estimates of future performance.
Whether our actual financial results and business develops in a way that is consistent with our expectations and assumptions as reflected
in our forecasts depends on a number of factors, many of which are outside our control. Our estimates and assumptions may prove inaccurate,
causing the actual amount to differ from our estimates. These factors include, but are not limited to, the risk factors described herein
and the following factors:
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our ability to obtain sufficient capital to sustain and grow our business; |
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our effectiveness in managing our costs and our growth; |
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our ability to meet the performance and cost targets of manufacturing our aircraft; |
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our ability to effectively develop our fan-in-wing eVTOL technology that underpins our Cavorite X7 aircraft design and operation; |
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establishing and maintaining relationships with key providers and suppliers; |
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the timing, cost and ability to obtain the necessary certifications and regulatory approvals; |
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the development of the Regional Air Mobility market and customer demand for our aircraft; |
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the costs and effectiveness of our marketing and promotional efforts; |
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competition from other companies with compelling aircraft that may emerge to compete directly or indirectly with our Cavorite X7 aircraft; |
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our ability to retain existing key management, to integrate recent hires and to attract, retain and motivate qualified personnel; |
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the overall strength and stability of domestic and international economies; |
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regulatory, legislative and political changes; and |
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consumer spending habits. |
Unfavorable changes in any
of these or other factors, most of which are beyond our control, could materially and adversely affect our business, results of operations
and financial results. It is difficult to predict future revenues and appropriately budget for our expenses, and we have limited insight
into trends that may emerge and affect our business. If actual results differ from our estimates or we adjust our estimates in future
periods, our operating results and financial position could be materially affected.
We anticipate delivering our first Cavorite
X7 eVTOL aircraft to customers in 2027, pending receipt of regulatory approval and certification; however, the aircraft remains in the
detailed design phase and has yet to complete any testing and certification process. Any delay in the design, production, or completion
or requisite testing and certification, and any design changes that may be required to be implemented in order to receive certification,
would adversely impact our business plan and strategic growth plan and our financial condition.
We are currently in rigorous
testing of our 50%-scale prototype and are still refining the detailed design of a full-scale aircraft. While we currently have an experienced
aircraft prototyping team, there are many important milestones to achieve prior to being able to deliver our first commercial aircraft,
including completing the detailed design, sub-system assembly, airframe manufacturing, systems integration, testing, design refinement,
type certification of the aircraft, and production certification of our manufacturing facility. Our inability to properly plan, execute
our operations, and analyze and contain the risk associated with each step could negatively impact our ability to successfully operate
our business.
Any delays in the development, certification,
manufacture and commercialization of our Cavorite X7 aircraft and related technology, such as battery technology or electric motors, may
adversely impact our business, financial condition and results of operations.
We may experience future delays
or other complications in the design, certification, manufacture, and production of our aircraft and related technology. These delays
could negatively impact our progress towards commercialization or result in delays in increasing production capacity. If we encounter
difficulties in scaling our production, if we fail to procure the key enabling technologies from our suppliers (e.g., batteries, power
electronics, electric motors, etc.) which meet the required performance parameters, if our aircraft technologies and components do not
meet our expectations, or if such technologies fail to perform as expected, are inferior to those of our competitors or are perceived
as less safe than those of our competitors, we may not be able to achieve our performance targets in aircraft range, speed, payload and
noise or launch products on our anticipated timelines, and our business, financial condition and results of operations could be materially
and adversely impacted.
Adverse publicity stemming from any incident
involving us or our competitors, or an incident involving any air travel service or unmanned flight based on eVTOL technologies, could
have a material adverse effect on our business, financial condition and results of operations.
Electric aircraft are based
on complex technology that requires skilled pilot operation and maintenance. Like any aircraft, they may experience operational or process
failures and other problems, including adverse weather conditions, unanticipated collisions with foreign objects, manufacturing or design
defects, pilot error, software malfunctions, cyber-attacks or other intentional acts that could result in potential safety risks. Any
actual or perceived safety issues with our aircraft, other electric aircraft or eVTOL aircraft, unmanned flight based on autonomous technology
or the Regional Air Mobility industry generally may result in significant reputational harm to our business, in addition to tort liability,
increased safety infrastructure and other costs that may arise. The electric aircraft industry has had several accidents involving prototypes.
Lilium’s first Phoenix demonstrator was destroyed by a ground-maintenance fire in February 2020; Eviation’s prototype
eVTOL vehicle caught fire during testing in January 2020; a small battery-operated plane operated by Avinor and built by Slovenia’s
Pipistrel crashed in Norway in August 2019; and an electric-motor experimental aircraft built by Siemens and Hungarian company Magnus
crashed in Hungary in May 2018, killing both occupants.
We are also subject to risk
of adverse publicity stemming from any public incident involving the company, our employees or our brand. If our personnel, our 50%-scale
prototype aircraft, or the personnel or vehicles of one of our competitors, were to be involved in a public incident, accident or catastrophe,
the public perception of the Regional Air Mobility industry or eVTOL vehicles specifically could be adversely affected, resulting in decreased
customer demand for our aircraft, significant reputational harm or potential legal liability, which could cause a material adverse effect
on sales, business and financial condition. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident
or catastrophe. If our insurance is inapplicable or not adequate, we may be forced to bear substantial losses from an incident or accident.
Our business plans require a significant
amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may adversely
affect the market price of our shares and dilute our shareholders or introduce covenants that may restrict its operations.
We expect our expenditures
to continue to be significant in the foreseeable future as we expand our development, certification, production and commercial launch,
and that our level of capital expenditures will be significantly affected by customer demand for our services. The fact that we have a
limited operating history and are entering a new industry means we have no historical data on the demand for its aircraft. As a result,
our future capital requirements will be uncertain and actual capital requirements may be different from those we currently anticipate.
We may seek equity or debt financing to finance a portion of its capital expenditures. Such financing might not be available to us in
a timely manner or on terms that are acceptable, or at all.
Our ability to obtain the
necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor
acceptance of our industry and business model. These factors may make the timing, amount, terms and conditions of such financing unattractive
or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our
planned activities or substantially change our corporate structure. We might not be able to obtain any funding, and we might not have
sufficient resources to conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue
our operations. We may seek to raise such capital through the issuance of additional shares or debt securities with conversion rights
(such as convertible bonds and option rights). An issuance of additional shares or debt securities with conversion rights could potentially
reduce the market price of our shares, and we currently cannot predict the amounts and terms of such future offerings.
In addition, our future capital
needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of
additional equity or equity-linked securities could dilute our shareholders. In addition, such dilution may arise from the acquisition
or investments in companies in exchange, fully or in part, for newly issued shares, options granted to our business partners or from the
exercise of stock options by our employees in the context of existing or future share option programs or the issuance of shares to employees
in the context of existing or future employee participation programs. The incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financing covenants that would restrict our operations.
If we cannot raise additional
funds when we need or want them, our operations and prospects could be negatively affected.
If we are unable to successfully design
and manufacture our aircraft, our business will be harmed.
We are currently developing
plans to expand our primary manufacturing infrastructure near Toronto, Ontario, and we plan to begin production of our certified aircraft
in 2027; however, currently we have 50%-scale prototype aircraft in active flight testing and are in an early design phase of our full-scale
aircraft. We may not be able to successfully develop and certify a full-scale aircraft. We may also not be able to successfully develop
commercial-scale manufacturing capabilities internally or supply chain relationships with our intended Tier 1 suppliers. Our production
facilities and the production facilities of our outsourcing parties and suppliers may be harmed or rendered inoperable by natural or man-made
disasters, including earthquakes, flooding, fire and power outages, or by health epidemics, such as the COVID-19 pandemic, which may render
it difficult or impossible for us to manufacture our aircraft for some period of time.
If the Cavorite X7 eVTOL aircraft we build
fails to perform as expected our ability to develop, market, and sell our aircraft could be harmed.
We have not yet produced a
full-scale Cavorite X7 aircraft. Although we are satisfied with early flight testing of our 50%-scale prototype, there is no guarantee
that the full-scale aircraft will perform as we anticipate. Our aircraft may contain defects in design and manufacture that may cause
them not to perform as expected or that may require design changes and/or repairs. Further, our Cavorite X7 aircraft may be impacted by
various performance factors that could impair customer satisfaction, such as excessive noise, turbulent air during flight, foreign object
damage, fan stall or wing flutter, overloading, hail and bird strike, or adverse icing accumulation. If our Cavorite X7 aircraft fails
to perform as expected, we may need to delay delivery of initial aircraft, which could adversely affect our brand in our target markets
and could adversely affect our business, prospects, and results of operations.
Our Cavorite X7 aircraft require complex
software, hybrid electric power systems, battery technology and other technology systems that remain in development and need to be commercialized
in coordination with our vendors and suppliers to complete serial production. The failure of advances in technology and of manufacturing
at the rates we project may impact our ability to increase the volume of our production or drive down end user pricing.
Our Cavorite X7 will use a
substantial amount of third-party and in-house software codes and complex hardware to operate. Our software and hardware may contain errors,
bugs or vulnerabilities, and our systems are subject to certain technical limitations that may compromise our ability to meet our objectives.
Some errors, bugs or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been implemented.
We have a limited frame of reference by which to evaluate the long-term performance of our software and hardware systems and our aircraft,
and we may be unable to detect and fix any defects in the aircraft prior to commencing commercial operations. The development and on-going
monitoring of such advanced technologies is inherently complex, and we will need to coordinate with our vendors and suppliers in order
to complete full-scale production. Our potential inability to develop the necessary software and technology systems may harm our competitive
position or delay the certification or manufacture of our aircraft.
We are relying on third-party
suppliers to develop a number of emerging technologies for use in our products, including lithium-ion battery technology. Many of these
technologies are already commercially viable, and our survey of commercially available products has already yielded promising results.
However, the final cell design of our potential suppliers may not be able to meet the safety, technological, economical or operational
requirements to support the regulatory requirements and performance assumed in our business plan.
We are also relying on third-party
suppliers to commercialize these technologies (such as battery cell technology) at the volume and costs they require to launch and ramp-up
our production. Our suppliers may not be able to meet the production timing, volume requirements or cost requirements we have assumed
in our business plan. Our third-party suppliers could face other challenges, such as the lack of raw materials or machinery, the breakdown
of tools in production or the malfunctioning of technology as they ramp up production. As a result, our business plan could be significantly
impacted, and we may incur significant delays in production and full commercialization, which could adversely affect our business, prospects,
and results of operations.
Our Cavorite X7 aircraft will make extensive
use of lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame.
The battery packs within our
Cavorite X7 aircraft will use lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting
smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. While the battery pack is designed to
contain any single cell’s release of energy without spreading to neighboring cells, a failure of battery packs in our aircraft could
occur or batteries could catch fire during production or testing, which could result in bodily injury or death and could subject us to
lawsuits, regulatory challenges or redesign efforts, all of which would be time consuming and expensive and could harm our brand image.
Also, negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, the social and environmental
impacts of cobalt mining, or any future incident involving lithium-ion cells, such as a vehicle or other fire, could seriously harm our
business and reputation.
We will rely on third-party suppliers and
strategic parties for the provision and development of key emerging technologies, components and materials used in our Cavorite X7 aircraft,
such as the lithium-ion batteries that will help to power the aircraft, a significant number of which may be single or limited source
suppliers. If any of these prospective suppliers or strategic parties choose to not do business with us at all, or insist on terms that
are commercially disadvantageous, we may have significant difficulty in procuring and producing our aircraft, and our business prospects
would be harmed.
Third-party suppliers and
strategic parties will provide key components and technology to the Cavorite X7 aircraft. Collaborations with strategic parties are necessary
to successfully commercialize our existing and future products. If we are unable to identify or enter into agreements with strategic parties
for the development of key technology or if such strategic parties insist on terms that are commercially disadvantageous, including for
example the ability to freely commercialize jointly owned intellectual property, we may have significant difficulty in procuring and producing
our aircraft or technologies, components or materials used in our aircraft.
In addition to our collaborations,
we will be substantially reliant on our relationships with our suppliers for the parts and components in our aircraft. If any of these
prospective suppliers choose to not do business with us at all, or insist on terms that are commercially disadvantageous, we may have
significant difficulty in procuring and producing our aircraft, and our business prospects would be harmed. If our suppliers experience
any delays in providing us with or developing necessary components, or if our suppliers are unable to deliver necessary components in
a timely manner and at prices and volumes acceptable to us, we could experience delays in manufacturing our aircraft and delivering on
our timelines, which could have a material adverse effect on our business, prospects and operating results.
While we plan to obtain components
from multiple sources whenever possible, we may purchase many of the components used in our Cavorite X7 aircraft from a single source.
While we believe that we may be able to establish alternate supply relationships and can obtain replacement components for our single
source components, we may be unable to do so in the short term, or at all, at prices or quality levels that are acceptable to us. In addition,
we could experience delays if our suppliers do not meet agreed upon timelines or experience capacity constraints. Any disruption in the
supply of components, whether or not from a single source supplier, could temporarily disrupt production of our aircraft until an alternative
supplier is able to supply the required material. Changes in business conditions, unforeseen circumstances, governmental changes, and
other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components
to us on a timely basis. Any of the foregoing could materially and adversely affect our results of operations, financial condition and
prospects.
If any of our suppliers become economically
distressed or go bankrupt, we may be required to provide substantial financial support or take other measures to ensure supplies of components
or materials, which could increase our costs, affect our liquidity or cause production disruptions.
We expect to purchase various
types of equipment, raw materials and manufactured component parts from our suppliers. If these suppliers experience substantial financial
difficulties, cease operations, or otherwise face business disruptions, we may be required to provide substantial financial support to
ensure supply continuity or may have to take other measures to ensure components and materials remain available. Any disruption could
affect our ability to deliver aircraft and could increase our costs and negatively affect our liquidity and financial performance.
We may not succeed in establishing, maintaining
and strengthening our brand, which would materially and adversely affect customer acceptance of our services, reducing our anticipated
sales, revenue and forecasts.
Our business and prospects
heavily depend on our ability to develop, maintain and strengthen our brand and sell consumers on the safety, convenience and cost-effectiveness
of our Regional Air Mobility services. If we are not able to establish, maintain and strengthen our brand, we may lose the opportunity
to build a critical mass of customers. Our ability to develop, maintain and strengthen our brand will depend heavily on the success of
our marketing efforts. When it launches, we expect the Regional Air Mobility industry to be intensely competitive, with a strong first-mover
advantage, and we will not be the first to deliver viable eVTOL aircraft to service this market. If we do not develop and maintain a strong
brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.
Our business depends substantially on the
continuing efforts of our key employees and qualified personnel; our operations may be severely disrupted if we lose their services.
Our success depends substantially
on the continued efforts of our key employees and qualified personnel, and our operations may be severely disrupted if we lose their services.
As we build our brand and become more well known, the risk that competitors or other companies may poach our key talented personnel increases.
The failure to attract, integrate, train, motivate and retain these personnel could seriously harm our business and prospects. The design,
assembly, testing, production and certification of our aircraft requires highly skilled personnel for which there is currently a shortage
in the aerospace workforce in North America. We intend to work with third parties to attract talented workers; however, if we are unable
to hire, train, and retain qualified personnel, our business could be harmed, and we may be unable to implement our growth plans.
Our business may be adversely affected by labor and union activities
in the future.
Although none of our employees
are currently represented by a labor union, it is not uncommon throughout the aircraft industry generally for many employees at aircraft
companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. we may also directly and
indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work
stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results.
Failure of information security and privacy
concerns could subject we to penalties, damage our reputation and brand, and harm our business and results of operations.
We expect to face significant
challenges with respect to information security and privacy, including the storage, transmission and sharing of confidential information.
we will transmit and store confidential and private information of our customers, such as personal information, including names, accounts,
user IDs and passwords, and payment or transaction related information.
We intend to adopt strict
information security policies and deploy advanced measures to implement the policies, including, among others, advanced encryption technologies.
However, advances in technology, an increased level of sophistication of our services, an increased level of expertise of hackers, new
discoveries in the field of cryptography or others can still result in a compromise or breach of the measures that we use. If we are unable
to protect our systems, and hence the information stored in our systems, from unauthorized access, use, disclosure, disruption, modification
or destruction, such problems or security breaches could cause a loss, give rise to our liabilities to the owners of confidential information
or even subject us to fines and penalties. In addition, complying with various laws and regulations could cause us to incur substantial
costs or require that we change our business practices, including our data practices, in a manner adverse to our business.
Compliance with required information
security laws and regulations could be expensive and may place restrictions on the conduct of our business and the manner in which we
interact with our customers. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against
us, and misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings
against we by governmental entities or others, and damage to our reputation and credibility, and could have a negative impact on revenues
and profits.
Significant capital and other
resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply
with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers
and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure
by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise
of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, could
cause our customers to lose trust in us and could expose us to legal claims. Any perception by the public that online transactions or
the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online retail and
other online services generally, which may reduce the number of orders we receive.
We are subject to cybersecurity risks to
our operational systems, security systems, infrastructure, integrated software in our aircraft and customer data processed by us or third-party
vendors.
We are at risk for interruptions,
outages and breaches of the following systems, which are either owned by us or operated by our third-party vendors or suppliers:
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operational systems, including business, financial, accounting, product development, data processing or production processes; |
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facility security systems; |
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aircraft technology including powertrain, avionics and flight control software; |
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the integrated software in our aircraft; or |
The occurrence of any such
incident could disrupt our operational systems, result in loss of intellectual property, trade secrets or other proprietary or competitively
sensitive information, compromise personal information of customers, employees, suppliers, or others, jeopardize the security of our facilities
or affect the performance of in-product technology and the integrated software in our aircraft.
Moreover, there are inherent
risks associated with developing, improving, expanding and updating the current systems, such as 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 manufacture, deploy, and deliver our aircraft, 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 these systems upon which we rely, including those of our third-party vendors or suppliers, will be effectively implemented,
maintained or expanded as planned. If these systems do not operate as we expect them to, we may be required to expend significant resources
to make corrections or find alternative sources for performing these functions.
Any unauthorized access to
or control of our aircraft or our systems or any loss of data could result in legal claims or proceedings. In addition, regardless of
their veracity, reports of unauthorized access to our aircraft, their systems or data, as well as other factors that may result in the
perception that our aircraft, their systems or data are capable of being “hacked,” could negatively affect our brand and harm
our business, prospects, financial condition and operating results.
Although we plan to have a
formal cybersecurity committee organized by the Board, as well as third party security specialists on contract, there is no guarantee
that this additional layer of corporate governance will be sufficient to mitigate the posed by motivated cybersecurity criminals.
We face risks related to natural disasters, health epidemics
and other outbreaks, which could significantly disrupt our operations.
Our manufacturing or customer
service facilities or operations could be adversely affected by events outside of our control, such as natural disasters, wars, health
epidemics like COVID-19, and other calamities. Although we have servers that are hosted in an offsite location, our backup system does
not capture data on a real-time basis, and we may be unable to recover certain data in the event of a server failure. We cannot assure
you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications
failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns,
system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of
software or hardware as well as adversely affect our ability to provide services.
Risks Related to our Intellectual Property
We may not be able to prevent others from
unauthorized use of our intellectual property, which could harm our business and competitive position.
We may not be able to prevent
others from unauthorized use of our intellectual property, which could harm our business and competitive position. We rely on a combination
of patents, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyrights, trademarks, intellectual
property licenses, and other contractual rights to establish and protect our rights in our technology. Despite our efforts to protect
our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations
that they do not infringe upon our intellectual property rights or those rights are not enforceable. Monitoring unauthorized use of our
intellectual property is difficult and costly, and the steps we have taken or will take are aimed to prevent misappropriation. From time
to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and
diversion of our resources, including significant amounts of time from our key executives and management, and may not have the desired
outcome.
Patent, trademark, and trade
secret laws vary significantly throughout the world. Some countries do not protect intellectual property rights to the same extent as
do the laws of the United States and European Union. Therefore, we may not be able to secure certain intellectual property rights
in some jurisdictions, and our intellectual property rights may not be as strong or as easily enforced outside of the United States
and the European Union. Failure to adequately protect our intellectual property rights could result in our competitors offering similar
products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which, would adversely
affect our business, prospects, financial condition and operating results.
Our patent applications may not issue as
patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We cannot be certain that
we are the first inventor of the subject matter to which we have filed or plans to file a particular patent application, or if we are
the first party to file such a patent application. If another party has filed a patent application for the same subject matter as we have,
or similar subject matter is otherwise publicly disclosed, we may not be entitled to the protection sought by the patent application.
Further, the scope of protection
of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we file will
issue, or that our issued patents will afford protection against competitors with similar technology or will cover certain aspects of
our products. In addition, our competitors may design around our issued patents, which may adversely affect our business, prospects, financial
condition or operating results.
As our patents may expire and may not be
extended, our patent applications may not be granted and our patent rights may be contested, circumvented, invalidated or limited in scope,
our patent rights may not protect we effectively. In particular, we may not be able to prevent others from developing or exploiting competing
technologies.
We cannot assure you that
we will be granted patents pursuant to our pending applications or those we plan to file in the future. Even if our patent applications
succeed and we are issued patents in accordance with them, these patents could be contested, circumvented or invalidated in the future.
In addition, the rights granted under any issued patents may not provide meaningful protection or competitive advantages. The claims under
any patents that issue from our patent applications may not be broad enough to prevent others from developing technologies that are similar
or that achieve results similar to us. The intellectual property rights of others could also bar us from licensing and exploiting any
patents that issue from our pending applications. Numerous patents and pending patent applications owned by others exist in the fields
in which we have developed and are developing our technology. These patents and patent applications might have priority over our patent
applications and could result in refusal of or invalidation of our patent applications. Finally, in addition to those who may claim priority,
any of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
We may need to defend ourselves against
patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.
Companies, organizations,
or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit
or interfere with our ability to make, use, develop, sell, leasing or market our vehicles or components, which could make it more difficult
for us to operate our business. From time to time, we may receive communications from holders of patents (including non-practicing entities
or other patent licensing organizations), trademarks or other intellectual property regarding their proprietary rights. Companies holding
patents or other intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights and
urge us to take licenses. Our applications and uses of trademarks relating to our design, software or artificial intelligence technologies
could be found to infringe upon existing trademark ownership and rights. In addition, if we are determined to have infringed upon a third
party’s intellectual property rights, we may be required to do one or more of the following:
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cease manufacturing our aircraft, or discontinue use of certain components in our aircraft, or offering services that incorporate or use the challenged intellectual property; |
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pay substantial damages; |
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seek a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all; |
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redesign our aircraft; or |
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establish and maintain alternative branding for our aircraft or services. |
In the event of a successful
claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property
right, our business, prospects, operating results and financial condition could be materially and adversely affected. In addition, any
litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management
attention.
We may be subject to damages resulting from
claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.
Many of our employees were
previously employed by other aeronautics, aircraft or transportation companies or by suppliers to these companies. We may be subject to
claims that us or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
our former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to
paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or our work product could
hamper or prevent our ability to commercialize our products, which could severely harm our business. Even if we are successful in defending
against these claims, litigation could result in substantial costs and demand on management resources.
Risks Related to the Regulatory Environment in Which We Operate
We are subject to substantial regulation
and unfavorable changes to, or our failure to comply with, these regulations could substantially harm our business and operating results.
Our eVTOL aircraft and our
planned operation of Regional Air Mobility services or in certain jurisdictions by our local AOCs will be subject to substantial regulation
in the jurisdictions in which we intend our eVTOL aircraft to operate. We expect to incur significant costs in complying with these regulations.
Regulations related to the eVTOL industry, including aircraft certification, production certification, passenger operation, flight operation,
airspace operation, security regulation and vertiport regulation are currently evolving, and we face risks associated with the development
and evolution of these regulations.
Our aircraft must be initially
certified by the Transport Canada Civil Aviation organization in order to be used for commercial purposes in Canada. Furthermore, we must
also seek type certification under the Federal Aviation Administration for the aircraft to be used for commercial services in the United States.
For commercial use in Europe, the European Union Aviation Safety Agency must also grant type certification for our aircraft. Rigorous
testing and the use of approved materials and equipment are among the requirements for achieving certification. Our failure to obtain
or maintain certification for our aircraft or infrastructure would have a material adverse effect on our business and operating results.
In addition to obtaining and maintaining certification of our aircraft, our third-party air carriers will need to obtain and maintain
operational authority necessary to provide the envisioned Regional Air Mobility services. A transportation or aviation authority may determine
that we and/or our third-party air carriers cannot manufacture, provide, or otherwise engage in the services as we contemplated and upon
which we based our projections. The inability to implement the envisioned Regional Air Mobility services could materially and adversely
affect our results of operations, financial condition, and prospects.
To the extent the laws change,
our aircraft may not comply with applicable American, European, international, federal, provincial, state or local laws, which would have
an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent
compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results would be adversely
affected.
It is intended for third-party air carriers
to operate the Cavorite X7 aircraft in Canada, the U.S. and Europe. These third-party air carriers are subject to substantial regulation
and laws, and unfavorable changes to, or the third-party air carriers’ failure to comply with, these regulations and/or laws could
substantially harm our business and operating results.
Third-party air carriers are
subject to substantial regulation and laws, and unfavorable changes to, or the third-party air carriers’ failure to comply with,
these regulations or laws could substantially harm our business and operating results. Further, although third-party air carriers may
have experience in providing air transportation services, they will initially have limited experience in operating our unique Cavorite
X7 hybrid eVTOL aircraft. Although we will screen potential air operators who wish to purchase and use our aircraft, our arrangements
with third-party air carriers may not adequately address the operating requirements of our customers to their satisfaction. Given that
our business and our brand will be affiliated with these third-party air carriers, we may experience harm to our reputation if these third-party
air carriers provide customers with poor service, receive negative publicity, or experience accidents or safety incidents.
We are or will be subject to anti-corruption,
anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject
us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which
could adversely affect our business, results of operations, financial condition and reputation.
We are or will be subject
to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various
jurisdictions in which we conduct or in the future may conduct activities, including Canada’s Proceeds of Crime (Money Laundering)
and Terrorist Financing Act (PCMLTA), U.S. Foreign Corrupt Practices Act (FCPA), European anti-bribery and corruption laws, and
other anti-corruption laws and regulations. The PCMLTA, FCPA and European anti-bribery and corruption laws prohibit us and our officers,
directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or
providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining
business or otherwise obtaining favorable treatment. The PCMLTA also requires companies to make and keep books, records and accounts that
accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. A violation
of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation. our policies
and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives,
consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.
Non-compliance with anti-corruption,
anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media
coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal
expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation.
In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.
We may be subject to governmental export
and import control laws and regulations as we expand our suppliers and commercial operations outside Canada, the U.S. and Europe.
Our Cavorite X7 aircraft may
be subject to export control and import laws and regulations, which must be made in compliance with these laws and regulations. For example,
we may require licenses to import or export our aircraft, components or technologies to our production facilities and may experience delays
in obtaining the requisite licenses to do so. Audits in connection with the application for licenses may increase areas of noncompliance
that could result in delays or additional costs. If we fail to comply with these laws and regulations, we and certain of our employees
could be subject to additional audits, substantial civil or criminal penalties, including the possible loss of export or import privileges,
fines, which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees
or managers.
Risks Related to Our Organization and Structure
British Columbia law and our Articles contain
certain provisions, including anti-takeover provisions, that limit the ability of shareholders to take certain actions and could delay
or discourage takeover attempts that shareholders may consider favorable.
Our Articles and the BCBCA
contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by
our Board and therefore depress the trading price of our Class A ordinary shares. These provisions could also make it difficult for shareholders
to take certain actions, including electing directors who are not nominated by the current members of the Board or taking other corporate
actions, including effecting changes in our management. Among other things, our Articles include provisions regarding:
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the limitation of the liability of, and the indemnification of, our directors and officers; |
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the exclusive right of our Board to appoint a director to fill a vacancy created by the expansion of our Board by up to 1/3; the number of directors who were elected or appointed as directors at the last shareholder meeting or the resignation, death or removal of a director, which prevents shareholders from being able to fill vacancies on our Board; |
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the procedures for the conduct and scheduling of Board and shareholder meetings; and |
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advance notice procedures with which shareholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a shareholders’ meeting, which could preclude shareholders from bringing matters before annual or special meetings of shareholders and delay changes in our Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
These provisions, alone or
together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management.
Any provision of our Articles
or British Columbia law that has the effect of delaying or preventing a change in control could limit the opportunity for shareholders
to receive a premium for their Common Shares and could also affect the price that some investors are willing to pay for Common Shares.
Our management team may not successfully or efficiently manage
its transition to being a public company.
As a public company, we have
incurred new obligations relating to our reporting, procedures, and internal controls. These new obligations and attendant scrutiny will
require investments of significant time and energy from our executives and could divert their attention away from the day-to-day
management of our business, which in turn could adversely affect our financial condition or operating results.
The members of our management
team have extensive experience leading complex organizations. However, they have limited experience managing a publicly traded company,
interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that specifically govern
public companies.
We will incur significant increased expenses
and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of
operations.
As a result of the consummation
of the Business Combination, we face increased legal, accounting, administrative and other costs and expenses as a public company that
we did not incur as a private company. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the
requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, Public Company
Accounting Oversight Board (the “PCAOB”) and the securities exchanges, impose additional reporting and other obligations on
public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number
of those requirements have and will require us to carry out activities we have not done previously. For example, we have created new board
committees and will adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting
requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified, we could incur additional
costs rectifying those issues, and the existence of those issues could adversely affect our reputation or investor perceptions of us.
It may also be more expensive to obtain director and officer liability insurance. Risks associated with our status as a public company
may make it more difficult to attract and retain qualified persons to serve on the Board or as executive officers. The additional reporting
and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related
legal, accounting and administrative activities. These increased costs will require us to divert a significant amount of money that could
otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by shareholders and third parties may also
prompt additional changes in governance and reporting requirements, which could further increase costs.
We will need to improve our operational
and financial systems to support our expected growth, increasingly complex business arrangements, and rules governing revenue and expense
recognition and any inability to do so will adversely affect our billing and reporting.
To manage the expected growth
of our operations and increasing complexity, we will need to improve our operational and financial systems, procedures, and controls and
continue to increase systems automation to reduce reliance on manual operations. Any inability to do so will affect our manufacturing
operations, customer billing and reporting. Our current and planned systems, procedures and controls may not be adequate to support our
complex arrangements and the rules governing revenue and expense recognition for our future operations and expected growth. Delays or
problems associated with any improvement or expansion of our operational and financial systems and controls could adversely affect our
relationships with our customers, cause harm to our reputation and brand and could also result in errors in our financial and other reporting.
We expect that complying with these rules and regulations will substantially increase our legal and financial compliance costs and will
make some activities more time-consuming and costly. These increased costs will increase our net loss and we cannot predict or estimate
the amount or timing of additional costs we may incur to respond to these requirements.
Our management has limited experience in
operating a U.S.-listed public company.
Our management has limited
experience in the management of a U.S.-listed public company. Our management team may not successfully or effectively manage our transition
to a U.S.-listed public company that will be subject to significant regulatory oversight and reporting obligations under federal securities
laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage
in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted
to the management and growth of the combined company. We may not have adequate personnel with the appropriate level of knowledge, experience,
and training in the accounting policies, practices or internal controls over financial reporting required of U.S.-listed public companies.
The development and implementation of the standards and controls necessary for the combined company to achieve the level of accounting
standards required of a public company listed on a public exchange in the United States may require costs greater than expected.
It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public
company, which will increase our operating costs in future periods.
We will be an “emerging growth company,”
and our reduced SEC reporting requirements may make our shares less attractive to investors.
We will be an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We will remain
an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year (a) following
the fifth anniversary of the closing of the Business Combination, (b) in which we has total annual gross revenue of at least USD
$1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary
shares held by non-affiliates exceeds USD $700 million as of the last business day of our prior second fiscal quarter, and (ii) the
date on which we issued more than USD $1.0 billion in non-convertible debt during the prior three-year period. We intend to take
advantage of exemptions from various reporting requirements that are applicable to most other public companies, such as an exemption from
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring our independent registered public accounting firm provide
an attestation report on the effectiveness of our internal control over financial reporting and reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if
investors will find our shares less attractive because we intend to rely on certain of these exemptions and benefits under the JOBS Act.
If some investors find our shares less attractive as a result, there may be a less active, liquid and/or orderly trading market for our
shares and the market price and trading volume of our shares may be more volatile and decline significantly.
If we qualify as a foreign private issuer,
we will be exempt from a number of rules under the U.S. securities laws and will be permitted to file less information with the SEC
than a U.S. domestic public company, which may limit the information available to our shareholders.
We may qualify as a foreign
private issuer, as such term is defined in Rule 405 under the Securities Act. If a foreign private issuer, we will not be subject
to all of the disclosure requirements applicable to public companies organized within the United States. For example, we will be
exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the
solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy
rules under Section 14 of the Exchange Act. As long as we are a foreign private issuer, we will not be required to obtain shareholder
approval for certain dilutive events, such as the establishment or material amendment of certain equity-based compensation plans, we will
not be required to provide detailed executive compensation disclosure in our periodic reports, and we will be exempt from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved. In addition, our officers and directors will be exempt from the reporting and “short-swing” profit recovery provisions
of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.
If we qualify as a foreign
private issuer, we intend to submit quarterly interim consolidated financial data to the SEC under cover of the SEC’s Form 6-K,
we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic
public companies and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act.
Also, as a foreign private
issuer, we will be permitted to follow home country practice in lieu of certain Nasdaq corporate governance rules, including those that
permit a lower quorum requirement and require listed companies to have a majority of independent directors (although all of the members
of the audit committee must be independent under the Exchange Act) and independent director oversight of executive compensation,
nomination of directors and corporate governance matters; have regularly scheduled executive sessions with only independent directors;
and adopt and disclose a code of ethics for directors, officers and employee. Accordingly, our shareholders may not have the same protections
afforded to shareholders of listed companies that are subject to all of the applicable corporate governance requirements.
Risks Related to Taxes
Our ability to utilize our net operating
loss and tax credit carryforwards to offset future taxable income may be subject to certain limitations, including losses as a result
of the Business Combination.
We have incurred, and we are
likely to continue incurring significant tax losses, which may be limited in our usability under Canadian and other tax laws, in particular
following the Amalgamation and other significant shareholder changes. Although we neither expect the Business Combination nor any of the
ownership changes in the course of past financing rounds to result in a forfeiture of our Canadian tax loss attributes, the realization
of future tax savings from such tax loss attributes will be limited under the Tax Act following the Amalgamation and will depend on the
tax authorities’ acceptance of their continued availability and our ability to generate future taxable income in Canada against
which such losses can be offset.
We are subject to Canadian and United States
tax on our worldwide income.
We are deemed to be a resident
of Canada for Canadian federal income tax purposes by virtue of existing under the BCBCA, subject to the application of an applicable
tax treaty or convention. Accordingly, subject to an applicable tax treaty or convention, we will be subject to Canadian taxation
on our worldwide income, in accordance with the rules set forth in the Income Tax Act (Canada) (the “Tax Act”) generally applicable
to corporations residing in Canada.
Notwithstanding that we will
be deemed to be a resident of Canada for Canadian federal income tax purposes, we will also be treated as a U.S. corporation for
U.S. federal income tax purposes, pursuant to Section 7874(b) of the Code, and will be subject to U.S. federal income
tax on our worldwide income under applicable U.S. inversion rules. As a result, subject to an applicable tax treaty or convention, we
will be subject to taxation both in Canada and the U.S., which could have a material adverse effect on our business, financial condition
and results of operations. Accordingly, all prospective shareholders and investors should consult with their own tax advisors in this
regard.
Dividends, if ever paid, on our Common Shares will be subject
to Canadian or United States withholding tax.
It is currently anticipated
that we will not pay any dividends on the Common Shares in the foreseeable future. To the extent dividends are paid, dividends received
by holders of our Common Shares who are not residents of the U.S. and who are residents of Canada for purposes of the Tax Act will
be subject to U.S. withholding tax. Any dividends may not qualify for a reduced rate of withholding tax under the U.S.-Canada income
tax treaty (“Canada-U.S. Tax Convention”). In addition, a Canadian foreign tax credit or a deduction in respect of such U.S. withholding
taxes paid may not be available.
Dividends received by shareholders
who are residents of the U.S. will not be subject to U.S. withholding tax but will be subject to Canadian withholding tax. Any
dividends may not qualify for a reduced rate of withholding tax under the Canada-U.S. Tax Convention. For U.S. federal income tax
purposes, a U.S. holder may elect for any taxable year to receive either a credit or a deduction for all foreign income taxes paid
by the holder during the year. Dividends paid by us will be characterized as U.S. source income for purposes of the foreign tax credit
rules under the Code. Accordingly, U.S. holders generally will not be able to claim a credit for any Canadian tax withheld unless,
depending on the circumstances, they have an excess foreign tax credit limitation due to other foreign source income that is subject to
a low or zero rate of foreign tax. Subject to certain limitations, a U.S. holder should be able to take a deduction for the U.S. holder’s
Canadian tax paid, provided that the U.S. holder has not elected to credit other foreign taxes during the same taxable year.
Dividends received by non-U.S. holders
who are not residents of Canada for purposes of the Tax Act will be subject to U.S. withholding tax and will also be subject to Canadian
withholding tax. These dividends may not qualify for a reduced rate of U.S. withholding tax under any income tax treaty otherwise
applicable to our shareholders, subject to examination of the relevant treaty. These dividends may, however, qualify for a reduced rate
of Canadian withholding tax under any income tax treaty otherwise applicable to our shareholders, subject to examination of the relevant
treaty.
Each holder of our Common
Shares should seek tax advice, based on such shareholder’s particular facts and circumstances, from an independent tax advisor.
The transfer of our Common Shares may be subject to U.S. estate
and generation-skipping transfer tax.
Because our Common Shares
will be treated as shares of a U.S. domestic corporation for U.S. federal income tax purposes, the U.S. estate and generation-skipping
transfer tax rules generally may apply to a non-U.S. holder’s ownership and transfer of our Common Shares.
Changes in tax laws may affect our shareholders and other investors.
There can be no assurance
that our Canadian and U.S. federal income tax treatment or an investment in us will not be modified, prospectively or retroactively,
by legislative, judicial or administrative action, in a manner adverse to us or our shareholders or other investors.
Risks Related to Ownership of Our Securities
An active market for our securities may not develop, which would
adversely affect the liquidity and price of our securities.
The price of our securities
may vary significantly due to factors specific to us as well as to general market or economic conditions. Furthermore, an active trading
market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless
a market can be established and sustained.
Our failure to meet Nasdaq’s continued listing requirements
could result in a delisting of our securities.
If we fail to satisfy Nasdaq’s
continued listing requirements, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may
take steps to delist our securities. Such a delisting would likely have a negative effect on the price of our shares and would impair
your ability to sell or purchase our shares when you wish to do so.
On July 19, 2024, Nasdaq notified
us that for at least the last 30 consecutive business days, the bid price for the Company’s Class A ordinary shares had closed below
the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2)
(the “Bid Price Rule”).
In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), we have a compliance period of 180 calendar days, or until January 15, 2025, to regain compliance with the
Bid Price Rule. If at any time before January 15, 2025, the bid price of our Class A ordinary shares closes at $1.00 per share or more
for a minimum of ten consecutive business days, Nasdaq will provide us with a written confirmation of compliance with the Bid Price Rule
and the matter deemed closed.
If we do not regain compliance
with the Bid Price Rule by January 15, 2025, we may be eligible for an additional 180-day compliance period. To qualify, we would be required
to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq
Capital Market, with the exception of the Bid Price Rule, and would need to provide written notice of our intention to cure the bid price
deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
If we do not regain compliance
with the Bid Price Rule when required, Nasdaq will provide written notification to us that our Class A ordinary shares are subject to
delisting. At that time, we may appeal the delisting determination to a Nasdaq hearings panel.
The notice from Nasdaq has
no immediate effect on the listing of our Class A ordinary shares, and our Class A ordinary shares will continue to be listed on the Nasdaq
Capital Market under the symbol “HOVR”. We are currently evaluating our options for regaining compliance. While there can
be no assurance that we will regain compliance with the Bid Price Rule, we expect to cure this deficiency within the 180 day period.
In the event of a delisting,
we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our shares to become
listed again, stabilize the market price or improve the liquidity of our shares, prevent our shares from dropping below Nasdaq’s
minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
If Nasdaq delists our securities
from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities
could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
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a limited availability of market quotations for our securities; |
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reduced liquidity for our securities; |
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a determination that our Common Shares are “penny stock” which will require brokers trading in the 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; |
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a limited amount of news and analyst coverage; and |
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a decreased ability to issue additional securities or obtain additional financing in the future. |
We reached a determination to restate certain
of our previously issued audited financial statements, which resulted in unanticipated costs and may affect investor confidence and raise
reputational issues.
In connection with the preparation
of our unaudited consolidated financial statements for the period ended February 29, 2024, we determined that based on the application
of U.S. generally accepted accounting principles (“GAAP”), the deferred development costs recorded by Robinson Aircraft Ltd.
f/k/a Robinson Aircraft ULC in the fiscal year ended May 31, 2023 and prior are more appropriately classified as research and development
costs. On April 19, 2024, the Audit Committee of the Board of Directors of the Company, concluded that the Company’s previously
issued audited financial statements for the year ended May 31, 2023, and unaudited interim financial statements for the period ended August
31, 2023 (collectively, the “Non-Reliance Periods”), should no longer be relied upon. The audited financial statements for
the year ended May 31, 2023, were restated to reflect a reclassification of previously capitalized deferred development costs to operating
research and development costs (the “Restated Financial Statements”). We filed the Restated Financial Statements in a Current
Report on Form 8-K with the SEC on April 22, 2024. Any previously furnished or filed reports, related earnings releases, investor presentations
that reference deferred development costs or research and development expenses, or similar communications describing our financial results
for the Non-Reliance Periods should no longer be relied upon.
As a result, we have incurred
unanticipated costs for accounting and legal fees in connection with or related to the restatement and have become subject to a number
of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise
reputational issues for our business.
If securities or industry analysts do not
publish research or reports about our business or publish negative reports about our business, our share price and trading volume could
decline.
The trading market for our
shares will depend on the research and reports that securities or industry analysts publish about us or our business. Currently, we do
not have any analyst coverage and may not obtain analyst coverage in the future. In the event we obtain analyst coverage, we will not
have any control over such analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our
shares, the share price would likely decline. If one or more of these analysts cease coverage of us or we or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
The price of our Class A ordinary shares may decline, and you
could lose all or part of your investment as a result.
The trading price of our Class
A ordinary shares is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been
unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your Common Shares at
an attractive price due to a number of factors such as those listed in “— Risks Related to Our Business and Industry”
and the following:
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results of operations that vary from the expectations of securities analysts and investors; |
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results of operations that vary from our competitors; |
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changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; |
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declines in the market prices of stocks generally; |
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strategic actions by us or our competitors; |
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announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; |
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announcements of estimates by third parties of actual or anticipated changes in the size of our customer base or the level of customer engagement; |
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any significant change in our management; |
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changes in general economic or market conditions or trends in our industry or markets; |
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changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
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additional securities being sold or issued into the market by us or any of the existing shareholders or the anticipation of such sales, including if we issue shares to satisfy restricted stock unit related tax obligations or if existing shareholders sell shares into the market when applicable “lock-up” periods end; |
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investor perceptions of the investment opportunity associated with our Class A ordinary shares relative to other investment alternatives; |
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the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; |
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litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; |
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guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; |
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the development and sustainability of an active trading market for our Class A ordinary shares; |
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actions by institutional or activist shareholders; |
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developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; |
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changes in accounting standards, policies, guidelines, interpretations or principles; and |
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other events or factors, including those resulting from pandemics, natural disasters, war, acts of terrorism or responses to these events. |
These broad market and industry
fluctuations may adversely affect the market price of our Class A ordinary shares, regardless of our actual operating performance. In
addition, price volatility may be greater if the public float and trading volume of our Class A ordinary shares is low. In the past, following
periods of market volatility, shareholders have instituted securities class action litigation. If we are involved in securities litigation,
it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome
of such litigation.
Because there are no current plans to pay
cash dividends on our Class A ordinary shares for the foreseeable future, you may not receive any return on investment unless you sell
your Class A ordinary shares at a price greater than what you paid for it.
We intend to retain future
earnings, if any, for future operations, expansion and debt repayment, and there are no current plans to pay any cash dividends for the
foreseeable future. The declaration, amount and payment of any future dividends on our Class A ordinary shares will be at the sole discretion
of our Board. Our Board may take into account general and economic conditions, our financial condition and results of operations, our
available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications
of the payment of dividends by us to our shareholders or by our subsidiaries to us and such other factors as our Board may deem relevant.
As a result, you may not receive any return on an investment in our Class A ordinary shares unless you sell your Class A ordinary shares
for a price greater than that which you paid for it.
Our shareholders may experience dilution in the future.
The percentage of our Class
A ordinary shares owned by current shareholders may be diluted in the future because of equity issuances for acquisitions, capital market
transactions or otherwise, including, without limitation, equity awards that we may grant to our directors, officers and employees, and
exercise of our warrants, including the warrants sold in this offering. Such issuances may have a dilutive effect on our earnings per
share, which could adversely affect the market price of our Class A ordinary shares.
If securities or industry analysts do not
publish research or reports about our business, if they change their recommendations regarding our Class A ordinary shares or if our operating
results do not meet their expectations, our Class A ordinary shares price and trading volume could decline.
The trading market for our
Class A ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our businesses.
If no securities or industry analysts commence coverage of us, the trading price for our Class A ordinary shares could be negatively impacted.
In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our securities or
publish unfavorable research about its businesses, or if our operating results do not meet analyst expectations, the trading price of
our Class A ordinary shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on
us regularly, demand for our Class A ordinary shares could decrease, which might cause our Common Share price and trading volume to decline.
Future sales, or the perception of future
sales, by us or our shareholders in the public market could cause the market price for our Class A ordinary shares to decline.
The sale of our Class A ordinary
shares in the public market, including Class A ordinary shares issued upon the exercise of warrants, or the perception that such sales
could occur, could harm the prevailing market price of our Class A ordinary shares. These sales, or the possibility that these sales may
occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that it deems appropriate.
In connection with the Amalgamation,
former Horizon securityholders, who owned 41.1% of New Horizon Class A ordinary shares following the Business Combination, agreed with
us, subject to certain exceptions, not to dispose of or hedge any of their Class A ordinary shares or securities convertible into or exchangeable
for our Class A ordinary shares during the period from the date of the Closing continuing through the earliest of: (i) the six-month
anniversary of the Closing, (ii) the date on which the Closing price of our Class A ordinary shares equals or exceeds $12.00 per
share for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (iii) such
date on which we complete a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of the
our shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property. The six-month anniversary
of the Closing elapsed on July 12, 2024 and the associated restrictions were removed. In connection with the Closing, Pono, Horizon, and
the Sponsor also waived lockup restrictions on approximately 1.69 million shares held by a non-affiliate Horizon shareholder.
In addition, the Class A ordinary
shares reserved for future issuance under the 2023 Equity Incentive Plan will become eligible for sale in the public market once those
shares are issued, subject to any applicable vesting requirements, lockup agreements and other restrictions imposed by law. A total number
of shares equal to 1,697,452 have been reserved for future issuance under the 2023 Equity Incentive Plan. We have filed registration statements
on Form S-8 under the Securities Act to register Class A ordinary shares or securities convertible into or exchangeable for Class
A ordinary shares issued pursuant to the 2023 Equity Incentive Plan, which registration statements automatically became effective upon
filing. Accordingly, shares registered under the registration statements will be available for sale in the open market.
In the future, we may also
issue its securities in connection with investments or acquisitions. The amount of Class A ordinary shares issued in connection with an
investment or acquisition could constitute a material portion of the then-outstanding Class A ordinary shares. Any issuance of additional
securities in connection with investments or acquisitions may result in additional dilution to our shareholders.
There may be sales of a substantial amount
of our Class A ordinary shares after the Business Combination by current shareholders, and these sales could cause the price of our Class
A ordinary shares to fall.
Future sales of our Class
A ordinary shares may cause the market price of its securities to drop significantly, even if its business is doing well.
Pono entered into a registration
rights agreement with respect to the Pono Class B ordinary shares and Pono Class A ordinary shares issued or issuable upon the conversion
of the Class B ordinary shares, par value $0.0001 per share of Pono (the “Class B ordinary shares” or “Founder Shares”),
the placement units of Pono sold in a private placement concurrently with the IPO (the “Placement Units”), including the Pono
Class A ordinary shares and warrants (the “Placement Warrants”) underlying the Placement Units, Pono Class A ordinary shares
underlying the Placement Warrants, and all shares issued to a holder with respect to the securities referred above by way of any stock
split, stock dividend, recapitalization, combination of shares, acquisition, consolidation, reorganization, share exchange, or similar
event, which securities Pono collectively referred to as “registrable securities.” Under the registration rights agreement,
Pono agreed to register for resale under a registration statement all of the shares held by holders of Founder Shares and issuable upon
conversion of the Public Warrants. The Sponsor is also entitled to three (3) demand registrations. Holders of registrable securities
will also have certain “piggyback” registration rights with respect to registration statements filed subsequent to the Business
Combination.
On May 10, 2024, a registration
statement on Form S-1 was declared effective pursuant to the registration rights agreements. These parties may sell large amounts of our
Class A ordinary shares in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility
in our Class A ordinary share price or putting significant downward pressure on the price of our Class A ordinary shares.
Sales of substantial amounts
of our Class A ordinary shares in the public market after the Business Combination, or the perception that such sales will occur, could
adversely affect the market price of our Class A ordinary shares and make it difficult for us to raise funds through securities offerings
in the future.
There is no guarantee
that the warrants will ever be in the money; they may expire worthless or the terms of warrants may be amended.
The
exercise price for the warrants is $11.50 per ordinary share. There is no guarantee that the Public Warrants will ever be in the money
prior to their expiration, and as such, the warrants may expire worthless.
In
addition, our warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company,
as warrant agent, and Pono. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder
to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least a majority of the then
outstanding Public Warrants to make any other change. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder
if holders of at least a majority of the then outstanding Public Warrants approve of such amendment. Although our ability to amend the
terms of the warrants with the consent of at least a majority of the then outstanding Public Warrants is unlimited, examples of such amendments
could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number
of shares and their respective affiliates and associates have of ordinary shares purchasable upon exercise of a warrant.
Our Warrant Agreement
designates the courts of the State of New York or the United States District Court for the Southern District of New York
as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could
limit the ability of warrant holders to obtain a favorable judicial forum for disputes with us.
Our
Warrant Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against Pono arising out of or relating
in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York
or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such
jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to
such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding
the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by the
Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive
forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and
to have consented to the forum provisions in our warrant agreement. If any action, the subject matter of which is within the scope the
forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States
District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants,
such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State
of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”),
and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s
counsel in the foreign action as agent for such warrant holder.
This
choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that we find favorable for disputes
with Pono, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant agreement inapplicable
or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated
with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and
results of operations and result in a diversion of the time and resources of our management and Board.
We may redeem the
unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.
We
have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of
$0.01 per warrant, provided that the last reported sales price of the Class A ordinary shares equals or exceeds $18.00 per share for any
20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption
to the warrant holders. If and when the warrants become redeemable by us, we may exercise its redemption right even if we are unable to
register or qualify the underlying securities for sale under all applicable state securities laws. Additionally, ninety (90) days
after the warrants become exercisable, we may redeem all (but not less than all) of the outstanding warrants at $0.01 per warrant upon
a minimum of 30 days’ prior written notice of redemption (during which time the holders may exercise their warrants prior to
redemption for the number of shares set forth in the table under the section captioned “Description of Securities — Warrants — Redemption
of Warrants — Redemption of Warrants for Class A Ordinary Shares”) if the following conditions are satisfied:
(i) the last reported sale prices of the Class A ordinary shares equals or exceeds $18.00 per share (as may be adjusted for stock
splits, stock dividends, reorganizations, recapitalizations or the like) on the trading day prior to the date of the notice; (ii) the
private placement warrants are also concurrently exchanged at the same price as the outstanding Public Warrants; and (iii) there
is an effective registration statement covering the issuance of Class A ordinary shares issuable upon exercise of the warrants and a current
prospectus relating thereto available throughout the 30-day period after written notice of redemption is given. In either case, redemption
of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may
be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to
hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption,
is likely to be substantially less than the market value of your warrants.
The future exercise
of registration rights may adversely affect the market price of our Class A ordinary shares.
Pursuant
to a Registration Rights Agreement entered into at the time of the IPO, the Sponsor, holders of our Placement Units, and their permitted
transferees can demand that we register the Class A ordinary shares issuable upon conversion of the Placement Warrants in the Placement
Units, the Class A ordinary shares issuable upon conversion of the Founder Shares, the Class A ordinary shares included in the Placement
Units, and holders of warrants that may be issued upon conversion of working capital loans may demand that we register such warrants,
or the Class A ordinary shares issuable upon exercise of such warrants. We will bear the cost of registering these securities. The registration
and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market
price of our Class A ordinary shares.
Prior
to Closing, we entered into a registration rights agreement that obligate us to register the common shares received by certain significant
former Legacy Horizon shareholders as part of the Business Combination. We will be obligated to fulfill three demands, excluding short
form demands, that we register such securities. In addition, the holders will have certain “piggy-back” registration rights
with respect to registration statements filed subsequent to the completion of the initial business combination and rights to require us
to register for resale such securities pursuant to Rule 415 under the Securities Act. Sales of a substantial number of Class A ordinary
shares pursuant to a resale registration statement in the public market could occur at any time the registration statement remains effective.
In addition, certain registration rights holders can request underwritten offerings to sell their securities. 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 our ordinary shares.
A
Registration Statement on Form S-1 (the “Registration Statement”) has been declared effective and we intend to maintain such
Registration Statement in order to facilitate registration of those sales. The registration of these securities will permit the public
resale of such securities. The registration and availability of such a significant number of securities for trading in the public market
may have an adverse effect on the market price of our securities.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and
Strategy
New
Horizon recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our
information systems and protect the confidentiality, integrity, and availability of our data.
Managing Material
Risks & Integrated Overall Risk Management
We
have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture
of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making
processes at every level. Our management team works closely with our IT department to continuously evaluate and address cybersecurity
risks in alignment with our business objectives and operational needs.
Engage Third-parties
on Risk Management
Recognizing
the complexity and evolving nature of cybersecurity threats, we engage with a range of external experts, including cybersecurity assessors,
consultants, and auditors in evaluating and testing our risk management systems. These partnerships enable us to leverage specialized
knowledge and insights, ensuring our cybersecurity strategies and processes remain at the forefront of industry best practices. Our collaboration
with these third-parties includes regular audits, threat assessments, and consultation on security enhancements.
Oversee Third-party
Risk
Because
we are aware of the risks associated with third-party service providers, we implement stringent processes to oversee and manage these
risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure
compliance with our cybersecurity standards. At a minimum the monitoring includes annual assessments by our Chief Information Security
Officer (“CISO”). This approach is designed to mitigate risks related to data breaches or other security incidents originating
from third-parties.
Risks from Cybersecurity
Threats
We
have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.
Governance
The
Board is acutely aware of the critical nature of managing risks associated with cybersecurity threats. The Board has established robust
oversight mechanisms to ensure effective governance in managing risks associated with cybersecurity threats because we recognize the significance
of these threats to our operational integrity and stakeholder confidence,
Board of Directors
Oversight
The
Audit Committee is central to the Board’s oversight of cybersecurity risks and bears the primary responsibility for this domain.
The Audit Committee is composed of independent board members with diverse expertise including, risk management, technology, and finance,
equipping them to oversee cybersecurity risks effectively.
Management’s
Role Managing Risk
The
CISO and our Chief Executive Officer play a pivotal role in informing the Audit Committee on cybersecurity risks. They provide comprehensive
briefings to the Audit Committee on a regular basis, with a minimum frequency of once per year. These briefings encompass a broad range
of topics, including:
| |
● |
Current cybersecurity landscape and emerging threats; |
| |
● |
Status of ongoing cybersecurity initiatives and strategies; |
| |
● |
Incident reports and learnings from any cybersecurity events; and |
| |
● |
Compliance with regulatory requirements and industry standards. |
In
addition to our scheduled meetings, the Audit Committee, CISO and Chief Executive Officer maintain an ongoing dialogue regarding emerging
or potential cybersecurity risks. Together, they receive updates on any significant developments in the cybersecurity domain, ensuring
the Board’s oversight is proactive and responsive. The Audit Committee actively participates in strategic decisions related to cybersecurity,
offering guidance and approval for major initiatives. This involvement ensures that cybersecurity considerations are integrated our broader
strategic objectives. The Audit Committee conducts an annual review of the Company’s cybersecurity posture and the effectiveness
of its risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity
efforts with the overall risk management framework.
Risk Management
Personnel
Primary
responsibility for assessing, monitoring, and managing our cybersecurity risks rests with the CISO, Jason O’Neill. With over 25
years of experience in the field of IT Technology and enterprise security, Mr. O’Neill brings a wealth of expertise to his role.
His background includes extensive experience achieving bank and government-level compliant security practices in high-performance technology
companies. His in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies. Our CISO oversees
our governance programs, communicates cyber security threats, remediates known risks, and oversees our employee training program.
Monitor Cybersecurity
Incidents
The
CISO is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management
techniques. This ongoing knowledge acquisition is crucial for the effective prevention, detection, mitigation, and remediation of cybersecurity
incidents. The CISO implements and oversees processes for the regular monitoring of our information systems. This includes the deployment
of advanced security measures and regular system audits to identify potential vulnerabilities. In the event of a cybersecurity incident,
the CISO is equipped with a well-defined incident response plan. This plan includes immediate actions to mitigate the impact and long-term
strategies for remediation and prevention of future incidents.
Business Continuity
Plan
Access
to company files and data is critical to our effective operation and financial performance. The Company is aware that cybersecurity treats
including ransomware must be identified and mitigated with minimal impact to corporate objectives. We employ a secure data governance
policy that includes off-site, secure, multi-cloud data storage to ensure that risks to critical business operations are mitigated in
the rare case of an incident.
Reporting to Board
of Directors
The
CISO, in his capacity, regularly informs the Chief Financial Officer and Chief Executive Officer of all aspects related to cybersecurity
risks and incidents. This ensures that the senior management team is kept abreast of the cybersecurity posture and potential risks facing
New Horizon. Furthermore, significant cybersecurity matters, and strategic risk management decisions are escalated to the Board, ensuring
that they have comprehensive oversight and can provide guidance on critical cybersecurity issues.
Item 2. Properties.
New
Horizon’s principal executive offices are located at 3187 Highway 35, Lindsay, Ontario, K9V 4R1. New Horizon leases office space
and an aircraft hangar in Lindsay Ontario, which serves as the corporate headquarters, and office space and light composite manufacturing
space in Haliburton Ontario. New Horizon believes that these properties are sufficient for its business and operations as currently conducted.
Item 3. Legal Proceedings.
From
time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management
believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse
effect on our results of operations, financial condition or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Market Information
Our
Class A ordinary shares and Public Warrants are each traded on the Nasdaq Capital Market under the symbols “HOVR,” and “HOVRW,”
respectively.
As of August 15, 2024, there were 36 holders of record of our Class
A ordinary shares and 2 holders of record of our Public Warrants.
Dividends
We
have not paid any cash dividends on our Class A ordinary shares to date. The payment of cash dividends by us in the future will be dependent
upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within
the discretion of our Board.
Securities Authorized
for Issuance Under Equity Compensation Plans
The
information contained Part III, Item 12. “Securities Authorized for Issuance Under Equity Compensation Plans” is incorporated
by reference herein.
Recent Sales of Unregistered Securities
Initial Public Offering
As previously reported, on February 14, 2023, Pono completed its IPO (the
“Offering”) of 10,000,000 units (“Units”). Each Unit consists of one Class A ordinary share and one redeemable
warrant (“Public Warrant”), each whole Public Warrant entitling the holder thereof to purchase one Class A ordinary share
at an exercise price of $11.50 per share, subject to adjustment, pursuant to Pono’s registration statement on Form S-1 (File No.
333-268283). The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of USD $100,000,000.
Subsequently, on February 14, 2023, the underwriters exercised the over-allotment
option in full and the closing of the issuance and sale of the additional Units occurred (the “Overallotment Option Units”).
The total aggregate issuance by Pono of 1,500,000 units at a price of $10.00 per unit resulted in total gross proceeds of USD $15,000,000.
On February 14, 2023, simultaneously with the sale of the Overallotment Option Units, Pono consummated the private sale of an additional
54,000 Placement Units, generating gross proceeds of USD $540,000. The Placement Units were issued pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended, as the transactions did not involve a public offering.
No
payments for Pono’s expenses were made in the Offering described above directly or indirectly to (i) any of our directors, officers
or their associates, (ii) any person(s) owning 10% or more of any class of our equity securities or (iii) any of our affiliates, except
in connection with the repayment of outstanding loans and pursuant to the administrative support agreement disclosed herein which we entered
into with our Sponsor.
The PIPE Financing
On December 27, 2023, Pono entered into a subscription agreement (the “Subscription
Agreement”), pursuant to which Pono obtained a commitment from a certain investor (the “Subscriber”) to purchase Pono’s
Class A ordinary shares (such shares, collectively, “Subscription Shares”) in an aggregate value of USD $2,000,000 (as of
the date hereof), representing 200,000 Subscription Shares at a price of $10.00 per share. The purpose of the sale of the Subscription
Shares is to raise additional capital for use in connection with the Business Combination. The closing of the sale of the Subscription
Shares occurred substantially concurrent with the consummation of the Business Combination. Such Subscription Shares were issued in reliance
upon exemption from the registration requirements under Section 4(a)(2) under the Securities Act of 1933.
Underwriter and Vendor Shares
At
the closing of the Business Combination, New Horizon issued an aggregate of 103,500 Class A ordinary shares to EF Hutton LLC at $10.00
per share and 265,734 Class A ordinary shares issued at a value of $1.63 per share, in partial satisfaction of deferred underwriting commissions.
New Horizon agreed to customary registration rights with respect to such shares. Such shares were issued in reliance upon exemption from
the registration requirements under Section 4(a)(2) under the Securities Act of 1933.
In
connection with the closing of the Business Combination, New Horizon also issued 40,179 Class A ordinary shares to MZHCI, LLC at a value
of $3.36 per share in satisfaction of fees earned in connection with the Business Combination, 400,000 Class A ordinary shares to Roth
Capital Partners, LLC at a value of $2.50 per share in satisfaction of fees earned in connection with the Business Combination, 15,000
Class A ordinary shares to Benjamins Securities in satisfaction of fees owed to them for services provided in connection with the Business
Combination at $5.00 per share, and 300,000 Class A ordinary shares at a value of $2.26 per share and 225,000 Class A ordinary shares
issued at a value of $2.85 per share to Spartan Crest Capital Corp. as consideration for fees earned in connection with continuing consulting
services. Such shares were issued in reliance upon exemption from the registration requirements under Section 4(a)(2) under the Securities
Act of 1933.
Issuance
Pursuant to the Forward Purchase Agreement
On April 2, 2024, New Horizon issued an aggregate of 387,495 Class A ordinary
shares to affiliates of Meteora Capital Partners LP at a value of $10.00 per share, pursuant to the terms of the forward purchase
agreement, dated August 15, 2024 (as amended by the forward purchase agreement confirmation amendment, dated February 14, 2024, the “Forward
Purchase Agreement”), by and between New Horizon, Meteora Capital Partners, LP (“MCP”), Meteora Select Trading Opportunities
Master, LP (“MSTO”), and Meteora Strategic Capital, LLC (“MSC”) (with MCP, MSTO and MSC collectively as “Meteora”).
Such shares were issued in reliance upon exemption from the registration requirements under Section 4(a)(2) under the Securities Act of
1933.
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
None.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
References in this report (the “Annual
Report”) to “we,” “us” or the “Company” refer to New Horizon Aircraft Ltd. References to our
“management” or our “management team” refer to our officers and directors. The following discussion and analysis
of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements
and the notes thereto contained elsewhere in this Annual Report. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements that involve risks and uncertainties.
All figures noted are in thousands of Canadian
dollars unless noted otherwise.
Special Note Regarding Forward-Looking Statements
This Annual Report includes “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 Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts and involve risks and uncertainties
that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical
fact included in this Annual Report including, without limitation, statements under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans
and objectives of management for future operations, are forward-looking statements. When used in this Annual Report, words such as “expect,”
“believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar
words and expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of management, as well as assumptions made by, and information currently available to the Company’s
management. A number of factors could cause actual events, performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of this Annual Report.
Overview
New Horizon Aircraft Ltd.
(the “Company”, “Horizon”, “we,” “us” or “our”), a British Columbia corporation,
with our headquarters located in Lindsay, Ontario, is an aerospace company. The Company is a former blank check company incorporated on
March 11, 2022 under the name Pono Capital Three, Inc. (“Pono”), as a Delaware corporation, subsequently redomiciled in the
Cayman Islands on October 14, 2022, and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization, or similar business combination with one or more businesses.
Business Combination
On February 14, 2023, we consummated an initial
public offering (“IPO”). On January 12, 2024 (the “Closing date”), we consummated a merger (the “Merger”)
with Pono Three Merger Acquisitions Corp., a British Columbia company (“Merger Sub”) and wholly-owned subsidiary of Pono,
with and into Robinson Aircraft Ltd. (“Robinson”) pursuant to an agreement and plan of merger, dated as of August 15, 2023,
(as amended by a Business Combination Agreement Waiver, dated as of December 27, 2023) by and among Pono, Merger Sub, Horizon, and Robinson.
The Merger and other transactions contemplated
thereby (collectively, the “Business Combination”) closed on January 12, 2024, when, pursuant to the Business Combination
Agreement, Merger Sub merged with and into Robinson, surviving the Merger as a wholly owned subsidiary of Pono. Pono changed its name
to “New Horizon Aircraft Ltd.” and the business of Robinson became the business of New Horizon Aircraft Ltd.
The financial information included in this report
reflect (i) the historical operating results of Robinson prior to the Business Combination (“Legacy Horizon”); (ii) the combined
results of Pono and Legacy Horizon following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Horizon
at their historical cost; and (iv) the Company’s equity structure for all periods presented.
Organization and Nature of Business
The Company’s objective is to significantly
advance the benefits of sustainable air mobility. In connection with this objective, we have designed and developed a cost effective and
energy efficient hybrid-electric vertical takeoff and landing (“eVTOL”) prototype aircraft for use in future regional air
mobility (“RAM”) networks.
Robinson was incorporated in 2013. Initially,
the company was focused on development of a hybrid electric amphibious aircraft, and in 2018 the Company pivoted to developing an innovative
hybrid electric Vertical Takeoff and Landing (“eVTOL”) concept that is identified as the Cavorite X7. The Company has built
several small-scale prototypes and now has a 50%-scale aircraft that is undergoing active flight testing.
Horizon intends to sell these aircraft to third
parties, air operators, lessors, individual consumers, and NATO military customers. The Company plans to manufacture its aircraft and
license its patented fan-in-wing technology and other core innovations to other Original Equipment Manufacturers (“OEM’s”).
Manufacturing will be accomplished with a heavy reliance on experienced aircraft manufacturing partners and supply chain vendors. Horizon
believes this highly focused business model will provide the most efficient use of capital to produce an aircraft that has a variety of
applications.
Key Factors Affecting Operating Results
See the section entitled “Risk Factors”
for a further discussion of these considerations.
Development of the Regional Air Mobility
Market
The Company’s revenue will be directly tied
to the continued development of long-distance aerial transportation and related technologies. While the Company believes the market for
Regional Air Mobility (“RAM”) will be large, it remains undeveloped and there is no guarantee of future demand. Horizon anticipates
commercialization of its aircraft beginning in 2027, and its business will require significant investment leading up to launching services,
including, but not limited to, final engineering designs, prototyping and flight testing, manufacturing, software development, certification,
pilot training and commercialization.
Horizon believes one of the primary drivers for
adoption of its aircraft is the value proposition enabled by its aircraft that can take-off and land similar to a helicopter, fly almost
twice as fast, and operate with much lower direct operating costs. Additional factors impacting adoption of eVTOL technology include but
are not limited to: perceptions about eVTOL quality, safety, performance and cost; perceptions about the environmental impact of hybrid-electric
machines; volatility in the cost of oil and gasoline; availability of competing forms of transportation, such as ground or unmanned drone
services; consumers perception about the convenience and cost of transportation using eVTOL relative to ground-based alternatives; and
increases in fuel efficiency, autonomy, or electrification of vehicles. In addition, macroeconomic factors could impact demand for RAM
services, particularly if customer pricing is at a premium to ground-based transportation. Horizon anticipates initial aircraft
sales to be used for medevac services, firefighting services, disaster relief services, remote medical services, military operations,
followed by sales to air operators and lessors for air cargo, business travel and air-taxi services. If the market for RAM does not develop
as expected, this would significantly impact the Company’s ability to generate revenue or grow its business.
Competition
The Company believes that the primary sources
of competition for its aircraft sales are traditional helicopters, ground-based mobility solutions, and other eVTOL developers. While
it expects to produce a versatile aircraft that can be useful in a variety of air mobility missions, the Company expects this industry
to be dynamic and increasingly competitive. It is possible that its competitors could gain significant market share. Horizon may not fully
realize the sales it anticipates, and it may not receive any competitive advantage from its design or may be overcome by other competitors.
If new companies or existing aerospace companies produce competing aircraft in the markets in which Horizon intends to service and obtain
large-scale capital investment, it may face increased competition. Horizon may receive an advantage from well-funded competitors that
are paying to create certification programs, raise awareness of eVTOL advantages and advocating to kickstart government funding programs.
Government Certification
To be utilized in for-profit commercial operations,
Horizon’s Cavorite X7 aircraft will require Type Certification. Horizon has had initial conversations with applicable regulators
Transport Canada Civil Aviation (“TCCA”) in Canada and the Federal Aviation Association (“FAA”) in the United
States of America. As a Canadian company, TCCA will initially lead certification efforts. Horizon expects the FAA to participate during
this process which will likely reduce the amount of time required to achieve FAA certification.
The Company maintains a partnership with Cert
Centre Canada (“3C”) for the purpose of collaborating on aspects of the continued development and path to certification of
Horizon’s eVTOL program. 3C is leveraging their deep experience with TCCA and FAA certification programs to develop a certification
basis for the certification of Horizon’s hybrid-electric eVTOL aircraft.
Typically, the certification of a new aircraft
design by TCCA or the FAA is a long and complex process, often spanning more than five years and costing hundreds of millions of dollars.
The Company has never undergone such a process, and there is no guarantee that its Cavorite X7 design will eventually achieve certification
despite its best efforts. The Company will need to obtain authorizations and certifications related to the production of its aircraft.
While it anticipates being able to meet the requirements of such authorizations and certifications, the Company may be unable to obtain
such authorizations and certifications, or to do so on the timeline it projects. Should the Company fail to obtain any of the required
authorizations or certifications, or do so in a timely manner, or any of these authorizations or certifications are modified, suspended
or revoked after it obtains them, the Company may be unable to fulfill sales of its commercial aircraft or do so on the timelines it projects,
which would have adverse effects on its business, prospects, financial condition, and results of operations.
Dual Use Business Model
Horizon’s business model to serve as a dual
use aircraft both civilian and military applications. Present projections indicate that sales volume of this dual use aircraft will result
in a viable business model over the long-term as production volumes scale and unit economics improve to support sufficient market adoption.
The advantage of military application of Horizon’s aircraft in addition to sales volumes leads to a reduction in the risk of certification
as aircraft used for military purposes do not need to achieve TCCA, FAA, or similar certification approval. As with any new industry and
aerospace product, numerous risks and uncertainties exist. The Company’s financial results are dependent on delivering aircraft
on-time and at a cost that supports returns at prices that support sufficient sales to customers who are willing to purchase based on
value arising from time and versatility from utilizing regional eVTOL aircraft. Horizon’s civilian sector financial results are
dependent on achieving certification on its expected timeline. Our aircraft include numerous parts and manufacturing processes unique
to eVTOL aircraft, in general, and its product design, in particular. Best efforts have been made to estimate costs in the Company’s
planning projections; however, the variable cost associated with assembling its aircraft at scale remains uncertain at this stage of development.
Going Concern and Liquidity
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which
contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred and expects to continue to incur significant costs in pursuit of the Company’s development
plans. We have devoted many resources to the design and development of our eVTOL prototype. Funding of these activities has primarily
been through the net proceeds received from the issuance of related and third-party debt and the sale common stock to related and third
parties.
Through May 31, 2024, we have
incurred cumulative losses from operations, negative cash flows from operating activities, and have an accumulated deficit of $14.7 million.
Horizon is a pre-revenue organization in a research and development and flight-testing phase of operations. While management expects that
the net impact of the Business Combination along with our cash balances held prior to the Closing Date and proceeds from an anticipated
August 2024 offering will be sufficient to fund our current operating plan for at least the next 12 months from the date these consolidated
financial statements were available to be issued, there is substantial doubt around the Company’s ability to meet the going concern
assumption beyond that period without raising additional capital.
There can be no assurance that we will be successful
in achieving our business plans, that our current capital will be sufficient to support our ongoing operations, or that any additional
financing will be available in a timely manner or on acceptable terms, if at all. If events or circumstances occur such that we do not
meet our business plans, we may be required to raise additional capital, alter, or scale back our aircraft design, development, and certification
programs, or be unable to fund capital expenditures. Any such events would have a material adverse effect on our financial position, results
of operations, cash flows, and ability to achieve our intended business plans.
Components of Results of Operations
Revenue
The Company is working to design, develop, certify,
and manufacture our eVTOL aircraft and has not yet generated revenues in any of the periods presented. We do not expect to begin generating
significant revenues until we are able to complete the design, development, and certification, and manufacture our eVTOL aircraft.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily
of personnel expenses, including salaries, benefits, costs of consulting, equipment, engineering, data analysis, and materials.
We expect our research and development expenses
to increase as we increase staffing to support aircraft engineering and software development, build aircraft, and continue to explore
and develop our eVTOL aircraft and technologies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily
consist of personnel expenses, including salaries, benefits, and stock-based compensation, related to executive management, finance, legal,
and human resource functions. Other costs include business development, investor relations, contractor and professional services fees,
audit and compliance expenses, insurance costs and general corporate expenses, including depreciation, rent, information technology costs
and utilities.
We expect our selling, general and administrative
expenses to increase as we hire additional personnel and consultants to support our operations and comply with applicable regulations,
including the Sarbanes-Oxley Act (“SOx”) and other SEC rules and regulations.
Other Income
Other income consists of grants and subsidies
received for developmental work and foreign exchange gains and losses.
Interest Expense, net
Interest expense consists primarily of interest
on the Company’s Convertible Notes, Promissory Notes, and Convertible Debentures that have converted into common shares of the Company
on or prior to the closing of the Business Combination. Additional interest expense includes the cost of equipment financing. Interest
income consists primarily of interest earned on the Company’s cash.
Change in fair value of Forward Purchase Agreement
Change in fair value of Forward
Purchase Agreement consists of fluctuations in the deemed value of an agreement between the Company and shareholder facilitating future
purchases of the Company’s stock based on a simulation model. The Company will not have any monetary obligations in connection
with the Forward Purchase Agreement.
Warrant expense (income)
Change in warrant expense
and income consists of fluctuations in the fair value of warrants as of the end of each reporting period.
Results of Operations
We believe the following information includes
all adjustments necessary to state fairly its results of operations for all periods presented. This data should be read in conjunction
with Horizon’s consolidated financial statements and notes thereto. These results of operations are not necessarily indicative
of the future results of operations that may be expected for any future period.
Comparison of the Year Ended May 31, 2024
to the Year Ended May 31, 2023
Meaningful variances in the
Company’s components of operations are explained below. The following table sets forth Horizon’s statements of operations
data for the years ended May 31, 2024 and May 31, 2023 (000’s CAD).
| | |
Year Ended | | |
| |
| Operating expenses | |
May 31,
2024 | | |
May 31,
2023 | | |
Variance
($) | | |
Variance
(%) | |
| Research and development | |
$ | 880 | | |
$ | 676 | | |
$ | (204 | ) | |
| -30 | % |
| General and administrative | |
| 3,744 | | |
| 787 | | |
| (2,957 | ) | |
| -376 | % |
| Total operating expenses | |
| 4,624 | | |
| 1,463 | | |
| (3,161 | ) | |
| -216 | % |
| Loss from operations | |
| (4,624 | ) | |
| (1,463 | ) | |
| 3,161 | | |
| -216 | % |
| Other expenses (income) | |
| (575 | ) | |
| (290 | ) | |
| 285 | | |
| 98 | % |
| Interest expense (income), net | |
| 163 | | |
| 74 | | |
| (89 | ) | |
| -120 | % |
| Warrant expense (income) | |
| (394 | ) | |
| — | | |
| 394 | | |
| 100 | % |
| Change in fair value of Forward Purchase Agreement | |
| 4,342 | | |
| — | | |
| (4,342 | ) | |
| -100 | % |
| Net income (loss) | |
$ | (8,160 | ) | |
$ | (1,247 | ) | |
$ | 6,913 | | |
| -554 | % |
Operating Expenses
Operating expenses increased by $3,161, from $1,463
for the year ended May 31, 2023 to $4,624 for the year ended May 31, 2024. The increase was primarily driven by professional fees, additional
staff hired to support development activities, and other administrative costs connected with the Company’s growth activities.
Research and Development Expenses
Research and development expenses increased by
$204, or 30%, from $676 during the year ended May 31, 2023 to $880 during the year ended May 31, 2024. The increase was primarily attributable
to additional labour related to flight testing, engineering work, flight software, prototype manufacturing, and data analysis.
General and Administrative
General and Administrative costs increased by
$2,957, from $787 during the year ended May 31, 2023 to $3,744 during the year ended May 31, 2024, including $1,101 of non-cash related
service fees. The increase was related to legal, accounting, travel, investor relations, marketing, and branding expenses related to the
Company’s growth efforts.
Other expenses (income)
Other income increased by $285, or 98%, from $290
during the year ended May 31, 2023 to $575 during the year ended May 31, 2024. The increase primarily reflected the change in grants and
subsidies received in the comparative periods.
Interest expense, net
Interest expenses increased by $89, from $74 during
the year ended May 31, 2023 to $163 during the year ended May 31, 2024. The increase primarily related to interest expenses on the Company’s
Convertible Debentures and Convertible Promissory Notes.
Cash Flows
The following tables set forth
a summary of our cash flows for the periods indicated (000’s CAD):
| | |
Year Ended | | |
| |
| Net cash provided by (used in) | |
May 31,
2024 | | |
May 31,
2023 | | |
Variance
($) | | |
Variance
(%) | |
| Operating activities | |
$ | (3,308 | ) | |
$ | (1,087 | ) | |
$ | (2,221 | ) | |
| -204 | % |
| Investing activities | |
| (209 | ) | |
| — | | |
| (209 | ) | |
| -100 | % |
| Financing activities | |
| 5,105 | | |
| 1,311 | | |
| 3,794 | | |
| 289 | % |
| Net increase in cash | |
$ | 1,588 | | |
$ | 224 | | |
$ | 1,364 | | |
| -609 | % |
Net Cash used in Operating Activities
The Company’s cash flows used in operating
activities have been primarily comprised of payroll, software expenses, technology costs, professional services related to research and
development and general and administrative activities, insurance, and direct research and development costs for aircraft design, simulation,
and prototype manufacturing, partially offset by periodic grants received from various government agencies. The Company expects to increase
hiring to accelerate its engineering and certification efforts in the coming years.
For the year ended May 31, 2024, the $2,221 increase
in cash used from operations as compared to the year ended May 31, 2023 was primarily attributed to increased operating costs in connection
to the Company’s growth efforts and changes in working capital.
Net Cash used in Investing Activities
The Company’s cash flows used in investing
activities to date have been primarily comprised property and equipment.
For the year ended May 31, 2024, the $209 increase
in cash used by investing activities as compared to the year ended May 31, 2023 was primarily attributed to website development and computer
equipment.
Net Cash provided by Financing Activities
The Company’s cash flows provided by financing
activities to date have primarily been composed of funding raised with convertible instruments.
For the year ended May 31, 2024, the $3,794 increase
in cash provided by financing activities as compared to the year ended May 31, 2023 was primarily attributed to the issuance of Convertible
Debentures in October 2023 which converted into common shares of the Company in January 2024. These were accompanied by the conversion
of Convertible Notes, partially offset by the impact from costs in connection with the Business Combination.
Sources of Liquidity
Liquidity describes the ability of a company to
generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service,
contractual obligations, and other commitments. The Company assesses liquidity in terms of its cash flows from financing activities and
their sufficiency to fund its operating and development activities. As of May 31, 2024, the Company’s principal source of liquidity
was cash and cash equivalents of $1,816.
To date, the Company has funded
its operations primarily with the issuances of common shares and issuances of convertible debt instruments. Additional funding has been
provided through government backed grants. Imminently following the publication of the Company’s form 10-K for the period ending
May 31, 2024, we expect to receive approximately $4.8 million of gross proceeds related to a registered securities offering.
The Company believes it has
sufficient cash to fulfill its business plan for at least the next 12 months from the date of this filing. To the extent the Company is
able to raise additional financing, either by way of the Forward Purchase Agreement, Warrants, or by other means, the Company may be in
a position to expedite its business plan including hiring employees at a more rapid pace. To achieve the Company’s long-term objectives,
additional financing will be required and efforts to raise such working capital will be ongoing through at least the next three years.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements
as of May 31, 2024 and May 31, 2023.
Critical Accounting Estimates
The preparation of consolidated financial statements
and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and income
and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following
critical accounting policies:
Derivative Financial Instruments
The Company evaluates its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic
815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with
changes in the fair value reported in the consolidated statements of operations. For derivative instruments that are classified as equity,
the derivative instruments are initially measured at fair value (or allocated value), and subsequent changes in fair value are not recognized
so long as the contracts continue to be classified in equity.
The Company’s Forward
Purchase Agreement and Warrants outstanding are recognized as a derivative liability in accordance with ASC 815. Accordingly, the Company
recognizes the instrument as an asset or liability at fair value and with changes in fair value recognized in the Company’s consolidated
statements of operations. The estimated fair value of the Forward Purchase Agreement is measured at fair value using a simulation model.
At the settlement date, the Forward Purchase Agreement will be recognized as a derivative asset at the value of cash paid based on the
number of shares, with any changes in fair value recognized in the Company’s consolidated statements of operations.
Research and Development Costs
The research and development costs are accounted
for in accordance with ASC 730, Research and Development, which requires all research and development costs be expensed as incurred.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards
Board issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies
the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and
Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required
to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted
for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments
will be accounted for as a single liability measured at amortized cost. Further, the ASU made amendments to the EPS guidance in Topic
260, Earnings Per Share, for convertible instruments, the most significant impact of which is requiring the use of the if-converted
method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40,
which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting.
The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for public
business entities, excluding smaller reporting companies, for interim and annual periods beginning after December 15, 2021, with early
adoption permitted. For all other entities, the amendments are effective for interim and annual periods beginning after December 15, 2023.
Adoption of the ASU can either be on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact
the adoption of this standard will have on its financial statements and related disclosures.
No other recently issued accounting pronouncements
had or are expected to have a material impact on the Company’s financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting
companies.
Item 8. Financial Statements and Supplementary Data.
The
consolidated financial statements and related consolidated financial statement schedules required to be filed are indexed on page
F-1 and are incorporated herein.
Item 9. Changes in and Disagreements
With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control
objectives.
Evaluation of Disclosure
Controls and Procedures
As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2024. Based upon their evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that as of May 31, 2024, our disclosure controls and procedures (as
defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective.
Management’s
Annual Report on Internal Controls Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of
the effectiveness of internal control over financial reporting as of May 31, 2024. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. GAAP. Our system of internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are being made only in accordance
with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Management
performed an assessment of the effectiveness of our internal control over financial reporting as of May 31, 2024 based upon criteria in
Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based upon this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the
period covered by this Annual Report, the design and operation of our disclosure controls and procedures were not effective.
Notwithstanding the identified
material weakness, management, including our principal executive officer and principal financial and accounting officer, believe that
the consolidated financial statements contained in this Annual Report fairly present, in all material respects, our financial condition,
results of operations and cash flows for the fiscal periods presented in conformity with GAAP.
Remediation of Material Weakness
While significant progress
has been made to improve our internal control over financial reporting, not all aspects of have been sufficiently remediated. The material
weakness, as of May 31, 2024, relates to the inadequate separation of financial responsibilities. Our management, with the oversight of
the Audit Committee of our Board of Directors, continue to design and implement measures to remediate the material weakness. Remediation
of the material weakness will require further validation and testing of the operating effectiveness of the applicable remedial controls
over a sustained period of financial reporting cycles.
Changes in Internal
Control Over Financial Reporting
In
respect to changes in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
for the quarter ended May 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting, the Company has remediated one material weakness as disclosed during the previous quarter ending February 29, 2024.
Specifically, to address the material weakness identified in lacking sufficient accounting resources with deep technical knowledge, the
Company hired a full-time Chief Financial Officer and has implemented a plan whereby external parties with relevant skills are retained
as needed.
Item 9B. Other Information.
| (b) | During the quarter ended May 31, 2024, none of our directors
or officers adopted or terminated a “Rule 10b5-1 trading agreement” or a “non-Rule 10b5-1 trading agreement”
(in each case defined in Item 408 of Regulation S-K). |
Item 9C. Disclosure Regarding
Foreign Jurisdictions that Prevent Inspections.
Not
applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
The following table sets forth, as of August 15, 2024, the name, age
and position of each of our executive officers and directors.
| Name |
|
Age |
|
Position |
| Executive Officers |
|
|
|
|
| Brandon Robinson(3) |
|
45 |
|
Chief Executive Officer, Director |
| Jason O’Neill(2) |
|
46 |
|
Chief Operating Officer, Director |
| Brian Merker |
|
47 |
|
Chief Financial Officer |
| Stewart Lee |
|
51 |
|
Head of People & Strategy |
| Non-Employee Directors |
|
|
|
|
| Trisha Nomura(1) |
|
44 |
|
Director |
| John Maris(2) |
|
66 |
|
Director |
| John Pinsent(1) |
|
64 |
|
Director |
| (1) |
Class I Director |
| |
|
| (2) |
Class II Director |
| |
|
| (3) |
Class III Director |
Background of Directors
and Executive Officers
Executive Officers
Brandon Robinson. Brandon
Robinson has served as the Chief Executive Officer and as a member of the Board of New Horizon since the Business Combination, and previously
served as the founder and Chief Executive Officer of Horizon and led the Horizon team since its inception in 2013. He has dedicated his
life to aviation, initially as a CF-18 pilot in the Canadian Armed Forces (CAF) before moving into large scale military capital projects.
Upon leaving the CAF, Mr. Robinson, discovered his passion for the Advanced Air Mobility movement. Mr. Robinson serves on the Board
of Directors of the Ontario Aerospace Council. Mr. Robinson has a Bachelor of Mechanical Engineering from Royal Military College,
an MBA from Royal Roads University, has co-authored several successful aerospace patents, and holds an Airline Transport Pilots License.
His deep operational experience alongside a passion for technical innovation has propelled Horizon to the forefront of the Advanced Air
Mobility movement.
We believe that Mr. Robinson,
given his extensive experience as a front-line fighter pilot, mechanical engineering knowledge and adept managing acumen, is qualified
to serve as a member of our Board due to his unique combination of skills he brings as our co-founder and Chief Executive Officer.
Jason O’Neill. Jason
O’Neill has served as Chief Operating Officer and as a member of the Board of New Horizon since the Business Combination. Mr. O’Neill
previously served as Horizon’s Chief Operating Officer since January 2019. Mr. O’Neill has more than 20 years
of experience in senior roles scaling tech-based start-ups. Prior to joining Horizon, Mr. O’Neill worked at Centtric as the
Director of Product and Strategy for 13 years. Most recently he served as the Director of Product and Data for Thoughtwire for nearly
10 years. Mr. O’Neill’s previous organizations were focused on problem solution, leveraging leading edge computer-based
technologies. Mr. O’Neill attended both the University of Toronto and the University of Waterloo.
Mr. O’Neill is qualified
to serve on our board based on his operational experience scaling businesses, as well as his historical experience as Chief Operating
Officer of Horizon.
Brian Merker. Brian
Merker has served as Chief Financial Officer of New Horizon since the Business Combination. Mr. Merker has more than 20 years of senior
financial management experience including 10 years serving in the Aviation sector, most recently as Chief Financial Officer of Skyservice
Business Aviation from 2018 to 2022, supporting growth efforts in aircraft management, maintenance, fixed-based operations, charter, and
brokerage. Prior to Skyservice Business Aviation, Mr. Merker served as Vice President of Finance from 2013 to 2018, with Discovery Air,
a publicly traded organization that includes a diverse range of aviation related services including fighter jet pilot training, rotary-wing
services, a commercial fixed-wing airline, fire suppression support, as well as aircraft engineering and maintenance. Prior to his time
at Discovery Air, Mr. Merker served as Vice President of Finance from 2007 to 2012 at Score Media, a publicly traded company focused on
sports broadcast and technology innovation. Mr. Merker began his career in the KPMG audit practice, where he served from 2003 to 2006.
During this time, he gained significant exposure to SEC registrants at the commencement of the Sarbanes-Oxley legislation. Mr. Merker
obtained his Honours Commerce degree in Economics from Guelph University before attending Queen’s University to complete his Chartered
Professional Accounting academia requirements.
Stewart Lee. Stewart
Lee has served as the Head of People and Strategy at New Horizon since the Business Combination, and previously served as Horizon’s
Head of People and Strategy since 2013. Prior to joining Horizon, Mr. Lee formed his own company, providing human resources consulting
services to a wide array of clients. Previously, Mr. Lee was the Director of Human Resources for Steel-Craft Door Products, a large
Canadian national manufacturing company, for 11 years. Mr. Lee also served in the Canadian Armed Forces as a Logistics Officer
for 6 years. Mr. Lee holds a Bachelor of Commerce degree from Royal Roads University. He also holds an MBA in management from
Royal Roads University and has been a Chartered Professional in Human Resources since 2009.
Non-Employee Directors
Trisha Nomura. Trisha
Nomura has served as independent director and chairperson of the Audit Committee of New Horizon since the Business Combination. Ms. Nomura
served as an independent director of Pono and was the chairperson of Pono’s Audit Committee prior to the Business Combination. She
currently serves as an independent director of Pono Capital Two, Inc. (Nasdaq: PTWO). Since July 2018, Ms. Nomura has owned
a consulting firm, Ascend Consulting, LLC. Prior to opening her own firm, Ms. Nomura worked in both public accounting and private
industry. Ms. Nomura was the Chief Operating Officer of HiHR from July 2015 to December 2016, and the Vice President of Strategic
Services from May 2014 to July 2015. Ms. Nomura also served as the Chief People Officer of ProService Hawaii from January 2017
to June 2018. Ms. Nomura began volunteering with the HSCPA since 2010 through the YCPA Squad, has been the Treasurer of Kaneohe Little
League since 2013, and is a member of the AICPA, where she was selected to attend the Leadership Academy, has served as an at-large Council
member and also served on the Association Board of Directors. Ms. Nomura is a CPA, not in public practice, and a CGMA. She is a graduate
of Creighton University, where she obtained her Bachelor of Science in Business Administration in accounting, and of the University of
Hawaii at Manoa, where she earned her Master of Accountancy degree.
Ms. Nomura’s consulting,
accounting and management skills and knowledge make her an important addition to our Board.
John Maris. John
Maris has served as an independent director of New Horizon since the Business Combination. Dr. Maris has served as the Chief Executive
Officer of Advanced Aerospace Solutions, LLC (“Advanced Aerospace”), a privately held business that provides consulting services
in the aerospace industry, since 2008. At Advanced Aerospace, Dr. Maris has served as the principal flight-test investigator and
test pilot for NASA’s Traffic Aware Strategic Aircrew Request (TASAR) technology. Since 1995, Dr. Maris has also served as President
and Chief Executive Officer of Marinvent Corporation, a company established to develop procedures and technologies to increase the efficiency
and reduce the risk of aeronautical programs, including the Electronic Flight Bag (EFB) technology. Dr. Maris also founded Maris Worden
Aerospace in 1986. From 1993 to 1995, Dr. Maris served as the Mobile Servicing System Control Equipment Manager for the International
Space Station for the Canadian Space Agency. From 1983 to 1993, Mr. Maris was a project officer and experimental test pilot for the Canadian
Department of National Defense. In 1983, Dr. Maris enlisted in the Royal Canadian Air Force and graduated from the United States Air Force
Test Pilot Course at Edwards Air Force Base in California in 1989. Dr. Maris subsequently served four years as Project Officer and Experimental
Test Pilot at the Aerospace Engineering Test Establishment at Cold Lake, Alberta. In 1995, holding the rank of Major, Dr. Maris retired
from the Canadian Forces to devote full-time to Marinvent Corporation. Dr. Maris earned a B.Sc. in Aeronautical Engineering at the
Imperial College of Science and Technology at London University in 1979, and subsequently earned a Master of Aeronautical Science degree
in 1982 and a Master of Aviation Management degree in 1983, both with Distinction from Embry-Riddle Aeronautical University (ERAU) at
Daytona Beach, Florida. In 2017, Dr. Maris received his Ph.D. from ERAU, earning his doctorate in Aviation Safety and Human Factors. In
2018 he was granted Affiliate Professor status at Concordia University in Montréal. Dr. Maris sits on a number of the Concordia
University’s boards and is also on the Centre technologique en aérospatiale board.
Dr. Maris’ vast
experience in the aerospace industry, both as a pilot and entrepreneur, makes him an important addition to our Board.
John Pinsent. John
Pinsent has served as an independent director of New Horizon since the Business Combination. In 2004. Mr. Pinsent founded St. Arnaud Pinsent
Steman Chartered Professional Accountants (“SPS”), a chartered professional accounting firm based out of Edmonton, Alberta,
Canada. Before founding SPS, Mr. Pinsent worked for ten years at Ernst & Young LLP, earning his Chartered Accountants designation
in 1996. From 1986 to 1994, Mr. Pinsent served as the Controller and Vice President Finance of an Alberta based international retail organization.
Mr. Pinsent earned his Bachelor of Education and Bachelor of Commerce (AD) degrees at the University of Alberta, has an ICD.D designation
from the Institute of Corporate Directors and became an FCPA in 2013. Mr. Pinsent serves as a board member of Enterprise Group, Inc.,
a Toronto Stock Exchange listed company that provides specialized equipment and services in the build out of infrastructure for energy,
pipeline, and construction industries. He also sits on the board of directors of several private companies and supports numerous non-profit
and philanthropic initiatives. He has experience serving as board and audit committee chairs and has extensive experience in compliance
and corporate governance in the public markets.
Mr. Pinsent’s experience
providing accounting, audit, tax and business advisory services, along with his public company and board experience, make him an important
addition to our Board.
Family Relationships
Brian Robinson, our Chief
Engineer, is the father of Brandon Robinson. Jason O’Neill is the brother-in-law of Brandon Robinson. There are no other family
relationships among any of our directors or executive officers.
Board Composition
Our business and affairs are
organized under the direction of our Board. The Board consists of five members upon consummation of the Business Combination. The primary
responsibilities of the Board are to provide oversight, strategic guidance, counseling, and direction to our management. The Board will
meet on a regular basis and additionally as required.
In accordance with our Articles,
our Board is divided into three classes, Class I, Class II and Class III, with members of each class serving staggered
three-year terms. The directors are assigned to the following classes:
| |
● |
Class I consists of Ms. Nomura and Mr. Pinsent, whose terms will expire at our 2025 annual meeting of shareholders; |
| |
● |
Class II consists of Mr. O’Neill and Mr. Maris, whose terms will expire at our 2026 annual meeting of shareholders; and |
| |
● |
Class III consists of Mr. Brandon Robinson, whose term will expire at our 2027 annual meeting of shareholders. |
At each annual meeting of
shareholders to be held after the initial classification, the successors to directors whose terms then expire will be elected to serve
from the time of election and qualification until the third annual meeting following their election and until their successors are duly
elected and qualified. This classification of our Board may have the effect of delaying or preventing changes in our control or management.
Director Independence
As a result of our Class A
ordinary shares being listed on the Nasdaq Capital Market, we adhere to the listing rules of the Nasdaq in affirmatively determining
whether a director is independent. Our Board has consulted, and will consult, with its counsel to ensure that the board’s determinations
are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors.
The Nasdaq listing standards generally define an “independent director” as a person, other than an executive officer of a
company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director.
Each of the directors other
than Mr. Brandon Robinson and Mr. O’Neill qualify as independent directors as defined under the listing rules of
Nasdaq, and our board consists of a majority of independent directors, as defined under the rules of the SEC and Nasdaq Listing Rules relating
to director independence requirements. In addition, we are subject to the rules of the SEC and Nasdaq relating to the membership,
qualifications, and operations of the audit committee, the compensation committee, and the nominating and corporate governance committee,
as discussed below.
Board Oversight of Risk
One of the key functions of
our Board will be informed oversight of its risk management process. The Board does not anticipate having a standing risk management committee,
but rather anticipates administering this oversight function directly through the Board as a whole, as well as through various standing
committees of the Board that address risks inherent in their respective areas of oversight. In particular, our Board will be responsible
for monitoring and assessing strategic risk exposure and our audit committee will have the responsibility to consider and discuss the
combined company’s major financial risk exposures and the steps its management will take to monitor and control such exposures,
including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee will
also monitor compliance with legal and regulatory requirements. Our compensation committee will also assess and monitor whether our compensation
plans, policies and programs comply with applicable legal and regulatory requirements.
Board Committees
Our Board has established
an audit committee, a compensation committee and a nominating and corporate governance committee. Our Board adopted a written charter
for each of these committees, which complies with the applicable requirements of current Nasdaq Listing Rules. Copies of the charters
for each committee are available on the investor relations portion of New Horizon’s website. The composition and function of each
committee will comply with all applicable requirements of the Sarbanes-Oxley Act and all applicable SEC rules and regulations.
Audit Committee
The members of the audit committee
are Ms. Nomura (Chair), Mr. Maris, and Mr. Pinsent. Our Board has determined that each of the members of the audit committee
will be an “independent director” as defined by, and meet the other requirements of the Nasdaq Listing Rules applicable
to members of an audit committee and Rule 10A-3(b)(i) under the Exchange Act, including that each member of the audit committee
can read and understand fundamental financial statements in accordance with Nasdaq audit committee requirements. In arriving at this determination,
the Board examined each audit committee member’s scope of experience and the nature of their prior and current employment. The audit
committee will meet on at least a quarterly basis. Both the combined company’s independent registered public accounting firm and
management intend to periodically meet privately with our audit committee.
The primary purpose of the
audit committee is to discharge the responsibilities of the Board with respect to our accounting, financial, and other reporting and internal
control practices and to oversee our independent registered accounting firm. Specific responsibilities of our audit committee include:
| |
● |
selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; |
| |
● |
helping to ensure the independence and performance of the independent registered public accounting firm; |
| |
● |
discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results; |
| |
● |
developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; |
| |
● |
reviewing policies on risk assessment and risk management; |
| |
● |
reviewing related party transactions; |
| |
● |
obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and |
| |
● |
approving (or, as permitted, pre-approving) all audit and all permissible non-audit service to be performed by the independent registered public accounting firm. |
Audit Committee Financial
Expert
Our Board has determined that
Ms. Nomura qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication
requirements of the Nasdaq Listing Rules. In making this determination, our Board considered Ms. Nomura’s formal education,
training, and previous experience in financial roles.
Compensation Committee
The members of the compensation
committee are Mr. Pinsent (Chair), Ms. Nomura, and Mr. Maris. Our Board has determined that each of the members will be
an “independent director” as defined by the Nasdaq Listing Rules applicable to members of a compensation committee. The
Board has determined that each of the members of the compensation committee is a non-employee director, as defined in Rule 16b-3
promulgated under the Exchange Act and satisfy the independence requirements of Nasdaq. The compensation committee will meet from time
to time to consider matters for which approval by the committee is desirable or is required by law.
Specific responsibilities
of our compensation committee include:
| |
● |
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation; |
| |
● |
reviewing and approving the compensation of our other executive officers; |
| |
● |
reviewing and recommending our Board the compensation of our directors; |
| |
● |
reviewing our executive compensation policies and plans; |
| |
● |
reviewing and approving, or recommending that our Board approve, incentive compensation and equity plans, severance agreements, change-of-control protections and any other compensatory arrangements for our executive officers and other senior management, as appropriate; |
| |
● |
administering our incentive compensation equity-based incentive plans; |
| |
● |
selecting independent compensation consultants and assessing whether there are any conflicts of interest with any of the committee’s compensation advisors; |
| |
● |
assisting management in complying with our proxy statement and annual report disclosure requirements; |
| |
● |
if required, producing a report on executive compensation to be included in our annual proxy statement; |
| |
● |
reviewing and establishing general policies relating to compensation and benefits of our employees; and |
| |
● |
reviewing our overall compensation philosophy. |
Nominating
and Corporate Governance Committee
The members of the nominating
and corporate governance committee are Mr. Maris (Chair), Ms. Nomura and Mr. Pinsent. The Board determined that each of
the members will be an “independent director” as defined by the Nasdaq Listing Rules applicable to members of a nominating
committee. The nominating and corporate governance committee will meet from time to time to consider matters for which approval by the
committee is desirable or is required by law.
Specific responsibilities of our nominating and
corporate governance committee include:
| |
● |
identifying, evaluating and selecting, or recommending that our Board approve, nominees for election to our Board; |
| |
● |
evaluating the performance of our Board and of individual directors; |
| |
● |
reviewing developments in corporate governance practices; |
| |
● |
evaluating the adequacy of our corporate governance practices and reporting; |
| |
● |
reviewing management succession plans; and |
| |
● |
developing and making recommendations to our Board regarding corporate governance guidelines and matters. |
Code of Ethics
We have adopted a code of
ethics that applies to all of our directors, officers and employees. A copy of our code of ethics posted on the “Corporate Governance
— Governance Documents” portion under the “Investors” tab of our website at https://www.horizonaircraft.com.
Information contained on or accessible through our website is not a part of this Annual Report, and the inclusion of our website address
in this Annual Report is an inactive textual reference only. We also intend to disclose future amendments to, or waivers of, its code
of ethics, as and to the extent required by SEC regulations, on our website.
Insider Trading Policy
Our Board has adopted an insider
trading policy to promote compliance with federal, state and foreign securities laws that prohibit certain persons who are aware of material
nonpublic information about a company from: (i) trading in securities of that company; or (ii) providing material nonpublic information
to other persons who may trade on the basis of that information.
Our insider trading policy
prohibits our Board members, officers, employees and consultants from engaging in transactions involving options on our securities, such
as puts, calls and other derivative securities, whether on an exchange or in any other markets. Our insider trading policy also prohibits
our Board members, officers, employees and consultants from purchasing Company securities on margin, borrowing against Company securities
held in a margin account, or pledging Company securities as collateral for a loan.
Our insider trading policy
permits our executive officers and directors to enter into trading plans established according to Section 10b5-1 of the Exchange Act.
These plans may include specific instructions for a broker to exercise vested options and sell our common stock on behalf of the executive
officer or director at certain dates if our stock price is above a specified level or both. Under these plans, the executive officer or
director no longer has control over the decision to exercise and sell the securities in the plan, unless he or she amends or terminates
the trading plan during a trading window. The purpose of these plans is to enable executive officers and directors to recognize the value
of their compensation and diversify their holdings of our stock during periods in which the executive officer or director would be unable
to sell our common stock because material information about us had not been publicly released.
Compensation Committee
Interlocks and Insider Participation
None of the members of the
compensation committee was at any time one of New Horizon’s officers or employees. None of New Horizon’s executive officers
currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other
entity that has one or more executive officers that will serve as a member of our Board or compensation committee.
Shareholder and Interested
Party Communications
Stockholders and interested
parties may communicate with our Board, any committee chairperson or the non-management directors as a group by writing to the board or
committee chairperson in care of New Horizon Aircraft Ltd., 3187 Highway 35, Lindsay, Ontario K9V 4R1 Canada. Each communication will
be forwarded, depending on the subject matter, to the Board, the appropriate committee chairperson or all non-management directors.
Limitations of Liability
and Indemnification of Directors and Officers
Under the BCBCA, a director
of a company is jointly and severally liable to restore to the company any amount paid or distributed as a result of paying dividends,
commissions and compensation, among other things, contrary to the BCBCA. A director of a company will not be found liable under the BCBCA
if the director relied, in good faith, on (i) financial statements of the company represented to the director by an officer of the company
or in a written report of the auditor of the company, (ii) a written report of a lawyer, accountant, engineer, appraiser or other person
whose profession lends credibility to a statement made by that person, (iii) a statement of fact represented to the director by an officer
of the company to be correct, or (iv) any record, information or representation that the court considers provides reasonable grounds for
the actions of the director, whether or not the record was forged, fraudulently made or inaccurate, or the information or representation
was fraudulently made or inaccurate. Further, a director of a company is not liable under the BCBCA if the director did not know and could
not reasonably have known that the act done by the director or authorized by resolution voted for or consented to by the director was
contrary to the BCBCA.
We have purchased and intend
to maintain director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their
services to the combined company, including matters arising under the Securities Act.
Our Articles provide that
we must indemnify all eligible parties (which includes our current, former or alternate directors and officers), and such person’s
heirs and legal personal representatives, as set out in the BCBCA, against all eligible penalties to which such person is or may be liable,
and we must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such person in
respect of that proceeding. Each director is deemed to have contracted with us on the terms of indemnity contained in our Articles. In
addition, we may indemnify any other person in accordance with the BCBCA.
There is no pending litigation
or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We
are not aware of any threatened litigation or proceedings that may result in a claim for such indemnification.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling the combined
company, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Delinquent Section
16(a) Reports
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, certain officers and any beneficial owners of more than 10% of our
common stock to file reports relating to their ownership and changes in ownership of our common stock with the SEC by certain deadlines.
Based
solely upon a review of those reports and written representations provided to us by all of our directors and executive officers, we believe
that during the year ended May 31, 2024, our directors, executive officers and greater than 10% stockholders timely filed all reports
they were required to file under Section 16(a), except for one Form 4 filing for each of Trisha Nomura, John Maris, and John Pinsent,
which were due on May 17, 2024.
Item 11. Executive Compensation.
Executive Compensation
We are currently considered
an “emerging growth Company” within the meaning of the Securities Act for purposes of the SEC’s executive compensation
disclosure rules. Accordingly, we are required to provide a Summary Compensation Table, as well as limited narrative disclosures regarding
executive compensation for our last two completed fiscal years and an Outstanding Equity Awards at Fiscal Year End Table for our last
completed fiscal year. These reporting obligations extend only to the following “named executive officers,” who are the individuals
who served as our principal executive officer and the next two most highly compensated executive officers at the end of the fiscal year
2023.
This section discusses material
components of the executive compensation programs for New Horizon’s executive officers who area named in the “Summary Compensation
Table” below. In fiscal year 2024, New Horizon’s “named executive officers” and their positions were as follows:
| |
● |
Brandon Robinson, Chief Executive Officer; |
| |
● |
Jason O’Neill, Chief Operating Officer; |
| |
|
|
| |
● |
Brian Merker, Chief Financial Officer; |
This discussion may contain
forward-looking statements that are based on New Horizon’s current plans, considerations, expectations, and determinations regarding
future compensation programs.
Summary Compensation Table
The following table contains
information pertaining to the compensation of New Horizon’s named executives for the years ending May 31, 2024 and 2023.
| Name and Position | |
Year | |
Salary
($CAD) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
Option
Awards
($CAD)(1) | | |
Non-Equity
Incentive
Plan
Compensation
($CAD) | | |
Non-qualified
Deferred
Compensation
Earnings
($CAD) | | |
All
Other
Compensation
($CAD) | | |
Total
($CAD) | |
| Brandon | |
2024 | |
| 270,985 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 270,985 | |
| Robinson, Chief Executive Officer(2) | |
2023 | |
| 200,384 | | |
| — | | |
| — | | |
| 34,699 | | |
| — | | |
| — | | |
| — | | |
| 235,083 | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Jason | |
2024 | |
| 212,029 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 212,029 | |
| O’Neill, Chief Operating Officer(2) | |
2023 | |
| 168,346 | | |
| — | | |
| — | | |
| 35,435 | | |
| — | | |
| — | | |
| — | | |
| 203,781 | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Brian Merker,
Chief
Financial Officer(3)(4) | |
2024 | |
| 129,108 | | |
| — | | |
| — | | |
| 59,127 | | |
| — | | |
| — | | |
| — | | |
| 188,235 | |
| (1) |
Options vest and become exercisable in three equal installments over a 3-year period. |
| (2) |
Option grants valued using a Black-Scholes method with a strike price equal to $CAD0.76, vest in three equal installments over a 3-year period, have a risk-free rate of 2.80% and an annualized volatility of 85%. |
| (3) |
Option grants valued using a Black-Scholes method with a strike price equal to fair market value at $USD0.85, vest in three equal installments over a 3-year period, have a risk-free rate of 4.51% and an annualized volatility of 85%. |
| |
|
| (4) |
Executive compensation information for the year ended May 31, 2023 is not provided, as the individual was not a named executive officer for that period. |
Narrative to the Summary Compensation Table
Annual Base Salary
We pay our named executive
officers a base salary to compensate them for services rendered to our company. The base salary payable to our named executive officers
is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.
Equity Compensation
We have granted stock options
to our employees, including our named executive officers, in order to attract and retain them, as well as to align their interests with
the interests of our shareholders. In order to provide a long-term incentive, these stock options vest over three years subject to
continued service.
In connection with the Business
Combination we adopted the 2023 Equity Incentive Plan, effective January 12, 2024. For additional information about the 2023 Equity Incentive
Plan, see the section titled “—Summary of the 2023 Equity Incentive Plan” section of this prospectus.
Other Elements of Compensation
Retirement Savings and Health Spending Account
and Group Benefits
All of our full-time employees,
including our named executive officers, are eligible to participate in our pension and health plans. The health spending account program
will reimburse costs that include medical, dental and vision benefits; a group benefits plan to provide for short-term and long-term disability
insurance; life and AD&D insurance will be offered to all full-time employees. In May 2024, the Company established an employee share
purchase plan (“ESPP”) whereby employees can elect to allocate between 3-5% of earnings to the purchase of Company stock in
the open market, matched equally by Horizon. The first share purchases in connection with this ESPP commenced in June 2024.
Perquisites and Other Personal Benefits
We determine perquisites on
a case-by-case basis and will provide a perquisite to a named executive officer when we believe it is necessary to attract or
retain the named executive officer. We did not provide any perquisites or personal benefits to our named executive officers not otherwise
made available to our other employees in fiscal year 2024.
Executive Compensation Arrangements
Employment Agreements
As a result of the Business
Combination, New Horizon entered into employment agreements with the New Horizon’s executive officers: Brandon Robinson (Chief Executive
Officer), Jason O’Neill (Chief Operating Officer), and Brian Merker (Chief Financial Officer) (each an “Employment Agreement,
and collectively, the “Employment Agreements”).
The Employment Agreements
all provide for at-will employment that may be terminated by the employee with thirty days’ notice to New Horizon of resignation
from employment; by New Horizon without notice, payment in lieu of notice, benefit continuation (if applicable) or compensation of any
kind, where permitted by the Ontario Employment Standards Act, 2000, as amended from time to time (the “ESA”), which includes
willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by New Horizon; or by New Horizon
with notice or pay in lieu of notice by providing the employee (i) the minimum amount of notice, pay in lieu of notice (or a combination
of both), severance pay, vacation pay and benefit continuation (if applicable) and any other entitlements strictly required by the ESA,
calculated from the date of the employee’s original employment with Horizon; plus (ii) such additional amount of payment of Base
Salary (as defined below) in lieu of notice (“Additional Pay in Lieu of Notice”), as is necessary to ensure that the aggregate
of the statutory notice, pay in lieu of notice and severance pay entitlements under (a) above and the Additional Pay in Lieu of Notice
under sub-section (ii), (b), at a minimum equals twelve (12) months, and such aggregate shall increase by additional one (1) month payment
of the employee’s Base Salary in lieu of notice for each completed year of service from the Effective Date to an overall cumulative
maximum of 24 months of Base Salary; plus, (iii) payment of a prorated portion of any bonuses that the employee is eligible to receive
as of the date of termination, calculated to the end of the Severance Period based upon the average incentive compensation paid to the
employee in the two years prior to the year in which notice of termination is communicated. For the purposes of the Employment Agreements,
the period for which an employee receives notice and/or payment, calculated from the date the employee is advised of the termination of
his employment, is the “Severance Period.”
If following a Change of Control
(as defined in the Employment Agreements), New Horizon gives the employee Good Reason to terminate his employment and the related Employment
Agreement, and provided the employee exercises that right within two years from the date of the Change of Control, the employee shall
be entitled to receive the benefits set forth above, as if the employee’s employment had been terminated on a without cause basis.
“Good Reason” means the occurrence of (i) a constructive termination of employment and of the Employment Agreement; (ii) any
material and unilateral change in employee’s title, responsibilities, or authority in place at the time of the Change of Control;
(iii) any material reduction in the Base Salary paid to employee at the time of the Change of Control; (iv) any termination or material
reduction in the aggregate value of the employee benefit programs, including, but not limited to, pension, life, disability, health, medical
or dental insurance, in which the employee participated or under which the employee was covered at the time of Change of Control; or (v)
the employee’s assignment to any significant, ongoing duties inconsistent with his skills, position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities, or any other action by New Horizon, which results in material
diminution of such position.
The Employment Agreements
provide for a base salary of USD $230,000 for E. Brandon Robinson; $CAD225,000 for each of Jason O’Neill and Brian Merker (each
a “Base Salary”). Possible annual performance bonuses and equity grants under the 2023 Equity Incentive Plan are to be determined
by New Horizon’s compensation committee.
Contractor Agreement
In connection with the Closing
of the Business Combination, New Horizon entered into a Contractor Agreement (the “Contractor Agreement”), dated January 12,
2024 (the “Effective Date”), by and among New Horizon, 2195790 Alberta Inc. (the “Contractor”) and Stewart Lee
(the “Keyman”). Pursuant to the Contractor Agreement, the Contractor will be providing certain services (the “Services”)
as the Head of People & Strategy through the Keyman. The term of the Contractor Agreement began on the Effective Date and unless earlier
terminated, will automatically expire on December 31, 2025 (the “Expiry Date”) and may be extended by mutual agreement in
writing. New Horizon will pay the Contractor for the performance of the Services fees in the amount of $CAD120.00 per hour (the “Fees”).
The Contractor Agreement may
be terminated by mutual agreement; for convenience by either party upon the delivery of, (i) if by the Contractor, 90 calendar days’
prior written notice to New Horizon, and if by New Horizon, 60 calendar days’ prior written notice to the Contractor; or by New
Horizon for material breach. Upon the expiration or earlier termination of the Contractor Agreement for any reason, New Horizon will provide
the Contractor with only the Fees accrued and owing to the Contractor up to and including the Expiry Date or earlier termination date.
Outstanding Equity Awards as of May 31, 2024
The following table sets forth information regarding
outstanding option awards held by the named executive officers as of May 31, 2023. The applicable vesting provisions are described
in the footnote following the table.
| Option Awards |
|
|
Stock Awards |
|
|
|
|
| Name (a) |
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
(b) |
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
(c) |
|
|
Equity
incentive plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
(d) |
|
|
Option
exercise
price
(USD$)
(e) |
|
|
Option
expiration
date
(f) |
|
Number of
shares or
units of
stock that
have not
vested
(#)
(g) |
|
|
Market
value of
shares
or units
of stock
that
have not
vested
($)
(h) |
|
|
Equity
incentive
plan awards:
Number of
unearned
shares,
units or
other rights
that have
not vested
(#)
(i) |
|
|
Equity
incentive
plan
awards:
Market
or payout
value of
unearned
shares,
units or
other rights
that have
not vested
($)
(j) |
|
| Brandon Robinson(1) |
|
|
95,476 |
|
|
|
47,737 |
|
|
|
— |
|
|
$ |
0.55 |
|
|
August 2, 2032 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Jason O’Neill(1) |
|
|
97,502 |
|
|
|
48,750 |
|
|
|
— |
|
|
$ |
0.55 |
|
|
August 2, 2032 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Brian Merker(1) |
|
|
— |
|
|
|
100,000 |
|
|
|
— |
|
|
$ |
0.85 |
|
|
May 30, 2034 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| (1) | Stock options were granted a $CAD0.76 per share and converted
for purposes of this table at the May 31, 2024 foreign exchange rate of USD $1.00 to CAD $1.36. |
Director Compensation
Non-employee directors are
compensated with a combination of cash and stock. Additionally, we provide reimbursement to our non-employee directors for their
reasonable expenses incurred in attending meetings of our Board and its committees.
The following table sets forth
information regarding compensation earned during the fiscal year ended May 31, 2024 by each of our non-employee directors who
served as a director of the Company during that time, which consists of cash retainers and stock awards:
| Name |
|
Fees
Earned or
Paid in Cash
($) |
|
|
Stock
Awards
($) |
|
|
All Other
Compensation
($) |
|
|
Total
($) |
|
| Trisha Nomura |
|
|
12,500 |
(1) |
|
|
12,500 |
(1) |
|
|
— |
|
|
|
25,000 |
(1) |
| John Maris |
|
|
10,000 |
(2) |
|
|
10,000 |
|
|
|
— |
|
|
|
20,000 |
(2) |
| Joh Pinsent |
|
|
10,000 |
(2) |
|
|
10,000 |
|
|
|
— |
|
|
|
20,000 |
(2) |
Summary of the 2023 Equity Incentive Plan
General.
The purpose of the 2023 Equity
Incentive Plan is to secure for New Horizon and its shareholders the benefits inherent in share ownership by the employees and directors
of New Horizon and its affiliates who, in the judgment of the Board, will be largely responsible for its future growth and success, to
provide incentives to the interests of employees, officers and directors that align their interests to the interests of the shareholders.
These incentives are provided through the grant of stock options, deferred share units, restricted share units (time based or in the form
of performance share units) and share awards (collectively, the “Awards”).
Share Issuance Limits
The aggregate number of ordinary
shares that may be subject to issuance under the 2023 Equity Incentive Plan is 1,697,452.
Stock Options
Option Grants
The 2023 Equity Incentive
Plan authorizes the board of New Horizon to grant options. The number of ordinary shares, the exercise price per ordinary share, the vesting
period and any other terms and conditions of options granted pursuant to the 2023 Equity Incentive Plan, from time to time are determined
by the board at the time of the grant, subject to the defined parameters of the 2023 Equity Incentive Plan. The date of grant for the
Options shall be the date such grant was approved by the Board.
Exercise Price
The exercise price of any
Option cannot be less than the closing price on the Nasdaq Capital Market immediately preceding the date of grant (the “Fair Market
Value”).
Exercise Period, Blackout Periods and Vesting
Options are exercisable for
a period of ten years from the date the option is granted, or such greater or lesser period as determined by the Board. Options may
be earlier terminated in the event of death or termination of employment or appointment. Vesting of Options is determined by the Board.
The right to exercise an option
may be accelerated in the event a takeover bid in respect of the ordinary shares is made or other change of control transaction.
Pursuant to the 2023 Equity
Incentive Plan, with respect to options held by participants who are not U.S. taxpayers, when the expiry date of an Option occurs
during, or within nine (9) business days following, a “blackout period”, the expiry date of such option is deemed
to be the date that is ten (10) business days following the expiry of such blackout period. Blackout periods are imposed by
New Horizon to restrict trading of New Horizon’s securities by directors, officers, employees and certain others who hold options
to purchase ordinary shares, in accordance with New Horizon’s insider trading policy and similar policies in effect from time to
time, in circumstances where material non-public information exists, including where financial statements are being prepared but results
have not yet been publicly disclosed.
Cashless Exercise Rights
Cashless exercise rights may
also be granted under the 2023 Equity Incentive Plan, at the discretion of the Board, to an optionee in conjunction with, or at any time
following the grant of, an Option. Cashless exercise rights under the 2023 Equity Incentive Plan effectively allow an optionee to exercise
an Option on a “cashless” basis by electing to relinquish, in whole or in part, the right to exercise such Option and receive,
in lieu thereof, a number of fully paid ordinary shares. The number of ordinary shares issuable on the cashless exercise right is equal
to the quotient obtained by dividing the difference between the aggregate Fair Market Value and the aggregate option price of all ordinary
shares subject to such option by the Fair Market Value of one (1) ordinary share.
Termination or Death
If an optionee dies while
employed by New Horizon, any Option held by him or her will be exercisable for a period of 6 months or prior to the expiration of
the Options (whichever is sooner) by the person to whom the rights of the optionee shall pass by will or applicable laws of descent and
distribution. If an optionee is terminated for cause, no Option will be exercisable unless the Board determines otherwise. If an optionee
ceases to be employed or engaged by New Horizon for any reason other than cause or death, then the options will be exercisable for a period
of 90 days or prior to the expiration of the Options (whichever is sooner).
Restricted Share Units (“RSU”)
RSU Grant
The 2023 Equity Incentive
Plan authorizes the Board to grant RSUs, in its sole and absolute discretion, to any eligible employee or director. Each RSU provides
the recipient with the right to receive a cash payment equal to the market value of a Share (or, at the sole discretion of the Board,
a Share) as a discretionary payment in consideration of past services or as an incentive for future services, subject to the 2023 Equity
Incentive Plan and with such additional provisions and restrictions as the Board may determine. Each RSU grant shall be evidenced by a
restricted share unit grant letter which shall be subject to the terms of the 2023 Equity Incentive Plan and any other terms and conditions
which the Board deem appropriate.
Vesting of RSUs
Concurrent with the granting
of the RSU, the Board shall determine the period of time during which the RSU is not vested and the holder of such RSU remains ineligible
to receive ordinary shares. Such period of time may be reduced or eliminated from time to time for any reason as determined by the Board.
Once the RSU vests, the RSU is automatically settled through a cash payment equal to the market value of a Share (or, at the sole discretion
of the Board, a Share).
Retirement or Termination
In the event the participant
retires, dies or is terminated during the vesting period, any unvested RSU held by the participant shall be terminated immediately provided
however that the Board shall have the absolute discretion to accelerate the vesting date.
Deferred Share Units (“DSU”)
DSU Grant
The 2023 Equity Incentive
Plan authorizes the Board to grant DSUs, in its sole and absolute discretion in a lump sum amount or on regular intervals to eligible
directors. Each DSU grant shall be evidenced by a DSU grant letter which shall be subject to the terms of the 2023 Equity Incentive Plan
and any other terms and conditions which the Board, on recommendation of the Committee, deem appropriate. A DSU entitles the recipient
to receive, for each DSU redeemed, a cash payment equal to the market value of a share; alternatively, the Combined Entity may, at its
sole discretion, elect to settle all or any portion of the cash payment obligation by the issuance of Shares from treasury.
Vesting of DSUs
A Participant is only entitled
to redemption of a DSU when the eligible director ceases to be a director of the Combined Entity for any reason, including termination,
retirement or death. DSUs of an eligible director who is a U.S. Taxpayer shall be redeemed and settled by the Combined Entity as
soon as reasonably practicable following the separation from service.
Share Awards
The Board, on the recommendation
of the compensation committee, shall have the right, subject to the limitations set forth in the 2023 Equity Incentive Plan, to issue
or reserve for issuance, for no cash consideration, to any eligible person, any number of Shares as a discretionary bonus of Shares subject
to such provisos and restrictions as the Board may determine. The aggregate number of Shares that may be issued as Share Awards is 1,000,000.
Provisions Applicable to all Grant of Awards
Participation Limits
The aggregate number of ordinary
shares that may be issued and issuable under the 2023 Equity Incentive Plan together with any other securities-based compensation arrangements
of New Horizon, as applicable:
| |
(a) |
to insiders shall not exceed 10% of New Horizon’s outstanding issue from time to time; |
| |
(b) |
to insiders within any one-year period shall not exceed 10% of the New Horizon’s outstanding issue from time to time; and |
| |
(c) |
to insiders within any one-year period, shares issuable under Awards under this 2023 Equity Incentive Plan shall not exceed 5% of New Horizon outstanding issue from time to time. |
Any Award granted pursuant
to the 2023 Equity Incentive Plan, prior to a participant becoming an insider, shall be excluded from the purposes of the limits set out
in (a) and (b) above. The aggregate number of Options that may be granted under the 2023 Equity Incentive Plan to any one non-employee
director of the Combined Entity within any one-year period shall not exceed a maximum value of $CAD150,000 worth of securities, and together
with any Restricted Share Rights and Deferred Share Units granted under the 2023 Equity Incentive Plan and any securities granted
under all other securities-based compensation arrangements, such aggregate value shall not exceed $CAD200,000 in any one-year period.
Transferability
Pursuant to the 2023 Equity
Incentive Plan, any Awards granted to a participant shall not be transferable except by will or by the laws of descent and distribution.
During the lifetime of a participant, Awards may only be exercised by the Participant.
Amendments to the 2023 Equity Incentive Plan
The Board may amend, suspend
or terminate the 2023 Equity Incentive Plan or any Award granted under the 2023 Equity Incentive Plan without shareholder approval, including,
without limiting the generality of the foregoing: (i) changes of a clerical or grammatical nature; (ii) changes regarding the
persons eligible to participate in the 2023 Equity Incentive Plan; (iii) changes to the exercise price; (iv) vesting, term and
termination provisions of Awards; (v) changes to the cashless exercise right provisions; (vi) changes to the authority and role
of the Board under the 2023 Equity Incentive Plan; and (vii) any other matter relating to the 2023 Equity Incentive Plan and the
Awards granted thereunder, provided however that:
| |
(a) |
such amendment, suspension or termination is in accordance with applicable laws and the rules of any stock exchange on which the Combined Entity’s shares are listed; |
| |
(b) |
no amendment to the 2023 Equity Incentive Plan or to an Award granted thereunder will have the effect of impairing, derogating from or otherwise adversely affecting the terms of an Award which is outstanding at the time of such amendment without the written consent of the holder of such Award; |
| |
(c) |
the expiry date of an Option shall not be more than ten (10) years from the date of grant of such Option, provided, however, that at any time the expiry date should be determined to occur either during a blackout period or within ten business days following the expiry of a blackout period, the expiry date of such Option shall be deemed to be the date that is the tenth business day following the expiry of the blackout period; |
| |
(d) |
the Board shall obtain shareholder approval of: |
| (i) | any
amendment to the aggregate number of shares issuable under the 2023 Equity Incentive Plan; |
| (ii) | any
amendment to the limitations on shares that may be reserved for issuance, or issued, to insiders; |
| (iii) | any
amendment that would reduce the exercise price of an outstanding Option other than pursuant to a declaration of stock dividends of shares
or consolidations, subdivisions or reclassification of shares, or otherwise, the number of Shares available under the 2023 Equity Incentive
Plan; and |
| (iv) | any
amendment that would extend the expiry date of any Option granted under the 2023 Equity Incentive Plan except in the event that such
option expires during or within ten (10) business days following the expiry of a blackout period. |
If the 2023 Equity Incentive
Plan is terminated, the provisions of the 2023 Equity Incentive Plan and any administrative guidelines and other rules and regulations
adopted by the Board and in force on the date of termination will continue in effect as long as any Award pursuant thereto remain outstanding.
Administration
The 2023 Equity Incentive
Plan is administered by the Board, which may delegate its authority to a committee or plan administrator. Subject to the terms of the
2023 Equity Incentive Plan, applicable law and the rules of Nasdaq, the Board (or its delegate) will have the power and authority to:
(i) designate the eligible participants who will receive Awards, (ii) designate the types and amount of Award to be granted
to each participant, (iii) determine the terms and conditions of any Award, including any vesting conditions or conditions based
on performance of the Corporation or of an individual (“Performance Criteria”); (iv) interpret and administer the 2023
Equity Incentive Plan and any instrument or agreement relating to it, or any Award made under it; and (v) make such amendments to
the 2023 Equity Incentive Plan and Awards as are permitted by the 2023 Equity Incentive Plan and the rules of the SEC and Nasdaq.
Summary of U.S. Federal Income Tax Consequences
The following summary is intended
only as a general guide to the material U.S. federal income tax consequences of participation in the 2023 Equity Incentive Plan.
The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not
change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s
death, or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. As
a result, tax consequences for any particular participant may vary based on individual circumstances. The summary assumes that awards
granted under the 2023 Equity Incentive Plan to U.S. taxpayers will be exempt from, or will comply with, Section 409A of the
Code. If an award is not either exempt from, or in compliance with Section 409A, less favorable tax consequences may apply.
Nonstatutory Stock Options.
Options granted under the
2023 Equity Incentive Plan will be nonstatutory stock options having no special U.S. tax status. An optionee generally recognizes
no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes
ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price and New Horizon generally
will be allowed a compensation expense deduction for the amount that the optionee recognizes as ordinary income. If the optionee is an
employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of stock acquired by
the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value
on the exercise date, will be taxed as capital gain or loss. No tax deduction is available to New Horizon with respect to the grant of
a nonstatutory stock option or the sale of the stock acquired pursuant to such grant.
Restricted Share Rights, Performance Awards
and Dividend Equivalents.
Recipients of grants of restricted
stock units, performance awards or dividend equivalents (collectively, “deferred awards”) will not incur any federal income
tax liability at the time the awards are granted. Award holders will recognize ordinary income equal to (a) the amount of cash received
under the terms of the award or, as applicable, (b) the fair market value of the shares received (determined as of the date of receipt)
under the terms of the award. Dividend equivalents received with respect to any deferred award will also be taxed as ordinary income.
Shares to be received pursuant to a deferred award generally become payable on the date or payment event, as specified in the applicable
award agreement. For awards that are payable in shares, a participant’s tax basis is equal to the fair market value of the shares
at the time the shares become payable. Upon the sale of the shares, appreciation (or depreciation) after the shares are paid is treated
as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Share Awards
If a Share Award is payable
in Shares that is subject to a substantial risk of forfeiture, unless a special election is made by the holder of the award under the
Code, the holder must recognize ordinary income equal to the fair market value of the Shares received (determined as of the first time
the Shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier). The holder’s basis for
the determination of gain or loss upon the subsequent disposition of Shares acquired pursuant to a Share Award will be the amount ordinary
income recognized either when the Shares are received or when the Shares are vested.
Section 409A.
Section 409A of the Code
provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and
distribution elections and permissible distribution events. Except for DSUs, Awards granted under the 2023 Equity Incentive Plan do not
have any deferral feature that is subject to the requirements of Section 409A of the Code. If an award is subject to and fails to
satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize ordinary income on the amounts deferred
under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an
award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional
20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. Certain states
have enacted laws similar to Section 409A which impose additional taxes, interest and penalties on non-qualified deferred compensation
arrangements. The Combined Entity will also have withholding and reporting requirements with respect to such amounts.
Tax Effect for the Combined Entity.
New Horizon generally will
be entitled to a tax deduction in connection with an award under the 2023 Equity Incentive Plan in an amount equal to the ordinary income
realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option).
Special rules could limit the deductibility of compensation paid to the Combined Entity’s chief executive officer and other “covered
employees” as determined under Section 162(m) and applicable guidance.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT
OF THE U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMBINED COMPANY UNDER THE 2023 EQUITY INCENTIVE PLAN. IT DOES
NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX
LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
2023 Equity Incentive Plan Benefits
Because awards under the 2023
Equity Incentive Plan are discretionary, the benefits or amounts to be received by or allocated to participants and the number of shares
to be granted under the 2023 Equity Incentive Plan cannot be determined at this time except as set forth below.
Upon the completion of the Business Combination, the 2023 Equity Incentive
Plan replaced the Prior Plan. We agreed to exchange outstanding awards under the Prior Plan for New Horizon Options that will be governed
by the 2023 Equity Incentive Plan.
Compensation Committee
Interlocks and Insider Participation
None
of the members of the compensation committee was at any time one of New Horizon’s officers or employees. None of New Horizon’s
executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors
of any other entity that has one or more executive officers that will serve as a member of our Board or compensation committee.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial
ownership of our shares of common stock as of August 15, 2024, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of our Class A ordinary shares by:
| |
● |
each person known by us to be the beneficial owner of more than 5% of New Horizon’s Class A ordinary shares; |
| |
|
|
| |
● |
each of our named executive officers and directors; and |
| |
● |
each of our officers and directors as a group. |
Beneficial ownership is determined
according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it
possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable
or exercisable within 60 days.
In the table below, percentage ownership is based on 18,607,931 Class
A ordinary shares outstanding as of August 15, 2024. This table assumes that there are no additional issuances of equity securities, including
equity awards that may be issued under the 2023 Equity Incentive Plan.
Unless otherwise indicated,
we believe that all persons named in the table have sole voting and investment power with respect to all Common Shares beneficially owned
by them. Unless otherwise noted, the business address of each of the following entities or individuals is 3187 Highway 35, Lindsay A6
K9V 4R1, Ontario Canada.
| Name and Address of Beneficial Owner | |
Number of
Shares
Beneficially
Owned | | |
% of
Class | |
| Directors and Named Executive Officers | |
| | |
| |
| Brandon Robinson(1)(2) | |
| 2,547,350 | | |
| 13.6 | % |
| Jason O’Neill(3) | |
| 395,815 | | |
| 2.1 | % |
| Brian Merker(9) | |
| 106,102 | | |
| * | |
| Stewart Lee(4) | |
| 295,553 | | |
| 1.6 | % |
| Trisha Nomura | |
| 30,500 | | |
| * | |
| John Maris | |
| 17,908 | | |
| * | |
| John Pinsent | |
| 17,908 | | |
| * | |
| All executive officers and directors as a group (7 individuals) | |
| 3,411,136 | | |
| 17.9 | % |
| | |
| | | |
| | |
| Greater than Five Percent Holders: | |
| | | |
| | |
| Brian Robinson(1)(5) | |
| 2,541,212 | | |
| 13.6 | % |
| Mehana Capital LLC(6) | |
| 5,600,997 | | |
| 30.1 | % |
| Entities affiliated with Meteora Capital LLC (7) | |
| 1,180,794 | | |
| 6.4 | % |
| Robinson Family Ventures(1) | |
| 2,395,634 | | |
| 12.9 | % |
| Canso Strategic Credit Fund(8) | |
| 1,485,228 | | |
| 8.0 | % |
| (1) |
Brandon Robinson and Brian Robinson are the directors of Robinson Family Ventures Inc. Brandon Robinson and Brian Robinson may each be deemed to share beneficial ownership of the securities held of record by Robinson Family Ventures Inc. Each of Brandon Robinson and Brian Robinson disclaims any such beneficial ownership except to the extent of his pecuniary interest. |
| (2) |
Includes options to purchase 143,213 shares at a price of $CAD0.76 per share. The table reflects the options on a fully vested basis. |
| (3) |
Includes options to purchase 146,252 shares at a price of $CAD0.76 per share. The table reflects the options on a fully vested basis. |
| (4) |
Includes options to purchase 35,455 shares at a price of $CAD0.76 per share. The table reflects the options on a fully vested basis. |
| (5) |
Includes options to purchase 117,001 shares at a price of $CAD0.76 per share. The table reflects the options on a fully vested basis. Also includes conversion of his convertible note into 23,187 Class A ordinary shares including interest accrued on the note as of December 1, 2023. |
| (6) |
Based on a Form 4 filed January 17, 2024, Mehana Capital LLC, the Sponsor, is the record holder of the securities reported herein. Dustin Shindo is the managing member of the Sponsor. By virtue of this relationship, Mr. Shindo may be deemed to share beneficial ownership of the securities held of record by the Sponsor. Mr. Shindo disclaims any such beneficial ownership except to the extent of his pecuniary interest. The address of Mehana Capital LLC is 4348 Waialae Ave Unit 632, Honolulu, HI 96816. |
| (7) |
Voting and investment power over the securities held by these entities resides with its investment manager, Meteora Capital, LLC. Mr. Vikas Mittal serves as the managing member of Meteora Capital, LLC and may be deemed to be the beneficial owner of the securities held by such entities. Mr. Mittal disclaims any beneficial ownership over such securities except to the extent of his pecuniary interest therein. The business address of Meteora Entities is 1200 N Federal Hwy, Ste 200, Boca Raton, FL 33432. |
| (8) |
The business address of Canso Strategic Credit Fund is 100 York Blvd., Suite 550, Richmond Hill, On, L4B 1J8. |
| (9) |
Includes options to purchase 100,000 shares at a price of $USD0.85 per share. The table reflects the options on a fully vested basis. |
Securities Authorized
for Issuance Under Equity Compensation Plans
The following table provides information, as of August 15, 2024, with
respect to our Class A ordinary shares that may be issued, subject to certain vesting requirements, under existing and future awards under
our New Horizon Aircraft Ltd. 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”).
| | |
A | | |
B | | |
C | |
| | |
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants,
and Rights | | |
Weighted-Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
(USD) | | |
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column
(A)) | |
| Plan Category | |
| | |
| | |
| |
| Equity compensation plans approved by security holders | |
| 901,546 | | |
$ | 0.60 | | |
| 1,381,136 | |
| Equity compensation plans not approved by security holders | |
| - | | |
| - | | |
| - | |
| Total | |
| | | |
| | | |
| | |
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
The following is a description of certain transactions (including a series
of transactions) occurring during the preceding two fiscal years in which the amount involved exceeded the lesser of $120 or 1% of the
average of our total assets for our two prior fiscal year ends in which any directors, director nominees, executive officers, greater
than 5% beneficial owners and their respective immediate family members (each, a “Related Person”) had or will have a direct
or indirect material interest, other than the compensation arrangements (including with respect to equity compensation) described in “Executive
Compensation” beginning on page 55 and “Director Compensation” on page 58.
We
intend to ensure that in accordance with the audit committee charter, that the audit committee shall conduct reasonable prior review and
oversight of all related party transaction for potential conflicts of interest, except for transactions involving the compensation of
executive officers or directors, which shall be overseen by the compensation committee.
Pono Pre-Business
Combination Arrangements
On May 17, 2022, the Sponsor acquired 2,875,000 founder shares, and on
December 22, 2022, the Sponsor acquired an additional 2,060,622 founder shares for an aggregate purchase price of USD $25,000, or approximately
$0.005 per share. Such Class B ordinary shares includes an aggregate of up to 643,777 shares that were subject to forfeiture by the Sponsor
to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor would collectively
own at least 30% of Pono’s issued and outstanding shares after the initial public offering (assuming the initial shareholders did
not purchase any Public Shares in the Offering and excluding the Placement Units and underlying securities). The underwriters exercised
the over-allotment option in full so those shares are no longer subject to forfeiture.
The
initial shareholders have agreed not to transfer, assign or sell any of the Class B ordinary shares (except to certain permitted transferees)
until, with respect to any of the Class B ordinary shares, the earlier of (i) six months after the date of the consummation of a Business
Combination, or (ii) the date on which the closing price of Pono’s ordinary shares equals or exceeds $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing
after a Business Combination, with respect to the remaining any of the Class B ordinary shares, upon six months after the date of the
consummation of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, Pono consummates a subsequent
liquidation, merger, stock exchange or other similar transaction which results in all of Pono’s shareholders having the right to
exchange their ordinary shares for cash, securities or other property.
On April 25, 2022, the Sponsor committed to loan Pono an aggregate of up
to USD $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note
was non-interest bearing and was payable on the earlier of March 31, 2023 or the completion of the Initial Public Offering. Upon Initial
Public Offering, the Company had repaid the full amount of USD $300,000 under the Note. As of December 31, 2023 and 2022, there was none
and USD $300,000 in borrowings outstanding under the Note, respectively.
In order to finance transaction costs in connection with a Business Combination,
the Sponsor may provide Pono with a loan to Pono up to USD $1,500,000 as may be required to cover working capital needs (“Working
Capital Loans”). Such Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest,
or, at the lender’s discretion, up to USD $1,500,000 of such loans may be converted upon consummation of a Business Combination
into additional Placement Units at a price of $10.00 per Unit. As of December 31, 2023 and 2022, there was no amounts outstanding under
the Working Capital Loans.
Legacy Horizon Pre-Business
Combination Arrangements
During the year ended May 31, 2022, Legacy Horizon’s sole shareholder
at the time, Astro Aerospace Ltd (“Astro”), a public company, advanced cash to Legacy Horizon to fund its working capital
requirements. As at May 31, 2022, the outstanding balance for the loans from shareholder was $1,979. On June 24th, 2022, the advances
from shareholder were fully settled by issuance of 2,196,465 class A common shares of Legacy Horizon to Astro.
During the year ended May 31, 2022, Legacy Horizon’s directors advanced
cash to Legacy Horizon in the aggregate amount of $ 5. The cash advances were unsecured, non-interest bearing and fully repaid at May
31, 2023.
E. Brian Robinson loaned Legacy Horizon $50 pursuant to a one-year convertible
promissory note with 10% simple interest due on October 23, 2023 as part of a larger issuance of convertible notes. As of August 15, 2023,
the accrued but unpaid interest was $4.
Robert Blair Robinson is the brother of E. Brian Robinson. He is a part
time employee of Legacy Horizon and received cash compensation of $39 in the 2022 calendar year and a grant of 8,240 stock options.
Transactions Related
to the Business Combination
Voting Agreement
Simultaneously
with the execution of the Business Combination Agreement, the majority shareholder of Horizon entered into a voting agreement with Pono
and Legacy Horizon.
Lock-Up Agreements
Certain significant shareholders of Legacy Horizon entered into lock-up agreements
(the “Lock-up Agreements”) providing for a lock-up period commencing at the Closing of the Business Combination
and ending on the earlier of (x) six months from the Closing, (y) the date Pono consummates a liquidation, merger, share
exchange or other similar transaction with an unaffiliated third party that results in all of Pono’s shareholders having the right
to exchange their Pono ordinary shares for cash, securities or other property and (z) the date on which the closing sale price of
Pono ordinary shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations
and the like) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred
and fifty (150) days after the Closing. In connection with the Closing, Pono, Legacy Horizon, and the Sponsor waived lockup restrictions
on approximately 1.69 million shares held by a non-affiliate Horizon shareholder. The six-month anniversary of the Closing elapsed on
July 12, 2024 and the associated restrictions were removed.
Director Indemnity
Agreements
In
connection with the Closing, each of the members of the Board entered into an Indemnity Agreement with New Horizon (collectively, the
“Director Indemnity Agreements,” and each, a “Director Indemnity Agreement”).
Pursuant
to New Horizon’s Articles, subject to the BCBCA, New Horizon must indemnify a director, former director or alternate director of
New Horizon and his or her heirs and legal personal representatives against all eligible penalties to which such person is or may be liable,
and New Horizon must, after the final disposition of an eligible proceeding, pay the expenses actually and reasonably incurred by such
person in respect of that proceeding.
Non-Competition
Agreements
On
January 12, 2024, New Horizon, Legacy Horizon, and each of E. Brandon Robinson, Jason O’Neill, Brian Merker, and Stewart Lee entered
into non-competition and non-solicitation agreements (the “Non-Competition and Non-Solicitation Agreements”), pursuant to
which such persons and their affiliates agreed not to compete with New Horizon during the two-year period following the Closing and, during
such two-year restricted period, not to solicit employees or customers or clients of such entities. The Non-Competition and Non-Solicitation
Agreements also contain customary non-disparagement and confidentiality provisions.
Registration Rights
Agreement
In
connection with the Business Combination, on January 12, 2024, Pono, Legacy Horizon, the Sponsor, the executive officers and directors
of Pono immediately prior to the consummation of the Business Combination (with such executive officers and directors, together with the
Sponsor, the “Sponsor Parties”), and a certain existing shareholder of Horizon (such party, together with the Sponsor Parties,
the “Investors”) enter into a registration rights agreement (the “Registration Rights Agreement”) to provide for
the registration of New Horizon’s Class A ordinary shares issued to them in connection with the Business Combination. The Investors
are entitled to (i) make three written demands for registration under the Securities Act of all or part of their shares and (ii) “piggy-back”
registration rights with respect to registration statements filed following the consummation of the Business Combination. New Horizon
will bear the expenses incurred in connection with the filing of any such registration statements.
Employment Agreements
and Other Transactions with Executive Officers
New
Horizon has entered into employment agreements and contractor agreements with certain of its executive officers and reimburses affiliates
for reasonable travel related expenses incurred while conducting business on behalf of New Horizon. See the section entitled “Executive
Compensation — Executive Compensation Arrangements — Employment Agreements” and ” — Contractor
Agreement.”
Related Party Transactions
Policy Following the Business Combination
Upon
consummation of the Business Combination, our Board adopted a written Related Party Transactions Policy that sets forth our policies and
procedures regarding the identification, review, consideration and oversight of “related party transactions.” For purposes
of the policy only, a “related party transaction” is a transaction, arrangement or relationship (or any series of similar
transactions, arrangements or relationships) in which we or any of our subsidiaries are participants involving an amount that exceeds
$120,000, in which any “related party” has a material interest.
Transactions
involving compensation for services provided to us as an employee, consultant or director will not be considered related party transactions
under this policy. A “related party” is any executive officer, director, nominee to become a director or a holder of more
than 5% of any class of our voting securities, including any of their immediate family members and affiliates, including entities owned
or controlled by such persons.
Under
the policy, the related party in question or, in the case of transactions with a holder of more than 5% of any class of our voting securities,
an officer with knowledge of a proposed transaction, must present information regarding the proposed related party transaction to our
audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our Board) for review.
Our
audit committee will approve only those transactions that it determines are fair to us and in our best interests. All of the transactions
described above were entered into prior to the adoption of such policy.
Related Party Policy
Our code of ethics requires
us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except
under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) the
aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a
participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial
owner of Common Shares, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have
a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another
entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform
his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives
improper personal benefits as a result of his or her position.
Our audit committee, pursuant
to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions.
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms believed
by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions will require prior approval
by our audit committee and a majority of our uninterested “independent” directors, or the members of the board who do not
have an interest in the transaction, in either case who have access, at our expense, to its attorneys or independent legal counsel. We
will not enter into any such transaction unless our audit committee and a majority of our disinterested “independent” directors
determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such
a transaction from unaffiliated third parties. Additionally, we will require each of our directors and executive officers to complete
a directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended
to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the
part of a director, employee or officer.
Director Independence
The
information contained under the heading “Director Independence” in Part III, Item 10. “Directors, Executive Officers
and Corporate Governance” is incorporated by reference herein.
Item 14.
Principal Accountant Fees and Services.
On
April 2, 2024, New Horizon’s audit committee approved the engagement of MNP LLP (“MNP”) as the Company’s independent
registered public accounting firm for the Company’s fiscal year ended May 31, 2024, effective April 3, 2024. On April 2, 2024, the
Company dismissed Marcum LLP (“Marcum”) as the Company’s independent registered public accounting firm.
Fees Paid to Independent Registered Public
Accounting Firm
The following table provides information regarding
the fees billed by MNP for the fiscal year ended May 31, 2024 (000’s CAD).
| | |
2024 | |
| Audit Fees (1) | |
$ | 54 | |
| Audit-Related Fees (2) | |
$ | nil | |
| Tax Fees (3) | |
$ | 35 | |
| All Other Fees (4) | |
$ | nil | |
Fees Paid to Prior Independent Registered
Public Accounting Firm
The following table provides information regarding
the fees billed by the Company’s previous independent registered public accounting firm, Marcum, for the fiscal year ended May 31,
2024 and 2023 (000’s CAD).
| | |
2024 | | |
2023 | |
| Audit Fees (1) | |
$ | 271 | | |
$ | 146 | |
| Audit-Related Fees (2) | |
$ | 55 | | |
$ | nil | |
| Tax Fees (3) | |
$ | nil | | |
$ | nil | |
| All Other Fees (4) | |
$ | nil | | |
$ | nil | |
| (1) | Audit
Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements
and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory
filings. |
| (2) | Audit-Related
Fees. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of
the audit or review of our year-end financial statements and are not reported under “Audit Fees.” These services include
attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. |
| (3) | Tax
Fees. Tax fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. |
| (4) | All
Other Fees. All other fees consist of fees billed for all other services. |
Audit Committee Pre-Approval
Policy and Procedures
Pono’s
audit committee was formed upon the consummation of its IPO. As a result, Pono’s audit committee did not pre-approve all of the
foregoing services, although any services rendered prior to the formation of the audit committee were approved by the Pono board of directors.
Since the formation of the Pono audit committee, the audit committee has pre-approved all auditing services and permitted non-audit services
to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services
described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
Pono’s
audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public
accounting firm, the scope of services provided by our independent registered public accounting firm and the fees for the services to
be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed
as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public
accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by
our independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.
Upon the consummation of the Transactions, our audit committee adopted
its committee charter (the “Audit Committee Charter”) that sets forth the authority and procedures pursuant to which the audit
committee shall pre-approve (or, where permitted under SEC rules to subsequently approve) audit and non-audit services proposed to be
performed by the independent auditor.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| (a) | The following documents are filed as part of, or incorporated
by reference into, this Annual Report on Form 10-K: |
| 1. | Financial Statements. See Index to Financial Statements
under Item 8 of this Annual Report on Form 10-K. |
| 2. | Financial Statement Schedules. All schedules have
been omitted because the information required to be presented in them is not applicable or is shown in the financial statements or related
notes. |
| 3. | Exhibits. We have filed, or incorporated into this
Annual Report on Form 10-K by reference, the exhibits listed on the accompanying Exhibit Index immediately following the financial statements
contained in this Annual Report on Form 10-K. |
| (b) | Exhibits. See Item 15(a)(3) above. |
| (c) | Financial Statement Schedules. See Item 15(a)(2) above. |
Item 16. Form 10-K Summary.
None.
NEW HORIZON AIRCRAFT LTD.
INDEX TO FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of New Horizon Aircraft
Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheet of New Horizon Aircraft Ltd. (the “Company”) as at May 31, 2024, and the related consolidated statements of
operations, changes in shareholders’ equity (deficit), and cash flows for the year ended May 31, 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 consolidated financial position of the Company as at May 31, 2024, and the results of its
consolidated operations and its consolidated cash flows for the year ended May 31, 2024, in conformity with accounting principles generally
accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements,
the Company has incurred cumulative losses from operations, negative cash flows from operating activities, and has an accumulated deficit
that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 consolidated
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 audits, 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 audits included performing procedures to assess
the risks of material misstatement of the consolidated 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
consolidated 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 consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ MNP LLP
Chartered Professional Accountants
Licensed Public Accountants
We
have served as the Company’s auditor since 2024.
Mississauga,
Canada
August 15, 2024
NEW HORIZON AIRCRAFT LTD.
CONSOLIDATED BALANCE SHEETS
AS AT MAY 31, 2024 AND 2023
EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT PER SHARE AMOUNTS
| | |
May 31,
2024 | | |
May 31,
2023 | |
| | |
| | |
| |
| Assets: | |
| | |
| |
| Current assets: | |
| | |
| |
| Cash and cash equivalents | |
$ | 1,816 | | |
$ | 228 | |
| Prepaid expenses | |
| 2,431 | | |
| 3 | |
Other receivables | |
| 417 | | |
| 15 | |
| Total current assets | |
| 4,664 | | |
| 246 | |
| Finance lease assets | |
| - | | |
| 21 | |
| Operating lease assets | |
| 75 | | |
| 121 | |
| Property and equipment, net | |
| 205 | | |
| 52 | |
| Total Assets | |
$ | 4,944 | | |
$ | 440 | |
| | |
| | | |
| | |
| Liabilities and Shareholders’ Equity: | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 715 | | |
$ | 172 | |
| Accrued liabilities | |
| 574 | | |
| 48 | |
| Finance lease liabilities | |
| - | | |
| 3 | |
| Operating lease liabilities | |
| 44 | | |
| 46 | |
| Term loan | |
| - | | |
| 40 | |
| Promissory note payable | |
| - | | |
| 37 | |
| Convertible debentures | |
| - | | |
| 1,142 | |
| Total current liabilities | |
| 1,333 | | |
| 1,488 | |
| Forward Purchase Agreement | |
| 20,938 | | |
| - | |
| Warrant liabilities | |
| 576 | | |
| - | |
| Promissory note payable | |
| - | | |
| 263 | |
| Operating lease liabilities | |
| 30 | | |
| 74 | |
| Total Liabilities | |
| 22,877 | | |
| 1,825 | |
| | |
| | | |
| | |
| Shareholders’ Equity (Deficit): | |
| | | |
| | |
| Class A ordinary shares, no par value; 100,000,000 shares authorized; 18,607,931 issued and outstanding (5,075,420 as of May 31, 2023) | |
| 74,406 | | |
| 5,083 | |
| Additional paid-in capital | |
| (77,656 | ) | |
| 55 | |
| Accumulated deficit | |
| (14,683 | ) | |
| (6,523 | ) |
| Total Shareholders’ Deficit | |
| (17,933 | ) | |
| (1,385 | ) |
| Total Liabilities and Shareholders’ (Deficit) | |
$ | 4,944 | | |
$ | 440 | |
The accompanying notes are an integral
part of these consolidated financial statements.
NEW HORIZON AIRCRAFT LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT PER SHARE AMOUNTS
| | |
For the Year-ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Operating expenses | |
| | |
| |
| Research and development | |
| 880 | | |
| 676 | |
| General and administrative | |
| 3,744 | | |
| 787 | |
| Total operating expenses | |
| 4,624 | | |
| 1,463 | |
| Loss from operations | |
| (4,624 | ) | |
| (1,463 | ) |
| Other income | |
| (575 | ) | |
| (290 | ) |
| Interest expenses (income), net | |
| 163 | | |
| 74 | |
| Warrant income | |
| (394 | ) | |
| - | |
| Change in fair value of Forward Purchase Agreement | |
| 4,342 | | |
| - | |
| Total other expenses | |
| 3,536 | | |
| (216 | ) |
| Loss before income taxes | |
| (8,160 | ) | |
| (1,247 | ) |
| Income tax expense | |
| - | | |
| - | |
| Net Loss | |
$ | (8,160 | ) | |
$ | (1,247 | ) |
| | |
| | | |
| | |
| Basic and diluted weighted average Common shares outstanding | |
| 10,717,378 | | |
| 7,326,310 | |
| Basic and diluted net loss per share, Common shares | |
$ | (0.76 | ) | |
$ | (0.17 | ) |
The accompanying notes are an integral part
of these consolidated financial statements.
NEW HORIZON AIRCRAFT LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT PER SHARE AMOUNTS
| | |
Class
A Ordinary
Shares | | |
Class
B Ordinary
Shares | | |
Non-Voting
Common Shares | | |
Additional
Paid-in | | |
| | |
Total
Shareholders' | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance at May
31, 2023 | |
| 5,075,420 | | |
$ | 5,083 | | |
| 1,062,244 | | |
$ | — | | |
| 168,832 | | |
$ | - | | |
$ | 55 | | |
$ | (6,523 | ) | |
$ | (1,385 | ) |
| Stock-based Compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 66 | | |
| — | | |
| 66 | |
| Net Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (8,160 | ) | |
| (8,160 | ) |
| Conversion of Convertible Debentures | |
| — | | |
| — | | |
| 517,352 | | |
| 1,496 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,496 | |
| Conversion of Convertible Notes
Payable | |
| — | | |
| — | | |
| 1,253,770 | | |
| 6,843 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,843 | |
| Issuance of Service Shares | |
| — | | |
| — | | |
| 385,297 | | |
| 1,558 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,558 | |
| Legacy Horizon Share Exchange | |
| 3,588,869 | | |
| 9,897 | | |
| (3,218,663 | ) | |
| (9,897 | ) | |
| (168,832 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| New Horizon Shares on Effective
Date | |
| 7,639,434 | | |
| 56,720 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (76,807 | ) | |
| — | | |
| (20,087 | ) |
| Warrant Issuance | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (970 | ) | |
| — | | |
| (970 | ) |
| Capital Markets Advisory Shares | |
| 965,179 | | |
| 2,706 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,706 | |
| Underwriter Shares Issued | |
| 385,016 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Incentive Shares | |
| 954,013 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Balance
at May 31, 2024 | |
| 18,607,931 | | |
$ | 74,406 | | |
| — | | |
$ | - | | |
| — | | |
$ | - | | |
$ | (77,656 | ) | |
$ | (14,683 | ) | |
$ | (17,933 | ) |
| | |
Class
A Ordinary
Shares | | |
Class
B Ordinary
Shares | | |
Non-Voting
Common Shares | | |
Additional
Paid-in | | |
| | |
Total
Shareholders' | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance
at May 31, 2022 | |
| 3,221,252 | | |
$ | 3,104 | | |
| 1,062,244 | | |
$ | — | | |
| 168,832 | | |
$ | — | | |
$ | — | | |
$ | (5,276 | ) | |
$ | (2,172 | ) |
| Settlement
of Shareholder Advances | |
| 1,854,168 | | |
| 1,979 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,979 | |
| Stock-based
Compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 55 | | |
| — | | |
| 55 | |
| Net
Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,247 | ) | |
| (1,247 | ) |
| Balance
at May 31, 2023 | |
| 5,075,420 | | |
| 5,083 | | |
| 1,062,244 | | |
| — | | |
| 168,832 | | |
| — | | |
| 55 | | |
| (6,523 | ) | |
| (1,385 | ) |
The accompanying notes are an integral part
of these consolidated financial statements.
NEW HORIZON AIRCRAFT LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN CANADIAN DOLLAR 000’S
| | |
Year-ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
Cash Flows used in Operating
Activities: | |
| | |
| |
Net Loss | |
$ | (8,160 | ) | |
$ | (1,247 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 56 | | |
| 27 | |
| Non-cash lease expense | |
| — | | |
| 56 | |
| Stock-based compensation | |
| 66 | | |
| 55 | |
| Non-cash interest | |
| 196 | | |
| 57 | |
| Change in fair value of Forward Purchase Agreement | |
| 4,342 | | |
| — | |
| Change in Warrant liability | |
| (394 | ) | |
| | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Prepaid expenses | |
| 278 | | |
| — | |
Other receivables | |
| (402 | ) | |
| (15 | ) |
| Accounts payable | |
| 184 | | |
| 36 | |
| Accrued liabilities | |
| 526 | | |
| (2 | ) |
| Operating leases | |
| — | | |
| (54 | ) |
| Net cash used in operating activities | |
| (3,308 | ) | |
| (1,087 | ) |
| | |
| | | |
| | |
| Cash Flows used in Investing Activities: | |
| | | |
| | |
| Purchase of property and equipment | |
| (209 | ) | |
| — | |
| Net cash used in investing activities | |
| (209 | ) | |
| — | |
| | |
| | | |
| | |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Finance lease payments | |
| 18 | | |
| (19 | ) |
| Proceeds from issuance of Convertible debentures | |
| 6,700 | | |
| 1,035 | |
| Outflow from Business Combination | |
| (1,573 | ) | |
| — | |
| Proceeds from issuance of note payable | |
| — | | |
| 300 | |
| Repayment of Shareholder loans | |
| — | | |
| (5 | ) |
| Repayment of Term loan | |
| (40 | ) | |
| — | |
| Net cash provided by financing activities | |
| 5,105 | | |
| 1,311 | |
| | |
| | | |
| | |
| Net Change in Cash and Cash Equivalents | |
| 1,588 | | |
| 224 | |
| Cash and Cash Equivalents - Beginning of year | |
$ | 228 | | |
| 4 | |
| Cash and Cash Equivalents - End of year | |
$ | 1,816 | | |
$ | 228 | |
| | |
| | | |
| | |
| Supplemental cash flow information | |
| | | |
| | |
| Conversion of Convertible debentures | |
$ | 1,496 | | |
$ | — | |
| Taxes paid | |
$ | — | | |
$ | — | |
| Interest paid | |
$ | 23 | | |
$ | 14 | |
| Settlement of Shareholder Advances | |
$ | — | | |
$ | 1,979 | |
The accompanying notes are an integral part
of these consolidated financial statements.
NEW HORIZON AIRCRAFT LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT
PER SHARE AMOUNTS
NOTE 1. Organization and Nature of Business
Organization and Nature of Business
New Horizon Aircraft Ltd. (the “Company”,
“Horizon”, “we,” “us” or “our”), a British Columbia corporation, with our headquarters
located in Lindsay, Ontario, is an aerospace company. The Company is a former blank check company incorporated on March 11, 2022 under
the name Pono Capital Three, Inc. (“Pono”), as a Delaware corporation, subsequently redomiciled in the Cayman Islands on October
14, 2022, and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization,
or similar business combination with one or more businesses.
The Company’s objective is to significantly
advance the benefits of sustainable air mobility. In connection with this objective, we have designed and developed a cost-effective and
energy efficient hybrid-electric vertical takeoff and landing (“eVTOL”) prototype aircraft for use in future regional air
mobility (“RAM”) networks.
Business Combination
On February 14, 2023, we consummated an initial
public offering (“IPO”). On January 12, 2024 (the “Closing date”), we consummated a merger (the “Merger”)
with Pono Three Merger Acquisitions Corp., a British Columbia company (“Merger Sub”) and wholly-owned subsidiary of Pono,
with and into Robinson Aircraft Ltd. (“Robinson”) pursuant to an agreement and plan of merger, dated as of August 15, 2023,
(as amended by a Business Combination Agreement Waiver, dated as of December 27, 2023) by and among Pono, Merger Sub, Horizon, and Robinson.
The Merger and other transactions contemplated
thereby (collectively, the “Business Combination”) closed on January 12, 2024, when, pursuant to the Business Combination
Agreement, Merger Sub merged with and into Robinson, surviving the Merger as a wholly owned subsidiary of Pono. Pono changed its name
to “New Horizon Aircraft Ltd.” and the business of Robinson became the business of New Horizon Aircraft Ltd.
The consolidated financial statements included in this report reflect
(i) the historical operating results of Robinson prior to the Business Combination (“Legacy Horizon”); (ii) the combined results
of Pono and Legacy Horizon following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Horizon at their
historical cost; and (iv) the Company’s equity structure for all periods presented.
NOTE 2. Going Concern and Liquidity
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which
contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred and expects to continue to incur significant costs in pursuit of the Company’s development
plans. We have devoted many resources to the design and development of our eVTOL prototype. Funding of these activities has primarily
been through the net proceeds received from the issuance of related and third-party debt and the sale of common stock to related and third
parties.
Through May 31, 2024, we have incurred cumulative losses from operations,
negative cash flows from operating activities, and have an accumulated deficit of $14.7 million. Horizon is a pre-revenue organization
in a research and development and flight-testing phase of operations. While management expects that the net cash proceeds from the Business
Combination and anticipated August 2024 sale of securities, along with our cash balances held prior to the Closing Date will be sufficient
to fund our current operating plan for at least the next 12 months from the date these consolidated financial statements were available
to be issued, there is substantial doubt around the Company’s ability to meet the going concern assumption beyond that period without
raising additional capital.
There can be no assurance that we will be successful
in achieving our business plans, that our current capital will be sufficient to support our ongoing operations, or that any additional
financing will be available in a timely manner or on acceptable terms, if at all. If events or circumstances occur such that we do not
meet our business plans, we may be required to raise additional capital, alter, or scale back our aircraft design, development, and certification
programs, or be unable to fund capital expenditures. Any such events would have a material adverse effect on our financial position, results
of operations, cash flows, and ability to achieve our intended business plans.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Principles of Consolidation and Financial Statement
Presentation
The accompanying consolidated financial statements
are presented in Canadian dollars in conformity with GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). These consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated on consolidation. These consolidated financial statements include all
adjustments necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows for the
periods presented. Certain prior period amounts have been reclassified to conform to the current year’s presentation. All figures
are in thousands of Canadian dollars unless noted otherwise.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2 (a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it 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 its periodic reports and
proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved.
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 (specifically,
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. The Company has 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, the Company, 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 the Company’s consolidated 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 accounting standards used.
Reverse Recapitalization
Pursuant to Accounting Standards Codification (“ASC”) 805,
for financial accounting and reporting purposes, Robinson was deemed the accounting acquirer with Pono being treated as the accounting
acquiree, and the Merger was accounted for as a reverse recapitalization (the “Reverse Recapitalization”). Accordingly, the
consolidated financial statements of the Company represent a continuation of the financial statements of Robinson, with the Merger being
treated as the equivalent of Robinson issuing stock for the net assets of Pono, accompanied by a recapitalization. The net assets of Pono
were stated at historical costs, with no goodwill or other intangible assets recorded, and were consolidated with Robinson financial statements
on the Closing Date. Operations prior to the Closing Date are presented solely as those of Legacy Horizon. The number of Legacy Horizon
common shares for all periods prior to the Closing Date have been retrospectively decreased using an exchange ratio that was established
in accordance with the Merger Agreement (the “Exchange Ratio”).
Upon the consummation of the Merger, the Company gave effect to the issuance
of 7,251,939 shares of Common Stock for the previously issued Pono common stock and Private Investment in Public Equity (“PIPE”)
Shares that were outstanding at the Closing Date. The Company raised $4 in proceeds, net of redemptions of Pono public stockholders of
$140.0 million and reimbursements for Pono’s expenses of $4.5 million, and $2.7 million of cash in connection with the PIPE Financing.
Robinson incurred $3.1 million of transaction
costs, satisfied by a combination of cash and common stock, consisting of banking, legal, and other professional fees, and assumed a $16.6
million derivative liability related to a Forward Purchase Agreement, $1.0 million warrant liability, and $0.4 million of accounts payable from Pono.
| | |
January 12,
2024 | |
| Forward Purchase Agreement | |
$ | 16,596 | |
| Warrant Liability | |
| 970 | |
| Accounts Payable | |
| 360 | |
| Net Liabilities Assumed | |
$ | 17,926 | |
Use of Estimates
The preparation of the consolidated financial
statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change
in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
Management believes significant estimates for
the period include those in connection with Financial Instruments, Business Combinations, Going Concern, and stock-based compensation.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of May 31, 2024 and May 31, 2023.
Income Taxes
Income taxes are provided in accordance with ASC
Topic 740, Income Taxes (“ASC 740”). A deferred tax asset or liability is recorded for all temporary differences
between income for financial statement purposes and income for tax purposes as well as operating loss carry forwards. Deferred tax expenses
or recovery result from the net change during the year of deferred tax assets and liabilities. Any interest and penalties are recorded
as part of income tax expense.
Deferred tax assets are reduced by a valuation
allowance, when, in the opinion of management, it is likely that some portion of the deferred tax asset will not be realized. Deferred
taxes are adjusted for the effects of changes in tax laws and rates. Interest and penalties, if applicable, are recorded in the Company’s
statement of operations.
Net Income (loss) Per Share
Basic net loss per share is calculated by dividing
net loss attributable to common stockholders by the weighted-average number of common shares outstanding. Stock options, Convertible debentures,
and Convertible promissory notes were excluded from the computation of diluted net income (loss) per share as including them would have
been anti-dilutive. As we reported net losses for all periods presented, diluted loss per share is the same as basic loss per share.
Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value
Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value
within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to
transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants
on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants
would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting
entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the
assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information
available in the circumstances.
The carrying amounts reflected in the balance
sheet for current assets and current liabilities approximate fair value due to their short-term nature.
Level 1 — Assets and liabilities with unadjusted,
quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in
active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement
are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable
inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement
are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets
or liabilities.
Research and Development Costs
The research and development costs are accounted
for in accordance with ASC 730, Research and Development, which requires all research and development costs be expensed as incurred.
Stock-based Compensation
Our stock-based compensation awards consist of
stock options granted to employees and non-employees. We recognize stock-based compensation expense in accordance with the provisions
of ASC 718, Compensation - Stock Compensation (“ASC 718”). ASC 718 requires the measurement and recognition of compensation
expense for all stock-based compensation awards to be based on the grant date fair values of the awards. We estimate the fair value of
share options using the Black-Scholes option-pricing model. The value of the award is recognized as expense over the requisite service
period on a straight-line basis. Determining the grant date fair value of the awards using the Black-Scholes option-pricing model requires
management to make assumptions and judgments, including but not limited to the following:
Expected term — The
estimate of the expected term of employee awards is determined in accordance with the simplified method, which estimates the term based
on an averaging of the vesting period and contractual term of the option grant.
Expected volatility — Expected
volatility used is based on the volatility of similar entities (referred to as “guideline companies”) for a period consistent
with the expected term of the award.
Risk-free interest rate — The
risk-free interest rate used to value awards is based on the Treasury yields in effect at the time of grant for a period consistent with
the expected term of the award.
Dividend yield — We
have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
Forfeiture rate — We have elected
to account for forfeitures as they occur and will record stock-based compensation expense assuming all option holders will complete the
requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, we will reverse
stock-based compensation expense previously recognized in the period the award is forfeited.
Property and Equipment, Net
Property and equipment is stated at historical
cost less accumulated depreciation. Expenditures for major renewals and betterments are capitalized, while minor replacements, maintenance,
and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related
accumulated depreciation is removed from the accounts, and any difference between the selling price and net carrying amount is recorded
as a gain or loss in the statements of operations and comprehensive loss. Depreciation on property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets.
Impairment of Long-Lived Assets
We review our long-lived assets, consisting primarily
of property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Such triggering events or changes in circumstances may include: a significant decrease in the market price of
a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being or intended to be used,
a significant adverse change in legal factors or in the business climate, the impact of competition or other factors that could affect
the value of a long-lived asset, a significant adverse deterioration in the amount of revenue or cash flows expected to be generated from
an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development
of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a
long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life. We perform impairment testing at the asset group level that represents the lowest
level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these
assets is determined by comparing the forecasted undiscounted cash flows attributable to such assets including any cash flows upon their
eventual disposition to their carrying value. If the carrying value of the assets exceeds the forecasted undiscounted cash flows, then
the assets are written down to their fair value. We determined there was no impairment of long-lived assets during all periods presented.
Derivative Financial Instruments
The Company evaluates its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic
815, Derivatives and Hedging (“ASC 815”). For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with
changes in the fair value reported in the consolidated statements of operations. For derivative instruments that are classified as equity,
the derivative instruments are initially measured at fair value (or allocated value), and subsequent changes in fair value are not recognized
so long as the contracts continue to be classified in equity.
The Company’s Forward Purchase Agreement
is recognized as a derivative liability in accordance with ASC 815. Accordingly, the Company recognizes the instrument as an asset or
liability at fair value and with changes in fair value recognized in the Company’s consolidated statements of operations. The estimated
fair value of the Forward Purchase Agreement is measured at fair value using a simulation model. At the settlement date, the Forward Purchase
Agreement will be recognized as a derivative asset at the value of cash paid based on the number of shares, with any changes in fair value
recognized in the Company’s consolidated statements of operations.
Warrants
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet
the definition of a liability pursuant to ASC 480, and whether the warrants meet all the requirements for equity classification under
ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification.
This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all
the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time
of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to
be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the
estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations.
The warrants were determined to be recorded as
liabilities.
Public Warrants
The measurement of the public warrants as of May
31, 2024 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker “HOVRW.”
The quoted price of the public warrants was $0.03 per warrant as of May 31, 2024.
Government Grants
The Company receives payments from government
entities primarily for research and development deliverables as part of ongoing development of the Company’s technology and future
services offering. Under the Company’s accounting policy for government grants received as a payment for research and development
services, grants are recognized on a systematic basis over the periods in which these services are provided and are presented as other
income in the statement of operations. Effective June 1, 2021, the Company adopted ASU 832, Government Assistance and has disclosed
the transactions with government organizations in Note 15.
Recent Accounting Standards
Recently Issued Accounting Pronouncements
Not Yet Adopted
In August 2020, the Financial Accounting Standards
Board issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies
the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and
Other Options, for convertible instruments. The ASU updates the guidance on certain embedded conversion features that are not required
to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted
for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments
will be accounted for as a single liability measured at amortized cost. Further, the ASU made amendments to the EPS guidance in Topic
260, Earnings Per Share, for convertible instruments, the most significant impact of which is requiring the use of the if-converted
method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40,
which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting.
The amendments to Topic 815-40 change the scope of contracts that are recognized as assets or liabilities. The ASU is effective for public
business entities, excluding smaller reporting companies, for annual periods beginning after December 15, 2021, with early adoption permitted.
For all other entities, the amendments are effective for and annual periods beginning after December 15, 2023. Adoption of the ASU can
either be on a modified retrospective or full retrospective basis. The Company is currently evaluating the impact the adoption of this
standard will have on its financial statements and related disclosures.
No other recently issued accounting pronouncements
had or are expected to have a material impact on the Company’s financial statements.
NOTE 4. Balance Sheet Components
Property and Equipment, net
Property and equipment consist of the following
(in 000’s CAD):
| | |
Year Ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Computer Equipment | |
$ | 66 | | |
$ | 37 | |
| Leasehold Improvements | |
| 17 | | |
| 10 | |
| Tools and Equipment | |
| 48 | | |
| 27 | |
| Website Development | |
| 152 | | |
| — | |
| Vehicles | |
| 16 | | |
| 16 | |
| | |
| 299 | | |
| 90 | |
| Accumulated Depreciation | |
| (94 | ) | |
| (38 | ) |
| Total Property and Equipment, net | |
$ | 205 | | |
$ | 52 | |
The Company’s finance lease ended during
the year ended May 31, 2024. The Company exercised the permitted purchase option and recorded an addition to tools and equipment in the
amount of $20 (May 31, 2023 - $nil).
Depreciation expenses of $56 for the year ended
May 31, 2024 (May 31, 2023 - $27), has been recorded in General and Administrative expenses in the consolidated statements of operations.
Prepaid Expenses
Prepaid Expenses consisted of the following (in
000’s CAD):
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Prepaid insurance | |
$ | 482 | | |
$ | 3 | |
| Prepaid rent | |
| 1 | | |
| - | |
| Prepaid software | |
| 10 | | |
| - | |
| Prepaid capital market services | |
| 1,938 | | |
| - | |
| Total Prepaid expenses | |
$ | 2,431 | | |
$ | 3 | |
Prepaid capital market services are assets that
have been obtained to support the Company’s operations subsequent to the Business Combination with a combination of cash and common
shares and are being expensed in the consolidated statements of operations over the term of the agreements.
Accrued Expenses
Accrued Expenses consisted of the following (in
000’s CAD):
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Accrued professional fees | |
$ | 406 | | |
| - | |
| Accrued employee costs | |
| 84 | | |
| 48 | |
| Other accrued expenses | |
| 84 | | |
| - | |
| Total Accrued expenses | |
$ | 574 | | |
$ | 48 | |
NOTE 5. Leases
The Company has previously entered into multiple
lease agreements for the use of certain property and equipment under operating and finance leases. Property leases include hangars, storage,
offices, and other space.
The Company records the initial right-to-use asset
and lease liability at the present value of lease payments scheduled during the lease term. Unless the rate implicit in the lease is readily
determinable, the Company discounts the lease payments using an estimated incremental borrowing rate at the time of lease commencement.
The Company estimates the incremental borrowing rate based on the information available at the lease commencement date, including the
rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company’s weighted-average
discount rate for operating and finance leases during all periods presented was 10%.
During the year ended May 31, 2024 the Company’s
finance lease expired, and a purchase option was exercised. The purchase price of $20 was transferred to property and equipment.
Operating lease expense is recognized on a straight-line
basis over the lease term. The weighted-average remaining lease term is 1 year as of May 31, 2024.
The Company’s lease costs were as follows
(in 000’s CAD):
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Operating lease cost | |
$ | 51 | | |
$ | 56 | |
| Short-term lease cost | |
| 8 | | |
| 9 | |
| Total Lease cost | |
$ | 59 | | |
$ | 65 | |
The Company’s weighted-average remaining
lease term and discount rate as of May 31, 2024 and May 31, 2023 was as follows:
| | |
Year Ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Weighted-average remaining lease term (years) | |
| 1 | | |
| 2 | |
| Weighted-average discount rate | |
| 10 | % | |
| 10 | % |
The minimum aggregate future obligations under
the Company’s non-cancellable operating leases as of May 31, 2024 were as follows (in 000’s CAD):
| | |
May 31,
2024 | |
| fiscal 2025 | |
| 49 | |
| fiscal 2026 | |
| 24 | |
| fiscal 2027 and thereafter | |
| 8 | |
| Total future lease payments | |
| 81 | |
| Less: imputed interest | |
| (7 | ) |
| Present value of future lease payments | |
$ | 74 | |
NOTE 6. Promissory Note
On October 19, 2022, the Company issued a Promissory
Note in the principal amount of $300. The Promissory Note was to mature on October 18, 2027, and bore interest at a rate of 9.7% per annum.
The Promissory was securitized by certain patents of the Company. The Promissory Note was being repaid on a monthly basis, with interest
only payments until October 15, 2023, and blended payments of $8 thereafter.
During the year ended May 31, 2024, the Company
recorded and paid interest expenses of $15 (May 31, 2023 - $10). The Company repaid the loan in its entirety including all accrued interest
on November 9, 2023.
NOTE 7. Convertible Promissory Notes
In May 2022, the Company approved the issuance
of a series of Convertible Promissory Notes (collectively, the “Notes”) carrying a one-year term with interest on the outstanding
principal amount from the date of issuance accrued at the rate of 10% per annum.
On or before the date of the repayment in full
of the Notes, in the event the Company issued shares of its equity securities to investors (the “Investors”) in gross proceeds
of at least $2.0 million (a “Qualified Financing”), the outstanding principal and unpaid accrued interest balance of the Notes
would convert into common shares at a conversion price equal to the lesser of (i) 80% of the per share price paid by the Investors; and
(ii) a price equal to $15.0 million divided by the aggregate number of outstanding common shares of the Company immediately prior to the
closing of the Qualified Financing on the same terms and conditions as provided to the Investors.
During the year ended May 31, 2023, the Company issued Convertible
Promissory Notes in the amount of $1,035.
During the year ended May 31, 2024, the Company
issued an additional Convertible Promissory Note in the amount of $300, with the same terms as the previously issued convertible promissory
notes.
The following table presents the principal amounts
and accrued interest of the Convertible Promissory Notes as of May 31, 2024:
| | |
Amount | |
| Convertible Promissory Notes May 31, 2022 | |
$ | 50 | |
| Issuance of additional Convertible Promissory Notes | |
| 1,035 | |
| Accrued interest | |
| 57 | |
| Convertible Promissory Notes May 31, 2023 | |
$ | 1,142 | |
| Issuance of additional Convertible Promissory Notes | |
| 300 | |
| Accrued interest | |
| 54 | |
| Conversion of Promissory Notes | |
| (1,496 | ) |
| Convertible Promissory Notes May 31, 2024 | |
$ | - | |
In October 2023, the Company completed a Qualified
Financing and based on the terms of the Notes all Convertible Promissory Notes were converted into 517,532 common shares at of the Company.
NOTE 8. Convertible Notes Payable
In October 2023, the Company received $6,700 in
exchange for Convertible Notes payable bearing interest at 10% per annum. These convertible notes converted into common shares in the
event the Company raised more than US $5,000 or successfully listed its securities on a public stock exchange. The Convertible Notes payable
converted into common stock of the Company on January 12, 2024.
The Company recorded $143 of interest expenses
related to these Convertible Notes payable during the year ended May 31, 2024 (May 31, 2023 – $nil).
NOTE 9. Advances from Shareholder
As at May 31, 2022, there was an outstanding balance
from a shareholder of $1,979. On June 24, 2022, this balance was fully settled by issuance of 2,196,465 common shares of the Company.
NOTE 10. Term Loan
In May 2020, the Company received a $40 line of
credit (“CEBA LOC”) under the Canada Emergency Business Account program funded by the Government of Canada. The CEBA LOC was
non-interest bearing and could be repaid at any time prior to January 18, 2024, without interest or penalty. The Company repaid this loan
in December 2023.
NOTE 11. Fair Value Measurements
The following table presents information about
the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of May 31, 2024, and indicates
the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | |
Amount at
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| May 31, 2024 | |
| | |
| | |
| | |
| |
| Liabilities | |
| | |
| | |
| | |
| |
| Derivative Liability - Forward Purchase Agreement | |
$ | 20,938 | | |
$ | — | | |
$ | — | | |
$ | 20,938 | |
| Derivative Liability - Warrants | |
$ | 576 | | |
$ | 549 | | |
$ | — | | |
$ | 27 | |
| Total | |
$ | 21,514 | | |
$ | 549 | | |
$ | — | | |
$ | 20,965 | |
As of May 31, 2023, the Company had no financial
assets or liabilities measured at fair value on a recurring basis.
The following table provides quantitative information
regarding Level 3 fair value measurements inputs related to the Forward Purchase Agreement at their measurement dates:
| | |
May 31,
2024 | |
| Redemption Price | |
$ | 10.61 | |
| Stock Price | |
$ | 0.80 | |
| Volatility | |
| 53 | % |
| Term (years) | |
| 2.18 | |
| Risk-free rate | |
| 4.51 | % |
The change in the fair value of the assets and
liabilities, measured with Level 3 inputs, for the year ended May 31, 2024 is summarized as follows:
| | |
May 31,
2024 | |
| Fair value Derivative Liabilities as of date of Business Combination | |
$ | 16,641 | |
| Change in fair value of Forward Purchase Agreement | |
| 4,342 | |
| Change in fair value of Warrants | |
| (18 | ) |
| Fair value Derivative Liabilities as of May 31, 2024 | |
$ | 20,965 | |
The estimated fair value of the Forward Purchase
Agreement was measured at fair value using a simulation model, which was determined using Level 3 inputs. Inherent in a simulation are
assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates
the volatility of its common stock based on implied volatility from the Company’s traded common stock and from historical volatility
of select peer company’s shares that matches the expected remaining life of the Forward Purchase Agreement. The risk-free interest
rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of
the common stock. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate
is based on the historical rate, which the Company anticipates remaining at zero. Any changes in these assumptions could change the valuation
significantly.
The Company will not have any monetary obligations
in connection with the Forward Purchase Agreement.
NOTE 12. Common Stock
The Company’s common stock and warrants
trade on the NASDAQ stock exchange under the symbol “HOVR” and “HOVRW”, respectively. Pursuant to the terms of
the Company’s Articles and Notice of Articles, the Company is authorized to issue the following shares and classes of capital stock,
each with no par value: (i) an unlimited number of Class A ordinary shares; and (ii) an unlimited number of Class B ordinary shares. The
holder of each ordinary share is entitled to one vote.
As of May 31, 2024 there were warrants outstanding
of 12,065,375 at an exercise price of $11.50 USD to purchase an equivalent number of Class A Ordinary Shares.
The Company has retroactively adjusted the shares
issued and outstanding prior to January 12, 2024 to give effect to the Exchange Ratio.
NOTE 13. Stock-based Compensation
In August 2022, the Company established a Stock
Option Plan, superseded by the 2023 Equity Incentive Plan (the “Option Plan”), under which the Company’s Board of Directors
may, from time-to-time, in its discretion, grant stock options to directors, officers, consultants and employees of the Company.
Stock options outstanding vest in equal tranches
over a period of three years. During the year ended May 31, 2024, the Company granted 100,000 stock options (May 31, 2023 – 585,230).
The Company estimated the fair value of the stock options on the date of grant using the Black-Scholes option-pricing model with the following
assumptions:
| |
|
May 31,
2024 |
|
|
May 31,
2023 |
|
| Stock price |
|
USD $ |
0.85 |
|
|
$CAD |
0.30 |
|
| Risk-free interest rate |
|
|
4.5 |
% |
|
|
2.8 |
% |
| Term (years) |
|
|
5 |
|
|
|
5 |
|
| Volatility |
|
|
85 |
% |
|
|
85 |
% |
| Forfeiture rate |
|
|
0 |
% |
|
|
0 |
% |
| Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
A summary of stock option activity for the Company
is as follows:
| | |
Number of
Shares | | |
Weighted
Average
Exercise
Price (USD) | | |
Weighted
Average
Remaining
Contractual
Life (years) | | |
Aggregate
Intrinsic
Value | |
| Outstanding stock options May 31, 2023 | |
| 585,230 | | |
$ | 0.56 | | |
| 6.2 | | |
$ | 465 | |
| Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | | |
| - | |
| Issued May 30, 2024 | |
| 100,000 | | |
$ | 0.85 | | |
| 10.0 | | |
$ | - | |
| Outstanding stock options May 31, 2024 | |
| 685,230 | | |
$ | 0.60 | | |
| 6.8 | | |
$ | 139 | |
| Exercisable as of May 31, 2024 | |
| 195,077 | | |
$ | 0.56 | | |
| 6.2 | | |
$ | 46 | |
During the year ended May 31, 2024, the Company
recorded stock-based compensation expenses of $66 (May 31, 2023 - $55). The weighted average grant date fair value of the stock options
issued was $0.59 USD (May 31, 2023 - $0.20 USD). There were no changes to the terms and conditions of the stock options in connection
with the Business Combination.
NOTE 14. Net Income (Loss) per Share Attributable
to Common Stockholders
The Company computes net income (loss) per share
using the two-class method. Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during
the period. Diluted net income per share is computed using the weighted-average number of shares and the effect of potentially dilutive
securities outstanding during the period. Potentially dilutive securities consist of stock options, Convertible debentures, Convertible
Notes payable, and Convertible Promissory notes. Stock options, Convertible Debentures, Convertible Promissory notes, and Convertible
Notes payable were excluded from the computation of diluted net income (loss) per share as including them would have been anti-dilutive.
As we reported net losses for all periods presented, diluted loss per share is the same as basic loss per share.
The following outlines the Company’s basic
and diluted loss per share for the year ended May 31, 2024 and May 31, 2023 (000’s CAD, except share amounts):
| | |
Year Ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Net Income (loss) | |
$ | (8,160 | ) | |
$ | (1,247 | ) |
| Basic weighted-average common shares outstanding | |
| 10,717,378 | | |
| 7,326,310 | |
| Basic and diluted net income (loss) per common share | |
$ | (0.76 | ) | |
$ | (0.17 | ) |
NOTE 15. Grants and Subsidies
Green Fund
In November 2022, the Company entered into a funding
agreement with the Downsview Aerospace Innovation and Research Centre (“DAIR”). In June 2022, DAIR entered into a Contribution
Agreement with the Federal Economic Development Agency for Southern Ontario to launch a Green Fund to financially support projects led
by small and medium size enterprises. DAIR selected the Company with a project on the Engineering Design of a Hybrid Power System Novel
Power Distribution Scheme. The funding approved to the Company was $75, of which $50 was issued to the Company as at May 31, 2023 with
the balance of $25 received during the year ended May 31, 2024.
Innovation Grant
In January 2022, the Company entered into a Market Research Investment
Agreement (the “Agreement”) with Collaboration.Ai, a company engaged with the United States Operations Command and the U.S.
Air Force to administer selection and awards for the AFWERX Challenge program to foster innovation within the services. In connection
with the Agreement, the Company will provide research, development, design, manufacturing, services, support, testing, integration, and
equipment in aid of delivery of market research in accordance with one or more statements of work or market research plans. During the
year ended May 31, 2023, a fixed fee fund of $366 was approved. As of May 31, 2024, the Company had received $235 of this amount.
Scientific Research and Experimental Development
In July 2023, in connection with the year ended May 31, 2023, the Company
filed an application for Scientific Research and Experimental Development (“SRED”) credits with the Canadian federal government
in the amount of $229. This amount was received in December 2023.
In connection with the year ended May 31, 2024, the Company has accrued
$305 of SRED credits recorded in Other income and included in Other Receivables as of May 31, 2024 that are expected to be received in
the fiscal year ended May 31, 2025.
NOTE 16. INCOME TAXES
The Company accounts for income taxes according
to the provisions of ASC 740, which prescribes an asset and liability approach for computing deferred income taxes. Reconciliations of
incomes taxes computed at the statutory federal rate to income tax expense (benefit) for the years ended May 31, 2024 and 2023 are as
follows:
| | |
Year Ended | |
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Net Income (Loss) before income taxes | |
$ | (8,160 | ) | |
$ | (1,247 | ) |
| | |
| | | |
| | |
| Expected income tax (recovery) expense | |
| (2,203 | ) | |
| (320 | ) |
| Change in fair value of Forward Purchase Agreement and other non-deductible expenses | |
| 1,094 | | |
| 11 | |
| Change in valuation allowance | |
| 1,109 | | |
| 309 | |
| Income tax (recovery) | |
$ | - | | |
$ | - | |
The Company intends to be treated as a United States corporation for
United States federal income tax purposes under section 7874 of the U.S. Tax Code and is expected to be subject to United States federal
income tax. However, for Canadian tax purposes, the Company is expected, regardless of any application of section 7874 of the U.S. Tax
Code, to be treated as a Canadian resident company (as defined in the Canadian Income Tax Act for Canadian income tax purposes). Accordingly,
Horizon will be subject to taxation in both Canada and the United States.
The following table summarized the components
of deferred tax:
| | |
May 31,
2024 | | |
May 31,
2023 | |
| Deferred Tax Assets | |
| | |
| |
| Finance Lease Liabilities | |
$ | 20 | | |
$ | 31 | |
| Operating tax losses carried forward | |
| 1,742 | | |
| 675 | |
| Property and equipment | |
| 19 | | |
| 4 | |
| Other tax pools | |
| 96 | | |
| 70 | |
| Valuation allowance | |
| (1,857 | ) | |
| (748 | ) |
| Net Deferred Tax Assets | |
| 20 | | |
| 32 | |
| | |
| | | |
| | |
| Deferred Tax Liabilities | |
| | | |
| | |
| Right of Use assets | |
| (20 | ) | |
| (32 | ) |
| Total Deferred Tax Liabilities | |
| (20 | ) | |
| (32 | ) |
| Net Deferred Tax Asset (Liability) | |
$ | - | | |
$ | - | |
A valuation allowance has been recognized to offset
the entire effect of the Company’s net deferred tax asset as the realization of this deferred tax benefit is uncertain. The valuation
allowance increased by $1,109 for the year-ended May 31, 2024. This is primarily due to the increase of federal, provincial, and state
net operating losses.
The Company has analyzed filing positions in all of the federal, provincial,
and state jurisdictions where it is required to file income tax returns. The Company believes that its income tax filing positions and
deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s
financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.
NOTE 17. RELATED PARTY TRANSACTIONS
There were no identifiable related party transactions
for the periods presented other than the Advance from Shareholder disclosed in Note 9.
NOTE 18. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from
June 1, 2024 through to the date of this filing Form 10-K and determined that there have been no reportable subsequent events.
EXHIBIT INDEX
| Exhibit
No. |
|
Description |
| 2.1† |
|
Business Combination Agreement, dated August 15, 2023, by and among Pono Capital Three, Inc., Pono Three Merger Acquisitions Corp., and Robinson Aircraft, Ltd. d/b/a Horizon Aircraft (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed by Pono Capital Three, Inc. on August 15, 2023) |
| 3.1 |
|
New Horizon Articles (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, filed by New Horizon Aircraft Ltd. on February 14, 2024) |
| 4.1 |
|
Warrant Agreement, dated February 9, 2023, by and between Pono Capital Three, Inc. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed by Pono Capital Three, Inc. on February 15, 2023) |
| 4.2 |
|
Form of First Shortfall Warrant (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to the Registration Statement on Form S-1, filed by New Horizon Aircraft Ltd. on April 8, 2024) |
| 4.3 |
|
Description of Securities (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K, filed by New Horizon Aircraft Ltd. on March 28, 2024) |
| 10.1 |
|
Form of Subscription Agreement for the PIPE investment (incorporated by reference to Exhibit 10.1 of Form 8-K filed by Pono Capital Three, Inc. on January 3, 2024) |
| 10.2+ |
|
New Horizon Aircraft Ltd. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.3 |
|
Registration Rights Agreement, dated January 12, 2024, by and between Pono Capital Three, Inc. and parties thereto (incorporated by reference to Exhibit 10.3 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.4 |
|
Registration Rights Agreement, dated February 9, 2023, by and among Pono Capital Three, Inc. and certain security holders. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed by Pono Capital Three, Inc. on February 15, 2023) |
| 10.5 |
|
Form of Lockup Agreement (incorporated by reference to Exhibit 10.5 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.6 |
|
Placement Unit Purchase Agreement, dated February 9, 2023, between Pono Capital Three, Inc. and Mehana Capital LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed by Pono Capital Three, Inc. on February 15, 2023) |
| 10.10 |
|
Form of Non-Competition and Non-Solicitation Agreement (incorporated by reference to Exhibit 10.10 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.11 |
|
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.11 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.12+ |
|
Employment Agreement, dated January 19, 2024, by and between New Horizon Aircraft Ltd. and E. Brandon Robinson (incorporated by reference to Exhibit 10.12 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.13+ |
|
Employment Agreement, dated January 11, 2024, by and between New Horizon Aircraft Ltd. and Jason O’Neill (incorporated by reference to Exhibit 10.13 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.14+ |
|
Employment Agreement, dated January 12, 2024, by and between New Horizon Aircraft Ltd. and Brian Merker (incorporated by reference to Exhibit 10.14 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.15+ |
|
Contractor Agreement, dated January 19, 2024, by and between New Horizon Aircraft Ltd., 2195790 Alberta Inc., and Stewart Lee (incorporated by reference to Exhibit 10.16 of Form 8-K filed by Pono Capital Three, Inc. on January 19, 2024) |
| 10.16 |
|
Forward Purchase Agreement Confirmation Amendment, dated February 14, 2024, by and between the Company and Meteora (incorporated by reference to Exhibit 10.1 of Form 8-K filed by New Horizon Aircraft Ltd. on February 21, 2024) |
| 19* |
|
New Horizon Aircraft Ltd. Insider Trading Policy |
| 21 |
|
Subsidiaries of New Horizon Aircraft Ltd. (incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K, filed by New Horizon Aircraft Ltd. on March 28, 2024) |
| 31.1* |
Rule 13a-14(a) Certification by Principal Executive Officer |
| 31.2* |
Rule 13a-14(a) Certification by Principal Financial and Accounting Officer |
| 32.1** |
Section 1350 Certification of Principal Executive Officer and Principal Financial and Accounting Officer |
| 32.2** |
Section 1350 Certification of Principal Financial and Accounting Officer |
| 97 |
Clawback Policy (incorporated by reference to Exhibit 97 to the Annual Report on Form 10-K, filed by New Horizon Aircraft Ltd. on March 28, 2024) |
| 101.INS* |
Inline XBRL Instance Document |
| 101.SCH* |
Inline XBRL Taxonomy Extension
Schema Document |
| 101.CAL* |
Inline XBRL Taxonomy Extension
Calculation Linkbase Document |
| 101.DEF* |
Inline XBRL Taxonomy Extension
Definition Linkbase Document |
| 101.LAB* |
Inline XBRL Taxonomy Extension
Label Linkbase Document |
| 101.PRE* |
Inline XBRL Taxonomy Extension
Presentation Linkbase Document |
| 104* |
Cover Page Interactive Data File (formatted in iXBRL,
and included in exhibit 101) |
| * |
Filed with this Report. |
| ** |
Furnished with this Report. |
| + |
Indicates a management or compensatory plan. |
| † |
Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Registration S-K. The Registrant hereby agrees to furnish a copy of any omitted schedules to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
New Horizon Aircraft Ltd. |
| |
|
|
| Date: August 15, 2024 |
|
/s/ Brandon Robinson |
| |
Name: |
Brandon Robinson |
| |
Title: |
Chief Executive Officer |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
| Name |
|
Position |
|
Date |
| |
|
|
|
|
| /s/ E. Brandon Robinson |
|
Chief Executive Officer and Director |
|
August 15, 2024 |
| E. Brandon Robinson |
|
(Principal Executive Officer) |
|
|
| |
|
|
|
|
| /s/ Brian Merker |
|
Chief Financial Officer |
|
August 15, 2024 |
| Brian Merker |
|
(Principal Financial Officer and Accounting Officer) |
|
|
| |
|
|
|
|
| /s/ Jason O’Neill |
|
Chief Operating Officer and Director |
|
August 15, 2024 |
| Jason O’Neill |
|
|
|
|
| |
|
|
|
|
| /s/ Trisha Nomura |
|
Director |
|
August 15, 2024 |
| Trisha Nomura |
|
|
|
|
| |
|
|
|
|
| /s/ John Maris |
|
Director |
|
August 15, 2024 |
| John Maris |
|
|
|
|
| |
|
|
|
|
| /s/ John Pinsent |
|
Director |
|
August 15, 2024 |
| John Pinsent |
|
|
|
|
73
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