{"url_path":"/sec/hovr/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-16","source_url":"https://www.sec.gov/Archives/edgar/data/1930021/0001213900-26-078490-index.html","accession_number":"0001213900-26-078490","cik":"0001930021","ticker":"HOVR","issuer_name":"New Horizon Aircraft Ltd.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1930021/0001213900-26-078490-index.html","primary_entity_key":"0001930021","primary_entity_name":"New Horizon Aircraft Ltd."},"word_count":5237,"has_tables":true,"body_markdown":"Item 7. Management’s Discussion and Analysis of Financial\nCondition and Results of Operations.\n\n \n\n*References in this report\n(the “Annual Report”) to “we,” “us” or the “Company” refer to New Horizon Aircraft Ltd.\nReferences to our “management” or our “management team” refer to our officers and directors. The following discussion\nand analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated\nfinancial statements and the notes thereto contained elsewhere in this Annual Report. Certain information contained in the discussion\nand analysis set forth below includes forward-looking statements that involve risks and uncertainties.*\n\n* *\n\n*All figures noted are in\nthousands of Canadian dollars unless noted otherwise.*\n\n \n\nSpecial Note Regarding Forward-Looking Statements\n\n \n\nThis Annual Report includes\n“forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and\n“forward-looking information” within the meaning of the Ontario Securities Act that are not historical facts and involve risks\nand uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements\nof historical fact included in this Annual Report including, without limitation, statements under “Management’s Discussion\nand Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy\nand the plans and objectives of management for future operations, are forward-looking statements. When used in this Annual Report, words\nsuch as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek”\nand variations and similar words and expressions, as they relate to us or the Company’s management, identify forward-looking statements.\nSuch forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available\nto the Company’s management. A number of factors could cause actual events, performance or results to differ materially from the\nevents, performance and results discussed in the forward-looking statements. For information identifying important factors that could\ncause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section\nof this Annual Report.\n\n \n\n38\n\n \n\n \n\nOverview\n\n \n\nNew Horizon Aircraft Ltd. (the\n“Company”, “Horizon”, “we,” “us” or “our”) is a British Columbia-based aerospace\ncompany headquartered in Lindsay, Ontario, focused on developing advanced hybrid-electric vertical takeoff and landing (\"eVTOL\")\naircraft. Our mission is to expand regional air mobility by delivering aircraft that combines the operational flexibility of vertical\nflight with the safety, speed, range, and efficiency of conventional fixed-wing aircraft.\n\n \n\nHorizon’s\nflagship aircraft, the Cavorite X7, incorporates the Company’s patented fan-in-wing technology, enabling vertical takeoff and landing\nwhile preserving the performance characteristics of a conventional aircraft during cruise flight. The Cavorite X7 is being designed to\nserve a broad range of commercial and government applications, including regional passenger transportation, emergency medical services,\ndisaster response, cargo operations and defense missions.\n\n \n\nHorizon has successfully completed\nflight testing of its large-scale prototype aircraft and is currently assembling a full-scale technical demonstrator, which is expected\nto begin flight testing in 2026 or 2027. The Company continues to advance engineering, certification planning, manufacturing partnerships\nand supply chain development as it works toward commercialization.\n\n \n\nOrganization and Nature of Business\n\n \n\nRobinson Aircraft Ltd. (“Robinson”),\nHorizon’s operating subsidiary, was incorporated in 2013. The company initially focused on hybrid-electric amphibious aircraft before\ntransitioning in 2018 to the development of its proprietary hybrid-electric eVTOL platform, which ultimately evolved into the Cavorite\nX7.\n\n \n\nHorizon's long-term business strategy\nis centered on the design, certification, and commercialization of the Cavorite X7, while leveraging strategic manufacturing partners\nand an established aerospace supply chain to efficiently scale production. In addition to aircraft sales, the Company believes its patented\nfan-in-wing technology and related intellectual property may create future licensing opportunities with other OEM’s.\n\n \n\nHorizon intends to market the\nCavorite X7 to commercial operators, aircraft lessors, government agencies and defense organizations that require aircraft capable of\nboth vertical and conventional runway operations. The Company believes its asset-light manufacturing strategy, combined with strategic\npartnerships, will enable efficient capital deployment while supporting multiple commercial and government end markets.\n\n \n\nOver the past year, Horizon has\ncontinued advancing the Cavorite X7 program through completion of major structural assemblies, expansion of its strategic supplier network,\nand preparation of its full-scale technical demonstrator for flight testing.\n\n \n\nBusiness Combination\n\n \n\nThe Company is a former blank\ncheck company incorporated on March 11, 2022, under the name Pono Capital Three, Inc. (“Pono”), as a Delaware corporation,\nsubsequently redomiciled in the Cayman Islands on October 14, 2022, and formed for the purpose of effecting a merger, capital stock exchange,\nasset acquisition, stock purchase, reorganization, or similar business combination.\n\n \n\nOn February 14, 2023, we consummated\nthe Initial Public Offering (“IPO”). On January 12, 2024 (the “Closing date”), we consummated a merger (the “Merger”)\nwith Pono Three Merger Acquisitions Corp., a British Columbia company (“Merger Sub”) and wholly-owned subsidiary of Pono,\nwith and into Robinson pursuant to an agreement and plan of merger, dated as of August 15, 2023, by and among Pono, Merger Sub, Horizon,\nand Robinson.\n\n \n\nThe Merger and other transactions\ncontemplated thereby (collectively, the “Business Combination”) closed on January 12, 2024, when, pursuant to the Business\nCombination Agreement, Merger Sub merged with and into Robinson, surviving the Merger as a wholly owned subsidiary of Pono. Pono changed\nits name to “New Horizon Aircraft Ltd.” and the business of Robinson became the business of New Horizon Aircraft Ltd.\n\n  \n\nThe financial information included\nin this report reflect (i) the historical operating results of Robinson prior to the Business Combination (“Legacy Horizon”);\n(ii) the combined results of Pono and Legacy Horizon following the closing of the Business Combination; (iii) the assets and liabilities\nof Legacy Horizon at their historical cost; and (iv) the Company’s equity structure for all periods presented.\n\n \n\n39\n\n \n\n \n\nKey Factors Affecting Operating Results\n\n \n\nSee the section entitled “*Risk\nFactors*” for a further discussion of these considerations.\n\n* *\n\n*Development of the Regional Air Mobility\nMarket*\n\n \n\nThe Company’s revenue\nwill be directly tied to the continued development of long-distance aerial transportation and related technologies. While the Company\nbelieves the market for RAM will be significant, it is currently immature and there is no guarantee of future demand. Horizon anticipates\ncommercialization of its aircraft beginning in 2028 or 2029, and its business will require significant investment leading up to commercialization,\nincluding, but not limited to, final engineering designs, prototyping and flight testing, manufacturing, software development, certification,\nand pilot training.\n\n \n\nHorizon believes one of the\nprimary drivers for adoption of its aircraft is the value proposition enabled by its aircraft that can take-off and land similar to a\nhelicopter, fly almost twice as fast, and operate with much lower direct operating costs. Additional factors impacting adoption of eVTOL\ntechnology include, but are not limited to: perceptions about eVTOL quality, safety, performance and cost; perceptions about the environmental\nimpact of hybrid-electric machines; volatility in the cost of oil and gasoline; availability of competing forms of transportation, such\nas ground or unmanned drone services; consumers perception about the convenience and cost of transportation using eVTOL relative to ground-based\nalternatives; and increases in fuel efficiency, autonomy, or electrification of vehicles. In addition, macroeconomic factors could impact\ndemand for RAM services, particularly if customer pricing is at a premium to ground-based transportation. Horizon anticipates\ninitial aircraft sales to be used for medevac services, firefighting services, disaster relief services, remote medical services, military\noperations, followed by sales to air operators and lessors for air cargo, business travel and air-taxi services. If the market for RAM\ndoes not develop as expected, this would significantly impact the Company’s ability to generate revenue or grow its business.\n\n \n\n*Competition*\n\n \n\nThe markets in which we intend\nto operate are highly competitive and characterized by significant capital requirements and rapid technological change. We expect to compete\nwith traditional helicopter manufacturers, fixed-wing aircraft manufacturers, ground-based mobility solutions, and other eVTOL developers,\nmany of whom have substantially greater financial, technical, and manufacturing resources than we do. While we expect to produce a versatile\naircraft that can be useful in a variety of air mobility missions, we believe this industry will be dynamic and increasingly competitive.\nIt is possible that our competitors could gain significant market share. Horizon may not fully realize the sales it anticipates, and it\nmay not receive any competitive advantage from its design or may be overcome by other competitors. If new companies or existing aerospace\ncompanies produce competing aircraft in the markets in which Horizon intends to service and obtain large-scale capital investment, we\nmay face increased competition.\n\n \n\nHorizon may receive an advantage\nfrom following well-funded competitors that are paying to create certification programs, raise awareness of eVTOL advantages, and advocate\nfor enhanced government funding programs.\n\n \n\n*Government Certification*\n\n \n\nCommercial operation of Horizon’s\nCavorite X7 aircraft will require Type Certification and related regulatory approvals. We have initiated engagement with TCCA in Canada\nand the FAA in the United States to discuss potential certification pathways. As a Canadian company, we expect TCCA to serve as the primary\ncertification authority, with participation from the FAA as the program progresses, which we expect will reduce the traditional amount\nof time required to achieve FAA certification.\n\n \n\nHorizon maintains a partnership\nwith 3C to support aspects of our certification planning and development activities. 3C is leveraging their deep experience with TCCA\nand FAA certification programs and is assisting us in developing our certification basis and advancing regulatory engagement.\n\n* *\n\n40\n\n \n\n \n\nCertification of a new aircraft\ndesign is a complex, multi-year process that typically requires significant time and capital. We have not previously completed an aircraft\ncertification program, and there can be no assurance that our Cavorite X7 aircraft will achieve certification on our anticipated timeline,\nor at all. In addition to type certification, we will be required to obtain production approvals prior to commercial deliveries.\n\n \n\nDelays in certification, changes\nin regulatory requirements, the need for additional testing or design modifications, or the inability to obtain required approvals could\ndelay or prevent commercialization of our aircraft. Any such outcomes could materially and adversely affect our business, financial condition,\nresults of operations, and prospects.\n\n* *\n\n*Dual Use Business Model*\n\n \n\nHorizon is pursuing a dual use\nstrategy designed to position the Cavorite X7 aircraft for both civilian and military applications. We believe this approach expands our\npotential addressable market, supports earlier mission adoption opportunities, and may enable a more efficient path toward scaling production\nover time.\n\n \n\nPresent projections indicate that\nsales volume of this dual use aircraft will result in a viable business model over the longer-term as production volumes scale and unit\neconomics improve to support sufficient market adoption. The advantage of military application of Horizon’s aircraft in addition\nto sales volumes leads to a reduction in the risk of certification as aircraft used for military purposes do not necessarily require TCCA,\nFAA, or related other jurisdictional certification approval. As with any new industry and aerospace product, numerous risks and uncertainties\nexist. The Company’s financial results are dependent on delivering aircraft on-time and at a cost that supports returns at prices\nthat support sufficient sales to customers who are willing to purchase based on value arising from time and versatility from utilizing\nregional eVTOL aircraft. Horizon’s civilian sector financial results are dependent on achieving certification on its expected timeline.\nOur aircraft include numerous parts and manufacturing processes unique to eVTOL aircraft, particularly its product design. Significant\nefforts have been made to estimate costs in the Company’s planning projections; however, the cost associated with assembling its\naircraft at scale remains uncertain at this stage of development.\n\nWe believe\nmilitary and special-mission use cases, which may not require the same certification approvals as commercial passenger operations, could\nprovide earlier operational opportunities and help validate performance, reliability, and mission versatility as the broader regional\nair mobility market continues to develop. Over time, we expect increasing production volumes and operational experience to support improvements\nin unit economics and market adoption.\n\nOur long-term success in the civilian\nsector will depend on our ability to deliver aircraft on schedule, at competitive costs, and at price points that support customer adoption\nacross multiple mission profiles. While our civilian market opportunity remains dependent on achieving regulatory certification, we believe\nour dual-use strategy provides flexibility as we progress through development, certification, and commercialization.\n\n \n\nGoing Concern and Liquidity\n\n \n\nThe accompanying consolidated\nfinancial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”),\nwhich contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in\nthe normal course of business. The Company has incurred and expects to continue to incur significant costs in pursuit of the Company’s\ncommercialization plans. We have devoted many resources to the design and development of our eVTOL prototype aircraft. Funding of these\nactivities has primarily been through the net proceeds received from the issuance of Class A ordinary shares, preferred shares, and the\nissuance of related and third-party convertible debt.\n\n \n\nHorizon is a pre-revenue organization focused on research and development\nand flight-testing of our eVTOL aircraft. With $78.3 million of cash on-hand as of May 31, 2026, management expects that the Company has\nsufficient funds for its current operating plan for at least the next 12 months from the date the consolidated financial statements were\navailable to be issued. There remains substantial doubt regarding the Company’s ability to meet the going concern assumption beyond\nthat period without securing additional capital.\n\n \n\nThere can be no assurance that we will be successful in achieving our business\nplans, that our current capital will be sufficient to support our ongoing operations, or that any additional financing will be available\nin 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\nmay be required to raise additional capital, alter, or scale back our aircraft design, development, and certification programs, or be\nunable to fund capital expenditures. Any such events could have a material adverse effect on our financial position, results of operations,\ncash flows, and ability to execute our business plans.\n\n* * \n\nComponents of Results of Operations\n\n \n\nRevenue\n\n \n\nThe Company is working to\ndesign, develop, certify, and manufacture our eVTOL aircraft and has not yet generated revenues in any of the periods presented. We do\nnot expect to begin generating significant revenues until we are able to complete the certification of our eVTOL aircraft. \n\n \n\n41\n\n \n\n \n\nOperating Expenses\n\n* *\n\n*Research and Development Expenses*\n\n \n\nResearch and development expenses consist primarily of personnel expenses,\nincluding salaries, benefits, other compensation costs and costs of consulting, as well as equipment, engineering, data analysis, and\nmaterials.\n\n \n\nWe expect our research and\ndevelopment expenses to increase as we increase staffing to support aircraft engineering and software development, build aircraft, and\ncontinue to explore and develop our eVTOL aircraft and technologies.\n\n \n\n*Selling, General and Administrative Expenses*\n\n \n\nSelling, general and administrative\nexpenses primarily consist of personnel expenses, including salaries, benefits, and stock-based compensation, related to executive management,\nfinance, legal, and human resource functions. Other costs include business development, investor relations, contractor and professional\nservices fees, audit and compliance expenses, insurance costs and general corporate expenses, including depreciation, rent, information\ntechnology costs and utilities.\n\n \n\nWe expect our selling, general and administrative expenses to increase\nas we hire additional personnel and consultants to support our operations and comply with applicable regulations, including the Sarbanes-Oxley\nAct and other SEC rules and regulations.\n\n \n\nOther Income\n\n \n\nOther income consists of grants\nand subsidies received for developmental work and foreign exchange gains and losses.\n\n \n\nInterest Expense, net\n\n \n\nInterest expense is related\nto the Company’s leases. Interest income consists primarily of interest earned on the Company’s cash and cash equivalents.\n\n \n\nChange in fair value of Forward Purchase Agreement\n\n \n\nChange in fair value of Forward\nPurchase Agreement consists of fluctuations in the deemed value of an agreement between the Company and a shareholder facilitating future\npurchases of the Company’s stock based on a simulation model. The Company mutually agreed to terminate the Forward Purchase Agreement\nwith its counterparty on November 1, 2024, at a cost of $278. In connection with this transaction, the Company recorded a $21,400 gain.\n\n \n\nChange in fair value of Warrants\n\n \n\nChanges in fair value of Warrants\nconsists of fluctuations in the fair value of the Company’s Warrants outstanding as of the end of each reporting period.\n\n \n\n42\n\n \n\n \n\nResults of Operations\n\n \n\nWe believe the following information\nincludes all adjustments necessary to state fairly the results of operations for all periods presented. This data should be read in conjunction\nwith Horizon’s consolidated financial statements and notes thereto. These results of operations are not necessarily indicative\nof the future results of operations that may be expected for any future period.\n\n* *\n\n*Comparison of the Year Ended May 31, 2026\nto the Year Ended May 31, 2025*\n\n \n\nSignificant variances in the Company’s components of operations\nare explained below. The following table sets forth Horizon’s statements of operations data for the years-ended May 31, 2026,\nand May 31, 2025 (000’s $CAD).\n\n \n\n  \nYear Ended  \n  \n\nOperating expenses \nMay 31,\n2026  \nMay 31,\n2025  \nVariance\n($) \n\nResearch and development \n$13,244  \n$3,660  \n$(9,584)\n\nGeneral and administrative \n 10,224  \n 9,925  \n (299)\n\nTotal operating expenses \n 23,468  \n 13,585  \n (9,883)\n\nLoss from operations \n (23,468) \n (13,585) \n 9,883 \n\nOther expenses (income) \n (503) \n 10  \n 513 \n\nInterest expense (income), net \n (671) \n (123) \n 548 \n\nChange in fair value of Warrants \n 10,802  \n 1,988  \n (8,814)\n\nChange in fair value and Termination of Forward Purchase Agreement \n -  \n (20,660) \n 20,660 \n\nNet Income (Loss) \n$(33,096) \n$5,200  \n$38,296 \n\n  \n\n*Operating Expenses*\n\n \n\nOperating expenses increased\nby $9,883, from $13,585 for the year-ended May 31, 2025, to $23,468 for the year-ended May 31, 2026. The increase was primarily driven\nby equipment and materials directly related to the build of the full-scale technical demonstrator aircraft, additional staff hired to\nsupport research and development activities, and other administrative costs connected with the Company’s growth activities.\n\n* *\n\n*Research and Development Expenses*\n\n \n\nResearch and development expenses increased by $9,584, from $3,660 during\nthe year-ended May 31, 2025, to $13,244 during the year-ended May 31, 2026. The increase was primarily attributable to additional labour\ncosts related to flight testing, engineering work, flight software, prototype manufacturing, and data analysis. Research and development\ncosts can be itemized into the following categories for the respective periods:\n\n \n\n  \nYear Ended \n\n  \nMay 31,\n2026  \nMay 31,\n2025 \n\nCompensation Costs \n$5,370  \n$2,305 \n\nEngineering costs \n 7,725  \n 1,285 \n\nDepreciation \n 149  \n 70 \n\nTotal Research and Development costs \n$13,244  \n$3,660 \n\n* *\n\n*General and Administrative*\n\n \n\nGeneral and Administrative costs increased by $299, from $9,925 during\nthe year-ended May 31, 2025, to $10,224 during the year-ended May 31, 2026. The increase was related to legal, accounting, travel, investor\nrelations, compensation costs, marketing, and branding expenses related to the Company’s growth efforts.\n\n **\n\n43\n\n \n\n \n\n*Other expenses (income)*\n\n \n\nOther expenses (income) increased by $513, from an expense of $10 during\nthe year-ended May 31, 2025, to income of $503 during the year-ended May 31, 2026. The increase primarily reflected foreign exchange and\nadditional grants and subsidies received.\n\n \n\nCash Flows\n\n \n\nThe following tables set forth\na summary of our cash flows for the periods indicated (000’s $CAD):\n\n \n\n  \nYear Ended  \n  \n\nNet cash provided by (used in) \nMay 31,\n2026  \nMay 31,\n2025  \nVariance\n($) \n\nOperating activities \n$(16,492) \n$(9,312) \n$(7,180)\n\nInvesting activities \n (967) \n (142) \n (825)\n\nFinancing activities \n 88,191  \n 15,185  \n 73,006 \n\nNet increase in cash \n$70,732  \n$5,731  \n$65,001 \n\n \n\n*Net Cash used in Operating Activities*\n\n \n\nThe Company’s cash flows\nused in operating activities have been primarily comprised of compensation costs, software expenses, technology costs, professional services\nrelated to research and development and general and administrative activities, insurance, and direct research and development costs for\naircraft design, simulation, and aircraft manufacturing, partially offset by periodic grants received from various government agencies\nand interest earned on cash. The Company expects to increase hiring to accelerate its engineering and certification efforts in the coming\nyears.\n\n \n\nFor the year-ended May 31,\n2026, the 7,180 increase in cash used from operations as compared to the year-ended May 31, 2025, was primarily attributed to increased\noperating costs in connection to the Company’s engineering efforts and changes in working capital.\n\n \n\n*Net Cash used in Investing Activities*\n\n \n\nThe Company’s cash flows\nused in investing activities have primarily been comprised of the acquisition of property and equipment.\n\n \n\nFor the year-ended May 31, 2026, the $825 increase in cash used by\ninvesting activities as compared to the year-ended May 31, 2025, was primarily attributed to tooling, aircraft rotables and spares, and\ntechnology acquisition costs.\n\n* *\n\n*Net Cash provided by Financing Activities*\n\n \n\nThe Company’s cash flows\nprovided by financing activities to date have primarily been composed of funding raised with convertible instruments and registered securities\nofferings.\n\n \n\n44\n\n \n\n \n\nFor the year-ended May 31, 2026, the $73,006 increase in cash provided\nby financing activities was primarily attributed to proceeds from the issuance of Class A ordinary shares and warrant exercises.\n\n \n\nOn August 21, 2024, the Company\ncompleted a registered securities offering (“RSO”) by issuing 2,800,000 Class A ordinary shares, 3,000,000 Pre-Funded Warrants\n(“PFW’s”), and 5,800,000 General Warrants. Proceeds received by the Company are summarized below:\n\n \n\nGross Proceeds - Class A Shares \n$1,906 \n\nGross Proceeds - PFW’s \n$2,041 \n\nGross Proceeds - Warrant Exercises \n$2,787 \n\nDirect costs \n$(510)\n\nNet Proceeds \n$6,224 \n\n \n\nPFW’s may be exercised\nby warrant holders at any time at a nominal exercise price as they were funded in connection with the RSO. Upon exercise, each PFW may\nbe exchanged for one Class A ordinary share. All 3 million PFW’s were exercised during the year-ending May 31, 2025.\n\n \n\nDuring the year-ended May\n31, 2026, warrant holders exercised 3,200,000 (May 31, 2025 - 2,590,000) General Warrants in exchange for 3,200,000 (May 31, 2025 - 2,590,000)\nClass A ordinary shares for proceeds of $3,280 (May 31, 2025 - $2,787).\n\n \n\nOn May 8, 2026, the Company\ncompleted a registered direct offering (“RDO I”) by issuing 9,254,889 Class A ordinary shares. There were also 277,647 warrants\nissued to the placement agent to purchase an equivalent number of shares at an exercise price of $USD 2.47. Proceeds received by the Company\nin connection with RDO I are summarized below:\n\n \n\nGross Proceeds - Class A Shares \n$27,232 \n\nDirect costs \n$(2,196)\n\nNet Proceeds \n$25,036 \n\n \n\nOn May 27, 2026, the Company\ncompleted a second registered direct offering (“RDO II”) by issuing 5,385,646 Class A ordinary shares and 4,574,514 PFW’s.\nThere were also 298,805 RDO II Warrants issued to the placement agent to purchase an equivalent number of shares at an exercise price\nof $USD 2.89. Proceeds received by the Company are summarized below:\n\n \n\nGross Proceeds - Class A Shares \n$18,697 \n\nGross Proceeds - PFW’s \n$15,874 \n\nGross Proceeds - PFW Exercises \n$3 \n\nDirect costs \n$(2,611)\n\nNet Proceeds \n$31,963 \n\n \n\nPFW’s may be exercised\nby warrant holders at any time at a nominal exercise price as they were funded in connection with RDO II. Upon exercise, each PFW may\nbe exchanged for one Class A ordinary share. 2,413,617 PFW’s were exercised during the year-ended May 31, 2026.\n\n \n\nAs of May 31, 2026, there\nwere 12,065,375 warrants outstanding at an exercise price of $11.50 USD, 10,000 General Warrants outstanding at an exercise price of $USD\n0.75, 277,647 RDO I Warrants outstanding at an exercise price of $USD 2.47, and 298,805 RDO II Warrants outstanding at an exercise price\nof $USD 2.89 to purchase an equivalent number of Class A ordinary shares.\n\n \n\n45\n\n \n\n \n\nOn December 18, 2024, the\nCompany entered into subscription agreements with a third-party investor pursuant to which the Company issued an aggregate of 4,166,667\nClass A ordinary shares of the Company, at a price of $USD 0.36 per share, and an aggregate of 4,500 Series A preferred shares (the “Series\nA Preferred Shares”) of the Company at a price of $1,000 per share. The financing closed on December 19, 2024.\n\n \n\nThe Series A Preferred Shares\nare convertible, at the option of the holder and without additional consideration, into Class A ordinary shares on a one for 2222.222222\nbasis. The proceeds received by the Company are summarized below:\n\n \n\nGross Proceeds - Class A Shares \n$2,100 \n\nGross Proceeds - Preferred Shares \n 6,300 \n\nDirect costs \n (41)\n\nNet Proceeds \n$8,359 \n\n \n\nIn\nMarch 2025 the Company filed a shelf registration statement on Form S-3 with the SEC and a related prospectus pursuant to which it may,\nfrom time to time, sell shares of its Class A ordinary shares, having an aggregate value of up to $USD 6.25 million, pursuant to a Capital\non Demand™ Sales Agreement (the “Sales Agreement”) with a placement agent for the sale of its Class A ordinary shares.\n\n \n\nOn June 27, 2025, we filed\na prospectus supplement to increase the maximum aggregate offering price of the Class A ordinary shares issuable under the Sales Agreement\nto up to an additional aggregate $USD 16.5 million of Class A ordinary shares. On October 31,\n2025, the Company filed a prospectus supplement to increase the maximum aggregate offering price of the Class A ordinary shares issuable\nunder the Sales Agreement to $USD 50 million of Class A ordinary shares. On May 26, 2026, the Company filed a prospectus supplement to\ndecrease the maximum aggregate offering price of the Class A ordinary shares issuable under the Sales Agreement to $USD 28 million of\nClass A ordinary shares.\n\n \n\nDuring\nthe year-ended May 31, 2026, the Company sold 9,037,738 (May 31, 2025 – 940,562) Class A ordinary shares under the Sales Agreement\nfor net proceeds of $27.9 million (May 31, 2025 - $880). As of May 31, 2026, the Company had $USD 6.6 million remaining eligible for sales\nunder the Sales Agreement.\n\n \n\n*Sources of Liquidity*\n\n \n\nLiquidity describes the ability\nof a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs,\ndebt service, contractual obligations, and other commitments. The Company assesses liquidity in terms of its cash flows from financing\nactivities and their sufficiency to fund its operating and development activities. Beyond May 31, 2026, the Company’s principal\nsource of liquidity is expected to be cash and cash equivalents of more than $78 million on-hand, future government grants and subsidies,\nand future sales of securities.\n\n \n\nTo date, the Company has funded\nits operations primarily with the issuances of Class A ordinary shares, Series A Preferred Shares, and issuances of convertible debt instruments.\nAdditional funding has been provided through government-backed grants.\n\n \n\n46\n\n \n\n \n\nThe Company believes it has\nsufficient 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\nable to raise additional financing, either by way of the Sales Agreement, warrants, or by other means, the Company may be in a position\nto expedite its business plan including hiring employees at a more rapid pace. To achieve the Company’s long-term objectives, additional\nfinancing may be required.\n\n \n\nHorizon is a pre-revenue organization that is currently building a full-scale\ntechnical demonstrator aircraft in pursuit to certify its Cavorite X7 aircraft. While management estimates that cash and cash equivalents\non-hand of more than $78 million will be sufficient to fund our current operating plan for at least the next 12 months from the date these\nconsolidated financial statements were available to be issued, there is substantial doubt around the Company’s ability to meet the\ngoing concern assumption beyond that period without securing additional capital.\n\n \n\nOff-Balance Sheet Arrangements\n\n \n\nWe did not have any off-balance\nsheet arrangements as of May 31, 2026, and May 31, 2025.\n\n \n\nSignificant Accounting Judgements, Estimates,\nand Assumptions\n\n \n\nThe preparation of consolidated\nfinancial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect\nthe reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial\nstatements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have\nidentified the following critical accounting policies*:*\n\n* *\n\n*Derivative Financial Instruments*\n\n \n\nThe Company evaluates its\nfinancial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance\nwith ASC Topic 815, *Derivatives and Hedging* (“ASC 815”). For derivative financial instruments that are accounted for\nas liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting\ndate, with changes in the fair value reported in the consolidated statements of operations. For derivative instruments that are classified\nas equity, the derivative instruments are initially measured at fair value (or allocated value), and subsequent changes in fair value\nare not recognized so long as the contracts continue to be classified in equity.\n\n \n\nThe Company’s Forward Purchase Agreement and Warrants outstanding\nthat are recognized as a derivative liability in accordance with ASC 815 are recognized as an asset or liability at fair value and with\nchanges in fair value recognized in the Company’s consolidated statements of operations. The estimated fair value of the Forward\nPurchase Agreement was measured at fair value using a simulation model. At the settlement date, the Forward Purchase Agreement was recognized\nas 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\nstatements of operations. The Company mutually agreed to terminate the Forward Purchase Agreement with its counterparty on November 1,\n2024, at a cost of $278 and resulting in a gain of $21,400.\n\n \n\n47\n\n \n\n \n\n*Research and Development Costs*\n\n \n\nThe research and development\ncosts are accounted for in accordance with *ASC 730, Research and Development*, which requires all research and development costs\nto be expensed as incurred.\n\n \n\n*Recent Accounting Standards*\n\n  \n\nRecently Adopted Accounting\nPronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)\n2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands reportable segment disclosure requirements\nthrough enhanced disclosures about significant segment expenses, interim segment profit or loss and assets, and how the CODM uses reported\nsegment profit or loss information in assessing segment performance and allocating resources. The Company adopted ASU 2023-07 effective\nJune 1, 2024.\n\n \n\n*Recently Issued Accounting Pronouncements Not\nYet Adopted*\n\n \n\nIn November 2024, the FASB\nissued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation\nof Income Statement Expenses, which requires disclosure of additional information about specific expense categories in the notes to the\nfinancial statements. The update is effective for annual periods beginning after December 15, 2026, and interim periods beginning after\nDecember 15, 2027. Early adoption is permitted. The update can be applied either (1) prospectively to financial statements issued for\nreporting periods after the effective date or (2) retrospectively to any of all prior periods presented in the financial statements. The\nCompany is currently evaluating the impact of ASU 2024-03 on its disclosures within its consolidated financial statements.\n\n \n\nIn December 2025, the FASB\nissued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes the\naccounting for government grant received by a business entity, including guidance for (1) a grant related to an asset and (2) a grant\nrelated to income. The update is effective for annual periods beginning after December 15, 2028, and interim periods beginning within\nthose annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements\nhave not yet been issued or made available for issuance. If a business entity adopts the amendments in this Update in an interim reporting\nperiod, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. The Company\nis currently evaluating the impact of ASU 2024-03 on its disclosures within its consolidated financial statements.\n\n \n\nNo other recently issued accounting\npronouncements had or are expected to have a material impact on the Company’s financial statements."}