New Horizon Aircraft Ltd

CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS

AS AT NOVEMBER 30, 2024 AND MAY 31, 2024

EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT PER SHARE AMOUNTS; UNAUDITED

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT PER SHARE AMOUNTS; UNAUDITED

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

EXPRESSED IN CANADIAN DOLLAR 000’S, EXCEPT SHARE AMOUNTS; UNAUDITED

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

EXPRESSED IN CANADIAN DOLLAR 000’S; UNAUDITED

**NEW HORIZON AIRCRAFT LTD.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. Organization and Nature of Business

Organization and Nature of Business

New Horizon Aircraft Ltd. (the “Company” or “Horizon”), 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 unaudited condensed interim consolidated financial statements 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 unaudited condensed interim 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 Class A ordinary shares to related and third parties.

Horizon is a pre-revenue organization in a research and development and flight-testing phase of operations. While management estimates that the net cash proceeds from fiscal 2025 sales of securities will be sufficient to fund our current operating plan for at least the next 12 months from the date these unaudited condensed interim 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. On December 20, 2024, the Company received an investment of $8.4 million in exchange for a combination of common and preferred shares.

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 unaudited condensed interim 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 unaudited condensed interim 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 unaudited condensed interim 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.

There have been no changes to the Company’s significant accounting policies described in Note 3 “Summary of Significant Accounting Policies” to the audited Consolidated Financial Statements in the Company’s annual report on Form 10-K for the year ended May 31, 2024, that have had a material impact on the Condensed Consolidated Financial Statements and related notes.

Certain information and footnote disclosures normally included in the Company’s annual audited Consolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim Condensed Consolidated Financial Statements and footnotes. Accordingly, these interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the fiscal year ended May 31, 2024, set forth in the Company’s Annual Report on Form 10-K filed with the SEC on August 15, 2024.

Recent Accounting Standards

No recently issued accounting pronouncements have had or are expected to have a material impact on the Company’s unaudited condensed interim consolidated financial statements.

NOTE 4. Balance Sheet Components

Property and Equipment, net

Property and equipment consist of the following:

Depreciation expenses of $31 and $61 for the three and six months ended November 30, 2024 (November 30, 2023 - $6 and $19), respectively, has been recorded in General and Administrative expenses in the unaudited condensed interim consolidated statements of operations.

Prepaid Expenses

Prepaid Expenses consisted of the following:

Accrued Expenses

Accrued Expenses consisted of the following:

NOTE 5. 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 (2022 - $50).

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:

There was $24 and $30 of interest recorded in the three and six months ended November 30, 2023, respectively.

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 6. 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 November 30, 2024, and May 31, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

The following table provides quantitative information regarding Level 3 fair value measurements inputs related to the Forward Purchase Agreement at their measurement dates:

As outlined in note 7, 5,800,000 warrants were issued on August 21, 2024. The following table provides quantitative information regarding Level 3 fair value measurements inputs related to these Warrant liabilities at their measurement dates:

The change in the fair value of the assets and liabilities measured with Level 3 inputs, for the three and six months ended November 30, 2024, is summarized as follows:

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 Class A ordinary shares based on implied volatility from the Company’s traded Class A ordinary shares 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 Class A ordinary shares. 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 mutually agreed to terminate the Forward Purchase Agreement with its counterparty on November 1, 2024, for a cost of $278. In connection with this termination, the Company recorded a $21,400 gain.

NOTE 7. Common Stock

The Company’s Class A ordinary shares 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 toone vote.

On August 21, 2024, the Company completed a registered securities offering (“RSO”) by issuing 2,800,000 Class A ordinary shares,3,000,000 Pre-Funded Warrants (“PFW’s”), and 5,800,000 warrants. As of November 30, 2024, proceeds received by the Company are summarized below:

PFW’s may be exercised by warrant holders at any time at a nominal exercise price as they were funded in connection with the RSO. Upon exercise, each PFW may be exchanged forone Class A ordinary share. All 3 million PFW’s were exercised in the quarter ended November 30, 2024.

Warrant holders exercised 100,000 warrants in exchange for 100,000 Class A ordinary shares for proceeds of $103 during the six months ended November 30, 2024.

As of November 30, 2024, there were warrants outstanding of 12,065,375 at an exercise price of $11.50 USD and 5,700,000 at an exercise price of $0.75 USD to purchase an equivalent number of Class A ordinary shares.

A summary of warrant activity for the Company is as follows:

Terms and related estimates connected with the RSO have been outlined in note 6. The Company has retroactively adjusted the number of shares issued and outstanding prior to January 12, 2024, to give effect to the Exchange Ratio.

NOTE 8. Stock-based Compensation

In August 2022, the Company established a Stock Option Plan, superseded by the 2023 Equity Incentive Plan (the “Incentive 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 ofthree years. During the three and six months ended November 30, 2024, the Company granted 180,000 stock options (November 30, 2023 –nil andnil). 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:

A summary of stock option activity for the Company is as follows:

During the three and six months ended November 30, 2024, the Company recorded stock-based compensation expenses of $13 and $118 (November 30, 2023 - $33 and $47), relating to stock options including $74 relating to shares issued for services in connection with the Company’s Incentive Plan in the quarter ended August 31, 2024.

NOTE 9. 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, and Warrants. Stock options, Convertible debentures and certain Warrants and Stock options were excluded from the computation of diluted net income (loss) per share as including them would have been anti-dilutive.

The following outlines the Company’s basic and diluted income (loss) per share for the three and six months ended November 30, 2024, and November 30, 2023:

NOTE 10. Grants and Subsidies

DAIR 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 for multiple projects in connection with further aircraft development. The initial funding approved to the Company was $75, of which $50 was issued to the Company during the year ended May 31, 2023, and $25 was received during the year ended May 31, 2024.

In the six months ended November 30, 2024, the Company received approval for an additional project with funding up to a maximum of $75, of which $30 was received during the quarter ended November 30, 2024.

Air Force 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 November 30, 2024, the Company had received $235 of this amount, which was received in prior periods.

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 filed an application for SRED credits in the amount of $307. This amount was received in August 2024.

NOTE 11. Related Party Transactions

There were no identifiable related party transactions or balances for the periods presented.

NOTE 12. Subsequent Events

On December 20, 2024, the Company received an investment of $8.4 million in exchange for a combination of common and preferred shares.

Between December 1, 2024, and the date of this filing,2.49 million of the Company’s outstanding warrants were exercised with proceeds to the Company of $2,708.