Item 1A. Risk Factors.
The following risk factors
apply to the business and operations of 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 Company and may have an adverse effect on the business, cash flows, financial condition and results of
operations of 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 expect to incur significant
operating losses. 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 with aircraft deliveries
or licensing revenues. 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 in fiscal 2026 and beyond as we engage in the following activities:
● building up inventories of parts and components for our aircraft;
● testing and certifying the performance and operation of our aircraft;
● developing and launching our digital platform and customer user interface;
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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. As of now, there are no eVTOL aircraft that 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 us 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 prior to 2030, 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.
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Detailed design and build
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:
● build a well-recognized and respected brand;
● establish and expand our customer base;
● improve and maintain our manufacturing efficiency;
● predict our future revenues and appropriately budget for our expenses;
● anticipate trends that may emerge and affect our business;
● secure, protect and defend our intellectual property; and
● 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.
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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 $3,660 and $880 in 2025 and
2024, respectively, and we expect to continue to incur significant expenses which will impact our profitability, including continuing
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 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.
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:
● our ability to obtain sufficient capital to sustain and grow our business;
● our effectiveness in managing our costs and our growth;
● establishing and maintaining relationships with key providers and suppliers;
● the costs and effectiveness of our marketing and promotional efforts;
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● the overall strength and stability of domestic and international economies;
● regulatory, legislative and political changes; and
● 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 do not anticipate delivering our first
Cavorite X7 eVTOL aircraft to customers until sometime prior to 2030 at the earliest, pending receipt of regulatory approval and certification.
The aircraft remains in the detailed design and building phase and has yet to complete any flight testing or go through a 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, could adversely impact our business plan and strategic growth plan and our
financial condition.
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.
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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 faced multiple prototype-related accidents.
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 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.
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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 2028 at the earliest. 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, 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 the 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. 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-based 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-based 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-based cells. On rare occasions, lithium-based 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-based 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-based cells for automotive applications,
the social and environmental impacts of cobalt mining, or any future incident involving lithium-based cells, such as a vehicle or other
fire, could seriously harm our business and reputation.
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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-based 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.
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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 us 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 us 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.
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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:
● facility security systems;
● the integrated software in our aircraft; or
● customer data.
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, 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 necessarily ensure 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.
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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, 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, Canada, 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 North America 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 could 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 plan 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 us 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 are issued 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.
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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, lease, 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:
● pay substantial damages;
● redesign our aircraft; or
● 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
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, our planned
operation of Regional Air Mobility services, and in certain jurisdictions 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.
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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.
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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:
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 Class A ordinary Shares and could also affect the price that some investors are willing to pay for Class
A ordinary Shares.
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Our management team may not successfully or efficiently manage
its transition to being a public company.
As a public company, we have
incurred increased obligations relating to our reporting, procedures, and internal controls. These obligations and attendant scrutiny
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 expenses and administrative
burdens as a public company, which could have an adverse effect on our business, financial condition and results of operations.
As a public company we face
increased legal, accounting, administrative and other costs and expenses. 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 increases costs and makes certain activities more
time-consuming. 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
increases 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 reporting, as
well as other reporting obligations. We expect that complying with these rules and regulations may substantially increase our legal and
financial compliance costs and will make some activities more time-consuming and costly.
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